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Investments (Tables)
 6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Components of net investment income
The components of net investment income for the following periods were:
($ in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2020
 
2019
 
2020
 
2019
Fixed maturity securities
 
$
58,861

 
$
83,561

 
$
118,307

 
$
167,877

Equity securities
 
1,182

 
1,392

 
2,390

 
2,590

Limited partnership interests
 
(3,485
)
 
9,449

 
(6,184
)
 
15,900

Short-term and other investments
 
2,784

 
(21,451
)
 
5,641

 
(18,063
)
Investment expenses
 
(2,886
)
 
(2,688
)
 
(5,111
)
 
(5,241
)
Net investment income - investment portfolio
 
56,456

 
70,263

 
115,043

 
163,063

Investment income - deposit asset on reinsurance
 
23,954

 
23,195

 
47,642

 
23,195

Total net investment income
 
$
80,410

 
$
93,458

 
$
162,685

 
$
186,258
Schedule of net investment gains (losses)
The following table reconciles net investment gains (losses) pretax by transaction type:
($ in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2020
 
2019
 
2020
 
2019
Credit impairment write-downs
 
$
—

 
$
—

 
$
—

 
$
—

Change in intent write-downs
 
(523
)
 
(34
)
 
(4,215
)
 
(271
)
Net other-than-temporary impairment losses
on securities recognized in earnings
 
(523
)
 
(34
)
 
(4,215
)
 
(271
)
Sales and other, net
 
352

 
142,067

 
4,909

 
146,905

Change in fair value - equity securities
 
6,600

 
3,441

 
(7,886
)
 
6,948

Change in fair value and gains (losses) realized
on settlements - derivatives
 
(3,267
)
 
859

 
(8,110
)
 
168

Net investment gains (losses)
 
$
3,162

 
$
146,333

 
$
(15,302
)
 
$
153,750


Net investment gains (losses) for the following periods were:
($ in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2020
 
2019
 
2020
 
2019
Fixed maturity securities
 
$
(642
)
 
$
141,548

 
$
460

 
$
141,749

Equity securities
 
7,071

 
3,926

 
(7,652
)
 
11,833

Short-term investments and other
 
(3,267
)
 
859

 
(8,110
)
 
168

Net investment gains (losses)
 
$
3,162

 
$
146,333

 
$
(15,302
)
 
$
153,750
Unrealized gains and losses on fixed maturities and equity securities Amortized cost, net unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:
($ in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
June 30, 2020
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations: (1)
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
635,342

 
$
83,843

 
$
211

 
$
718,974

Other, including U.S. Treasury securities
 
333,428

 
41,453

 
—

 
374,881

Municipal bonds
 
1,633,297

 
174,211

 
1,958

 
1,805,550

Foreign government bonds
 
39,643

 
3,907

 
—

 
43,550

Corporate bonds
 
1,705,963

 
169,498

 
13,021

 
1,862,440

Other asset-backed securities
 
1,256,732

 
16,978

 
57,122

 
1,216,588

Totals
 
$
5,604,405

 
$
489,890

 
$
72,312

 
$
6,021,983

 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations: (1)
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
684,543

 
$
41,263

 
$
1,487

 
$
724,319

Other, including U.S. Treasury securities
 
436,665

 
22,824

 
621

 
458,868

Municipal bonds
 
1,545,787

 
141,996

 
1,580

 
1,686,203

Foreign government bonds
 
42,801

 
2,569

 
—

 
45,370

Corporate bonds
 
1,464,444

 
118,775

 
1,795

 
1,581,424

Other asset-backed securities
 
1,282,740

 
20,883

 
8,131

 
1,295,492

Totals
 
$
5,456,980

 
$
348,310

 
$
13,614

 
$
5,791,676

(1) 
Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $392.6 million and $405.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of $312.9 million and $283.1 million; and Government National Mortgage Association (GNMA) of $145.6 million and $147.4 million as of June 30, 2020 and December 31, 2019, respectively.
Summary of fair value and gross unrealized losses of fixed maturity securities and equity securities in an unrealized loss position
The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position at June 30, 2020 and December 31, 2019, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at June 30, 2020 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition — as temporary. As of June 30, 2020, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed maturity securities with unrealized losses before an anticipated recovery in value. Therefore, it was determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of June 30, 2020.
($ in thousands)
 
12 Months or Less
 
More than 12 Months
 
Total
 
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
8,344

 
$
130

 
$
933

 
$
81

 
$
9,277

 
$
211

Other
 
37

 
—

 
—

 
—

 
37

 
—

Municipal bonds
 
81,279

 
1,958

 
—

 
—

 
81,279

 
1,958

Foreign government bonds
 
—

 
—

 
—

 
—

 
—

 
—

Corporate bonds
 
209,868

 
12,127

 
6,060

 
894

 
215,928

 
13,021

Other asset-backed securities
 
448,358

 
38,339

 
387,453

 
18,783

 
835,811

 
57,122

Total
 
$
747,886

 
$
52,554

 
$
394,446

 
$
19,758

 
$
1,142,332

 
$
72,312

 
 
 
 
 
 
 
 
 
 
 
 
 
Number of positions with a
gross unrealized loss
 
594

 
 
 
109

 
 
 
703

 
 
Fair value as a percentage of total fixed maturity securities at fair value
 
12.4
%
 
 
 
6.6
%
 
 
 
19.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
72,422

 
$
1,282

 
$
2,620

 
$
205

 
$
75,042

 
$
1,487

Other
 
38,341

 
619

 
1,527

 
2

 
39,868

 
621

Municipal bonds
 
91,195

 
977

 
9,160

 
603

 
100,355

 
1,580

Foreign government bonds
 
—

 
—

 
—

 
—

 
—

 
—

Corporate bonds
 
58,198

 
886

 
16,622

 
909

 
74,820

 
1,795

Other asset-backed securities
 
218,710

 
1,970

 
442,791

 
6,161

 
661,501

 
8,131

Total
 
$
478,866

 
$
5,734

 
$
472,720

 
$
7,880

 
$
951,586

 
$
13,614

 
 
 
 
 
 
 
 
 
 
 
 
 
Number of positions with a
gross unrealized loss
 
330

 
 
 
137

 
 
 
467

 
 
Fair value as a percentage of total fixed maturity securities at fair value
 
8.3
%
 
 
 
8.2
%
 
 
 
16.5
%
 
 
Summary of cumulative credit losses
The following table summarizes the cumulative amounts related to the Company's credit loss component of other-than-temporary impairment (OTTI) losses on fixed maturity securities held as of June 30, 2020 and 2019 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before an anticipated recovery in value, for which the non-credit portions of OTTI losses were recognized in OCI:
($ in thousands)
 
Six Months Ended
June 30,
 
 
2020
 
2019
Cumulative credit loss (1)
 
 
 
 
Beginning of period
 
$
1,529

 
$
1,529

New credit losses
 
184

 
—

Increases to previously recognized credit losses
 
—

 
—

Losses related to securities sold or paid down during the period
 
(103
)
 
—

 
 
$
1,610

 
$
1,529

(1) 
The cumulative credit loss amounts exclude OTTI losses on securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before an anticipated recovery of value.
Distribution of the company's fixed maturity portfolio by estimated expected maturity
The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other mortgage-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.
($ in thousands)
 
Percent of Total Fair Value
 
June 30, 2020
 
 
June 30, 2020
 
December 31, 2019
 
Fair
Value
 
Amortized
Cost
Estimated expected maturity:
 
 
 
 
 
 
 
 
Due in 1 year or less
 
4.0
%
 
3.6
%
 
$
240,942

 
$
240,701

Due after 1 year through 5 years
 
27.9
%
 
27.4
%
 
1,680,037

 
1,650,193

Due after 5 years through 10 years
 
30.1
%
 
29.6
%
 
1,814,204

 
1,680,118

Due after 10 years through 20 years
 
24.7
%
 
26.1
%
 
1,487,294

 
1,314,841

Due after 20 years
 
13.3
%
 
13.3
%
 
799,506

 
718,552

Total
 
100.0
%
 
100.0
%
 
$
6,021,983

 
$
5,604,405

 
 
 
 
 
 
 
 
 
Average option-adjusted duration, in years
 
6.2

 
6.0

 
 
 
 
Proceeds received from sales of fixed maturities and equity securities
Proceeds received from sales of fixed maturity and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each period were:
($ in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2020
 
2019 (1)
 
2020
 
2019 (1)
Fixed maturity securities
 
 
 
 
 
 
 
 
Proceeds received
 
$
196,004

 
$
442,015

 
$
294,162

 
$
501,739

Gross gains realized
 
5,506

 
147,774

 
10,285

 
148,316

Gross losses realized
 
(5,625
)
 
(5,976
)
 
(5,893
)
 
(6,081
)
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
Proceeds received
 
$
10,602

 
$
1,633

 
$
12,059

 
$
17,122

Gross gains realized
 
1,721

 
389

 
2,040

 
5,134

Gross losses realized
 
(1,249
)
 
(166
)
 
(1,805
)
 
(510
)

(1) 
Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Note 5 for further information.
Reconciliation of net unrealized investment gains (losses) on fixed maturity securities and equity securities
The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in accumulated other comprehensive income (AOCI), before the impact of DAC:
($ in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2020
 
2019
 
2020
 
2019
Net unrealized investment gains (losses)
on fixed maturity securities, net of tax
 
 
 
 
 
 
 
 
Beginning of period
 
$
149,876

 
$
245,319

 
$
264,410

 
$
111,712

Change in net unrealized investment gains
(losses) on fixed maturity securities
 
174,932

 
100,693

 
71,159

 
240,705

Reclassification of net investment (gains) losses
on securities to net income
 
5,079

 
(114,925
)
 
(5,682
)
 
(121,330
)
End of period
 
$
329,887

 
$
231,087

 
$
329,887

 
$
231,087
Offsetting assets and liability
The following table presents instruments that were subject to a master netting arrangement for the Company.
($ in thousands)
 
 
 
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
 
Net Amounts
of Assets/
Liabilities
Presented
in the
Consolidated
Balance
Sheets


 
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
 
 
 
 
Gross
Amounts
 
 
 
Financial
Instruments
 
Cash
Collateral
Received
 
Net
Amount
June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Free-standing derivatives
 
$
7,276

 
$
—

 
$
7,276

 
$
4,340

 
$
2,600

 
$
336

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Free-standing derivatives
 
13,239

 
—

 
13,239

 
7,687

 
6,640

 
(1,088
)