Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value, Assets and Liabilities Measured on Recurring Basis

The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.



	As of June 30, 2015
	Level 1		Level 2		Level 3		Netting (1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	6,371	$	0	$			$	6,371
Obligations of U.S. states and their political subdivisions	0		20,447		0					20,447
Foreign government bonds	0		43,451		0					43,451
Corporate securities	0		1,817,481		117,483					1,934,964
Asset-backed securities	0		107,590		43,441					151,031
Commercial mortgage-backed securities	0		259,898		0					259,898
Residential mortgage-backed securities	0		117,137		0					117,137
Sub total	0		2,372,375		160,924					2,533,299
Trading account assets:
Equity securities	5,943		0		0					5,943
Sub total	5,943		0		0					5,943
Equity securities, available-for-sale	0		17		0					17
Short-term investments	65,947		207		300					66,454
Cash equivalents	0		0		225					225
Other long-term investments	0		112,924		638		(31,083		)	82,479
Reinsurance recoverables	0		0		2,213,966					2,213,966
Receivables from parent and affiliates	0		35,813		4,777					40,590
Sub total excluding separate account assets	71,890		2,521,336		2,380,830		(31,083		)	4,942,973
Separate account assets (2)	0		42,651,548		0					42,651,548
Total assets	$	71,890	$	45,172,884	$	2,380,830	$	(31,083	)	$	47,594,521
Future policy benefits (3)	$	0	$	0	$	2,300,419	$			$	2,300,419
Payables to parent and affiliates	0		29,671		0		(29,671		)	0
Total liabilities	$	0	$	29,671	$	2,300,419	$	(29,671	)	$	2,300,419



	As of December 31, 2014
	Level 1		Level 2		Level 3		Netting (1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	6,336	$	0	$			$	6,336
Obligations of U.S. states and their political subdivisions	0		70,789		0					70,789
Foreign government securities	0		37,355		0					37,355
Corporate securities	0		1,985,614		116,070					2,101,684
Asset-backed securities	0		108,487		40,524					149,011
Commercial mortgage-backed securities	0		302,185		0					302,185
Residential mortgage-backed securities	0		133,233		0					133,233
Sub total	0		2,643,999		156,594					2,800,593
Trading account assets:
Equity securities	6,131		0		0					6,131
Sub total	6,131		0		0					6,131
Equity securities, available-for-sale	0		17		0					17
Short-term investments	57,185		0		0					57,185
Cash equivalents	0		0		225					225
Other long-term investments	0		118,846		633		(24,288		)	95,191
Reinsurance recoverables	0		0		2,996,154					2,996,154
Receivables from parent and affiliates	0		18,748		22,320					41,068
Sub total excluding separate account assets	63,316		2,781,610		3,175,926		(24,288		)	5,996,564
Separate account assets (2)	0		44,101,699		0					44,101,699
Total assets	$	63,316	$	46,883,309	$	3,175,926	$	(24,288	)	$	50,098,263
Future policy benefits (3)	$	0	$	0	$	3,112,411	$			$	3,112,411
Payables to parent and affiliates	0		21,249		0		(21,249		)	0
Total liabilities	$	0	$	21,249	$	3,112,411	$	(21,249	)	$	3,112,411


(1)	“Netting” amounts represent cash collateral of $1.4 million and $3.0 million as of June 30, 2015 and December 31, 2014, respectively, and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting arrangements.

(2)

Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company’s Unaudited Interim Statements of Financial Position.

(3)

As of June 30, 2015, the net embedded derivative liability position of $2,300 million includes $62 million of embedded derivatives in an asset position and $2,362 million of embedded derivatives in a liability position. As of December 31, 2014, the net embedded derivative liability position of $3,112 million includes $55 million of embedded derivatives in an asset position and $3,167 million of embedded derivatives in a liability position.

Fair Value Level Three Amounts By Pricing Source

The tables below present the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources.



	As of June 30, 2015
	Internal (1)		External (2)		Total
	(in thousands)
Corporate securities	$	102,483	$	15,000	$	117,483
Asset-backed securities	0		43,441		43,441
Short-term investments	300		0		300
Cash equivalents	225		0		225
Other long-term investments	0		638		638
Reinsurance recoverables	2,213,966		0		2,213,966
Receivables from parent and affiliates	0		4,777		4,777
Total assets	$	2,316,974	$	63,856	$	2,380,830
Future policy benefits	$	2,300,419	$	0	$	2,300,419
Total liabilities	$	2,300,419	$	0	$	2,300,419



	As of December 31, 2014
	Internal (1)		External (2)		Total
	(in thousands)
Corporate securities	$	99,209	$	16,861	$	116,070
Asset-backed securities	0		40,524		40,524
Cash equivalents	225		0		225
Other long-term investments	0		633		633
Reinsurance recoverables	2,996,154		0		2,996,154
Receivables from parent and affiliates	0		22,320		22,320
Total assets	$	3,095,588	$	80,338	$	3,175,926
Future policy benefits	$	3,112,411	$	0	$	3,112,411
Total liabilities	$	3,112,411	$	0	$	3,112,411


(1)	Represents valuations reflecting both internally-derived and market inputs as well as third-party pricing information or quotes. See below for additional information related to internally-developed valuation for significant items in the above table.


(2)	Represents unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available.

Fair Value Inputs Quantitative Information

The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.



	As of June 30, 2015
	Fair Value		Primary Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value (1)
	(in thousands)
Assets:
Corporate securities	$	102,483	Discounted cash flow	Discount rate	3.32	%	15.05	%	3.77	%	Decrease
Reinsurance recoverables	$	2,213,966	Fair values are determined in the same manner as future policy benefits
Liabilities:
Future policy benefits (2)	$	2,300,419	Discounted cash flow	Lapse rate (3)	0	%	14	%			Decrease
				NPR spread (4)	0	%	1.68	%			Decrease
				Utilization rate (5)	63	%	95	%			Increase
				Withdrawal rate (6)	74	%	100	%			Increase
				Mortality rate (7)	0	%	14	%			Decrease
				Equity volatility curve	17	%	28	%			Increase



	As of December 31, 2014
	Fair Value		Primary Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value (1)
	(in thousands)
Assets:
Corporate securities	$	99,209	Discounted cash flow	Discount rate	3.55	%	11.75	%	3.96	%	Decrease
Reinsurance recoverables	$	2,996,154	Fair values are determined in the same manner as future policy benefits
Liabilities:
Future policy benefits (2)	$	3,112,411	Discounted cash flow	Lapse rate (3)	0	%	14	%			Decrease
				NPR spread (4)	0	%	1.30	%			Decrease
				Utilization rate (5)	63	%	95	%			Increase
				Withdrawal rate (6)	74	%	100	%			Increase
				Mortality rate (7)	0	%	14	%			Decrease
				Equity volatility curve	17	%	28	%			Increase


(1)	Conversely, the impact of a decrease in input would have the opposite impact for the fair value as that presented in the table.

(2)

Future policy benefits primarily represent general account liabilities for the living benefit features of the Company’s variable annuity contracts which are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.


(3)	Lapse rates are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates are also generally assumed to be lower for the period where surrender charges apply.

(4)

To reflect NPR, the Company incorporates an additional spread over LIBOR into the discount rate used in the valuation of individual living benefit contracts in a liability position and generally not to those in a contra-liability position. The NPR spread reflects the financial strength ratings of the Company and its affiliates, as these are insurance liabilities and senior to debt. The additional spread over LIBOR is determined by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium.

(5)

The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration, and begin lifetime withdrawals at various time intervals from contract inception. The remaining contractholders are assumed to either begin lifetime withdrawals immediately or never utilize the benefit. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal. Range reflects the utilization rate for the vast majority of business with living benefits.


(6)	The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions may vary based on the product type, contractholder, age, tax status and withdrawal timing. The fair value of the liability will generally increase the closer the withdrawal rate is to 100%.

(7)

Range reflects the mortality rate for the vast majority of business with living benefits, with policyholders ranging from 35 to 90 years old. While the majority of living benefits have a minimum age requirement, certain benefits do not have an age restriction. This results in contractholders for certain benefits with mortality rates approaching 0%. Based on historical experience, the Company applies a set of age and duration specific mortality rate adjustments compared to standard industry tables. A mortality improvement assumption is also incorporated into the overall mortality table.

Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following tables provide summaries of the changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods.



	Three Months Ended June 30, 2015
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset- Backed Securities			Short-Term Investments		Cash Equivalents		Other Long- term Investments		Reinsurance Recoverables
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	118,322		$	48,838		$	0	$	225	$	635	$	3,300,612
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			(1		)	0		0		0		(1,144,189		)
Asset management fees and other income	0			0			0		0		3		0
Included in other comprehensive income (loss)	(344		)	130			0		0		0		0
Net investment income	1,309			(1		)	0		0		0		0
Purchases	15,337			7,871			300		0		0		57,543
Sales	(15,217		)	(7,884		)	0		0		0		0
Issuances	0			0			0		0		0		0
Settlements	(197		)	(559		)	0		0		0		0
Transfers into Level 3 (1)	0			985			0		0		0		0
Transfers out of Level 3 (1)	(1,727		)	(5,938		)	0		0		0		0
Fair Value, end of period assets/(liabilities)	$	117,483		$	43,441		$	300	$	225	$	638	$	2,213,966
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0	$	0	$	0	$	(846,449	)
Asset management fees and other income	$	0		$	0		$	0	$	0	$	3	$	0



	Three Months Ended June 30, 2015
	Receivables from parent and affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	24,015		$	(3,430,249	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	(1		)	1,190,254
Asset management fees and other income	0			0
Included in other comprehensive income (loss)	104			0
Net investment income	0			0
Purchases	0			0
Sales	0			0
Issuances	0			(60,424		)
Settlements	0			0
Transfers into Level 3 (1)	0			0
Transfers out of Level 3 (1)	(19,341		)	0
Fair Value, end of period assets/(liabilities)	$	4,777		$	(2,300,419	)
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	(269,305	)	$	1,160,988
Asset management fees and other income	$	0		$	0



	Six Months Ended June 30, 2015
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset- Backed Securities			Short-Term Investments		Cash Equivalents		Other Long-term Investments			Reinsurance Recoverables
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	116,070		$	40,524		$	0	$	225	$	633		$	2,996,154
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	62			(1		)	0		0		0			(897,375		)
Asset management fees and other income	0			0			0		0		5			0
Included in other comprehensive income (loss)	(563		)	211			0		0		0			0
Net investment income	2,586			11			0		0		7			0
Purchases	32,607			7,871			300		0		0			115,187
Sales	(30,429		)	(7,884		)	0		0		0			0
Issuances	0			0			0		0		0			0
Settlements	(1,123		)	(1,138		)	0		0		(7		)	0
Transfers into Level 3 (1)	0			10,768			0		0		0			0
Transfers out of Level 3 (1)	(1,727		)	(6,921		)	0		0		0			0
Fair Value, end of period assets/(liabilities)	$	117,483		$	43,441		$	300	$	225	$	638		$	2,213,966
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0	$	0	$	0		$	(846,449	)
Asset management fees and other income	$	0		$	0		$	0	$	0	$	5		$	0



	Six Months Ended June 30, 2015
	Receivables from parent and affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	22,320		$	(3,112,411	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			932,939
Asset management fees and other income	0			0
Included in other comprehensive income (loss)	(188		)	0
Net investment income	0			0
Purchases	0			0
Sales	0			0
Issuances	0			(120,947		)
Settlements	0			0
Transfers into Level 3 (1)	1,986			0
Transfers out of Level 3 (1)	(19,341		)	0
Fair Value, end of period assets/(liabilities)	$	4,777		$	(2,300,419	)
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):

Included in earnings:
Realized investment gains (losses), net	$	0		$	880,403
Asset management fees and other income	$	0		$	0



	Three Months Ended June 30, 2014
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset Backed Securities			Commercial Mortgage- Backed Securities		Trading Account Assets - Equity Securities			Equity Securities Available-for-Sale
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	99,255		$	102,725		$	45,365	$	328		$	192
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			0			0		0			0
Asset management fees and other income	0			0			0		0			0
Included in other comprehensive income (loss)	236			122			0		0			0
Net investment income	1,249			38			0		0			0
Purchases	1,751			0			0		0			0
Sales	0			0			0		0			(192		)
Issuances	0			0			0		0			0
Settlements	(483		)	(25,458		)	0		(328		)	0



Transfers into Level 3 (1)	0		489			0			0		0
Transfers out of Level 3 (1)	0		(3,615		)	(45,365		)	0		0
Fair Value, end of period assets/(liabilities)	$	102,008	$	74,301		$	0		$	0	$	0
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0	$	0		$	0		$	0	$	0
Asset management fees and other income	$	0	$	0		$	0		$	0	$	0


	Three Months Ended June 30, 2014
	Cash and Cash equivalents		Other Long- Term Investments			Reinsurance Recoverables			Receivables from parent and affiliates		Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	400	$	520		$	1,344,587		$	8,344	$	(1,402,029	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0		0			191,020			0		(199,363		)
Asset management fees and other income	0		7			0			0		0
Included in other comprehensive income (loss)	0		0			0			68		0
Net investment income	0		0			0			0		0
Purchases	0		14			58,704			19,350		0
Sales	0		0			0			0		0
Issuances	0		0			0			0		(61,565		)
Settlements	0		(5		)	0			0		0
Transfers into Level 3 (1)	0		0			0			0		0
Transfers out of Level 3 (1)	0		0			0			0		0
Fair Value, end of period assets/(liabilities)	$	400	$	536		$	1,594,311		$	27,762	$	(1,662,957	)
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0	$	0		$	204,298		$	0	$	(213,148	)
Asset management fees and other income	$	0	$	0		$	0		$	0	$	0



	Six Months Ended June 30, 2014
	Fixed Maturities Available-For-Sale
	Corporate Securities		Asset Backed Securities		Commercial Mortgage- Backed Securities			Trading Account Assets - Equity Securities		Equity Securities Available-for-Sale
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	96,796	$	63,789	$	0		$	313	$	192
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0		0		0			0		0
Asset management fees and other income	0		0		0			15		0
Included in other comprehensive income (loss)	483		300		(83		)	0		0
Net investment income	2,473		82		0			0		0



Purchases	3,240			14,933			45,448			0			0
Sales	0			0			0			0			(192		)
Issuances	0			0			0			0			0
Settlements	(984		)	(29,340		)	0			(328		)	0
Transfers into Level 3 (1)	0			28,152			0			0			0
Transfers out of Level 3 (1)	0			(3,615		)	(45,365		)	0			0
Fair Value, end of period assets/(liabilities)	$	102,008		$	74,301		$	0		$	0		$	0
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0		$	0		$	0
Asset management fees and other income	$	0		$	0		$	0		$	15		$	0

	Six Months Ended June 30, 2014
	Cash and Cash equivalents			Other Long- Term Investments			Reinsurance Recoverables			Receivables from parent and affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	0		$	486		$	748,005		$	6,347		$	(778,226	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			0			728,874			1			(761,582		)
Asset management fees and other income	0			(2		)	0			0			0
Included in other comprehensive income (loss)	0			0			0			79			0
Net investment income	0			0			0			0			0
Purchases	400			57			117,432			19,350			0
Sales	0			0			0			0			0
Issuances	0			0			0			0			(123,149		)
Settlements	0			(5		)	0			0			0
Transfers into Level 3 (1)	0			0			0			1,985			0
Transfers out of Level 3 (1)	0			0			0			0			0
Fair Value, end of period assets/(liabilities)	$	400		$	536		$	1,594,311		$	27,762		$	(1,662,957	)
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	749,020		$	0		$	(782,440	)
Asset management fees and other income	$	0		$	0		$	0		$	0		$	0


(1)	Transfers into or out of Level 3 are reported as the value as of the beginning of the quarter in which the transfer occurs.


(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.


(3)	Other primarily represents reclasses of certain assets between reporting categories.

Fair Value Disclosure Financial Instruments Not Carried at Fair Value

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Statements of Financial Position; however, in some cases, as described below, the carrying amount equals or approximates fair value.



	June 30, 2015
	Fair Value								Carrying Amount (1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	2,766	$	426,833	$	429,599	$	406,918
Policy loans	0		0		13,124		13,124		13,124
Other long-term investments	0		0		2,718		2,718		2,376
Cash and cash equivalents	3,448		0		0		3,448		3,448
Accrued investment income	0		23,079		0		23,079		23,079
Receivables from parent and affiliates	0		20,518		0		20,518		20,518
Other assets	0		1,180		0		1,180		1,180
Total assets	$	3,448	$	47,543	$	442,675	$	493,666	$	470,643
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	102,624	$	102,624	$	102,793
Cash collateral for loaned securities	0		4,724		0		4,724		4,724
Payables to parent and affiliates	0		31,293		0		31,293		31,293
Other liabilities	0		92,738		0		92,738		92,738
Separate account liabilities - investment contracts	0		387		0		387		387
Total liabilities	$	0	$	129,142	$	102,624	$	231,766	$	231,935



	December 31, 2014
	Fair Value								Carrying Amount (1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	2,779	$	447,157	$	449,936	$	422,563
Policy loans	0		0		13,355		13,355		13,355
Other long-term investments	0		0		2,639		2,639		2,238
Cash and cash equivalents	369		0		0		369		369
Accrued investment income	0		25,008		0		25,008		25,008
Receivables from parent and affiliates	0		10,367		0		10,367		10,367
Other assets	0		1,009		0		1,009		1,009
Total assets	$	369	$	39,163	$	463,151	$	502,683	$	474,909
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	91,217	$	91,217	$	92,663
Cash collateral for loaned securities	0		5,285		0		5,285		5,285
Short-term debt	0		54,354		0		54,354		54,354
Payables to parent and affiliates	0		37,415		0		37,415		37,415
Other liabilities	0		89,956		0		89,956		89,956
Separate account liabilities - investment contracts	0		487		0		487		487
Total liabilities	$	0	$	187,497	$	91,217	$	278,714	$	280,160

(1)

Carrying values presented herein differ from those in the Company’s Unaudited Interim Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments. Financial statement captions excluded from the above table are not considered financial instruments.