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Investments

12 Months Ended

Dec. 31, 2019

3. INVESTMENTS

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,667,347	$	491,943	$	39,466	$	7,119,824	$	0
Obligations of U.S. states and their political subdivisions	252,304		7,814		436		259,682		0
Foreign government bonds	203,386		19,518		20		222,884		0
U.S. public corporate securities	1,615,060		126,947		1,331		1,740,676		0
U.S. private corporate securities	1,159,962		50,720		3,343		1,207,339		0
Foreign public corporate securities	321,111		16,989		113		337,987		0
Foreign private corporate securities	1,171,411		50,069		7,995		1,213,485		0
Asset-backed securities(1)	443,767		3,405		2,734		444,438		(20		)
Commercial mortgage-backed securities	557,584		20,941		236		578,289		0
Residential mortgage-backed securities(2)	73,814		3,960		13		77,761		0
Total fixed maturities, available-for-sale	$	12,465,746	$	792,306	$	55,687	$	13,202,365	$	(20	)


(1)	Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, equipment leases and education loans.


(2)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $14.3 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	5,240,519	$	20,065	$	376,493	$	4,884,091	$	0
Obligations of U.S. states and their political subdivisions	133,670		621		3,127		131,164		0
Foreign government bonds	199,044		4,748		4,156		199,636		0
U.S. public corporate securities	1,498,130		26,425		50,582		1,473,973		0
U.S. private corporate securities	1,070,400		15,430		22,877		1,062,953		0
Foreign public corporate securities	296,029		1,888		6,831		291,086		0
Foreign private corporate securities	829,588		10,415		27,771		812,232		0
Asset-backed securities(1)	505,862		3,147		3,765		505,244		(16		)
Commercial mortgage-backed securities	364,601		2,770		5,491		361,880		0
Residential mortgage-backed securities(2)	48,622		1,290		498		49,414		0
Total fixed maturities, available-for-sale	$	10,186,465	$	86,799	$	501,591	$	9,771,673	$	(16	)


(1)	Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, equipment leases, education loans and other asset types.


(2)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $3.3 million of net unrealized losses on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The following tables set forth the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:



	December 31, 2019
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	1,336,007	$	39,456	$	5,855	$	10	$	1,341,862	$	39,466
Obligations of U.S. states and their political subdivisions	97,752		436		0		0		97,752		436
Foreign government bonds	804		13		132		7		936		20
U.S. public corporate securities	93,147		870		15,491		461		108,638		1,331
U.S. private corporate securities	82,709		2,111		59,797		1,232		142,506		3,343
Foreign public corporate securities	50,150		113		0		0		50,150		113
Foreign private corporate securities	97,414		1,652		91,863		6,343		189,277		7,995
Asset-backed securities	103,911		717		235,759		2,017		339,670		2,734
Commercial mortgage-backed securities	66,071		236		0		0		66,071		236
Residential mortgage-backed securities	633		12		7		1		640		13
Total fixed maturities, available-for-sale	$	1,928,598	$	45,616	$	408,904	$	10,071	$	2,337,502	$	55,687



	December 31, 2018
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	367,796	$	4,844	$	3,304,663	$	371,649	$	3,672,459	$	376,493
Obligations of U.S. states and their political subdivisions	25,764		322		83,950		2,805		109,714		3,127
Foreign government bonds	98,437		2,346		58,975		1,810		157,412		4,156
U.S. public corporate securities	627,589		28,474		386,599		22,108		1,014,188		50,582
U.S. private corporate securities	269,545		7,755		422,498		15,122		692,043		22,877
Foreign public corporate securities	97,367		2,521		107,286		4,310		204,653		6,831
Foreign private corporate securities	373,891		19,217		116,743		8,554		490,634		27,771
Asset-backed securities	358,668		3,501		24,529		264		383,197		3,765
Commercial mortgage-backed securities	45,432		355		159,638		5,136		205,070		5,491
Residential mortgage-backed securities	34		1		13,775		497		13,809		498
Total fixed maturities, available-for-sale	$	2,264,523	$	69,336	$	4,678,656	$	432,255	$	6,943,179	$	501,591

As of December 31, 2019 and 2018, the gross unrealized losses on fixed maturity securities were composed of $52.5 million and $485.7 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $3.2 million and $15.9 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2019, the $10.1 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the consumer non-cyclical, utility and consumer cyclical sectors and in asset-backed securities. As of December 31, 2018, the $432.3 million of gross unrealized losses of twelve months or more were concentrated in U.S. government bonds and in the Company’s corporate securities within the finance, consumer non-cyclical and capital goods sectors. In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for OTTI for these fixed maturity securities was not warranted at either December 31, 2019 or 2018. These conclusions were based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates and foreign currency exchange rate movements. As of December 31, 2019, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:



	December 31, 2019
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	90,826	$	91,258
Due after one year through five years	1,116,306		1,149,228
Due after five years through ten years	1,762,440		1,862,864
Due after ten years	8,421,009		8,998,527
Asset-backed securities	443,767		444,438
Commercial mortgage-backed securities	557,584		578,289
Residential mortgage-backed securities	73,814		77,761
Total fixed maturities, available-for-sale	$	12,465,746	$	13,202,365

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on impairments of fixed maturities, for the periods indicated:



	Years Ended December 31,
	2019			2018			2017
	(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	384,592		$	2,126,886		$	517,743
Proceeds from maturities/prepayments	468,004			404,679			630,140
Gross investment gains from sales and maturities	3,259			21,129			8,992
Gross investment losses from sales and maturities	(3,364		)	(98,047		)	(3,047		)
OTTI recognized in earnings(2)	(3,826		)	(6,813		)	(9,122		)


(1)	Includes $0.0 million, $(2.9) million and $2.5 million of non-cash related proceeds due to the timing of trade settlements for the years ended December 31, 2019, 2018 and 2017, respectively.


(2)	Excludes the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of the impairment.

The following table sets forth a rollforward of pre-tax amounts remaining in OCI related to fixed maturity securities with credit loss impairments recognized in earnings, for the periods indicated:



	Years Ended December 31,
	2019			2018
	(in thousands)
Credit loss impairments:
Balance in OCI, beginning of period	$	(209	)	$	792
New credit loss impairments	1,343			0
Increases due to the passage of time on previously recorded credit losses	10			3
Reductions for securities which matured, paid down, prepaid or were sold during the period	223			(40		)
Reductions for securities impaired to fair value during the period	(1,351		)	(963		)
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(2		)	(1		)
Balance in OCI, end of period	$	14		$	(209	)

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Asset administration fees and other income (loss),” was $2.0 million and $(1.9) million during the years ended December 31, 2019 and 2018, respectively. The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other comprehensive income (loss),” was $0.4 million during the year ended December 31, 2017.

Commercial Mortgage and Other Loans

The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:



	December 31, 2019					December 31, 2018
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	272,150		18.5	%	$	304,644		22.4	%
Hospitality	16,819			1.1		3,633			0.3
Industrial	464,528			31.5		355,758			26.2
Office	372,823			25.3		305,537			22.5
Other	156,768			10.6		137,781			10.2
Retail	131,051			8.9		194,646			14.4
Total commercial mortgage loans	1,414,139			95.9		1,301,999			96.0
Agricultural property loans	60,046			4.1		54,375			4.0
Total commercial mortgage and agricultural property loans by property type	1,474,185			100.0	%	1,356,374			100.0	%
Allowance for credit losses	(2,663		)			(2,896		)
Total commercial mortgage and other loans	$	1,471,522				$	1,353,478

As of December 31, 2019, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (27%), Texas (13%) and New York (7%)) and included loans secured by properties in Europe (16%) and Australia (4%).

The following table sets forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:



	Commercial Mortgage Loans			Agricultural Property Loans		Total
	(in thousands)
Balance at December 31, 2016	$	2,267		$	22	$	2,289
Addition to (release of) allowance for credit losses	349			12		361
Charge-offs, net of recoveries	0			0		0
Balance at December 31, 2017	2,616			34		2,650
Addition to (release of) allowance for credit losses	245			1		246
Charge-offs, net of recoveries	0			0		0
Balance at December 31, 2018	2,861			35		2,896
Addition to (release of) allowance for credit losses	(239		)	6		(233		)
Charge-offs, net of recoveries	0			0		0
Balance at December 31, 2019	$	2,622		$	41	$	2,663

The following tables set forth the allowance for credit losses and the recorded investment in commercial mortgage and other loans, as of the dates indicated:



	December 31, 2019
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	2,622		41		2,663
Total ending balance(1)	$	2,622	$	41	$	2,663
Recorded investment(2):
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	1,414,139		60,046		1,474,185
Total ending balance(1)	$	1,414,139	$	60,046	$	1,474,185


(1)	As of December 31, 2019, there were no loans acquired with deteriorated credit quality.


(2)	Recorded investment reflects the carrying value gross of related allowance.



	December 31, 2018
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	2,861		35		2,896
Total ending balance(1)	$	2,861	$	35	$	2,896
Recorded investment(2):
Individually evaluated for impairment	$	0	$	3,439	$	3,439
Collectively evaluated for impairment	1,301,999		50,936		1,352,935
Total ending balance(1)	$	1,301,999	$	54,375	$	1,356,374


(1)	As of December 31, 2018, there were no loans acquired with deteriorated credit quality.


(2)	Recorded investment reflects the carrying value gross of related allowance.

The following tables set forth certain key credit quality indicators for commercial mortgage and agricultural property loans based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:



	December 31, 2019
	Debt Service Coverage Ratio
	> 1.2X		1.0X to <1.2X		< 1.0X		Total
			(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	715,654	$	6,641	$	3,609	$	725,904
60%-69.99%	499,493		14,078		0		513,571
70%-79.99%	203,158		30,555		0		233,713
80% or greater	0		997		0		997
Total commercial mortgage and agricultural property loans	$	1,418,305	$	52,271	$	3,609	$	1,474,185



	December 31, 2018
	Debt Service Coverage Ratio
	> 1.2X		1.0X to <1.2X		< 1.0X		Total
			(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	709,342	$	14,814	$	345	$	724,501
60%-69.99%	442,308		23,260		0		465,568
70%-79.99%	156,049		7,236		0		163,285
80% or greater	2,000		1,020		0		3,020
Total commercial mortgage and agricultural property loans	$	1,309,699	$	46,330	$	345	$	1,356,374

The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:



	December 31, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,414,139	$	0	$	0	$	0	$	1,414,139	$	0
Agricultural property loans	60,046		0		0		0		60,046		0
Total	$	1,474,185	$	0	$	0	$	0	$	1,474,185	$	0


(1)	As of December 31, 2019, there were no loans in this category accruing interest.


(2)	For additional information regarding the Company’s policies for accruing interest on loans, see Note 2.



	December 31, 2018
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,301,999	$	0	$	0	$	0	$	1,301,999	$	0
Agricultural property loans	54,375		0		0		0		54,375		0
Total	$	1,356,374	$	0	$	0	$	0	$	1,356,374	$	0


(1)	As of December 31, 2018, there were no loans in this category accruing interest.


(2)	For additional information regarding the Company’s policies for accruing interest on loans, see Note 2.

For the years ended December 31, 2019 and 2018, there were no commercial mortgage and other loans acquired, other than those through direct origination, and there were $206 million and $96 million, respectively, of commercial mortgage and other loans sold.

Other Invested Assets

The following table sets forth the composition of “Other invested assets,” as of the dates indicated:



	December 31,
	2019		2018
	(in thousands)
LPs/LLCs:
Equity method:
Private equity	$	23,414	$	23,844
Hedge funds	273,615		179,014
Real estate-related	166,492		94,738
Subtotal equity method	463,521		297,596
Fair value:
Private equity	4,115		4,142
Hedge funds	194		263
Real estate-related	6,181		3,562
Subtotal fair value	10,490		7,967
Total LPs/LLCs	474,011		305,563
Derivative instruments	2		42,978
Total other invested assets	$	474,013	$	348,541

As of both December 31, 2019 and 2018, the Company had no significant equity method investments.

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:



	Years Ended December 31,
	2019			2018			2017
	(in thousands)
Fixed maturities, available-for-sale	$	389,165		$	317,726		$	332,148
Fixed maturities, trading	10,080			5,184			4,360
Equity securities, at fair value	568			678			567
Commercial mortgage and other loans	51,628			51,040			48,598
Policy loans	630			737			1,069
Short-term investments and cash equivalents	85,084			28,645			31,505
Other invested assets	34,422			13,733			20,626
Gross investment income	571,577			417,743			438,873
Less: investment expenses	(20,029		)	(14,935		)	(16,064		)
Net investment income	$	551,548		$	402,808		$	422,809

The carrying value of non-income producing assets included $4.1 million in available-for-sale fixed maturities as of December 31, 2019. Non-income producing assets represent investments that had not produced income for the twelve months preceding December 31, 2019.

Realized Investment Gains (Losses), Net

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:



	Years Ended December 31,
	2019			2018			2017
	(in thousands)
Fixed maturities(1)	$	(3,931	)	$	(83,731	)	$	(3,177	)
Commercial mortgage and other loans	(753		)	128			(840		)
LPs/LLCs	0			0			(39		)
Derivatives	(2,677,559		)	967,503			(801,429		)
Other invested assets	164			123			0
Short-term investments and cash equivalents	759			50			85
Realized investment gains (losses), net	$	(2,681,320	)	$	884,073		$	(805,400	)


(1)	Includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.

Net Unrealized Gains (Losses) on Investments within AOCI

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:



	December 31,
	2019			2018			2017
	(in thousands)
Fixed maturity securities, available-for-sale — with OTTI	$	14,309		$	(3,334	)	$	12,311
Fixed maturity securities, available-for-sale — all other	722,310			(411,458		)	(46,791		)
Equity securities, available-for-sale(1)	0			0			4
Derivatives designated as cash flow hedges(2)	(287		)	(3,849		)	(25,851		)
Affiliated notes	598			658			829
Other investments	0			1,074			86
Net unrealized gains (losses) on investments	$	736,930		$	(416,909	)	$	(59,412	)


(1)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded within “Asset administration fees and other income (loss).”


(2)	For more information on cash flow hedges, see Note 4.

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of both December 31, 2019 and 2018, the Company had no repurchase agreements.

The following table sets forth the composition of “Cash collateral for loaned securities,” which represents the liability to return cash collateral received for the following types of securities loaned, as of the dates indicated:



	December 31, 2019						December 31, 2018
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in thousands)
Foreign government bonds	$	0	$	0	$	0	$	0	$	0	$	0
U.S. public corporate securities	0		0		0		384		0		384
Total cash collateral for loaned securities(1)	$	0	$	0	$	0	$	384	$	0	$	384


(1)	The Company did not have agreements with remaining contractual maturities of thirty days or greater, as of the dates indicated.

Securities Pledged, Restricted Assets and Special Deposits

The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including securities lending, securities sold under agreements to repurchase, collateralized borrowings and postings of collateral with derivative counterparties. The following table sets forth the carrying value of investments pledged to third parties and the carrying amount of the associated liabilities supported by the pledged collateral, as of the dates indicated:



	December 31,
	2019		2018
	(in thousands)
Pledged collateral:
Fixed maturity securities, available-for-sale	$	0	$	365
Total securities pledged	$	0	$	365
Liabilities supported by the pledged collateral:
Cash collateral for loaned securities	$	0	$	384
Total liabilities supported by the pledged collateral	$	0	$	384

In the normal course of its business activities, the Company accepts collateral that can be sold or repledged. The primary sources of this collateral are securities purchased under agreements to resell. As of December 31, 2019 and 2018, there was $302 million and $675 million, respectively, of such collateral.

As of December 31, 2019 and 2018, there were available-for-sale fixed maturities of $10.7 million and $8.4 million, respectively, on deposit with governmental authorities or trustees as required by certain insurance laws.