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Investments

3 Months Ended

Mar. 31, 2020

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:



	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	7,215,283	$	2,004,094	$	5,644	$	0	$	9,213,733
Obligations of U.S. states and their political subdivisions	231,490		6,855		702		0		237,643
Foreign government bonds	171,762		12,886		1,240		0		183,408
U.S. public corporate securities	1,834,541		92,000		38,870		0		1,887,671
U.S. private corporate securities	1,176,551		25,154		37,188		186		1,164,331
Foreign public corporate securities	278,341		7,403		20,373		0		265,371
Foreign private corporate securities	1,209,280		2,195		105,708		0		1,105,767
Asset-backed securities(1)	507,849		3,063		25,809		0		485,103
Commercial mortgage-backed securities	562,409		27,558		449		0		589,518
Residential mortgage-backed securities(2)	77,052		3,392		513		0		79,931
Total fixed maturities, available-for-sale	$	13,264,558	$	2,184,600	$	236,496	$	186	$	15,212,476


(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.



	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.

The following table sets forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit 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 date indicated:



	March 31, 2020
	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	$	550,574	$	5,644	$	0	$	0	$	550,574	$	5,644
Obligations of U.S. states and their political subdivisions	44,790		702		0		0		44,790		702
Foreign government bonds	27,964		1,221		74		19		28,038		1,240
U.S. public corporate securities	437,796		37,781		2,167		1,089		439,963		38,870
U.S. private corporate securities	542,221		34,290		26,844		2,898		569,065		37,188
Foreign public corporate securities	84,112		20,373		0		0		84,112		20,373
Foreign private corporate securities	937,001		89,599		85,795		16,109		1,022,796		105,708
Asset-backed securities	210,569		12,622		166,207		13,187		376,776		25,809
Commercial mortgage-backed securities	52,283		449		0		0		52,283		449
Residential mortgage-backed securities	5,893		513		7		0		5,900		513
Total fixed maturities, available-for-sale	$	2,893,203	$	203,194	$	281,094	$	33,302	$	3,174,297	$	236,496

The following table sets forth the fair value and gross unrealized losses on fixed maturity securities aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the date 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

As of March 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $172.0 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $64.5 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of March 31, 2020, the $33.3 million of gross unrealized losses of twelve months or more were concentrated in the asset-backed securities and in the Company’s corporate securities within the consumer non-cyclical, utility and capital goods sectors.

As of December 31, 2019, the gross unrealized losses on fixed maturity securities were composed of $52.5 million related to “1” highest quality or “2” high quality securities based on the NAIC or equivalent rating and $3.2 million 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.

In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at March 31, 2020. 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, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of March 31, 2020, 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:



	March 31, 2020
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	246,536	$	245,711
Due after one year through five years	1,264,902		1,236,352
Due after five years through ten years	1,559,972		1,518,325
Due after ten years	9,045,838		11,057,536
Asset-backed securities	507,849		485,103
Commercial mortgage-backed securities	562,409		589,518
Residential mortgage-backed securities	77,052		79,931
Total fixed maturities, available-for-sale	$	13,264,558	$	15,212,476

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 write-downs, impairments and the allowance for credit losses of fixed maturities, for the periods indicated:



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	195,978		$	131,769
Proceeds from maturities/prepayments	78,080			144,443
Gross investment gains from sales and maturities	7,480			1,950
Gross investment losses from sales and maturities	(180		)	(656		)
OTTI recognized in earnings(2)	N/A			(2,025		)
Write-downs recognized in earnings(3)	(693		)	N/A
(Addition to) release of allowance for credit losses(4)	(186		)	N/A


(1)	Includes $6.5 million and $4.7 million of non-cash related proceeds due to the timing of trade settlements for the three months ended March 31, 2020 and 2019, respectively.


(2)	For the three months ended March 31, 2019, amounts exclude 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 impairment.


(3)	For the three months ended March 31, 2020, amounts represent write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.


(4)	Effective January 1, 2020, credit losses on available-for-sale fixed maturity securities are recorded within the “allowance for credit losses.”

The following table sets forth the activity in the allowance for credit losses for fixed maturity securities, as of the date indicated:



	March 31, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of year	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Additions to allowance for credit losses not previously recorded	0		0		186		0		0		0		186
Balance, end of period	$	0	$	0	$	186	$	0	$	0	$	0	$	186

See Note 2 for additional information about the Company’s methodology for developing our allowance and expected losses.

As of March 31, 2020, the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows on private corporate securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of March 31, 2020.

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,” was $(1.6) million and $0.9 million during the three months ended March 31, 2020 and 2019, respectively.

Commercial Mortgage and Other Loans

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



	March 31, 2020					December 31, 2019
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	288,739		19.2	%	$	272,150		18.5	%
Hospitality	16,721			1.1		16,819			1.1
Industrial	478,089			31.8		464,528			31.5
Office	353,014			23.5		372,823			25.3
Other	155,782			10.3		156,768			10.6
Retail	130,815			8.7		131,051			8.9
Total commercial mortgage loans	1,423,160			94.6		1,414,139			95.9
Agricultural property loans	82,033			5.4		60,046			4.1
Total commercial mortgage and agricultural property loans by property type	1,505,193			100.0	%	1,474,185			100.0	%
Allowance for credit losses	(6,282		)			(2,663		)
Total net commercial mortgage and agricultural property loans by property type	1,498,911					$	1,471,522
Other loans:
Other collateralized loans	3,935					0
Allowance for credit losses	0					0
Total net other loans	3,935					0
Total commercial mortgage and other loans	$	1,502,846				$	1,471,522

As of March 31, 2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (26%), Texas (12%) and New York (7%)) and included loans secured by properties in Europe (16%) and Australia (3%).

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		Other Collateralized Loans		Total
	(in thousands)
Balance at December 31, 2018	$	2,861		$	35	$	0	$	2,896
Addition to (release of) allowance for credit losses	(239		)	6		0		(233		)
Balance at December 31, 2019	2,622			41		0		2,663
Cumulative effect of adoption of ASU 2016-13	3,118			39		0		3,157
Addition to (release of) allowance for expected losses	363			99		0		462
Balance at March 31, 2020	$	6,103		$	179	$	0	$	6,282

See Note 2 for additional information about the Company's methodology for developing our allowance and expected losses.

As of March 31, 2020, the increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

The following table sets forth loan-to-value ratios based upon the recorded investment gross of allowance for credit losses, as of the date indicated:



	March 31, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in thousands)
Loan-to-Value Ratio:
Commercial mortgage loans
0%-59.99%	$	0	$	112,817	$	25,889	$	95,941	$	160,898	$	257,347	$	0	$	652,892
60%-69.99%	33,614		163,428		25,274		108,435		93,846		107,170		0		531,767
70%-79.99%	7,093		65,987		54,799		67,721		28,481		5,184		0		229,265
80% or greater	0		0		0		8,245		0		991		0		9,236
Subtotal	40,707		342,232		105,962		280,342		283,225		370,692		0		1,423,160
Agricultural property loans
0%-59.99%	22,500		13,798		1,261		8,553		1,180		34,741		0		82,033
60%-69.99%	0		0		0		0		0		0		0		0
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Subtotal	22,500		13,798		1,261		8,553		1,180		34,741		0		82,033
Total commercial mortgage and agricultural property loans
0%-59.99%	22,500		126,615		27,150		104,494		162,078		292,088		0		734,925
60%-69.99%	33,614		163,428		25,274		108,435		93,846		107,170		0		531,767
70%-79.99%	7,093		65,987		54,799		67,721		28,481		5,184		0		229,265
80% or greater	0		0		0		8,245		0		991		0		9,236
Total commercial mortgage and agricultural property loans	$	63,207	$	356,030	$	107,223	$	288,895	$	284,405	$	405,433	$	0	$	1,505,193

See Note 2 for additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.

The following table sets forth certain key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the date 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

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:



	March 31, 2020
	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	$	1,423,160	$	0	$	0	$	0	$	1,423,160	$	0
Agricultural property loans	77,756		4,277		0		0		82,033		0
Other collateralized loans	3,935		0		0		0		3,935		0
Total	$	1,504,851	$	4,277	$	0	$	0	$	1,509,128	$	0


(1)	As of March 31, 2020, 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 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.



	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 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

There were no loans on non-accrual status with a related allowance for credit losses which recognized interest income for the three months ended March 31, 2020.

For the three months ended March 31, 2020 and 2019, there were no commercial mortgage and other loans acquired, other than those through direct origination, and there were $0 million and $101 million of commercial mortgage and other loans sold, respectively.

The Company did not have any commercial mortgage and other loans purchased with credit deterioration, as of March 31, 2020.

Other Invested Assets

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



	March 31, 2020		December 31, 2019
	(in thousands)
LPs/LLCs:
Equity method:
Private equity	$	22,462	$	23,414
Hedge funds	272,972		273,615
Real estate-related	181,374		166,492
Subtotal equity method	476,808		463,521
Fair value:
Private equity	4,807		4,115
Hedge funds	190		194
Real estate-related	6,402		6,181
Subtotal fair value	11,399		10,490
Total LPs/LLCs	488,207		474,011
Derivative instruments	17,362		2
Total other invested assets	$	505,569	$	474,013

Accrued Investment Income

The following table sets forth the composition of “Accrued Investment Income,” as of the date indicated:



	March 31, 2020
	(in thousands)

Fixed maturities	$	97,265
Equity securities	60
Commercial mortgage and other loans	4,496
Policy loans	10
Short-term investments and cash equivalents	5,569
Total accrued investment income	$	107,400

There were no write-downs on accrued investment income for the three months ended March 31, 2020.

Net Investment Income

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



		Three Months Ended March 31,
		2020			2019
	(in thousands)
Fixed maturities, available-for-sale		$	100,734		$	92,211
Fixed maturities, trading		2,581			2,365
Equity securities		67			73
Commercial mortgage and other loans		13,182			11,732
Policy loans		127			59
Other invested assets		(12,713		)	8,842
Short-term investments and cash equivalents		25,452			13,740
Gross investment income		129,430			129,022
Less: investment expenses		(6,393		)	(3,953		)
Net investment income		$	123,037		$	125,069

Realized Investment Gains (Losses), Net

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



		Three Months Ended March 31,
		2020			2019
	(in thousands)
Fixed maturities(1)		$	6,422		$	(731	)
Commercial mortgage and other loans		(342		)	(781		)
Derivatives		(764,540		)	(1,340,928		)
Other invested assets		500			0
Short-term investments and cash equivalents		269			221
Realized investment gains (losses), net		$	(757,691	)	$	(1,342,219	)


(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:



	March 31, 2020		December 31, 2019
	(in thousands)
Fixed maturity securities, available-for-sale — with OTTI(1)	$ N/A		$	14,309
Fixed maturity securities, available-for-sale — all other(1)	N/A		722,310
Fixed maturity securities, available-for-sale with an allowance	0		N/A
Fixed maturity securities, available-for-sale without an allowance	1,948,104		N/A
Derivatives designated as cash flow hedges(2)	102,569		(287		)
Affiliated notes	478		598
Net unrealized gains (losses) on investments	$	2,051,151	$	736,930


(1)	Effective January 1, 2020, per ASU 2016-13, fixed maturity securities, available-for-sale are no longer required to be disclosed “with OTTI” and “all other”.


(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 March 31, 2020 and December 31, 2019, the Company had no repurchase agreements and securities lending transactions.