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Investments

9 Months Ended

Sep. 30, 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:


	September 30, 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	$	7,203,259	$	1,928,710	$	12,705	$	0	$	9,119,264
Obligations of U.S. states and their political subdivisions	259,429		17,032		256		0		276,205
Foreign government bonds	160,922		21,978		19		0		182,881
U.S. public corporate securities	2,691,422		278,335		7,392		0		2,962,365
U.S. private corporate securities	1,509,192		111,697		6,114		217		1,614,558
Foreign public corporate securities	329,721		24,333		7,032		0		347,022
Foreign private corporate securities	1,233,676		77,343		11,890		351		1,298,778
Asset-backed securities(1)	804,636		8,765		3,950		0		809,451
Commercial mortgage-backed securities	649,810		57,148		19		0		706,939
Residential mortgage-backed securities(2)	74,904		6,552		3		0		81,453
Total fixed maturities, available-for-sale	$	14,916,971	$	2,531,893	$	49,380	$	568	$	17,398,916

(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:


	September 30, 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	$	536,328	$	12,705	$	0	$	0	$	536,328	$	12,705
Obligations of U.S. states and their political subdivisions	13,690		256		0		0		13,690		256
Foreign government bonds	252		6		79		13		331		19
U.S. public corporate securities	264,213		7,027		2,562		365		266,775		7,392
U.S. private corporate securities	73,223		4,579		6,684		1,535		79,907		6,114
Foreign public corporate securities	76,443		7,032		0		0		76,443		7,032
Foreign private corporate securities	176,274		5,588		75,774		6,286		252,048		11,874
Asset-backed securities	223,101		1,247		272,737		2,703		495,838		3,950
Commercial mortgage-backed securities	7,252		19		0		0		7,252		19
Residential mortgage-backed securities	0		0		82		3		82		3
Total fixed maturities, available-for-sale	$	1,370,776	$	38,459	$	357,918	$	10,905	$	1,728,694	$	49,364

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 September 30, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $31.3 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $18.1 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2020, the $10.9 million of gross unrealized losses of twelve months or more were concentrated in asset-backed securities and in the Company’s corporate securities within the consumer non-cyclical, utility and industrial other 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 September 30, 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 September 30, 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:


	September 30, 2020
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	202,191	$	204,939
Due after one year through five years	1,184,697		1,244,727
Due after five years through ten years	2,323,234		2,502,344
Due after ten years	9,677,499		11,849,063
Asset-backed securities	804,636		809,451
Commercial mortgage-backed securities	649,810		706,939
Residential mortgage-backed securities	74,904		81,453
Total fixed maturities, available-for-sale	$	14,916,971	$	17,398,916

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	20,268	$	77,697	$	352,945	$	231,106
Proceeds from maturities/prepayments	88,208		125,432		220,109		379,849
Gross investment gains from sales and maturities	24		15		18,279		982
Gross investment losses from sales and maturities	(366)		(445)		(1,856)		(3,086)
OTTI recognized in earnings(2)	N/A		(769)		N/A		(2,794)
Write-downs recognized in earnings(3)	0		N/A		(693)		N/A
(Addition to) release of allowance for credit losses(4)	414		N/A		(568)		N/A

(1)Includes $0.2 million and $14.3 million of non-cash related proceeds due to the timing of trade settlements for the nine months ended September 30, 2020 and 2019, respectively.

(2)For the three and nine months ended September 30, 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 and nine months ended September 30, 2020, amounts represent write-downs on securities approaching maturity related to foreign exchange movements, securities actively marketed for sale and write-downs of credit adverse securities.

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

The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:


	Three Months Ended September 30, 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 period	$	0	$	0	$	982	$	0	$	0	$	0	$	982
Additions to allowance for credit losses not previously recorded	0		0		216		0		0		0		216

Reductions for securities sold during the period	0		0		0		0		0		0		0

Addition (reductions) on securities with previous allowance	0		0		(630)		0		0		0		(630)


Balance, end of period	$	0	$	0	$	568	$	0	$	0	$	0	$	568

For the three months ended September 30, 2020, the decrease in the allowance for credit losses on available-for-sale securities was primarily related to recoveries in the energy sector within corporate securities.


	Nine Months Ended September 30, 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		1,384		0		0		0		1,384

Reductions for securities sold during the period	0		0		(2)		0		0		0		(2)

Addition (reductions) on securities with previous allowance	0		0		(814)		0		0		0		(814)


Balance, end of period	$	0	$	0	$	568	$	0	$	0	$	0	$	568

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

For the nine months ended September 30, 2020, the increase in 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 September 30, 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 $0.4 million and $0.3 million during the three months ended September 30, 2020 and 2019, respectively, and $2.1 million and $1.7 million during the nine months ended September 30, 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:


	September 30, 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	$	371,216	22.0	%	$	272,150	18.5	%
Hospitality	16,745		1.0		16,819		1.1
Industrial	520,721		30.9		464,528		31.5
Office	365,535		21.7		372,823		25.3
Other	187,116		11.1		156,768		10.6
Retail	130,462		7.7		131,051		8.9
Total commercial mortgage loans	1,591,795		94.4		1,414,139		95.9
Agricultural property loans	93,789		5.6		60,046		4.1
Total commercial mortgage and agricultural property loans	1,685,584		100.0	%	1,474,185		100.0	%
Allowance for credit losses	(7,633)				(2,663)
Total net commercial mortgage and agricultural property loans	1,677,951				1,471,522
Other loans:
Other collateralized loans	0				0
Allowance for credit losses	0				0
Total net other loans	0				0
Total net commercial mortgage and other loans	$	1,677,951			$	1,471,522

As of September 30, 2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in California (24%), Texas (12%) and New York (11%) and included loans secured by properties in Europe (16%) and Australia (3%).

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


	Three Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Other Collateralized Loans		Total
	(in thousands)



Balance, beginning of period	$	6,701	$	178	$	0	$	6,879
Addition to (release of) allowance for expected losses	646		108		0		754





Balance, end of period	$	7,347	$	286	$	0	$	7,633


	Nine Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Other Collateralized Loans		Total
	(in thousands)



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	1,607		206		0		1,813




Balance at September 30, 2020	$	7,347	$	286	$	0	$	7,633

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

For the nine months ended September 30, 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 tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the date indicated:


	September 30, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in thousands)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	0	$	116,872	$	26,733	$	83,965	$	195,585	$	255,804	$	0	$	678,959
60%-69.99%	140,998		172,412		32,176		139,016		61,536		96,476		0		642,614
70%-79.99%	51,766		72,514		47,798		60,980		29,388		7,776		0		270,222
80% or greater	0		0		0		0		0		0		0		0
Total	$	192,764	$	361,798	$	106,707	$	283,961	$	286,509	$	360,056	$	0	$	1,591,795
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	192,764	$	338,722	$	90,462	$	283,961	$	282,478	$	347,475	$	0	$	1,535,862
1.0 - 1.2x	0		23,076		16,245		0		4,031		9,804		0		53,156
Less than 1.0x	0		0		0		0		0		2,777		0		2,777
Total	$	192,764	$	361,798	$	106,707	$	283,961	$	286,509	$	360,056	$	0	$	1,591,795
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	34,465	$	13,769	$	1,261	$	8,265	$	1,180	$	32,549	$	0	$	91,489
60%-69.99%	2,300		0		0		0		0		0		0		2,300
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Total	$	36,765	$	13,769	$	1,261	$	8,265	$	1,180	$	32,549	$	0	$	93,789
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	36,765	$	13,769	$	1,261	$	4,277	$	1,180	$	28,957	$	0	$	86,209
1.0 - 1.2x	0		0		0		0		0		0		0		0
Less than 1.0x	0		0		0		3,988		0		3,592		0		7,580
Total	$	36,765	$	13,769	$	1,261	$	8,265	$	1,180	$	32,549	$	0	$	93,789

Commercial mortgage loans


	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%	$	659,217	$	6,641	$	0	$	665,858
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 loans	$	1,361,868	$	52,271	$	0	$	1,414,139

Agricultural property loans


	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%	$	56,437	$	0	$	3,609	$	60,046
60%-69.99%	0		0		0		0
70%-79.99%	0		0		0		0
80% or greater	0		0		0		0
Total agricultural property loans	$	56,437	$	0	$	3,609	$	60,046

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

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:


	September 30, 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	$	1,591,795	$	0	$	0	$	0	$	1,591,795	$	0
Agricultural property loans	93,789		0		0		0		93,789		3,988
Other collateralized loans	0		0		0		0		0		0
Total	$	1,685,584	$	0	$	0	$	0	$	1,685,584	$	3,988

(1)As of September 30, 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.

There were $4.0 million of loans on non-accrual status which did not have a related allowance for credit losses as of September 30, 2020, and those loans recognized interest income of $0.2 million for both the three and nine months ended September 30, 2020.

For both the three and nine months ended September 30, 2020, there were no commercial mortgage and other loans acquired, other than those through direct origination, and there were no commercial mortgage and other loans sold. For the three and nine months ended September 30, 2019, there were no commercial mortgage and other loans acquired, other than those through direct origination, and there were $105 million and $206 million, respectively, of commercial mortgage and other loans sold.

The Company did not have any commercial mortgage and other loans purchased with credit deterioration as of September 30, 2020.

Other Invested Assets

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


	September 30, 2020		December 31, 2019
	(in thousands)

LPs/LLCs:
Equity method:
Private equity	$	22,719	$	23,414
Hedge funds	333,340		273,615
Real estate-related	229,304		166,492
Subtotal equity method	585,363		463,521
Fair value:
Private equity	4,095		4,115
Hedge funds	172		194
Real estate-related	6,211		6,181
Subtotal fair value	10,478		10,490
Total LPs/LLCs	595,841		474,011

Derivative instruments	4,769		2
Total other invested assets	$	600,610	$	474,013

Accrued Investment Income

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


	September 30, 2020
	(in thousands)
Fixed maturities	$	111,603
Equity securities	60
Commercial mortgage and other loans	4,835
Policy loans	11

Short-term investments and cash equivalents	388
Other(1)	269
Total accrued investment income	$	117,166

(1)Primarily includes affiliated accrued income.

There were no write-downs on accrued investment income for both the three and nine months ended September 30, 2020.

Net Investment Income

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities, available-for-sale	$	113,538	$	100,249	$	323,737	$	289,289
Fixed maturities, trading	3,972		2,579		9,474		7,497
Equity securities	63		67		194		213
Commercial mortgage and other loans	13,898		12,761		42,517		37,661
Policy loans	182		153		538		430
Other invested assets	15,102		7,083		20,968		23,690
Short-term investments and cash equivalents	4,601		31,807		48,569		62,313
Gross investment income	151,356		154,699		445,997		421,093
Less: investment expenses	(6,687)		(5,332)		(19,865)		(14,685)
Net investment income	$	144,669	$	149,367	$	426,132	$	406,408

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities(1)	$	72	$	(1,199)	$	15,162	$	(4,898)

Commercial mortgage and other loans	(753)		950		(2,489)		(292)

Derivatives	(246,742)		(537,079)		(4,397,341)		(2,768,959)
Other invested assets	1,405		0		2,875		0
Short-term investments and cash equivalents	44		61		2,364		448
Realized investment gains (losses), net	$	(245,974)	$	(537,267)	$	(4,379,429)	$	(2,773,701)

(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:


	September 30, 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	(14)		N/A
Fixed maturity securities, available-for-sale without an allowance	2,482,527		N/A
Derivatives designated as cash flow hedges(2)	22,677		(287)
Affiliated notes	4,931		598

Net unrealized gains (losses) on investments	$	2,510,121	$	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 September 30, 2020 and December 31, 2019, the Company had no repurchase agreements or securities lending transactions.