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Fair Value of Assets and Liabilities (Tables)
 12 Months Ended
Dec. 31, 2013
Summary of Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013. There are no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2013.

 

($ in thousands)    Quoted prices
in active
markets for
identical assets
(Level 1)		     Significant
other
observable
inputs
(Level 2)		     Significant
unobservable
inputs
(Level 3)		     Balance as of
December 31,
2013		  

Assets:

         

Fixed income securities:

         

U.S. government and agencies

    $ 27,520      $ 46,326      $ —        $ 73,846   

Municipal

      —          2,769        —          2,769   

Corporate

      —          191,977        —          191,977   

Foreign government

      —          5,164        —          5,164   

RMBS

      —          14,450        —          14,450   

CMBS

      —          2,676        —          2,676   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      27,520        263,362        —          290,882   

Short-term investments

      20,764        35,195        —          55,959   

Separate account assets

      1,700,566        —          —          1,700,566   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

    $ 1,748,850      $ 298,557      $ —        $ 2,047,407   
  

 

 

    

 

 

    

 

 

    

 

 

  

% of total assets at fair value

      85.4 %      14.6 %      —   %      100.0 % 

Liabilities:

         

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —        $ —        $ (267,859 )    $ (267,859 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities at fair value

    $ —        $ —        $ (267,859 )    $ (267,859 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

% of total liabilities at fair value

      —  %      —  %      100.0 %      100.0 % 

 

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012. There are no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2012.

 

($ in thousands)    Quoted prices
in active
markets for
identical assets
(Level 1)		     Significant
other
observable
inputs
(Level 2)		     Significant
unobservable
inputs
(Level 3)		     Balance as of
December 31,
2012		  

Assets:

         

Fixed income securities:

         

U.S. government and agencies

    $ 34,303      $ 57,784      $ —       $ 92,087  

Municipal

      —          2,900        —         2,900  

Corporate

      —          191,656        312       191,968  

Foreign government

      —          5,264        —         5,264  

RMBS

      —          29,737        —         29,737  

CMBS

      —          8,603        —         8,603  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed income securities

      34,303        295,944        312       330,559  

Short-term investments

      18,793        5,410        —         24,203  

Separate account assets

      1,625,669        —          —         1,625,669  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

    $ 1,678,765      $ 301,354      $ 312     $ 1,980,431  
  

 

 

    

 

 

    

 

 

    

 

 

  

% of total assets at fair value

      84.7 %      15.2 %      0.1 %      100.0 % 

Liabilities:

         

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —        $ —        $ (314,926 )    $ (314,926 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities at fair value

    $ —        $ —        $ (314,926 )    $ (314,926 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

% of total liabilities at fair value

      —  %      — %      100.0 %      100.0 % 

Summary of Quantitative Information About the Significant Unobservable Inputs Used in Level 3 Fair Value Measurements

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.

($ in thousands) Fair value Valuation
technique		 Unobservable
input		 Range Weighted
average

December 31, 2013

Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options

 $ (258,415 ) Stochastic
cash flow
model		 Projected
option
cost		 1.0 - 2.0 % 1.91 %

December 31, 2012

Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options

 $ (295,305 ) Stochastic
cash flow
model		 Projected
option
cost		 1.0 - 2.0 % 1.96 %
Schedule of Rollforward of Level 3 Assets and Liabilities Held at Fair Value on a Recurring Basis

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2013.

 

($ in thousands)          Total gains (losses)
included in:		              
   Balance as of
December 31,
2012		     Net
income(1)		      OCI     Transfers
into
Level 3		     Transfers
out of
Level 3		  

Assets

            

Fixed income securities:

            

Corporate

    $ 312     $ —         $ —        $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 312     $ —         $ —        $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Liabilities

            

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (314,926 )    $ 43,244       $ —        $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (314,926 )    $ 43,244       $ —        $ —        $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  
     Purchases     Sales      Issues     Settlements     Balance as of
December 31,
2013		  

Assets

            

Fixed income securities:

            

Corporate

    $ —        $ —         $ —        $ (312 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ —        $ —         $ —        $ (312 )    $ —     
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Liabilities

            

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —        $ —         $ (6,621 )    $ 10,444      $ (267,859 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —        $ —         $ (6,621 )    $ 10,444      $ (267,859 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

(1) 

The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $33.0 million in interest credited to contractholder funds and $10.2 million in contract benefits. These amounts are ceded in accordance with the Company’s reinsurance agreements.

 

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2012.

 

($ in thousands)          Total gains (losses)
included in:		              
   Balance as of
December 31,
2011		     Net
income(1)		      OCI     Transfers
into
Level 3		     Transfers
out of
Level 3		  

Assets

            

Fixed income securities:

            

Corporate

    $ 598     $ —        $ —       $ —       $ —    

RMBS

      2,321       —          —         —         (2,321 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 2,919     $ —        $ —       $ —       $ (2,321 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Liabilities

            

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (506,678 )    $ 131,054      $ —       $ —       $ —    
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (506,678 )    $ 131,054      $ —       $ —       $ —    
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  
     Purchases     Sales      Issues     Settlements     Balance as of
December 31,
2012		  

Assets

            

Fixed income securities:

            

Corporate

    $ —       $ —        $ —       $ (286 )    $ 312  

RMBS

      —         —          —         —         —    
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ —       $ —        $ —       $ (286 )    $ 312  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Liabilities

            

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —       $ —        $ (11,024 )    $ 71,722     $ (314,926 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —       $ —        $ (11,024 )    $ 71,722     $ (314,926 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

(2) 

The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $125.9 million in interest credited to contractholder funds and $5.1 million in contract benefits. These amounts are ceded in accordance with the Company’s reinsurance agreements.

 

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2011.

 

($ in thousands)          Total gains (losses)
included in:		              
   Balance as of
December 31,
2010		     Net
income(1)		     OCI     Transfers
into
Level 3		     Transfers
out of
Level 3		  

Assets

           

Fixed income securities:

           

Corporate

    $ 852     $ —       $ 199     $ —       $ (10,199 ) 

RMBS

      6,880       (4 )      (108 )      —         (3,577 ) 

CMBS

      1,916       —         (49 )      —         (1,867 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 9,648     $ (4 )    $ 42     $ —       $ (15,643 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ (494,149 )    $ (110,951 )    $ —       $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ (494,149 )    $ (110,951 )    $ —       $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Purchases     Sales     Issues     Settlements     Balance as of
December 31,
2011		  

Assets

           

Fixed income securities:

           

Corporate

    $ 10,000     $ —       $ —       $ (254 )    $ 598  

RMBS

      —         —         —         (870 )      2,321  

CMBS

      —         —         —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 assets

    $ 10,000     $ —       $ —       $ (1,124 )    $ 2,919  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities

           

Contractholder funds: Derivatives embedded in life and annuity contracts

    $ —       $ —       $ (55,559 )    $ 153,981      $ (506,678 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recurring Level 3 liabilities

    $ —       $ —       $ (55,559 )    $ 153,981      $ (506,678 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

The amount attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as net investment income. The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $(106.6) million in interest credited to contractholder funds and $(4.3) million in contract benefits. These amounts are ceded in accordance with the Company’s reinsurance agreements.
Schedule of Change in Unrealized Gains and Losses Included in Net Income for Level 3 Assets and Liabilities Held

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of December 31.

 

($ in thousands)    2013      2012      2011  

Assets

         

Fixed income securities:

         

Corporate

    $ —         $ —        $ (2 ) 

RMBS

      —           —          (5 ) 
  

 

 

     

 

 

     

 

 

  

Total recurring Level 3 assets

    $ —         $ —        $ (7 ) 
  

 

 

     

 

 

     

 

 

  

Liabilities

         

Contractholder funds:

         

Derivatives embedded in life and annuity contracts

    $ 43,244       $ 131,054       $ (110,951 ) 
  

 

 

     

 

 

     

 

 

  

Total recurring Level 3 liabilities

    $ 43,244       $ 131,054       $ (110,951 )