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Investments
12 Months Ended
Dec. 31, 2015
Investments
3. Investments

The amortized cost, gross unrealized gains and losses and fair value for fixed maturities as of December 31, 2015 and 2014 were as follows:

 

December 31, 2015 — Successor

($ in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  

Fixed maturities

          

U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies

   $ 163,096       $ 5,563       $ (81   $ 168,578   

Obligations of U.S. States and Political Subdivisions

     712,948         14,827         (7,018     720,757   

Foreign government

     72,042         202         (10,601     61,643   

Corporate securities

     6,060,561         31,263         (353,149     5,738,675   

ABS

     542,503         2,517         (8,229     536,791   

CMBS

     513,316         627         (7,244     506,699   

RMBS

     209,728         4,600         (1,529     212,799   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

   $ 8,274,194       $ 59,599       $ (387,851   $ 7,945,942   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2014 — Successor

($ in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  

Fixed maturities

          

U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies

   $ 287,077       $ 20,933       $ (58   $ 307,952   

Obligations of U.S. States and Political Subdivisions

     517,378         26,888         (531     543,735   

Foreign government

     250,008         5,637         (437     255,208   

Corporate securities

     7,279,391         132,481         (34,127     7,377,745   

ABS

     378,906         6,145         (2,408     382,643   

CMBS

     331,041         3,507         (1,065     333,483   

RMBS

     188,055         2,849         (1,023     189,881   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

   $ 9,231,856       $ 198,440       $ (39,649   $ 9,390,647   
  

 

 

    

 

 

    

 

 

   

 

 

 

Scheduled Maturities — Successor

The scheduled maturities for fixed maturities are as follows as of December 31, 2015:

 

($ in thousands)

   Amortized
Cost
     Fair Value  

Due in one year or less

   $ 190,261       $ 189,547   

Due after one year through five years

     1,461,237         1,459,059   

Due after five years through ten years

     2,148,851         2,092,046   

Due after ten years

     3,208,298         2,949,002   
  

 

 

    

 

 

 

Total before asset and mortgage-backed securities

     7,008,647         6,689,654   

Asset and mortgage-backed securities

     1,265,547         1,256,288   
  

 

 

    

 

 

 

Total fixed maturities

   $ 8,274,194       $ 7,945,942   
  

 

 

    

 

 

 

 

Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. Asset and mortgage-backed securities are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Commercial Mortgage Loans — Successor

The Company diversifies its commercial mortgage loan portfolio by geographical region to reduce concentration risk. The following table presents the Company’s commercial mortgage loan portfolio by geographical region as of December 31, 2015 and December 31, 2014:

 

($ in thousands)

   December 31,
2015
     December 31,
2014
 

Alabama

   $ 1,508       $ 1,720   

Arizona

     34,911         35,481   

California

     336,310         255,563   

Colorado

     57,207         22,381   

Connecticut

     25,374         —     

Florida

     86,698         20,779   

Georgia

     67,213         27,502   

Hawaii

     7,134         8,125   

Illinois

     92,813         53,174   

Iowa

     1,266         1,490   

Kansas

     9,200         —     

Kentucky

     7,696         8,260   

Maine

     3,905         4,114   

Maryland

     33,844         35,536   

Massachusetts

     90,897         92,963   

Minnesota

     148,346         52,496   

Missouri

     —           9,324   

Nevada

     14,262         14,705   

New Jersey

     68,720         84,007   

New York

     94,985         72,625   

North Carolina

     58,078         31,111   

Ohio

     36,954         38,400   

Oklahoma

     10,803         10,835   

Pennsylvania

     41,975         37,688   

South Carolina

     2,532         3,130   

Tennessee

     5,278         5,719   

Texas

     107,279         103,778   

Utah

     44,366         45,914   

Virginia

     2,353         18,572   

Washington

     11,550         13,138   

Wisconsin

     5,675         6,637   

General allowance for loan loss

     —           —     
  

 

 

    

 

 

 

Total commercial mortgage loans

   $ 1,509,132       $ 1,115,167   
  

 

 

    

 

 

 

 

Credit Quality of Commercial Mortgage Loans

The credit quality of commercial mortgage loans held-for-investment were as follows at December 31, 2015 and December 31, 2014:

 

    Recorded Investment              
    Debt Service Coverage Ratios                          

December 31, 2015

 

($ in thousands)

  > 1.20x     1.00x - 1.20x     < 1.00x     Total     % of Total     Estimated Fair
Value
    % of Total  
    (In thousands)                 (In thousands)        

Loan-to-value ratios:

             

Less than 65%

  $ 869,470      $ 85,869      $ 19,862      $ 975,201        64.6   $ 1,000,948        65.1

65% to 75%

    508,557        25,374        —          533,931        35.4        535,690        34.9   

76% to 80%

    —          —          —          —          0.0        —          0.0   

Greater than 80%

    —          —          —          —          0.0        —          0.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 1,378,027      $ 111,243      $ 19,862      $ 1,509,132        100.0   $ 1,536,638        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Recorded Investment              
    Debt Service Coverage Ratios                          

December 31, 2014

 

($ in thousands)

  > 1.20x     1.00x - 1.20x     < 1.00x     Total     % of Total     Estimated Fair
Value
    % of Total  
    (In thousands)                 (In thousands)        

Loan-to-value ratios:

             

Less than 65%

  $ 930,592      $ 151,700      $ 29,460      $ 1,111,752        97.6   $ 1,146,030        97.6

65% to 75%

    16,591        10,537        —          27,128        2.4        28,275        2.4   

76% to 80%

    —          —          —          —          0.0        —          0.0   

Greater than 80%

    —          —          —          —          0.0        —          0.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 947,183      $ 162,237      $ 29,460      $ 1,138,880        100.0   $ 1,174,305        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2015 and December 31, 2014, the Company had no allowance for credit losses for commercial mortgage loans. As of December 31, 2015 and December 31, 2014, $1,509 million and $1,139 million, respectively, of commercial mortgage loans were in current status with no commercial mortgage or other loans classified as past due. The Company defines current in its aging of past due commercial mortgage and other loans as less than 30 days past due.

Impaired loans include those loans for which it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. As of December 31, 2015 and December 31, 2014, the Company held no impaired commercial mortgage loans.

The Company’s commercial mortgage may occasionally be involved in a troubled debt restructuring. As of December 31, 2015, the Company had no commitments to fund to borrowers that have been involved in a troubled debt restructuring. As of December 31, 2015 and December 31, 2014, the Company had no new troubled debt restructurings related to commercial mortgage and no payment defaults on commercial mortgages.

 

Other Invested Assets — Successor

The following table sets forth the composition of “Other invested assets” as of December 31, 2015 and December 31, 2014:

Amortized Cost

 

     Successor     Successor  

($ in thousands)

   December 31,
2015
    December 31,
2014
 

Low income housing tax credit properties

   $ 677      $ 896   

Derivatives

     17,735        26,001   
  

 

 

   

 

 

 
   $ 18,412      $ 26,897   
  

 

 

   

 

 

 

Net Investment Income

Net investment income for Successor Periods for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:

 

     Successor     Predecessor  

($ in thousands)

   For the Year
Ended
December 31,
2015
     For the Period
from April 1, 2014
through
December 31,
2014
    For the Period
from January 1,
2014
through March 31,
2014
     For the Year
Ended
December 31,
2013
 

Fixed maturities

   $ 334,931       $ 231,972      $ 2,461       $ 11,545   

Commercial mortgage loans

     63,028         49,417        —           —     

Cash, cash equivalents and short-term investments

     511         4,786        16         23   

Other investment (loss) income

     9,543         7,353        —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross investment income

     408,013         293,528        2,477         11,568   

Investment expenses

     9,082         4,957        127         633   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net investment income

   $ 398,931       $ 288,571      $ 2,350       $ 10,935   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

Realized Investment Gains and Losses

Realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:

 

     Successor     Predecessor  

($ in thousands)

   For the Year
Ended
December 31,
2015
    For the Period
from April 1, 2014
through
December 31,
2014
    For the Period
from January 1,
2014
through March 31,
2014
     For the Year
Ended
December 31,
2013
 

Realized investment gains, net

         

Fixed maturities

   $ 120,421      $ 25,795      $ 285       $ —     

Commercial mortgage loans

     2,325        2,880        —           —     

Derivatives

     (9,208     17,417        —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net realized gains

   $ 113,538      $ 46,092      $ 285       $ —     
  

 

 

   

 

 

   

 

 

    

 

 

 

There were no other-than-temporary impairment losses recorded in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014.

There were no other-than-temporary impairment losses recorded in the Predecessor Period from January 1, 2014 through March 31, 2014. Realized capital gains and losses in the Predecessor year ended December 31, 2013 included $2 thousand of other-than-temporary impairment losses related to RMBS, none of which were included in other comprehensive income. No other-than-temporary impairment losses were included in accumulated other comprehensive income as of December 31, 2015 or as of December 31, 2014.

Proceeds from sales of fixed maturities and gross realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:

 

     Successor     Predecessor  

($ in thousands)

   For the Year
Ended

December 31,
2015
    For the Period
from April 1, 2014
through
December 31,
2014
    For the Period
from January 1,
2014
through March 31,

2014
    For the Year
Ended
December 31,
2013
 

Fixed maturities, available-for-sale

        

Proceeds from sales

   $ 3,864,356      $ 1,429,177      $ 5,277      $ 9,170   

Gross investment gains from sales

     147,287        30,403        317        3   

Gross investment losses from sales

     (26,829     (4,608     (32     (1

Proceeds from sales excludes taxable exchanges of $72.4 million and $3.0 million for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively.

 

Unrealized Investment Gains and Losses — Successor

The following table summarizes the gross unrealized losses and fair value of fixed maturities by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and December 31, 2014:

 

     Less than 12 months     Greater than 12 months               

December 31, 2015

 

($ in thousands)

   Fair Value      Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair Value      Gross
Unrealized
Losses
 

U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies

   $ 18,639       $ (77   $ 98       $ (4   $ 18,737       $ (81

Obligations of U.S. States and Political Subdivisions

     207,889         (6,983     4,030         (35     211,919         (7,018

Foreign government

     41,507         (8,665     5,965         (1,936     47,472         (10,601

All other corporate securities

     3,523,371         (293,131     209,474         (60,018     3,732,845         (353,149

ABS

     397,884         (7,031     15,040         (1,198     412,924         (8,229

CMBS

     437,244         (7,164     8,419         (80     445,663         (7,244

RMBS

     65,470         (776     29,659         (753     95,129         (1,529
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total fixed income securities

   $ 4,692,004       $ (323,827   $ 272,685       $ (64,024   $ 4,964,689       $ (387,851
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Less than 12 months     Greater than 12 months               

December 31, 2014

 

($ in thousands)

   Fair Value      Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair Value      Gross
Unrealized
Losses
 

U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies

   $ 14,160       $ (58   $ —         $ —        $ 14,160       $ (58

Obligations of U.S. States and Political Subdivisions

     57,605         (531     —           —          57,605         (531

Foreign government

     37,543         (437     —           —          37,543         (437

All other corporate securities

     1,683,186         (34,127     —           —          1,683,186         (34,127

ABS

     115,568         (2,408     —           —          115,568         (2,408

CMBS

     135,203         (1,065     —           —          135,203         (1,065

RMBS

     92,804         (1,023     —           —          92,804         (1,023
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total fixed income securities

   $ 2,136,069       $ (39,649   $ —         $ —        $ 2,136,069       $ (39,649
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Portfolio Monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed maturity security whose carrying value may be other-than-temporarily impaired.

For each fixed maturity security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other-than-temporary and is recorded in earnings.

 

If the Company has not made the decision to sell the fixed maturity security and it is not more likely than not the Company will be required to sell the fixed maturity security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed maturity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost.

 

Net Unrealized Investment Gains and Losses in AOCI

 

($ in thousands)

 

Predecessor

   Net Unrealized
Gain (Losses) on
Investments
    VOBA     Future Policy
Benefits and
Policyholders’
Account Balances
    Deferred
Income Tax
(Liability)
Benefit
    Accumulated Other
Comprehensive
Income (Loss)
Related to Net
Unrealized
Investment Gains
(Losses)
 

Balance, December 31, 2012

   $ 21,236      $ —        $ —        $ (7,433   $ 13,803   

Net investment gains and losses on investments arising during the period

     (15,281     —          —          5,349        (9,932

Reclassification adjustment for gains and losses included in net income

     1        —          —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

   $ 5,954      $ —        $ —        $ (2,084   $ 3,870   

Net investment gains and losses on investments arising during the period

     2,364        —          —          (828     1,536   

Reclassification adjustment for gains and losses included in net income

     285        —          —          (100     185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2014

   $ 8,033      $ —        $ —        $ (2,812   $ 5,221   
                                      

Successor

                              

Balance, April 1, 2014

   $ —        $ —        $ —        $ —        $ —     

Net investment gains and losses on investments arising during the period

     159,261        —          —          (55,675     103,586   

Reclassification adjustment for gains and losses included in net income

     —          —          —          —          —     

Impact of net unrealized investment gains and losses on VOBA

     —          (20,287     —          7,100        (13,187

Impact of net unrealized investment gains and losses on future policy benefits and policyholders’ account balances

     —          —          (7,541     2,640        (4,901
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

   $ 159,261      $ (20,287   $ (7,541   $ (45,935   $ 85,498   

Net investment gains and losses on investments arising during the period

     (408,019     —          —          142,807        (265,212

Reclassification adjustment for gains and losses included in net income

     79,023        —          —          (27,658     51,365   

Impact of net unrealized investment gains and losses on VOBA

     —          57,061        —          (19,971     37,090   

Impact of net unrealized investment gains and losses on future policy benefits and policyholders’ account balances

     —          —          60,447        (21,157     39,290   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2015

   $ (327,781   $ 36,774      $ 52,906      $ 83,402      $ (154,699