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Investments | 9 Months Ended
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Sep. 30, 2018
Investments [Abstract] |
Investments | Investments Fixed Maturity and Equity Securities Available-for-Sale The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”). The following table provides information relating to investments in fixed maturity securities by sector as of September 30, 2018 (dollars in thousands):
September 30, 2018: |  | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value |  | % of Total |  | Other-than- temporary impairments in AOCI
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | $ | 24,271,467 |  |  | $ | 594,444 |  |  | $ | 416,413 |  |  | $ | 24,449,498 |  |  | 62.7 | % |  | $ | — |
Canadian government |  | 2,902,433 |  |  | 1,138,426 |  |  | 4,109 |  |  | 4,036,750 |  |  | 10.3 |  |  | — |
RMBS |  | 1,816,949 |  |  | 14,235 |  |  | 50,422 |  |  | 1,780,762 |  |  | 4.6 |  |  | — |
ABS |  | 1,867,650 |  |  | 10,312 |  |  | 14,945 |  |  | 1,863,017 |  |  | 4.8 |  |  | 275 |
CMBS |  | 1,282,015 |  |  | 8,403 |  |  | 16,884 |  |  | 1,273,534 |  |  | 3.3 |  |  | — |
U.S. government |  | 1,500,703 |  |  | 6,359 |  |  | 94,653 |  |  | 1,412,409 |  |  | 3.6 |  |  | — |
State and political subdivisions |  | 889,218 |  |  | 36,410 |  |  | 13,637 |  |  | 911,991 |  |  | 2.3 |  |  | — |
Other foreign government |  | 3,220,697 |  |  | 98,574 |  |  | 42,020 |  |  | 3,277,251 |  |  | 8.4 |  |  | — |
Total fixed maturity securities |  | $ | 37,751,132 |  |  | $ | 1,907,163 |  |  | $ | 653,083 |  |  | $ | 39,005,212 |  |  | 100.0 | % |  | $ | 275 |
The following table provides information relating to investments in fixed maturity and equity securities by sector as of December 31, 2017 (dollars in thousands):
December 31, 2017: |  | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value |  | % of Total |  | Other-than- temporary impairments in AOCI
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | $ | 21,966,803 |  |  | $ | 1,299,594 |  |  | $ | 55,429 |  |  | $ | 23,210,968 |  |  | 60.9 | % |  | $ | — |
Canadian government |  | 2,843,273 |  |  | 1,378,510 |  |  | 1,707 |  |  | 4,220,076 |  |  | 11.1 |  |  | — |
RMBS |  | 1,695,126 |  |  | 36,632 |  |  | 11,878 |  |  | 1,719,880 |  |  | 4.5 |  |  | — |
ABS |  | 1,634,758 |  |  | 18,798 |  |  | 5,194 |  |  | 1,648,362 |  |  | 4.3 |  |  | 275 |
CMBS |  | 1,285,594 |  |  | 22,627 |  |  | 4,834 |  |  | 1,303,387 |  |  | 3.4 |  |  | — |
U.S. government |  | 1,953,436 |  |  | 12,089 |  |  | 21,933 |  |  | 1,943,592 |  |  | 5.1 |  |  | — |
State and political subdivisions |  | 647,727 |  |  | 59,997 |  |  | 4,296 |  |  | 703,428 |  |  | 1.8 |  |  | — |
Other foreign government |  | 3,254,695 |  |  | 154,507 |  |  | 8,075 |  |  | 3,401,127 |  |  | 8.9 |  |  | — |
Total fixed maturity securities |  | $ | 35,281,412 |  |  | $ | 2,982,754 |  |  | $ | 113,346 |  |  | $ | 38,150,820 |  |  | 100.0 | % |  | $ | 275 |
Non-redeemable preferred stock |  | $ | 41,553 |  |  | $ | 479 |  |  | $ | 2,226 |  |  | $ | 39,806 |  |  | 39.7 | % |  |
Other equity securities |  | 61,288 |  |  | 479 |  |  | 1,421 |  |  | 60,346 |  |  | 60.3 |  |  |
Total equity securities |  | $ | 102,841 |  |  | $ | 958 |  |  | $ | 3,647 |  |  | $ | 100,152 |  |  | 100.0 | % |  |
The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of September 30, 2018 and December 31, 2017, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of September 30, 2018 and December 31, 2017 (dollars in thousands):
| September 30, 2018 |  | December 31, 2017
| Amortized Cost |  | Estimated Fair Value |  | Amortized Cost |  | Estimated Fair Value
Fixed maturity securities pledged as collateral | $ | 67,899 |  |  | $ | 69,792 |  |  | $ | 72,542 |  |  | $ | 75,622 |
Fixed maturity securities received as collateral | n/a |  |  | 592,146 |  |  | n/a |  |  | 590,417 |
Assets in trust held to satisfy collateral requirements | 19,263,724 |  |  | 19,670,559 |  |  | 15,584,296 |  |  | 16,715,281 |
The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of September 30, 2018 and December 31, 2017 (dollars in thousands).
| September 30, 2018 |  | December 31, 2017
| Amortized Cost |  | Estimated Fair Value |  | Amortized Cost |  | Estimated Fair Value
Fixed maturity securities guaranteed or issued by: |  |  |  |  |  |  |
Canadian province of Quebec | $ | 1,158,326 |  |  | $ | 1,833,972 |  |  | $ | 1,119,337 |  |  | $ | 1,917,996 |
Canadian province of Ontario | 951,186 |  |  | 1,225,712 |  |  | 939,837 |  |  | 1,282,944 |
The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at September 30, 2018 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.
|  | Amortized Cost |  | Estimated Fair Value
Available-for-sale: |  |  |  |
Due in one year or less |  | $ | 986,289 |  |  | $ | 993,352 |
Due after one year through five years |  | 7,797,732 |  |  | 7,888,116 |
Due after five years through ten years |  | 9,311,737 |  |  | 9,407,186 |
Due after ten years |  | 14,688,760 |  |  | 15,799,245 |
Asset and mortgage-backed securities |  | 4,966,614 |  |  | 4,917,313 |
Total |  | $ | 37,751,132 |  |  | $ | 39,005,212 |
Corporate Fixed Maturity Securities The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of September 30, 2018 and December 31, 2017 (dollars in thousands):
September 30, 2018: |  |  |  | Estimated |  |
|  | Amortized Cost |  | Fair Value |  | % of Total
Finance |  | $ | 8,561,885 |  |  | $ | 8,564,254 |  |  | 35.1 | %
Industrial |  | 12,632,502 |  |  | 12,753,024 |  |  | 52.1 |
Utility |  | 3,077,080 |  |  | 3,132,220 |  |  | 12.8 |
Total |  | $ | 24,271,467 |  |  | $ | 24,449,498 |  |  | 100.0 | %
December 31, 2017: |  |  |  | Estimated |  |
|  | Amortized Cost |  | Fair Value |  | % of Total
Finance |  | $ | 7,977,885 |  |  | $ | 8,362,774 |  |  | 36.1 | %
Industrial |  | 11,535,166 |  |  | 12,199,333 |  |  | 52.5 |
Utility |  | 2,453,752 |  |  | 2,648,861 |  |  | 11.4 |
Total |  | $ | 21,966,803 |  |  | $ | 23,210,968 |  |  | 100.0 | %
Other-Than-Temporary Impairments - Fixed Maturity Securities As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2017 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities, the net amount recognized in the condensed consolidated statements of income (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):
|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Balance, beginning of period |  | $ | 3,677 |  |  | $ | 3,677 |  |  | $ | 3,677 |  |  | $ | 6,013 |
Credit loss OTTI previously recognized on securities impaired to fair value during the period |  | — |  |  | — |  |  | — |  |  | (2,336 | )
Balance, end of period |  | $ | 3,677 |  |  | $ | 3,677 |  |  | $ | 3,677 |  |  | $ | 3,677 |
Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale The following table presents the total gross unrealized losses for the 2,866 fixed maturity securities as of September 30, 2018, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
|  | September 30, 2018
|  | Gross Unrealized Losses |  | % of Total
Less than 20% |  | $ | 640,481 |  |  | 98.1 | %
20% or more for less than six months |  | 309 |  |  | — |
20% or more for six months or greater |  | 12,293 |  |  | 1.9 |
Total |  | $ | 653,083 |  |  | 100.0 | %
The following table presents the total gross unrealized losses for the 1,116 fixed maturity and equity securities at December 31, 2017 where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
|  | December 31, 2017
|  | Gross Unrealized Losses |  | % of Total
Less than 20% |  | $ | 113,466 |  |  | 97.0 | %
20% or more for less than six months |  | 689 |  |  | 0.6 |
20% or more for six months or greater |  | 2,838 |  |  | 2.4 |
Total |  | $ | 116,993 |  |  | 100.0 | %
The Company’s determination of whether a decline in value is other-than-temporary includes an analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The following table presents the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 2,866 fixed maturity securities that have estimated fair values below amortized cost as of September 30, 2018 (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.
|  | Less than 12 months |  | 12 months or greater |  | Total
|  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
September 30, 2018: |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
Investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | $ | 10,117,970 |  |  | $ | 303,926 |  |  | $ | 1,290,804 |  |  | $ | 81,236 |  |  | $ | 11,408,774 |  |  | $ | 385,162 |
Canadian government |  | 58,816 |  |  | 1,211 |  |  | 107,167 |  |  | 2,736 |  |  | 165,983 |  |  | 3,947 |
RMBS |  | 931,044 |  |  | 23,339 |  |  | 528,739 |  |  | 27,063 |  |  | 1,459,783 |  |  | 50,402 |
ABS |  | 680,900 |  |  | 8,650 |  |  | 262,544 |  |  | 6,243 |  |  | 943,444 |  |  | 14,893 |
CMBS |  | 555,716 |  |  | 8,304 |  |  | 207,943 |  |  | 8,580 |  |  | 763,659 |  |  | 16,884 |
U.S. government |  | 197,114 |  |  | 3,913 |  |  | 1,002,661 |  |  | 90,740 |  |  | 1,199,775 |  |  | 94,653 |
State and political subdivisions |  | 261,456 |  |  | 6,722 |  |  | 90,649 |  |  | 6,915 |  |  | 352,105 |  |  | 13,637 |
Other foreign government |  | 1,034,417 |  |  | 24,666 |  |  | 297,566 |  |  | 11,062 |  |  | 1,331,983 |  |  | 35,728 |
Total investment grade securities |  | 13,837,433 |  |  | 380,731 |  |  | 3,788,073 |  |  | 234,575 |  |  | 17,625,506 |  |  | 615,306 |
Below investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | 539,521 |  |  | 23,955 |  |  | 77,675 |  |  | 7,296 |  |  | 617,196 |  |  | 31,251 |
Canadian government |  | 2,328 |  |  | 162 |  |  | — |  |  | — |  |  | 2,328 |  |  | 162 |
RMBS |  | — |  |  | — |  |  | 1,102 |  |  | 20 |  |  | 1,102 |  |  | 20 |
ABS |  | — |  |  | — |  |  | 1,110 |  |  | 52 |  |  | 1,110 |  |  | 52 |
Other foreign government |  | 140,692 |  |  | 5,931 |  |  | 6,410 |  |  | 361 |  |  | 147,102 |  |  | 6,292 |
Total below investment grade securities |  | 682,541 |  |  | 30,048 |  |  | 86,297 |  |  | 7,729 |  |  | 768,838 |  |  | 37,777 |
Total fixed maturity securities |  | $ | 14,519,974 |  |  | $ | 410,779 |  |  | $ | 3,874,370 |  |  | $ | 242,304 |  |  | $ | 18,394,344 |  |  | $ | 653,083 |
The following table presents the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,116 fixed maturity and equity securities that have estimated fair values below amortized cost as of December 31, 2017 (dollars in thousands):
|  | Less than 12 months |  | 12 months or greater |  | Total
|  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
December 31, 2017: |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
Investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | $ | 1,886,212 |  |  | $ | 17,099 |  |  | $ | 1,009,750 |  |  | $ | 28,080 |  |  | $ | 2,895,962 |  |  | $ | 45,179 |
Canadian government |  | 18,688 |  |  | 91 |  |  | 111,560 |  |  | 1,596 |  |  | 130,248 |  |  | 1,687 |
RMBS |  | 566,699 |  |  | 5,852 |  |  | 224,439 |  |  | 6,004 |  |  | 791,138 |  |  | 11,856 |
ABS |  | 434,274 |  |  | 2,707 |  |  | 168,524 |  |  | 2,434 |  |  | 602,798 |  |  | 5,141 |
CMBS |  | 220,401 |  |  | 1,914 |  |  | 103,269 |  |  | 2,920 |  |  | 323,670 |  |  | 4,834 |
U.S. government |  | 800,298 |  |  | 6,177 |  |  | 767,197 |  |  | 15,756 |  |  | 1,567,495 |  |  | 21,933 |
State and political subdivisions |  | 43,510 |  |  | 242 |  |  | 68,666 |  |  | 4,054 |  |  | 112,176 |  |  | 4,296 |
Other foreign government |  | 369,717 |  |  | 2,707 |  |  | 191,265 |  |  | 4,704 |  |  | 560,982 |  |  | 7,411 |
Total investment grade securities |  | 4,339,799 |  |  | 36,789 |  |  | 2,644,670 |  |  | 65,548 |  |  | 6,984,469 |  |  | 102,337 |
Below investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate |  | 194,879 |  |  | 3,317 |  |  | 75,731 |  |  | 6,933 |  |  | 270,610 |  |  | 10,250 |
Canadian government |  | 1,995 |  |  | 20 |  |  | — |  |  | — |  |  | 1,995 |  |  | 20 |
RMBS |  | — |  |  | — |  |  | 1,369 |  |  | 22 |  |  | 1,369 |  |  | 22 |
ABS |  | — |  |  | — |  |  | 1,489 |  |  | 53 |  |  | 1,489 |  |  | 53 |
Other foreign government |  | 28,600 |  |  | 113 |  |  | 15,134 |  |  | 551 |  |  | 43,734 |  |  | 664 |
Total below investment grade securities |  | 225,474 |  |  | 3,450 |  |  | 93,723 |  |  | 7,559 |  |  | 319,197 |  |  | 11,009 |
Total fixed maturity securities |  | $ | 4,565,273 |  |  | $ | 40,239 |  |  | $ | 2,738,393 |  |  | $ | 73,107 |  |  | $ | 7,303,666 |  |  | $ | 113,346 |
Non-redeemable preferred stock |  | $ | 82 |  |  | $ | 1 |  |  | $ | 26,471 |  |  | $ | 2,225 |  |  | $ | 26,553 |  |  | $ | 2,226 |
Other equity securities |  | 5,820 |  |  | 1,023 |  |  | 47,251 |  |  | 398 |  |  | 53,071 |  |  | 1,421 |
Total equity securities |  | $ | 5,902 |  |  | $ | 1,024 |  |  | $ | 73,722 |  |  | $ | 2,623 |  |  | $ | 79,624 |  |  | $ | 3,647 |
The Company has no intention to sell, nor does it expect to be required to sell, the securities outlined in the table above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines. Changes in unrealized losses are primarily being driven by changes in interest rates. Investment Income, Net of Related Expenses Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):
| Three months ended September 30, |  | Nine months ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Fixed maturity securities available-for-sale | $ | 378,669 |  |  | $ | 359,157 |  |  | $ | 1,121,496 |  |  | $ | 1,039,392 |
Equity securities | 1,319 |  |  | 942 |  |  | 3,710 |  |  | 3,296 |
Mortgage loans on real estate | 54,424 |  |  | 50,040 |  |  | 155,083 |  |  | 138,829 |
Policy loans | 14,730 |  |  | 15,404 |  |  | 44,285 |  |  | 45,870 |
Funds withheld at interest | 108,232 |  |  | 102,144 |  |  | 270,094 |  |  | 327,089 |
Short-term investments and cash and cash equivalents | 3,067 |  |  | 1,977 |  |  | 9,276 |  |  | 5,266 |
Other invested assets | 35,594 |  |  | 46,653 |  |  | 80,207 |  |  | 87,192 |
Investment income | 596,035 |  |  | 576,317 |  |  | 1,684,151 |  |  | 1,646,934 |
Investment expense | (23,293 | ) |  | (19,399 | ) |  | (67,019 | ) |  | (57,114 | )
Investment income, net of related expenses | $ | 572,742 |  |  | $ | 556,918 |  |  | $ | 1,617,132 |  |  | $ | 1,589,820 |
Investment Related Gains (Losses), Net Investment related gains (losses), net consist of the following (dollars in thousands):
| Three months ended September 30, |  | Nine months ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Fixed maturity securities available for sale: |  |  |  |  |  |  |
Other-than-temporary impairment losses | $ | (10,705 | ) |  | $ | (390 | ) |  | $ | (14,055 | ) |  | $ | (20,980 | )
Gain on investment activity | 20,040 |  |  | 19,512 |  |  | 52,146 |  |  | 91,611 |
Loss on investment activity | (37,880 | ) |  | (7,593 | ) |  | (94,194 | ) |  | (26,577 | )
Equity securities: |  |  |  |  |  |  |
Other-than-temporary impairment losses | — |  |  | (889 | ) |  | — |  |  | (889 | )
Gain on investment activity | 3,932 |  |  | 10 |  |  | 4,429 |  |  | 24 |
Loss on investment activity | (174 | ) |  | (85 | ) |  | (1,124 | ) |  | (4,135 | )
Change in unrealized gains (losses) recognized in earnings | 3,539 |  |  | — |  |  | (7,564 | ) |  | — |
Other impairment losses and change in mortgage loan provision | (6,566 | ) |  | (2,446 | ) |  | (8,235 | ) |  | (9,220 | )
Derivatives and other, net | 7,797 |  |  | 14,534 |  |  | 37,538 |  |  | 109,637 |
Total investment related gains (losses), net | $ | (20,017 | ) |  | $ | 22,653 |  |  | $ | (31,059 | ) |  | $ | 139,471 |
The fixed maturity impairments for the three and nine months ended September 30, 2018 and 2017 were largely related to high-yield corporate securities. The equity impairments for the three and nine months ended September 30, 2017 were related to an equity position received as part of a debt restructuring. The other impairment losses and change in mortgage loan provision for the three and nine months ended September 30, 2018 includes impairments on real estate joint ventures and limited partnerships. The other impairment losses and change in mortgage loan provision for the three and nine months ended September 30, 2017 includes impairments on limited partnerships. The fluctuations in investment related gains (losses) for derivatives and other for the three and nine months ended September 30, 2018, compared to the same periods in 2017, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps. During the three months ended September 30, 2018 and 2017, the Company sold fixed maturity securities with fair values of $1,345.3 million and $479.7 million at losses of $37.9 million and $7.6 million, respectively. During the nine months ended September 30, 2018 and 2017, the Company sold fixed maturity securities with fair values of $3,783.3 million and $1,604.7 million at losses of $94.2 million and $26.6 million, respectively. During the three months ended September 30, 2018 and 2017, the Company sold equity securities with fair values of $3.1 million and $5.0 million at losses of $0.2 million and $0.1 million, respectively. During the nine months ended September 30, 2018 and 2017, the Company sold equity securities with fair values of $31.5 million and $166.7 million at losses of $1.1 million and $4.1 million, respectively. The Company generally does not buy and sell securities on a short-term basis. Securities Borrowing, Lending and Other The following table includes the amount of borrowed securities, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of September 30, 2018 and December 31, 2017 (dollars in thousands).
| September 30, 2018 |  | December 31, 2017
| Amortized Cost |  | Estimated Fair Value |  | Amortized Cost |  | Estimated Fair Value
Borrowed securities | $ | 353,650 |  |  | $ | 370,323 |  |  | $ | 358,875 |  |  | $ | 377,820 |
Securities lending: |  |  |  |  |  |  |
Securities loaned | 101,965 |  |  | 102,489 |  |  | 117,246 |  |  | 121,551 |
Securities received | n/a |  |  | 112,000 |  |  | n/a |  |  | 128,000 |
Repurchase program/reverse repurchase program: |  |  |  |  |  |  |
Securities pledged | 408,679 |  |  | 404,905 |  |  | 413,819 |  |  | 428,344 |
Securities received | n/a |  |  | 400,515 |  |  | n/a |  |  | 417,550 |
The Company also held cash collateral for securities lending and the repurchase program/reverse repurchase programs of $28.9 million and $31.2 million at September 30, 2018 and December 31, 2017, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of September 30, 2018 and December 31, 2017. The following tables present information on the Company’s securities lending and repurchase transactions as of September 30, 2018 and December 31, 2017 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the table, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.
| September 30, 2018
| Remaining Contractual Maturity of the Agreements
| Overnight and Continuous |  | Up to 30 Days |  | 30-90 Days |  | Greater than 90 Days |  | Total
Securities lending transactions: |  |  |  |  |  |  |  |  |
Corporate | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 102,489 |  |  | $ | 102,489 |
Total | — |  |  | — |  |  | — |  |  | 102,489 |  |  | 102,489 |
Repurchase transactions: |  |  |  |  |  |  |  |  |
Corporate | — |  |  | — |  |  | — |  |  | 132,228 |  |  | 132,228 |
U.S. government | — |  |  | — |  |  | — |  |  | 219,906 |  |  | 219,906 |
Foreign government | — |  |  | — |  |  | — |  |  | 52,771 |  |  | 52,771 |
Other | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | — |  |  | — |  |  | — |  |  | 404,905 |  |  | 404,905 |
Total transactions | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 507,394 |  |  | $ | 507,394 |
Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table |  | $ | 541,411 |
Amounts related to agreements not included in offsetting disclosure |  | $ | 34,017 |
| December 31, 2017
| Remaining Contractual Maturity of the Agreements
| Overnight and Continuous |  | Up to 30 Days |  | 30-90 Days |  | Greater than 90 Days |  | Total
Securities lending transactions: |  |  |  |  |  |  |  |  |
Corporate | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 121,551 |  |  | $ | 121,551 |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 121,551 |  |  | $ | 121,551 |
Repurchase transactions: |  |  |  |  |  |  |  |  |
Corporate | $ | — |  |  | $ | — |  |  | $ | 312 |  |  | $ | 184,334 |  |  | $ | 184,646 |
U.S. government | — |  |  | — |  |  | — |  |  | 220,765 |  |  | 220,765 |
Foreign government | — |  |  | — |  |  | — |  |  | 21,802 |  |  | 21,802 |
Other | 1,131 |  |  | — |  |  | — |  |  | — |  |  | 1,131 |
Total | 1,131 |  |  | — |  |  | 312 |  |  | 426,901 |  |  | 428,344 |
Total borrowings | $ | 1,131 |  |  | $ | — |  |  | $ | 312 |  |  | $ | 548,452 |  |  | $ | 549,895 |
Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table |  | $ | 576,786 |
Amounts related to agreements not included in offsetting disclosure |  | $ | 26,891 |
The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the condensed consolidated balance sheets was a liability of $0.4 million and $1.1 million of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, the Company recognized payables resulting from cash received as collateral associated with a repurchase agreement as discussed above. Amounts owed to and due from the counterparties may be settled in cash or offset, in accordance with the agreements. Mortgage Loans on Real Estate Mortgage loans represented approximately 9.0% and 8.5% of the Company’s total investments as of September 30, 2018 and December 31, 2017. As of September 30, 2018, mortgage loans were geographically dispersed throughout the U.S. with the largest concentrations in California (18.8%), Texas (10.0%) and Georgia (7.5%) and include loans secured by properties in Canada (2.6%). The recorded investment in mortgage loans on real estate presented below is gross of unamortized deferred loan origination fees and expenses, and valuation allowances. The distribution of mortgage loans by property type is as follows as of September 30, 2018 and December 31, 2017 (dollars in thousands):
|  | September 30, 2018 |  | December 31, 2017
Property type: |  | Carrying Value |  | % of Total |  | Carrying Value |  | % of Total
Office building |  | $ | 1,633,887 |  |  | 34.1 | % |  | $ | 1,487,392 |  |  | 33.6 | %
Retail |  | 1,365,157 |  |  | 28.5 |  |  | 1,270,676 |  |  | 28.8 |
Industrial |  | 983,553 |  |  | 20.5 |  |  | 938,612 |  |  | 21.3 |
Apartment |  | 543,917 |  |  | 11.3 |  |  | 510,052 |  |  | 11.6 |
Other commercial |  | 267,712 |  |  | 5.6 |  |  | 206,439 |  |  | 4.7 |
Recorded investment |  | 4,794,226 |  |  | 100.0 | % |  | 4,413,171 |  |  | 100.0 | %
Unamortized balance of loan origination fees and expenses |  | (4,786 | ) |  |  |  | (3,254 | ) |  |
Valuation allowances |  | (10,366 | ) |  |  |  | (9,384 | ) |  |
Total mortgage loans on real estate |  | $ | 4,779,074 |  |  |  |  | $ | 4,400,533 |  |  |
The maturities of mortgage loans as of September 30, 2018 and December 31, 2017 are as follows (dollars in thousands):
|  | September 30, 2018 |  | December 31, 2017
|  | Recorded Investment |  | % of Total |  | Recorded Investment |  | % of Total
Due within five years |  | $ | 1,216,241 |  |  | 25.4 | % |  | $ | 1,091,066 |  |  | 24.8 | %
Due after five years through ten years |  | 2,738,400 |  |  | 57.1 |  |  | 2,516,872 |  |  | 57.0 |
Due after ten years |  | 839,585 |  |  | 17.5 |  |  | 805,233 |  |  | 18.2 |
Total |  | $ | 4,794,226 |  |  | 100.0 | % |  | $ | 4,413,171 |  |  | 100.0 | %
The following tables set forth certain key credit quality indicators of the Company’s recorded investment in mortgage loans as of September 30, 2018 and December 31, 2017 (dollars in thousands):
| Recorded Investment
| Debt Service Ratios |  | Construction loans |  |  |  |
| >1.20x |  | 1.00x - 1.20x |  | <1.00x |  |  | Total |  | % of Total
September 30, 2018: |  |  |  |  |  |  |  |  |  |  |
Loan-to-Value Ratio |  |  |  |  |  |  |  |  |  |  |
0% - 59.99% | $ | 2,146,401 |  |  | $ | 63,794 |  |  | $ | 43,486 |  |  | $ | 25,724 |  |  | $ | 2,279,405 |  |  | 47.6 | %
60% - 69.99% | 1,666,525 |  |  | 117,726 |  |  | 62,617 |  |  | — |  |  | 1,846,868 |  |  | 38.5 |
70% - 79.99% | 386,137 |  |  | 70,884 |  |  | 76,054 |  |  | — |  |  | 533,075 |  |  | 11.1 |
Greater than 80% | 108,233 |  |  | 22,429 |  |  | 4,216 |  |  | — |  |  | 134,878 |  |  | 2.8 |
Total | $ | 4,307,296 |  |  | $ | 274,833 |  |  | $ | 186,373 |  |  | $ | 25,724 |  |  | $ | 4,794,226 |  |  | 100.0 | %
| Recorded Investment
| Debt Service Ratios |  | Construction loans |  |  |  |
| >1.20x |  | 1.00x - 1.20x |  | <1.00x |  |  | Total |  | % of Total
December 31, 2017: |  |  |  |  |  |  |  |  |  |  |
Loan-to-Value Ratio |  |  |  |  |  |  |  |  |  |  |
0% - 59.99% | $ | 2,148,428 |  |  | $ | 53,979 |  |  | $ | 3,801 |  |  | $ | — |  |  | $ | 2,206,208 |  |  | 50.0 | %
60% - 69.99% | 1,517,029 |  |  | 47,128 |  |  | 43,921 |  |  | — |  |  | 1,608,078 |  |  | 36.4 |
70% - 79.99% | 396,446 |  |  | 19,461 |  |  | 15,367 |  |  | — |  |  | 431,274 |  |  | 9.8 |
Greater than 80% | 120,850 |  |  | 30,713 |  |  | 6,362 |  |  | 9,686 |  |  | 167,611 |  |  | 3.8 |
Total | $ | 4,182,753 |  |  | $ | 151,281 |  |  | $ | 69,451 |  |  | $ | 9,686 |  |  | $ | 4,413,171 |  |  | 100.0 | %
The age analysis of the Company’s past due recorded investments in mortgage loans as of September 30, 2018 and December 31, 2017 (dollars in thousands):
|  | September 30, 2018 |  | December 31, 2017
31-60 days past due |  | $ | — |  |  | $ | 17,100 |
61-90 days past due |  | — |  |  | 2,056 |
Total past due |  | — |  |  | 19,156 |
Current |  | 4,794,226 |  |  | 4,394,015 |
Total |  | $ | 4,794,226 |  |  | $ | 4,413,171 |
The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of September 30, 2018 and December 31, 2017 (dollars in thousands):
|  | September 30, 2018 |  | December 31, 2017
Mortgage loans: |  |  |  |
Individually measured for impairment |  | $ | 30,629 |  |  | $ | 5,858 |
Collectively measured for impairment |  | 4,763,597 |  |  | 4,407,313 |
Recorded investment |  | $ | 4,794,226 |  |  | $ | 4,413,171 |
Valuation allowances: |  |  |  |
Individually measured for impairment |  | $ | — |  |  | $ | — |
Collectively measured for impairment |  | 10,366 |  |  | 9,384 |
Total valuation allowances |  | $ | 10,366 |  |  | $ | 9,384 |
Information regarding the Company’s loan valuation allowances for mortgage loans for the three and nine months ended September 30, 2018 and 2017 is as follows (dollars in thousands):
|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Balance, beginning of period |  | $ | 9,706 |  |  | $ | 8,156 |  |  | $ | 9,384 |  |  | $ | 7,685 |
Provision (release) |  | 656 |  |  | 977 |  |  | 986 |  |  | 1,444 |
Translation adjustment |  | 4 |  |  | 4 |  |  | (4 | ) |  | 8 |
Balance, end of period |  | $ | 10,366 |  |  | $ | 9,137 |  |  | $ | 10,366 |  |  | $ | 9,137 |
Information regarding the portion of the Company’s mortgage loans that were impaired as of September 30, 2018 and December 31, 2017 is as follows (dollars in thousands):
|  | Unpaid Principal Balance |  | Recorded Investment |  | Related Allowance |  | Carrying Value
September 30, 2018: |  |  |  |  |  |  |  |
Impaired mortgage loans with no valuation allowance recorded |  | $ | 30,660 |  |  | $ | 30,629 |  |  | $ | — |  |  | $ | 30,629 |
Impaired mortgage loans with valuation allowance recorded |  | — |  |  | — |  |  | — |  |  | — |
Total impaired mortgage loans |  | $ | 30,660 |  |  | $ | 30,629 |  |  | $ | — |  |  | $ | 30,629 |
December 31, 2017: |  |  |  |  |  |  |  |
Impaired mortgage loans with no valuation allowance recorded |  | $ | 6,427 |  |  | $ | 5,858 |  |  | $ | — |  |  | $ | 5,858 |
Impaired mortgage loans with valuation allowance recorded |  | — |  |  | — |  |  | — |  |  | — |
Total impaired mortgage loans |  | $ | 6,427 |  |  | $ | 5,858 |  |  | $ | — |  |  | $ | 5,858 |
The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
|  | Three months ended September 30,
|  | 2018 |  | 2017
|  | Average Recorded Investment(1) |  | Interest Income |  | Average Recorded Investment(1) |  | Interest Income
Impaired mortgage loans with no valuation allowance recorded |  | $ | 30,641 |  |  | $ | 346 |  |  | $ | 3,967 |  |  | $ | 33 |
Impaired mortgage loans with valuation allowance recorded |  | — |  |  | — |  |  | — |  |  | — |
Total impaired mortgage loans |  | $ | 30,641 |  |  | $ | 346 |  |  | $ | 3,967 |  |  | $ | 33 |
|  | Nine months ended September 30,
|  | 2018 |  | 2017
|  | Average Recorded Investment(1) |  | Interest Income |  | Average Recorded Investment(1) |  | Interest Income
Impaired mortgage loans with no valuation allowance recorded |  | $ | 22,641 |  |  | $ | 650 |  |  | $ | 3,062 |  |  | $ | 100 |
Impaired mortgage loans with valuation allowance recorded |  | — |  |  | — |  |  | — |  |  | — |
Total impaired mortgage loans |  | $ | 22,641 |  |  | $ | 650 |  |  | $ | 3,062 |  |  | $ | 100 |
(1) Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances. The Company did not acquire any impaired mortgage loans during the nine months ended September 30, 2018 and 2017. The Company had no mortgage loans that were on a nonaccrual status at September 30, 2018 and December 31, 2017. Policy Loans Policy loans comprised approximately 2.5% and 2.6% of the Company’s total investments as of September 30, 2018 and December 31, 2017, respectively, the majority of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities. Funds Withheld at Interest Funds withheld at interest comprised approximately 11.3% and 11.8% of the Company’s total investments as of both September 30, 2018 and December 31, 2017. Of the $6.0 billion funds withheld at interest balance, net of embedded derivatives, as of September 30, 2018, $3.9 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed to the Company from the ceding company. Other Invested Assets Other invested assets include limited partnership interests, joint ventures (other than operating joint ventures), equity release mortgages, derivative contracts and fair value option (“FVO”) contractholder-directed unit-linked investments. Other invested assets also include Federal Home Loan Bank of Des Moines (“FHLB”) common stock which is included in other in the table below. Other invested assets represented approximately 3.2% and 2.9% of the Company’s total investments as of September 30, 2018 and December 31, 2017, respectively. Carrying values of these assets as of September 30, 2018 and December 31, 2017 are as follows (dollars in thousands):
|  | September 30, 2018 |  | December 31, 2017
Limited partnership interests and real estate joint ventures |  | $ | 924,006 |  |  | $ | 781,124 |
Equity release mortgages |  | 383,450 |  |  | 219,940 |
Derivatives |  | 101,124 |  |  | 137,613 |
FVO contractholder-directed unit-linked investments |  | 212,315 |  |  | 218,541 |
Other |  | 86,084 |  |  | 148,114 |
Total other invested assets |  | $ | 1,706,979 |  |  | $ | 1,505,332 |

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