Investments (Tables)

6 Months Ended

Jun. 30, 2017

At June 30, 2017 and December 31, 2016, the amortized cost and fair value of fixed maturity securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
June 30, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	12,114	$	228	$	(168	)	$	12,174
United States Government sponsored agencies	1,348,391		30,288		(37,840		)	1,340,839
United States municipalities, states and territories	3,777,760		369,526		(9,572		)	4,137,714
Foreign government obligations	228,896		12,462		(2,489		)	238,869
Corporate securities	27,813,420		1,656,805		(183,154		)	29,287,071
Residential mortgage backed securities	1,090,846		93,316		(2,312		)	1,181,850
Commercial mortgage backed securities	5,519,767		89,865		(69,249		)	5,540,383
Other asset backed securities	2,116,550		51,796		(13,461		)	2,154,885
	$	41,907,744	$	2,304,286	$	(318,245	)	$	43,893,785
Held for investment:
Corporate security	$	76,931	$	—	$	(229	)	$	76,702

Other investments: equity securities, available for sale:
Finance, insurance, and real estate	$	7,525	$	457	$	—		$	7,982

December 31, 2016
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	11,864	$	229	$	(288	)	$	11,805
United States Government sponsored agencies	1,368,340		23,360		(46,913		)	1,344,787
United States municipalities, states and territories	3,626,395		322,948		(22,393		)	3,926,950
Foreign government obligations	229,589		11,832		(5,080		)	236,341
Corporate securities	26,333,213		1,149,978		(368,773		)	27,114,418
Residential mortgage backed securities	1,166,944		91,445		(3,554		)	1,254,835
Commercial mortgage backed securities	5,422,255		59,994		(117,014		)	5,365,235
Other asset backed securities	1,795,355		31,471		(20,703		)	1,806,123
	$	39,953,955	$	1,691,257	$	(584,718	)	$	41,060,494
Held for investment:
Corporate security	$	76,825	$	—	$	(8,059	)	$	68,766

Other investments: equity securities, available for sale:
Finance, insurance, and real estate	$	7,521	$	479	$	—		$	8,000

Schedule of Fixed Maturity Securities by Contractual Maturity Date

The amortized cost and fair value of fixed maturity securities at June 30, 2017, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our mortgage and other asset backed securities provide for periodic payments throughout their lives and are shown below as separate lines.



	Available for sale				Held for investment
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	287,042	$	294,085	$	—	$	—
Due after one year through five years	3,482,397		3,645,145		—		—
Due after five years through ten years	11,828,053		12,116,887		—		—
Due after ten years through twenty years	8,981,750		9,715,165		—		—
Due after twenty years	8,601,339		9,245,385		76,931		76,702
	33,180,581		35,016,667		76,931		76,702
Residential mortgage backed securities	1,090,846		1,181,850		—		—
Commercial mortgage backed securities	5,519,767		5,540,383		—		—
Other asset backed securities	2,116,550		2,154,885		—		—
	$	41,907,744	$	43,893,785	$	76,931	$	76,702

Schedule of Components of Net Unrealized Gains on Available for Sale Fixed Maturity and Equity Securities Reported as Separate Component of Stockholders' Equity

Net unrealized gains on available for sale fixed maturity securities and equity securities reported as a separate component of stockholders' equity were comprised of the following:



	June 30, 2017			December 31, 2016
	(Dollars in thousands)
Net unrealized gains on available for sale fixed maturity securities and equity securities	$	1,986,498		$	1,107,018
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements	(1,082,516		)	(618,661		)
Deferred income tax valuation allowance reversal	22,534			22,534
Deferred income tax expense	(316,394		)	(170,925		)
Net unrealized gains reported as accumulated other comprehensive income	$	610,122		$	339,966

Schedule of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation

The following table summarizes the credit quality, as determined by NAIC designation, of our fixed maturity portfolio as of the dates indicated:



	June 30, 2017				December 31, 2016
NAIC Designation	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	26,718,443	$	28,144,706	$	25,607,268	$	26,507,798
2	13,907,192		14,499,548		13,037,592		13,295,648
3	1,229,695		1,207,581		1,201,059		1,155,702
4	97,349		89,144		154,226		137,188
5	19,559		20,698		17,475		24,664
6	12,437		8,810		13,160		8,260
	$	41,984,675	$	43,970,487	$	40,030,780	$	41,129,260

Schedule of Gross Unrealized Losses on Investments, By Category and Length of Time

The following table shows our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 956 and 1,514 securities, respectively) have been in a continuous unrealized loss position, at June 30, 2017 and December 31, 2016:



	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
June 30, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	6,867	$	(168	)	$	—	$	—		$	6,867	$	(168	)
United States Government sponsored agencies	945,126		(35,343		)	49,503		(2,497		)	994,629		(37,840		)
United States municipalities, states and territories	273,302		(9,572		)	—		—			273,302		(9,572		)
Foreign government obligations	—		—			11,844		(2,489		)	11,844		(2,489		)
Corporate securities:
Finance, insurance and real estate	1,132,134		(37,599		)	86,335		(1,495		)	1,218,469		(39,094		)
Manufacturing, construction and mining	458,458		(9,156		)	200,709		(13,648		)	659,167		(22,804		)
Utilities and related sectors	523,863		(14,319		)	43,553		(2,612		)	567,416		(16,931		)
Wholesale/retail trade	282,589		(9,583		)	42,120		(4,812		)	324,709		(14,395		)
Services, media and other	1,156,695		(33,573		)	619,260		(56,357		)	1,775,955		(89,930		)
Residential mortgage backed securities	40,684		(1,631		)	8,036		(681		)	48,720		(2,312		)
Commercial mortgage backed securities	1,924,949		(44,461		)	439,081		(24,788		)	2,364,030		(69,249		)
Other asset backed securities	528,570		(6,387		)	65,296		(7,074		)	593,866		(13,461		)
	$	7,273,237	$	(201,792	)	$	1,565,737	$	(116,453	)	$	8,838,974	$	(318,245	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	76,702	$	(229	)	$	76,702	$	(229	)

December 31, 2016
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	7,405	$	(288	)	$	—	$	—		$	7,405	$	(288	)
United States Government sponsored agencies	995,548		(46,913		)	—		—			995,548		(46,913		)
United States municipalities, states and territories	463,409		(22,393		)	—		—			463,409		(22,393		)
Foreign government obligations	29,158		(913		)	20,388		(4,167		)	49,546		(5,080		)
Corporate securities:
Finance, insurance and real estate	1,940,107		(70,421		)	82,907		(7,723		)	2,023,014		(78,144		)
Manufacturing, construction and mining	1,199,420		(34,304		)	311,591		(23,273		)	1,511,011		(57,577		)
Utilities and related sectors	1,401,650		(45,015		)	58,597		(5,820		)	1,460,247		(50,835		)
Wholesale/retail trade	637,121		(18,880		)	29,719		(1,930		)	666,840		(20,810		)
Services, media and other	2,539,519		(82,196		)	716,857		(79,211		)	3,256,376		(161,407		)
Residential mortgage backed securities	81,762		(3,463		)	1,853		(91		)	83,615		(3,554		)
Commercial mortgage backed securities	3,148,395		(116,938		)	895		(76		)	3,149,290		(117,014		)
Other asset backed securities	751,533		(12,289		)	146,167		(8,414		)	897,700		(20,703		)
	$	13,195,027	$	(454,013	)	$	1,368,974	$	(130,705	)	$	14,564,001	$	(584,718	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	68,766	$	(8,059	)	$	68,766	$	(8,059	)

Schedule of Changes in Net Unrealized Gains/Losses on Investments

Changes in net unrealized gains on investments for the three and six months ended June 30, 2017 and 2016 are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Fixed maturity securities held for investment carried at amortized cost	$	9,806		$	820		$	7,830		$	3,065
Investments carried at fair value:
Fixed maturity securities, available for sale	$	598,408		$	1,167,861		$	879,502		$	2,282,946
Equity securities, available for sale	(9		)	(1		)	(22		)	(18		)
	598,399			1,167,860			879,480			2,282,928
Adjustment for effect on other balance sheet accounts:
Deferred policy acquisition costs and deferred sales inducements	(312,893		)	(609,224		)	(463,855		)	(1,218,975		)
Deferred income tax asset/liability	(99,927		)	(195,523		)	(145,469		)	(372,384		)
	(412,820		)	(804,747		)	(609,324		)	(1,591,359		)
Change in net unrealized gains on investments carried at fair value	$	185,579		$	363,113		$	270,156		$	691,569

Net Realized Gains (Losses) on Investments

Net realized gains on investments, excluding net OTTI losses for the three and six months ended June 30, 2017 and 2016, are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	4,479		$	4,604		$	10,051		$	6,091
Gross realized losses	(899		)	(1,368		)	(4,462		)	(2,599		)
	3,580			3,236			5,589			3,492
Other investments:
Gain on sale of real estate	15			705			44			836
Loss on sale of real estate	—			(1		)	—			(93		)
	15			704			44			743
Mortgage loans on real estate:
Decrease (increase) in allowance for credit losses	278			(2,885		)	578			(3,833		)
Recovery of specific allowance	—			1,682			—			5,022
	278			(1,203		)	578			1,189
	$	3,873		$	2,737		$	6,211		$	5,424

Significant Assumptions Used to Determine the Credit Loss Component of Other Than Temporary Impairment on Residential Mortgage Backed Securities

The following table presents the range of significant assumptions used to determine the credit loss component of other than temporary impairments we have recognized on residential mortgage backed securities for the six months ended June 30, 2017 and 2016, which are all senior level tranches within the structure of the securities:



		Discount Rate				Default Rate				Loss Severity
Sector	Vintage	Min		Max		Min		Max		Min		Max
Six months ended June 30, 2017
Prime	2005	7.5	%	7.7	%	8	%	16	%	45	%	50	%
	2007	6.2	%	6.6	%	15	%	19	%	50	%	60	%

Six months ended June 30, 2016
Prime	2005	7.7	%	7.7	%	14	%	14	%	50	%	50	%
	2006	7.3	%	7.3	%	13	%	13	%	50	%	50	%
	2007	6.2	%	6.4	%	18	%	31	%	50	%	55	%
Alt-A	2005	7.4	%	7.4	%	11	%	11	%	60	%	60	%

Other Than Temporary Impairment by Asset Type

The following table summarizes other than temporary impairments for the three and six months ended June 30, 2017 and 2016, by asset type:



	Number of Securities	Total OTTI Losses			Portion of OTTI Losses Recognized in (from) Other Comprehensive Income			Net OTTI Losses Recognized in Operations
		(Dollars in thousands)
Three months ended June 30, 2017
Fixed maturity securities, available for sale:
Residential mortgage backed securities	2	$	—		$	(662	)	$	(662	)
Other asset backed securities	1	—			(287		)	(287		)
	3	$	—		$	(949	)	$	(949	)

Three months ended June 30, 2016
Fixed maturity securities, available for sale:
Residential mortgage backed securities	2	$	—		$	(202	)	$	(202	)
Commercial mortgage backed securities	2	(762		)	—			(762		)
Other asset backed securities	1	—			(3,482		)	(3,482		)
	5	$	(762	)	$	(3,684	)	$	(4,446	)

Six months ended June 30, 2017
Fixed maturity securities, available for sale:
Residential mortgage backed securities	5	$	—		$	(803	)	$	(803	)
Other asset backed securities	1	—			(287		)	(287		)
	6	$	—		$	(1,090	)	$	(1,090	)

Six months ended June 30, 2016
Fixed maturity securities, available for sale:
Corporate securities:
Energy	2	$	(642	)	$	—		$	(642	)
Telecommunications	1	(4,462		)	562			(3,900		)
Utilities	1	(136		)	—			(136		)
Residential mortgage backed securities	6	—			(440		)	(440		)
Commercial mortgage backed securities	5	(1,540		)	—			(1,540		)
Other asset backed securities	1	—			(3,482		)	(3,482		)
	16	$	(6,780	)	$	(3,360	)	$	(10,140	)

Other Than Temporary Impairment, Credit Losses Recognized in Earnings

The cumulative portion of other than temporary impairments determined to be credit losses which have been recognized in operations for debt securities are summarized as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Cumulative credit loss at beginning of period	$	(152,577	)	$	(151,518	)	$	(166,375	)	$	(145,824	)
Credit losses on securities for which OTTI has not previously been recognized	—			(762		)	—			(6,218		)
Additional credit losses on securities for which OTTI has previously been recognized	(949		)	(3,684		)	(1,090		)	(3,922		)
Accumulated losses on securities that were disposed of during the period	—			1,556			13,939			1,556
Cumulative credit loss at end of period	$	(153,526	)	$	(154,408	)	$	(153,526	)	$	(154,408	)

Schedule of Other Than Temporary Impairment Losses, Investments

The following table summarizes the cumulative noncredit portion of OTTI and the change in fair value since recognition of OTTI, both of which were recognized in other comprehensive income, by major type of security, for securities that are part of our investment portfolio at June 30, 2017 and December 31, 2016:



	Amortized Cost		OTTI Recognized in Other Comprehensive Income			Change in Fair Value Since OTTI was Recognized			Fair Value
	(Dollars in thousands)
June 30, 2017
Fixed maturity securities, available for sale:
Corporate securities	$	10,502	$	(4,263	)	$	9,231		$	15,470
Residential mortgage backed securities	327,388		(169,137		)	204,438			362,689
Other asset backed securities	4,567		(1,356		)	(1,778		)	1,433
	$	342,457	$	(174,756	)	$	211,891		$	379,592
December 31, 2016
Fixed maturity securities, available for sale:
Corporate securities	$	17,549	$	(5,910	)	$	13,566		$	25,205
Residential mortgage backed securities	368,862		(169,941		)	205,854			404,775
Commercial mortgage backed securities	6,596		—			(107		)	6,489
Other asset backed securities	6,683		(1,643		)	(1,566		)	3,474
	$	399,690	$	(177,494	)	$	217,747		$	439,943