Investments (Tables)

9 Months Ended

Sep. 30, 2017

At September 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)
September 30, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	11,864	$	210	$	(139	)	$	11,935
United States Government sponsored agencies	1,306,423		29,350		(33,698		)	1,302,075
United States municipalities, states and territories	3,737,212		362,914		(6,494		)	4,093,632
Foreign government obligations	228,291		13,821		(1,712		)	240,400
Corporate securities	28,071,650		1,755,592		(151,318		)	29,675,924
Residential mortgage backed securities	1,060,247		88,841		(2,266		)	1,146,822
Commercial mortgage backed securities	5,510,057		90,743		(68,317		)	5,532,483
Other asset backed securities	2,560,531		52,145		(14,650		)	2,598,026
	$	42,486,275	$	2,393,616	$	(278,594	)	$	44,601,297
Held for investment:
Corporate security	$	76,986	$	—	$	(1,940	)	$	75,046

Other investments: equity securities, available for sale:
Finance, insurance, and real estate	$	7,427	$	—	$	—		$	7,427

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 September 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	$	254,328	$	259,418	$	—	$	—
Due after one year through five years	4,036,883		4,220,686		—		—
Due after five years through ten years	11,479,300		11,803,130		—		—
Due after ten years through twenty years	8,941,769		9,725,828		—		—
Due after twenty years	8,643,160		9,314,904		76,986		75,046
	33,355,440		35,323,966		76,986		75,046
Residential mortgage backed securities	1,060,247		1,146,822		—		—
Commercial mortgage backed securities	5,510,057		5,532,483		—		—
Other asset backed securities	2,560,531		2,598,026		—		—
	$	42,486,275	$	44,601,297	$	76,986	$	75,046

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:



	September 30, 2017			December 31, 2016
	(Dollars in thousands)
Net unrealized gains on available for sale fixed maturity securities and equity securities	$	2,115,022		$	1,107,018
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements	(1,135,088		)	(618,661		)
Deferred income tax valuation allowance reversal	22,534			22,534
Deferred income tax expense	(342,977		)	(170,925		)
Net unrealized gains reported as accumulated other comprehensive income	$	659,491		$	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:



	September 30, 2017				December 31, 2016
NAIC Designation	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	26,653,735	$	28,133,264	$	25,607,268	$	26,507,798
2	14,618,128		15,264,374		13,037,592		13,295,648
3	1,156,976		1,149,258		1,201,059		1,155,702
4	102,604		98,308		154,226		137,188
5	19,492		22,271		17,475		24,664
6	12,326		8,868		13,160		8,260
	$	42,563,261	$	44,676,343	$	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 906 and 1,514 securities, respectively) have been in a continuous unrealized loss position, at September 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)
September 30, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	6,731	$	(139	)	$	—	$	—		$	6,731	$	(139	)
United States Government sponsored agencies	914,762		(28,722		)	72,024		(4,976		)	986,786		(33,698		)
United States municipalities, states and territories	206,787		(6,467		)	473		(27		)	207,260		(6,494		)
Foreign government obligations	49,971		(30		)	12,641		(1,682		)	62,612		(1,712		)
Corporate securities:
Finance, insurance and real estate	691,425		(22,211		)	270,612		(12,683		)	962,037		(34,894		)
Manufacturing, construction and mining	387,180		(7,752		)	161,727		(9,802		)	548,907		(17,554		)
Utilities and related sectors	446,845		(8,962		)	94,224		(5,477		)	541,069		(14,439		)
Wholesale/retail trade	244,317		(6,418		)	72,601		(4,356		)	316,918		(10,774		)
Services, media and other	923,719		(24,079		)	663,689		(49,578		)	1,587,408		(73,657		)
Residential mortgage backed securities	31,390		(607		)	19,849		(1,659		)	51,239		(2,266		)
Commercial mortgage backed securities	1,508,005		(27,249		)	731,738		(41,068		)	2,239,743		(68,317		)
Other asset backed securities	633,600		(3,588		)	147,538		(11,062		)	781,138		(14,650		)
	$	6,044,732	$	(136,224	)	$	2,247,116	$	(142,370	)	$	8,291,848	$	(278,594	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	75,046	$	(1,940	)	$	75,046	$	(1,940	)

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 nine months ended September 30, 2017 and 2016 are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Fixed maturity securities held for investment carried at amortized cost	$	(1,711	)	$	6,954		$	6,119		$	10,019
Investments carried at fair value:
Fixed maturity securities, available for sale	$	128,981		$	224,258		$	1,008,483		$	2,507,204
Equity securities, available for sale	(457		)	28			(479		)	10
	128,524			224,286			1,008,004			2,507,214
Adjustment for effect on other balance sheet accounts:
Deferred policy acquisition costs and deferred sales inducements	(52,572		)	(115,727		)	(516,427		)	(1,334,702		)
Deferred income tax asset/liability	(26,583		)	(37,995		)	(172,052		)	(410,379		)
	(79,155		)	(153,722		)	(688,479		)	(1,745,081		)
Change in net unrealized gains on investments carried at fair value	$	49,369		$	70,564		$	319,525		$	762,133

Net Realized Gains (Losses) on Investments

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	1,520		$	4,956		$	11,571		$	11,047
Gross realized losses	(1		)	(79		)	(4,463		)	(2,678		)
	1,519			4,877			7,108			8,369
Available for sale equity securities:
Gross realized gains	348			—			348			—

Other investments:
Gain on sale of real estate	12			31			56			867
Loss on sale of real estate	—			—			—			(93		)
	12			31			56			774
Mortgage loans on real estate:
Decrease (increase) in allowance for credit losses	(300		)	(113		)	278			(3,946		)
Recovery of specific allowance	—			461			—			5,483
	(300		)	348			278			1,537
	$	1,579		$	5,256		$	7,790		$	10,680

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 nine months ended September 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
Nine months ended September 30, 2017
Prime	2005	7.0	%	7.7	%	8	%	22	%	40	%	50	%
	2006	7.3	%	7.3	%	14	%	14	%	40	%	40	%
	2007	6.2	%	6.6	%	15	%	19	%	50	%	60	%

Nine months ended September 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 nine months ended September 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 September 30, 2017
Fixed maturity securities, available for sale:
Residential mortgage backed securities	3	$	(273	)	$	(191	)	$	(464	)

Three months ended September 30, 2016
Fixed maturity securities, available for sale:
Corporate securities:
Materials	1	$	(4,554	)	$	1,575		$	(2,979	)

Nine months ended September 30, 2017
Fixed maturity securities, available for sale:
Residential mortgage backed securities	8	$	(273	)	$	(994	)	$	(1,267	)
Other asset backed securities	1	—			(287		)	(287		)
	9	$	(273	)	$	(1,281	)	$	(1,554	)

Nine months ended September 30, 2016
Fixed maturity securities, available for sale:
Corporate securities:
Energy	2	$	(642	)	$	—		$	(642	)
Materials	1	(4,554		)	1,575			(2,979		)
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		)
	17	$	(11,334	)	$	(1,785	)	$	(13,119	)

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Cumulative credit loss at beginning of period	$	(153,526	)	$	(154,408	)	$	(166,375	)	$	(145,824	)
Credit losses on securities for which OTTI has not previously been recognized	(273		)	(2,979		)	(273		)	(9,197		)
Additional credit losses on securities for which OTTI has previously been recognized	(191		)	—			(1,281		)	(3,922		)
Accumulated losses on securities that were disposed of during the period	—			573			13,939			2,129
Cumulative credit loss at end of period	$	(153,990	)	$	(156,814	)	$	(153,990	)	$	(156,814	)

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 September 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)
September 30, 2017
Fixed maturity securities, available for sale:
Corporate securities	$	10,508	$	(4,263	)	$	10,432		$	16,677
Residential mortgage backed securities	313,966		(168,946		)	204,207			349,227
Other asset backed securities	4,567		(1,356		)	(1,924		)	1,287
	$	329,041	$	(174,565	)	$	212,715		$	367,191
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