Investments (Tables)

6 Months Ended

Jun. 30, 2018

At June 30, 2018 and December 31, 2017, 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, 2018
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	11,693	$	96	$	(434	)	$	11,355
United States Government sponsored agencies	1,308,334		16,776		(75,670		)	1,249,440
United States municipalities, states and territories	3,914,553		274,464		(14,835		)	4,174,182
Foreign government obligations	227,542		6,742		(5,671		)	228,613
Corporate securities	28,015,515		868,904		(611,887		)	28,272,532
Residential mortgage backed securities	1,147,738		67,642		(7,774		)	1,207,606
Commercial mortgage backed securities	5,426,483		26,015		(121,324		)	5,331,174
Other asset backed securities	4,301,883		43,452		(20,867		)	4,324,468
	$	44,353,741	$	1,304,091	$	(858,462	)	$	44,799,370
Held for investment:
Corporate security	$	77,155	$	—	$	(9,047	)	$	68,108

December 31, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	11,861	$	162	$	(147	)	$	11,876
United States Government sponsored agencies	1,308,290		28,457		(31,730		)	1,305,017
United States municipalities, states and territories	3,804,360		366,048		(3,596		)	4,166,812
Foreign government obligations	228,214		13,171		(2,025		)	239,360
Corporate securities	28,127,653		1,897,005		(145,687		)	29,878,971
Residential mortgage backed securities	1,028,484		79,554		(2,471		)	1,105,567
Commercial mortgage backed securities	5,531,922		82,768		(69,840		)	5,544,850
Other asset backed securities	3,075,975		57,966		(13,405		)	3,120,536
	$	43,116,759	$	2,525,131	$	(268,901	)	$	45,372,989
Held for investment:
Corporate security	$	77,041	$	—	$	(581	)	$	76,460

Other investments: equity securities, available for sale:
Finance, insurance, and real estate	$	292,429	$	—	$	—		$	292,429

Schedule of Fixed Maturity Securities by Contractual Maturity Date

The amortized cost and fair value of fixed maturity securities at June 30, 2018, 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	$	257,926	$	263,997	$	—	$	—
Due after one year through five years	5,319,752		5,332,148		—		—
Due after five years through ten years	9,837,190		9,714,831		—		—
Due after ten years through twenty years	9,443,966		9,881,974		—		—
Due after twenty years	8,618,803		8,743,172		77,155		68,108
	33,477,637		33,936,122		77,155		68,108
Residential mortgage backed securities	1,147,738		1,207,606		—		—
Commercial mortgage backed securities	5,426,483		5,331,174		—		—
Other asset backed securities	4,301,883		4,324,468		—		—
	$	44,353,741	$	44,799,370	$	77,155	$	68,108

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

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



	June 30, 2018			December 31, 2017
	(Dollars in thousands)
Net unrealized gains on available for sale fixed maturity securities	$	445,629		$	2,256,230
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements	(245,791		)	(1,206,078		)
Deferred income tax valuation allowance reversal	22,534			22,534
Deferred income tax expense (a)	(41,966		)	(348,087		)
Net unrealized gains reported as accumulated other comprehensive income	$	180,406		$	724,599


(a)	December 31, 2017 includes $128 million related to the impact of Tax Reform that was reclassified between accumulated other comprehensive income and retained earnings within our consolidated balance sheet during the first quarter of 2018. For more information regarding the reclassification, see Note 1 to our unaudited consolidated financial statements.

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, 2018				December 31, 2017
NAIC Designation	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	26,684,401	$	27,202,339	$	26,669,427	$	28,274,379
2	16,234,429		16,224,126		15,198,551		15,869,219
3	1,315,549		1,264,462		1,161,737		1,157,420
4	176,033		150,805		134,838		117,542
5	12,566		17,592		17,015		20,927
6	7,918		8,154		12,232		9,962
	$	44,430,896	$	44,867,478	$	43,193,800	$	45,449,449

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 2,380 and 955 securities, respectively) have been in a continuous unrealized loss position, at June 30, 2018 and December 31, 2017:



	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, 2018
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	3,207	$	(71	)	$	6,337	$	(363	)	$	9,544	$	(434	)
United States Government sponsored agencies	73,252		(2,849		)	917,701		(72,821		)	990,953		(75,670		)
United States municipalities, states and territories	331,888		(7,141		)	124,246		(7,694		)	456,134		(14,835		)
Foreign government obligations	137,543		(2,723		)	11,344		(2,948		)	148,887		(5,671		)
Corporate securities:
Finance, insurance and real estate	2,614,016		(79,329		)	619,550		(58,977		)	3,233,566		(138,306		)
Manufacturing, construction and mining	1,879,373		(64,814		)	232,902		(19,930		)	2,112,275		(84,744		)
Utilities and related sectors	2,349,475		(76,830		)	236,132		(20,938		)	2,585,607		(97,768		)
Wholesale/retail trade	1,061,264		(34,731		)	155,842		(19,254		)	1,217,106		(53,985		)
Services, media and other	4,406,410		(146,027		)	787,105		(91,057		)	5,193,515		(237,084		)
Residential mortgage backed securities	343,560		(6,925		)	26,164		(849		)	369,724		(7,774		)
Commercial mortgage backed securities	2,666,425		(48,665		)	1,234,488		(72,659		)	3,900,913		(121,324		)
Other asset backed securities	1,963,790		(16,240		)	119,503		(4,627		)	2,083,293		(20,867		)
	$	17,830,203	$	(486,345	)	$	4,471,314	$	(372,117	)	$	22,301,517	$	(858,462	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	68,108	$	(9,047	)	$	68,108	$	(9,047	)

December 31, 2017
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	1,565	$	(10	)	$	6,731	$	(137	)	$	8,296	$	(147	)
United States Government sponsored agencies	44,794		(180		)	958,965		(31,550		)	1,003,759		(31,730		)
United States municipalities, states and territories	44,736		(128		)	128,499		(3,468		)	173,235		(3,596		)
Foreign government obligations	49,663		(337		)	12,625		(1,688		)	62,288		(2,025		)
Corporate securities:
Finance, insurance and real estate	456,244		(5,135		)	600,655		(28,043		)	1,056,899		(33,178		)
Manufacturing, construction and mining	222,985		(3,475		)	231,196		(10,849		)	454,181		(14,324		)
Utilities and related sectors	395,183		(4,099		)	249,416		(8,901		)	644,599		(13,000		)
Wholesale/retail trade	152,941		(1,249		)	178,635		(11,371		)	331,576		(12,620		)
Services, media and other	729,124		(19,000		)	891,654		(53,565		)	1,620,778		(72,565		)
Residential mortgage backed securities	39,771		(387		)	32,917		(2,084		)	72,688		(2,471		)
Commercial mortgage backed securities	1,096,757		(10,385		)	1,306,437		(59,455		)	2,403,194		(69,840		)
Other asset backed securities	765,531		(3,499		)	217,595		(9,906		)	983,126		(13,405		)
	$	3,999,294	$	(47,884	)	$	4,815,325	$	(221,017	)	$	8,814,619	$	(268,901	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	76,460	$	(581	)	$	76,460	$	(581	)

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, 2018 and 2017 are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Fixed maturity securities held for investment carried at amortized cost	$	(1,445	)	$	9,806		$	(8,466	)	$	7,830
Investments carried at fair value:
Fixed maturity securities, available for sale	$	(594,906	)	$	598,408		$	(1,810,601	)	$	879,502
Equity securities, available for sale	—			(9		)	—			(22		)
	(594,906		)	598,399			(1,810,601		)	879,480
Adjustment for effect on other balance sheet accounts:
Deferred policy acquisition costs and deferred sales inducements	316,964			(312,893		)	960,287			(463,855		)
Deferred income tax asset/liability	58,366			(99,927		)	178,567			(145,469		)
	375,330			(412,820		)	1,138,854			(609,324		)
Change in net unrealized gains on investments carried at fair value	$	(219,576	)	$	185,579		$	(671,747	)	$	270,156

Net Realized Gains (Losses) on Investments

Net realized gains on investments, excluding net OTTI losses for the three and six months ended June 30, 2018 and 2017, are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	958		$	4,479		$	2,340		$	10,051
Gross realized losses	(39,633		)	(899		)	(41,735		)	(4,462		)
	(38,675		)	3,580			(39,395		)	5,589

Other investments:
Gain on sale of real estate	—			15			—			44

Mortgage loans on real estate:
Decrease in allowance for credit losses	170			278			470			578
Recovery of specific allowance	—			—			722			—
Gain on sale of mortgage loans	124			—			124			—
	294			278			1,316			578
	$	(38,381	)	$	3,873		$	(38,079	)	$	6,211

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, 2018 and 2017, which are all senior level tranches within the structure of the securities:



		Discount Rate				Default Rate				Loss Severity
	Vintage	Min		Max		Min		Max		Min		Max
Six months ended June 30, 2018
Prime	2005	7.0	%	7.7	%	14	%	23	%	40	%	50	%
	2007	6.6	%	6.6	%	17	%	17	%	60	%	60	%

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	%

Other Than Temporary Impairment by Asset Type

The following table summarizes other than temporary impairments for the three and six months ended June 30, 2018 and 2017, 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, 2018
Fixed maturity securities, available for sale:
Residential mortgage backed securities	3	$	(63	)	$	(295	)	$	(358	)
Other asset backed securities	1	(682		)	(1,356		)	(2,038		)
	4	$	(745	)	$	(1,651	)	$	(2,396	)

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	)

Six months ended June 30, 2018
Fixed maturity securities, available for sale:
Corporate securities:
Consumer discretionary	1	$	(907	)	$	—		$	(907	)
Residential mortgage backed securities	3	(63		)	(295		)	(358		)
Other asset backed securities	1	(682		)	(1,356		)	(2,038		)
	5	$	(1,652	)	$	(1,651	)	$	(3,303	)

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	)

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,
	2018			2017			2018			2017
	(Dollars in thousands)
Cumulative credit loss at beginning of period	$	(154,073	)	$	(152,577	)	$	(157,066	)	$	(166,375	)
Additions for the amount related to credit losses for which OTTI has not previously been recognized	(745		)	—			(1,652		)	—
Additional credit losses on securities for which OTTI has previously been recognized	(1,651		)	(949		)	(1,651		)	(1,090		)
Accumulated losses on securities that were disposed of during the period	—			—			3,900			13,939
Cumulative credit loss at end of period	$	(156,469	)	$	(153,526	)	$	(156,469	)	$	(153,526	)

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, 2018 and December 31, 2017:



	Amortized Cost		OTTI Recognized in Other Comprehensive Income			Change in Fair Value Since OTTI was Recognized			Fair Value
	(Dollars in thousands)
June 30, 2018
Fixed maturity securities, available for sale:
Corporate securities	$	18,064	$	(3,700	)	$	9,565		$	23,929
Residential mortgage backed securities	268,848		(168,060		)	204,914			305,702
Other asset backed securities	2,529		—			(835		)	1,694
	$	289,441	$	(171,760	)	$	213,644		$	331,325
December 31, 2017
Fixed maturity securities, available for sale:
Corporate securities	$	13,015	$	(4,263	)	$	10,739		$	19,491
Residential mortgage backed securities	297,582		(168,355		)	201,620			330,847
Other asset backed securities	4,567		(1,356		)	(1,875		)	1,336
	$	315,164	$	(173,974	)	$	210,484		$	351,674