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Fair Values of Financial Instruments | 12 Months Ended
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Dec. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Values of Financial Instruments | Fair Values of Financial Instruments The following sets forth a comparison of the carrying amounts and fair values of our financial instruments:
| December 31,
| 2023 |  | 2022
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
| (Dollars in thousands)
Assets |  |  |  |  |  |  |
Fixed maturity securities, available for sale | $ | 34,780,482 |  |  | $ | 34,780,482 |  |  | $ | 39,804,617 |  |  | $ | 39,804,617 |
Mortgage loans on real estate | 7,537,594 |  |  | 7,047,993 |  |  | 6,949,027 |  |  | 6,502,463 |
Real estate investments | 1,334,247 |  |  | 1,336,247 |  |  | 1,056,063 |  |  | 1,056,063 |
Limited partnerships and limited liability companies | 506,685 |  |  | 506,685 |  |  | 684,835 |  |  | 684,835 |
Derivative instruments | 1,207,288 |  |  | 1,207,288 |  |  | 431,727 |  |  | 431,727 |
Other investments | 2,277,822 |  |  | 2,277,822 |  |  | 1,817,085 |  |  | 1,817,085 |
Cash and cash equivalents | 9,772,586 |  |  | 9,772,586 |  |  | 1,919,669 |  |  | 1,919,669 |
Coinsurance deposits | 14,582,728 |  |  | 13,570,942 |  |  | 13,254,956 |  |  | 12,640,797 |
Market risk benefits | 479,694 |  |  | 479,694 |  |  | 229,871 |  |  | 229,871 |
Liabilities |  |  |  |  |  |  |
Policy benefit reserves | 60,549,922 |  |  | 56,366,631 |  |  | 58,419,911 |  |  | 55,572,896 |
Market risk benefits | 3,146,554 |  |  | 3,146,554 |  |  | 2,455,492 |  |  | 2,455,492 |
Single premium immediate annuity (SPIA) benefit reserves | 188,301 |  |  | 196,720 |  |  | 212,119 |  |  | 221,130 |
Other policy funds - FHLB | — |  |  | — |  |  | 300,000 |  |  | 300,000 |
Notes and loan payable | 785,443 |  |  | 770,570 |  |  | 792,073 |  |  | 774,220 |
Subordinated debentures | 79,107 |  |  | 86,254 |  |  | 78,753 |  |  | 87,293 |
Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The objective of a fair value measurement is to determine that price for each financial instrument at each measurement date. We meet this objective using various methods of valuation that include market, income and cost approaches. We categorize our financial instruments into three levels of fair value hierarchy based on the priority of inputs used in determining fair value. The hierarchy defines the highest priority inputs (Level 1) as quoted prices in active markets for identical assets or liabilities. The lowest priority inputs (Level 3) are our own assumptions about what a market participant would use in determining fair value such as estimated future cash flows. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. We categorize financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows: Level 1 –Quoted prices are available in active markets for identical financial instruments as of the reporting date. We do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price. Level 2 –Quoted prices in active markets for similar financial instruments, quoted prices for identical or similar financial instruments in markets that are not active; and models and other valuation methodologies using inputs other than quoted prices that are observable. Level 3 – Models and other valuation methodologies using significant inputs that are unobservable for financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in Level 3 are securities for which no market activity or data exists and for which we used discounted expected future cash flows with our own assumptions about what a market participant would use in determining fair value. NAV –Our consolidated limited partnership funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the investment fund financial statements and is recorded on a quarter lag due to the timing of when financial statements are available. Transfers of securities among the levels occur at times and depend on the type of inputs used to determine fair value of each security. We record transfers between levels as of the beginning of the reporting period. Our assets and liabilities which are measured at fair value on a recurring basis as of December 31, 2023 and 2022 are presented below based on the fair value hierarchy levels:
| Total Fair Value |  | NAV |  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (Dollars in thousands)
December 31, 2023 |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Fixed maturity securities, available for sale: |  |  |  |  |  |  |  |  |
U.S. Government and agencies | $ | 171,141 |  |  | $ | — |  |  | $ | 27,593 |  |  | $ | 143,548 |  |  | $ | — |
States, municipalities and territories | 3,098,940 |  |  | — |  |  | — |  |  | 2,876,723 |  |  | 222,217 |
Foreign corporate securities and foreign governments | 493,739 |  |  | — |  |  | — |  |  | 493,739 |  |  | — |
Corporate securities | 20,603,416 |  |  | — |  |  | — |  |  | 20,347,979 |  |  | 255,437 |
Residential mortgage backed securities | 1,402,501 |  |  | — |  |  | — |  |  | 1,402,501 |  |  | — |
Commercial mortgage backed securities | 2,952,547 |  |  | — |  |  | — |  |  | 2,952,547 |  |  | — |
Other asset backed securities | 6,058,198 |  |  | — |  |  | — |  |  | 4,467,224 |  |  | 1,590,974 |
Other investments | 1,795,511 |  |  | — |  |  | 875,596 |  |  | 919,915 |  |  | — |
Real estate investments | 1,217,271 |  |  | — |  |  | — |  |  | — |  |  | 1,217,271 |
Limited partnerships and limited liability companies | 506,685 |  |  | 353,554 |  |  | — |  |  | — |  |  | 153,131 |
Derivative instruments | 1,207,288 |  |  | — |  |  | — |  |  | 1,207,288 |  |  | — |
Cash and cash equivalents | 9,772,586 |  |  | — |  |  | 9,772,586 |  |  | — |  |  | — |
Market risk benefits (a) | 479,694 |  |  | — |  |  | — |  |  | — |  |  | 479,694 |
| $ | 49,759,517 |  |  | $ | 353,554 |  |  | $ | 10,675,775 |  |  | $ | 34,811,464 |  |  | $ | 3,918,724 |
Liabilities |  |  |  |  |  |  |  |  |
Funds withheld liability - embedded derivative | $ | (256,776) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (256,776) |
Fixed index annuities - embedded derivatives | 5,181,894 |  |  | — |  |  | — |  |  | — |  |  | 5,181,894 |
Market risk benefits (a) | 3,146,554 |  |  | — |  |  | — |  |  | — |  |  | 3,146,554 |
| $ | 8,071,672 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 8,071,672 |
December 31, 2022 |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Fixed maturity securities, available for sale: |  |  |  |  |  |  |  |  |
U.S. Government and agencies | $ | 169,071 |  |  | $ | — |  |  | $ | 26,184 |  |  | $ | 142,887 |  |  | $ | — |
States, municipalities and territories | 3,822,982 |  |  | — |  |  | — |  |  | 3,822,982 |  |  | — |
Foreign corporate securities and foreign governments | 676,852 |  |  | — |  |  | — |  |  | 676,852 |  |  | — |
Corporate securities | 24,161,921 |  |  | — |  |  | — |  |  | 23,759,573 |  |  | 402,348 |
Residential mortgage backed securities | 1,377,611 |  |  | — |  |  | — |  |  | 1,377,611 |  |  | — |
Commercial mortgage backed securities | 3,687,478 |  |  | — |  |  | — |  |  | 3,687,478 |  |  | — |
Other asset backed securities | 5,908,702 |  |  | — |  |  | — |  |  | 5,465,784 |  |  | 442,918 |
Other investments | 1,013,297 |  |  | — |  |  | 398,280 |  |  | 615,017 |  |  | — |
Real estate investments | 940,559 |  |  | — |  |  | — |  |  | — |  |  | 940,559 |
Limited partnerships and limited liability companies | 684,835 |  |  | 620,626 |  |  | — |  |  | — |  |  | 64,209 |
Derivative instruments | 431,727 |  |  | — |  |  | — |  |  | 431,727 |  |  | — |
Cash and cash equivalents | 1,919,669 |  |  | — |  |  | 1,919,669 |  |  | — |  |  | — |
Market risk benefits (a) | 229,871 |  |  | — |  |  | — |  |  | — |  |  | 229,871 |
| $ | 45,024,575 |  |  | $ | 620,626 |  |  | $ | 2,344,133 |  |  | $ | 39,979,911 |  |  | $ | 2,079,905 |
Liabilities |  |  |  |  |  |  |  |  |
Funds withheld liability - embedded derivative | $ | (441,864) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (441,864) |
Fixed index annuities - embedded derivatives | 4,820,845 |  |  | — |  |  | — |  |  | — |  |  | 4,820,845 |
Market risk benefits (a) | 2,455,492 |  |  | — |  |  | — |  |  | — |  |  | 2,455,492 |
| $ | 6,834,473 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6,834,473 |
(a)See Note 8 - Policyholder Liabilities for additional information related to market risk benefits, including the balances of and changes in market risk benefits as well as significant inputs and assumptions used in the fair value measurements of market risk benefits. The following table provides a reconciliation of the beginning and ending balances for our Level 3 assets and liabilities, which are measured at fair value on a recurring basis using significant unobservable inputs for the years ended December 31, 2023 and 2022:
| Year Ended December 31,
| 2023 |  | 2022
| (Dollars in thousands)
Fixed maturity securities, available for sale - States, municipalities and territories |  |  |
Beginning balance | $ | — |  |  | $ | — |
Purchases and sales, net | — |  |  | — |
Transfers in | 203,757 |  |  | — |
Transfers out | (2,001) |  |  | — |
Total realized/unrealized gains (losses) |  |  |
Included in net income | — |  |  | — |
Included in other comprehensive income (loss) | 20,461 |  |  | — |
Ending balance | $ | 222,217 |  |  | $ | — |
Fixed maturity securities, available for sale - Corporate securities |  |  |
Beginning balance | $ | 402,348 |  |  | $ | — |
Purchases and sales, net | (45,187) |  |  | 2,233 |
Transfers in | 82,866 |  |  | 391,702 |
Transfers out | (172,174) |  |  | — |
Total realized/unrealized gains (losses): |  |  |
Included in net income | — |  |  | — |
Included in other comprehensive income (loss) | (12,416) |  |  | 8,413 |
Ending balance | $ | 255,437 |  |  | $ | 402,348 |
Fixed maturity securities, available for sale - Other asset backed securities |  |  |
Beginning balance | $ | 442,918 |  |  | $ | — |
Purchases and sales, net | 1,071,824 |  |  | 296,800 |
Transfers in | 160,160 |  |  | 153,669 |
Transfers out | (20,817) |  |  | — |
Total realized/unrealized gains (losses): |  |  |
Included in net income | — |  |  | — |
Included in other comprehensive income (loss) | (63,111) |  |  | (7,551) |
Ending balance | $ | 1,590,974 |  |  | $ | 442,918 |
Other investments |  |  |
Beginning balance | $ | — |  |  | $ | 6,349 |
Transfers in | 9,821 |  |  | — |
Transfers out | (23,244) |  |  | (3,867) |
Total realized/unrealized gains (losses): |  |  |
Included in net income | — |  |  | (2,482) |
Included in other comprehensive income (loss) | 13,423 |  |  | — |
Ending balance | $ | — |  |  | $ | — |
Real estate investments |  |  |
Beginning balance | $ | 940,559 |  |  | $ | 337,939 |
Purchases and sales, net | 313,235 |  |  | 602,298 |
Change in fair value | (36,523) |  |  | 322 |
Ending balance | $ | 1,217,271 |  |  | $ | 940,559 |
| Year Ended December 31,
| 2023 |  | 2022
| (Dollars in thousands)
Limited partnerships and limited liability companies |  |  |
Beginning balance | $ | 64,209 |  |  | $ | — |
Purchases and sales, net | 99,963 |  |  | 57,574 |
Change in fair value | (11,041) |  |  | 6,635 |
Ending balance | $ | 153,131 |  |  | $ | 64,209 |
Funds withheld liability - embedded derivative |  |  |
Beginning balance | $ | (441,864) |  |  | $ | — |
Transfers in | — |  |  | (441,864) |
Change in fair value | 185,088 |  |  | — |
Ending balance | $ | (256,776) |  |  | $ | (441,864) |
Fixed index annuities - embedded derivatives |  |  |
Beginning balance | $ | 4,820,845 |  |  | $ | 7,964,961 |
Premiums less benefits | (177,559) |  |  | (125,940) |
Change in fair value, net | 538,608 |  |  | (2,561,676) |
Reserve release related to in-force ceded reinsurance | — |  |  | (456,500) |
Ending balance | $ | 5,181,894 |  |  | $ | 4,820,845 |
Transfers into and out of Level 3 during the years ended December 31, 2023 and 2022 were primarily the result of changes in observable pricing information. Quantitative Information about Level 3 Fair Value Measurements The following table provides quantitative information about the significant unobservable inputs used for recurring fair value measurements categorized within Level 3, excluding investments where third party valuation inputs were not reasonably available. The market risk benefits are also excluded from the table. See Note 8 - Policyholder Liabilities for information on the unobservable inputs used in the fair value measurements of market risk benefits. See discussion of the valuation technique and significant unobservable inputs used for the embedded derivative component of our fixed index annuities in the Fixed index annuities-embedded derivatives paragraph below.
| December 31, 2023
| Assets / (Liabilities) Measured at Fair Value |  | Valuation Techniques(s) |  | Unobservable Input Description |  | Input / Range of Inputs |  | Weighted Average
Assets: | (in thousands) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |
Corporate securities | $ | 83,666 |  |  | Discounted cash flow |  | Liquidity premium |  | 20 basis points |  |
Other asset backed securities | 591,992 |  |  | Discounted cash flow |  | Discount rate |  | 5.26% |  | 25.00% |  | 6.92%
|  |  |  |  | Weighted average lives |  | 1.14 years |  | 12.09 years |  | 5.69 years
Real estate investments | 1,217,271 |  |  | Broker price opinion (a) |  |  |  |  |  |  |  |
Limited partnerships and limited | 46,705 |  |  | Discounted cash flow |  | Residual capitalization rate |  | 5.25% |  | 5.25% |  | 5.25%
liability companies - real estate |  |  |  |  | Discount rate |  | 6.50% |  | 6.75% |  | 6.61%
Limited partnerships and limited | 106,426 |  |  | Discounted cash flow |  | Discount rate |  | 11.00% |  | 11.00% |  | 11.00%
liability companies - infrastructure |  |  |  |  |  |  |  |  |  |  |
| December 31, 2022
| Assets / (Liabilities) Measured at Fair Value |  | Valuation Techniques(s) |  | Unobservable Input Description |  | Input / Range of Inputs |  | Weighted Average
Assets: | (in thousands) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |
Corporate securities | $ | 84,674 |  |  | Discounted cash flow |  | Liquidity premium |  | 20 basis points |  |
Other asset backed securities | 296,800 |  |  | Discounted cash flow |  | Discount rate |  | 4.04% |  | 28.58% |  | 4.36%
|  |  |  |  | Weighted average lives |  | 8.79 years |  | 12.48 years |  | 9.29 years
Real estate investments | 940,559 |  |  | Discounted cash flow |  | Residual capitalization rate |  | 4.75% |  | 6.50% |  | 5.44%
|  |  |  |  | Discount rate |  | 6.00% |  | 8.00% |  | 6.91%
Limited partnerships and limited | 64,209 |  |  | Discounted cash flow |  | Residual capitalization rate |  | 4.25% |  | 4.75% |  | 4.46%
liability companies - real estate |  |  |  |  | Discount rate |  | 5.75% |  | 6.00% |  | 5.86%
(a)At December 31, 2023, we updated our valuation technique for real estate investments. See description of valuation technique, inputs and reason for update in the Real estate investments paragraph below. The following methods and assumptions were used in estimating the fair values of financial instruments during the periods presented in these consolidated financial statements. Fixed maturity securities The fair values of fixed maturity securities in an active and orderly market are determined by utilizing independent pricing services. The independent pricing services incorporate a variety of observable market data in their valuation techniques, including: •reported trading prices, •benchmark yields, •broker-dealer quotes, •benchmark securities, •bids and offers, •credit ratings, •relative credit information, and •other reference data. The independent pricing services also take into account perceived market movements and sector news, as well as a security's terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. The independent pricing services provide quoted market prices when available. Quoted prices are not always available due to market inactivity. When quoted market prices are not available, the third parties use yield data and other factors relating to instruments or securities with similar characteristics to determine fair value for securities that are not actively traded. We generally obtain one value from our primary external pricing service. In situations where a price is not available from this service, we may obtain quotes or prices from additional parties as needed. Market indices of similar rated asset class spreads are considered for valuations and broker indications of similar securities are compared. Inputs used by the broker include market information, such as yield data and other factors relating to instruments or securities with similar characteristics. Valuations and quotes obtained from third party commercial pricing services are non-binding and do not represent quotes on which one may execute the disposition of the assets. We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparison of the prices to a secondary pricing source, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. Additionally, as needed we utilize discounted cash flow models or perform independent valuations on a case-by-case basis using inputs and assumptions similar to those used by the pricing services. Although we do identify differences from time to time as a result of these validation procedures, we did not make any significant adjustments as of December 31, 2023 and 2022. Fixed maturity security valuations that include at least one significant unobservable input are reflected in Level 3 in the fair value hierarchy and can include fixed maturity securities across all asset classes. Mortgage loans on real estate Mortgage loans on real estate are not measured at fair value on a recurring basis. The fair values of mortgage loans on real estate are calculated using discounted expected cash flows using competitive market interest rates currently being offered for similar loans. The fair values of impaired mortgage loans on real estate that we have considered to be collateral dependent are based on the fair value of the real estate collateral (based on appraised values) less estimated costs to sell. The inputs utilized to determine fair value of all mortgage loans are unobservable market data (competitive market interest rates); therefore, fair value of mortgage loans falls into Level 3 in the fair value hierarchy. Real estate investments The fair values of residential real estate investments held through consolidation of investment company VIEs are initially recorded based on the cost to purchase the properties and subsequently recorded at fair value on a recurring basis and falls within Level 3 of the fair value hierarchy. At December 31, 2023, the fair value of the residential real estate properties was determined using broker price opinions (BPOs). A BPO is an appraisal methodology commonly used in the industry to estimate net proceeds from the sale of a home. The significant inputs into the valuation include market comparable home sales, age and size of the home, location and property conditions. We moved from a discounted cash flow methodology to a BPO appraisal methodology during 2023 to better align property values with current market conditions. At December 31, 2022, the fair value of the residential real estate properties was determined using a discounted cash flow method. Under the discounted cash flow method, net operating income is forecasted assuming a 10-year hold period commencing as of the valuation date. An additional year is forecasted in order to determine the residual sale price at the end of the hold period, using a residual (terminal) capitalization rate. Limited partnerships and limited liability companies Two of our consolidated variable interest entities, which are fair valued on a recurring basis, invest in limited liability companies that invest in operating entities which hold multifamily real estate properties. The fair value of the limited liability companies was obtained from a third party and is based on the fair value of the underlying real estate held by the various operating entities. The real estate is initially calculated based on the cost to purchase the properties and subsequently calculated based on a discounted cash flow methodology. During 2023, we purchased an investment in an infrastructure limited liability company through a consolidated VIE that is measured at fair value on a recurring basis. We initially recorded the investment at the cost to purchase the investment and subsequently recorded based on a discounted cash flow methodology. At December 31, 2023, we held one consolidated limited partnership fund, which is measured using NAV as a practical expedient. This investment is a closed-end fund that invests in infrastructure credit assets. Redemptions are not allowed until the funds’ termination date and liquidations begin. At December 31, 2022, we held two consolidated limited partnership funds measured using NAV as a practical expedient, that were both closed-end funds that did not allow redemptions until termination date. During 2023, one of the consolidated limited partnership funds went through a restructure, resulting in the termination and liquidation of the fund. As of December 31, 2023 and December 31, 2022, our unfunded commitments for our consolidated limited partnership funds were $180.9 million and $926.3 million, respectively. Derivative instruments The fair values of our call options are based upon the amount of cash that we will receive to settle each derivative instrument on the reporting date. These amounts are determined by our investment team using industry accepted valuation models and are adjusted for the nonperformance risk of each counterparty net of any collateral held. Inputs include market volatility and risk free interest rates and are used in income valuation techniques in arriving at a fair value for each option contract. The nonperformance risk for each counterparty is based upon its credit default swap rate. We have no performance obligations related to the call options purchased to fund our fixed index annuity policy liabilities. The fair values of our pay fixed/receive float interest rate swaps are determined using internal valuation models that generate discounted expected future cash flows by constructing a projected Secured Overnight Financing Rate (SOFR) curve over the term of the swap. Other investments Certain financial instruments included in other investments are measured at fair value on a recurring basis. The fair value for these investments are determined using the same methods discussed above for fixed maturity securities. The following table presents financial instruments included in Other investments which are not measured at fair value on a recurring basis and fall within Level 2 of the fair value hierarchy.
| December 31,
| 2023 |  | 2022
| (Dollars in thousands)
FHLB common stock (1) | $ | 10,000 |  |  | $ | 22,000 |
Short-term loans (2) | — |  |  | 316,417 |
Collateral loans (3) | 64,594 |  |  | 64,594 |
Company owned life insurance ("COLI") (4) | 404,598 |  |  | 397,683 |
(1)FHLB common stock is carried at cost which approximates fair value. (2)Due to the short-term nature of the investments, the fair value of a portion of our short-term loans approximates the carrying value. (3)For certain of our collateral loans, we have concluded the carrying value approximates fair value. (4)The fair value of our COLI approximates the cash surrender value of the policies. Cash and cash equivalents Amounts reported in the consolidated balance sheets for these instruments are reported at their historical cost which approximates fair value due to the nature of the assets assigned to this category. Policy benefit reserves, coinsurance deposits and SPIA benefit reserves The fair values of the liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities), are stated at the cost we would incur to extinguish the liability (i.e., the cash surrender value) as these contracts are generally issued without an annuitization date. The coinsurance deposits related to the annuity benefit reserves have fair values determined in a similar fashion. For period-certain annuity benefit contracts, the fair value is determined by discounting the benefits at the interest rates currently in effect for newly issued immediate annuity contracts. We are not required to and have not estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value. Policy benefit reserves, coinsurance deposits and SPIA benefit reserves without life contingencies are not measured at fair value on a recurring basis. SPIA benefit reserves without life contingencies are recognized in other policy funds and contract claims on the Consolidated Balance Sheets. All of the fair values presented within these categories fall within Level 3 of the fair value hierarchy as most of the inputs are unobservable market data. Other policy funds - FHLB The fair values of the Company's funding agreements with the FHLB are estimated using discounted cash flow calculations based on interest rates currently being offered for similar agreements with similar maturities. Notes and loan payable The fair value of our senior unsecured notes is based upon quoted market price. The carrying value of the term loan approximates fair value as the interest rate is reset on a quarterly basis utilizing SOFR adjusted for a credit spread. Both of these are categorized as Level 2 within the fair value hierarchy and are not remeasured at fair value on a recurring basis. Subordinated debentures Fair values for subordinated debentures are estimated using discounted cash flow calculations based principally on observable inputs including our incremental borrowing rates, which reflect our credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued. These fair values are categorized as Level 2 within the fair value hierarchy. Subordinated debentures are not measured at fair value on a recurring basis. Funds withheld liability - embedded derivative We estimate the fair value of the embedded derivative based on the fair value of the assets supporting the funds withheld payable under modified coinsurance and funds withheld coinsurance reinsurance agreeme nts. The fair value of the embedded derivative is classified as Level 3 based on valuation methods used for the assets held supporting the reinsurance agreements. Fixed index annuities - embedded derivatives We estimate the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves at each valuation date by (i) projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and (ii) discounting the excess of the projected contract value amounts at the applicable risk free interest rates adjusted for our nonperformance risk related to those liabilities. The projections of policy contract values are based on our best estimate assumptions for future policy growth and future policy decrements. Our best estimate assumptions for future policy growth include assumptions for the expected index credit on the next policy anniversary date which are derived from the fair values of the underlying call options purchased to fund such index credits and the expected costs of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values. Within this determination we have the following significant unobservable inputs: 1) the expected cost of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary and 2) our best estimates for future policy decrements, primarily lapse rates. As of December 31, 2023 and 2022, we utilized an estimate of 2.35% and 2.40%, respectively, for the long-term expected cost of annual call options, which is based on estimated long-term account value growth and a historical review of our actual option costs. Our best estimate assumptions for lapse rates are based on our actual experience and our outlook as to future expectations for such assumptions. These assumptions are reviewed on a quarterly basis and are updated as our experience develops and/or as future expectations change. The following table presents average lapse rate assumptions, by contract duration, used in estimating the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves at each reporting date:
|  | Average Lapse Rates
Contract Duration (Years) |  | December 31, 2023 |  | December 31, 2022
1 - 5 |  | 1.96% |  | 2.17%
6 - 10 |  | 3.71% |  | 3.28%
11 - 15 |  | 3.71% |  | 3.63%
16 - 20 |  | 8.97% |  | 8.55%
20+ |  | 4.91% |  | 4.90%
Lapse rates are generally expected to increase as surrender charge percentages decrease for policies without a lifetime income benefit rider. Lapse expectations reflect a significant increase in the year in which the surrender charge period on a contract ends. The fair value of our fixed index annuities embedded derivatives is net of coinsurance ceded of $1,182.6 million and $1,173.4 million as of December 31, 2023 and 2022, respectively. Change in fair value, net for each period in our embedded derivatives is included in Change in fair value of embedded derivatives in the Consolidated Statements of Operations. Certain derivatives embedded in our fixed index annuity contracts are our most significant financial instrument measured at fair value that are categorized as Level 3 in the fair value hierarchy. The contractual obligations for future annual index credits within our fixed index annuity contracts are treated as a "series of embedded derivatives" over the expected life of the applicable contracts. We estimate the fair value of these embedded derivatives at each valuation date by the method described above under fixed index annuities - embedded derivatives. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values. The most sensitive assumption in determining policy liabilities for fixed index annuities is the rates used to discount the excess projected contract values. As indicated above, the discount rate reflects our nonperformance risk. If the discount rates used to discount the excess projected contract values at December 31, 2023, were to increase by 100 basis points, the fair value of the embedded derivatives would decrease by $364.7 million recorded through operations as a decrease in the change in fair value of embedded derivatives. A decrease by 100 basis points in the discount rates used to discount the excess projected contract values would increase the fair value of the embedded derivatives by $419.7 million recorded through operations as an increase in the change in fair value of embedded derivatives. We review these assumptions quarterly and as a result of these reviews, we made updates to assumptions in 2023, 2022 and 2021. The most significant assumption update to the calculation of the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves in 2023 was the change in the discount rate. The long term discount rate assumption was lowered. This resulted in an increase in the fair value of the embedded derivative. In addition, changes in lapse rate assumptions based on actual historical experience resulted in an increase in the fair value of the embedded derivative. We updated shock lapse rates resulting in increases to the assumption for accumulation products with a shorter surrender charge period and decreases to the assumption for policies with a non-utilized, no fee lifetime income benefit rider. In addition, we increased the dynamic lapse factor based on the lifetime income benefit rider profitability. The most significant assumption update to the calculation of the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves in 2022 was the change in the discount rate. The discount rate assumption was increased, and the period over which the discount rate assumption grades to an ultimate assumption was adjusted. This resulted in a decrease in the fair value of the embedded derivative. The most significant assumption update to the calculation of the fair value of the embedded derivative component of our fixed index annuity benefit policy reserves in 2021 was changes in lapse rate assumptions. For certain annuity products without a lifetime income benefit rider, the lapse rate assumption was increased in more recent cohorts to reflect higher lapses on policies with a market value adjustment ("MVA") feature. For other annuity products with a lifetime income benefit rider, the population was bifurcated based on whether policies had utilized the rider. For those policies which had utilized the rider, the lapse rate assumption was decreased in later durations. The net impact of the updates to the lapse rate assumption resulted in a decrease in the embedded derivative component of our fixed index annuity policy benefit reserves as less funds ultimately qualify for excess benefits.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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