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Investments

12 Months Ended

Dec. 31, 2023

At December 31, 2023 and 2022, the amortized cost and fair value of fixed maturity securities were as follows:


	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses (2)		Allowance for Credit Losses		Fair Value
	(Dollars in thousands)
December 31, 2023
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	172,683	$	606	$	(2,148)	$	—	$	171,141
States, municipalities and territories	3,654,571		17,477		(573,108)		—		3,098,940
Foreign corporate securities and foreign governments	563,890		1,669		(71,820)		—		493,739
Corporate securities	23,036,862		175,014		(2,605,048)		(3,412)		20,603,416
Residential mortgage backed securities	1,503,639		11,598		(112,736)		—		1,402,501
Commercial mortgage backed securities	3,405,647		995		(454,095)		—		2,952,547
Other asset backed securities	6,200,170		30,530		(171,884)		(618)		6,058,198
	$	38,537,462	$	237,889	$	(3,990,839)	$	(4,030)	$	34,780,482

December 31, 2022
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	173,638	$	70	$	(4,637)	$	—	$	169,071
States, municipalities and territories	4,356,251		41,565		(574,834)		—		3,822,982
Foreign corporate securities and foreign governments	748,770		11,661		(83,579)		—		676,852
Corporate securities	27,706,440		146,065		(3,687,370)		(3,214)		24,161,921
Residential mortgage backed securities	1,492,242		11,870		(126,368)		(133)		1,377,611
Commercial mortgage backed securities	4,098,755		493		(411,770)		—		3,687,478
Other asset backed securities	6,289,923		14,068		(395,289)		—		5,908,702
	$	44,866,019	$	225,792	$	(5,283,847)	$	(3,347)	$	39,804,617

(1)Amortized cost excludes accrued interest receivable of $360.9 million and $425.4 million as of December 31, 2023 and 2022, respectively.

(2)Gross unrealized losses are net of allowance for credit losses.

The amortized cost and fair value of fixed maturity securities at December 31, 2023, 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
	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	1,371,424	$	1,368,322
Due after one year through five years	4,924,030		4,787,802
Due after five years through ten years	4,686,405		4,325,294
Due after ten years through twenty years	7,569,350		6,754,603
Due after twenty years	8,876,797		7,131,215
	27,428,006		24,367,236
Residential mortgage backed securities	1,503,639		1,402,501
Commercial mortgage backed securities	3,405,647		2,952,547
Other asset backed securities	6,200,170		6,058,198
	$	38,537,462	$	34,780,482

Net unrealized losses on investments reported as a separate component of stockholders' equity were comprised of the following:


	December 31,
	2023		2022
	(Dollars in thousands)
Net unrealized losses on investments	$	(3,755,689)	$	(5,065,422)
Deferred income tax valuation allowance reversal	22,534		22,534
Deferred income tax expense	788,236		1,063,441
Net unrealized losses reported as accumulated other comprehensive loss	$	(2,944,919)	$	(3,979,447)

The National Association of Insurance Commissioners ("NAIC") assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). In general, securities are assigned a designation based upon the ratings they are given by the Nationally Recognized Statistical Rating Organizations ("NRSRO’s"). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 designations are considered "investment grade" while NAIC Class 3 through 6 designations are considered "non-investment grade." Based on the NAIC designations, we had 98% of our fixed maturity portfolio rated investment grade at both December 31, 2023 and 2022, respectively.

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


	December 31,
	2023				2022
NAIC Designation (1)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	22,493,843	$	20,209,842	$	27,061,903	$	24,211,086
2	14,910,687		13,529,169		17,023,157		14,944,131
3	583,131		527,556		595,193		510,392
4	201,610		168,191		109,409		91,495
5	88,581		68,538		61,721		36,738
6	9,400		10,132		14,636		10,775
	$	38,287,252	$	34,513,428	$	44,866,019	$	39,804,617

(1)The table excludes residual tranche securities that are not rated with an amortized cost of $250,210 and fair value of $267,054 as of December 31, 2023.

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 3,639 and 4,510 securities, respectively) have been in a continuous unrealized loss position, at December 31, 2023 and 2022:


	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses (1)		Fair Value		Unrealized Losses (1)		Fair Value		Unrealized Losses (1)
	(Dollars in thousands)
December 31, 2023
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	55,087	$	(279)	$	47,639	$	(1,869)	$	102,726	$	(2,148)
States, municipalities and territories	451,091		(44,832)		2,290,704		(528,276)		2,741,795		(573,108)
Foreign corporate securities and foreign governments	1,555		(195)		427,021		(71,625)		428,576		(71,820)
Corporate securities	3,275,031		(237,744)		13,625,542		(2,367,304)		16,900,573		(2,605,048)
Residential mortgage backed securities	145,093		(7,614)		858,821		(105,122)		1,003,914		(112,736)
Commercial mortgage backed securities	431,947		(69,007)		2,416,868		(385,088)		2,848,815		(454,095)
Other asset backed securities	968,026		(29,606)		3,057,618		(142,278)		4,025,644		(171,884)
	$	5,327,830	$	(389,277)	$	22,724,213	$	(3,601,562)	$	28,052,043	$	(3,990,839)

December 31, 2022
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	160,201	$	(4,512)	$	908	$	(125)	$	161,109	$	(4,637)
States, municipalities and territories	2,595,122		(537,313)		95,184		(37,521)		2,690,306		(574,834)
Foreign corporate securities and foreign governments	522,826		(76,957)		21,816		(6,622)		544,642		(83,579)
Corporate securities	18,784,181		(3,218,323)		1,411,177		(469,047)		20,195,358		(3,687,370)
Residential mortgage backed securities	992,783		(101,100)		116,388		(25,268)		1,109,171		(126,368)
Commercial mortgage backed securities	2,941,293		(302,513)		651,923		(109,257)		3,593,216		(411,770)
Other asset backed securities	2,561,390		(162,821)		1,924,026		(232,468)		4,485,416		(395,289)
	$	28,557,796	$	(4,403,539)	$	4,221,422	$	(880,308)	$	32,779,218	$	(5,283,847)

(1)Unrealized losses have been reduced to reflect the allowance for credit losses of $4.0 million and $3.3 million as of December 31, 2023 and 2022, respectively.

The unrealized losses at December 31, 2023 are principally related to the timing of the purchases of certain securities, which carry less yield than those available at December 31, 2023. Approximately 97% and 98% of the unrealized losses on fixed maturity securities shown in the above table for December 31, 2023 and 2022, respectively, are on securities that are rated investment grade, defined as being the highest two NAIC designations.

We expect to recover our amortized cost on all securities except for those securities on which we recognized an allowance for credit loss. In addition, because we did not have the intent to sell fixed maturity securities with unrealized losses and it was not more likely than not that we would be required to sell these securities prior to recovery of the amortized cost, which may be maturity, we did not write down these investments to fair value through the consolidated statements of operations.

Changes in net unrealized gains/losses on investments for the years ended December 31, 2023, 2022 and 2021 are as follows:


	Year Ended December 31,
	2023		2022		2021
	(Dollars in thousands)
Fixed maturity securities available for sale carried at fair value	$	1,309,733	$	(9,375,028)	$	(987,434)

Adjustment for effect on other balance sheet accounts:
Deferred income tax asset/liability	(275,205)		1,968,488		207,361
	(275,205)		1,968,488		207,361
Change in net unrealized gains/losses on investments carried at fair value	$	1,034,528	$	(7,406,540)	$	(780,073)

Components of net investment income are as follows:


	Year Ended December 31,
	2023		2022		2021
	(Dollars in thousands)
Fixed maturity securities	$	1,653,897	$	1,849,915	$	1,772,675

Real estate investments	(7,303)		40,243		14,138
Mortgage loans on real estate	404,303		301,118		215,138
Cash and cash equivalents	208,923		24,985		3,385
Limited partnerships and limited liability companies	112,612		188,131		67,157
Other investments	43,510		49,537		29,399
	2,415,942		2,453,929		2,101,892
Less: investment expenses	(143,144)		(146,466)		(64,417)
Net investment income	$	2,272,798	$	2,307,463	$	2,037,475

Proceeds from sales of available for sale fixed maturity securities for the years ended December 31, 2023, 2022 and 2021 were $9.3 billion, $7.8 billion and $0.8 billion, respectively. Scheduled principal repayments, calls and tenders for available for sale fixed maturity securities for the years ended December 31, 2023, 2022 and 2021 were $2.1 billion, $2.8 billion and $3.7 billion, respectively.

Net realized losses on investments for the years ended December 31, 2023, 2022 and 2021 are as follows:


	Year Ended December 31,
	2023		2022		2021
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	137,901	$	139,819	$	10,167
Gross realized losses	(179,479)		(153,712)		(19,140)
Net credit loss (provision)	(47,471)		(15,536)		(6,241)
	(89,049)		(29,429)		(15,214)





Other investments:
Gross realized gains	2,210		—		—
Gross realized losses	(5,199)		—		—
	(2,989)		—		—
Mortgage loans on real estate:
Decrease (increase) in allowance for credit losses	252		(15,126)		7,005
Recovery of specific allowance	—		1,677		—
Loss on sale of mortgage loans	(7,417)		(4,970)		(5,033)
	(7,165)		(18,419)		1,972
Total net realized losses	$	(99,203)	$	(47,848)	$	(13,242)

Realized losses on available for sale fixed maturity securities in 2023, 2022 and 2021 were realized primarily due to strategies to reposition the fixed maturity security portfolio that result in improved net investment income, credit risk or duration profiles as they pertain to our asset liability management. Realized gains and losses on sales are determined on the basis of specific identification of investments based on the trade date.

The following table summarizes the carrying value of our investments that have been non-income producing for 12 consecutive months:


	December 31,
	2023		2022
	(Dollars in thousands)
Fixed maturity securities, available for sale	$	1,711	$	10,708
Mortgage loans on real estate	14,479		1,483
Real estate owned	3,629		—
	$	19,819	$	12,191

We review and analyze all investments on an ongoing basis for changes in market interest rates and credit deterioration. This review process includes analyzing our ability to recover the amortized cost basis of each investment that has a fair value that is materially lower than its amortized cost and requires a high degree of management judgment and involves uncertainty. The evaluation of securities for credit loss is a quantitative and qualitative process, which is subject to risks and uncertainties.

We have a policy and process to identify securities that could potentially have credit loss. This process involves monitoring market events and other items that could impact issuers. The evaluation includes but is not limited to such factors as:

•the extent to which the fair value has been less than amortized cost or cost;

•whether the issuer is current on all payments and all contractual payments have been made as agreed;

•the remaining payment terms and the financial condition and near-term prospects of the issuer;

•the lack of ability to refinance due to liquidity problems in the credit market;

•the fair value of any underlying collateral;

•the existence of any credit protection available;

•our intent to sell and whether it is more likely than not we would be required to sell prior to recovery for debt securities;

•consideration of rating agency actions; and

•changes in estimated cash flows of mortgage and asset backed securities.

We determine whether an allowance for credit loss should be established for debt securities by assessing pertinent facts and circumstances surrounding each security. Where the decline in fair value of debt securities is attributable to changes in market interest rates or to factors such as market volatility, liquidity and spread widening, and we anticipate recovery of all contractual or expected cash flows, we do not consider these investments to have credit loss because we do not intend to sell these investments and it is not more likely than not we will be required to sell these investments before a recovery of amortized cost, which may be maturity.

If we intend to sell a debt security or if it is more likely than not that we will be required to sell a debt security before recovery of its amortized cost basis, credit loss has occurred and the difference between amortized cost and fair value will be recognized as a loss in operations.

If we do not intend to sell and it is not more likely than not we will be required to sell the debt security but also do not expect to recover the entire amortized cost basis of the security, a credit loss would be recognized in operations for the amount of the expected credit loss. We determine the amount of expected credit loss by calculating the present value of the cash flows expected to be collected discounted at each security's acquisition yield based on our consideration of whether the security was of high credit quality at the time of acquisition. The difference between the present value of expected future cash flows and the amortized cost basis of the security is the amount of credit loss recognized in operations. The recognized credit loss is limited to the total unrealized loss on the security (i.e., the fair value floor).

The determination of the credit loss component of a mortgage backed security is based on a number of factors. The primary consideration in this evaluation process is the issuer's ability to meet current and future interest and principal payments as contractually stated at time of purchase. Our review of these securities includes an analysis of the cash flow modeling under various default scenarios considering independent third party benchmarks, the seniority of the specific tranche within the structure of the security, the composition of the collateral and the actual default, loss severity and prepayment experience exhibited. With the input of third party assumptions for default projections, loss severity and prepayment expectations, we evaluate the cash flow projections to determine whether the security is performing in accordance with its contractual obligation.

We utilize models from a leading structured product software specialist serving institutional investors. These models incorporate each security's seniority and cash flow structure. In circumstances where the analysis implies a potential for principal loss at some point in the future, we use the "best estimate" cash flow projection discounted at the security's effective yield at acquisition to determine the amount of our potential credit loss associated with this security. The discounted expected future cash flows equates to our expected recovery value. Any shortfall of the expected recovery when compared to the amortized cost of the security will be recorded as credit loss.

The determination of the credit loss component of a corporate bond is based on the underlying financial performance of the issuer and their ability to meet their contractual obligations. Considerations in our evaluation include, but are not limited to, credit rating changes, financial statement and ratio analysis, changes in management, significant changes in credit spreads, breaches of financial covenants and a review of the economic outlook for the industry and markets in which they trade. In circumstances where an issuer appears unlikely to meet its future obligation, an estimate of credit loss is determined. Credit loss is calculated using default probabilities as derived from the credit default swaps markets in conjunction with recovery rates derived from independent third party analysis or a best estimate of credit loss. This credit loss rate is then incorporated into a present value calculation based on an expected principal loss in the future discounted at the yield at the date of purchase and compared to amortized cost to determine the amount of credit loss associated with the security.

We do not measure a credit loss allowance on accrued interest receivable as we write off any accrued interest receivable balance to net investment income in a timely manner when we have concerns regarding collectability.

Amounts on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if we intend to sell a security or when it is more likely than not we will be required to sell the security before the recovery of its amortized cost.

The following table provides a rollforward of the allowance for credit loss:


	Year Ended December 31, 2023
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	—	$	3,214	$	133	$	—	$	3,347
Additions for credit losses not previously recorded	—		—		97		947		1,044
Change in allowance on securities with previous allowance	—		198		(230)		(329)		(361)

Reduction for securities sold during the period	—		—		—		—		—


Ending balance	$	—	$	3,412	$	—	$	618	$	4,030

	Year Ended December 31, 2022
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	2,776	$	—	$	70	$	—	$	2,846
Additions for credit losses not previously recorded	—		3,825		1,070		—		4,895
Change in allowance on securities with previous allowance	(2,776)		(611)		(579)		—		(3,966)

Reduction for securities sold during the period	—		—		(428)		—		(428)


Ending balance	$	—	$	3,214	$	133	$	—	$	3,347

At December 31, 2023 and 2022, cash and invested assets of $52.4 billion and $51.0 billion, respectively, were on deposit with state agencies to meet regulatory requirements including deposits for the benefit of all policyholders. There are no restrictions on these assets.

At December 31, 2023 and 2022, we had no investment in any person or its affiliates, other than U.S. Government and its agencies, that exceeded 10% of stockholders' equity.