Fair Values of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Carrying Amounts and Fair Values of Financial Instruments

The following sets forth a comparison of the carrying amounts and fair values of our financial instruments:



	September 30, 2016				December 31, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Assets
Fixed maturity securities:
Available for sale	$	42,304,410	$	42,304,410	$	36,421,839	$	36,421,839
Held for investment	76,773		75,547		76,622		65,377
Equity securities, available for sale	7,843		7,843		7,828		7,828
Mortgage loans on real estate	2,419,230		2,446,247		2,435,257		2,471,864
Derivative instruments	706,007		706,007		337,256		337,256
Other investments	297,068		290,719		285,044		290,075
Cash and cash equivalents	812,814		812,814		397,749		397,749
Coinsurance deposits	4,453,320		3,997,317		3,187,470		2,860,882
Interest rate caps	307		307		1,410		1,410
Counterparty collateral	144,082		144,082		82,312		82,312

Liabilities
Policy benefit reserves	50,461,717		42,237,613		45,151,460		38,435,515
Single premium immediate annuity (SPIA) benefit reserves	302,428		313,130		324,264		336,066
Notes and loan payable	493,445		520,800		393,227		417,752
Subordinated debentures	241,751		227,755		241,452		216,933
Interest rate swap	4,944		4,944		3,139		3,139

Assets and Liabilities Measured at Fair Value on a Recurring Basis, By Fair Value Hierarchy Level

Our assets and liabilities which are measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 are presented below based on the fair value hierarchy levels:



	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
September 30, 2016
Assets
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	418,465	$	411,408	$	7,057	$	—
United States Government sponsored agencies	1,472,904		—		1,472,904		—
United States municipalities, states and territories	4,052,210		—		4,052,210		—
Foreign government obligations	254,420		—		254,420		—
Corporate securities	27,915,657		6		27,915,651		—
Residential mortgage backed securities	1,358,174		—		1,358,174		—
Commercial mortgage backed securities	5,310,156		—		5,310,156		—
Other asset backed securities	1,522,424		—		1,522,424		—
Equity securities, available for sale: finance, insurance and real estate	7,843		—		7,843		—
Derivative instruments	706,007		—		706,007		—
Cash and cash equivalents	812,814		812,814		—		—
Interest rate caps	307		—		307		—
Counterparty collateral	144,082		—		144,082		—
	$	43,975,463	$	1,224,228	$	42,751,235	$	—
Liabilities
Interest rate swap	$	4,944	$	—	$	4,944	$	—
Fixed index annuities - embedded derivatives	6,678,102		—		—		6,678,102
	$	6,683,046	$	—	$	4,944	$	6,678,102

December 31, 2015
Assets
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	471,256	$	438,598	$	32,658	$	—
United States Government sponsored agencies	1,398,611		—		1,398,611		—
United States municipalities, states and territories	3,755,367		—		3,755,367		—
Foreign government obligations	212,565		—		212,565		—
Corporate securities	23,802,394		121		23,802,273		—
Residential mortgage backed securities	1,462,072		—		1,462,072		—
Commercial mortgage backed securities	4,174,396		—		4,174,396		—
Other asset backed securities	1,145,178		—		1,145,178		—
Equity securities, available for sale: finance, insurance and real estate	7,828		—		7,828		—
Derivative instruments	337,256		—		337,256		—
Cash and cash equivalents	397,749		397,749		—		—
Interest rate caps	1,410		—		1,410		—
Counterparty collateral	82,312		—		82,312		—
	$	37,248,394	$	836,468	$	36,411,926	$	—
Liabilities
Interest rate swap	$	3,139	$	—	$	3,139	$	—
Fixed index annuities - embedded derivatives	5,983,622		—		—		5,983,622
	$	5,986,761	$	—	$	3,139	$	5,983,622

Schedule of Assumptions Used in Estimating Fair Value

The following table presents average lapse rate and partial withdrawal 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		Average Partial Withdrawal Rates
Contract Duration (Years)	September 30, 2016	December 31, 2015	September 30, 2016	December 31, 2015
1 - 5	1.76%	1.58%	3.30%	3.08%
6 - 10	6.59%	8.55%	3.30%	3.55%
11 - 15	11.25%	12.01%	3.32%	3.59%
16 - 20	12.03%	12.99%	3.18%	3.22%
20+	11.68%	12.54%	3.18%	3.22%

Assets Measured at Fair Value on Recurring Basis, Level 3 Reconciliation



	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
	(Dollars in thousands)
Available for sale securities
Beginning balance	$	—	$	26		$	—	$	375
Principal returned	—		(2		)	—		(23		)
Amortization of premium/accretion of discount	—		(28		)	—		(494		)
Total gains (losses) (realized/unrealized):
Included in other comprehensive income (loss)	—		4			—		280
Included in operations	—		—			—		(138		)
Ending balance	$	—	$	—		$	—	$	—

Liabilities Measured at Fair Value on Recurring Basis, Level 3 Reconciliation



	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
	(Dollars in thousands)
Fixed index annuities - embedded derivatives
Beginning balance	$	6,499,015	$	5,984,007		$	5,983,622	$	5,574,653
Premiums less benefits	137,526		207,141			273,287		1,020,853
Change in fair value, net	41,561		(460,031		)	421,193		(864,389		)
Ending balance	$	6,678,102	$	5,731,117		$	6,678,102	$	5,731,117