Fair Value (Tables)

3 Months Ended

Mar. 31, 2017

The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy are presented below at:



	March 31, 2017
	Fair Value Hierarchy							Total Estimated Fair Value
	Level 1		Level 2		Level 3			Total Estimated Fair Value
	(In thousands)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	681,990	$	50,104		$	732,094
U.S. government and agency	286,435		118,453		—			404,888
RMBS	—		197,176		20,077			217,253
Foreign corporate	—		201,866		32,500			234,366
CMBS	—		176,061		5,324			181,385
State and political subdivision	—		50,709		—			50,709
ABS	—		21,730		4,926			26,656
Foreign government	—		16,417		—			16,417
Total fixed maturity securities	286,435		1,464,402		112,931			1,863,768
Short-term investments	—		1,998		—			1,998
Derivative assets: (1)
Foreign currency exchange rate	—		7,896		—			7,896
Embedded derivatives within asset host contracts (2)	—		—		354,497			354,497
Separate account assets (3)	—		4,876,874		—			4,876,874
Total assets	$	286,435	$	6,351,170	$	467,428		$	7,105,033
Liabilities
Embedded derivatives within liability host contracts (2)	—		—		(36,327		)	(36,327		)
Total liabilities	$	—	$	—	$	(36,327	)	$	(36,327	)



	December 31, 2016
	Fair Value Hierarchy							Total Estimated Fair Value
	Level 1		Level 2		Level 3			Total Estimated Fair Value
	(In thousands)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	681,406	$	40,405		$	721,811
U.S. government and agency	289,186		117,359		—			406,545
RMBS	—		217,091		21,296			238,387
Foreign corporate	—		200,454		31,886			232,340
CMBS	—		173,763		5,193			178,956
State and political subdivision	—		56,320		—			56,320
ABS	—		21,736		4,934			26,670
Foreign government	—		17,485		—			17,485
Total fixed maturity securities	289,186		1,485,614		103,714			1,878,514
Derivative assets: (1)
Foreign currency exchange rate	—		8,656		—			8,656
Embedded derivatives within asset host contracts (2)	—		—		379,297			379,297
Separate account assets (3)	—		4,758,449		—			4,758,449
Total assets	$	289,186	$	6,252,719	$	483,011		$	7,024,916
Liabilities
Embedded derivatives within liability host contracts (2)	—		—		(23,740		)	(23,740		)
Total liabilities	$	—	$	—	$	(23,740	)	$	(23,740	)

______________


(1)	Derivative assets are presented within other invested assets on the balance sheets.


(2)	Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the balance sheets.


(3)	Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets.

Fair Value Inputs, Quantitative Information

The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:



					March 31, 2017				December 31, 2016				Impact of Increase in Input on Estimated Fair Value (2)
	Valuation Techniques		Significant Unobservable Inputs		Range			Weighted Average (1)	Range			Weighted Average (1)	Impact of Increase in Input on Estimated Fair Value (2)
Fixed maturity securities (3)
U.S. corporate and foreign corporate	•	Matrix pricing	•	Offered quotes (4)	96	-	144	107	94	-	136	107	Increase
	•	Market pricing	•	Quoted prices (4)	75	-	110	97	75	-	110	97	Increase
RMBS	•	Market pricing	•	Quoted prices (4)	58	-	110	79	56	-	111	86	Increase (5)
CMBS	•	Market pricing	•	Quoted prices (4)					104	-	104	104	Increase (5)
Embedded derivatives
Direct and ceded guaranteed minimum benefits	•	Option pricing techniques	•	Mortality rates:
				Ages 0 - 40	0%	-	0.09%		0%	-	0.09%		Decrease (6)
				Ages 41 - 60	0.04%	-	0.65%		0.04%	-	0.65%		Decrease (6)
				Ages 61 - 115	0.26%	-	100%		0.26%	-	100%		Decrease (6)
			•	Lapse rates:
				Durations 1 - 10	0.25%	-	100%		0.25%	-	100%		Decrease (7)
				Durations 11 - 20	2%	-	100%		2%	-	100%		Decrease (7)
				Durations 21 - 116	2%	-	100%		2%	-	100%		Decrease (7)
			•	Utilization rates	0%	-	25%		0%	-	25%		Increase (8)
			•	Withdrawal rates	0.25%	-	10%		0.25%	-	10%		(9)
			•	Long-term equity volatilities	17.40%	-	25%		17.40%	-	25%		Increase (10)
			•	Nonperformance risk spread	0.04%	-	0.55%		0.04%	-	0.57%		Decrease (11)

______________


(1)	The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.


(2)	The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.


(3)	Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.


(4)	Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par.


(5)	Changes in the assumptions used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.


(6)	Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(7)

Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(8)

The utilization rate assumption estimates the percentage of contractholders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(9)

The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.


(10)	Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.


(11)	Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

Fair Value Inputs, Quantitative Information



					March 31, 2017				December 31, 2016				Impact of Increase in Input on Estimated Fair Value (2)
	Valuation Techniques		Significant Unobservable Inputs		Range			Weighted Average (1)	Range			Weighted Average (1)	Impact of Increase in Input on Estimated Fair Value (2)
Fixed maturity securities (3)
U.S. corporate and foreign corporate	•	Matrix pricing	•	Offered quotes (4)	96	-	144	107	94	-	136	107	Increase
	•	Market pricing	•	Quoted prices (4)	75	-	110	97	75	-	110	97	Increase
RMBS	•	Market pricing	•	Quoted prices (4)	58	-	110	79	56	-	111	86	Increase (5)
CMBS	•	Market pricing	•	Quoted prices (4)					104	-	104	104	Increase (5)
Embedded derivatives
Direct and ceded guaranteed minimum benefits	•	Option pricing techniques	•	Mortality rates:
				Ages 0 - 40	0%	-	0.09%		0%	-	0.09%		Decrease (6)
				Ages 41 - 60	0.04%	-	0.65%		0.04%	-	0.65%		Decrease (6)
				Ages 61 - 115	0.26%	-	100%		0.26%	-	100%		Decrease (6)
			•	Lapse rates:
				Durations 1 - 10	0.25%	-	100%		0.25%	-	100%		Decrease (7)
				Durations 11 - 20	2%	-	100%		2%	-	100%		Decrease (7)
				Durations 21 - 116	2%	-	100%		2%	-	100%		Decrease (7)
			•	Utilization rates	0%	-	25%		0%	-	25%		Increase (8)
			•	Withdrawal rates	0.25%	-	10%		0.25%	-	10%		(9)
			•	Long-term equity volatilities	17.40%	-	25%		17.40%	-	25%		Increase (10)
			•	Nonperformance risk spread	0.04%	-	0.55%		0.04%	-	0.57%		Decrease (11)

______________


(1)	The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.


(2)	The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.


(3)	Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.


(4)	Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par.


(5)	Changes in the assumptions used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.


(6)	Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(7)

(8)

(9)


(10)	Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.


(11)	Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

Fair Value, Measured on Recurring Basis, Unobservable Input Reconciliation

The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities
	Corporate (1)			Structured Securities			Net Embedded Derivatives (2)
	(In thousands)
Three Months Ended March 31, 2017
Balance, beginning of period	$	72,291		$	31,423		$	403,037
Total realized/unrealized gains (losses) included in net income (loss) (3) (4)	(42		)	95			(131,329		)
Total realized/unrealized gains (losses) included in AOCI	998			216			—
Purchases (5)	20,631			—			—
Sales (5)	(11,274		)	(1,449		)	—
Issuances (5)	—			—			—
Settlements (5)	—			—			119,116
Transfers into Level 3 (6)	—			42			—
Transfers out of Level 3 (6)	—			—			—
Balance, end of period	$	82,604		$	30,327		$	390,824
Three Months Ended March 31, 2016
Balance, beginning of period	$	55,189		$	13,862		$	360,381
Total realized/unrealized gains (losses) included in net income (loss) (3) (4)	(896		)	56			49,158
Total realized/unrealized gains (losses) included in AOCI	1,189			(91		)	—
Purchases (5)	2,369			21			—
Sales (5)	(121		)	(418		)	—
Issuances (5)	—			—			—
Settlements (5)	—			—			(5,711		)
Transfers into Level 3 (6)	2,921			—			—
Transfers out of Level 3 (6)	(1,864		)	—			—
Balance, end of period	$	58,787		$	13,430		$	403,828
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2017 (7)	$	(42	)	$	95		$	(130,943	)
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2016 (7)	$	(896	)	$	56		$	51,199

______________


(1)	Comprised of U.S. and foreign corporate securities.


(2)	Embedded derivative assets and liabilities are presented net for purposes of the rollforward.

(3)

Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income for net embedded derivatives are reported in net derivatives gains (losses).


(4)	Interest accruals, as well as cash interest coupons received, are excluded from the rollforward.


(5)	Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.


(6)	Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.


(7)	Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net embedded derivatives are reported in net derivative gains (losses).

Fair Value of Financial Instruments Carried at Other Than Fair Value

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:



	March 31, 2017
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In thousands)
Assets
Mortgage loans	$	407,390	$	—	$	—	$	407,235	$	407,235
Premiums, reinsurance and other receivables	$	27,425	$	—	$	223	$	28,041	$	28,264
Liabilities
Policyholder account balances	$	1,195,566	$	—	$	—	$	1,263,486	$	1,263,486



	December 31, 2016
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In thousands)
Assets
Mortgage loans	$	406,085	$	—	$	—	$	404,079	$	404,079
Premiums, reinsurance and other receivables	$	30,122	$	—	$	2,095	$	30,272	$	32,367
Liabilities
Policyholder account balances	$	1,214,186	$	—	$	—	$	1,283,338	$	1,283,338