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Investments
 6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments
Portfolio Composition:
A summary of fixed maturities available for sale by cost or amortized cost and estimated fair value at June 30, 2018 and December 31, 2017 is as follows:
 
June 30, 2018
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value(1)
 
% of Total
Fixed
Maturities(2)
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
390,021

 
$
2,266

 
$
(4,383
)
 
$
387,904

 
2
States, municipalities, and political subdivisions
1,232,142

 
103,365

 
(281
)
 
1,335,226

 
9
Foreign governments
19,609

 
1,705

 
—

 
21,314

 
—
Corporates, by sector:
 
 
 
 
 
 
 
 
 
Financial
3,372,221

 
269,494

 
(51,445
)
 
3,590,270

 
22
Utilities
1,947,899

 
255,504

 
(12,164
)
 
2,191,239

 
14
Energy
1,619,674

 
133,584

 
(40,101
)
 
1,713,157

 
11
Other corporate sectors
6,183,619

 
362,020

 
(146,563
)
 
6,399,076

 
39
Total corporates
13,123,413

 
1,020,602

 
(250,273
)
 
13,893,742

 
86
Collateralized debt obligations
58,582

 
23,437

 
(5,823
)
 
76,196

 
—
Other asset-backed securities
150,843

 
2,386

 
(429
)
 
152,800

 
1
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
Financial
347,014

 
45,481

 
(4,518
)
 
387,977

 
2
Utilities
28,528

 
1,360

 
(356
)
 
29,532

 
—
Total redeemable preferred stocks
375,542

 
46,841

 
(4,874
)
 
417,509

 
2
Total fixed maturities
$
15,350,152

 
$
1,200,602

 
$
(266,063
)
 
$
16,284,691

 
100
(1)
Amounts reported on the balance sheet.
(2)
At fair value.
 
December 31, 2017
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value(1)
 
% of Total
Fixed
Maturities(2)
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
390,646

 
$
18,173

 
$
(1,373
)
 
$
407,446

 
2
States, municipalities, and political subdivisions
1,091,960

 
127,890

 
(135
)
 
1,219,715

 
7
Foreign governments
20,236

 
1,782

 
—

 
22,018

 
—
Corporates, by sector:
 
 
 
 
 
 


 
 
Financial
3,282,526

 
475,961

 
(23,392
)
 
3,735,095

 
22
Utilities
1,955,737

 
369,406

 
(1,298
)
 
2,323,845

 
14
Energy
1,619,349

 
226,140

 
(25,392
)
 
1,820,097

 
11
Other corporate sectors
6,065,803

 
747,612

 
(20,616
)
 
6,792,799

 
40
Total corporates
12,923,415

 
1,819,119

 
(70,698
)
 
14,671,836

 
87
Collateralized debt obligations
59,150

 
20,084

 
(7,653
)
 
71,581

 
—
Other asset-backed securities
144,520

 
4,835

 
—

 
149,355

 
1
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
Financial
336,621

 
62,892

 
(2,727
)
 
396,786

 
3
Utilities
28,553

 
2,132

 
(97
)
 
30,588

 
—
Total redeemable preferred stocks
365,174

 
65,024

 
(2,824
)
 
427,374

 
3
Total fixed maturities
$
14,995,101

 
$
2,056,907

 
$
(82,683
)
 
$
16,969,325

 
100

(1)
Amounts reported on the balance sheet.
(2)
At fair value.

A schedule of fixed maturities available for sale by contractual maturity date at June 30, 2018 is shown below on an amortized cost basis and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.
 
June 30, 2018
 
Amortized
Cost
 
Fair Value
Fixed maturities available for sale:
 
 
 
Due in one year or less
$
80,564

 
$
81,901

Due after one year through five years
732,395

 
757,040

Due after five years through ten years
1,611,476

 
1,745,491

Due after ten years through twenty years
5,051,297

 
5,607,509

Due after twenty years
7,664,183

 
7,862,890

Mortgage-backed and asset-backed securities
210,237

 
229,860

 
$
15,350,152

 
$
16,284,691



There were no sales of fixed maturities available for sale as of June 30, 2018 or 2017.
 
 
 
 

Fair Value Measurements: The following tables represents the fair value of fixed maturities available for sale measured on a recurring basis at June 30, 2018 and December 31, 2017.
 
Fair Value Measurements at June 30, 2018 using:
Description
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Fixed maturities available for sale:
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
—

 
$
387,904

 
$
—

 
$
387,904

States, municipalities, and political subdivisions
—

 
1,335,226

 
—

 
1,335,226

Foreign governments
—

 
21,314

 
—

 
21,314

Corporates, by sector:
 
 
 
 
 
 
 
Financial
—

 
3,529,651

 
60,619

 
3,590,270

Utilities
—

 
2,044,141

 
147,098

 
2,191,239

Energy
—

 
1,673,305

 
39,852

 
1,713,157

Other corporate sectors
—

 
6,069,835

 
329,241

 
6,399,076

Total corporates
—

 
13,316,932

 
576,810

 
13,893,742

Collateralized debt obligations
—

 
—

 
76,196

 
76,196

Other asset-backed securities
—

 
139,647

 
13,153

 
152,800

Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
Financial
—

 
387,977

 
—

 
387,977

Utilities
—

 
29,532

 
—

 
29,532

Total redeemable preferred stocks
—

 
417,509

 
—

 
417,509

Total fixed maturities
$
—

 
$
15,618,532

 
$
666,159

 
$
16,284,691

Percent of total
—
%
 
95.9
%
 
4.1
%
 
100.0
%

 
Fair Value Measurements at December 31, 2017 using:
Description
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Fixed maturities available for sale:
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
—

 
$
407,446

 
$
—

 
$
407,446

States, municipalities, and political subdivisions
44

 
1,219,671

 
—

 
1,219,715

Foreign governments
—

 
22,018

 
—

 
22,018

Corporates, by sector:
 
 
 
 
 
 


Financial
—

 
3,673,089

 
62,006

 
3,735,095

Utilities
—

 
2,168,115

 
155,730

 
2,323,845

Energy
—

 
1,779,281

 
40,816

 
1,820,097

Other corporate sectors
—

 
6,468,541

 
324,258

 
6,792,799

Total corporates
—

 
14,089,026

 
582,810

 
14,671,836

Collateralized debt obligations
—

 
—

 
71,581

 
71,581

Other asset-backed securities
—

 
135,306

 
14,049

 
149,355

Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
Financial
—

 
396,786

 
—

 
396,786

Utilities
—

 
30,588

 
—

 
30,588

Total redeemable preferred stocks
—

 
427,374

 
—

 
427,374

Total fixed maturities
$
44

 
$
16,300,841

 
$
668,440

 
$
16,969,325

Percentage of total
—
%
 
96.1
%
 
3.9
%
 
100.0
%


The following tables represent an analysis of changes in fair value measurements using significant unobservable inputs (Level 3) for the six months ended June 30, 2018 and 2017.
Analysis of Changes in Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
 
Six Months Ended June 30, 2018
 
Asset-
Backed
Securities
 
Collateralized
Debt
Obligations
 
Corporates(1)
 
Total
Balance at January 1, 2018
$
14,049

 
$
71,581

 
$
582,810

 
$
668,440

Total gains or losses:
 
 
 
 
 
 
 
Included in realized gains/losses
—

 
—

 
—

 
—

Included in other comprehensive income
(697
)
 
5,183

 
(19,611
)
 
(15,125
)
Acquisitions
—

 
—

 
20,300

 
20,300

Sales
—

 
—

 
—

 
—

Amortization
—

 
2,389

 
8

 
2,397

Other(2)
(199
)
 
(2,957
)
 
(6,697
)
 
(9,853
)
Transfers in and/or out of Level 3(3)
—

 
—

 
—

 
—

Balance at June 30, 2018
$
13,153

 
$
76,196

 
$
576,810

 
$
666,159

Percent of total fixed maturities
0.1
%
 
0.5
%
 
3.5
%
 
4.1
%
(1)
Includes redeemable preferred stocks.
(2)
Includes capitalized interest, foreign exchange adjustments, and principal repayments.
(3)
Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.

 
Six Months Ended June 30, 2017
 
Asset-
Backed
Securities
 
Collateralized
Debt
Obligations
 
Corporates(1)
 
Total
Balance at January 1, 2017
$
—

 
$
63,503

 
$
559,600

 
$
623,103

Total gains or losses:
 
 
 
 
 
 
 
Included in realized gains/losses
—

 
—

 
—

 
—

Included in other comprehensive income
261

 
3,597

 
11,637

 
15,495

Acquisitions
14,000

 
—

 
21,666

 
35,666

Sales
—

 
—

 
—

 
—

Amortization
—

 
2,481

 
8

 
2,489

Other(2)
(108
)
 
(3,336
)
 
(6,625
)
 
(10,069
)
Transfers in and/or out of Level 3(3)
—

 
—

 
—

 
—

Balance at June 30, 2017
$
14,153

 
$
66,245

 
$
586,286

 
$
666,684

Percent of total fixed maturities
0.1
%
 
0.4
%
 
3.6
%
 
4.1
%
(1)
Includes redeemable preferred stocks.
(2)
Includes capitalized interest, foreign exchange adjustments, and principal repayments.
(3)
Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.


The following table presents transfers in and out of each of the valuation levels of fair values.
 
 
Six Months Ended June 30,
 
 
2018
 
2017
 
 
In
 
Out
 
Net
 
In
 
Out
 
Net
Level 1
 


 
$
—

 
$
—

 
$
4

 
$
(597
)
 
$
(593
)
Level 2
 
—

 
—

 
—

 
597

 
(4
)
 
593

Level 3
 
—

 
—

 
—

 
—

 
—

 
—



Fair Value Option:

As discussed in Note 2—New Accounting Standards, the Company elected the fair value option in the first quarter of 2018, subsequent to the adoption of ASU 2016-01, to record its investment in certain limited partnerships at fair value with changes recognized in "Realized Investment Gains (Losses)" in the Condensed Consolidated Statements of Operations in accordance with ASC 825. Distributions received on a semi-annual basis are recorded in Net Investment Income. The limited partnerships are recorded in Other Long-Term Investments on the Condensed Consolidated Balance Sheets.

The following table represents the fair value of investments elected for the fair value option method measured on a recurring basis at June 30, 2018, and the changes in fair value for the six months ended June 30, 2018.
 
Fair Value Measurements at June 30, 2018
 
Changes in Fair Values for the Period for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
 
 Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 Significant Other Observable Inputs (Level 2)
 
 Significant Unobservable Inputs
(Level 3)
 
 Total Fair Value
 
 Net Gains and Losses Recognized During the Period
 
 Less Net Gains and Losses Recognized due to Sales
 
 Total Changes in Fair Values Included in Current-Period Earnings
Limited partnerships
$
—

 
$
108,452

 
$
—

 
$
108,452

 
$
2,861

 
$
—

 
$
2,861



Other-Than-Temporary Impairments:

In accordance with the other-than-temporary impairment (OTTI) policy, the Company evaluated its fixed maturities available for sale in an unrealized loss position to determine if there was any impairment for the quarter. Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in the interest rates or credit spreads. While the Company holds securities that may be in an unrealized loss position from time to time, Torchmark has the ability and intent to hold these investments to recovery. Additionally, Torchmark does not expect to be required to sell any of its securities due to the strong cash flows generated by its insurance operations.

For the three and six months ended June 30, 2018, the Company concluded that there were no other-than-temporary impairments. For the comparable period in 2017, the Company recorded $245 thousand ($159 thousand, net of tax) in OTTI.

Unrealized Loss Analysis:

The following table discloses information about fixed maturities available for sale in an unrealized loss position.
 
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
Number of issues (CUSIP numbers) held:
 
 
 
 
 
 
As of June 30, 2018
 
489

 
99

 
588

As of December 31, 2017
 
92

 
102

 
194



Torchmark’s entire fixed maturity portfolio consisted of 1,532 issues at June 30, 2018 and 1,502 issues at December 31, 2017. The weighted average quality rating of all unrealized loss positions as of June 30, 2018 was BBB+ compared with BBB- as of December 31, 2017.
The following tables disclose unrealized investment losses by class and major sector of fixed maturities available for sale at June 30, 2018 and December 31, 2017 for the respective periods of time in a loss position. Torchmark considers these investments to be only temporarily impaired.
Analysis of Gross Unrealized Investment Losses
At June 30, 2018
 
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
Description of Securities
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
172,110

 
$
(3,061
)
 
$
38,389

 
$
(1,322
)
 
$
210,499

 
$
(4,383
)
States, municipalities and political subdivisions
35,311

 
(268
)
 
1,190

 
(13
)
 
36,501

 
(281
)
Corporates, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
816,233

 
(29,495
)
 
53,487

 
(3,995
)
 
869,720

 
(33,490
)
Utilities
292,562

 
(10,578
)
 
31,417

 
(1,501
)
 
323,979

 
(12,079
)
Energy
221,851

 
(10,100
)
 
49,555

 
(7,078
)
 
271,406

 
(17,178
)
Other corporate sectors
2,462,504

 
(109,374
)
 
154,756

 
(19,286
)
 
2,617,260

 
(128,660
)
Total corporates
3,793,150

 
(159,547
)
 
289,215

 
(31,860
)
 
4,082,365

 
(191,407
)
Other asset-backed securities
36,920

 
(429
)
 
—

 
—

 
36,920

 
(429
)
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
10,127

 
(680
)
 
—

 
—

 
10,127

 
(680
)
Utilities
—

 
—

 
5,667

 
(356
)
 
5,667

 
(356
)
Total redeemable preferred stocks
10,127

 
(680
)
 
5,667

 
(356
)
 
15,794

 
(1,036
)
Total investment grade securities
4,047,618

 
(163,985
)
 
334,461

 
(33,551
)
 
4,382,079

 
(197,536
)
 
 
 
 
 
 
 
 
 
 
 
 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
Corporates, by sector:


 


 


 


 
 
 
 
Financial
26,070

 
(4,704
)
 
61,706

 
(13,251
)
 
87,776

 
(17,955
)
Utilities
15,098

 
(85
)
 
—

 
—

 
15,098

 
(85
)
Energy
26,166

 
(1,010
)
 
67,777

 
(21,913
)
 
93,943

 
(22,923
)
Other corporate sectors
78,721

 
(7,108
)
 
52,397

 
(10,795
)
 
131,118

 
(17,903
)
Total corporates
146,055

 
(12,907
)
 
181,880

 
(45,959
)
 
327,935

 
(58,866
)
Collateralized debt obligations
—

 
—

 
14,177

 
(5,823
)
 
14,177

 
(5,823
)
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
—

 
—

 
23,252

 
(3,838
)
 
23,252

 
(3,838
)
Total redeemable preferred stocks
—

 
—

 
23,252

 
(3,838
)
 
23,252

 
(3,838
)
Total below investment grade securities
146,055

 
(12,907
)
 
219,309

 
(55,620
)
 
365,364

 
(68,527
)
Total fixed maturities
$
4,193,673

 
$
(176,892
)
 
$
553,770

 
$
(89,171
)
 
$
4,747,443

 
$
(266,063
)


Analysis of Gross Unrealized Investment Losses
At December 31, 2017
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
Description of Securities
Fair
Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
34,388

 
$
(422
)
 
$
47,514

 
$
(951
)
 
$
81,902

 
$
(1,373
)
States, municipalities and political subdivisions
4,561

 
(21
)
 
1,771

 
(9
)
 
6,332

 
(30
)
Corporates, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
133,080

 
(652
)
 
35,302

 
(1,429
)
 
168,382

 
(2,081
)
Utilities
48,562

 
(569
)
 
32,345

 
(729
)
 
80,907

 
(1,298
)
Energy
23,463

 
(81
)
 
67,775

 
(3,682
)
 
91,238

 
(3,763
)
Other corporate sectors
220,661

 
(2,312
)
 
163,886

 
(4,257
)
 
384,547

 
(6,569
)
Total corporates
425,766

 
(3,614
)
 
299,308

 
(10,097
)
 
725,074

 
(13,711
)
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
 
 
Utilities
—

 
—

 
5,953

 
(97
)
 
5,953

 
(97
)
Total redeemable preferred stocks
—

 
—

 
5,953

 
(97
)
 
5,953

 
(97
)
Total investment grade securities
464,715

 
(4,057
)
 
354,546

 
(11,154
)
 
819,261

 
(15,211
)
 
 
 
 
 
 
 
 
 
 
 
 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
States, municipalities and political subdivisions
200

 
(105
)
 
—

 
—

 
200

 
(105
)
Corporates, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
—

 
—

 
84,432

 
(21,311
)
 
84,432

 
(21,311
)
Energy
8,114

 
(104
)
 
75,204

 
(21,525
)
 
83,318

 
(21,629
)
Other corporate sectors
25,334

 
(5,066
)
 
54,383

 
(8,981
)
 
79,717

 
(14,047
)
Total corporates
33,448

 
(5,170
)
 
214,019

 
(51,817
)
 
247,467

 
(56,987
)
Collateralized debt obligations
—

 
—

 
12,347

 
(7,653
)
 
12,347

 
(7,653
)
Redeemable preferred stocks, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
—

 
—

 
24,376

 
(2,727
)
 
24,376

 
(2,727
)
Total redeemable preferred stocks
—

 
—

 
24,376

 
(2,727
)
 
24,376

 
(2,727
)
Total below investment grade securities
33,648

 
(5,275
)
 
250,742

 
(62,197
)
 
284,390

 
(67,472
)
Total fixed maturities
$
498,363

 
$
(9,332
)
 
$
605,288

 
$
(73,351
)
 
$
1,103,651

 
$
(82,683
)