10-Q 1 plc3311710-q.htm 10-Q Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
ý  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2017
 
or
 
o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from              to             
 
Commission File Number 001-11339
 
PROTECTIVE LIFE CORPORATION
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
95-2492236
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices and zip code)
 
Registrant’s telephone number, including area code (205) 268-1000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated Filer o
 
 
 
Non-accelerated filer x
 
Smaller Reporting Company o
 
 
 
 
 
Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No ý
 
Number of shares of Common Stock, $0.01 Par Value, outstanding as of April 24, 2017:  1,000
 





PROTECTIVE LIFE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTERLY PERIOD ENDED MARCH 31, 2017
 
TABLE OF CONTENTS
 
PART I
 
 
 
 
Page
Item 1.
Financial Statements (unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
 
Item 1A.
 
Item 2.
 
Item 6.
 
 
 





PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Revenues
 

 
 
Premiums and policy fees
$
860,586

 
$
852,795

Reinsurance ceded
(316,076
)
 
(310,327
)
Net of reinsurance ceded
544,510

 
542,468

Net investment income
506,413

 
475,117

Realized investment gains (losses):
 

 
 

Derivative financial instruments
(69,878
)
 
(73,499
)
All other investments
22,841

 
81,728

Other-than-temporary impairment losses
(2,725
)
 
(2,769
)
Portion recognized in other comprehensive income (before taxes)
(5,106
)
 
152

Net impairment losses recognized in earnings
(7,831
)
 
(2,617
)
Other income
109,242

 
103,716

Total revenues
1,105,297

 
1,126,913

Benefits and expenses
 

 
 

Benefits and settlement expenses, net of reinsurance ceded: (2017 -$263,377; 2016 -$299,873)
749,642

 
714,545

Amortization of deferred policy acquisition costs and value of business acquired
20,519

 
30,746

Other operating expenses, net of reinsurance ceded: (2017 -$51,017; 2016 -$48,311)
222,787

 
209,780

Total benefits and expenses
992,948

 
955,071

Income before income tax
112,349

 
171,842

Income tax expense
36,935

 
56,494

Net income
$
75,414

 
$
115,348


See Notes to the Consolidated Condensed Financial Statements
2


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Net income
$
75,414

 
$
115,348

Other comprehensive income (loss):
 

 
 
Change in net unrealized gains (losses) on investments, net of income tax: (2017 - $85,962; 2016 - $236,350)
159,641

 
438,936

Reclassification adjustment for investment amounts included in net income, net of income tax: (2017 - $(578); 2016 - $(1,028))
(1,072
)
 
(1,910
)
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $1,995; 2016 - $159)
3,703

 
294

Change in accumulated (loss) gain - derivatives, net of income tax: (2017 - $(362); 2016 - $0)
(672
)
 

Reclassification adjustment for derivative amounts included in net income, net of income tax: (2017 - $72; 2016 - $0)
133

 

Total other comprehensive income
161,733

 
437,320

Total comprehensive income
$
237,147

 
$
552,668


See Notes to the Consolidated Condensed Financial Statements
3


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 
 
As of
 
March 31, 2017
 
December 31, 2016
 
(Dollars In Thousands)
Assets
 

 
 

Fixed maturities, at fair value (amortized cost: 2017 - $39,880,027; 2016 - $39,832,724)
$
38,575,433

 
$
38,183,337

Fixed maturities, at amortized cost (fair value: 2017 - $2,746,375; 2016 - $2,733,340)
2,758,137

 
2,770,177

Equity securities, at fair value (amortized cost: 2017 - $783,751; 2016 - $768,423)
792,231

 
754,489

Mortgage loans (related to securitizations: 2017 - $267,267; 2016 - $277,964)
6,311,822

 
6,132,125

Investment real estate, net of accumulated depreciation (2017 - $291; 2016 - $252)
7,149

 
8,060

Policy loans
1,635,511

 
1,650,240

Other long-term investments
879,418

 
865,304

Short-term investments
299,167

 
332,431

Total investments
51,258,868


50,696,163

Cash
409,377

 
348,182

Accrued investment income
493,634

 
482,388

Accounts and premiums receivable
129,443

 
118,303

Reinsurance receivables
5,308,627

 
5,323,846

Deferred policy acquisition costs and value of business acquired
2,065,274

 
2,019,829

Goodwill
793,470

 
793,470

Other intangibles, net of accumulated amortization (2017 - $89,573; 2016 - $79,226)
675,507

 
688,083

Property and equipment, net of accumulated depreciation (2017 - $19,973; 2016 - $17,450)
105,420

 
106,111

Other assets
213,899

 
170,004

Income tax receivable
110,086

 
116,823

Assets related to separate accounts
 
 
 

Variable annuity
13,512,921

 
13,244,252

Variable universal life
935,427

 
895,925

Total assets
$
76,011,953


$
75,003,379


See Notes to the Consolidated Condensed Financial Statements
4


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(continued)
 
 
As of
 
March 31, 2017
 
December 31, 2016
 
(Dollars In Thousands)
Liabilities
 

 
 

Future policy benefits and claims
$
30,626,096

 
$
30,511,085

Unearned premiums
853,786

 
848,495

Total policy liabilities and accruals
31,479,882

 
31,359,580

Stable value product account balances
3,614,225

 
3,501,636

Annuity account balances
10,633,964

 
10,642,115

Other policyholders’ funds
1,181,951

 
1,165,749

Other liabilities
2,015,827

 
1,924,155

Deferred income taxes
1,715,987

 
1,599,764

Non-recourse funding obligations
2,785,056

 
2,796,474

Secured financing liabilities
827,225

 
797,721

Debt
1,305,408

 
1,163,285

Subordinated debt securities
439,260

 
441,202

Liabilities related to separate accounts
 

 
 

Variable annuity
13,512,921

 
13,244,252

Variable universal life
935,427

 
895,925

Total liabilities
70,447,133


69,531,858

Commitments and contingencies - Note 11
0

 
0

Shareowner’s equity
 

 
 

Common Stock: 2017 and 2016 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000

 

Additional paid-in-capital
5,554,059

 
5,554,059

Retained earnings
503,551

 
571,985

Accumulated other comprehensive income (loss):
 

 
 

Net unrealized (losses) gains on investments, net of income tax: (2017 - $(264,157); 2016 - $(349,541))
(490,578
)
 
(649,147
)
Net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $(1,869); 2016 - $(3,864))
(3,472
)
 
(7,175
)
Accumulated loss - derivatives, net of income tax: (2017 - $101; 2016 - $391)
188

 
727

Postretirement benefits liability adjustment, net of income tax: (2017 - $578; 2016 - $578)
1,072

 
1,072

Total shareowner’s equity
5,564,820


5,471,521

Total liabilities and shareowner’s equity
$
76,011,953


$
75,003,379


See Notes to the Consolidated Condensed Financial Statements
5


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)

 
Common
Stock
 
Additional
Paid-In-
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareowner’s
equity
 
(Dollars In Thousands)
Balance, December 31, 2016
$

 
$
5,554,059

 
$
571,985

 
$
(654,523
)
 
$
5,471,521

Net income for the three months ended March 31, 2017
 

 
 

 
75,414

 
 

 
75,414

Other comprehensive income
 

 
 

 
 

 
161,733

 
161,733

Comprehensive income for the three months ended March 31, 2017
 

 
 

 
 

 
 

 
237,147

Dividends to parent
 
 
 
 
(143,848
)
 
 
 
(143,848
)
Balance, March 31, 2017
$

 
$
5,554,059

 
$
503,551

 
$
(492,790
)
 
$
5,564,820


See Notes to the Consolidated Condensed Financial Statements
6


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 

 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Cash flows from operating activities
 
 
 

Net income
$
75,414

 
$
115,348

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Realized investment losses (gains)
54,868

 
(5,612
)
Amortization of DAC and VOBA
20,519

 
30,746

Capitalization of DAC
(81,474
)
 
(80,228
)
Depreciation and amortization expense
15,474

 
13,829

Deferred income tax
29,133

 
111,312

Accrued income tax
6,737

 
(59,802
)
Interest credited to universal life and investment products
160,239

 
156,748

Policy fees assessed on universal life and investment products
(335,883
)
 
(314,612
)
Change in reinsurance receivables
15,219

 
21,203

Change in accrued investment income and other receivables
(9,368
)
 
(55,181
)
Change in policy liabilities and other policyholders’ funds of traditional life and health products
(94,234
)
 
(28,581
)
Trading securities:
 

 
 

Maturities and principal reductions of investments
44,041

 
23,280

Sale of investments
85,382

 
112,158

Cost of investments acquired
(114,390
)
 
(131,030
)
Other net change in trading securities
3,801

 
22,791

Amortization of premiums and accretion of discounts on investments and mortgage loans
142,613

 
97,131

Change in other liabilities
19,373

 
90,571

Other, net
2,554

 
(10,303
)
Net cash provided by operating activities
$
40,018

 
$
109,768



 

See Notes to the Consolidated Condensed Financial Statements
7


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)


 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Cash flows from investing activities
 

 
 

Maturities and principal reductions of investments, available-for-sale
$
166,419

 
$
290,533

Sale of investments, available-for-sale
269,509

 
468,021

Cost of investments acquired, available-for-sale
(623,564
)
 
(1,348,046
)
Change in investments, held-to-maturity
11,000

 
(2,208,000
)
Mortgage loans:
 

 
 

New lendings
(373,108
)
 
(271,230
)
Repayments
177,142

 
226,869

Change in investment real estate, net
832

 
2,644

Change in policy loans, net
14,729

 
15,420

Change in other long-term investments, net
(33,832
)
 
7,648

Change in short-term investments, net
31,859

 
(199,246
)
Net unsettled security transactions
7,361

 
123,117

Purchase of property, equipment, and intangibles
(8,118
)
 
(3,649
)
Amounts received from reinsurance transaction

 
325,800

Net cash used in investing activities
$
(359,771
)
 
$
(2,570,119
)
Cash flows from financing activities
 

 
 

Borrowings under line of credit arrangements and debt
$
255,000

 
$
90,000

Principal payments on line of credit arrangement and debt
(98,498
)
 
(127,888
)
Issuance (repayment) of non-recourse funding obligations
(11,000
)
 
2,179,700

Secured financing liabilities
29,504

 
221,815

Dividends to shareowner
(143,848
)
 
(89,343
)
Investment product deposits and change in universal life deposits
901,387

 
697,099

Investment product withdrawals
(551,597
)
 
(552,960
)
Other financing activities, net

 

Net cash provided by financing activities
$
380,948

 
$
2,418,423

Change in cash
61,195

 
(41,928
)
Cash at beginning of period
348,182

 
396,072

Cash at end of period
$
409,377

 
$
354,144


See Notes to the Consolidated Condensed Financial Statements
8


PROTECTIVE LIFE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.    BASIS OF PRESENTATION
Basis of Presentation
On February 1, 2015, Protective Life Corporation (the “Company”) became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc. a wholly owned subsidiary of Dai-ichi Life, merged with and into the Company. Prior to February 1, 2015, the Company’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger date, the Company remains as an SEC registrant within the United States. The Company is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. Founded in 1907, Protective Life Insurance Company (“PLICO”) is the Company’s largest operating subsidiary.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the interim periods presented herein. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three months ended March 31, 2017, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017. The year-end consolidated condensed financial data included herein was derived from audited financial statements but does not include all disclosures required by GAAP within this report. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.
Entities Included
The consolidated condensed financial statements in this report include the accounts of Protective Life Corporation and subsidiaries and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.
2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There were no significant changes to the Company's accounting policies during the three months ended March 31, 2017.
Accounting Pronouncements Recently Adopted
ASU No. 2017-04-Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Update simplifies the goodwill impairment test by re-defining the concept of goodwill impairment as the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The Update eliminates “Step 2” of the current goodwill impairment test, which requires entities to determine goodwill impairment by calculating the implied fair value of goodwill by remeasuring to fair value the assets and liabilities of a reporting unit as if that reporting unit had been acquired in a business combination. The Company elected to adopt the amendments in the Update in the first quarter of 2017, and will apply the revised guidance to impairment tests conducted after January 1, 2017. Application of the revised guidance did not impact the Company’s financial position or results of operations and will simplify its annual goodwill impairment test, which is generally conducted in the fourth quarter. For more details regarding the Company’s goodwill assessment process, please refer to Note 9, Goodwill.

ASU No. 2015-09 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The amendments in this Update require additional disclosures for short-duration contracts issued by insurance entities. The additional disclosures focus on the liability for unpaid claims and claim adjustment expenses and include incurred and paid claims development information by accident year in tabular form, along with a reconciliation of this information to the statement of financial position. For accident years included in the development tables, the amendments also require disclosure of the total incurred-but-not-reported liabilities and expected development on reported claims, along with claims frequency information unless impracticable. Finally, the amendments require disclosure of the historical average annual percentage payout of incurred claims. With the exception of the current reporting period, claims development information may be presented as supplementary information. The Update is effective for annual periods beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The additional disclosures introduced in this Update are not required for the Company, as the short-duration lines of business to which they apply are not material to the Company’s financial statements.

9


Accounting Pronouncements Not Yet Adopted
ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606). This Update provides for significant revisions to the recognition of revenue from contracts with customers across various industries. Under the new guidance, entities are required to apply a prescribed 5-step process to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting for revenues associated with insurance products is not within the scope of this Update. The Update was originally effective for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14 - Revenues from Contracts with Customers: Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. Early adoption will be allowed, but not before the original effective date. The amendments in the Update, along with clarifying updates issued subsequent to ASU 2014-09, may impact several of the Company's non-core lines of business, specifically revenues at the Company's affiliated broker dealers and insurance agency. Additionally, certain non-insurance products sold from the Asset Protection Division, such as fee-for-service arrangements, may be in the scope of the revised guidance. Several application questions remain outstanding, most notably interpretive positions from the AICPA regarding the Update's application to insurance companies and products. The Company does not anticipate material financial impact from the implementation of the revised guidance. However, the Company is assessing whether changes are needed to its accounting policies, contracts, processes, or disclosures with respect to the non-insurance lines of business referenced above.     
ASU No. 2016-01 - Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the Update requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. The Update also introduces a single-step impairment model for equity investments without a readily determinable fair value. Additionally, the Update requires changes in instrument-specific credit risk for fair value option liabilities to be recorded in other comprehensive income. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2017 and will be applied on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the revised guidance.
ASU No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change will relate to the accounting model used by lessees. The Update will require all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability will be measured at the present value of the minimum lease payments less any upfront payments or fees. The Update also requires numerous disclosure changes for which the Company is assessing the impact. The amendments in the Update are effective for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis. The Company has completed an inventory of all leases in the organization and is currently assessing the impact of the Update and updating internal processes to ensure compliance with the revised guidance.

ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption, and assessing the impact this standard will have on its operations and financial results.

ASU No. 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update are intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Specific transactions addressed in the new guidance include: Debt prepayment/extinguishment costs, contingent consideration payments, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investments. The Update does not introduce any new accounting or financial reporting requirements, and is effective for annual and interim periods beginning after December 15, 2018. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.

ASU No. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Task Force). The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing diversity in practice related to the presentation of these amounts. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Update is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.

ASU No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of this update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in the Update provide a specific test by which an entity may determine whether an acquisition involves a set of assets or a business. The amendments

10


in the Update are to be applied prospectively for periods beginning after December 15, 2017. The Company has reviewed the revised requirements, and does not anticipate that the changes will impact its policies or recent conclusions related to its acquisition activities.

    ASU No. 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update require entities to disaggregate the current-service-cost component from other components of net benefit cost and present it with other current compensation costs in the income statement. The other components of net benefit cost must be presented outside of income from operations if that subtotal is presented. In addition, the Update requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendments in this update are effective for interim and annual periods beginning after December 15, 2017. The Update will not impact the Company’s financial position or results of operations. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.    

ASU No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this update require that premiums on callable debt securities be amortized to the first call date. This is a change from current guidance, under which premiums are amortized to the maturity date of the security. The amendments are effective for annual and interim periods beginning after December 31, 2018, and early adoption is permitted. Transition will be through a modified retrospective approach in which the cumulative effect of application is recorded to retained earnings at the beginning of the annual period in which an entity adopts the revised guidance. The Company is currently reviewing its systems and processes to determine whether early adoption of the revised guidance is practicable.
    
3.     MONY CLOSED BLOCK OF BUSINESS
In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.
Assets allocated to the Closed Block inure solely to the benefit of each Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.
The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income (loss) (“AOCI”)) at the acquisition date of October 1, 2013, represented the estimated maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. In connection with the acquisition of MONY, the Company developed an actuarial calculation of the expected timing of MONY’s Closed Block’s earnings as of October 1, 2013.
If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.
Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.

11


Summarized financial information for the Closed Block as of March 31, 2017, and December 31, 2016, is as follows:
 
As of
 
March 31, 2017
 
December 31, 2016
 
(Dollars In Thousands)
Closed block liabilities
 

 
 

Future policy benefits, policyholders’ account balances and other policyholder liabilities
$
5,868,104

 
$
5,896,355

Policyholder dividend obligation
41,180

 
31,932

Other liabilities
46,257

 
40,007

Total closed block liabilities
5,955,541

 
5,968,294

Closed block assets
 

 
 

Fixed maturities, available-for-sale, at fair value
$
4,508,439

 
$
4,440,105

Mortgage loans on real estate
196,295

 
201,088

Policy loans
705,640

 
712,959

Cash
47,203

 
108,270

Other assets
136,975

 
135,794

Total closed block assets
5,594,552

 
5,598,216

Excess of reported closed block liabilities over closed block assets
360,989

 
370,078

Portion of above representing accumulated other comprehensive income:
 

 
 

Net unrealized investment gains (losses) net of policyholder dividend obligation: $(171,450) and $(197,450); and net of income tax: $60,008 and $69,107

 

Future earnings to be recognized from closed block assets and closed block liabilities
$
360,989

 
$
370,078

Reconciliation of the policyholder dividend obligation is as follows:
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Policyholder dividend obligation, beginning of period
$
31,932

 
$

Applicable to net revenue (losses)
(16,753
)
 
(19,572
)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation
26,001

 
116,080

Policyholder dividend obligation, end of period
$
41,180

 
$
96,508


12


Closed Block revenues and expenses were as follows:
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Revenues
 

 
 
Premiums and other income
$
42,836

 
$
43,919

Net investment income
51,359

 
50,867

Net investment gains
63

 
187

Total revenues
94,258

 
94,973

Benefits and other deductions
 

 
 
Benefits and settlement expenses
80,108

 
80,055

Other operating expenses
166

 
1,025

Total benefits and other deductions
80,274

 
81,080

Net revenues before income taxes
13,984

 
13,893

Income tax expense
4,895

 
4,863

Net revenues
$
9,089

 
$
9,030

4.     INVESTMENT OPERATIONS
Net realized gains (losses) for all other investments are summarized as follows:
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Fixed maturities
$
9,490

 
$
5,721

Equity securities
(9
)
 
(166
)
Impairments
(7,831
)
 
(2,617
)
Modco trading portfolio
18,552

 
78,154

Other investments
(5,192
)
 
(1,981
)
Total realized gains (losses) - investments
$
15,010

 
$
79,111

Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities, equity securities, and short-term investments) are as follows:
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Gross realized gains
$
10,738

 
$
9,048

Gross realized losses:
 
 
 
Impairment losses
$
(7,831
)
 
$
(2,617
)
Realized losses from sales
$
(1,257
)
 
$
(3,493
)

13


The chart below summarizes the fair value (proceeds) and the gains/(losses) realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Securities in an unrealized gain position:
 
 
 
Fair value (proceeds)
$
169,134

 
$
309,249

Gains realized
$
10,738

 
$
9,048

 
 
 
 
Securities in an unrealized loss position(1):
 
 
 
Fair value (proceeds)
$
12,452

 
$
53,687

Losses realized
$
(1,257
)
 
$
(3,493
)
 
 
 
 
(1) The Company made the decision to exit these holdings in conjunction with its overall asset liability management process.

14


The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:
As of March 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI(1)
 
 
(Dollars In Thousands)
 
 
Fixed maturities:
 
 

 
 

 
 

 
 

 
 

Residential mortgage-backed securities
 
$
1,988,289

 
$
11,023

 
$
(29,120
)
 
$
1,970,192

 
$
(3
)
Commercial mortgage-backed securities
 
1,850,816

 
3,225

 
(39,378
)
 
1,814,663

 

Other asset-backed securities
 
1,177,426

 
22,172

 
(17,148
)
 
1,182,450

 

U.S. government-related securities
 
1,310,138

 
401

 
(35,744
)
 
1,274,795

 

Other government-related securities
 
253,129

 
4,130

 
(12,058
)
 
245,201

 

States, municipals, and political subdivisions
 
1,776,716

 
1,811

 
(105,803
)
 
1,672,724

 

Corporate securities
 
28,785,229

 
213,518

 
(1,316,535
)
 
27,682,212

 
(5,338
)
Preferred stock
 
94,362

 
316

 
(5,404
)
 
89,274

 

 
 
37,236,105

 
256,596

 
(1,561,190
)
 
35,931,511

 
(5,341
)
Equity securities
 
778,213

 
16,706

 
(8,226
)
 
786,693

 

Short-term investments
 
247,918

 

 

 
247,918

 

 
 
$
38,262,236

 
$
273,302

 
$
(1,569,416
)
 
$
36,966,122

 
$
(5,341
)
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
 
$
1,913,413

 
$
10,737

 
$
(25,667
)
 
$
1,898,483

 
$
(9
)
Commercial mortgage-backed securities
 
1,850,620

 
2,528

 
(41,678
)
 
1,811,470

 

Other asset-backed securities
 
1,210,490

 
21,741

 
(20,698
)
 
1,211,533

 

U.S. government-related securities
 
1,308,192

 
422

 
(40,455
)
 
1,268,159

 

Other government-related securities
 
253,182

 
1,536

 
(14,797
)
 
239,921

 

States, municipals, and political subdivisions
 
1,760,837

 
1,224

 
(105,558
)
 
1,656,503

 

Corporate securities
 
28,801,768

 
153,715

 
(1,583,918
)
 
27,371,565

 
(11,030
)
Preferred stock
 
94,362

 

 
(8,519
)
 
85,843

 

 
 
37,192,864

 
191,903

 
(1,841,290
)
 
35,543,477

 
(11,039
)
Equity securities
 
761,340

 
7,751

 
(21,685
)
 
747,406

 

Short-term investments
 
279,782

 

 

 
279,782

 

 
 
$
38,233,986

 
$
199,654

 
$
(1,862,975
)
 
$
36,570,665

 
$
(11,039
)
 
 
 
 
 
 
 
 
 
 
 
(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.
     As of March 31, 2017, and December 31, 2016, the Company had an additional $2.6 billion and $2.6 billion of fixed maturities, $5.5 million and $7.1 million of equity securities, and $51.2 million and $52.6 million of short-term investments classified as trading securities, respectively.

15


The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of March 31, 2017, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.
 
Available-for-sale
 
Held-to-maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars In Thousands)
Due in one year or less
$
583,614

 
$
584,526

 
$

 
$

Due after one year through five years
6,534,001

 
6,533,496

 

 

Due after five years through ten years
7,847,205

 
7,767,967

 

 

Due after ten years
22,271,285

 
21,045,522

 
2,758,137

 
2,746,375

 
$
37,236,105

 
$
35,931,511

 
$
2,758,137

 
$
2,746,375

The chart below summarizes the Company's other-than-temporary impairments of investments. All of the impairments were related to fixed or equity maturities.
 
For The
Three Months Ended
March 31,
 
2017
 
Fixed
Maturities
 
Equity
Securities
 
Total
Securities
 
(Dollars In Thousands)
Other-than-temporary impairments
$
(95
)
 
$
(2,630
)
 
$
(2,725
)
Non-credit impairment losses recorded in other comprehensive income
(5,106
)
 

 
(5,106
)
Net impairment losses recognized in earnings
$
(5,201
)
 
$
(2,630
)
 
$
(7,831
)
 
For The
Three Months Ended
March 31,
 
2016
 
Fixed
Maturities
 
Equity
Securities
 
Total
Securities
 
(Dollars In Thousands)
Other-than-temporary impairments
$
(2,769
)
 
$

 
$
(2,769
)
Non-credit impairment losses recorded in other comprehensive income
152

 

 
152

Net impairment losses recognized in earnings
$
(2,617
)
 
$

 
$
(2,617
)
There were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell for the three months ended March 31, 2017 and 2016.
     The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Beginning balance
$
12,685

 
$
22,761

Additions for newly impaired securities

 
2,092

Additions for previously impaired securities

 
525

Reductions for previously impaired securities due to a change in expected cash flows
(12,685
)
 
(22,759
)
Reductions for previously impaired securities that were sold in the current period

 

Ending balance
$

 
$
2,619


16


The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2017:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars In Thousands)
Residential mortgage-backed securities
$
1,137,748

 
$
(25,086
)
 
$
159,309

 
$
(4,034
)
 
$
1,297,057

 
$
(29,120
)
Commercial mortgage-backed securities
1,444,322

 
(35,054
)
 
97,152

 
(4,324
)
 
1,541,474

 
(39,378
)
Other asset-backed securities
260,723

 
(5,836
)
 
173,891

 
(11,312
)
 
434,614

 
(17,148
)
U.S. government-related securities
1,214,007

 
(35,744
)
 
2

 

 
1,214,009

 
(35,744
)
Other government-related securities
71,542

 
(1,267
)
 
80,422

 
(10,791
)
 
151,964

 
(12,058
)
States, municipalities, and political subdivisions
1,030,078

 
(63,063
)
 
546,377

 
(42,740
)
 
1,576,455

 
(105,803
)
Corporate securities
11,292,276

 
(393,211
)
 
9,399,889

 
(923,324
)
 
20,692,165

 
(1,316,535
)
Preferred stock
59,654

 
(3,446
)
 
18,980

 
(1,958
)
 
78,634

 
(5,404
)
Equities
148,787

 
(2,702
)
 
70,384

 
(5,524
)
 
219,171

 
(8,226
)
 
$
16,659,137

 
$
(565,409
)
 
$
10,546,406

 
$
(1,004,007
)
 
$
27,205,543

 
$
(1,569,416
)
RMBS and CMBS had gross unrealized losses greater than twelve months of $4.0 million and $4.3 million, respectively, as of March 31, 2017. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities had a gross unrealized loss greater than twelve months of $11.3 million as of March 31, 2017. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The other government-related securities had gross unrealized losses greater than twelve months of $10.8 million as of March 31, 2017. These declines were related to changes in interest rates.
The states, municipalities, and political subdivisions category had gross unrealized losses greater than twelve months of $42.7 million as of March 31, 2017. These declines were related to changes in interest rates.
The corporate securities category had gross unrealized losses greater than twelve months of $923.3 million as of March 31, 2017. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.
     As of March 31, 2017, the Company had a total of 2,171 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.

17


The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2016:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars In Thousands)
Residential mortgage-backed securities
$
1,060,569

 
$
(21,550
)
 
$
170,826

 
$
(4,117
)
 
$
1,231,395

 
$
(25,667
)
Commercial mortgage-backed securities
1,452,146

 
(37,665
)
 
100,475

 
(4,013
)
 
1,552,621

 
(41,678
)
Other asset-backed securities
323,706

 
(9,291
)
 
176,792

 
(11,407
)
 
500,498

 
(20,698
)
U.S. government-related securities
1,237,942

 
(40,454
)
 
3

 
(1
)
 
1,237,945

 
(40,455
)
Other government-related securities
98,412

 
(2,907
)
 
79,393

 
(11,890
)
 
177,805

 
(14,797
)
States, municipalities, and political subdivisions
1,062,368

 
(63,809
)
 
548,254

 
(41,749
)
 
1,610,622

 
(105,558
)
Corporate securities
12,553,514

 
(469,189
)
 
9,793,579

 
(1,114,729
)
 
22,347,093

 
(1,583,918
)
Preferred stock
66,781

 
(6,642
)
 
19,062

 
(1,877
)
 
85,843

 
(8,519
)
Equities
411,845

 
(15,273
)
 
69,497

 
(6,412
)
 
481,342

 
(21,685
)
 
$
18,267,283

 
$
(666,780
)
 
$
10,957,881

 
$
(1,196,195
)
 
$
29,225,164

 
$
(1,862,975
)
RMBS and CMBS had gross unrealized losses greater than twelve months of $4.1 million and $4.0 million, respectively, as of December 31, 2016. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities had a gross unrealized loss greater than twelve months of $11.4 million as of December 31, 2016. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the FFELP. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The states, municipalities, and political subdivisions category had gross unrealized losses greater than twelve months of $41.7 million as of December 31, 2016. These declines were related to changes in interest rates.
The corporate securities category had gross unrealized losses greater than twelve months of $1.1 billion as of December 31, 2016. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.
     As of March 31, 2017, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $2.0 billion and had an amortized cost of $2.0 billion. In addition, included in the Company’s trading portfolio, the Company held $259.8 million of securities which were rated below investment grade. Approximately $361.0 million of the available-for-sale and trading securities that were below investment grade were not publicly traded.
The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities, classified as available-for-sale is summarized as follows:
 
For The
Three Months Ended
March 31,
 
2017
 
2016
 
(Dollars In Thousands)
Fixed maturities
$
224,115

 
$
632,685

Equity securities
14,569

 
(70
)

18


The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of March 31, 2017, and December 31, 2016, are as follows:
As of March 31, 2017
 
Amortized
Cost
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI
 
 
(Dollars In Thousands)
Fixed maturities:
 
 

 
 

 
 

 
 

 
 

Securities issued by affiliates:
 
 
 
 
 
 
 
 
 
 
Red Mountain LLC
 
$
668,137

 
$

 
$
(55,005
)
 
$
613,132

 
$

Steel City LLC
 
2,090,000

 
43,243

 

 
2,133,243

 

 
 
$
2,758,137

 
$
43,243

 
$
(55,005
)
 
$
2,746,375

 
$

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
Securities issued by affiliates:
 
 
 
 
 
 
 
 
 
 
Red Mountain LLC
 
$
654,177

 
$

 
$
(67,222
)
 
$
586,955

 
$

Steel City LLC
 
2,116,000

 
30,385

 

 
2,146,385

 

 
 
$
2,770,177

 
$
30,385

 
$
(67,222
)
 
$
2,733,340

 
$

During the three months ended March 31, 2017 and 2016, the Company recorded no other-than-temporary impairments on held-to-maturity securities.
The Company’s held-to-maturity securities had $43.2 million of gross unrecognized holding gains and $55.0 million of gross unrecognized holding losses by maturity as of March 31, 2017. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information. These held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities ("VIE's"). The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.
The Company’s held-to-maturity securities had $30.4 million of gross unrecognized holding gains and $67.2 million of gross unrecognized holding losses by maturity as of December 31, 2016. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information.
Variable Interest Entities
The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a VIE. If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
Based on this analysis, the Company had an interest in two subsidiaries as of March 31, 2017, Red Mountain LLC ("Red Mountain") and Steel City LLC ("Steel City"), that were determined to be VIEs. As of December 31, 2016, the Company had an interest in two subsidiaries, Red Mountain LLC ("Red Mountain") and Steel City LLC ("Steel City"), that were determined to be VIEs.
The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued a note (the "Red Mountain Note") to Golden Gate V. For details of this transaction, see Note 10, Debt and Other Obligations. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment, through an affiliate, of $10,000. Additionally, the Company

19


has guaranteed Red Mountain’s payment obligation for the credit enhancement fee to the unrelated third party provider. As of March 31, 2017, no payments have been made or required related to this guarantee.
Steel City, a newly formed wholly owned subsidiary of the Company, entered into a financing agreement on January 15, 2016 involving Golden Gate Captive Insurance Company, in which Golden Gate issued non-recourse funding obligations to Steel City and Steel City issued three notes (the “Steel City Notes”) to Golden Gate. Credit enhancement on the Steel City Notes is provided by unrelated third parties. For details of the financing transaction, see Note 10, Debt and Other Obligations. The activity most significant to Steel City is the issuance of the Steel City Notes. The Company had the power, via its 100% ownership, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third parties in their function as providers of credit enhancement on the Steel City Notes. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the Company has guaranteed Steel City’s payment obligation for the credit enhancement fee to the unrelated third party providers. As of March 31, 2017, no payments have been made or required related to this guarantee.
5.     FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:
Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a.Quoted prices for similar assets or liabilities in active markets
b.Quoted prices for identical or similar assets or liabilities in non-active markets
c.Inputs other than quoted market prices that are observable
d.
Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

20


The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Dollars In Thousands)
Assets:
 

 
 

 
 

 
 

Fixed maturity securities - available-for-sale
 

 
 

 
 

 
 

Residential mortgage-backed securities
$

 
$
1,970,192

 
$

 
$
1,970,192

Commercial mortgage-backed securities

 
1,814,663

 

 
1,814,663

Other asset-backed securities

 
625,514

 
556,936

 
1,182,450

U.S. government-related securities
1,009,732

 
265,063

 

 
1,274,795

State, municipalities, and political subdivisions

 
1,672,724

 

 
1,672,724

Other government-related securities

 
245,201

 

 
245,201

Corporate securities

 
27,015,507

 
666,705

 
27,682,212

Preferred stock
70,294

 
18,980

 

 
89,274

Total fixed maturity securities - available-for-sale
1,080,026

 
33,627,844

 
1,223,641

 
35,931,511

Fixed maturity securities - trading
 

 
 

 
 

 
 

Residential mortgage-backed securities

 
255,779

 

 
255,779

Commercial mortgage-backed securities

 
154,760

 

 
154,760

Other asset-backed securities

 
112,548

 
68,752

 
181,300

U.S. government-related securities
44,458

 
4,517

 

 
48,975

State, municipalities, and political subdivisions

 
312,095

 

 
312,095

Other government-related securities

 
63,369

 

 
63,369

Corporate securities

 
1,618,360

 
5,504

 
1,623,864

Preferred stock
3,780

 

 

 
3,780

Total fixed maturity securities - trading
48,238

 
2,521,428

 
74,256

 
2,643,922

Total fixed maturity securities
1,128,264

 
36,149,272

 
1,297,897

 
38,575,433

Equity securities
725,811

 
36

 
66,384

 
792,231

Other long-term investments(1)
57,787

 
354,430

 
133,428

 
545,645

Short-term investments
255,251

 
43,916

 

 
299,167

Total investments
2,167,113

 
36,547,654

 
1,497,709

 
40,212,476

Cash
409,377

 

 

 
409,377

Other assets
27,784

 

 

 
27,784

Assets related to separate accounts
 

 
 

 
 

 
 

Variable annuity
13,512,921

 

 

 
13,512,921

Variable universal life
935,427

 

 

 
935,427

Total assets measured at fair value on a recurring basis
$
17,052,622

 
$
36,547,654

 
$
1,497,709

 
$
55,097,985

Liabilities:
 

 
 

 
 

 
 

Annuity account balances(2)
$

 
$

 
$
86,415

 
$
86,415

Other liabilities(1)
12,152

 
203,267

 
587,074

 
802,493

Total liabilities measured at fair value on a recurring basis
$
12,152

 
$
203,267

 
$
673,489

 
$
888,908

 
 
 
 
 
 
 
 
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

21


The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Dollars In Thousands)
Assets:
 

 
 

 
 

 
 

Fixed maturity securities - available-for-sale
 

 
 

 
 

 
 

Residential mortgage-backed securities
$

 
$
1,898,480

 
$
3

 
$
1,898,483

Commercial mortgage-backed securities

 
1,811,470

 

 
1,811,470

Other asset-backed securities

 
648,929

 
562,604

 
1,211,533

U.S. government-related securities
1,002,020

 
266,139

 

 
1,268,159

State, municipalities, and political subdivisions

 
1,656,503

 

 
1,656,503

Other government-related securities

 
239,921

 

 
239,921

Corporate securities

 
26,707,519

 
664,046

 
27,371,565

Preferred stock
66,781

 
19,062

 

 
85,843

Total fixed maturity securities - available-for-sale
1,068,801

 
33,248,023

 
1,226,653

 
35,543,477

Fixed maturity securities - trading
 

 
 

 
 

 
 

Residential mortgage-backed securities

 
255,027

 

 
255,027

Commercial mortgage-backed securities

 
149,683

 

 
149,683

Other asset-backed securities

 
115,521

 
84,563

 
200,084

U.S. government-related securities
22,424

 
4,537

 

 
26,961

State, municipalities, and political subdivisions

 
316,519

 

 
316,519

Other government-related securities

 
63,012

 

 
63,012

Corporate securities

 
1,619,097

 
5,492

 
1,624,589

Preferred stock
3,985

 

 

 
3,985

Total fixed maturity securities - trading
26,409

 
2,523,396

 
90,055

 
2,639,860

Total fixed maturity securities
1,095,210

 
35,771,419

 
1,316,708

 
38,183,337

Equity securities
685,443

 
36

 
69,010

 
754,489

Other long-term investments(1)(3)
82,420

 
335,498

 
124,325

 
542,243

Short-term investments
328,829

 
3,602

 

 
332,431

Total investments
2,191,902

 
36,110,555

 
1,510,043

 
39,812,500

Cash
348,182

 

 

 
348,182

Other assets
23,830

 

 

 
23,830

Assets related to separate accounts
 

 
 

 
 

 
 

Variable annuity
13,244,252

 

 

 
13,244,252

Variable universal life
895,925

 

 

 
895,925

Total assets measured at fair value on a recurring basis
$
16,704,091

 
$
36,110,555

 
$
1,510,043

 
$
54,324,689

Liabilities:
 

 
 

 
 

 
 

Annuity account balances(2)
$

 
$

 
$
87,616

 
$
87,616

Other liabilities(1)(3)
13,004

 
163,974

 
571,843

 
748,821

Total liabilities measured at fair value on a recurring basis
$
13,004

 
$
163,974

 
$
659,459

 
$
836,437

 
 
 
 
 
 
 
 
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. This change in estimate resulted in a transfer of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.

22


Determination of fair values
The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.
The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately 91% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which we purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.
The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted-average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.
For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the three months ended March 31, 2017.
The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.
Asset-Backed Securities
This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of March 31, 2017, the Company held $4.9 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.
After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
As of March 31, 2017, the Company held $625.7 million of Level 3 ABS, which included $556.9 million of other asset-backed securities classified as available-for-sale and $68.8 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. As a result of the ARS market collapse during 2008, the Company prices its ARS using an income approach valuation model. As part of the valuation

23


process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be level three measurements due to the nature of the transaction.
Corporate Securities, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government Related Securities
As of March 31, 2017, the Company classified approximately $31.2 billion of corporate securities, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
The brokers and third party pricing service utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.
As of March 31, 2017, the Company classified approximately $672.2 million of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.
Equities
As of March 31, 2017, the Company held approximately $66.4 million of equity securities classified as Level 2 and Level 3. Of this total, $65.7 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.
Other Long-Term Investments and Other Liabilities
Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 6, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of March 31, 2017, 100% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.
Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.
Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.
Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.
The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.
The embedded derivatives are carried at fair value in “other long-term investments” and “other liabilities” on the Company’s consolidated condensed balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses) - Derivative financial instruments”. Refer to Note 6, Derivative Financial Instruments for more information related to each embedded derivatives gains and losses.
The fair value of the GLWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near-term equity market implied volatilities. The equity correlations

24


are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table with attained age factors varying from 91.1% - 106.6%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). As a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. These assumptions are reviewed on a quarterly basis.
The balance of the FIA embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 1994 Variable Annuity MGDB mortality table modified with company experience, with attained age factors varying from 46% - 113%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.
The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables modified with company experience, with attained age factors varying from 38% - 153%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.
The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. As of March 31, 2017, the fair value of the embedded derivative is based upon the relationship between the statutory policy liabilities (net of policy loans) of $2.4 billion and the statutory unrealized gain (loss) of the securities of $158.2 million. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.
Annuity Account Balances
The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values. The Level 3 fair value as of March 31, 2017 is $86.4 million.
Separate Accounts
Separate account assets are invested in open-ended mutual funds and are included in Level 1.

25


Valuation of Level 3 Financial Instruments
The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:
 
Fair Value
As of
March 31, 2017
 
Valuation
Technique
 
Unobservable
Input
 
Range
(Weighted Average)
 
(Dollars In Thousands)
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Other asset-backed securities
$
556,782

 
Liquidation
 
Liquidation value
 
$88 - $97.26 ($94.97)
 
 
 
Discounted cash flow
 
Liquidity premium
 
0.46% - 1.15% (0.75%)
 
 
 
 
 
Paydown rate
 
11.06% - 12.19% (11.41%)
Corporate securities
639,904

 
Discounted cash flow
 
Spread over treasury
 
0.88% - 4.55% (1.85%)
Liabilities:(1)
 

 
 
 
 
 
 
Embedded derivatives - GLWB(2)
$
81,738

 
Actuarial cash flow model
 
Mortality
 
91.1% to 106.6% of
 
 

 
 
 
 
 
Ruark 2015 ALB table
 
 

 
 
 
Lapse
 
0.3% - 15%, depending on
 
 

 
 
 
 
 
product/duration/funded
 
 

 
 
 
 
 
status of guarantee
 
 

 
 
 
Utilization
 
99%. 10% of policies have a one-
 
 

 
 
 
 
 
time over-utilization of 400%
 
 

 
 
 
Nonperformance risk
 
0.14% - 0.98%
Embedded derivative - FIA
170,215

 
Actuarial cash flow model
 
Expenses
 
$126 per policy
 
 
 
 
 
Asset Earned Rate
 
4.08% - 4.66%
 
 

 
 
 
Withdrawal rate
 
1% prior to age 70, 100% of the
 
 

 
 
 
 
 
RMD for ages 70+
 
 

 
 
 
Mortality
 
1994 MGDB table with company
 
 

 
 
 
 
 
experience