FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2018

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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, 2018:



	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	4	$	—	$	2,394,370	$	—	$	2,394,370
Commercial mortgage-backed securities	4	—		1,841,506		—		1,841,506
Other asset-backed securities	4	—		740,863		503,789		1,244,652
U.S. government-related securities	4	1,041,123		286,677		—		1,327,800
State, municipalities, and political subdivisions	4	—		1,700,279		—		1,700,279
Other government-related securities	4	—		277,459		—		277,459
Corporate securities	4	—		27,933,364		626,409		28,559,773
Redeemable preferred stock	4	72,244		18,325		—		90,569
Total fixed maturity securities - available-for-sale		1,113,367		35,192,843		1,130,198		37,436,408
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		265,547		—		265,547
Commercial mortgage-backed securities	3	—		146,633		—		146,633
Other asset-backed securities	3	—		94,756		34,958		129,714
U.S. government-related securities	3	31,684		5,891		—		37,575
State, municipalities, and political subdivisions	3	—		318,142		—		318,142
Other government-related securities	3	—		40,368		—		40,368
Corporate securities	3	—		1,640,575		5,324		1,645,899
Redeemable preferred stock	3	3,264		—		—		3,264
Total fixed maturity securities - trading		34,948		2,511,912		40,282		2,587,142
Total fixed maturity securities		1,148,315		37,704,755		1,170,480		40,023,550
Equity securities	3	615,423		36		66,061		681,520
Other long-term investments⁽¹⁾	3 & 4	87,558		354,855		144,352		586,765
Short-term investments	3	327,834		113,947		—		441,781
Total investments		2,179,130		38,173,593		1,380,893		41,733,616
Cash	3	307,724		—		—		307,724
Other assets	3	34,463		—		—		34,463
Assets related to separate accounts
Variable annuity	3	13,549,068		—		—		13,549,068
Variable universal life	3	1,019,250		—		—		1,019,250
Total assets measured at fair value on a recurring basis		$	17,089,635	$	38,173,593	$	1,380,893	$	56,644,121
Liabilities:
Annuity account balances ⁽²⁾	3	$	—	$	—	$	81,399	$	81,399
Other liabilities⁽¹⁾	3 & 4	7,397		189,206		621,102		817,705
Total liabilities measured at fair value on a recurring basis		$	7,397	$	189,206	$	702,501	$	899,104

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income

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, 2017:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,327,212	$	—	$	2,327,212
Commercial mortgage-backed securities	—		1,889,822		—		1,889,822
Other asset-backed securities	—		745,184		504,365		1,249,549
U.S. government-related securities	958,775		264,477		—		1,223,252
State, municipalities, and political subdivisions	—		1,741,645		—		1,741,645
Other government-related securities	—		287,282		—		287,282
Corporate securities	—		29,075,109		626,901		29,702,010
Redeemable preferred stock	72,471		18,620		—		91,091
Total fixed maturity securities - available-for-sale	1,031,246		36,349,351		1,131,266		38,511,863
Fixed maturity securities - trading
Residential mortgage-backed securities	—		259,694		—		259,694
Commercial mortgage-backed securities	—		146,804		—		146,804
Other asset-backed securities	—		102,875		35,222		138,097
U.S. government-related securities	21,183		6,051		—		27,234
State, municipalities, and political subdivisions	—		326,925		—		326,925
Other government-related securities	—		63,925		—		63,925
Corporate securities	—		1,692,741		5,442		1,698,183
Redeemable preferred stock	3,327		—		—		3,327
Total fixed maturity securities - trading	24,510		2,599,015		40,664		2,664,189
Total fixed maturity securities	1,055,756		38,948,366		1,171,930		41,176,052
Equity securities	688,214		36		66,110		754,360
Other long-term investments⁽¹⁾	51,102		417,969		136,004		605,075
Short-term investments	482,461		132,749		—		615,210
Total investments	2,277,533		39,499,120		1,374,044		43,150,697
Cash	252,310		—		—		252,310
Other assets	28,771		—		—		28,771
Assets related to separate accounts
Variable annuity	13,956,071		—		—		13,956,071
Variable universal life	1,035,202		—		—		1,035,202
Total assets measured at fair value on a recurring basis	$	17,549,887	$	39,499,120	$	1,374,044	$	58,423,051
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	83,472	$	83,472
Other liabilities⁽¹⁾	5,755		240,927		760,890		1,007,572
Total liabilities measured at fair value on a recurring basis	$	5,755	$	240,927	$	844,362	$	1,091,044

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

Schedule of the Valuation Method for Material Financial Instruments Included in Level 3, as well as the Unobservable Inputs Used in the Valuation of the 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, 2018		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	503,672	Liquidation	Liquidation value	$90 - $97 ($94.92)
			Discounted cash flow	Liquidity premium	0.07% - 1.09% (0.73%)
				Paydown rate	11.63% - 12.53% (12.16%)
Corporate securities	617,724		Discounted cash flow	Spread over treasury	0.96% - 4.35% (1.61%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	55,468	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% - 0.95%
Embedded derivative - FIA	218,340		Actuarial cash flow model	Expenses	$146 per policy
				Withdrawal rate	1.5% prior to age 70, 100% of the
					RMD for ages 70+
				Mortality	1994 MGDB table with company
					experience
				Lapse	1.0% - 30.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.14% - 0.95%
Embedded derivative - IUL	77,350		Actuarial cash flow model	Mortality	34% - 152% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending
					on duration/distribution
					channel and smoking class
				Nonperformance risk	0.14% - 0.95%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

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 December 31, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	504,228	Liquidation	Liquidation value	$90 - $97 ($94.91)
			Discounted Cash Flow	Liquidity premium	0.06% - 1.17% (0.75%)
				Paydown rate	11.31% - 11.97% (11.54%)
Corporate securities	617,770		Discounted cash flow	Spread over treasury	0.81% - 3.95% (1.06%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	111,760	Actuarial cash flow model	Mortality	91.1% to 106.6% of
					Ruark 2015 ALB table
				Lapse	1.0% - 30.0%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have a one-
					time over-utilization of 400%
				Nonperformance risk	0.11% - 0.79%
Embedded derivative - FIA	218,676		Actuarial cash flow model	Expenses	$146 per policy
				Withdrawal rate	1.5% prior to age 70, 100% of the
					RMD for ages 70+
				Mortality	1994 MGDB table with company
					experience
				Lapse	1.0% - 30.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.11% - 0.79%
Embedded derivative - IUL	80,212		Actuarial cash flow model	Mortality	34% - 152% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending
					on duration/distribution
					channel and smoking class
				Nonperformance risk	0.11% - 0.79%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

Schedule of Reconciliation of the Beginning and Ending Balances for Fair Value Measurements, for which the Company has Used Significant Unobservable Inputs (Level 3)

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended March 31, 2017, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—		$	—		$	—	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	562,604		—		3,530		—			(831		)	—		(2,015		)	—		—		(6,643		)	291			556,936		—
Corporate securities	664,046		—		7,771		—			(282		)	37,259		(38,884		)	—		—		(2,647		)	(558		)	666,705		—
Total fixed maturity securities - available-for-sale	1,226,653		—		11,301		—			(1,113		)	37,259		(40,902		)	—		—		(9,290		)	(267		)	1,223,641		—
Fixed maturity securities - trading
Other asset-backed securities	84,563		3,474		—		(586		)	—			—		(19,308		)	—		—		—			609			68,752		2,888
Corporate securities	5,492		34		—		—			—			—		—			—		—		—			(22		)	5,504		34
Total fixed maturity securities - trading	90,055		3,508		—		(586		)	—			—		(19,308		)	—		—		—			587			74,256		2,922
Total fixed maturity securities	1,316,708		3,508		11,301		(586		)	(1,113		)	37,259		(60,210		)	—		—		(9,290		)	320			1,297,897		2,922
Equity securities	69,010		—		2		(2,630		)	—			—		—			—		—		3			(1		)	66,384		1
Other long-term investments⁽¹⁾	124,325		11,061		—		(1,958		)	—			—		—			—		—		—			—			133,428		9,103
Total investments	1,510,043		14,569		11,303		(5,174		)	(1,113		)	37,259		(60,210		)	—		—		(9,287		)	319			1,497,709		12,026
Total assets measured at fair value on a recurring basis	$	1,510,043	$	14,569	$	11,303	$	(5,174	)	$	(1,113	)	$	37,259	$	(60,210	)	$	—	$	—	$	(9,287	)	$	319		$	1,497,709	$	12,026
Liabilities:
Annuity account balances⁽²⁾	$	87,616	$	—	$	—	$	(887	)	$	—		$	—	$	—		$	180	$	2,268	$	—		$	—		$	86,415	$	—
Other liabilities⁽¹⁾	571,843		44,263		—		(59,494		)	—			—		—			—		—		—			—			587,074		(15,231		)
Total liabilities measured at fair value on a recurring basis	$	659,459	$	44,263	$	—	$	(60,381	)	$	—		$	—	$	—		$	180	$	2,268	$	—		$	—		$	673,489	$	(15,231	)

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

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended March 31, 2018, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																						Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3		Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	—	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	—	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	504,365		—		514		—			(1,634		)	—		(14		)	—		—		—		558			503,789		—
Corporate securities	626,901		—		1,399		—			(12,101		)	35,000		(23,635		)	—		—		—		(1,155		)	626,409		—
Total fixed maturity securities - available-for-sale	1,131,266		—		1,913		—			(13,735		)	35,000		(23,649		)	—		—		—		(597		)	1,130,198		—
Fixed maturity securities - trading
Other asset-backed securities	35,222		194		—		(28		)	—			—		(396		)	—		—		—		(34		)	34,958		166
Corporate securities	5,442		—		—		(94		)	—			—		—			—		—		—		(24		)	5,324		(94		)
Total fixed maturity securities - trading	40,664		194		—		(122		)	—			—		(396		)	—		—		—		(58		)	40,282		72
Total fixed maturity securities	1,171,930		194		1,913		(122		)	(13,735		)	35,000		(24,045		)	—		—		—		(655		)	1,170,480		72
Equity securities	66,110		—		—		(49		)	—			—		—			—		—		—		—			66,061		(49		)
Other long-term investments⁽¹⁾	136,004		8,864		—		(516		)	—			—		—			—		—		—		—			144,352		8,348
Total investments	1,374,044		9,058		1,913		(687		)	(13,735		)	35,000		(24,045		)	—		—		—		(655		)	1,380,893		8,371
Total assets measured at fair value on a recurring basis	$	1,374,044	$	9,058	$	1,913	$	(687	)	$	(13,735	)	$	35,000	$	(24,045	)	$	—	$	—	$	—	$	(655	)	$	1,380,893	$	8,371
Liabilities:
Annuity account balances⁽²⁾	$	83,472	$	—	$	—	$	(794	)	$	—		$	—	$	—		$	441	$	3,308	$	—	$	—		$	81,399	$	—
Other liabilities⁽¹⁾	760,890		161,318		—		(21,530		)	—			—		—			—		—		—		—			621,102		139,788
Total liabilities measured at fair value on a recurring basis	$	844,362	$	161,318	$	—	$	(22,324	)	$	—		$	—	$	—		$	441	$	3,308	$	—	$	—		$	702,501	$	139,788

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

Schedule of the Carrying Amounts and Estimated Fair Value of the Company's Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:



		As of
		March 31, 2018				December 31, 2017
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	6,846,633	$	6,646,782	$	6,817,723	$	6,740,177
Policy loans	3	1,594,642		1,594,642		1,615,615		1,615,615
Fixed maturities, held-to-maturity⁽¹⁾	3	2,699,826		2,674,129		2,718,904		2,776,327
Liabilities:
Stable value product account balances	3	$	4,699,614	$	4,658,178	$	4,698,371	$	4,698,868
Future policy benefits and claims⁽²⁾	3	220,307		220,307		220,498		220,498
Other policyholders' funds⁽³⁾	3	135,202		135,921		133,508		134,253
Debt:⁽⁴⁾
Bank borrowings	3	$	325,000	$	325,000	$	—	$	—
Senior Notes	2	769,776		751,951		943,370		933,926
Subordinated debt securities	2	495,324		486,595		495,289		501,215
Non-recourse funding obligations⁽⁵⁾	3	2,728,689		2,706,594		2,747,477		2,804,983

Except as noted below, fair values were estimated using quoted market prices.
(1) Securities purchased from unconsolidated affiliates, Red Mountain LLC and Steel City LLC.
(2) Single premium immediate annuity without life contingencies.
(3) Supplementary contracts without life contingencies.
(4) Excludes capital lease obligations of $1.6 million.
(5) As of March 31, 2018, carrying amount of $2.6 billion and a fair value of $2.7 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2017, carrying amount of $2.7 billion and a fair value of $2.8 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.