INVESTMENTS

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	75,049	$	2,427	$	6	$	77,470	$	0
Obligations of U.S. states and their political subdivisions	609,955		15,154		2,351		622,758		0
Foreign government bonds	208,009		2,137		8,199		201,947		0
U.S. corporate public securities	1,739,860		46,166		54,401		1,731,625		0
U.S. corporate private securities	890,748		11,181		18,591		883,338		0
Foreign corporate public securities	270,428		3,746		12,151		262,023		0
Foreign corporate private securities	857,604		9,797		40,022		827,379		0
Asset-backed securities(1)	156,818		1,528		750		157,596		(122		)
Commercial mortgage-backed securities	347,570		3,353		4,527		346,396		0
Residential mortgage-backed securities(2)	88,862		1,268		1,067		89,063		(177		)
Total fixed maturities, available-for-sale	$	5,244,903	$	96,757	$	142,065	$	5,199,595	$	(299	)


(1)	Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, credit cards, education loans and other asset types.


(2)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $0.4 million of net unrealized losses on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.



	December 31, 2017(4)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	95,851	$	3,964	$	0	$	99,815	$	0
Obligations of U.S. states and their political subdivisions	597,254		38,204		0		635,458		0
Foreign government bonds	128,058		7,536		496		135,098		0
U.S. corporate public securities	1,634,677		149,054		2,642		1,781,089		(215		)
U.S. corporate private securities	931,113		32,180		2,055		961,238		0
Foreign corporate public securities	170,503		12,681		732		182,452		0
Foreign corporate private securities	815,462		46,387		10,183		851,666		0
Asset-backed securities(1)	179,935		2,519		26		182,428		(138		)
Commercial mortgage-backed securities	320,223		5,148		2,539		322,832		0
Residential mortgage-backed securities(2)	68,868		2,527		169		71,226		(220		)
Total fixed maturities, available-for-sale	$	4,941,944	$	300,200	$	18,842	$	5,223,302	$	(573	)


(1)	Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, credit cards, education loans and other asset types.


(2)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $2.2 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.


(4)	Prior period amounts have been reclassified to conform to current period presentation.

The following tables set forth the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:



	December 31, 2018
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	0	$	630	$	6	$	630	$	6
Obligations of U.S. states and their political subdivisions	124,776		1,571		31,215		780		155,991		2,351
Foreign government bonds	77,055		3,184		59,700		5,015		136,755		8,199
U.S. corporate public securities	784,916		37,635		213,147		16,766		998,063		54,401
U.S. corporate private securities	263,934		9,159		287,031		9,432		550,965		18,591
Foreign corporate public securities	124,764		6,286		72,725		5,865		197,489		12,151
Foreign corporate private securities	424,921		22,605		127,201		17,417		552,122		40,022
Asset-backed securities	112,527		650		6,523		100		119,050		750
Commercial mortgage-backed securities	49,616		434		116,786		4,093		166,402		4,527
Residential mortgage-backed securities	34,249		240		32,432		827		66,681		1,067
Total fixed maturities, available-for-sale	$	1,996,758	$	81,764	$	947,390	$	60,301	$	2,944,148	$	142,065



	December 31, 2017(1)
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	0	$	0	$	0	$	0	$	0
Obligations of U.S. states and their political subdivisions	0		0		0		0		0		0
Foreign government bonds	16,522		210		11,959		286		28,481		496
U.S. corporate public securities	39,213		305		107,332		2,337		146,545		2,642
U.S. corporate private securities	89,441		1,102		40,276		953		129,717		2,055
Foreign corporate public securities	27,079		190		8,390		542		35,469		732
Foreign corporate private securities	61,515		530		151,933		9,653		213,448		10,183
Asset-backed securities	6,351		22		317		4		6,668		26
Commercial mortgage-backed securities	49,823		285		93,403		2,254		143,226		2,539
Residential mortgage-backed securities	8,030		28		6,160		141		14,190		169
Total fixed maturities, available-for-sale	$	297,974	$	2,672	$	419,770	$	16,170	$	717,744	$	18,842


(1)	Prior period amounts have been reclassified to conform to current period presentation.

As of December 31, 2018 and 2017, the gross unrealized losses on fixed maturity securities were composed of $121.3 million and $13.9 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $20.8 million and $4.9 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2018, the $60.3 million of gross unrealized losses of twelve months or more were concentrated in the Company's corporate securities within the finance, energy and consumer non-cyclical sectors. As of December 31, 2017, the $16.2 million of gross unrealized losses of twelve months or more were concentrated in commercial mortgage-backed securities and in the Company's corporate securities within the energy and finance sectors. In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for OTTI for these fixed maturity securities was not warranted at either December 31, 2018 or 2017. These conclusions were based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates and foreign currency exchange rate movements. As of December 31, 2018, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:



	December 31, 2018
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	74,061	$	74,367
Due after one year through five years	702,071		688,732
Due after five years through ten years	1,053,160		1,037,182
Due after ten years	2,822,361		2,806,259
Asset-backed securities	156,818		157,596
Commercial mortgage-backed securities	347,570		346,396
Residential mortgage-backed securities	88,862		89,063
Total fixed maturities, available-for-sale	$	5,244,903	$	5,199,595

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on impairments of fixed maturities, for the periods indicated:



	Years Ended December 31,
	2018			2017			2016
				(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	234,617		$	569,151		$	833,562
Proceeds from maturities/prepayments	326,664			492,944			495,969
Gross investment gains from sales and maturities	1,370			44,458			94,262
Gross investment losses from sales and maturities	(11,000		)	(9,956		)	(10,475		)
OTTI recognized in earnings(2)	(3,710		)	(7,379		)	(17,677		)


(1)	Includes $(0.1) million, $(0.1) million and $(1.5) million of non-cash related proceeds due to the timing of trade settlements for the years ended December 31, 2018, 2017 and 2016, respectively.


(2)	Excludes the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of the impairment.

The following table sets forth a rollforward of pre-tax amounts remaining in OCI related to fixed maturity securities with credit loss impairments recognized in earnings, for the periods indicated:



	Years Ended December 31,
	2018			2017
	(in thousands)
Credit loss impairments:
Balance, beginning of period	$	4,374		$	5,520
New credit loss impairments	0			424
Additional credit loss impairments on securities previously impaired	0			664
Increases due to the passage of time on previously recorded credit losses	539			106
Reductions for securities which matured, paid down, prepaid or were sold during the period	(2,000		)	(1,909		)
Reductions for securities impaired to fair value during the period(1)	(1,136		)	(327		)
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(486		)	(104		)
Assets transferred to parent and affiliates	0			0
Balance, end of period	$	1,291		$	4,374


(1)	Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was $(2.8) million during the year ended December 31, 2018. The net change in unrealized gains (losses) from equity securities, still held at period end, recorded within "Other comprehensive income (loss)," was $2.0 million and $3.0 million during the years ended December 31, 2017 and 2016, respectively.

Commercial Mortgage and Other Loans

The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:



	December 31, 2018					December 31, 2017
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	362,811		29.9	%	$	356,694		32.9	%
Hospitality	16,083			1.3		16,529			1.5
Industrial	263,999			21.8		180,619			16.7
Office	187,450			15.5		159,646			14.7
Other	131,961			10.9		99,119			9.1
Retail	193,473			16.0		205,367			18.9
Total commercial mortgage loans	1,155,777			95.4		1,017,974			93.8
Agricultural property loans	55,438			4.6		67,239			6.2
Total commercial mortgage and agricultural property loans by property type	1,211,215			100.0	%	1,085,213			100.0	%
Allowance for credit losses	(2,065		)			(1,794		)
Total commercial mortgage and other loans	$	1,209,150				$	1,083,419

As of December 31, 2018, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (21%), Texas (14%) and New York (7%)) and included loans secured by properties in Europe (5%), Australia (4%), and Mexico (2%).

The following table sets forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:



	Commercial Mortgage Loans			Agricultural Property Loans			Total
	(in thousands)
Balance at December 31, 2015	$	2,587		$	64		$	2,651
Addition to (release of) allowance for credit losses	(1,074		)	(19		)	(1,093		)
Charge-offs, net of recoveries	0			0			0
Balance at December 31, 2016	$	1,513		$	45		$	1,558
Addition to (release of) allowance for credit losses	215			21			236
Charge-offs, net of recoveries	0			0			0
Balance at December 31, 2017	$	1,728		$	66		$	1,794
Addition to (release of) allowance for credit losses	298			(27		)	271
Charge-offs, net of recoveries	0			0			0
Balance at December 31, 2018	$	2,026		$	39		$	2,065

The following tables set forth the allowance for credit losses and the recorded investment in commercial mortgage and other loans, as of the dates indicated:



	December 31, 2018
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	2,026		39		2,065
Total ending balance(1)	$	2,026	$	39	$	2,065
Recorded investment(2):
Individually evaluated for impairment	$	0	$	816	$	816
Collectively evaluated for impairment	1,155,777		54,622		1,210,399
Total ending balance(1)	$	1,155,777	$	55,438	$	1,211,215


(1)	As of December 31, 2018, there were no loans acquired with deteriorated credit quality.


(2)	Recorded investment reflects the carrying value gross of related allowance.



	December 31, 2017
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	1,728		66		1,794
Total ending balance(1)	$	1,728	$	66	$	1,794
Recorded investment(2):
Individually evaluated for impairment	$	2,316	$	1,153	$	3,469
Collectively evaluated for impairment	1,015,658		66,086		1,081,744
Total ending balance(1)	$	1,017,974	$	67,239	$	1,085,213


(1)	As of December 31, 2017, there were no loans acquired with deteriorated credit quality.


(2)	Recorded investment reflects the carrying value gross of related allowance.

The following tables set forth certain key credit quality indicators for commercial mortgage and agricultural property loans based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:



	December 31, 2018
	Debt Service Coverage Ratio
	> 1.2X		1.0X to <1.2X		< 1.0X		Total
	(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	696,507	$	12,771	$	80	$	709,358
60%-69.99%	321,586		18,525		0		340,111
70%-79.99%	105,727		27,790		0		133,517
80% or greater	28,000		229		0		28,229
Total commercial mortgage and agricultural property loans	$	1,151,820	$	59,315	$	80	$	1,211,215



	December 31, 2017
	Debt Service Coverage Ratio
	> 1.2X		1.0X to <1.2X		< 1.0X		Total
	(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	606,846	$	21,709	$	705	$	629,260
60%-69.99%	333,185		9,594		2,010		344,789
70%-79.99%	84,492		26,439		0		110,931
80% or greater	0		0		233		233
Total commercial mortgage and agricultural property loans	$	1,024,523	$	57,742	$	2,948	$	1,085,213

The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:



	December 31, 2018
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,155,777	$	0	$	0	$	0	$	1,155,777	$	0
Agricultural property loans	55,438		0		0		0		55,438		0
Total	$	1,211,215	$	0	$	0	$	0	$	1,211,215	$	0


(1)	As of December 31, 2018, there were no loans in this category accruing interest.


(2)	For additional information regarding the Company's policies for accruing interest on loans, see Note 2.



	December 31, 2017
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,017,974	$	0	$	0	$	0	$	1,017,974	$	0
Agricultural property loans	67,239		0		0		0		67,239		0
Total	$	1,085,213	$	0	$	0	$	0	$	1,085,213	$	0


(1)	As of December 31, 2017, there were no loans in this category accruing interest.


(2)	For additional information regarding the Company's policies for accruing interest on loans, see Note 2.

For the year ended December 31, 2018, there were $3 million of commercial mortgage and other loans acquired, other than those through direct origination. For the year ended December 31, 2017, there were no commercial mortgage and other loans acquired, other than those through direct origination. For the year ended December 31, 2018, there were no commercial mortgage and other loans sold. For the year ended December 31, 2017, there were $147 million of commercial mortgage and other loans sold.

Other Invested Assets

The following table sets forth the composition of “Other invested assets,” as of the dates indicated:



	December 31,
	2018		2017
	(in thousands)
Company's investment in separate accounts	$	40,126	$	37,404
LPs/LLCs:
Equity method:
Private equity	149,164		123,957
Hedge funds	57,171		53,066
Real estate-related	10,251		7,040
Subtotal equity method	216,586		184,063
Fair value:
Private equity	60,118		35,686
Hedge funds	762		726
Real estate-related	9,024		5,186
Subtotal fair value(1)	69,904		41,598
Total LPs/LLCs	286,490		225,661
Derivative instruments	50,813		9
Total other invested assets(2)	$	377,429	$	263,074


(1)	As of December 31, 2017, $40.9 million was accounted for using the cost method.


(2)	Prior period amounts have been reclassified to conform to current period presentation. For additional information, see Note 2.

As of both December 31, 2018 and 2017, the Company had no significant equity method investments.

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:



	Years Ended December 31,
	2018			2017			2016
	(in thousands)
Fixed maturities, available-for-sale	$	220,942		$	230,060		$	242,351
Fixed maturities, trading	1,105			834			1,075
Equity securities, at fair value	885			884			977
Commercial mortgage and other loans	49,577			52,127			58,940
Policy loans	66,305			63,884			62,735
Short-term investments and cash equivalents	2,382			1,090			1,767
Other invested assets	2,256			23,518			29,512
Gross investment income	343,452			372,397			397,357
Less: investment expenses	(18,165		)	(19,987		)	(21,407		)
Net investment income(1)	$	325,287		$	352,410		$	375,950


(1)	Prior period amounts have been reclassified to conform to current period presentation.

The carrying value of non-income producing assets included $3.1 million in fixed maturities as of December 31, 2018. Non-income producing assets represent investments that had not produced income for the twelve months preceding December 31, 2018.

Realized Investment Gains (Losses), Net

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:



	Years Ended December 31,
	2018			2017			2016
	(in thousands)
Fixed maturities(1)	$	(13,340	)	$	27,123		$	66,110
Equity securities(2)	0			(125		)	(1,570		)
Commercial mortgage and other loans	(271		)	(337		)	29,584
LPs/LLCs	849			(221		)	(229		)
Derivatives	(154,208		)	(106,625		)	664,533
Short-term investments and cash equivalents	(308		)	(1		)	21
Realized investment gains (losses), net	$	(167,278	)	$	(80,186	)	$	758,449


(1)	Includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.


(2)	Effective January 1, 2018, realized gains (losses) on equity securities are recorded within “Other income (loss).”

Net Unrealized Gains (Losses) on Investments within AOCI

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:



	December 31,
	2018			2017			2016
	(in thousands)
Fixed maturity securities, available-for-sale—with OTTI	$	(689	)	$	1,609		$	4,883
Fixed maturity securities, available-for-sale—all other	(44,619		)	279,749			59,755
Equity securities, available-for-sale(1)	0			2,368			366
Derivatives designated as cash flow hedges(2)	22,122			(17,678		)	40,931
Affiliated notes	810			4,782			5,056
Other investments	5,055			3,588			1,441
Net unrealized gains (losses) on investments	$	(17,321	)	$	274,418		$	112,432


(1)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded within “Other income (loss).”


(2)	For more information on cash flow hedges, see Note 4.

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of both December 31, 2018 and 2017, the company had no repurchase agreements.

The following table sets forth the composition of “Cash collateral for loaned securities,” which represents the liability to return cash collateral received for the following types of securities loaned, as of the dates indicated:



	December 31, 2018						December 31, 2017
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in thousands)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	8,169	$	0	$	8,169	$	0	$	22,460	$	22,460
Foreign government bonds	0		0		0		6,157		0		6,157
U.S. public corporate securities	628		0		628		4,074		0		4,074
Foreign public corporate securities	2,266		0		2,266		478		0		478
Total cash collateral for loaned securities(1)	$	11,063	$	0	$	11,063	$	10,709	$	22,460	$	33,169


(1)	The Company did not have agreements with remaining contractual maturities of thirty days or greater, as of the dates indicated.

Securities Pledged, Restricted Assets and Special Deposits

The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including securities lending, securities sold under agreements to repurchase, collateralized borrowings and postings of collateral with derivative counterparties. The following table sets forth the carrying value of investments pledged to third parties and the carrying amount of the associated liabilities supported by the pledged collateral, as of the dates indicated:



	December 31,
	2018		2017
	(in thousands)
Pledged collateral:
Fixed maturity securities, available-for-sale	$	10,836	$	32,109
Total securities pledged	$	10,836	$	32,109
Liabilities supported by the pledged collateral:
Cash collateral for loaned securities	$	11,063	$	33,169
Total liabilities supported by the pledged collateral	$	11,063	$	33,169

In the normal course of its business activities, the Company accepts collateral that can be sold or repledged. The primary sources of this collateral are securities purchased under agreements to resell. As of December 31, 2018 and 2017, the fair value of this collateral was $143 million and $148 million, respectively, none of which had either been sold or repledged.

As of December 31, 2018 and 2017, there were fixed maturities of $3.7 million and $3.8 million, respectively, on deposit with governmental authorities or trustees as required by certain insurance laws.