Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities

FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement - Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities.

Level 2 – Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, and other market observable inputs.

Level 3 – Fair value is based on at least one significant unobservable input for the asset or liability. The assets and liabilities in this category may require significant judgment or estimation in determining the fair value.

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.

	As of March 31, 2019
	Level 1		Level 2		Level 3		Netting(1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	47,811	$	32,188	$	0		$	79,999
Obligations of U.S. states and their political subdivisions	0		639,606		0		0			639,606
Foreign government bonds	0		214,648		164		0			214,812
U.S. corporate public securities	0		2,005,259		3		0			2,005,262
U.S. corporate private securities	0		857,453		43,504		0			900,957
Foreign corporate public securities	0		295,645		211		0			295,856
Foreign corporate private securities	0		869,304		11,242		0			880,546
Asset-backed securities(2)	0		147,000		2,733		0			149,733
Commercial mortgage-backed securities	0		274,698		77,071		0			351,769
Residential mortgage-backed securities	0		87,669		0		0			87,669
Subtotal	0		5,439,093		167,116		0			5,606,209
Fixed maturities, trading	0		43,000		0		0			43,000
Equity securities	140		18,616		15,991		0			34,747
Cash equivalents	104,949		250,219		0		0			355,168
Other invested assets(3)	0		131,364		4		(115,900		)	15,468
Reinsurance recoverables	0		0		6,468,704		0			6,468,704
Receivables from parent and affiliates	0		120,687		7,792		0			128,479
Subtotal excluding separate account assets	105,089		6,002,979		6,659,607		(115,900		)	12,651,775
Separate account assets(4)(5)	0		124,615,650		0		0			124,615,650
Total assets	$	105,089	$	130,618,629	$	6,659,607	$	(115,900	)	$	137,267,425
Future policy benefits(6)	$	0	$	0	$	6,459,377	$	0		$	6,459,377
Policyholders' account balances	0		0		53,136		0			53,136
Payables to parent and affiliates	0		39,763		0		(39,763		)	0
Total liabilities	$	0	$	39,763	$	6,512,513	$	(39,763	)	$	6,512,513

	As of December 31, 2018
	Level 1		Level 2		Level 3		Netting(1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	47,654	$	29,816	$	0		$	77,470
Obligations of U.S. states and their political subdivisions	0		622,758		0		0			622,758
Foreign government bonds	0		201,947		0		0			201,947
U.S. corporate public securities	0		1,731,623		2		0			1,731,625
U.S. corporate private securities	0		838,497		44,841		0			883,338
Foreign corporate public securities	0		262,023		0		0			262,023
Foreign corporate private securities	0		815,634		11,745		0			827,379
Asset-backed securities(2)	0		151,040		6,556		0			157,596
Commercial mortgage-backed securities	0		346,396		0		0			346,396
Residential mortgage-backed securities	0		89,063		0		0			89,063
Subtotal	0		5,106,635		92,960		0			5,199,595
Fixed maturities, trading	0		41,627		0		0			41,627
Equity securities	131		20,794		15,997		0			36,922
Cash equivalents	69,903		147,043		0		0			216,946
Other invested assets(3)	0		77,886		4		(27,078		)	50,812
Reinsurance recoverables	0		0		5,600,008		0			5,600,008
Receivables from parent and affiliates	0		125,381		9,261		0			134,642
Subtotal excluding separate account assets	70,034		5,519,366		5,718,230		(27,078		)	11,280,552
Separate account assets(4)(5)	0		114,947,872		0		0			114,947,872
Total assets	$	70,034	$	120,467,238	$	5,718,230	$	(27,078	)	$	126,228,424
Future policy benefits(6)	$	0	$	0	$	5,588,840	$	0		$	5,588,840
Policyholders' account balances	0		0		13,015		0			13,015
Payables to parent and affiliates	0		26,862		0		(26,862		)	0
Total liabilities	$	0	$	26,862	$	5,601,855	$	(26,862	)	$	5,601,855

(1) “Netting” amounts represent cash collateral of $76.1 million and $0.2 million as of March 31, 2019 and December 31, 2018, respectively, and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting arrangements.

(2) Includes credit tranched securities collateralized by syndicated bank loans, sub-prime mortgages, auto loans, credit cards, education loans and other asset types.

(3) Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. At March 31, 2019 and December 31, 2018, the fair values of such investments were $73 million and $70 million, respectively.

(4) Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company's Unaudited Interim Consolidated Statements of Financial Position.

(5) Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and a corporate owned life insurance fund, for which fair value is measured at NAV per share (or its equivalent). As of March 31, 2019 and December 31, 2018, the fair value of such investments was $4,383 million and $4,130 million, respectively.

(6) As of March 31, 2019, the net embedded derivative liability position of $6,459 million includes $623 million of embedded derivatives in an asset position and $7,082 million of embedded derivatives in a liability position. As of December 31, 2018, the net embedded derivative liability position of $5,589 million includes $633 million of embedded derivatives in an asset position and $6,222 million of embedded derivatives in a liability position.

Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.

	As of March 31, 2019
	Fair Value		Valuation   Techniques	Unobservable Inputs	Minimum		Maximum		Weighted   Average		Impact of  Increase in  Input on  Fair Value(1)
	(in thousands)
Assets:
Corporate securities(2)	$	23,065	Discounted cash flow	Discount rate	8.25	%	20.00	%	13.69	%	Decrease
			Liquidation	Liquidation value	13.18	%	13.18	%	13.18	%	Increase
Reinsurance recoverables	$	6,468,704	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3)	$	6,459,377	Discounted cash flow	Lapse rate(4)	1	%	13	%			Decrease
				Spread over LIBOR(5)	0.12	%	1.35	%			Decrease
				Utilization rate(6)	50	%	97	%			Increase
				Withdrawal rate	See table footnote (7) below
				Mortality rate(8)	0	%	15	%			Decrease
				Equity volatility curve	15	%	22	%			Increase

	As of December 31, 2018
	Fair Value		Valuation   Techniques	Unobservable Inputs	Minimum		Maximum		Weighted   Average		Impact of  Increase in  Input on  Fair Value(1)
	(in thousands)
Assets:
Corporate securities(2)	$	31,503	Discounted cash flow	Discount rate	7.00	%	20.00	%	10.21	%	Decrease
			Liquidation	Liquidation value	40.71	%	40.71	%	40.71	%	Increase
Reinsurance recoverables	$	5,600,008	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3)	$	5,588,840	Discounted cash flow	Lapse rate(4)	1	%	13	%			Decrease
				Spread over LIBOR(5)	0.36	%	1.60	%			Decrease
				Utilization rate(6)	50	%	97	%			Increase
				Withdrawal rate	See table footnote (7) below
				Mortality rate(8)	0	%	15	%			Decrease
				Equity volatility curve	18	%	22	%			Increase

(1) Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.

(2) Includes assets classified as fixed maturities, available-for-sale.

(3) Future policy benefits primarily represent general account liabilities for the living benefit features of the Company’s variable annuity contracts which are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(4) Lapse rates are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates are also generally assumed to be lower for the period where surrender charges apply.

(5) The spread over the London Inter-Bank Offered Rate ("LIBOR") swap curve represents the premium added to the proxy for the risk-free rate (LIBOR) to reflect our estimates of rates that a market participant would use to value the living benefit contracts in both the accumulation and payout phases. This spread

includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because both funding agreements and living benefit contracts are insurance liabilities and are therefore senior to debt.

(6) The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration and begin lifetime withdrawals at various time intervals from contract inception. The remaining contractholders are assumed to either begin lifetime withdrawals immediately or never utilize the benefit. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal. Range reflects the utilization rate for the vast majority of business with living benefits.

(7) The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of March 31, 2019 and December 31, 2018, the minimum withdrawal rate assumption is 78% and the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

(8) Range reflects the mortality rate for the vast majority of business with living benefits, with policyholders ranging from 50 to 90 years old. While the majority of living benefits have a minimum age requirement, certain benefits do not have an age restriction. This results in contractholders for certain benefits with mortality rates approaching 0%. Based on historical experience, the Company applies a set of age and duration specific mortality rate adjustments compared to standard industry tables. A mortality improvement assumption is also incorporated into the overall mortality table.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another, or multiple, inputs. For the discussion of the relationships between unobservable inputs as well as market factors that may affect the range of inputs used in the valuation of Level 3 assets and liabilities, see Note 5 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Changes in Level 3 Assets and Liabilities – The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods. When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. All transfers are generally reported at the value as of the beginning of the quarter in which transfers occur for any such assets still held at the end of the quarter.

	Three Months Ended March 31, 2019
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales			Issuances			Settlements			Other(2)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period			Unrealized gains (losses) for assets still held(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government	$	29,816		$	0		$	2,372	$	0		$	0		$	0		$	0	$	0	$	0	$	32,188		$	0
Foreign government	0			5			0		0			0			0			0		159		0		164			0
Corporate securities(4)	56,588			(3,412		)	1,331		(28		)	0			(7,097		)	1		7,577		0		54,960			(3,163		)
Structured securities(5)	6,556			1,268			0		(1		)	0			(3,979		)	0		75,960		0		79,804			0
Other assets:
Equity securities	15,997			(6		)	0		0			0			0			0		0		0		15,991			(6		)
Other invested assets	4			0			0		0			0			0			0		0		0		4			0
Short-term investments	0			0			0		0			0			0			0		0		0		0			0
Reinsurance recoverables	5,600,008			633,318			235,378		0			0			0			0		0		0		6,468,704			677,444
Receivables from parent and affiliates	9,261			111			0		0			0			(1,580		)	0		0		0		7,792			0
Liabilities:
Future policy benefits	(5,588,840		)	(637,102		)	0		0			(233,435		)	0			0		0		0		(6,459,377		)	(681,227		)
Policyholders' account balances	(13,015		)	(33,614		)	0		0			0			(6,507		)	0		0		0		(53,136		)	(33,614		)

	Three Months Ended March 31, 2019
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net(1)			Other income (loss)			Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	(2,402	)	$	0		$	164	$	99	$	(3,163	)	$	0
Other assets:
Equity securities	0			(6		)	0		0		0			(6		)
Other invested assets	0			0			0		0		0			0
Short-term investments	0			0			0		0		0			0
Reinsurance recoverables	633,318			0			0		0		677,444			0
Receivables from parent and affiliates	0			0			0		111		0			0
Liabilities:
Future policy benefits	(637,102		)	0			0		0		(681,227		)	0
Policyholders' account balances	(33,614		)	0			0		0		(33,614		)	0

	Three Months Ended March 31, 2018(6)
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales		Issuances			Settlements			Other(2)			Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government	$	19,204		$	0		$	2,365	$	0	$	0		$	0		$	0		$	0	$	0		$	21,569		$	0
Foreign government	0			(8		)	0		0		0			0			174			0		0			166			0
Corporate securities(4)	75,421			936			1,022		0		0			(4,570		)	15			0		(209		)	72,615			(26		)
Structured securities(5)	111,028			131			190		0		0			(3,195		)	0			13,513		(26,794		)	94,873			0
Other assets:
Equity securities	17,525			(486		)	0		0		0			0			0			0		0			17,039			(486		)
Other invested assets	0			1			0		0		0			0			0			9		0			10			2
Short-term investments	1,339			(18		)	3,400		0		0			(3,513		)	(14		)	0		0			1,194			(18		)
Reinsurance recoverables	5,457,649			(1,462,992		)	219,457		0		0			0			0			0		0			4,214,114			(1,409,320		)
Receivables from parent and affiliates	0			(20		)	0		0		0			0			0			6,551		0			6,531			0
Liabilities:
Future policy benefits	(5,452,583		)	1,487,555			0		0		(226,345		)	0			0			0		0			(4,191,373		)	1,433,872
Policyholders' account balances	(46,651		)	5,013			0		0		0			2,122			0			0		0			(39,516		)	5,013
Other liabilities	0			(24,780		)	8,825		0		0			0			0			0		0			(15,955		)	(24,780		)

	Three Months Ended March 31, 2018(6)
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net(1)			Other income (loss)			Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	68		$	0		$	914	$	77	$	(26	)	$	0
Other assets:
Equity securities	0			(486		)	0		0		0			(486		)
Other invested assets	1			0			0		0		2			0
Short-term investments	(18		)	0			0		0		(18		)	0
Reinsurance recoverables	(1,462,992		)	0			0		0		(1,409,320		)	0
Receivables from parent and affiliates	0			(20		)	0		0		0			0
Liabilities:
Future policy benefits	1,487,555			0			0		0		1,433,872			0
Policyholders' account balances	5,013			0			0		0		5,013			0
Other liabilities	(24,780		)	0			0		0		(24,780		)	0

(1) Realized investment gains (losses) on future policy benefits and reinsurance recoverables primarily represent the change in the fair value of the Company's living benefit guarantees on certain of its variable annuity contracts.

(2) Other primarily represents reclassifications of certain assets and liabilities between reporting categories.

(3) Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

(4) Includes U.S. corporate public, U.S. corporate private, foreign corporate public and foreign corporate private securities.

(5) Includes asset-backed, commercial mortgage-backed and residential mortgage-backed securities.

(6) Prior period amounts have been updated to conform to current period presentation.

Fair Value of Financial Instruments

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Consolidated Statements of Financial Position. In some cases, as described below, the carrying amount equals or approximates fair value.

	March 31, 2019
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,240,689	$	1,240,689	$	1,212,618
Policy loans	0		0		1,251,094		1,251,094		1,251,094
Cash and cash equivalents	48,115		0		0		48,115		48,115
Accrued investment income	0		89,358		0		89,358		89,358
Receivables from parent and affiliates	0		149,571		0		149,571		149,571
Other assets	0		35,112		0		35,112		35,112
Total assets	$	48,115	$	274,041	$	2,491,783	$	2,813,939	$	2,785,868
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	1,226,786	$	276,008	$	1,502,794	$	1,507,136
Cash collateral for loaned securities	0		10,334		0		10,334		10,334
Payables to parent and affiliates	0		217,073		0		217,073		217,073
Other liabilities	0		358,256		0		358,256		358,256
Total liabilities	$	0	$	1,812,449	$	276,008	$	2,088,457	$	2,092,799

	December 31, 2018
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,214,350	$	1,214,350	$	1,209,150
Policy loans	0		0		1,236,077		1,236,077		1,236,077
Cash and cash equivalents	56,894		143,000		0		199,894		199,894
Accrued investment income	0		88,278		0		88,278		88,278
Receivables from parent and affiliates	0		154,938		0		154,938		154,938
Other assets	0		28,950		0		28,950		28,950
Total assets	$	56,894	$	415,166	$	2,450,427	$	2,922,487	$	2,917,287
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	1,206,747	$	272,322	$	1,479,069	$	1,486,929
Cash collateral for loaned securities	0		11,063		0		11,063		11,063
Payables to parent and affiliates	0		229,345		0		229,345		229,345
Other liabilities	0		372,997		0		372,997		372,997
Total liabilities	$	0	$	1,820,152	$	272,322	$	2,092,474	$	2,100,334

(1) Carrying values presented herein differ from those in the Company’s Unaudited Interim Consolidated Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or are out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.