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Investments

12 Months Ended

Dec. 31, 2019

3. 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, 2019
	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	$	83,622	$	2,846	$	0	$	86,468	$	0
Obligations of U.S. states and their political subdivisions	458,152		39,675		0		497,827		0
Foreign government bonds	196,034		26,793		1		222,826		0
U.S. public corporate securities	1,914,503		229,071		2,247		2,141,327		0
U.S. private corporate securities	886,281		44,497		1,006		929,772		0
Foreign public corporate securities	256,843		22,158		385		278,616		0
Foreign private corporate securities	939,603		38,426		19,551		958,478		0
Asset-backed securities(1)	119,602		800		466		119,936		(7		)
Commercial mortgage-backed securities	367,848		15,231		163		382,916		0
Residential mortgage-backed securities(2)	60,778		3,050		24		63,804		(131		)
Total fixed maturities, available-for-sale	$	5,283,266	$	422,547	$	23,843	$	5,681,970	$	(138	)


(1)	Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, 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 $1.7 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.



	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. public corporate securities	1,739,860		46,166		54,401		1,731,625		0
U.S. private corporate securities	890,748		11,181		18,591		883,338		0
Foreign public corporate securities	270,428		3,746		12,151		262,023		0
Foreign private corporate 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.

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, 2019
	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	2,152		1		400		0		2,552		1
U.S. public corporate securities	81,622		984		19,206		1,263		100,828		2,247
U.S. private corporate securities	33,264		780		22,143		226		55,407		1,006
Foreign public corporate securities	3,839		23		9,379		362		13,218		385
Foreign private corporate securities	32,800		921		186,693		18,630		219,493		19,551
Asset-backed securities	32,361		243		55,461		223		87,822		466
Commercial mortgage-backed securities	22,153		163		0		0		22,153		163
Residential mortgage-backed securities	3,049		16		692		8		3,741		24
Total fixed maturities, available-for-sale	$	211,240	$	3,131	$	293,974	$	20,712	$	505,214	$	23,843



	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. public corporate securities	784,916		37,635		213,147		16,766		998,063		54,401
U.S. private corporate securities	263,934		9,159		287,031		9,432		550,965		18,591
Foreign public corporate securities	124,764		6,286		72,725		5,865		197,489		12,151
Foreign private corporate 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

As of December 31, 2019 and 2018, the gross unrealized losses on fixed maturity securities were composed of $16.0 million and $121.3 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 $7.8 million and $20.8 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2019, the $20.7 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, 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. 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, 2019 or 2018. 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, 2019, 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, 2019
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	139,614	$	140,916
Due after one year through five years	688,411		697,057
Due after five years through ten years	1,073,731		1,115,368
Due after ten years	2,833,282		3,161,973
Asset-backed securities	119,602		119,936
Commercial mortgage-backed securities	367,848		382,916
Residential mortgage-backed securities	60,778		63,804
Total fixed maturities, available-for-sale	$	5,283,266	$	5,681,970

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,
	2019			2018			2017
				(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	633,787		$	234,617		$	569,151
Proceeds from maturities/prepayments	314,906			326,664			492,944
Gross investment gains from sales and maturities	59,557			1,370			44,458
Gross investment losses from sales and maturities	(3,785		)	(11,000		)	(9,956		)
OTTI recognized in earnings(2)	(9,034		)	(3,710		)	(7,379		)


(1)	Includes $0.0 million, $(0.1) million and $(0.1) million of non-cash related proceeds due to the timing of trade settlements for the years ended December 31, 2019, 2018 and 2017, 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,
	2019			2018
	(in thousands)
Credit loss impairments:
Balance in OCI, beginning of period	$	1,291		$	4,374
New credit loss impairments	3,022			0
Increases due to the passage of time on previously recorded credit losses	32			539
Reductions for securities which matured, paid down, prepaid or were sold during the period	(679		)	(2,000		)
Reductions for securities impaired to fair value during the period(1)	(3,040		)	(1,136		)
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(152		)	(486		)
Balance in OCI, end of period	$	474		$	1,291


(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,” was $(1.0) million and $(2.8) million during the years ended December 31, 2019 and 2018, respectively. 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 during the year ended December 31, 2017.

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, 2019					December 31, 2018
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	355,175		28.6	%	$	362,811		29.9	%
Hospitality	31,449			2.5		16,083			1.3
Industrial	299,803			24.1		263,999			21.8
Office	205,498			16.6		187,450			15.5
Other	136,841			11.0		131,961			10.9
Retail	190,690			15.4		193,473			16.0
Total commercial mortgage loans	1,219,456			98.2		1,155,777			95.4
Agricultural property loans	22,197			1.8		55,438			4.6
Total commercial mortgage and agricultural property loans by property type	1,241,653			100.0	%	1,211,215			100.0	%
Allowance for credit losses	(1,768		)			(2,065		)
Total commercial mortgage and other loans	$	1,239,885				$	1,209,150

As of December 31, 2019, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (19%), Texas (14%) and New York (7%)) and included loans secured by properties in Europe (9%), Mexico (2%), and Australia (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, 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
Addition to (release of) allowance for credit losses	(283		)	(14		)	(297		)
Charge-offs, net of recoveries	0			0			0
Balance at December 31, 2019	$	1,743		$	25		$	1,768

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, 2019
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	1,743		25		1,768
Total ending balance(1)	$	1,743	$	25	$	1,768
Recorded investment(2):
Individually evaluated for impairment	$	0	$	0	$	0
Collectively evaluated for impairment	1,219,456		22,197		1,241,653
Total ending balance(1)	$	1,219,456	$	22,197	$	1,241,653


(1)	As of December 31, 2019, there were no loans acquired with deteriorated credit quality.


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



	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.

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, 2019
	Debt Service Coverage Ratio
	> 1.2X		1.0X to <1.2X		< 1.0X		Total
	(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	676,517	$	18,418	$	1,912	$	696,847
60%-69.99%	354,828		12,799		0		367,627
70%-79.99%	149,448		27,506		0		176,954
80% or greater	0		225		0		225
Total commercial mortgage and agricultural property loans	$	1,180,793	$	58,948	$	1,912	$	1,241,653



	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

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, 2019
	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	$	1,219,456	$	0	$	0	$	0	$	1,219,456	$	0
Agricultural property loans	22,197		0		0		0		22,197		0
Total	$	1,241,653	$	0	$	0	$	0	$	1,241,653	$	0


(1)	As of December 31, 2019, 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, 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.

For the years ended December 31, 2019 and 2018, there were $0 million and $3 million of commercial mortgage and other loans acquired, other than those through direct origination, respectively. For the years ended December 31, 2019 and 2018, there were $5 million and $0 million of commercial mortgage and other loans sold, respectively.

Other Invested Assets

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



	December 31,
	2019		2018
	(in thousands)
Company's investment in separate accounts	$	46,573	$	40,126
LPs/LLCs:
Equity method:
Private equity	189,095		149,164
Hedge funds	64,002		57,171
Real estate-related	42,432		10,251
Subtotal equity method	295,529		216,586
Fair value:
Private equity	62,639		60,118
Hedge funds	562		762
Real estate-related	11,707		9,024
Subtotal fair value	74,908		69,904
Total LPs/LLCs	370,437		286,490
Derivative instruments	12,548		50,813
Total other invested assets	$	429,558	$	377,429

Equity Method Investments

The following tables set forth summarized combined financial information for significant LP/LLC interests accounted for under the equity method, including the Company’s investments in operating joint ventures. Changes between periods in the tables below reflect changes in the activities within the operating joint ventures and LPs/LLCs, as well as changes in the Company’s level of investment in such entities.



	December 31,
	2019		2018
	(in thousands)
STATEMENTS OF FINANCIAL POSITION
Total assets(1)	$	26,017,399	$	3,946,992
Total liabilities(2)	$	164,080	$	65,903
Partners’ capital	25,853,319		3,881,089
Total liabilities and partners’ capital	$	26,017,399	$	3,946,992
Total liabilities and partners’ capital included above	$	325,677	$	269,775
Equity in LP/LLC interests not included above	114,505		83,029
Carrying value	$	440,182	$	352,804


(1)	Amount represents gross assets of each fund where the Company has a significant investment. These assets consist primarily of investments in real estate, investments in securities and other miscellaneous assets.


(2)	Amount represents gross liabilities of each fund where the Company has a significant investment. These liabilities consist primarily of third-party-borrowed funds and other miscellaneous liabilities.



	Years Ended December 31,
	2019			2018			2017
	(in thousands)
STATEMENTS OF OPERATIONS
Total revenue(1)	$	819,904		$	128,356		$	319,414
Total expenses(2)	(200,666		)	(39,040		)	(31,680		)
Net earnings (losses)	$	619,238		$	89,316		$	287,734
Equity in net earnings (losses) included above	$	24,971		$	(2,470	)	$	12,439
Equity in net earnings (losses) of LP/LLC interests not included above	5,077			(1,452		)	5,191
Total equity in net earnings (losses)	$	30,048		$	(3,922	)	$	17,630


(1)	Amount represents gross revenue of each fund where the Company has a significant investment. This revenue consists of income from investments in real estate, investments in securities and other income.


(2)	Amount represents gross expenses of each fund where the Company has a significant investment. These expenses consist primarily of interest expense, investment management fees, salary expenses and other expenses.

Net Investment Income

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



	Years Ended December 31,
	2019			2018			2017
	(in thousands)
Fixed maturities, available-for-sale	$	235,456		$	220,942		$	230,060
Fixed maturities, trading	1,374			1,105			834
Equity securities, at fair value	856			885			884
Commercial mortgage and other loans	57,886			49,577			52,127
Policy loans	68,485			66,305			63,884
Short-term investments and cash equivalents	9,266			2,382			1,090
Other invested assets	38,577			2,256			23,518
Gross investment income	411,900			343,452			372,397
Less: investment expenses	(18,103		)	(18,165		)	(19,987		)
Net investment income	$	393,797		$	325,287		$	352,410

The carrying value of non-income producing assets included $8.4 million in available-for-sale fixed maturities
as of December 31, 2019. Non-income producing assets represent investments that had not produced income for the twelve months preceding December 31, 2019.

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,
	2019			2018			2017
	(in thousands)
Fixed maturities(1)	$	46,738		$	(13,340	)	$	27,123
Equity securities(2)	0			0			(125		)
Commercial mortgage and other loans	297			(271		)	(337		)
LPs/LLCs	(3,400		)	849			(221		)
Derivatives	(160,368		)	(154,208		)	(106,625		)
Short-term investments and cash equivalents	(16		)	(308		)	(1		)
Realized investment gains (losses), net	$	(116,749	)	$	(167,278	)	$	(80,186	)


(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.”

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,
	2019			2018			2017
	(in thousands)
Fixed maturity securities, available-for-sale—with OTTI	$	1,568		$	(689	)	$	1,609
Fixed maturity securities, available-for-sale—all other	397,136			(44,619		)	279,749
Equity securities, available-for-sale(1)	0			0			2,368
Derivatives designated as cash flow hedges(2)	26,126			22,122			(17,678		)
Affiliated notes	4,715			810			4,782
Other investments	(4,365		)	5,055			3,588
Net unrealized gains (losses) on investments	$	425,180		$	(17,321	)	$	274,418


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


(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, 2019 and 2018, 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, 2019						December 31, 2018
	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	$	0	$	0	$	0	$	8,169	$	0	$	8,169
U.S. public corporate securities	5,048		0		5,048		628		0		628
Foreign public corporate securities	2,481		0		2,481		2,266		0		2,266
Total cash collateral for loaned securities(1)	$	7,529	$	0	$	7,529	$	11,063	$	0	$	11,063


(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,
	2019		2018
	(in thousands)
Pledged collateral:
Fixed maturity securities, available-for-sale	$	7,292	$	10,836
Total securities pledged	$	7,292	$	10,836
Liabilities supported by the pledged collateral:
Cash collateral for loaned securities	$	7,529	$	11,063
Total liabilities supported by the pledged collateral	$	7,529	$	11,063

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, 2019 and 2018, the fair value of this collateral was $0 million and $143 million, respectively, none of which had either been sold or repledged.

As of December 31, 2019 and 2018, there were available-for-sale fixed maturities of $3.8 million and $3.7 million, respectively, on deposit with governmental authorities or trustees as required by certain insurance laws.