XML 20 R9.htm IDEA: XBRL DOCUMENT

Investments

9 Months Ended

Sep. 30, 2020

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:


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	89,216	$	3,336	$	0	$	0	$	92,552
Obligations of U.S. states and their political subdivisions	460,613		54,387		0		0		515,000
Foreign government bonds	194,959		38,344		102		0		233,201
U.S. public corporate securities	2,086,357		369,055		5,174		0		2,450,238
U.S. private corporate securities	912,038		80,388		2,661		968		988,797
Foreign public corporate securities	241,710		33,770		3,478		0		272,002
Foreign private corporate securities	959,879		67,985		18,204		1,565		1,008,095
Asset-backed securities(1)	168,513		785		1,078		0		168,220
Commercial mortgage-backed securities	456,095		36,910		47		0		492,958
Residential mortgage-backed securities(2)	54,680		4,343		0		0		59,023
Total fixed maturities, available-for-sale	$	5,624,060	$	689,303	$	30,744	$	2,533	$	6,280,086

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

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


	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.

The following table sets forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit 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 date indicated:


	September 30, 2020
	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:


Foreign government bonds	$	5,853	$	102	$	0	$	0	$	5,853	$	102
U.S. public corporate securities	123,987		4,311		2,137		863		126,124		5,174
U.S. private corporate securities	55,349		2,553		2,533		108		57,882		2,661
Foreign public corporate securities	25,254		1,558		5,335		1,920		30,589		3,478
Foreign private corporate securities	57,886		1,374		155,079		16,351		212,965		17,725
Asset-backed securities	56,042		416		70,183		662		126,225		1,078
Commercial mortgage-backed securities	17,526		47		0		0		17,526		47
Residential mortgage-backed securities	0		0		0		0		0		0
Total fixed maturities, available-for-sale	$	341,897	$	10,361	$	235,267	$	19,904	$	577,164	$	30,265

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


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

As of September 30, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $18.9 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $11.4 million, related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2020, the $19.9 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, energy and foreign agency sectors.

As of December 31, 2019, the gross unrealized losses on fixed maturity securities were composed of $16.0 million related to “1” highest quality or “2” high quality securities based on the NAIC or equivalent rating and $7.8 million 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.

In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at September 30, 2020. 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, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of September 30, 2020, 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:


	September 30, 2020
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	204,893	$	207,819
Due after one year through five years	716,192		744,822
Due after five years through ten years	971,203		1,040,291
Due after ten years	3,052,484		3,566,953
Asset-backed securities	168,513		168,220
Commercial mortgage-backed securities	456,095		492,958
Residential mortgage-backed securities	54,680		59,023
Total fixed maturities, available-for-sale	$	5,624,060	$	6,280,086

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 write-downs, impairments and the allowance for credit losses of fixed maturities, for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	55,657	$	360,476	$	68,598	$	413,494
Proceeds from maturities/prepayments	51,892		65,915		189,646		194,344
Gross investment gains from sales and maturities	1,245		29,978		1,837		29,543
Gross investment losses from sales and maturities	(82)		(264)		(1,818)		(3,339)
OTTI recognized in earnings(2)	N/A		(2,296)		N/A		(5,459)
Write-downs recognized in earnings(3)	(3,290)		N/A		(4,312)		N/A
(Addition to) release of allowance for credit losses(4)	2,039		N/A		(2,533)		N/A

(1)Includes $3.5 million and $3.6 million of non-cash related proceeds due to the timing of trade settlements for the nine months ended September 30, 2020 and 2019, respectively.

(2)For the three and nine months ended September 30, 2019, amounts exclude 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 impairment.

(3)For the three and nine months ended September 30, 2020, amounts represent write-downs of credit adverse securities, write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.

(4)Effective January 1, 2020, credit losses on available-for-sale fixed maturity securities are recorded within the “allowance for credit losses.”

The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:


	Three Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	4,572	$	0	$	0	$	0	$	4,572
Additions to allowance for credit losses not previously recorded	0		0		781		0		0		0		781

Reductions for securities sold during the period	0		0		0		0		0		0		0

Addition (reductions) on securities with previous allowance	0		0		(119)		0		0		0		(119)
Write-downs charged against the allowance	0		0		(2,701)		0		0		0		(2,701)

Balance, end of period	$	0	$	0	$	2,533	$	0	$	0	$	0	$	2,533

For the three months ended September 30, 2020, the decrease in the allowance for credit losses on available-for-sale securities was primarily related to restructurings in the energy sector within corporate securities.


	Nine Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of year	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Additions to allowance for credit losses not previously recorded	0		0		5,672		0		0		0		5,672

Reductions for securities sold during the period	0		0		(9)		0		0		0		(9)

Addition (reductions) on securities with previous allowance	0		0		(429)		0		0		0		(429)
Write-downs charged against the allowance	0		0		(2,701)		0		0		0		(2,701)

Balance, end of period	$	0	$	0	$	2,533	$	0	$	0	$	0	$	2,533

See Note 2 for additional information about the Company’s methodology for developing our allowance and expected losses.

For the nine months ended September 30, 2020, the increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows on private corporate securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of September 30, 2020.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was $1.8 million and $0.3 million during the three months ended September 30, 2020 and 2019, respectively, and $1.0 million and $0.5 million during the nine months ended September 30, 2020 and 2019, respectively.

Commercial Mortgage and Other Loans

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


	September 30, 2020				December 31, 2019
	Amount (in thousands)		% of Total		Amount (in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	374,770	30.4	%	$	355,175	28.6	%
Hospitality	33,919		2.8		31,449		2.5
Industrial	323,057		26.2		299,803		24.1
Office	191,822		15.6		205,498		16.6
Other	137,809		11.2		136,841		11.0
Retail	150,449		12.2		190,690		15.4
Total commercial mortgage loans	1,211,826		98.4		1,219,456		98.2
Agricultural property loans	19,935		1.6		22,197		1.8
Total commercial mortgage and agricultural property loans	1,231,761		100.0	%	1,241,653		100.0	%
Allowance for credit losses	(4,641)				(1,768)
Total net commercial mortgage and agricultural property loans	1,227,120				1,239,885
Other loans:
Other collateralized loans	0				0
Total other loans	0				0
Allowance for credit losses	0				0
Total net other loans	0				0
Total net commercial mortgage and other loans	$	1,227,120			$	1,239,885

As of September 30, 2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (23%), Texas (14%) and New York (8%)) and included loans secured by properties in Europe (10%), Mexico (3%) and Australia (2%).

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


	Three Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Other Collateralized Loans		Total
	(in thousands)




Balance, beginning of period	$	4,549	$	10	$	0	$	4,559

Addition to (release of) allowance for expected losses	84		(2)		0		82




Balance, end of period	$	4,633	$	8	$	0	$	4,641


	Nine Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Other Collateralized Loans		Total
	(in thousands)




Balance at December 31, 2019	$	1,743	$	25	$	0	$	1,768
Cumulative effect of adoption of ASU 2016-13	2,495		(8)		0		2,487
Addition to (release of) allowance for expected losses	395		(9)		0		386




Balance at September 30, 2020	$	4,633	$	8	$	0	$	4,641

See Note 2 for additional information about the Company's methodology for developing our allowance and expected losses.

For the nine months ended September 30, 2020, the increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the date indicated:


	September 30, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in thousands)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%	$	10,700	$	58,862	$	36,513	$	82,945	$	147,385	$	254,165	$	0	$	590,570
60%-69.99%	35,252		68,541		77,956		61,695		106,914		78,216		0		428,574
70%-79.99%	20,068		47,542		81,069		32,652		9,565		1,786		0		192,682
80% or greater	0		0		0		0		0		0		0		0
Total	$	66,020	$	174,945	$	195,538	$	177,292	$	263,864	$	334,167	$	0	$	1,211,826
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	50,470	$	164,571	$	178,985	$	170,902	$	233,970	$	316,215	$	0	$	1,115,113
1.0 - 1.2x	15,550		10,374		16,553		6,390		29,894		17,307		0		96,068
Less than 1.0x	0		0		0		0		0		645		0		645
Total	$	66,020	$	174,945	$	195,538	$	177,292	$	263,864	$	334,167	$	0	$	1,211,826
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%	$	0	$	0	$	0	$	6,486	$	0	$	13,449	$	0	$	19,935
60%-69.99%	0		0		0		0		0		0		0		0
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Total	$	0	$	0	$	0	$	6,486	$	0	$	13,449	$	0	$	19,935
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	0	$	0	$	0	$	6,486	$	0	$	12,634	$	0	$	19,120
1.0 - 1.2x	0		0		0		0		0		0		0		0
Less than 1.0x	0		0		0		0		0		815		0		815
Total	$	0	$	0	$	0	$	6,486	$	0	$	13,449	$	0	$	19,935


Commercial mortgage loans
	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%	$	655,136	$	18,418	$	1,097	$	674,651
60%-69.99%	354,827		12,799		0		367,626
70%-79.99%	149,448		27,506		0		176,954
80% or greater	0		225		0		225
Total commercial mortgage loans	$	1,159,411	$	58,948	$	1,097	$	1,219,456


Agricultural property loans
	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%	$	21,382	$	0	$	815	$	22,197
60%-69.99%	0		0		0		0
70%-79.99%	0		0		0		0
80% or greater	0		0		0		0
Total agricultural property loans	$	21,382	$	0	$	815	$	22,197

See Note 2 for additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.

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:


	September 30, 2020
	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	$	1,211,826	$	0	$	0	$	0	$	1,211,826	$	0
Agricultural property loans	19,935		0		0		0		19,935		0
Other collateralized loans	0		0		0		0		0		0
Total	$	1,231,761	$	0	$	0	$	0	$	1,231,761	$	0

(1)As of September 30, 2020, 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 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


	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.

There were no loans on non-accrual status with a related allowance for credit losses which recognized interest income for both the three and nine months ended September 30, 2020.

The Company did not have any commercial mortgage and other loans purchased with credit deterioration, as of September 30, 2020.

For both the three and nine months ended September 30, 2020 and 2019, there were no commercial mortgage and other loans acquired, other than those through direct origination. For the three and nine months ended September 30, 2020, there were no commercial mortgage and other loans sold. For the three months ended September 30, 2019, there were no commercial mortgage loans sold, and for the nine months ended September 30, 2019, there was $5 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:


	September 30, 2020		December 31, 2019
	(in thousands)
Company’s investment in separate accounts	$	44,874	$	46,573
LPs/LLCs:
Equity method:
Private equity	216,531		189,095
Hedge funds	72,022		64,002
Real estate-related	50,156		42,432
Subtotal equity method	338,709		295,529
Fair value:
Private equity	63,311		62,639
Hedge funds	499		562
Real estate-related	12,150		11,707
Subtotal fair value	75,960		74,908
Total LPs/LLCs	414,669		370,437
Derivative instruments	25,589		12,548
Total other invested assets	$	485,132	$	429,558

Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the date indicated:


	September 30, 2020
	(in thousands)
Fixed maturities	$	51,064
Equity securities	103
Commercial mortgage and other loans	3,534
Policy loans	35,682

Short-term investments and cash equivalents	68

Total accrued investment income	$	90,451

There were no significant write-downs on accrued investment income for both the three and nine months ended September 30, 2020.

Net Investment Income

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities, available-for-sale	$	54,494	$	61,889	$	163,957	$	177,525
Fixed maturities, trading	471		345		1,264		979
Equity securities	102		222		307		664
Commercial mortgage and other loans	11,921		13,296		38,019		39,222
Policy loans	17,716		17,863		52,642		50,828
Other invested assets	13,890		3,772		12,146		31,743
Short-term investments and cash equivalents	376		2,440		2,988		6,590
Gross investment income	98,970		99,827		271,323		307,551
Less: investment expenses	(4,978)		(4,571)		(14,288)		(13,483)
Net investment income	$	93,992	$	95,256	$	257,035	$	294,068

Realized Investment Gains (Losses), Net

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturities(1)	$	(88)	$	27,418	$	(6,826)	$	20,745

Commercial mortgage and other loans	(82)		54		(314)		160
Other invested assets	14		0		(296)		12
Derivatives	(1,395)		12,129		15,709		(82,194)

Short-term investments and cash equivalents	4		(17)		(156)		(24)
Realized investment gains (losses), net	$	(1,547)	$	39,584	$	8,117	$	(61,301)

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

Net Unrealized Gains (Losses) on Investments within AOCI

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


	September 30, 2020		December 31, 2019
	(in thousands)
Fixed maturity securities, available-for-sale — with OTTI(1)	$ N/A		$	1,568
Fixed maturity securities, available-for-sale — all other(1)	N/A		397,136
Fixed maturity securities, available-for-sale with an allowance	(479)		N/A
Fixed maturity securities, available-for-sale without an allowance	659,038		N/A
Derivatives designated as cash flow hedges(2)	54,211		26,126
Affiliated notes	4,701		4,715
Other investments	(4,401)		(4,365)
Net unrealized gains (losses) on investments	$	713,070	$	425,180

(1)Effective January 1, 2020, per ASU 2016-13, fixed maturity securities, available-for-sale are no longer required to be disclosed “with OTTI” and “all other.”

(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 September 30, 2020 and December 31, 2019, 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:


	September 30, 2020						December 31, 2019
	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. public corporate securities	$	0	$	0	$	0	$	5,048	$	0	$	5,048

Foreign public corporate securities	2,731		0		2,731		2,481		0		2,481





Total cash collateral for loaned securities(1)	$	2,731	$	0	$	2,731	$	7,529	$	0	$	7,529

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