Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Carrying Amount and Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are shown below (in thousands):


	March 31, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity	$	8,554,809	$	8,501,656	$	8,631,261	$	8,968,690
Fixed maturity securities, bonds available-for-sale	6,480,374		6,480,374		6,725,085		6,725,085
Equity securities	1,375,083		1,375,083		1,700,960		1,700,960
Equity-indexed options	125,988		125,988		256,005		256,005
Mortgage loans on real estate, net of allowance	5,125,365		5,497,500		5,097,017		5,309,005
Policy loans	380,084		380,084		379,657		379,657
Short-term investments	418,882		418,882		425,321		425,321
Separate account assets ($871,196 and $1,049,938 included in fair value hierarchy)	893,856		893,856		1,073,891		1,073,891
Separately managed accounts	50,583		50,583		50,503		50,503
Total financial assets	$	23,405,024	$	23,724,006	$	24,339,700	$	24,889,117
Financial liabilities
Investment contracts	$	10,242,029	$	10,242,029	$	10,254,959	$	10,254,959
Embedded derivative liability for equity-indexed contracts	630,952		630,952		731,552		731,552
Notes payable	156,943		156,943		157,997		157,997
Separate account liabilities ($871,196 and $1,049,938 included in fair value hierarchy)	893,856		893,856		1,073,891		1,073,891
Total financial liabilities	$	11,923,780	$	11,923,780	$	12,218,399	$	12,218,399

Schedule of Significant Unobservable Inputs Used to Calculate Level 3 Fair Value of Embedded Derivatives within Policyholder Contract Deposits

Shown below are the significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):


	Fair Value						Range
	March 31, 2020		December 31, 2019		Unobservable Input	March 31, 2020	December 31, 2019
Indexed Annuities	$	625.6	$	706.5	Lapse Rate	1-70%	1-70%
					Mortality Multiplier	90-100%	90-100%
					Equity Volatility	18-90%	11-46%
Indexed Life	5.4		25.1		Equity Volatility	18-90%	11-46%

Quantitative Disclosures Regarding Fair Value Hierarchy Measurements

The fair value hierarchy measurements of the financial instruments are shown below (in thousands):


	Assets and Liabilities Carried at Fair Value by Hierarchy Level as of March 31, 2020
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	$	30,304	$	—	$	30,304	$	—
U.S. states and political subdivisions	1,078,917		—		1,078,917		—
Foreign governments	6,432		—		6,432		—
Corporate debt securities	5,319,261		—		5,265,871		53,390
Residential mortgage-backed securities	29,585		—		29,585		—
Collateralized debt securities	15,875		—		15,875		—
Total bonds available-for-sale	6,480,374		—		6,426,984		53,390
Equity securities
Common stock	1,358,605		1,358,142		—		463
Preferred stock	16,478		16,478		—		—
Total equity securities	1,375,083		1,374,620		—		463
Options	125,988		—		—		125,988
Short-term investments	418,882		—		418,882		—
Separate account assets	871,196		215,339		655,857		—
Separately managed accounts	50,583		—		—		50,583
Total financial assets	$	9,322,106	$	1,589,959	$	7,501,723	$	230,424
Financial liabilities
Embedded derivative for equity-indexed contracts	$	630,952	$	—	$	—	$	630,952
Separate account liabilities	871,196		215,339		655,857		—
Total financial liabilities	$	1,502,148	$	215,339	$	655,857	$	630,952


	Assets and Liabilities Carried at Fair Value by Hierarchy Level as of December 31, 2019
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	$	29,941	$	—	$	29,941	$	—
U.S. states and political subdivisions	1,078,165		—		1,078,165		—
Foreign governments	6,287		—		6,287		—
Corporate debt securities	5,576,620		—		5,531,776		44,844
Residential mortgage-backed securities	23,943		—		23,943		—
Collateralized debt securities	10,129		—		10,129		—
Total bonds available-for-sale	6,725,085		—		6,680,241		44,844
Equity securities
Common stock	1,682,149		1,681,686		—		463
Preferred stock	18,811		18,811		—		—
Total equity securities	1,700,960		1,700,497		—		463
Options	256,005		—		—		256,005
Short-term investments	425,321		—		425,321		—
Separate account assets	1,049,938		271,575		778,363		—
Separately managed accounts	50,503		—		—		50,503
Total financial assets	$	10,207,812	$	1,972,072	$	7,883,925	$	351,815
Financial liabilities
Embedded derivative for equity-indexed contracts	$	731,552	$	—	$	—	$	731,552
Separate account liabilities	1,049,938		271,575		778,363		—
Total financial liabilities	$	1,781,490	$	271,575	$	778,363	$	731,552

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown below (in thousands):


	March 31, 2020
	FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	Level 2	$	155,151	$	159,929
Foreign governments	Level 2	3,899		4,419
Corporate debt securities	Level 2	8,011,160		7,956,612

Residential mortgage-backed securities	Level 2	179,084		186,919
Collateralized debt securities	Level 2	205,515		193,777

Total fixed maturity securities, bonds held-to-maturity		8,554,809		8,501,656
Mortgage loans on real estate, net allowance	Level 3	5,125,365		5,497,500
Policy loans	Level 3	380,084		380,084
Separately managed accounts	Level 3	50,583		50,583
Total financial assets		$	14,110,841	$	14,429,823
Financial liabilities
Investment contracts	Level 3	$	10,242,029	$	10,242,029
Notes payable	Level 3	156,943		156,943
Total financial liabilities		$	10,398,972	$	10,398,972


	December 31, 2019
	FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	Level 2	$	165,109	$	170,114
Foreign governments	Level 2	3,907		4,349
Corporate debt securities	Level 2	8,099,098		8,424,969
Residential mortgage-backed securities	Level 2	237,516		242,828
Collateralized debt securities	Level 2	125,631		126,430

Total fixed maturity securities, bonds held-to-maturity		8,631,261		8,968,690
Mortgage loans on real estate, net allowance	Level 3	5,097,017		5,309,005
Policy loans	Level 3	379,657		379,657
Separately managed accounts	Level 3	50,503		50,503
Total financial assets		$	14,158,438	$	14,707,855
Financial liabilities
Investment contracts	Level 3	$	10,254,959	$	10,254,959
Notes payable	Level 3	157,997		157,997
Total financial liabilities		$	10,412,956	$	10,412,956

Financial Instruments Measured at Fair Value on Recurring Basis Using (Level 3) Inputs

For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of the beginning and ending balances is shown below (in thousands):


	Level 3
	Three months ended March 31, 2020
	Assets								Liability
	Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative
Beginning balance	$	45,307	$	256,005	$	50,503	$	731,552


Net loss for derivatives included in net investment income	—		(108,095)		—		—
Net change included in interest credited	—		—		—		(89,581)
Net fair value change included in other comprehensive income	—		—		80		—
Purchases, sales and settlements or maturities
Purchases	22,702		14,164		—		—
Sales	(14,156)		—		—		—
Settlements or maturities	—		(36,086)		—		—
Premiums less benefits	—		—		—		(11,019)



Ending balance at March 31, 2020	$	53,853	$	125,988	$	50,583	$	630,952
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at March 31, 2020	$	—			$	80

	Level 3
	Three months ended March 31, 2019
	Assets								Liability
	Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative
Beginning balance	$	4,346	$	148,006	$	—	$	596,075


Net gain for derivatives included in net investment income	—		66,485		16,532		—
Net change included in interest credited	—		—		—		58,156
Net fair value change included in other comprehensive income	—		—		9		—
Purchases, sales and settlements or maturities
Purchases	—		17,356		4,505		—
Sales	—		—		—		—
Settlements or maturities	—		(15,691)		—		—
Premiums less benefits	—		—		—		14,254



Ending balance at March 31, 2019	$	4,346	$	216,156	$	21,046	$	668,485

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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