Edgar Filing: REINSURANCE GROUP OF AMERICA INC

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q




(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
x		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2015
		OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
¨		OF THE SECURITIES EXCHANGE ACT OF 1934
		Commission File Number 1-11848

REINSURANCE GROUP OF AMERICA, INCORPORATED

(Exact name of Registrant as specified in its charter)



MISSOURI		43-1627032
(State or other jurisdiction		(IRS employer
of incorporation or organization)		identification number)

16600 Swingley Ridge Road

Chesterfield, Missouri 63017

(Address of principal executive offices)

(636) 736-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of October 30, 2015, 65,749,401 shares of the registrant’s common stock were outstanding.

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



Item		Page

	PART I – FINANCIAL INFORMATION

1	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements (Unaudited):	7
	1. Business and Basis of Presentation	7
	2. Earnings Per Share	7
	3. Accumulated Other Comprehensive Income	8
	4. Investments	9
	5. Derivative Instruments	18
	6. Fair Value of Assets and Liabilities	26
	7. Segment Information	44
	8. Commitments and Contingent Liabilities	46
	9. Income Tax	48
	10. Employee Benefit Plans	49
	11. Equity Based Compensation	49
	12. Retrocession Arrangements and Reinsurance Ceded Receivables	49
	13. Stock Transactions	50
	14. Acquisition	50
	15. Financing Activities	50
	16. New Accounting Standards	51
	17. Subsequent Event	52
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
3	Quantitative and Qualitative Disclosure About Market Risk	88
4	Controls and Procedures	88

	PART II – OTHER INFORMATION

1	Legal Proceedings	89
1A	Risk Factors	89
2	Unregistered Sales of Equity Securities and Use of Proceeds	89
5	Other Information	89
6	Exhibits	89
	Signatures	90
	Index to Exhibits	91

PART I - FINANCIAL INFORMATION

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30, 2015			December 31, 2014
	(Dollars in thousands, except share data)
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $25,844,795 and $23,105,597)	$	27,411,788		$	25,480,972
Mortgage loans on real estate (net of allowances of $5,652 and $6,471)	3,170,002			2,712,238
Policy loans	1,444,009			1,284,284
Funds withheld at interest	5,675,174			5,922,561
Short-term investments	58,200			97,694
Other invested assets	1,187,504			1,198,319
Total investments	38,946,677			36,696,068
Cash and cash equivalents	1,747,692			1,645,669
Accrued investment income	342,088			261,096
Premiums receivable and other reinsurance balances	1,553,093			1,527,729
Reinsurance ceded receivables	661,185			578,206
Deferred policy acquisition costs	3,311,086			3,342,575
Other assets	1,044,299			628,268
Total assets	$	47,606,120		$	44,679,611
Liabilities and Stockholders’ Equity
Future policy benefits	$	16,574,783		$	14,476,637
Interest-sensitive contract liabilities	13,699,896			12,591,497
Other policy claims and benefits	3,892,036			3,824,069
Other reinsurance balances	280,093			306,915
Deferred income taxes	2,285,066			2,365,817
Other liabilities	1,405,675			994,230
Long-term debt	2,313,053			2,314,293
Collateral finance and securitization notes	914,452			782,701
Total liabilities	41,365,054			37,656,159
Commitments and contingent liabilities (See Note 8)
Stockholders’ Equity:
Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at September 30, 2015 and December 31, 2014	791			791
Additional paid-in-capital	1,812,377			1,798,279
Retained earnings	4,482,709			4,239,647
Treasury stock, at cost - 13,388,357 and 10,364,797 shares	(961,290		)	(672,394		)
Accumulated other comprehensive income	906,479			1,657,129
Total stockholders’ equity	6,241,066			7,023,452
Total liabilities and stockholders’ equity	$	47,606,120		$	44,679,611

See accompanying notes to condensed consolidated financial statements (unaudited).

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,089,345		$	2,168,285		$	6,242,240		$	6,452,082
Investment income, net of related expenses	389,597			447,106			1,267,027			1,262,088
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(23,111		)	(246		)	(29,775		)	(1,419		)
Other investment related gains (losses), net	(88,235		)	22,564			(90,166		)	226,835
Total investment related gains (losses), net	(111,346		)	22,318			(119,941		)	225,416
Other revenues	71,038			78,879			200,261			267,195
Total revenues	2,438,634			2,716,588			7,589,587			8,206,781
Benefits and Expenses:
Claims and other policy benefits	1,831,819			1,855,037			5,473,453			5,540,599
Interest credited	34,008			120,952			231,932			347,508
Policy acquisition costs and other insurance expenses	249,702			336,411			827,157			1,100,658
Other operating expenses	142,270			133,737			395,488			372,135
Interest expense	35,565			36,065			107,043			106,360
Collateral finance and securitization expense	5,133			2,571			16,462			7,731
Total benefits and expenses	2,298,497			2,484,773			7,051,535			7,474,991
Income before income taxes	140,137			231,815			538,052			731,790
Provision for income taxes	56,603			73,819			199,013			238,834
Net income	$	83,534		$	157,996		$	339,039		$	492,956
Earnings per share:
Basic earnings per share	$	1.26		$	2.30		$	5.07		$	7.10
Diluted earnings per share	$	1.25		$	2.28		$	5.01		$	7.03
Dividends declared per share	$	0.37		$	0.33		$	1.03		$	0.93

See accompanying notes to condensed consolidated financial statements (unaudited).

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Comprehensive income (loss)	(Dollars in thousands)
Net income	$	83,534		$	157,996		$	339,039		$	492,956
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments	(105,504		)	(75,107		)	(201,340		)	(75,147		)
Change in net unrealized gains and losses on investments	(139,066		)	(55,615		)	(552,783		)	566,014
Change in other-than-temporary impairment losses on fixed maturity securities	—			1,248			—			1,698
Changes in pension and other postretirement plan adjustments	1,685			421			3,473			1,435
Total other comprehensive income (loss), net of tax	(242,885		)	(129,053		)	(750,650		)	494,000
Total comprehensive income (loss)	$	(159,351	)	$	28,943		$	(411,611	)	$	986,956

See accompanying notes to condensed consolidated financial statements (unaudited).

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine months ended September 30,
	2015			2014
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	339,039		$	492,956
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities, net of acquisition:
Accrued investment income	(47,088		)	(41,658		)
Premiums receivable and other reinsurance balances	(100,804		)	(74,089		)
Deferred policy acquisition costs	(42,855		)	185,107
Reinsurance ceded receivable balances	(42,620		)	9,961
Future policy benefits, other policy claims and benefits, and other reinsurance balances	594,389			736,169
Deferred income taxes	128,557			43,670
Other assets and other liabilities, net	(14,670		)	134,471
Amortization of net investment premiums, discounts and other	(61,714		)	(80,188		)
Investment related (gains) losses, net	119,941			(225,416		)
Excess tax benefits from share-based payment arrangement	(2,884		)	3,088
Other, net	9,175			54,105
Net cash provided by operating activities	878,466			1,238,176
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	3,904,948			3,370,036
Maturities of fixed maturity securities available-for-sale	342,126			353,554
Principal payments on mortgage loans on real estate	223,807			341,989
Principal payments on policy loans	531			47,435
Purchases of fixed maturity securities available-for-sale	(3,746,290		)	(4,414,097		)
Cash invested in mortgage loans on real estate	(686,878		)	(480,906		)
Cash invested in policy loans	(6,628		)	(52,914		)
Cash invested in funds withheld at interest	(63,390		)	(67,024		)
Purchase of businesses, net of cash acquired of $19,907	(195,151		)	—
Purchases of property and equipment	(24,240		)	(74,342		)
Cash received (paid) under securities repurchase agreements	(101,203		)	100,000
Change in short-term investments	35,014			93,116
Change in other invested assets	132,412			266,389
Net cash used in investing activities	(184,942		)	(516,764		)
Cash Flows from Financing Activities:
Dividends to stockholders	(69,111		)	(64,587		)
Repayment of collateral finance and securitization notes	(19,732		)	—
Proceeds from issuance of collateral finance and securitization notes	160,060			—
Proceeds from long-term debt issuance	—			100,000
Debt issuance costs	(1,074		)	—
Principal payments of long-term debt	(1,776		)	(192		)
Purchases of treasury stock	(333,432		)	(201,032		)
Excess tax benefits from share-based payment arrangement	2,884			(3,088		)
Exercise of stock options, net	12,551			17,010
Change in cash collateral for derivative positions and other arrangements	60,202			83,283
Deposits on universal life and other investment type policies and contracts	204,456			84,036
Withdrawals on universal life and other investment type policies and contracts	(556,821		)	(525,217		)
Net cash provided in (used in) financing activities	(541,793		)	(509,787		)
Effect of exchange rate changes on cash	(49,708		)	(16,527		)
Change in cash and cash equivalents	102,023			195,098
Cash and cash equivalents, beginning of period	1,645,669			923,647
Cash and cash equivalents, end of period	$	1,747,692		$	1,118,745
Supplemental disclosures of cash flow information:
Interest paid	$	103,481		$	93,698
Income taxes paid, net of refunds	$	13,494		$	37,833
Non-cash transactions:
Transfer of invested assets	$	342,082		$	—
Accrual for capitalized assets	$	804		$	—
Purchase of businesses:
Assets acquired, excluding cash acquired	$	3,685,708		$	—
Liabilities assumed	(3,490,557		)	—
Net cash paid on purchase	$	195,151		$	—

See accompanying notes to condensed consolidated financial statements (unaudited).

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	Business and Basis of Presentation

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. There were no subsequent events, other than as disclosed in Note 17 - "Subsequent Event," that would require disclosure or adjustments to the accompanying condensed consolidated financial statements through the date the financial statements were issued. These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries, and all intercompany accounts and transactions have been eliminated. These condensed consolidated statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 2, 2015 (the "2014 Annual Report").

Effective January 1, 2015, the Company further refined its reporting of the Canada; Europe, Middle East and Africa; and Asia Pacific segments into traditional and non-traditional businesses to reflect the expanded product offerings within its geographic-based segments. The prior period presentation has been adjusted to conform to the new segment reporting structure. See Part II, Item 5 - Other Information of this report for comparable figures by quarter for 2014 and 2013.


2.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Earnings:
Net income (numerator for basic and diluted calculations)	$	83,534	$	157,996	$	339,039	$	492,956
Shares:
Weighted average outstanding shares (denominator for basic calculation)	66,205		68,643		66,895		69,426
Equivalent shares from outstanding stock options	677		692		749		675
Denominator for diluted calculation	66,882		69,335		67,644		70,101
Earnings per share:
Basic	$	1.26	$	2.30	$	5.07	$	7.10
Diluted	$	1.25	$	2.28	$	5.01	$	7.03

The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended September 30, 2015, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. For the three months ended September 30, 2014, no stock options and approximately 0.8 million performance contingent shares were excluded from the calculation. Year-to-date amounts for equivalent shares from outstanding stock options and performance contingent shares are the weighted average of the individual quarterly amounts.


3.	Accumulated Other Comprehensive Income

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the nine months ended September 30, 2015 and 2014 are as follows (dollars in thousands):



	Accumulated Other Comprehensive Income (Loss), Net of Income Tax
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2014	$	81,847		$	1,624,773		$	(49,491	)	$	1,657,129
Other comprehensive income (loss) before reclassifications	(176,562		)	(843,541		)	1,254			(1,018,849		)
Deferred income tax benefit (expense)	(24,778		)	269,378			(382		)	244,218
Other comprehensive income (loss) before reclassifications, net of income tax	(201,340		)	(574,163		)	872			(774,631		)
Amounts reclassified to (from) AOCI	—			34,790			4,002			38,792
Deferred income tax benefit (expense)	—			(13,410		)	(1,401		)	(14,811		)
Amounts reclassified to (from) AOCI, net of income tax	—			21,380			2,601			23,981
Balance, September 30, 2015	$	(119,493	)	$	1,071,990		$	(46,018	)	$	906,479



	Accumulated Other Comprehensive Income (Loss), Net of Income Tax
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2013	$	207,083		$	820,245		$	(21,721	)	$	1,005,607
Other comprehensive income (loss) before reclassifications	(66,167		)	857,802			(461		)	791,174
Deferred income tax benefit (expense)	(8,980		)	(266,429		)	184			(275,225		)
Other comprehensive income (loss) before reclassifications, net of income tax	(75,147		)	591,373			(277		)	515,949
Amounts reclassified to (from) AOCI	—			(36,035		)	2,634			(33,401		)
Deferred income tax benefit (expense)	—			12,374			(922		)	11,452
Amounts reclassified to (from) AOCI, net of income tax	—			(23,661		)	1,712			(21,949		)
Balance, September 30, 2014	$	131,936		$	1,387,957		$	(20,286	)	$	1,499,607


(1)	Includes cash flow hedges. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.

The following table presents the amounts of AOCI reclassifications for the three and nine months ended September 30, 2015 and 2014 (dollars in thousands):



	Amount Reclassified from AOCI
	Three months ended September 30,						Nine months ended September 30,
Details about AOCI Components	2015			2014			2015			2014			Affected Line Item in Statement of Income
Unrealized gains and losses on available-for-sale securities	$	(31,506	)	$	2,218		$	(26,598	)	$	30,549		Investment related gains (losses), net
Gains and losses on cash flow hedges	(112		)	393			491			932			Investment income
Gains and losses on cash flow hedges	179			—			834			—			Investment related gains (losses), net
Deferred policy acquisition costs attributed to unrealized gains and losses⁽¹⁾	(9,543		)	(4,237		)	(9,517		)	4,554
Total	(40,982		)	(1,626		)	(34,790		)	36,035
Provision for income taxes	13,948			588			13,410			(12,374		)
Net unrealized gains (losses), net of tax	$	(27,034	)	$	(1,038	)	$	(21,380	)	$	23,661
Amortization of unrealized pension and postretirement benefits:
Prior service cost⁽²⁾	$	(82	)	$	(214	)	$	(245	)	$	(432	)
Actuarial gains/(losses)⁽²⁾	(1,955		)	(850		)	(3,757		)	(2,202		)
Total	(2,037		)	(1,064		)	(4,002		)	(2,634		)
Provision for income taxes	713			372			1,401			922
Amortization of unrealized pension and postretirement benefits, net of tax	$	(1,324	)	$	(692	)	$	(2,601	)	$	(1,712	)

Total reclassifications, net of tax	$	(28,358	)	$	(1,730	)	$	(23,981	)	$	21,949


(1)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2014 Annual Report for additional details.


(2)	These AOCI components are included in the computation of the net periodic pension cost. See Note 10 – “Employee Benefit Plans” for additional details.


4.	Investments

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities by sector as of September 30, 2015 and December 31, 2014 (dollars in thousands):



September 30, 2015:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	15,801,362	$	702,697	$	330,612	$	16,173,447	59.1	%	$	—
Canadian and Canadian provincial governments	2,520,495		1,023,160		929		3,542,726		12.9		—
Residential mortgage-backed securities	1,234,158		55,711		6,409		1,283,460		4.7		(300		)
Asset-backed securities	1,055,760		16,971		11,359		1,061,372		3.9		354
Commercial mortgage-backed securities	1,441,845		58,555		8,449		1,491,951		5.4		(1,609		)
U.S. government and agencies	1,337,493		20,688		40,963		1,317,218		4.8		—
State and political subdivisions	466,685		42,564		7,746		501,503		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,986,997		89,648		36,534		2,040,111		7.4		—
Total fixed maturity securities	$	25,844,795	$	2,009,994	$	443,001	$	27,411,788	100.0	%	$	(1,555	)
Non-redeemable preferred stock	$	89,726	$	2,737	$	7,754	$	84,709	76.7	%
Other equity securities	26,968		—		1,303		25,665		23.3
Total equity securities	$	116,694	$	2,737	$	9,057	$	110,374	100.0	%



December 31, 2014:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	14,010,604	$	965,523	$	90,544	$	14,885,583	58.4	%	$	—
Canadian and Canadian provincial governments	2,668,852		1,196,420		7		3,865,265		15.2		—
Residential mortgage-backed securities	991,867		52,640		6,611		1,037,896		4.1		(300		)
Asset-backed securities	1,059,660		20,301		10,375		1,069,586		4.2		354
Commercial mortgage-backed securities	1,453,657		87,593		8,659		1,532,591		6.0		(1,609		)
U.S. government and agencies	501,352		25,014		515		525,851		2.0		—
State and political subdivisions	378,457		51,117		3,498		426,076		1.7		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,041,148		110,065		13,089		2,138,124		8.4		—
Total fixed maturity securities	$	23,105,597	$	2,508,673	$	133,298	$	25,480,972	100.0	%	$	(1,555	)
Non-redeemable preferred stock	$	93,540	$	7,350	$	1,527	$	99,363	78.3	%
Other equity securities	26,994		597		94		27,497		21.7
Total equity securities	$	120,534	$	7,947	$	1,621	$	126,860	100.0	%

The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral with derivative, repurchase agreement and reinsurance counterparties. Pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge collateral it receives; however, as of September 30, 2015 and December 31, 2014, none of the collateral received had been sold or re-pledged. The Company also holds securities in trust to satisfy collateral requirements under certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral, and assets in trust held to satisfy collateral requirements under certain third-party reinsurance treaties as of September 30, 2015 and December 31, 2014 (dollars in thousands):



	September 30, 2015				December 31, 2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	181,380	$	194,189	$	127,229	$	134,863
Fixed maturity securities received as collateral	n/a		243,212		n/a		117,227
Securities held in trust	10,106,789		10,619,581		10,197,489		10,922,947

The Company monitors its concentrations of financial instruments on an ongoing basis, and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk of single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as of September 30, 2015, as well as the securities disclosed below as of September 30, 2015 and December 31, 2014 (dollars in thousands).



	September 30, 2015				December 31, 2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Ontario	$	876,694	$	1,209,125	$	979,908	$	1,359,339
Canadian province of Quebec	966,171		1,464,067		1,006,315		1,599,673

The amortized cost and estimated fair value of fixed maturity securities available-for-sale at September 30, 2015 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.



	Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in one year or less	$	649,473	$	657,750
Due after one year through five years	4,976,774		5,182,233
Due after five years through ten years	7,762,616		7,980,594
Due after ten years	8,724,169		9,754,428
Asset and mortgage-backed securities	3,731,763		3,836,783
Total	$	25,844,795	$	27,411,788

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of September 30, 2015 and December 31, 2014 (dollars in thousands):



September 30, 2015:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	5,092,474	$	5,279,879	32.7	%
Industrial	9,004,544		9,099,228		56.2
Utility	1,704,344		1,794,340		11.1
Total	$	15,801,362	$	16,173,447	100.0	%

December 31, 2014:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	4,789,568	$	5,066,408	34.0	%
Industrial	7,639,330		8,086,067		54.3
Utility	1,581,706		1,733,108		11.7
Total	$	14,010,604	$	14,885,583	100.0	%

Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2014 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities the net amount recognized in the condensed consolidated statements of income (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Balance, beginning of period	$	7,284	$	7,284	$	7,284	$	11,696
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	—		—		—		(4,412		)
Balance, end of period	$	7,284	$	7,284	$	7,284	$	7,284

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 1,640 and 932 fixed maturity and equity securities as of September 30, 2015 and December 31, 2014, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	September 30, 2015				December 31, 2014
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	363,451	80.4	%	$	111,965	83.0	%
20% or more for less than six months	72,884		16.1		13,698		10.1
20% or more for six months or greater	15,723		3.5		9,256		6.9
Total	$	452,058	100.0	%	$	134,919	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,640 and 932 fixed maturity and equity securities that have estimated fair values below amortized cost as of September 30, 2015 and December 31, 2014, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
September 30, 2015:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	4,647,733	$	216,291	$	302,808	$	30,784	$	4,950,541	$	247,075
Canadian and Canadian provincial governments	81,615		929		—		—		81,615		929
Residential mortgage-backed securities	231,621		2,363		66,339		3,247		297,960		5,610
Asset-backed securities	289,210		3,234		182,478		6,193		471,688		9,427
Commercial mortgage-backed securities	222,799		3,499		24,236		1,122		247,035		4,621
U.S. government and agencies	909,226		40,963		—		—		909,226		40,963
State and political subdivisions	128,633		4,204		13,206		3,542		141,839		7,746
Other foreign government, supranational and foreign government-sponsored enterprises	293,121		9,368		37,900		3,353		331,021		12,721
Total investment grade securities	6,803,958		280,851		626,967		48,241		7,430,925		329,092
Below investment grade securities:
Corporate securities	659,513		60,972		112,210		22,565		771,723		83,537
Residential mortgage-backed securities	42,309		445		8,797		354		51,106		799
Asset-backed securities	6,905		85		13,677		1,847		20,582		1,932
Commercial mortgage-backed securities	3,238		262		7,280		3,566		10,518		3,828
Other foreign government, supranational and foreign government-sponsored enterprises	87,340		16,297		20,541		7,516		107,881		23,813
Total below investment grade securities	799,305		78,061		162,505		35,848		961,810		113,909
Total fixed maturity securities	$	7,603,263	$	358,912	$	789,472	$	84,089	$	8,392,735	$	443,001
Non-redeemable preferred stock	$	38,857	$	5,481	$	6,411	$	2,273	$	45,268	$	7,754
Other equity securities	25,619		1,303		—		—		25,619		1,303
Total equity securities	$	64,476	$	6,784	$	6,411	$	2,273	$	70,887	$	9,057



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2014:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	1,225,767	$	27,784	$	614,294	$	30,040	$	1,840,061	$	57,824
Canadian and Canadian provincial governments	—		—		1,235		7		1,235		7
Residential mortgage-backed securities	78,864		846		135,414		5,247		214,278		6,093
Asset-backed securities	332,785		4,021		109,411		4,289		442,196		8,310
Commercial mortgage-backed securities	78,632		564		28,375		2,461		107,007		3,025
U.S. government and agencies	81,317		89		32,959		426		114,276		515
State and political subdivisions	13,780		17		18,998		3,438		32,778		3,455
Other foreign government, supranational and foreign government-sponsored enterprises	156,725		7,007		76,111		2,946		232,836		9,953
Total investment grade securities	1,967,870		40,328		1,016,797		48,854		2,984,667		89,182
Below investment grade securities:
Corporate securities	415,886		29,316		32,567		3,404		448,453		32,720
Residential mortgage-backed securities	22,836		293		6,284		225		29,120		518
Asset-backed securities	12,448		274		7,108		1,791		19,556		2,065
Commercial mortgage-backed securities	3,288		249		5,580		5,385		8,868		5,634
State and political subdivisions	964		43		—		—		964		43
Other foreign government, supranational and foreign government-sponsored enterprises	13,986		3,136		—		—		13,986		3,136
Total below investment grade securities	469,408		33,311		51,539		10,805		520,947		44,116
Total fixed maturity securities	$	2,437,278	$	73,639	$	1,068,336	$	59,659	$	3,505,614	$	133,298
Non-redeemable preferred stock	$	11,619	$	235	$	19,100	$	1,292	$	30,719	$	1,527
Other equity securities	—		—		3,545		94		3,545		94
Total equity securities	$	11,619	$	235	$	22,645	$	1,386	$	34,264	$	1,621

The Company has no intention to sell nor does it expect to be required to sell the securities outlined in the table above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

Unrealized losses on below investment grade securities as of September 30, 2015 are primarily related to high-yield corporate and other foreign government, supranational and foreign government-sponsored enterprise securities. Unrealized losses increased across most security types as spreads widened during the first nine months of 2015.

Investment Income, Net of Related Expenses

Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Fixed maturity securities available-for-sale	$	298,376		$	269,346		$	871,936		$	766,764
Mortgage loans on real estate	36,547			39,070			108,440			102,535
Policy loans	16,475			13,825			46,763			41,014
Funds withheld at interest	40,382			124,685			239,967			345,484
Short-term investments	576			462			2,085			1,507
Other invested assets	13,696			15,416			48,141			48,937
Investment income	406,052			462,804			1,317,332			1,306,241
Investment expense	(16,455		)	(15,698		)	(50,305		)	(44,153		)
Investment income, net of related expenses	$	389,597		$	447,106		$	1,267,027		$	1,262,088

Investment Related Gains (Losses), Net

Investment related gains (losses), net consist of the following (dollars in thousands):



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings	$	(23,111	)	$	(246	)	$	(29,775	)	$	(1,419	)
Gain on investment activity	13,792			8,819			53,002			51,773
Loss on investment activity	(22,186		)	(6,355		)	(50,257		)	(19,815		)
Other impairment losses and change in mortgage loan provision	(636		)	(2,041		)	(4,661		)	(5,686		)
Derivatives and other, net	(79,205		)	22,141			(88,250		)	200,563
Total investment related gains (losses), net	$	(111,346	)	$	22,318		$	(119,941	)	$	225,416

The other-than-temporary impairment losses on fixed maturity securities for the three and nine months ended September 30, 2015 are primarily due to emerging market and high-yield debt exposures. The fluctuations in investment related gains (losses) for derivatives and other for the three and nine months ended September 30, 2015, compared to the same periods in 2014, are primarily due to changes in the fair value of embedded derivatives related to modified coinsurance and funds withheld treaties, as a result of changes in interest rates, driven primarily by credit spreads.

During the three months ended September 30, 2015 and 2014, the Company sold fixed maturity and equity securities with fair values of $404.1 million and $225.6 million at losses of $22.2 million and $6.4 million, respectively. During the nine months ended September 30, 2015 and 2014, the Company sold fixed maturity and equity securities with fair values of $1,255.0 million and $683.5 million at losses of $50.3 million and $19.8 million, respectively. The Company generally does not engage in short-term buying and selling of securities.

Securities Borrowing and Other

The Company participates in securities borrowing programs whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from third parties. The borrowed securities are used to provide collateral under affiliated reinsurance transactions. The Company is required to maintain a minimum of 100% of the fair value, or par value under certain programs, of the borrowed securities as collateral. The collateral consists of rights to reinsurance treaty cash flows. If cash flows from the reinsurance treaties are insufficient to maintain the minimum collateral requirement, the Company may substitute cash or securities to meet the requirement. No cash or securities have been pledged by the Company for this purpose.

During the year, the Company participated in a repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, were pledged to a third party. In return, the Company received cash from the third party, reflected as a payable to the third party, included in other liabilities on the condensed consolidated balance sheets. The Company was required to maintain a minimum collateral balance with a fair value of 105% of the cash received. The Company terminated the program and all cash was returned prior to September 30, 2015. The gross balance of the repurchase agreement payable was $101.4 million as of December 31, 2014. This was fully collateralized by securities with a fair value of $107.2 million as of December 31, 2014.

Additionally, the Company participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets.

The following table includes the amount of borrowed securities, repurchased securities pledged and repurchased/reverse repurchased securities pledged and received as of September 30, 2015 and December 31, 2014 (dollars in thousands).



	September 30, 2015				December 31, 2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	265,240	$	281,225	$	201,050	$	212,946
Repurchase program securities pledged	—		—		92,446		107,158
Repurchase program/reverse repurchase program:
Securities pledged	442,679		468,008		298,466		314,160
Securities received	n/a		484,751		n/a		338,929