Edgar Filing: REINSURANCE GROUP OF AMERICA INC

Document

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 June 30, 2016
		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 T No o

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 T No o

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 T Accelerated filer o Non-accelerated filer o Smaller reporting company o

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

Yes o No T

As of July 31, 2016, 64,065,779 shares of the registrant’s common stock were outstanding.

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

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Item		Page

	PART I – FINANCIAL INFORMATION

1	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) June 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2016 and 2015	6
	Notes to Condensed Consolidated Financial Statements (Unaudited):	7
	1. Business and Basis of Presentation	7
	2. Earnings Per Share	7
	3. Equity	8
	4. Investments	9
	5. Derivative Instruments	18
	6. Fair Value of Assets and Liabilities	26
	7. Segment Information	40
	8. Commitments, Contingencies and Guarantees	41
	9. Income Tax	42
	10. Employee Benefit Plans	43
	11. Equity Based Compensation	43
	12. Reinsurance	43
	13. Financing Activities	44
	14. New Accounting Standards	44
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
3	Quantitative and Qualitative Disclosures About Market Risk	83
4	Controls and Procedures	83

	PART II – OTHER INFORMATION

1	Legal Proceedings	84
1A	Risk Factors	84
2	Unregistered Sales of Equity Securities and Use of Proceeds	84
6	Exhibits	85
	Signatures	86
	Index to Exhibits	87

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2016			December 31, 2015
	(Dollars in thousands, except share data)
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $30,076,884 and $28,322,977)	$	33,160,976		$	29,642,905
Mortgage loans on real estate (net of allowances of $6,499 and $6,813)	3,377,039			3,129,951
Policy loans	1,445,410			1,468,796
Funds withheld at interest	5,899,289			5,880,203
Short-term investments	195,979			558,284
Other invested assets	1,682,143			1,298,120
Total investments	45,760,836			41,978,259
Cash and cash equivalents	1,034,329			1,525,275
Accrued investment income	368,926			339,452
Premiums receivable and other reinsurance balances	1,917,844			1,797,504
Reinsurance ceded receivables	681,425			637,859
Deferred policy acquisition costs	3,401,935			3,392,437
Other assets	711,408			712,366
Total assets	$	53,876,703		$	50,383,152
Liabilities and Stockholders’ Equity
Future policy benefits	$	19,605,021		$	19,612,251
Interest-sensitive contract liabilities	14,024,012			13,663,873
Other policy claims and benefits	4,305,219			4,094,640
Other reinsurance balances	344,527			296,899
Deferred income taxes	2,901,264			2,218,328
Other liabilities	1,157,252			1,165,071
Short-term debt	299,807			—
Long-term debt	2,788,473			2,297,548
Collateral finance and securitization notes	870,482			899,161
Total liabilities	46,296,057			44,247,771
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 June 30, 2016 and December 31, 2015	791			791
Additional paid-in capital	1,834,995			1,816,142
Retained earnings	4,870,711			4,620,303
Treasury stock, at cost - 15,068,009 and 13,933,232 shares	(1,111,225		)	(1,010,139		)
Accumulated other comprehensive income	1,985,374			708,284
Total stockholders’ equity	7,580,646			6,135,381
Total liabilities and stockholders’ equity	$	53,876,703		$	50,383,152

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,346,945		$	2,129,043		$	4,503,950		$	4,152,895
Investment income, net of related expenses	507,666			450,539			924,932			877,430
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(846		)	(4,137		)	(34,663		)	(6,664		)
Other investment related gains (losses), net	119,110			(12,041		)	32,041			(1,931		)
Total investment related gains (losses), net	118,264			(16,178		)	(2,622		)	(8,595		)
Other revenues	66,193			66,936			125,376			129,223
Total revenues	3,039,068			2,630,340			5,551,636			5,150,953
Benefits and Expenses:
Claims and other policy benefits	1,997,502			1,866,183			3,884,266			3,641,634
Interest credited	95,849			77,246			183,754			197,924
Policy acquisition costs and other insurance expenses	405,681			300,412			639,444			577,455
Other operating expenses	159,895			131,600			317,319			253,218
Interest expense	20,331			35,851			53,138			71,478
Collateral finance and securitization expense	6,587			5,258			12,912			11,329
Total benefits and expenses	2,685,845			2,416,550			5,090,833			4,753,038
Income before income taxes	353,223			213,790			460,803			397,915
Provision for income taxes	117,120			83,399			148,228			142,410
Net income	$	236,103		$	130,391		$	312,575		$	255,505
Earnings per share:
Basic earnings per share	$	3.68		$	1.97		$	4.86		$	3.80
Diluted earnings per share	$	3.64		$	1.94		$	4.81		$	3.76
Dividends declared per share	$	0.37		$	0.33		$	0.74		$	0.66

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended June 30,					Six months ended June 30,
	2016		2015			2016			2015
Comprehensive income (loss)	(Dollars in thousands)
Net income	$	236,103	$	130,391		$	312,575		$	255,505
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	9,942		21,935			87,675			(95,836		)
Net unrealized investment gains	643,893		(757,641		)	1,191,118			(413,717		)
Defined benefit pension and postretirement plan adjustments	1,156		834			(1,703		)	1,788
Total other comprehensive income (loss), net of tax	654,991		(734,872		)	1,277,090			(507,765		)
Total comprehensive income (loss)	$	891,094	$	(604,481	)	$	1,589,665		$	(252,260	)

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six months ended June 30,
	2016			2015
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	312,575		$	255,505
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	(34,705		)	(26,656		)
Premiums receivable and other reinsurance balances	(98,610		)	(19,683		)
Deferred policy acquisition costs	(5,435		)	5,136
Reinsurance ceded receivable balances	(60,465		)	(115,355		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	380,297			353,946
Deferred income taxes	101,163			77,047
Other assets and other liabilities, net	(43,708		)	42,363
Amortization of net investment premiums, discounts and other	(42,843		)	(39,021		)
Investment related (gains) losses, net	2,622			8,595
Other, net	83,555			63,815
Net cash provided by operating activities	594,446			605,692
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	2,271,414			2,742,814
Maturities of fixed maturity securities available-for-sale	273,552			232,712
Sales of equity securities	132,932			50,083
Principal payments on mortgage loans on real estate	294,843			166,583
Principal payments on policy loans	25,065			441
Purchases of fixed maturity securities available-for-sale	(4,416,290		)	(2,806,351		)
Purchases of equity securities	(408,684		)	(68,116		)
Cash invested in mortgage loans on real estate	(543,454		)	(531,317		)
Cash invested in policy loans	(1,679		)	(686		)
Cash invested in funds withheld at interest	(27,868		)	(57,708		)
Purchase of businesses, net of cash acquired of $19,377	—			(191,450		)
Purchases of property and equipment	—			(22,944		)
Cash paid under securities repurchase agreements	—			(101,203		)
Change in short-term investments	350,062			22,543
Change in other invested assets	(8,100		)	91,562
Net cash used in investing activities	(2,058,207		)	(473,037		)
Cash Flows from Financing Activities:
Dividends to stockholders	(47,746		)	(44,519		)
Repayment of collateral finance and securitization notes	(35,369		)	(17,632		)
Proceeds from issuance of collateral finance and securitization notes	—			160,060
Proceeds from long-term debt issuance	799,984			—
Debt issuance costs	(9,026		)	(1,170		)
Principal payments of long-term debt	(1,227		)	(1,178		)
Purchases of treasury stock	(120,806		)	(262,515		)
Exercise of stock options, net	5,219			12,641
Change in cash collateral for derivative positions and other arrangements	57,055			(31,244		)
Deposits on universal life and other investment type policies and contracts	513,679			132,679
Withdrawals on universal life and other investment type policies and contracts	(208,743		)	(363,600		)
Net cash provided by (used in) financing activities	953,020			(416,478		)
Effect of exchange rate changes on cash	19,795			(26,185		)
Change in cash and cash equivalents	(490,946		)	(310,008		)
Cash and cash equivalents, beginning of period	1,525,275			1,645,669
Cash and cash equivalents, end of period	$	1,034,329		$	1,335,661
Supplemental disclosures of cash flow information:
Interest paid	$	68,445		$	74,637
Income taxes paid, net of refunds	$	43,838		$	(19,307	)
Non-cash transactions:
Transfer of invested assets	$	1,730		$	118
Accrual for capitalized assets	$	—		$	2,121
Purchase of businesses:
Assets acquired, excluding cash acquired	$	—		$	3,681,699
Liabilities assumed	—			(3,490,249		)
Net cash paid on purchase	$	—		$	191,450

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

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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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016 (the "2015 Annual Report").


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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
Earnings:
Net income (numerator for basic and diluted calculations)	$	236,103	$	130,391	$	312,575	$	255,505
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,126		66,351		64,348		67,246
Equivalent shares from outstanding stock options	670		769		660		785
Denominator for diluted calculation	64,796		67,120		65,008		68,031
Earnings per share:
Basic	$	3.68	$	1.97	$	4.86	$	3.80
Diluted	$	3.64	$	1.94	$	4.81	$	3.76

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 June 30, 2016, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. For the three months ended June 30, 2015, no stock options and approximately 0.7 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.

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3.	Equity

Common Stock

The changes in number of common stock shares, issued, held in treasury and outstanding are as follows for the periods indicated:



	Issued	Held In Treasury		Outstanding
Balance, December 31, 2015	79,137,758	13,933,232		65,204,526
Common stock acquired	—	1,352,211		(1,352,211	)
Stock-based compensation ⁽¹⁾	—	(217,434	)	217,434
Balance, June 30, 2016	79,137,758	15,068,009		64,069,749



	Issued	Held In Treasury		Outstanding
Balance, December 31, 2014	79,137,758	10,364,797		68,772,961
Common stock acquired	—	2,791,360		(2,791,360	)
Stock-based compensation ⁽¹⁾	—	(440,059	)	440,059
Balance, June 30, 2015	79,137,758	12,716,098		66,421,660


(1)	Represents net shares issued from treasury pursuant to the Company's equity-based compensation programs.

Common Stock Held in Treasury

Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of common stock held in treasury are credited to additional paid-in capital. Losses resulting from the reissuance of common stock held in treasury are charged first to additional paid-in capital to the extent the Company has previously recorded gains on treasury share transactions, then to retained earnings.

On January 21, 2016, RGA's board of directors authorized a share repurchase program for up to $400.0 million of RGA's outstanding common stock. The authorization was effective immediately and does not have an expiration date. In connection with this new authorization, the board of directors terminated the stock repurchase authority granted in 2015. During the first six months of 2016, RGA repurchased 1.4 million shares of common stock under this program for $116.1 million.

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, 2016 and 2015 are as follows (dollars in thousands):



	AOCI, Net of Income Tax
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2015	$	(181,151	)	$	935,697		$	(46,262	)	$	708,284
Other comprehensive income before reclassifications	99,374			1,759,753			(6,083		)	1,853,044
Amounts reclassified to (from) AOCI	—			(24,366		)	3,467			(20,899		)
Deferred income tax benefit (expense)	(11,699		)	(544,269		)	913			(555,055		)
Balance, June 30, 2016	$	(93,476	)	$	2,126,815		$	(47,965	)	$	1,985,374



	AOCI, 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 before reclassifications	(89,220		)	(612,314		)	733			(700,801		)
Amounts reclassified to (from) AOCI	—			(6,192		)	1,965			(4,227		)
Deferred income tax benefit (expense)	(6,616		)	204,789			(910		)	197,263
Balance, June 30, 2015	$	(13,989	)	$	1,211,056		$	(47,703	)	$	1,149,364


(1)	Includes cash flow hedges of $(41,192) and $(29,397) as of June 30, 2016 and December 31, 2015, respectively, and $(23,901) and $(31,591) as of June 30, 2015 and December 31, 2014, respectively. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.

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The following table presents the amounts of AOCI reclassifications for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):



	Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,
Details about AOCI Components	2016			2015			2016			2015			Affected Line Item in Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	30,190		$	1,829		$	11,899		$	4,908		Investment related gains (losses), net
Cash flow hedges - Interest rate swaps	93			231			253			291			(1)
Cash flow hedges - Forward bond purchase commitments	(1,045		)	1,807			(257		)	967			(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	5,365			(4,307		)	12,471			26			(2)
Total	34,603			(440		)	24,366			6,192
Provision for income taxes	(9,646		)	(245		)	(4,996		)	(537		)
Net unrealized gains (losses), net of tax	$	24,957		$	(685	)	$	19,370		$	5,655
Amortization of defined benefit plan items:
Prior service cost	$	(75	)	$	(80	)	$	(153	)	$	(163	)	(3)
Actuarial gains (losses)	(1,841		)	(1,098		)	(3,314		)	(1,802		)	(3)
Total	(1,916		)	(1,178		)	(3,467		)	(1,965		)
Provision for income taxes	670			413			1,213			688
Amortization of defined benefit plans, net of tax	$	(1,246	)	$	(765	)	$	(2,254	)	$	(1,277	)

Total reclassifications for the period	$	23,711		$	(1,450	)	$	17,116		$	4,378


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


(2)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2015 Annual Report for additional details.


(3)	This AOCI component is 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 June 30, 2016 and December 31, 2015 (dollars in thousands):



June 30, 2016:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	18,417,375	$	1,260,330	$	134,468	$	19,543,237	58.9	%	$	—
Canadian and Canadian provincial governments	2,607,276		1,497,998		—		4,105,274		12.4		—
Residential mortgage-backed securities	1,225,718		72,733		5,673		1,292,778		3.9		(300		)
Asset-backed securities	1,377,736		11,054		32,113		1,356,677		4.1		275
Commercial mortgage-backed securities	1,441,091		67,727		1,125		1,507,693		4.5		(1,609		)
U.S. government and agencies	1,907,648		99,690		—		2,007,338		6.1		—
State and political subdivisions	538,037		74,042		6,137		605,942		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,562,003		190,688		10,654		2,742,037		8.3		—
Total fixed maturity securities	$	30,076,884	$	3,274,262	$	190,170	$	33,160,976	100.0	%	$	(1,634	)
Non-redeemable preferred stock	$	66,464	$	2,575	$	7,936	$	61,103	14.6	%
Other equity securities	349,577		7,952		446		357,083		85.4
Total equity securities	$	416,041	$	10,527	$	8,382	$	418,186	100.0	%

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December 31, 2015:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	17,575,507	$	599,718	$	467,069	$	17,708,156	59.7	%	$	—
Canadian and Canadian provincial governments	2,469,009		1,110,282		2,532		3,576,759		12.1		—
Residential mortgage-backed securities	1,277,998		45,152		11,673		1,311,477		4.4		(300		)
Asset-backed securities	1,219,000		12,052		18,376		1,212,676		4.1		354
Commercial mortgage-backed securities	1,456,848		37,407		11,168		1,483,087		5.0		(1,609		)
U.S. government and agencies	1,423,791		15,586		57,718		1,381,659		4.7		—
State and political subdivisions	480,067		40,014		9,067		511,014		1.7		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,420,757		78,964		41,644		2,458,077		8.3		—
Total fixed maturity securities	$	28,322,977	$	1,939,175	$	619,247	$	29,642,905	100.0	%	$	(1,555	)
Non-redeemable preferred stock	$	85,645	$	7,837	$	5,962	$	87,520	69.5	%
Other equity securities	40,584		—		2,242		38,342		30.5
Total equity securities	$	126,229	$	7,837	$	8,204	$	125,862	100.0	%

The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. 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 repledge collateral it receives; however, as of June 30, 2016 and December 31, 2015, none of the collateral received had been sold or repledged. The Company also holds assets 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 June 30, 2016 and December 31, 2015 (dollars in thousands):



	June 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	189,370	$	202,763	$	169,678	$	176,782
Fixed maturity securities received as collateral	n/a		261,461		n/a		242,914
Assets in trust held to satisfy collateral requirements	12,318,432		13,375,925		10,535,729		10,928,393

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 from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of June 30, 2016 and December 31, 2015 (dollars in thousands).



	June 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Ontario	$	853,014	$	1,257,954	$	864,444	$	1,199,080
Canadian province of Quebec	1,026,507		1,854,422		943,484		1,525,903

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at June 30, 2016 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.

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	Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in one year or less	$	776,005	$	783,582
Due after one year through five years	6,682,598		7,007,050
Due after five years through ten years	8,706,784		9,309,939
Due after ten years	9,866,952		11,903,257
Asset and mortgage-backed securities	4,044,545		4,157,148
Total	$	30,076,884	$	33,160,976

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of June 30, 2016 and December 31, 2015 (dollars in thousands):



June 30, 2016:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	6,268,530	$	6,577,989	33.8	%
Industrial	10,192,465		10,811,758		55.2
Utility	1,956,380		2,153,490		11.0
Total	$	18,417,375	$	19,543,237	100.0	%

December 31, 2015:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	5,408,791	$	5,555,044	31.4	%
Industrial	10,211,426		10,129,917		57.2
Utility	1,955,290		2,023,195		11.4
Total	$	17,575,507	$	17,708,156	100.0	%

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

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2015 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 June 30,					Six months ended June 30,
	2016			2015		2016			2015
Balance, beginning of period	$	7,284		$	7,284	$	7,284		$	7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	(310		)	—		(310		)	—
Balance, end of period	$	6,974		$	7,284	$	6,974		$	7,284

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

The following table presents the total gross unrealized losses for the 908 and 2,080 fixed maturity and equity securities as of June 30, 2016 and December 31, 2015, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	June 30, 2016				December 31, 2015
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	150,638	75.8	%	$	463,109	73.8	%
20% or more for less than six months	8,933		4.5		142,495		22.7
20% or more for six months or greater	38,981		19.7		21,847		3.5
Total	$	198,552	100.0	%	$	627,451	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 908 and 2,080 fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, 2016 and December 31, 2015, 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
June 30, 2016:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	649,275	$	15,424	$	1,208,939	$	59,206	$	1,858,214	$	74,630
Residential mortgage-backed securities	67,472		1,672		120,431		3,990		187,903		5,662
Asset-backed securities	534,180		18,943		258,828		10,507		793,008		29,450
Commercial mortgage-backed securities	78,002		423		41,399		702		119,401		1,125
State and political subdivisions	9,697		443		56,930		5,694		66,627		6,137
Other foreign government, supranational and foreign government-sponsored enterprises	99,330		1,135		79,592		3,677		178,922		4,812
Total investment grade securities	1,437,956		38,040		1,766,119		83,776		3,204,075		121,816
Below investment grade securities:
Corporate securities	282,830		14,077		335,351		45,761		618,181		59,838
Residential mortgage-backed securities	—		—		379		11		379		11
Asset-backed securities	5,858		1,118		8,623		1,545		14,481		2,663
Other foreign government, supranational and foreign government-sponsored enterprises	2,328		23		59,437		5,819		61,765		5,842
Total below investment grade securities	291,016		15,218		403,790		53,136		694,806		68,354
Total fixed maturity securities	$	1,728,972	$	53,258	$	2,169,909	$	136,912	$	3,898,881	$	190,170
Non-redeemable preferred stock	$	3,248	$	261	$	24,247	$	7,675	$	27,495	$	7,936
Other equity securities	—		—		6,606		446		6,606		446
Total equity securities	$	3,248	$	261	$	30,853	$	8,121	$	34,101	$	8,382

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	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2015:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	6,388,148	$	323,961	$	294,755	$	40,861	$	6,682,903	$	364,822
Canadian and Canadian provincial governments	122,746		2,532		—		—		122,746		2,532
Residential mortgage-backed securities	452,297		7,036		82,314		4,057		534,611		11,093
Asset-backed securities	581,701		9,825		199,298		7,100		780,999		16,925
Commercial mortgage-backed securities	514,877		9,806		31,177		997		546,054		10,803
U.S. government and agencies	1,010,387		57,718		—		—		1,010,387		57,718
State and political subdivisions	157,837		5,349		13,016		3,718		170,853		9,067
Other foreign government, supranational and foreign government-sponsored enterprises	702,962		18,279		38,379		4,206		741,341		22,485
Total investment grade securities	9,930,955		434,506		658,939		60,939		10,589,894		495,445
Below investment grade securities:
Corporate securities	554,688		71,171		114,427		31,076		669,115		102,247
Residential mortgage-backed securities	22,646		282		7,679		298		30,325		580
Asset-backed securities	6,772		201		9,335		1,250		16,107		1,451
Commercial mortgage-backed securities	3,253		248		767		117		4,020		365
Other foreign government, supranational and foreign government-sponsored enterprises	60,668		7,356		31,693		11,803		92,361		19,159
Total below investment grade securities	648,027		79,258		163,901		44,544		811,928		123,802
Total fixed maturity securities	$	10,578,982	$	513,764	$	822,840	$	105,483	$	11,401,822	$	619,247
Non-redeemable preferred stock	$	12,331	$	2,175	$	12,191	$	3,787	$	24,522	$	5,962
Other equity securities	38,327		2,242		—		—		38,327		2,242
Total equity securities	$	50,658	$	4,417	$	12,191	$	3,787	$	62,849	$	8,204

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 June 30, 2016 are primarily related to high-yield corporate and other foreign government, supranational and foreign government-sponsored enterprise securities. Unrealized losses decreased across most security types as treasury rates decreased during the first six months of 2016.

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 June 30,						Six months ended June 30,
	2016			2015			2016			2015
Fixed maturity securities available-for-sale	$	323,592		$	303,792		$	636,007		$	573,560
Mortgage loans on real estate	41,900			37,121			81,692			71,893
Policy loans	16,372			16,248			32,506			30,288
Funds withheld at interest	112,893			87,325			168,873			199,585
Short-term investments	985			814			1,960			1,509
Other invested assets	29,487			22,418			39,311			34,445
Investment income	525,229			467,718			960,349			911,280
Investment expense	(17,563		)	(17,179		)	(35,417		)	(33,850		)
Investment income, net of related expenses	$	507,666		$	450,539		$	924,932		$	877,430

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Investment Related Gains (Losses), Net

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



	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings	$	(846	)	$	(4,137	)	$	(34,663	)	$	(6,664	)
Gain on investment activity	53,615			20,009			80,807			39,210
Loss on investment activity	(22,556		)	(14,475		)	(34,343		)	(28,071		)
Other impairment losses and change in mortgage loan provision	211			143			(1,849		)	(4,025		)
Derivatives and other, net	87,840			(17,718		)	(12,574		)	(9,045		)
Total investment related gains (losses), net	$	118,264		$	(16,178	)	$	(2,622	)	$	(8,595	)

The fixed maturity impairments for the three and six months ended June 30, 2016 and 2015 were largely related to high-yield energy and emerging market corporate securities. The fluctuations in investment related gains (losses) for derivatives and other for the six months ended June 30, 2016, compared to the same period in 2015, are primarily due to changes in the fair value of interest rate swaps.

During the three months ended June 30, 2016 and 2015, the Company sold fixed maturity and equity securities with fair values of $343.3 million and $651.3 million at losses of $22.6 million and $14.5 million, respectively. During the six months ended June 30, 2016 and 2015, the Company sold fixed maturity and equity securities with fair values of $585.8 million and $850.9 million at losses of $34.3 million and $28.1 million, respectively. The Company generally does not buy and sell securities on a short-term basis.

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.

The Company also 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 June 30, 2016 and December 31, 2015 (dollars in thousands).



	June 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	269,740	$	289,454	$	259,540	$	266,297
Repurchase program/reverse repurchase program:
Securities pledged	448,615		480,618		443,435		465,889
Securities received	n/a		485,826		n/a		481,197

The following table presents information on the securities pledged as collateral by the Company related to its repurchase/reverse repurchase program as of June 30, 2016 and December 31, 2015 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the table, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

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	June 30, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Collateral on repurchase program:
Corporate securities	$	—	$	5,329	$	4,031	$	137,505	$	146,865
Residential mortgage-backed securities	—		—		—		101,715		101,715
U.S. government and agencies	—		—		—		212,918		212,918
Foreign government	—		—		—