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, 2017
		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 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 x No o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o

Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 x

As of July 31, 2017, 64,493,846 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, 2017 and December 31, 2016	3
	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2017 and 2016	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2017 and 2016	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2017 and 2016	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	10
	5. Derivative Instruments	20
	6. Fair Value of Assets and Liabilities	28
	7. Segment Information	42
	8. Commitments, Contingencies and Guarantees	43
	9. Income Tax	44
	10. Employee Benefit Plans	45
	11. Reinsurance	45
	12. New Accounting Standards	46
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
3	Quantitative and Qualitative Disclosures About Market Risk	80
4	Controls and Procedures	81

	PART II – OTHER INFORMATION

1	Legal Proceedings	82
1A	Risk Factors	82
2	Unregistered Sales of Equity Securities and Use of Proceeds	82
6	Exhibits	82
	Signatures	83
	Index to Exhibits	84

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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, 2017			December 31, 2016
	(Dollars in thousands, except share data)
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $33,738,334 and $30,211,787)	$	36,345,426		$	32,093,625
Mortgage loans on real estate (net of allowances of $8,156 and $7,685)	4,104,487			3,775,522
Policy loans	1,406,774			1,427,602
Funds withheld at interest	5,968,856			5,875,919
Short-term investments	123,308			76,710
Other invested assets	1,498,370			1,591,940
Total investments	49,447,221			44,841,318
Cash and cash equivalents	1,123,350			1,200,718
Accrued investment income	388,008			347,173
Premiums receivable and other reinsurance balances	2,205,631			1,930,755
Reinsurance ceded receivables	798,365			683,972
Deferred policy acquisition costs	3,334,094			3,338,605
Other assets	841,403			755,338
Total assets	$	58,138,072		$	53,097,879
Liabilities and Stockholders’ Equity
Future policy benefits	$	20,665,256		$	19,581,573
Interest-sensitive contract liabilities	16,440,873			14,029,354
Other policy claims and benefits	4,809,780			4,263,026
Other reinsurance balances	399,517			388,989
Deferred income taxes	3,162,666			2,770,640
Other liabilities	1,077,223			1,041,880
Long-term debt	2,788,494			3,088,635
Collateral finance and securitization notes	823,108			840,700
Total liabilities	50,166,917			46,004,797
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, 2017 and December 31, 2016	791			791
Additional paid-in capital	1,860,001			1,848,611
Retained earnings	5,523,622			5,199,130
Treasury stock, at cost - 14,645,901 and 14,835,256 shares	(1,085,157		)	(1,094,779		)
Accumulated other comprehensive income	1,671,898			1,139,329
Total stockholders’ equity	7,971,155			7,093,082
Total liabilities and stockholders’ equity	$	58,138,072		$	53,097,879

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,
	2017			2016			2017			2016
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,480,451		$	2,346,945		$	4,846,147		$	4,503,950
Investment income, net of related expenses	518,538			507,666			1,032,902			924,932
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(3,401		)	(846		)	(20,590		)	(34,663		)
Other investment related gains (losses), net	59,696			119,110			137,408			32,041
Total investment related gains (losses), net	56,295			118,264			116,818			(2,622		)
Other revenues	73,992			66,193			142,149			125,376
Total revenues	3,129,276			3,039,068			6,138,016			5,551,636
Benefits and Expenses:
Claims and other policy benefits	2,164,363			1,997,502			4,270,508			3,884,266
Interest credited	115,285			95,849			222,969			183,754
Policy acquisition costs and other insurance expenses	319,832			405,681			699,221			639,444
Other operating expenses	154,356			159,895			312,862			317,319
Interest expense	29,352			20,331			71,754			53,138
Collateral finance and securitization expense	6,773			6,587			13,543			12,912
Total benefits and expenses	2,789,961			2,685,845			5,590,857			5,090,833
Income before income taxes	339,315			353,223			547,159			460,803
Provision for income taxes	107,125			117,120			169,457			148,228
Net income	$	232,190		$	236,103		$	377,702		$	312,575
Earnings per share:
Basic earnings per share	$	3.60		$	3.68		$	5.86		$	4.86
Diluted earnings per share	$	3.54		$	3.64		$	5.76		$	4.81
Dividends declared per share	$	0.41		$	0.37		$	0.82		$	0.74

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,
	2017		2016		2017		2016
Comprehensive income	(Dollars in thousands)
Net income	$	232,190	$	236,103	$	377,702	$	312,575
Other comprehensive income, net of tax:
Foreign currency translation adjustments	43,565		9,942		21,352		87,675
Net unrealized investment gains	306,329		643,893		509,444		1,191,118
Defined benefit pension and postretirement plan adjustments	849		1,156		1,773		(1,703		)
Total other comprehensive income, net of tax	350,743		654,991		532,569		1,277,090
Total comprehensive income	$	582,933	$	891,094	$	910,271	$	1,589,665

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,
	2017			2016
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	377,702		$	312,575
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	(34,676		)	(34,705		)
Premiums receivable and other reinsurance balances	(230,650		)	(98,610		)
Deferred policy acquisition costs	35,870			(5,435		)
Reinsurance ceded receivable balances	(127,995		)	(60,465		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	745,799			380,297
Deferred income taxes	142,044			101,163
Other assets and other liabilities, net	(63,811		)	(43,708		)
Amortization of net investment premiums, discounts and other	(47,563		)	(42,843		)
Depreciation and amortization expense	13,869			12,888
Investment related (gains) losses, net	(116,818		)	2,622
Other, net	(37,797		)	70,667
Net cash provided by operating activities	655,974			594,446
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	4,288,713			2,271,414
Maturities of fixed maturity securities available-for-sale	313,530			273,552
Sales of equity securities	166,916			132,932
Principal payments on mortgage loans on real estate	135,450			294,843
Principal payments on policy loans	26,658			25,065
Purchases of fixed maturity securities available-for-sale	(5,311,818		)	(4,416,290		)
Purchases of equity securities	(32,299		)	(408,684		)
Cash invested in mortgage loans on real estate	(463,063		)	(543,454		)
Cash invested in policy loans	(5,830		)	(1,679		)
Cash invested in funds withheld at interest	(6,910		)	(27,868		)
Purchases of property and equipment	31,686			—
Change in short-term investments	22,671			350,062
Change in other invested assets	(55,379		)	(8,100		)
Net cash used in investing activities	(889,675		)	(2,058,207		)
Cash Flows from Financing Activities:
Dividends to stockholders	(52,815		)	(47,746		)
Repayment of collateral finance and securitization notes	(23,761		)	(35,369		)
Proceeds from long-term debt issuance	—			799,984
Debt issuance costs	—			(9,026		)
Principal payments of long-term debt	(301,278		)	(1,227		)
Purchases of treasury stock	(10,578		)	(120,806		)
Exercise of stock options, net	2,527			5,219
Change in cash collateral for derivative positions and other arrangements	(7,046		)	57,055
Deposits on universal life and other investment type policies and contracts	917,675			513,679
Withdrawals on universal life and other investment type policies and contracts	(402,528		)	(208,743		)
Net cash provided by financing activities	122,196			953,020
Effect of exchange rate changes on cash	34,137			19,795
Change in cash and cash equivalents	(77,368		)	(490,946		)
Cash and cash equivalents, beginning of period	1,200,718			1,525,275
Cash and cash equivalents, end of period	$	1,123,350		$	1,034,329
Supplemental disclosures of cash flow information:
Interest paid	$	90,425		$	68,445
Income taxes paid, net of refunds	$	26,447		$	43,838
Non-cash transactions:
Transfer of invested assets	$	2,243,360		$	1,730

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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017 (the “2016 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,
	2017		2016		2017		2016
Earnings:
Net income (numerator for basic and diluted calculations)	$	232,190	$	236,103	$	377,702	$	312,575
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,449		64,126		64,401		64,348
Equivalent shares from outstanding stock options	1,159		670		1,204		660
Denominator for diluted calculation	65,608		64,796		65,605		65,008
Earnings per share:
Basic	$	3.60	$	3.68	$	5.86	$	4.86
Diluted	$	3.54	$	3.64	$	5.76	$	4.81

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, 2017, 0.2 million stock options and approximately 0.3 million performance contingent shares were excluded from the calculation. For the three months ended June 30, 2016, 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, 2016	79,137,758	14,835,256		64,302,502
Stock-based compensation ⁽¹⁾	—	(189,355	)	189,355
Balance, June 30, 2017	79,137,758	14,645,901		64,491,857



	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


(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 26, 2017, 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 2016. During the first six months of 2017, no common stock was repurchased by RGA under this program.

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, 2017 and 2016 are as follows (dollars in thousands):



	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2016	$	(172,541	)	$	1,355,033		$	(43,163	)	$	1,139,329
Other comprehensive income (loss) before reclassifications	(13,936		)	774,688			(196		)	760,556
Amounts reclassified to (from) AOCI	—			(39,360		)	2,935			(36,425		)
Deferred income tax benefit (expense)	35,288			(225,884		)	(966		)	(191,562		)
Balance, June 30, 2017	$	(151,189	)	$	1,864,477		$	(41,390	)	$	1,671,898



	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 (loss) 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


(1)	Includes cash flow hedges of $1,131 and $(2,496) as of June 30, 2017 and December 31, 2016, respectively, and $(41,192) and $(29,397) as of June 30, 2016 and December 31, 2015, 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, 2017 and 2016 (dollars in thousands):



	Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,
Details about AOCI Components	2017			2016			2017			2016			Affected Line Item in Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains and losses on available-for-sale securities	$	40,374		$	30,190		$	28,517		$	11,899		Investment related gains (losses), net
Cash flow hedges - Currency/Interest rate	132			93			329			253			(1)
Cash flow hedges - Forward bond purchase commitments	51			(1,045		)	101			(257		)	(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	4,565			5,365			10,413			12,471			(2)
Total	45,122			34,603			39,360			24,366
Provision for income taxes	(15,218		)	(9,646		)	(12,024		)	(4,996		)
Net unrealized gains (losses), net of tax	$	29,904		$	24,957		$	27,336		$	19,370
Amortization of defined benefit plan items:
Prior service cost (credit)	$	60		$	(75	)	$	142		$	(153	)	(3)
Actuarial gains/(losses)	(1,539		)	(1,841		)	(3,077		)	(3,314		)	(3)
Total	(1,479		)	(1,916		)	(2,935		)	(3,467		)
Provision for income taxes	517			670			1,027			1,213
Amortization of defined benefit plans, net of tax	$	(962	)	$	(1,246	)	$	(1,908	)	$	(2,254	)

Total reclassifications for the period	$	28,942		$	23,711		$	25,428		$	17,116


(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 2016 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.

Equity Based Compensation

Equity compensation expense was $11.4 million and $18.9 million in the first six months of 2017 and 2016, respectively. In the first quarter of 2017, the Company granted 0.2 million stock appreciation rights at $129.72 weighted average exercise price per share and 0.2 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 8,177 shares of common stock. As of June 30, 2017, 1.7 million share options at a weighted average strike price per share of $60.31 were vested and exercisable, with a remaining weighted average exercise period of 4.8 years. As of June 30, 2017, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $38.6 million. It is estimated that these costs will vest over a weighted average period of 1.4 years.

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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, 2017 and December 31, 2016 (dollars in thousands):



June 30, 2017:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	21,252,180	$	1,189,750	$	100,269	$	22,341,661	61.5	%	$	—
Canadian and Canadian provincial governments	2,713,972		1,296,242		2,460		4,007,754		11.0		—
Residential mortgage-backed securities	1,505,474		42,619		8,794		1,539,299		4.2		—
Asset-backed securities	1,630,499		17,266		5,924		1,641,841		4.5		275
Commercial mortgage-backed securities	1,558,035		28,928		4,935		1,582,028		4.4		—
U.S. government and agencies	1,738,419		15,193		32,048		1,721,564		4.7		—
State and political subdivisions	599,622		47,564		8,216		638,970		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,740,133		141,973		9,797		2,872,309		7.9		—
Total fixed maturity securities	$	33,738,334	$	2,779,535	$	172,443	$	36,345,426	100.0	%	$	275
Non-redeemable preferred stock	$	34,545	$	435	$	3,021	$	31,959	30.6	%
Other equity securities	75,413		522		3,617		72,318		69.4
Total equity securities	$	109,958	$	957	$	6,638	$	104,277	100.0	%



December 31, 2016:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	18,924,711	$	911,618	$	217,245	$	19,619,084	61.1	%	$	—
Canadian and Canadian provincial governments	2,561,605		1,085,982		3,541		3,644,046		11.4		—
Residential mortgage-backed securities	1,258,039		33,917		13,380		1,278,576		4.0		(375		)
Asset-backed securities	1,443,822		9,350		23,828		1,429,344		4.5		275
Commercial mortgage-backed securities	1,342,440		28,973		7,759		1,363,654		4.2		—
U.S. government and agencies	1,518,702		12,644		63,044		1,468,302		4.6		—
State and political subdivisions	566,761		37,499		12,464		591,796		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,595,707		123,054		19,938		2,698,823		8.4		—
Total fixed maturity securities	$	30,211,787	$	2,243,037	$	361,199	$	32,093,625	100.0	%	$	(100	)
Non-redeemable preferred stock	$	55,812	$	1,648	$	6,337	$	51,123	18.6	%
Other equity securities	229,767		1,792		7,321		224,238		81.4
Total equity securities	$	285,579	$	3,440	$	13,658	$	275,361	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, 2017 and December 31, 2016, 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 derivative transactions and certain third-party reinsurance treaties as of June 30, 2017 and December 31, 2016 (dollars in thousands):

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	June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	69,849	$	74,441	$	207,066	$	210,676
Fixed maturity securities received as collateral	n/a		457,801		n/a		300,925
Assets in trust held to satisfy collateral requirements	14,706,225		15,723,178		12,135,258		12,874,370

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, 2017 and December 31, 2016 (dollars in thousands).



	June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Quebec	$	1,060,922	$	1,785,573	$	1,004,261	$	1,612,957
Canadian province of Ontario	886,518		1,228,391		832,764		1,126,433

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at June 30, 2017 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	$	861,051	$	868,405
Due after one year through five years	7,421,897		7,696,337
Due after five years through ten years	9,514,341		10,016,984
Due after ten years	11,247,037		13,000,532
Asset and mortgage-backed securities	4,694,008		4,763,168
Total	$	33,738,334	$	36,345,426

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of June 30, 2017 and December 31, 2016 (dollars in thousands):



June 30, 2017:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	7,741,482	$	8,077,195	36.1	%
Industrial	11,215,292		11,792,664		52.9
Utility	2,295,406		2,471,802		11.0
Total	$	21,252,180	$	22,341,661	100.0	%

December 31, 2016:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	6,725,199	$	6,888,968	35.2	%
Industrial	10,228,813		10,639,613		54.2
Utility	1,970,699		2,090,503		10.6
Total	$	18,924,711	$	19,619,084	100.0	%

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

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2016 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,
	2017		2016			2017			2016
Balance, beginning of period	$	3,677	$	7,284		$	6,013		$	7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	—		(310		)	(2,336		)	(310		)
Balance, end of period	$	3,677	$	6,974		$	3,677		$	6,974

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

The following table presents the total gross unrealized losses for the 1,134 and 1,535 fixed maturity and equity securities as of June 30, 2017 and December 31, 2016, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	June 30, 2017				December 31, 2016
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	150,762	84.2	%	$	337,831	90.1	%
20% or more for less than six months	7,593		4.2		19,438		5.2
20% or more for six months or greater	20,726		11.6		17,588		4.7
Total	$	179,081	100.0	%	$	374,857	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 1,134 and 1,535 fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, 2017 and December 31, 2016, 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.

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	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
June 30, 2017:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	2,895,605	$	46,389	$	399,546	$	23,252	$	3,295,151	$	69,641
Canadian and Canadian provincial governments	116,719		2,457		—		—		116,719		2,457
Residential mortgage-backed securities	471,933		6,872		100,785		1,918		572,718		8,790
Asset-backed securities	285,211		1,451		204,154		3,916		489,365		5,367
Commercial mortgage-backed securities	352,867		4,897		2,195		38		355,062		4,935
U.S. government and agencies	1,378,976		31,962		13,763		86		1,392,739		32,048
State and political subdivisions	125,465		5,098		13,558		3,118		139,023		8,216
Other foreign government, supranational and foreign government-sponsored enterprises	440,670		7,189		29,234		1,616		469,904		8,805
Total investment grade securities	6,067,446		106,315		763,235		33,944		6,830,681		140,259
Below investment grade securities:
Corporate securities	255,991		4,547		93,562		26,081		349,553		30,628
Canadian and Canadian provincial governments	1,247		3		—		—		1,247		3
Residential mortgage-backed securities	—		—		107		4		107		4
Asset-backed securities	—		—		7,295		557		7,295		557
Other foreign government, supranational and foreign government-sponsored enterprises	38,069		287		17,606		705		55,675		992
Total below investment grade securities	295,307		4,837		118,570		27,347		413,877		32,184
Total fixed maturity securities	$	6,362,753	$	111,152	$	881,805	$	61,291	$	7,244,558	$	172,443
Non-redeemable preferred stock	$	—	$	—	$	24,807	$	3,021	$	24,807	$	3,021
Other equity securities	64,990		3,617		—		—		64,990		3,617
Total equity securities	$	64,990	$	3,617	$	24,807	$	3,021	$	89,797	$	6,638



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2016:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	4,661,706	$	124,444	$	549,273	$	43,282	$	5,210,979	$	167,726
Canadian and Canadian provincial governments	101,578		3,541		—		—		101,578		3,541
Residential mortgage-backed securities	490,473		9,733		112,216		3,635		602,689		13,368
Asset-backed securities	563,259		12,010		257,166		9,653		820,425		21,663
Commercial mortgage-backed securities	368,465		6,858		10,853		166		379,318		7,024
U.S. government and agencies	1,056,101		63,044		—		—		1,056,101		63,044
State and political subdivisions	187,194		9,396		13,635		3,068		200,829		12,464
Other foreign government, supranational and foreign government-sponsored enterprises	524,236		13,372		51,097		2,981		575,333		16,353
Total investment grade securities	7,953,012		242,398		994,240		62,785		8,947,252		305,183
Below investment grade securities:
Corporate securities	330,757		7,914		163,152		41,605		493,909		49,519
Residential mortgage-backed securities	—		—		412		12		412		12
Asset-backed securities	5,904		700		12,581		1,465		18,485		2,165
Commercial mortgage-backed securities	5,815		735		—		—		5,815		735
Other foreign government, supranational and foreign government-sponsored enterprises	32,355		1,258		39,763		2,327		72,118		3,585
Total below investment grade securities	374,831		10,607		215,908		45,409		590,739		56,016
Total fixed maturity securities	$	8,327,843	$	253,005	$	1,210,148	$	108,194	$	9,537,991	$	361,199
Non-redeemable preferred stock	$	10,831	$	831	$	21,879	$	5,506	$	32,710	$	6,337
Other equity securities	202,068		7,020		6,751		301		208,819		7,321
Total equity securities	$	212,899	$	7,851	$	28,630	$	5,807	$	241,529	$	13,658

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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, 2017 are primarily related to high-yield corporate securities. Changes in unrealized losses are primarily being driven by changes in credit spreads and interest rates.

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,
	2017			2016			2017			2016
Fixed maturity securities available-for-sale	$	355,735		$	323,592		$	680,235		$	636,007
Mortgage loans on real estate	44,442			41,900			88,789			81,692
Policy loans	15,194			16,372			30,466			32,506
Funds withheld at interest	97,367			112,893			224,945			168,873
Short-term investments and cash and cash equivalents	1,779			2,322			3,289			4,513
Other invested assets	23,066			28,150			42,893			36,758
Investment income	537,583			525,229			1,070,617			960,349
Investment expense	(19,045		)	(17,563		)	(37,715		)	(35,417		)
Investment income, net of related expenses	$	518,538		$	507,666		$	1,032,902		$	924,932

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,
	2017			2016			2017			2016
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings	$	(3,401	)	$	(846	)	$	(20,590	)	$	(34,663	)
Gain on investment activity	54,220			53,615			72,113			80,807
Loss on investment activity	(10,471		)	(22,556		)	(23,034		)	(34,343		)
Other impairment losses and change in mortgage loan provision	(6,675		)	211			(6,774		)	(1,849		)
Derivatives and other, net	22,622			87,840			95,103			(12,574		)
Total investment related gains (losses), net	$	56,295		$	118,264		$	116,818		$	(2,622	)

The fixed maturity impairments for the three and six months ended June 30, 2017 and 2016 were largely related to high-yield energy and emerging market corporate securities. The other impairment losses and change in mortgage loan provision for the three and six months ended June 30, 2017 and 2016 were primarily due to impairments on limited partnerships. The fluctuations in investment related gains (losses) for derivatives and other for the three and six months ended June 30, 2017, compared to the same periods in 2016, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps.

During the three months ended June 30, 2017 and 2016, the Company sold fixed maturity and equity securities with fair values of $710.5 million and $343.3 million at losses of $10.5 million and $22.6 million, respectively. During the six months ended June 30, 2017 and 2016, the Company sold fixed maturity and equity securities with fair values of $1,286.7 million and $585.8 million at losses of $23.0 million and $34.3 million, respectively. The Company generally does not buy and sell securities on a short-term basis.

Securities Borrowing, Lending 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.

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The Company also participates in a securities lending program whereby securities, reflected as investments on the Company’s condensed consolidated balance sheets, are loaned to a third party. The Company receives securities as collateral, in an amount equal to a minimum of 105% of the fair value of the securities lent. The securities received are not reflected on the Company’s condensed consolidated balance sheets.

The Company also participates in repurchase/reverse repurchase programs in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to third parties. In return, the Company receives securities from the third parties 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 Company also participates in a 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 cash from the third party, which is reflected as a payable to the third party and included in other liabilities on the condensed consolidated balance sheets. The Company is required to maintain a minimum collateral balance with a fair value of 102% of the cash received.

The following table includes the amount of borrowed securities, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of June 30, 2017 and December 31, 2016 (dollars in thousands).



	June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	269,280	$	284,083	$	263,820	$	279,186
Securities lending:
Securities loaned	117,217		121,064		74,389		73,625
Securities received	n/a		109,000		n/a		80,000
Repurchase program/reverse repurchase program:
Securities pledged	486,700		509,579		476,531		499,891
Securities received	n/a		517,871		n/a		515,200

The Company also held cash collateral for securities lending and the repurchase program/reverse repurchase programs of $47.9 million and $28.8 million at June 30, 2017 and December 31, 2016, respectively.

The following table presents information on the Company’s securities lending and repurchase transactions as of June 30, 2017 and December 31, 2016 (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.



	June 30, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Securities lending transactions:
Corporate securities	$	—	$	—	$	—	$	121,064	$	121,064
Total	—		—		—		121,064		121,064
Repurchase transactions:
Corporate securities