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Table of Contents


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)
  
 
  
OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
 
  
For the quarterly period ended March 31, 2018
  
 
 
  
 
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 April 30, 2018, 64,523,063 shares of the registrant’s common stock were outstanding.

Table of Contents


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
 
Item
  
 
  
Page
 
 
 
 
  
PART I – FINANCIAL INFORMATION
  
 
 
 
 
1
  
  
 
 
  
  
 
  
  
 
  
  
 
  
  
 
  
  
 
 
 
 
 
 
 
 
     3. Equity
 
 
 
     4. Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     9. Income Tax
 
 
 
 
 
 
     11. Reinsurance
 
 
 
 
2
  
  
3
  
  
4
  
  
 
 
 
 
  
PART II – OTHER INFORMATION
  
 
 
 
 
1
  
  
1A
  
  
2
  
  
6
  
  
 
  
  
 
  
  

2
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PART I - FINANCIAL INFORMATION


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
March 31,
2018
 
December 31,
2017
 
 
(Dollars in thousands, except share data)
 
Assets
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost $35,913,705 and $35,281,412)
 
$
37,945,260

 
$
38,150,820

Equity securities, at fair value (cost $110,747 and $102,841)
 
103,983

 
100,152

Mortgage loans on real estate (net of allowances of $8,864 and $9,384)
 
4,437,994

 
4,400,533

Policy loans
 
1,346,930

 
1,357,624

Funds withheld at interest
 
6,005,892

 
6,083,388

Short-term investments
 
130,430

 
93,304

Other invested assets
 
1,512,147

 
1,505,332

Total investments
 
51,482,636

 
51,691,153

Cash and cash equivalents
 
1,510,407

 
1,303,524

Accrued investment income
 
408,338

 
392,721

Premiums receivable and other reinsurance balances
 
2,620,515

 
2,338,481

Reinsurance ceded receivables
 
810,554

 
782,027

Deferred policy acquisition costs
 
3,245,851

 
3,239,824

Other assets
 
876,522

 
767,088

Total assets
 
$
60,954,823

 
$
60,514,818

Liabilities and Stockholders’ Equity
 
 
 
 
Future policy benefits
 
$
22,645,243

 
$
22,363,241

Interest-sensitive contract liabilities
 
16,661,602

 
16,227,642

Other policy claims and benefits
 
5,361,149

 
4,992,074

Other reinsurance balances
 
483,708

 
488,739

Deferred income taxes
 
2,085,631

 
2,198,309

Other liabilities
 
1,167,596

 
1,102,975

Long-term debt
 
2,788,240

 
2,788,365

Collateral finance and securitization notes
 
753,393

 
783,938

Total liabilities
 
51,946,562

 
50,945,283

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 March 31, 2018 and December 31, 2017
 
791

 
791

Additional paid-in-capital
 
1,880,352

 
1,870,906

Retained earnings
 
6,797,545

 
6,736,265

Treasury stock, at cost - 14,624,985 and 14,685,663 shares
 
(1,098,823
)
 
(1,102,058
)
Accumulated other comprehensive income
 
1,428,396

 
2,063,631

Total stockholders’ equity
 
9,008,261

 
9,569,535

Total liabilities and stockholders’ equity
 
$
60,954,823

 
$
60,514,818

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

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Table of Contents


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2018
 
2017
Revenues:
 
(Dollars in thousands, except per share data)
Net premiums
 
$
2,582,551

 
$
2,365,696

Investment income, net of related expenses
 
516,329

 
514,364

Investment related gains (losses), net:
 
 
 
 
Other-than-temporary impairments on fixed maturity securities
 
—

 
(17,189
)
Other investment related gains (losses), net
 
(470
)
 
77,712

Total investment related gains (losses), net
 
(470
)
 
60,523

Other revenues
 
75,297

 
68,157

Total revenues
 
3,173,707

 
3,008,740

Benefits and Expenses:
 
 
 
 
Claims and other policy benefits
 
2,362,101

 
2,106,145

Interest credited
 
80,449

 
107,684

Policy acquisition costs and other insurance expenses
 
356,902

 
379,389

Other operating expenses
 
191,274

 
158,506

Interest expense
 
37,454

 
42,402

Collateral finance and securitization expense
 
7,602

 
6,770

Total benefits and expenses
 
3,035,782

 
2,800,896

 Income before income taxes
 
137,925

 
207,844

Provision for income taxes
 
37,695

 
62,332

Net income
 
$
100,230

 
$
145,512

Earnings per share:
 
 
 
 
Basic earnings per share
 
$
1.55

 
$
2.26

Diluted earnings per share
 
$
1.52

 
$
2.22

Dividends declared per share
 
$
0.50

 
$
0.41

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 March 31,
 
 
2018
 
2017
Comprehensive income (loss)
 
(Dollars in thousands)
Net income
 
$
100,230

 
$
145,512

Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustments
 
(1,160
)
 
(22,213
)
Net unrealized investment gains (losses)
 
(633,604
)
 
203,115

Defined benefit pension and postretirement plan adjustments
 
(471
)
 
924

Total other comprehensive income (loss), net of tax
 
(635,235
)
 
181,826

Total comprehensive income (loss)
 
$
(535,005
)
 
$
327,338

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)
 
 
Three months ended March 31,
 
 
2018
 
2017
 
 
 (Dollars in thousands)
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
100,230

 
$
145,512

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Change in operating assets and liabilities:
 
 
 
 
Accrued investment income
 
(10,484
)
 
(10,501
)
Premiums receivable and other reinsurance balances
 
(275,354
)
 
(54,845
)
Deferred policy acquisition costs
 
13,007

 
58,962

Reinsurance ceded receivable balances
 
(21,872
)
 
(81,046
)
Future policy benefits, other policy claims and benefits, and other reinsurance balances
 
466,983

 
396,459

Deferred income taxes
 
33,715

 
50,110

Other assets and other liabilities, net
 
(41,385
)
 
(11,101
)
Amortization of net investment premiums, discounts and other
 
(31,032
)
 
(23,471
)
Depreciation and amortization expense
 
10,294

 
6,845

Investment related (gains) losses, net
 
470

 
(60,523
)
Other, net
 
(20,823
)
 
964

Net cash provided by operating activities
 
223,749

 
417,365

Cash Flows from Investing Activities:
 
 
 
 
Sales of fixed maturity securities available-for-sale
 
1,898,722

 
1,563,956

Maturities of fixed maturity securities available-for-sale
 
195,549

 
201,515

Sales of equity securities
 
29,683

 
152,509

Principal payments on mortgage loans on real estate
 
102,002

 
88,835

Principal payments on policy loans
 
10,694

 
24,663

Purchases of fixed maturity securities available-for-sale
 
(1,969,899
)
 
(1,933,120
)
Purchases of equity securities
 
(2,173
)
 
(14,646
)
Cash invested in mortgage loans on real estate
 
(141,131
)
 
(184,575
)
Cash invested in funds withheld at interest, net
 
19,638

 
(2,753
)
Purchase of businesses, net of cash acquired of $1,733
 
(24,864
)
 
—

Purchases of property and equipment
 
(5,292
)
 
(16,893
)
Change in short-term investments
 
(13,026
)
 
23,668

Change in other invested assets
 
(23,353
)
 
(14,126
)
Net cash provided by (used in) investing activities
 
76,550

 
(110,967
)
Cash Flows from Financing Activities:
 
 
 
 
Dividends to stockholders
 
(32,241
)
 
(26,381
)
Repayment of collateral finance and securitization notes
 
(27,104
)
 
(16,908
)
Principal payments of long-term debt
 
(662
)
 
(300,636
)
Purchases of treasury stock
 
(2,616
)
 
(3,067
)
Exercise of stock options, net
 
1,163

 
1,719

Change in cash collateral for derivative positions and other arrangements
 
19,537

 
(3,628
)
Deposits on universal life and other investment type policies and contracts
 
83,004

 
202,850

Withdrawals on universal life and other investment type policies and contracts
 
(156,486
)
 
(201,784
)
Net cash used in financing activities
 
(115,405
)
 
(347,835
)
Effect of exchange rate changes on cash
 
21,989

 
18,833

Change in cash and cash equivalents
 
206,883

 
(22,604
)
Cash and cash equivalents, beginning of period
 
1,303,524

 
1,200,718

Cash and cash equivalents, end of period
 
$
1,510,407

 
$
1,178,114

Supplemental disclosures of cash flow information:
 
 
 
 
Interest paid
 
$
39,284

 
$
46,401

Income taxes paid, net of refunds
 
$
6,356

 
$
12,132

Non-cash transactions:
 
 
 
 
Transfer of invested assets
 
$
605,085

 
$
1,653

Purchase of businesses:
 
 
 
 
Assets acquired, excluding cash acquired
 
$
59,184

 
$
—

Liabilities assumed
 
(34,320
)
 
—

Net cash paid on purchase
 
$
24,864

 
$
—

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

6
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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 (“GAAP”) 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 GAAP 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 three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2018 (the “2017 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 March 31,
 
2018
 
2017
Earnings:
 
 
 
Net income (numerator for basic and diluted calculations)
$
100,230

 
$
145,512

Shares:
 
 
 
Weighted average outstanding shares (denominator for basic calculation)
64,490

 
64,353

Equivalent shares from outstanding stock options
1,382

 
1,318

Denominator for diluted calculation
65,872

 
65,671

Earnings per share:
 
 
 
Basic
$
1.55

 
$
2.26

Diluted
$
1.52

 
$
2.22

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 March 31, 2018, approximately 0.2 million stock options and approximately 0.2 million performance contingent shares were excluded from the calculation. For the three months ended March 31, 2017, approximately 0.2 million stock options and approximately 0.5 million performance contingent shares were excluded from the calculation.

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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, 2017
 
79,137,758

 
14,685,663

 
64,452,095

Stock-based compensation (1)
 
—

 
(60,678
)
 
60,678

Balance, March 31, 2018
 
79,137,758

 
14,624,985

 
64,512,773

 
 
Issued
 
Held In Treasury
 
Outstanding
Balance, December 31, 2016
 
79,137,758

 
14,835,256

 
64,302,502

Stock-based compensation (1)
 
—

 
(86,049
)
 
86,049

Balance, March 31, 2017
 
79,137,758

 
14,749,207

 
64,388,551

(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. During the three months ended March 31, 2018 and 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 three months ended March 31, 2018 and 2017 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, 2017
 
$
(86,350
)
 
$
2,200,661

 
$
(50,680
)
 
$
2,063,631

Other comprehensive income (loss) before reclassifications
 
5,696

 
(827,701
)
 
(1,910
)
 
(823,915
)
Amounts reclassified to AOCI
 
—

 
21,274

 
1,346

 
22,620

Deferred income tax benefit (expense)
 
(6,856
)
 
172,823

 
93

 
166,060

Balance, March 31, 2018
 
$
(87,510
)
 
$
1,567,057

 
$
(51,151
)
 
$
1,428,396

 
 
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, 2016
 
$
(172,541
)
 
$
1,355,033

 
$
(43,163
)
 
$
1,139,329

Other comprehensive income (loss) before reclassifications
 
(50,735
)
 
283,443

 
(27
)
 
232,681

Amounts reclassified to AOCI
 
—

 
5,762

 
1,456

 
7,218

Deferred income tax benefit (expense)
 
28,522

 
(86,090
)
 
(505
)
 
(58,073
)
Balance, March 31, 2017
 
$
(194,754
)
 
$
1,558,148

 
$
(42,239
)
 
$
1,321,155

(1)
Includes cash flow hedges of $20,662 and $2,619 as of March 31, 2018 and December 31, 2017, respectively, and $7,690 and $(2,496) as of March 31, 2017 and December 31, 2016, 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 months ended March 31, 2018 and 2017 (dollars in thousands):
 
 
Amount Reclassified from AOCI
 
 
 
 
Three months ended March 31,
 
 
Details about AOCI Components
 
2018
 
2017
 
Affected Line Item in 
Statement of Income
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
$
(14,456
)
 
$
(11,857
)
 
Investment related gains (losses), net
Cash flow hedges - Interest rate
 
(370
)
 
—

 
(1)
Cash flow hedges - Currency/Interest rate
 
144

 
197

 
(1)
Cash flow hedges - Forward bond purchase commitments
 
—

 
50

 
(1)
Deferred policy acquisition costs attributed to unrealized gains and losses
 
(6,592
)
 
5,848

 
(2)
Total
 
(21,274
)
 
(5,762
)
 
 
Provision for income taxes
 
4,678

 
3,194

 
 
Net unrealized gains (losses), net of tax
 
$
(16,596
)
 
$
(2,568
)
 
 
Amortization of defined benefit plan items:
 
 
 
 
 
 
Prior service cost (credit)
 
$
246

 
$
82

 
(3)
Actuarial gains/(losses)
 
(1,592
)
 
(1,538
)
 
(3)
Total
 
(1,346
)
 
(1,456
)
 
 
Provision for income taxes
 
283

 
510

 
 
Amortization of defined benefit plans, net of tax
 
$
(1,063
)
 
$
(946
)
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(17,659
)
 
$
(3,514
)
 
 
(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 2017 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 $9.7 million and $9.6 million for the three months ended March 31, 2018 and 2017, respectively. In the first quarter of 2018, the Company granted 0.2 million stock appreciation rights at $150.87 weighted average exercise price per share and 0.1 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 7,263 shares of common stock. As of March 31, 2018, 1.7 million share options at a weighted average strike price per share of $68.51 were vested and exercisable, with a remaining weighted average exercise period of 4.9 years.

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4.
Investments
Fixed Maturity and Equity Securities Available-for-Sale
The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”).
The following table provides information relating to investments in fixed maturity securities by sector as of March 31, 2018 (dollars in thousands):
March 31, 2018:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
22,890,985

 
$
869,867

 
$
240,383

 
$
23,520,469

 
61.9
%
 
$
—

Canadian government
 
2,803,077

 
1,297,817

 
3,040

 
4,097,854

 
10.8

 
—

RMBS
 
1,791,007

 
23,640

 
27,499

 
1,787,148

 
4.7

 
—

ABS
 
1,727,810

 
16,383

 
9,471

 
1,734,722

 
4.6

 
275

CMBS
 
1,281,452

 
12,717

 
12,236

 
1,281,933

 
3.4

 
—

U.S. government
 
1,486,262

 
9,266

 
59,414

 
1,436,114

 
3.8

 
—

State and political subdivisions
 
672,064

 
49,465

 
8,016

 
713,513

 
1.9

 
—

Other foreign government
 
3,261,048

 
133,865

 
21,406

 
3,373,507

 
8.9

 
—

Total fixed maturity securities
 
$
35,913,705

 
$
2,413,020

 
$
381,465

 
$
37,945,260

 
100.0
%
 
$
275

 
The following table provides information relating to investments in fixed maturity and equity securities by sector as of December 31, 2017 (dollars in thousands):
December 31, 2017:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
21,966,803

 
$
1,299,594

 
$
55,429

 
$
23,210,968

 
60.9
%
 
$
—

Canadian government
 
2,843,273

 
1,378,510

 
1,707

 
4,220,076

 
11.1

 
—

RMBS
 
1,695,126

 
36,632

 
11,878

 
1,719,880

 
4.5

 
—

ABS
 
1,634,758

 
18,798

 
5,194

 
1,648,362

 
4.3

 
275

CMBS
 
1,285,594

 
22,627

 
4,834

 
1,303,387

 
3.4

 
—

U.S. government
 
1,953,436

 
12,089

 
21,933

 
1,943,592

 
5.1

 
—

State and political subdivisions
 
647,727

 
59,997

 
4,296

 
703,428

 
1.8

 
—

Other foreign government
 
3,254,695

 
154,507

 
8,075

 
3,401,127

 
8.9

 
—

Total fixed maturity securities
 
$
35,281,412

 
$
2,982,754

 
$
113,346

 
$
38,150,820

 
100.0
%
 
$
275

Non-redeemable preferred stock
 
$
41,553

 
$
479

 
$
2,226

 
$
39,806

 
39.7
%
 
 
Other equity securities
 
61,288

 
479

 
1,421

 
60,346

 
60.3

 
 
Total equity securities
 
$
102,841

 
$
958

 
$
3,647

 
$
100,152

 
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 March 31, 2018 and December 31, 2017, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and 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 March 31, 2018 and December 31, 2017 (dollars in thousands):

10
Table of Contents


 
March 31, 2018
 
December 31, 2017
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities pledged as collateral
$
72,850

 
$
75,384

 
$
72,542

 
$
75,622

Fixed maturity securities received as collateral
n/a

 
614,423

 
n/a

 
590,417

Assets in trust held to satisfy collateral requirements
16,316,662

 
17,076,547

 
15,584,296

 
16,715,281

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 March 31, 2018 and December 31, 2017 (dollars in thousands).
 
March 31, 2018
 
December 31, 2017
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities guaranteed or issued by:
 
 
 
 
 
 
 
Canadian province of Quebec
$
1,106,753

 
$
1,863,568

 
$
1,119,337

 
$
1,917,996

Canadian province of Ontario
928,384

 
1,247,158

 
939,837

 
1,282,944

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at March 31, 2018 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
 
$
900,166

 
$
905,385

Due after one year through five years
 
7,939,821

 
8,084,053

Due after five years through ten years
 
9,533,025

 
9,779,934

Due after ten years
 
12,740,424

 
14,372,085

Asset and mortgage-backed securities
 
4,800,269

 
4,803,803

Total
 
$
35,913,705

 
$
37,945,260

Corporate Fixed Maturity Securities
The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of March 31, 2018 and December 31, 2017 (dollars in thousands): 
March 31, 2018:
 
 
 
Estimated
 
 
 
 
Amortized Cost    
 
Fair Value
 
% of Total           
Finance
 
$
8,250,681

 
$
8,407,037

 
35.8
%
Industrial
 
12,093,034

 
12,437,180

 
52.8

Utility
 
2,547,270

 
2,676,252

 
11.4

Total
 
$
22,890,985

 
$
23,520,469

 
100.0
%
 
 
 
 
 
 
 
December 31, 2017:
 
 
 
Estimated
 
 
 
 
Amortized Cost
 
Fair Value
 
% of Total
Finance
 
$
7,977,885

 
$
8,362,774

 
36.1
%
Industrial
 
11,535,166

 
12,199,333

 
52.5

Utility
 
2,453,752

 
2,648,861

 
11.4

Total
 
$
21,966,803

 
$
23,210,968

 
100.0
%

11
Table of Contents


Other-Than-Temporary Impairments - Fixed Maturity Securities
As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2017 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 March 31,
 
 
2018
 
2017
Balance, beginning of period
 
$
3,677

 
$
6,013

Credit loss OTTI previously recognized on securities impaired to fair value during the period
 
—

 
(2,336
)
Balance, end of period
 
$
3,677

 
$
3,677

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale
The following table presents the total gross unrealized losses for the 2,114 fixed maturity securities as of March 31, 2018, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
 
 
March 31, 2018
 
 
Gross
Unrealized
Losses
 
% of Total    
Less than 20%
 
$
358,873

 
94.1
%
20% or more for less than six months
 
20,232

 
5.3

20% or more for six months or greater
 
2,360

 
0.6

Total
 
$
381,465

 
100.0
%
The following table presents the total gross unrealized losses for the 1,116 fixed maturity and equity securities at December 31, 2017 where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
 
 
December 31, 2017
 
 
Gross
Unrealized
Losses
 
% of Total    
Less than 20%
 
$
113,466

 
97.0
%
20% or more for less than six months
 
689

 
0.6

20% or more for six months or greater
 
2,838

 
2.4

Total
 
$
116,993

 
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.
The following table presents the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 2,114 fixed maturity securities that have estimated fair values below amortized cost as of March 31, 2018 (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.
 

12
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Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
March 31, 2018:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
7,282,079

 
$
155,541

 
$
883,699

 
$
46,908

 
$
8,165,778

 
$
202,449

Canadian government
 
39,192

 
390

 
109,552

 
2,536

 
148,744

 
2,926

RMBS
 
897,255

 
19,899

 
225,288

 
7,575

 
1,122,543

 
27,474

ABS
 
612,053

 
7,001

 
114,605

 
2,423

 
726,658

 
9,424

CMBS
 
538,464

 
8,026

 
103,447

 
4,210

 
641,911

 
12,236

U.S. government
 
488,095

 
16,856

 
744,844

 
42,558

 
1,232,939

 
59,414

State and political subdivisions
 
135,158

 
3,331

 
67,949

 
4,685

 
203,107

 
8,016

Other foreign government
 
746,485

 
15,575

 
191,446

 
5,000

 
937,931

 
20,575

Total investment grade securities
 
10,738,781

 
226,619

 
2,440,830

 
115,895

 
13,179,611

 
342,514

 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
452,086

 
29,597

 
46,976

 
8,337

 
499,062

 
37,934

Canadian government
 
1,900

 
114

 
—

 
—

 
1,900

 
114

RMBS
 
—

 
—

 
1,272

 
25

 
1,272

 
25

ABS
 
—

 
—

 
1,173

 
47

 
1,173

 
47

Other foreign government
 
57,385

 
662

 
12,045

 
169

 
69,430

 
831

Total below investment grade securities
 
511,371

 
30,373

 
61,466

 
8,578

 
572,837

 
38,951

Total fixed maturity securities
 
$
11,250,152

 
$
256,992

 
$
2,502,296

 
$
124,473

 
$
13,752,448

 
$
381,465

The following table presents the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,116 fixed maturity and equity securities that have estimated fair values below amortized cost as of December 31, 2017 (dollars in thousands):
 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
December 31, 2017:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
1,886,212

 
$
17,099

 
$
1,009,750

 
$
28,080

 
$
2,895,962

 
$
45,179

Canadian government
 
18,688

 
91

 
111,560

 
1,596

 
130,248

 
1,687

RMBS
 
566,699

 
5,852

 
224,439

 
6,004

 
791,138

 
11,856

ABS
 
434,274

 
2,707

 
168,524

 
2,434

 
602,798

 
5,141

CMBS
 
220,401

 
1,914

 
103,269

 
2,920

 
323,670

 
4,834

U.S. government
 
800,298

 
6,177

 
767,197

 
15,756

 
1,567,495

 
21,933

State and political subdivisions
 
43,510

 
242

 
68,666

 
4,054

 
112,176

 
4,296

Other foreign government
 
369,717

 
2,707

 
191,265

 
4,704

 
560,982

 
7,411

Total investment grade securities
 
4,339,799

 
36,789

 
2,644,670

 
65,548

 
6,984,469

 
102,337

Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
194,879

 
3,317

 
75,731

 
6,933

 
270,610

 
10,250

Canadian government
 
1,995

 
20

 
—

 
—

 
1,995

 
20

RMBS
 
—

 
—

 
1,369

 
22

 
1,369

 
22

ABS
 
—

 
—

 
1,489

 
53

 
1,489

 
53

Other foreign government
 
28,600

 
113

 
15,134

 
551

 
43,734

 
664

Total below investment grade securities
 
225,474

 
3,450

 
93,723

 
7,559

 
319,197

 
11,009

Total fixed maturity securities
 
$
4,565,273

 
$
40,239

 
$
2,738,393


$
73,107

 
$
7,303,666

 
$
113,346

Non-redeemable preferred stock
 
$
82

 
$
1

 
$
26,471

 
$
2,225

 
$
26,553

 
$
2,226

Other equity securities
 
5,820

 
1,023

 
47,251

 
398

 
53,071

 
1,421

Total equity securities
 
$
5,902

 
$
1,024

 
$
73,722

 
$
2,623

 
$
79,624

 
$
3,647



13
Table of Contents


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 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 March 31, 2018 are primarily related to high-yield corporate securities. Changes in unrealized losses are primarily being driven by changes in 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 March 31,
 
2018
 
2017
Fixed maturity securities available-for-sale
$
369,203

 
$
324,500

Equity securities
1,682

 
1,359

Mortgage loans on real estate
50,199

 
44,347

Policy loans
14,780

 
15,272

Funds withheld at interest
75,445

 
127,578

Short-term investments and cash and cash equivalents
3,245

 
1,510

Other
23,828

 
18,468

Investment income
538,382

 
533,034

Investment expense
(22,053
)
 
(18,670
)
Investment income, net of related expenses
$
516,329

 
$
514,364

Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in thousands): 
 
Three months ended March 31,
 
2018
 
2017
Fixed maturity securities available for sale:
 
 
 
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings
$
—

 
$
(17,189
)
Gain on investment activity
10,966

 
17,893

Loss on investment activity
(20,380
)
 
(8,687
)
Equity securities:
 
 
 
Gain on investment activity
28

 
—

Loss on investment activity
(950
)
 
(3,876
)
Change in unrealized gains (losses) recognized in earnings
(4,137
)
 
—

Other impairment losses and change in mortgage loan provision
(312
)
 
(99
)
Derivatives and other, net
14,315

 
72,481

Total investment related gains (losses), net
$
(470
)
 
$
60,523

There were no fixed maturity impairments for the three months ended March 31, 2018. The fixed maturity impairments for the three months ended March 31, 2017 were largely related to high-yield corporate securities. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2018 were primarily due to impairments on real estate joint ventures offset by a release of the mortgage loan valuation allowance. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2017 were primarily due to an increase in the mortgage loan valuation allowance. The fluctuations in investment related gains (losses) for derivatives and other for the three months ended March 31, 2018, compared to the same period in 2017, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps.
During the three months ended March 31, 2018 and 2017, the Company sold fixed maturity securities with fair values of $1,263.6 million and $428.6 million at losses of $20.4 million and $8.7 million, respectively. During the three months ended March 31, 2018 and 2017, the Company sold equity securities with fair values of $28.4 million and $147.6 million at losses of $1.0 million and $3.9 million, respectively. The Company generally does not buy and sell securities on a short-term basis.


14
Table of Contents


Securities Borrowing, Lending and Other
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 March 31, 2018 and December 31, 2017 (dollars in thousands).
 
March 31, 2018
 
December 31, 2017
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Borrowed securities
$
353,875

 
$
370,760

 
$
358,875

 
$
377,820

Securities lending:
 
 
 
 
 
 
 
Securities loaned
117,449

 
118,617

 
117,246

 
121,551

Securities received
n/a

 
128,000

 
n/a

 
128,000

Repurchase program/reverse repurchase program:
 
 
 
 
 
 
 
Securities pledged
403,135

 
411,988

 
413,819

 
428,344

Securities received
n/a

 
404,871

 
n/a

 
417,550

The Company also held cash collateral for repurchase program/reverse repurchase programs of $30.7 million and $31.2 million at March 31, 2018 and December 31, 2017, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of March 31, 2018 and December 31, 2017.
The following table presents information on the Company’s securities lending and repurchase transactions as of March 31, 2018 and December 31, 2017 (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.
 
March 31, 2018
 
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
$
—

 
$
—

 
$
—

 
$
118,617

 
$
118,617

Total
$
—

 
$
—

 
$
—

 
$
118,617

 
$
118,617

Repurchase transactions:
 
 
 
 
 
 
 
 
 
Corporate
$
—

 
$
—

 
$
—

 
$
171,678

 
$
171,678

RMBS
—

 
—

 
—

 
—

 
—

U.S. government
—

 
—

 
—

 
219,509

 
219,509

Foreign government
—

 
—

 
—

 
19,670

 
19,670

Other
1,131

 
—

 
—

 
—

 
1,131

Total
1,131

 
—

 
—

 
410,857

 
411,988

Total borrowings
$
1,131

 
$
—

 
$
—

 
$
529,474

 
$
530,605

 
 
 
 
 
 
 
 
 
 
Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table
 
$
563,587

Amounts related to agreements not included in offsetting disclosure
 
$
32,982


15
Table of Contents


 
December 31, 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
$
—

 
$
—

 
$
—

 
$
121,551

 
$
121,551

Total
$
—

 
$
—

 
$
—

 
$
121,551

 
$
121,551

Repurchase transactions:
 
 
 
 
 
 
 
 
 
Corporate
$
—

 
$
—

 
$
312

 
$
184,334

 
$
184,646

RMBS
—

 
—

 
—

 
—

 
—

U.S. government
—

 
—

 
—

 
220,765

 
220,765

Foreign government
—

 
—

 
—

 
21,802

 
21,802

Other
1,131

 
—

 
—

 
—

 
1,131

Total
1,131

 
—

 
312

 
426,901

 
428,344

Total borrowings
$
1,131

 
$
—

 
$
312

 
$
548,452

 
$
549,895

 
 
 
 
 
 
 
 
 

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table
 
$
576,786

Amounts related to agreements not included in offsetting disclosure
 
$
26,891

The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the condensed consolidated balance sheets was a liability of $0.4 million and $1.1 million as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018 and December 31, 2017, the Company recognized payables resulting from cash received as collateral associated with a repurchase agreement, as discussed above. Amounts owed to and due from the counterparties may be settled in cash or offset, in accordance with the agreements.
Mortgage Loans on Real Estate
Mortgage loans represented approximately 8.6% and 8.5% of the Company’s total investments as of March 31, 2018 and December 31, 2017. As of March 31, 2018, mortgage loans were geographically dispersed throughout the U.S. with the largest concentrations in California (19.6%), Texas (8.6%) and Georgia (7.5%) and include loans secured by properties in Canada (2.4%). The recorded investment in mortgage loans on real estate presented below is gross of unamortized deferred loan origination fees and expenses, and valuation allowances.
The distribution of mortgage loans by property type is as follows as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
March 31, 2018
 
December 31, 2017
 Property type:
 
Carrying Value
 
% of Total
 
Carrying Value
 
% of Total
Office building
 
$
1,518,170

 
34.1
%
 
$
1,487,392

 
33.6
%
Retail
 
1,236,933

 
27.8

 
1,270,676

 
28.8

Industrial
 
964,685

 
21.7

 
938,612

 
21.3

Apartment
 
497,699

 
11.2

 
510,052

 
11.6

Other commercial
 
232,804

 
5.2

 
206,439

 
4.7

Recorded investment
 
4,450,291

 
100.0
%
 
$
4,413,171

 
100.0
%
Unamortized balance of loan origination fees and expenses
 
(3,433
)
 
 
 
(3,254
)
 
 
Valuation allowances
 
(8,864
)
 
 
 
(9,384
)
 
 
Total mortgage loans on real estate
 
$
4,437,994

 
 
 
$
4,400,533

 
 

16
Table of Contents


The maturities of the mortgage loans as of March 31, 2018 and December 31, 2017 are as follows (dollars in thousands):
 
 
 
March 31, 2018
 
December 31, 2017
 
 
Recorded
Investment
 
% of Total
 
Recorded
Investment
 
% of Total
Due within five years
 
$
1,130,108

 
25.4
%
 
$
1,091,066

 
24.8
%
Due after five years through ten years
 
2,492,588

 
56.0

 
2,516,872

 
57.0

Due after ten years
 
827,595

 
18.6

 
805,233

 
18.2

Total
 
$
4,450,291

 
100.0
%