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, 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 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, 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.

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 Act). Yes o No x

As of July 31, 2018, 63,656,444 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, 2018 and December 31, 2017	3
	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2018 and 2017	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2018 and 2017	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	39
	8. Commitments, Contingencies and Guarantees	41
	9. Income Tax	42
	10. Employee Benefit Plans	43
	11. Reinsurance	43
	12. New Accounting Standards	44
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
3	Quantitative and Qualitative Disclosures About Market Risk	79
4	Controls and Procedures	80

	PART II – OTHER INFORMATION

1	Legal Proceedings	81
1A	Risk Factors	81
2	Unregistered Sales of Equity Securities and Use of Proceeds	81
6	Exhibits	81
	Signatures	83
	Index to Exhibits	82

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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, 2018			December 31, 2017
	(Dollars in thousands, except share data)
Assets
Fixed maturity securities available-for-sale, at fair value (amortized cost $35,233,970 and $35,281,412)	$	36,784,954		$	38,150,820
Equity securities, at fair value (cost $121,744 and $102,841)	108,070			100,152
Mortgage loans on real estate (net of allowances of $9,706 and $9,384)	4,558,669			4,400,533
Policy loans	1,339,252			1,357,624
Funds withheld at interest	5,981,092			6,083,388
Short-term investments	123,028			93,304
Other invested assets	1,605,562			1,505,332
Total investments	50,500,627			51,691,153
Cash and cash equivalents	1,397,679			1,303,524
Accrued investment income	400,160			392,721
Premiums receivable and other reinsurance balances	2,617,382			2,338,481
Reinsurance ceded receivables	789,429			782,027
Deferred policy acquisition costs	3,205,667			3,239,824
Other assets	855,553			767,088
Total assets	$	59,766,497		$	60,514,818
Liabilities and Stockholders’ Equity
Future policy benefits	$	22,286,622		$	22,363,241
Interest-sensitive contract liabilities	16,513,668			16,227,642
Other policy claims and benefits	5,334,210			4,992,074
Other reinsurance balances	412,846			488,739
Deferred income taxes	2,009,514			2,198,309
Other liabilities	1,094,826			1,102,975
Long-term debt	2,788,111			2,788,365
Collateral finance and securitization notes	724,998			783,938
Total liabilities	51,164,795			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 June 30, 2018 and December 31, 2017	791			791
Additional paid-in capital	1,887,336			1,870,906
Retained earnings	6,952,170			6,736,265
Treasury stock, at cost - 15,465,272 and 14,685,663 shares	(1,243,566		)	(1,102,058		)
Accumulated other comprehensive income	1,004,971			2,063,631
Total stockholders’ equity	8,601,702			9,569,535
Total liabilities and stockholders’ equity	$	59,766,497		$	60,514,818

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,
	2018			2017			2018			2017
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,594,460		$	2,480,451		$	5,177,011		$	4,846,147
Investment income, net of related expenses	528,061			518,538			1,044,390			1,032,902
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(3,350		)	(3,401		)	(3,350		)	(20,590		)
Other investment related gains (losses), net	(7,222		)	59,696			(7,692		)	137,408
Total investment related gains (losses), net	(10,572		)	56,295			(11,042		)	116,818
Other revenues	83,959			73,992			159,256			142,149
Total revenues	3,195,908			3,129,276			6,369,615			6,138,016
Benefits and Expenses:
Claims and other policy benefits	2,279,593			2,164,363			4,641,694			4,270,508
Interest credited	109,327			115,285			189,776			222,969
Policy acquisition costs and other insurance expenses	320,276			319,832			677,178			699,221
Other operating expenses	194,959			154,356			386,233			312,862
Interest expense	37,025			29,352			74,479			71,754
Collateral finance and securitization expense	7,440			6,773			15,042			13,543
Total benefits and expenses	2,948,620			2,789,961			5,984,402			5,590,857
Income before income taxes	247,288			339,315			385,213			547,159
Provision for income taxes	42,914			107,125			80,609			169,457
Net income	$	204,374		$	232,190		$	304,604		$	377,702
Earnings per share:
Basic earnings per share	$	3.19		$	3.60		$	4.74		$	5.86
Diluted earnings per share	$	3.13		$	3.54		$	4.65		$	5.76
Dividends declared per share	$	0.50		$	0.41		$	1.00		$	0.82

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,
	2018			2017		2018			2017
Comprehensive income (loss)	(Dollars in thousands)
Net income	$	204,374		$	232,190	$	304,604		$	377,702
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(54,677		)	43,565		(55,837		)	21,352
Net unrealized investment gains (losses)	(368,719		)	306,329		(1,002,323		)	509,444
Defined benefit pension and postretirement plan adjustments	(29		)	849		(500		)	1,773
Total other comprehensive income (loss), net of tax	(423,425		)	350,743		(1,058,660		)	532,569
Total comprehensive income (loss)	$	(219,051	)	$	582,933	$	(754,056	)	$	910,271

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,
	2018			2017
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	304,604		$	377,702
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	1,834			(34,676		)
Premiums receivable and other reinsurance balances	(345,253		)	(230,650		)
Deferred policy acquisition costs	20,528			35,870
Reinsurance ceded receivable balances	18,245			(127,995		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	598,015			745,799
Deferred income taxes	48,117			142,044
Other assets and other liabilities, net	(98,807		)	(63,811		)
Amortization of net investment premiums, discounts and other	(25,713		)	(47,563		)
Depreciation and amortization expense	21,554			13,869
Investment related (gains) losses, net	11,042			(116,818		)
Other, net	29,422			(37,797		)
Net cash provided by operating activities	583,588			655,974
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	3,836,575			4,288,713
Maturities of fixed maturity securities available-for-sale	328,097			313,530
Sales of equity securities	29,099			166,916
Principal payments and sales of mortgage loans on real estate	213,691			135,450
Principal payments on policy loans	24,793			26,658
Purchases of fixed maturity securities available-for-sale	(3,880,733		)	(5,311,818		)
Purchases of equity securities	(11,930		)	(32,299		)
Cash invested in mortgage loans on real estate	(376,470		)	(463,063		)
Cash invested in policy loans	(6,421		)	(5,830		)
Cash invested in funds withheld at interest	(42,761		)	(6,910		)
Purchase of businesses, net of cash acquired of $4,938	(29,315		)	—
Purchases of property and equipment	(14,573		)	31,686
Change in short-term investments	(9,843		)	22,671
Change in other invested assets	(160,824		)	(55,379		)
Net cash used in investing activities	(100,615		)	(889,675		)
Cash Flows from Financing Activities:
Dividends to stockholders	(64,370		)	(52,815		)
Repayment of collateral finance and securitization notes	(53,102		)	(23,761		)
Principal payments of long-term debt	(1,331		)	(301,278		)
Purchases of treasury stock	(165,069		)	(10,578		)
Exercise of stock options, net	1,252			2,527
Change in cash collateral for derivative positions and other arrangements	17,578			(7,046		)
Deposits on universal life and other investment type policies and contracts	225,876			917,675
Withdrawals on universal life and other investment type policies and contracts	(329,899		)	(402,528		)
Net cash (used in) provided by financing activities	(369,065		)	122,196
Effect of exchange rate changes on cash	(19,753		)	34,137
Change in cash and cash equivalents	94,155			(77,368		)
Cash and cash equivalents, beginning of period	1,303,524			1,200,718
Cash and cash equivalents, end of period	$	1,397,679		$	1,123,350
Supplemental disclosures of cash flow information:
Interest paid	$	84,670		$	90,425
Income taxes paid, net of refunds	$	59,397		$	26,447
Non-cash transactions:
Transfer of invested assets	$	604,374		$	2,243,360
Purchase of businesses:
Assets acquired, excluding cash acquired	$	65,948		$	—
Liabilities assumed	(36,633		)	—
Net cash paid on purchase	$	29,315		$	—

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 (“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 six months ended June 30, 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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Earnings:
Net income (numerator for basic and diluted calculations)	$	204,374	$	232,190	$	304,604	$	377,702
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,071		64,449		64,278		64,401
Equivalent shares from outstanding stock options	1,179		1,159		1,277		1,204
Denominator for diluted calculation	65,250		65,608		65,555		65,605
Earnings per share:
Basic	$	3.19	$	3.60	$	4.74	$	5.86
Diluted	$	3.13	$	3.54	$	4.65	$	5.76

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. The following table presents approximate amounts of stock options and performance contingent shares excluded from the calculation of common equivalent shares (in millions):



	Three months ended June 30,		Six months ended June 30,
	2018	2017	2018	2017
Excluded from common equivalent shares:
Stock options	0.2	0.2	0.3	0.3
Performance contingent shares	0.2	0.3	0.2	0.3

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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
Common stock acquired	—	991,477		(991,477	)
Stock-based compensation ⁽¹⁾	—	(211,868	)	211,868
Balance, June 30, 2018	79,137,758	15,465,272		63,672,486



	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


(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.

In January 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 first six months of 2018, RGA repurchased 1.0 million shares of common stock under this program for $150.0 million. During the first six months ended June 30, 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, 2018 and 2017 are as follows (dollars in thousands):



	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	(44,227		)	(1,327,195		)	(2,986		)	(1,374,408		)
Amounts reclassified to (from) AOCI	—			53,646			2,366			56,012
Deferred income tax benefit (expense)	(11,610		)	271,226			120			259,736
Balance, June 30, 2018	$	(142,187	)	$	1,198,338		$	(51,180	)	$	1,004,971



	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


(1)	Includes cash flow hedges of $22,656 and $2,619 as of June 30, 2018 and December 31, 2017, respectively, and $1,131 and $(2,496) as of June 30, 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 and six months ended June 30, 2018 and 2017 (dollars in thousands):



	Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,
Details about AOCI Components	2018			2017			2018			2017			Affected Line Item in Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	(24,642	)	$	40,374		$	(39,098	)	$	28,517		Investment related gains (losses), net
Cash flow hedges - Interest rate	29			—			(342		)	—			(1)
Cash flow hedges - Currency/Interest rate	76			132			221			329			(1)
Cash flow hedges - Forward bond purchase commitments	—			51			—			101			(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	(7,835		)	4,565			(14,427		)	10,413			(2)
Total	(32,372		)	45,122			(53,646		)	39,360
Provision for income taxes	6,945			(15,218		)	11,623			(12,024		)
Net unrealized gains (losses), net of tax	$	(25,427	)	$	29,904		$	(42,023	)	$	27,336
Amortization of defined benefit plan items:
Prior service cost (credit)	$	247		$	60		$	493		$	142		(3)
Actuarial gains/(losses)	(1,267		)	(1,539		)	(2,859		)	(3,077		)	(3)
Total	(1,020		)	(1,479		)	(2,366		)	(2,935		)
Provision for income taxes	214			517			497			1,027
Amortization of defined benefit plans, net of tax	$	(806	)	$	(962	)	$	(1,869	)	$	(1,908	)

Total reclassifications for the period	$	(26,233	)	$	28,942		$	(43,892	)	$	25,428


(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 $16.6 million and $11.4 million in the first six months of 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 7,623 shares of common stock. As of June 30, 2018, 1.5 million share options at a weighted average strike price per share of $65.70 were vested and exercisable, with a remaining weighted average exercise period of 4.4 years. As of June 30, 2018, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $36.9 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 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 June 30, 2018 (dollars in thousands):



June 30, 2018:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate	$	22,249,964	$	663,087	$	409,544	$	22,503,507	61.2	%	$	—
Canadian government	2,789,699		1,277,020		3,876		4,062,843		11.0		—
RMBS	1,837,316		18,500		34,602		1,821,214		5.0		—
ABS	1,711,099		11,596		13,871		1,708,824		4.6		275
CMBS	1,249,616		8,591		15,698		1,242,509		3.4		—
U.S. government	1,583,622		8,193		66,665		1,525,150		4.1		—
State and political subdivisions	703,047		43,318		9,321		737,044		2.0		—
Other foreign government	3,109,607		112,887		38,631		3,183,863		8.7		—
Total fixed maturity securities	$	35,233,970	$	2,143,192	$	592,208	$	36,784,954	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 Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments 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 June 30, 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 June 30, 2018 and December 31, 2017 (dollars in thousands):

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	June 30, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	63,640	$	66,118	$	72,542	$	75,622
Fixed maturity securities received as collateral	n/a		626,081		n/a		590,417
Assets in trust held to satisfy collateral requirements	16,061,218		16,571,173		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 June 30, 2018 and December 31, 2017 (dollars in thousands).



	June 30, 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	$	1,101,825	$	1,850,642	$	1,119,337	$	1,917,996
Canadian province of Ontario	929,913		1,239,102		939,837		1,282,944

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at June 30, 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	$	978,683	$	986,160
Due after one year through five years	7,550,595		7,649,023
Due after five years through ten years	9,208,763		9,323,786
Due after ten years	12,697,898		14,053,438
Asset and mortgage-backed securities	4,798,031		4,772,547
Total	$	35,233,970	$	36,784,954

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of June 30, 2018 and December 31, 2017 (dollars in thousands):



June 30, 2018:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	8,097,947	$	8,129,125	36.2	%
Industrial	11,705,150		11,847,762		52.6
Utility	2,446,867		2,526,620		11.2
Total	$	22,249,964	$	22,503,507	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	%

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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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Balance, beginning of period	$	3,677	$	3,677	$	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	$	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 2,580 fixed maturity securities as of June 30, 2018, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	June 30, 2018
	Gross Unrealized Losses		% of Total
Less than 20%	$	571,151	96.4	%
20% or more for less than six months	21,045		3.6
20% or more for six months or greater	12		—
Total	$	592,208	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 2,580 fixed maturity securities that have estimated fair values below amortized cost as of June 30, 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.

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	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
June 30, 2018:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	9,135,620	$	299,909	$	818,555	$	51,938	$	9,954,175	$	351,847
Canadian government	46,392		668		110,326		3,058		156,718		3,726
RMBS	1,101,941		25,546		241,914		9,032		1,343,855		34,578
ABS	807,714		10,637		139,676		3,187		947,390		13,824
CMBS	612,214		11,097		104,426		4,601		716,640		15,698
U.S. government	584,758		20,707		747,679		45,958		1,332,437		66,665
State and political subdivisions	168,817		5,064		66,122		4,257		234,939		9,321
Other foreign government	919,229		25,758		199,578		5,407		1,118,807		31,165
Total investment grade securities	13,376,685		399,386		2,428,276		127,438		15,804,961		526,824
Below investment grade securities:
Corporate	735,338		47,846		56,042		9,851		791,380		57,697
Canadian government	1,864		150		—		—		1,864		150
RMBS	—		—		1,194		24		1,194		24
ABS	—		—		1,148		47		1,148		47
Other foreign government	146,374		7,111		7,643		355		154,017		7,466
Total below investment grade securities	883,576		55,107		66,027		10,277		949,603		65,384
Total fixed maturity securities	$	14,260,261	$	454,493	$	2,494,303	$	137,715	$	16,754,564	$	592,208

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

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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 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, 2018 are primarily related to publicly traded and privately placed 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 June 30,						Six months ended June 30,
	2018			2017			2018			2017
Fixed maturity securities available-for-sale	$	373,624		$	355,735		$	742,827		$	680,235
Equity securities	709			995			2,391			2,354
Mortgage loans on real estate	50,460			44,442			100,659			88,789
Policy loans	14,775			15,194			29,555			30,466
Funds withheld at interest	86,417			97,367			161,862			224,945
Short-term investments and cash and cash equivalents	2,964			1,779			6,209			3,289
Other invested assets	20,785			22,071			44,613			40,539
Investment income	549,734			537,583			1,088,116			1,070,617
Investment expense	(21,673		)	(19,045		)	(43,726		)	(37,715		)
Investment income, net of related expenses	$	528,061		$	518,538		$	1,044,390		$	1,032,902

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,
	2018			2017			2018			2017
Fixed maturity securities available for sale:
Other-than-temporary impairment losses	$	(3,350	)	$	(3,401	)	$	(3,350	)	$	(20,590	)
Gain on investment activity	21,140			54,197			32,106			72,090
Loss on investment activity	(35,934		)	(10,288		)	(56,314		)	(18,975		)
Equity securities:
Gain on investment activity	469			23			497			23
Loss on investment activity	—			(183		)	(950		)	(4,059		)
Change in unrealized gains (losses) recognized in earnings	(6,966		)	—			(11,103		)	—
Other impairment losses and change in mortgage loan provision	(1,357		)	(6,675		)	(1,669		)	(6,774		)
Derivatives and other, net	15,426			22,622			29,741			95,103
Total investment related gains (losses), net	$	(10,572	)	$	56,295		$	(11,042	)	$	116,818

The fixed maturity impairments for the three and six months ended June 30, 2018 and 2017 were largely related to high-yield corporate securities. The other impairment losses and change in mortgage loan provision for the three and six months ended June 30, 2018 includes impairments on real estate joint ventures. The other impairment losses and change in mortgage loan provision for the three and six months ended June 30, 2017 includes impairments on limited partnerships. The fluctuations in investment related gains (losses) for derivatives and other for the three and six months ended June 30, 2018, compared to the same periods in 2017, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps.

During the three months ended June 30, 2018 and 2017, the Company sold fixed maturity securities with fair values of $1,174.4 million and $696.4 million at losses of $35.9 million and $10.3 million, respectively. During the six months ended June 30, 2018 and 2017, the Company sold fixed maturity securities with fair values of $2,438.0 million and $1,125.0 million at losses of $56.3 million and $19.0 million, respectively. The Company did not sell any equity securities at losses during the three months ended June 30, 2018. During the three months ended June 30, 2017, the Company sold equity securities with fair values of $14.1 million at losses of $0.2 million. During the six months ended June 30, 2018 and 2017, the Company sold equity securities with fair values of $28.4 million and $161.7 million at losses of $1.0 million and $4.1 million, respectively. The Company generally does not buy and sell securities on a short-term basis.

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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 June 30, 2018 and December 31, 2017 (dollars in thousands).



	June 30, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	350,350	$	365,730	$	358,875	$	377,820
Securities lending:
Securities loaned	101,995		102,208		117,246		121,551
Securities received	n/a		112,000		n/a		128,000
Repurchase program/reverse repurchase program:
Securities pledged	385,391		394,698		413,819		428,344
Securities received	n/a		397,712		n/a		417,550

The Company also held cash collateral for securities lending and the repurchase program/reverse repurchase programs of $29.6 million and $31.2 million at June 30, 2018 and December 31, 2017, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of June 30, 2018 and December 31, 2017.

The following tables present information on the Company’s securities lending and repurchase transactions as of June 30, 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.



	June 30, 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	$	—	$	—	$	—	$	102,208	$	102,208
Total	—		—		—		102,208