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 March 31, 2019
		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

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Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	RGA	New York Stock Exchange
6.20% Fixed-To-Floating Rate Subordinated Debentures due 2042	RZA	New York Stock Exchange
5.75% Fixed-To-Floating Rate Subordinated Debentures due 2056	RZB	New York Stock Exchange

As of April 30, 2019, 62,560,064 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) March 31, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three months ended March 31, 2019 and 2018	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Three months ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements (Unaudited):	8
	1. Business and Basis of Presentation	8
	2. Earnings Per Share	8
	3. Equity	9
	4. Investments	11
	5. Derivative Instruments	20
	6. Fair Value of Assets and Liabilities	24
	7. Segment Information	31
	8. Commitments, Contingencies and Guarantees	33
	9. Income Tax	34
	10. Employee Benefit Plans	35
	11. Reinsurance	35
	12. Policy Claims and Benefits	36
	13. New Accounting Standards	36
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
3	Quantitative and Qualitative Disclosure About Market Risk	65
4	Controls and Procedures	65

	PART II – OTHER INFORMATION

1	Legal Proceedings	65
1A	Risk Factors	65
2	Unregistered Sales of Equity Securities and Use of Proceeds	65
6	Exhibits	66
	Index to Exhibits	67
	Signatures	68

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PART I - FINANCIAL INFORMATION

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)



	March 31, 2019			December 31, 2018
Assets
Fixed maturity securities available-for-sale, at fair value (amortized cost $39,188,627 and $38,882,168)	$	41,738,443		$	39,992,346
Equity securities, at fair value (cost $111,785 and $107,721)	89,865			82,197
Mortgage loans on real estate (net of allowances of $11,218 and $11,286)	5,117,545			4,966,298
Policy loans	1,312,349			1,344,980
Funds withheld at interest	5,729,838			5,761,471
Short-term investments	119,215			142,598
Other invested assets	2,006,870			1,915,297
Total investments	56,114,125			54,205,187
Cash and cash equivalents	2,020,396			1,889,733
Accrued investment income	442,956			427,893
Premiums receivable and other reinsurance balances	2,857,673			3,017,868
Reinsurance ceded receivables	814,806			757,572
Deferred policy acquisition costs	3,404,593			3,397,770
Other assets	1,037,932			839,222
Total assets	$	66,692,481		$	64,535,245
Liabilities and Stockholders’ Equity
Future policy benefits	$	25,976,847		$	25,285,400
Interest-sensitive contract liabilities	17,750,197			18,004,526
Other policy claims and benefits	5,911,554			5,642,755
Other reinsurance balances	517,096			487,177
Deferred income taxes	2,144,680			1,798,800
Other liabilities	1,278,108			1,396,200
Long-term debt	2,787,717			2,787,873
Collateral finance and securitization notes	656,174			681,961
Total liabilities	57,022,373			56,084,692
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, 2019 and December 31, 2018	791			791
Additional paid-in-capital	1,906,291			1,898,652
Retained earnings	7,412,081			7,284,949
Treasury stock, at cost - 16,593,411 and 16,323,390 shares	(1,415,020		)	(1,370,602		)
Accumulated other comprehensive income	1,765,965			636,763
Total stockholders’ equity	9,670,108			8,450,553
Total liabilities and stockholders’ equity	$	66,692,481		$	64,535,245

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

(in thousands, except per share amounts)

(Unaudited)



	Three months ended March 31,
	2019			2018
Revenues:
Net premiums	$	2,737,813		$	2,582,551
Investment income, net of related expenses	579,877			516,329
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(9,453		)	—
Other investment related gains (losses), net	17,241			(470		)
Total investment related gains (losses), net	7,788			(470		)
Other revenues	94,553			75,297
Total revenues	3,420,031			3,173,707
Benefits and Expenses:
Claims and other policy benefits	2,508,324			2,362,101
Interest credited	133,189			80,449
Policy acquisition costs and other insurance expenses	311,881			356,902
Other operating expenses	201,483			191,274
Interest expense	40,173			37,454
Collateral finance and securitization expense	8,417			7,602
Total benefits and expenses	3,203,467			3,035,782
Income before income taxes	216,564			137,925
Provision for income taxes	47,057			37,695
Net income	$	169,507		$	100,230
Earnings per share:
Basic earnings per share	$	2.70		$	1.55
Diluted earnings per share	$	2.65		$	1.52

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

(in thousands)

(Unaudited)



	Three months ended March 31,
	2019			2018
Comprehensive income (loss)
Net income	$	169,507		$	100,230
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	21,386			(1,160		)
Net unrealized investment gains (losses)	1,108,211			(633,604		)
Defined benefit pension and postretirement plan adjustments	(395		)	(471		)
Total other comprehensive income (loss), net of tax	1,129,202			(635,235		)
Total comprehensive income (loss)	$	1,298,709		$	(535,005	)

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands except per share amounts)

(Unaudited)



	Common Stock		Additional Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, December 31, 2018	$	791	$	1,898,652	$	7,284,949		$	(1,370,602	)	$	636,763	$	8,450,553
Adoption of new accounting standards					(87		)						(87		)
Net income					169,507								169,507
Total other comprehensive income (loss)											1,129,202		1,129,202
Dividends to stockholders, $0.60 per share					(37,707		)						(37,707		)
Purchase of treasury stock								(49,052		)			(49,052		)
Reissuance of treasury stock			7,639		(4,581		)	4,634					7,692
Balance, March 31, 2019	$	791	$	1,906,291	$	7,412,081		$	(1,415,020	)	$	1,765,965	$	9,670,108



	Common Stock		Additional Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total
Balance, December 31, 2017	$	791	$	1,870,906	$	6,736,265		$	(1,102,058	)	$	2,063,631		$	9,569,535
Adoption of new accounting standards					(2,020		)							(2,020		)
Net income					100,230									100,230
Total other comprehensive income (loss)											(635,235		)	(635,235		)
Dividends to stockholders, $0.50 per share					(32,241		)							(32,241		)
Purchase of treasury stock								(2,616		)				(2,616		)
Reissuance of treasury stock			9,446		(4,689		)	5,851						10,608
Balance, March 31, 2018	$	791	$	1,880,352	$	6,797,545		$	(1,098,823	)	$	1,428,396		$	9,008,261

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

(in thousands)

(Unaudited)



	Three months ended March 31,
	2019			2018

Cash Flows from Operating Activities:
Net income	$	169,507		$	100,230
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	(10,688		)	(10,484		)
Premiums receivable and other reinsurance balances	163,965			(275,354		)
Deferred policy acquisition costs	(17,784		)	13,007
Reinsurance ceded receivable balances	(65,053		)	(21,872		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	119,620			466,983
Deferred income taxes	39,490			33,715
Other assets and other liabilities, net	(107,266		)	(41,385		)
Amortization of net investment premiums, discounts and other	(16,659		)	(31,032		)
Depreciation and amortization expense	11,017			10,294
Investment related (gains) losses, net	(7,788		)	470
Other, net	62,260			(20,823		)
Net cash provided by operating activities	340,621			223,749
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	3,139,794			1,898,722
Maturities of fixed maturity securities available-for-sale	195,625			195,549
Sales of equity securities	83			29,683
Principal payments on mortgage loans on real estate	93,393			102,002
Principal payments on policy loans	33,271			10,694
Purchases of fixed maturity securities available-for-sale	(3,010,397		)	(1,969,899		)
Purchases of equity securities	(3,173		)	(2,173		)
Cash invested in mortgage loans on real estate	(240,411		)	(141,131		)
Cash invested in funds withheld at interest, net	(36,995		)	19,638
Purchase of businesses, net of cash acquired of $27,374 and $1,733	3,561			(24,864		)
Purchases of property and equipment	(10,440		)	(5,292		)
Change in short-term investments	25,422			(13,026		)
Change in other invested assets	(97,012		)	(23,353		)
Net cash provided by investing activities	92,721			76,550
Cash Flows from Financing Activities:
Dividends to stockholders	(37,707		)	(32,241		)
Repayment of collateral finance and securitization notes	(29,064		)	(27,104		)
Principal payments of long-term debt	(690		)	(662		)
Purchases of treasury stock	(49,052		)	(2,616		)
Exercise of stock options, net	1,755			1,163
Change in cash collateral for derivative positions and other arrangements	(44,628		)	19,537
Deposits on universal life and other investment type policies and contracts	44,926			83,004
Withdrawals on universal life and other investment type policies and contracts	(195,360		)	(156,486		)
Net cash used in financing activities	(309,820		)	(115,405		)
Effect of exchange rate changes on cash	7,141			21,989
Change in cash and cash equivalents	130,663			206,883
Cash and cash equivalents, beginning of period	1,889,733			1,303,524
Cash and cash equivalents, end of period	$	2,020,396		$	1,510,407
Supplemental disclosures of cash flow information:
Interest paid	$	40,193		$	39,284
Income taxes paid, net of refunds	$	3,076		$	6,356
Non-cash investing activities:
Transfer of invested assets	$	720,983		$	605,085
Right-of-use assets acquired through operating leases	$	1,311		$	—
Purchase of businesses:
Assets acquired, excluding cash acquired	$	8,303		$	59,184
Liabilities assumed	(11,864		)	(34,320		)
Net cash (received) paid on purchase	$	(3,561	)	$	24,864

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

Business

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) is engaged in providing traditional reinsurance, which includes individual and group life and health, disability, and critical illness reinsurance. The Company also provides financial solutions, which includes longevity reinsurance, financial reinsurance, asset-intensive products, primarily annuities and stable value products.

Basis of Presentation

The unaudited condensed consolidated financial statements of 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 of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K filed with the SEC on February 27, 2019 (the “2018 Annual Report”).

In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Consolidation

These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries and all intercompany accounts and transactions have been eliminated. Entities in which the Company has significant influence over the operating and financing decisions but are not required to be consolidated are reported under the equity method of accounting.


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,
	2019		2018
Earnings:
Net income (numerator for basic and diluted calculations)	$	169,507	$	100,230
Shares:
Weighted average outstanding shares (denominator for basic calculation)	62,758		64,490
Equivalent shares from outstanding stock options	1,269		1,382
Denominator for diluted calculation	64,027		65,872
Earnings per share:
Basic	$	2.70	$	1.55
Diluted	$	2.65	$	1.52

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 thousands):



	Three months ended March 31,
	2019	2018
Excluded from common equivalent shares:
Stock options	544	276
Performance contingent shares	109	212

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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, 2018	79,137,758	16,323,390		62,814,368
Common stock acquired	—	344,237		(344,237	)
Stock-based compensation ⁽¹⁾	—	(74,216	)	74,216
Balance, March 31, 2019	79,137,758	16,593,411		62,544,347



	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


(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 24, 2019, 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, 2019, RGA repurchased 0.3 million shares of common stock under this program for $50.0 million.

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, 2019 and 2018 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, 2018	$	(168,698	)	$	856,159		$	(50,698	)	$	636,763
Other comprehensive income (loss) before reclassifications	18,462			1,437,058			(1,787		)	1,453,733
Amounts reclassified to (from) AOCI				(14,694		)	1,286			(13,408		)
Deferred income tax benefit (expense)	2,924			(314,153		)	106			(311,123		)
Balance, March 31, 2019	$	(147,312	)	$	1,964,370		$	(51,093	)	$	1,765,965



	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 (from) 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


(1)	Includes cash flow hedges of $(1,902) and $8,788 as of March 31, 2019 and December 31, 2018, respectively, and $20,662 and $2,619 as of March 31, 2018 and December 31, 2017, 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, 2019 and 2018 (dollars in thousands):



	Amount Reclassified from AOCI
	Three months ended March 31,
Details about AOCI Components	2019			2018			Affected Line Item in Statement of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	(273	)	$	(14,456	)	Investment related gains (losses), net
Cash flow hedges - Interest rate	469			(370		)	(1)
Cash flow hedges - Currency/Interest rate	25			144			(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	14,473			(6,592		)	(2)
Total	14,694			(21,274		)
Provision for income taxes	(3,006		)	4,678
Net unrealized gains (losses), net of tax	$	11,688		$	(16,596	)
Amortization of defined benefit plan items:
Prior service cost (credit)	$	269		$	246		(3)
Actuarial gains/(losses)	(1,555		)	(1,592		)	(3)
Total	(1,286		)	(1,346		)
Provision for income taxes	270			283
Amortization of defined benefit plans, net of tax	$	(1,016	)	$	(1,063	)

Total reclassifications for the period	$	10,672		$	(17,659	)


(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 2018 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 $7.6 million and $9.7 million for the three months ended March 31, 2019 and 2018, respectively. In the first quarter of 2019, the Company granted 0.2 million stock appreciation rights at $145.25 weighted average exercise price per share and 0.1 million performance contingent units to employees. As of March 31, 2019, 1.6 million share options at a weighted average strike price per share of $74.36 were vested and exercisable, with a remaining weighted average exercise period of 4.5 years. As of March 31, 2019, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $32.8 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.

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4.	Investments

Fixed Maturity 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 tables provide information relating to investments in fixed maturity securities by sector as of March 31, 2019 and December 31, 2018 (dollars in thousands):



March 31, 2019:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate	$	24,216,876	$	1,024,557	$	164,095	$	25,077,338	60.1	%	$	—
Canadian government	2,870,018		1,408,501		655		4,277,864		10.2		—
RMBS	1,969,694		34,746		10,254		1,994,186		4.8		—
ABS	2,243,449		14,286		15,749		2,241,986		5.4		275
CMBS	1,404,852		30,009		3,115		1,431,746		3.4		—
U.S. government	1,578,975		9,826		21,238		1,567,563		3.8		—
State and political subdivisions	738,690		56,668		2,641		792,717		1.9		—
Other foreign government	4,166,073		201,446		12,476		4,355,043		10.4		—
Total fixed maturity securities	$	39,188,627	$	2,780,039	$	230,223	$	41,738,443	100.0	%	$	275



December 31, 2018:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate	$	24,006,407	$	530,804	$	555,092	$	23,982,119	59.9	%	$	—
Canadian government	2,768,466		1,126,227		2,308		3,892,385		9.7		—
RMBS	1,872,236		22,267		25,282		1,869,221		4.7		—
ABS	2,171,254		10,779		32,829		2,149,204		5.4		275
CMBS	1,428,115		9,153		18,234		1,419,034		3.5		—
U.S. government	2,233,537		10,204		57,867		2,185,874		5.5		—
State and political subdivisions	721,290		39,914		9,010		752,194		1.9		—
Other foreign government	3,680,863		109,320		47,868		3,742,315		9.4		—
Total fixed maturity securities	$	38,882,168	$	1,858,668	$	748,490	$	39,992,346	100.0	%	$	275

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, 2019 and December 31, 2018, 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, 2019 and December 31, 2018 (dollars in thousands):



	March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	74,647	$	77,806	$	80,891	$	83,950
Fixed maturity securities received as collateral	n/a		668,046		n/a		616,584
Assets in trust held to satisfy collateral requirements	20,635,739		21,609,979		20,072,735		20,366,170

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The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio that 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, 2019 and December 31, 2018 (dollars in thousands).



	March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Quebec	$	1,128,373	$	1,955,925	$	1,091,018	$	1,757,087
Canadian province of Ontario	946,731		1,287,150		913,642		1,187,526

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale as of March 31, 2019 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	$	1,409,578	$	1,419,110
Due after one year through five years	8,141,200		8,340,166
Due after five years through ten years	8,933,926		9,345,621
Due after ten years	15,085,928		16,965,628
Asset and mortgage-backed securities	5,617,995		5,667,918
Total	$	39,188,627	$	41,738,443

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of March 31, 2019 and December 31, 2018 (dollars in thousands):



March 31, 2019:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	8,981,541	$	9,249,273	36.9	%
Industrial	12,316,131		12,759,526		50.9
Utility	2,919,204		3,068,539		12.2
Total	$	24,216,876	$	25,077,338	100.0	%

December 31, 2018:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	8,793,742	$	8,730,568	36.3	%
Industrial	12,336,857		12,342,111		51.6
Utility	2,875,808		2,909,440		12.1
Total	$	24,006,407	$	23,982,119	100.0	%

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Other-Than-Temporary Impairments - Fixed Maturity Securities

As discussed in Note 2 – “Significant Accounting Policies and Pronouncements” of the 2018 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 amount of pre-tax credit loss impairments on fixed maturity securities held by the Company, for which a portion of the OTTI loss was recognized in AOCI, was $3.7 million as of March 31, 2019 and 2018. There were no changes in these amounts from their respective prior-year ending balances.

Unrealized Losses for Fixed Maturity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 1,585 and 3,109 fixed maturity securities as of March 31, 2019 and December 31, 2018, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	March 31, 2019				December 31, 2018
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	208,034	90.3	%	$	721,015	96.3	%
20% or more for less than six months	20,845		9.1		21,336		2.9
20% or more for six months or greater	1,344		0.6		6,139		0.8
Total	$	230,223	100.0	%	$	748,490	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes an 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 tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,585 and 3,109 fixed maturity securities that have estimated fair values below amortized cost as of March 31, 2019 and December 31, 2018, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
March 31, 2019:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	1,140,753	$	23,578	$	3,756,371	$	108,434	$	4,897,124	$	132,012
Canadian government	2,812		19		72,244		636		75,056		655
RMBS	29,505		122		672,715		10,109		702,220		10,231
ABS	774,538		7,246		528,169		8,472		1,302,707		15,718
CMBS	100,664		369		227,404		2,746		328,068		3,115
U.S. government	1,265		1		1,125,274		21,237		1,126,539		21,238
State and political subdivisions	31,416		149		113,463		2,492		144,879		2,641
Other foreign government	115,581		2,813		345,928		7,213		461,509		10,026
Total investment grade securities	2,196,534		34,297		6,841,568		161,339		9,038,102		195,636
Below investment grade securities:
Corporate	215,368		21,398		161,915		10,685		377,283		32,083
RMBS	—		—		1,001		23		1,001		23
ABS	—		—		1,029		31		1,029		31
Other foreign government	27,413		838		27,301		1,612		54,714		2,450
Total below investment grade securities	242,781		22,236		191,246		12,351		434,027		34,587
Total fixed maturity securities	$	2,439,315	$	56,533	$	7,032,814	$	173,690	$	9,472,129	$	230,223

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	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2018:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	8,505,371	$	302,604	$	3,611,266	$	195,082	$	12,116,637	$	497,686
Canadian government	25,169		419		131,806		1,612		156,975		2,031
RMBS	269,558		2,488		836,741		22,760		1,106,299		25,248
ABS	1,102,677		24,271		381,609		8,523		1,484,286		32,794
CMBS	384,259		4,304		414,719		13,930		798,978		18,234
U.S. government	8,616		80		1,086,694		57,787		1,095,310		57,867
State and political subdivisions	103,504		1,538		157,330		7,472		260,834		9,010
Other foreign government	789,859		24,509		472,934		17,446		1,262,793		41,955
Total investment grade securities	11,189,013		360,213		7,093,099		324,612		18,282,112		684,825
Below investment grade securities:
Corporate	755,679		42,760		122,559		14,646		878,238		57,406
Canadian government	443		34		1,770		243		2,213		277
RMBS	—		—		1,026		34		1,026		34
ABS	—		—		1,063		35		1,063		35
Other foreign government	128,725		5,574		7,479		339		136,204		5,913
Total below investment grade securities	884,847		48,368		133,897		15,297		1,018,744		63,665
Total fixed maturity securities	$	12,073,860	$	408,581	$	7,226,996	$	339,909	$	19,300,856	$	748,490

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. Changes in unrealized losses are primarily 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,
	2019			2018
Fixed maturity securities available-for-sale	$	415,087		$	369,203
Equity securities	1,246			1,682
Mortgage loans on real estate	59,562			50,199
Policy loans	14,109			14,780
Funds withheld at interest	61,734			75,445
Short-term investments and cash and cash equivalents	6,900			3,245
Other invested assets	42,236			23,828
Investment income	600,874			538,382
Investment expense	(20,997		)	(22,053		)
Investment income, net of related expenses	$	579,877		$	516,329

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Investment Related Gains (Losses), Net

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



	Three months ended March 31,
	2019			2018
Fixed maturity securities available-for-sale:
Other-than-temporary impairment losses	$	(9,453	)	$	—
Gain on investment activity	28,045			10,966
Loss on investment activity	(18,723		)	(20,380		)
Equity securities:
Gain on investment activity	74			28
Loss on investment activity	(1		)	(950		)
Change in unrealized gains (losses) recognized in earnings	3,744			(4,137		)
Other impairment losses and change in mortgage loan provision	(1,859		)	(312		)
Derivatives and other, net	5,961			14,315
Total investment related gains (losses), net	$	7,788		$	(470	)

The fixed maturity impairments for the three months ended March 31, 2019 were largely related to a U.S. utility company. There were no fixed maturity impairments for the three months ended March 31, 2018. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2019 were primarily due to impairments on real estate joint ventures and an increase of the equity release mortgage valuation allowance. 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 fluctuations in investment related gains (losses) for derivatives and other for the three months ended March 31, 2019, compared to the same period in 2018, are primarily due to changes in the fair value of embedded derivatives, futures and equity options offset by interest rate swaps.

During the three months ended March 31, 2019 and 2018, the Company sold fixed maturity securities with fair values of $1,246.6 million and $1,263.6 million at losses of $18.7 million and $20.4 million, respectively. During the three months ended March 31, 2019, the Company sold equity securities for immaterial losses. During the three months ended March 31, 2018, the Company sold equity securities with fair values of $28.4 million at losses of $1.0 million. The Company generally does not buy and sell securities on a short-term basis.

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, 2019 and December 31, 2018 (dollars in thousands).



	March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	339,593	$	371,473	$	335,781	$	366,663
Securities lending:
Securities loaned	97,510		100,665		101,981		102,618
Securities received	n/a		107,000		n/a		112,000
Repurchase program/reverse repurchase program:
Securities pledged	548,100		558,981		554,806		554,589
Securities received	n/a		558,523		n/a		530,932

The Company also held cash collateral for repurchase program/reverse repurchase programs of $28.7 million and $28.6 million at March 31, 2019 and December 31, 2018, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of March 31, 2019 and December 31, 2018.

The following tables present information on the Company’s securities lending and repurchase transactions as of March 31, 2019 and December 31, 2018 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the tables, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

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	March 31, 2019
	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	$	—	$	—	$	—	$	100,665	$	100,665
Total	—		—		—		100,665		100,665
Repurchase transactions:
Corporate	—		—		—		267,846		267,846
U.S. government	—		—		43,657		165,272		208,929
Foreign government	—		—		—		82,206		82,206
Total	—		—		43,657		515,324		558,981
Total borrowings	$	—	$	—	$	43,657	$	615,989	$	659,646

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table									$	694,271
Amounts related to agreements not included in offsetting disclosure									$	34,625



	December 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	$	—	$	—	$	—	$	102,618	$	102,618
Total	—		—		—		102,618		102,618
Repurchase transactions:
Corporate	—		—		—		254,151		254,151
U.S. government	—		—		—		221,572		221,572
Foreign government	—		—		—		78,866		78,866
Total	—		—		—		554,589		554,589
Total borrowings	$	—	$	—	$	—	$	657,207	$	657,207

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table									$	671,492
Amounts related to agreements not included in offsetting disclosure									$	14,285

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 as of both March 31, 2019 and December 31, 2018. As of March 31, 2019 and December 31, 2018, 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.

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Mortgage Loans on Real Estate

Mortgage loans represented approximately 9.1% of the Company’s total investments as of both March 31, 2019 and December 31, 2018. As of March 31, 2019, mortgage loans were geographically dispersed throughout the U.S. with the largest concentrations in California (17.7%), Texas (11.8%) and Washington (7.1%) and include loans secured by properties in Canada (2.9%) and United Kingdom (0.5%). 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, 2019 and December 31, 2018 (dollars in thousands):



	March 31, 2019				December 31, 2018
Property type:	Carrying Value		% of Total		Carrying Value		% of Total
Office building	$	1,707,764	33.3	%	$	1,725,748	34.6	%
Retail	1,495,883		29.1		1,432,394		28.7
Industrial	1,021,871		19.9		961,924		19.3
Apartment	620,926		12.1		571,291		11.5
Other commercial	288,454		5.6		291,997		5.9
Recorded investment	$	5,134,898