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EX-31.1 - EXHIBIT 31.1 - REINSURANCE GROUP OF AMERICA INCex3112016q110-q.htm
EX-32.2 - EXHIBIT 32.2 - REINSURANCE GROUP OF AMERICA INCex3222016q110-q.htm
EX-32.1 - EXHIBIT 32.1 - REINSURANCE GROUP OF AMERICA INCex3212016q110-q.htm
EX-31.2 - EXHIBIT 31.2 - REINSURANCE GROUP OF AMERICA INCex3122016q110-q.htm

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, 2016
  
 
 
  
 
OR
 
  
 
 ¨
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
  
 
  
OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
 
  
 
Commission File Number 1-11848
  
 
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of Registrant as specified in its charter)
 
MISSOURI                        
  
43-1627032
(State or other jurisdiction                  
  
(IRS employer
of incorporation or organization)  
  
identification number)
16600 Swingley Ridge Road
Chesterfield, Missouri 63017
(Address of principal executive offices)
(636) 736-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes T  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes T  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer T       Accelerated filer o      Non-accelerated filer o       Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No T
As of April 30, 2016, 64,066,676 shares of the registrant’s common stock were outstanding.



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

2


PART I - FINANCIAL INFORMATION


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
March 31,
2016
 
December 31,
2015
 
 
(Dollars in thousands, except share data)
 
Assets
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available-for-sale at fair value (amortized cost of $29,035,274 and $28,322,977)
 
$
31,148,714

 
$
29,642,905

Mortgage loans on real estate (net of allowances of $6,824 and $6,813)
 
3,292,496

 
3,129,951

Policy loans
 
1,451,857

 
1,468,796

Funds withheld at interest
 
5,797,183

 
5,880,203

Short-term investments
 
431,535

 
558,284

Other invested assets
 
1,368,544

 
1,298,120

Total investments
 
43,490,329

 
41,978,259

Cash and cash equivalents
 
1,502,082

 
1,525,275

Accrued investment income
 
364,432

 
339,452

Premiums receivable and other reinsurance balances
 
1,886,293

 
1,797,504

Reinsurance ceded receivables
 
688,491

 
637,859

Deferred policy acquisition costs
 
3,490,509

 
3,392,437

Other assets
 
764,488

 
712,366

Total assets
 
$
52,186,624

 
$
50,383,152

Liabilities and Stockholders’ Equity
 
 
 
 
Future policy benefits
 
$
19,811,921

 
$
19,612,251

Interest-sensitive contract liabilities
 
14,087,081

 
13,663,873

Other policy claims and benefits
 
4,384,072

 
4,094,640

Other reinsurance balances
 
397,375

 
296,899

Deferred income taxes
 
2,483,584

 
2,218,328

Other liabilities
 
1,106,531

 
1,165,071

Short-term debt
 
299,739

 

Long-term debt
 
1,997,970

 
2,297,548

Collateral finance and securitization notes
 
899,482

 
899,161

Total liabilities
 
45,467,755

 
44,247,771

Commitments and contingent liabilities (See Note 8)
 


 


Stockholders’ Equity:
 
 
 
 
Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding
 

 

Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at March 31, 2016 and December 31, 2015
 
791

 
791

Additional paid-in-capital
 
1,827,646

 
1,816,142

Retained earnings
 
4,668,588

 
4,620,303

Treasury stock, at cost - 15,072,348 and 13,933,232 shares
 
(1,108,539
)
 
(1,010,139
)
Accumulated other comprehensive income
 
1,330,383

 
708,284

Total stockholders’ equity
 
6,718,869

 
6,135,381

Total liabilities and stockholders’ equity
 
$
52,186,624

 
$
50,383,152

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

3


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2016
 
2015
Revenues:
 
(Dollars in thousands, except per share data)
Net premiums
 
$
2,157,005

 
$
2,023,852

Investment income, net of related expenses
 
417,266

 
426,891

Investment related gains (losses), net:
 
 
 
 
Other-than-temporary impairments on fixed maturity securities
 
(33,817
)
 
(2,527
)
Other investment related gains (losses), net
 
(87,069
)
 
10,110

Total investment related gains (losses), net
 
(120,886
)
 
7,583

Other revenues
 
59,183

 
62,287

Total revenues
 
2,512,568

 
2,520,613

Benefits and Expenses:
 
 
 
 
Claims and other policy benefits
 
1,886,764

 
1,775,451

Interest credited
 
87,905

 
120,678

Policy acquisition costs and other insurance expenses
 
233,763

 
277,043

Other operating expenses
 
157,424

 
121,618

Interest expense
 
32,807

 
35,627

Collateral finance and securitization expense
 
6,325

 
6,071

Total benefits and expenses
 
2,404,988

 
2,336,488

 Income before income taxes
 
107,580

 
184,125

Provision for income taxes
 
31,108

 
59,011

Net income
 
$
76,472

 
$
125,114

Earnings per share:
 
 
 
 
Basic earnings per share
 
$
1.18

 
$
1.84

Diluted earnings per share
 
$
1.17

 
$
1.81

Dividends declared per share
 
$
0.37

 
$
0.33

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

4


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2016
 
2015
Comprehensive income
 
(Dollars in thousands)
Net income
 
$
76,472

 
$
125,114

Other comprehensive income, net of tax:
 
 
 
 
Foreign currency translation adjustments
 
77,733

 
(117,771
)
Net unrealized investment gains
 
547,225

 
343,924

Defined benefit pension and postretirement plan adjustments
 
(2,859
)
 
954

Total other comprehensive income, net of tax
 
622,099

 
227,107

Total comprehensive income
 
$
698,571

 
$
352,221

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

5


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
 (Dollars in thousands)
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
76,472

 
$
125,114

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Change in operating assets and liabilities:
 
 
 
 
Accrued investment income
 
(24,379
)
 
(28,443
)
Premiums receivable and other reinsurance balances
 
(51,778
)
 
(19,816
)
Deferred policy acquisition costs
 
(79,468
)
 
2,380

Reinsurance ceded receivable balances
 
(68,918
)
 
(64,299
)
Future policy benefits, other policy claims and benefits, and other reinsurance balances
 
375,670

 
251,570

Deferred income taxes
 
23,406

 
13,144

Other assets and other liabilities, net
 
(18,513
)
 
5,973

Amortization of net investment premiums, discounts and other
 
(15,782
)
 
(21,666
)
Investment related (gains) losses, net
 
120,886

 
(7,583
)
Other, net
 
30,976

 
59,837

Net cash provided by operating activities
 
368,572

 
316,211

Cash Flows from Investing Activities:
 
 
 
 
Sales of fixed maturity securities available-for-sale
 
977,314

 
639,676

Maturities of fixed maturity securities available-for-sale
 
116,644

 
94,994

Principal payments on mortgage loans on real estate
 
141,228

 
69,322

Principal payments on policy loans
 
16,939

 
200

Purchases of fixed maturity securities available-for-sale
 
(1,768,881
)
 
(1,000,335
)
Cash invested in mortgage loans on real estate
 
(305,252
)
 
(272,287
)
Cash invested in policy loans
 

 
(1
)
Cash invested in funds withheld at interest
 
(4,980
)
 
(32,196
)
Purchases of property and equipment
 

 
(21,504
)
Change in short-term investments
 
124,653

 
4,325

Change in other invested assets
 
(7,262
)
 
14,092

Net cash used in investing activities
 
(709,597
)
 
(503,714
)
Cash Flows from Financing Activities:
 
 
 
 
Dividends to stockholders
 
(24,019
)
 
(22,669
)
Repayment of collateral finance and securitization notes
 
(6,877
)
 
(7,367
)
Debt issuance costs
 

 
(1,184
)
Principal payments of long-term debt
 
(610
)
 
(586
)
Purchases of treasury stock
 
(105,803
)
 
(214,665
)
Exercise of stock options, net
 
3,239

 
5,759

Change in cash collateral for derivative positions and other arrangements
 
40,392

 
31,109

Deposits on universal life and other investment type
policies and contracts
 
432,684

 
66,329

Withdrawals on universal life and other investment type
policies and contracts
 
(41,613
)
 
(196,623
)
Net cash provided in (used in) financing activities
 
297,393

 
(339,897
)
Effect of exchange rate changes on cash
 
20,439

 
(35,090
)
Change in cash and cash equivalents
 
(23,193
)
 
(562,490
)
Cash and cash equivalents, beginning of period
 
1,525,275

 
1,645,669

Cash and cash equivalents, end of period
 
$
1,502,082

 
$
1,083,179

Supplemental disclosures of cash flow information:
 
 
 
 
Interest paid
 
$
29,112

 
$
29,849

Income taxes paid, net of refunds
 
$
12,322

 
$
(58,864
)
Non-cash transactions:
 
 
 
 
Transfer of invested assets
 
$
689

 
$
118

Accrual for capitalized assets
 
$

 
$
4,514

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

6


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.
Business and Basis of Presentation
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries, and all intercompany accounts and transactions have been eliminated. These condensed consolidated statements should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016 (the "2015 Annual Report").
2.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):
 
Three months ended March 31,
 
2016
 
2015
Earnings:
 
 
 
Net income (numerator for basic and diluted calculations)
$
76,472

 
$
125,114

Shares:
 
 
 
Weighted average outstanding shares (denominator for basic calculation)
64,568

 
68,141

Equivalent shares from outstanding stock options
649

 
801

Denominator for diluted calculation
65,217

 
68,942

Earnings per share:
 
 
 
Basic
$
1.18

 
$
1.84

Diluted
$
1.17

 
$
1.81

The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended March 31, 2016, 0.8 million stock options and approximately 0.9 million performance contingent shares were excluded from the calculation. For the three months ended March 31, 2015, approximately 0.3 million stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. Year-to-date amounts for equivalent shares from outstanding stock options and performance contingent shares are the weighted average of the individual quarterly amounts.

7


3.
Equity
Common stock
The changes in number of common stock shares, issued, held in treasury and outstanding are as follows for the periods indicated:
 
 
Issued
 
Held In Treasury
 
Outstanding
Balance, December 31, 2015
 
79,137,758

 
13,933,232

 
65,204,526

Common stock acquired
 

 
1,232,684

 
(1,232,684
)
Stock-based compensation (1)
 

 
(93,568
)
 
93,568

Balance, March 31, 2016
 
79,137,758

 
15,072,348

 
64,065,410

 
 
Issued
 
Held In Treasury
 
Outstanding
Balance, December 31, 2014
 
79,137,758

 
10,364,797

 
68,772,961

Common stock acquired
 

 
2,538,718

 
(2,538,718
)
Stock-based compensation (1)
 

 
(204,316
)
 
204,316

Balance, March 31, 2015
 
79,137,758

 
12,699,199

 
66,438,559

(1)
Represents net shares issued from treasury pursuant to the Company's equity-based compensation programs.
Common stock held in treasury
Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of "Common stock held in treasury" are credited to "Additional paid-in capital." Losses resulting from the reissuance of "Common stock held in treasury" are charged first to "Additional paid-in capital" to the extent the Company has previously recorded gains on treasury share transactions, then to "Retained earnings."
On January 21, 2016, RGA's board of directors authorized a share repurchase program for up to $400.0 million of RGA's outstanding common stock. The authorization was effective immediately and does not have an expiration date. In connection with this new authorization, the board of directors terminated the stock repurchase authority granted in 2015. During the first quarter of 2016, RGA repurchased 1.2 million shares of common stock under this program for $105.1 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, 2016 and 2015 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, 2015
 
$
(181,151
)
 
$
935,697

 
$
(46,262
)
 
$
708,284

Other comprehensive income before reclassifications
 
72,695

 
781,293

 
(5,932
)
 
848,056

Amounts reclassified to (from) AOCI
 

 
10,237

 
1,551

 
11,788

Deferred income tax benefit (expense)
 
5,038

 
(244,305
)
 
1,522

 
(237,745
)
Balance, March 31, 2016
 
$
(103,418
)
 
$
1,482,922

 
$
(49,121
)
 
$
1,330,383

 
 
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, 2014
 
$
81,847

 
$
1,624,773

 
$
(49,491
)
 
$
1,657,129

Other comprehensive income before reclassifications
 
(103,285
)
 
494,294

 
617

 
391,626

Amounts reclassified to (from) AOCI
 

 
(8,252
)
 
787

 
(7,465
)
Deferred income tax benefit (expense)
 
(14,486
)
 
(142,118
)
 
(450
)
 
(157,054
)
Balance, March 31, 2015
 
$
(35,924
)
 
$
1,968,697

 
$
(48,537
)
 
$
1,884,236

(1)
Includes cash flow hedges of $(21,794) and $(29,397) as of March 31, 2016 and December 31, 2015, respectively, and $(30,598) and $(31,591) as of March 31, 2015 and December 31, 2014, respectively. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.




8


The following table presents the amounts of AOCI reclassifications for the three months ended March 31, 2016 and 2015 (dollars in thousands):
 
 
Amount Reclassified from AOCI
 
 
 
 
Three months ended March 31,
 
 
Details about AOCI Components
 
2016
 
2015
 
Affected Line Item in 
Statement of Income
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
$
(18,291
)
 
$
3,079

 
Investment related gains (losses), net
Cash flow hedges - Interest rate swaps
 
160

 
840

 
(1)
Cash flow hedges - Forward bond purchase commitments
 
788

 

 
(1)
Deferred policy acquisition costs attributed to unrealized gains and losses
 
7,106

 
4,333

 
(2)
Total
 
(10,237
)
 
8,252

 
 
Provision for income taxes
 
4,649

 
(860
)
 
 
Net unrealized gains (losses), net of tax
 
$
(5,588
)
 
$
7,392

 
 
Amortization of defined benefit plan items:
 
 
 
 
 
 
Prior service cost
 
$
(78
)
 
$
(83
)
 
(3)
Actuarial gains/(losses)
 
(1,473
)
 
(704
)
 
(3)
Total
 
(1,551
)
 
(787
)
 
 
Provision for income taxes
 
543

 
275

 
 
Amortization of defined benefit plans, net of tax
 
$
(1,008
)
 
$
(512
)
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(6,596
)
 
$
6,880

 
 
(1)
See Note 5 - "Derivative Instruments" for additional information on cash flow hedges.
(2)
This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2015 Annual Report for additional details.
(3)
This AOCI component is included in the computation of the net periodic pension cost. See Note 10 – “Employee Benefit Plans” for additional details.

4.
Investments
Fixed Maturity and Equity Securities Available-for-Sale
The following tables provide information relating to investments in fixed maturity and equity securities by sector as of March 31, 2016 and December 31, 2015 (dollars in thousands):
March 31, 2016:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
$
17,926,454

 
$
872,226

 
$
286,632

 
$
18,512,048

 
59.5
%
 
$

Canadian and Canadian provincial governments
 
2,611,654

 
1,269,576

 
113

 
3,881,117

 
12.5

 

Residential mortgage-backed securities
 
1,330,894

 
61,124

 
11,121

 
1,380,897

 
4.4

 
(300
)
Asset-backed securities
 
1,319,616

 
10,462

 
40,697

 
1,289,381

 
4.1

 
354

Commercial mortgage-backed securities
 
1,466,500

 
47,907

 
6,224

 
1,508,183

 
4.8

 
(1,609
)
U.S. government and agencies
 
1,469,170

 
40,859

 
2,949

 
1,507,080

 
4.8

 

State and political subdivisions
 
506,521

 
53,761

 
8,039

 
552,243

 
1.8

 

Other foreign government, supranational and foreign government-sponsored enterprises
 
2,404,465

 
134,991

 
21,691

 
2,517,765

 
8.1

 

Total fixed maturity securities
 
$
29,035,274

 
$
2,490,906

 
$
377,466

 
$
31,148,714

 
100.0
%
 
$
(1,555
)
Non-redeemable preferred stock
 
$
83,427

 
$
2,768

 
$
8,110

 
$
78,085

 
66.2
%
 
 
Other equity securities
 
40,595

 
150

 
954

 
39,791

 
33.8

 
 
Total equity securities
 
$
124,022

 
$
2,918

 
$
9,064

 
$
117,876

 
100.0
%
 
 
 

9


December 31, 2015:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
$
17,575,507

 
$
599,718

 
$
467,069

 
$
17,708,156

 
59.7
%
 
$

Canadian and Canadian provincial governments
 
2,469,009

 
1,110,282

 
2,532

 
3,576,759

 
12.1

 

Residential mortgage-backed securities
 
1,277,998

 
45,152

 
11,673

 
1,311,477

 
4.4

 
(300
)
Asset-backed securities
 
1,219,000

 
12,052

 
18,376

 
1,212,676

 
4.1

 
354

Commercial mortgage-backed securities
 
1,456,848

 
37,407

 
11,168

 
1,483,087

 
5.0

 
(1,609
)
U.S. government and agencies
 
1,423,791

 
15,586

 
57,718

 
1,381,659

 
4.7

 

State and political subdivisions
 
480,067

 
40,014

 
9,067

 
511,014

 
1.7

 

Other foreign government, supranational and foreign government-sponsored enterprises
 
2,420,757

 
78,964

 
41,644

 
2,458,077

 
8.3

 

Total fixed maturity securities
 
$
28,322,977

 
$
1,939,175

 
$
619,247

 
$
29,642,905

 
100.0
%
 
$
(1,555
)
Non-redeemable preferred stock
 
$
85,645

 
$
7,837

 
$
5,962

 
$
87,520

 
69.5
%
 
 
Other equity securities
 
40,584

 

 
2,242

 
38,342

 
30.5

 
 
Total equity securities
 
$
126,229

 
$
7,837

 
$
8,204

 
$
125,862

 
100.0
%
 
 
The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of March 31, 2016 and December 31, 2015, none of the collateral received had been sold or repledged. The Company also holds securities in trust to satisfy collateral requirements under certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under certain third-party reinsurance treaties as of March 31, 2016 and December 31, 2015 (dollars in thousands):

 
March 31, 2016
 
December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities pledged as collateral
$
192,718

 
$
204,980

 
$
169,678

 
$
176,782

Fixed maturity securities received as collateral
n/a

 
261,601

 
n/a

 
242,914

Securities held in trust
10,698,579

 
11,345,193

 
10,535,729

 
10,928,393

The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of March 31, 2016 and December 31, 2015 (dollars in thousands).
 
March 31, 2016
 
December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities guaranteed or issued by:
 
 
 
 
 
 
 
Canadian province of Ontario
$
892,870

 
$
1,257,794

 
$
864,444

 
$
1,199,080

Canadian province of Quebec
1,013,019

 
1,702,423

 
943,484

 
1,525,903

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at March 31, 2016 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.

10


 
 
Amortized Cost
 
Estimated Fair Value
Available-for-sale:
 
 
 
 
Due in one year or less
 
$
802,218

 
$
809,704

Due after one year through five years
 
5,606,886

 
5,828,982

Due after five years through ten years
 
8,633,420

 
8,985,775

Due after ten years
 
9,875,740

 
11,345,792

Asset and mortgage-backed securities
 
4,117,010

 
4,178,461

Total
 
$
29,035,274

 
$
31,148,714

Corporate Fixed Maturity Securities
The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of March 31, 2016 and December 31, 2015 (dollars in thousands): 
March 31, 2016:
 
 
 
Estimated
 
 
 
 
Amortized Cost    
 
Fair Value
 
% of Total           
Finance
 
$
5,818,427

 
$
6,026,229

 
32.6
%
Industrial
 
10,147,913

 
10,396,101

 
56.1

Utility
 
1,960,114

 
2,089,718

 
11.3

Total
 
$
17,926,454

 
$
18,512,048

 
100.0
%
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
Estimated
 
 
 
 
Amortized Cost
 
Fair Value
 
% of Total
Finance
 
$
5,408,791

 
$
5,555,044

 
31.4
%
Industrial
 
10,211,426

 
10,129,917

 
57.2

Utility
 
1,955,290

 
2,023,195

 
11.4

Total
 
$
17,575,507

 
$
17,708,156

 
100.0
%
Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities
As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2015 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities, the net amount recognized in the condensed consolidated statements of income (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The 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 $7.3 million as of March 31, 2016 and 2015. There were no changes in these amounts from their respective prior-year ending balances.
Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale
The following table presents the total gross unrealized losses for the 1,450 and 2,080 fixed maturity and equity securities as of March 31, 2016 and December 31, 2015, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
 
 
March 31, 2016
 
December 31, 2015
 
 
Gross
Unrealized
Losses
 
% of Total    
 
Gross
Unrealized
Losses
 
% of Total    
Less than 20%
 
$
275,128

 
71.2
%
 
$
463,109

 
73.8
%
20% or more for less than six months
 
69,739

 
18.0

 
142,495

 
22.7

20% or more for six months or greater
 
41,663

 
10.8

 
21,847

 
3.5

Total
 
$
386,530

 
100.0
%
 
$
627,451

 
100.0
%

11


The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.
The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,450 and 2,080 fixed maturity and equity securities that have estimated fair values below amortized cost as of March 31, 2016 and December 31, 2015, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.
 
 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
March 31, 2016:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
$
2,082,050

 
$
79,986

 
$
1,557,209

 
$
112,210

 
$
3,639,259

 
$
192,196

Canadian and Canadian provincial governments
 
49,560

 
113

 

 

 
49,560

 
113

Residential mortgage-backed securities
 
217,618

 
5,773

 
104,341

 
4,456

 
321,959

 
10,229

Asset-backed securities
 
629,257

 
25,390

 
237,331

 
12,243

 
866,588

 
37,633

Commercial mortgage-backed securities
 
256,118

 
3,936

 
52,341

 
1,995

 
308,459

 
5,931

U.S. government and agencies
 
129,048

 
801

 
70,288

 
2,148

 
199,336

 
2,949

State and political subdivisions
 
14,632

 
510

 
55,295

 
7,529

 
69,927

 
8,039

Other foreign government, supranational and foreign government-sponsored enterprises
 
107,785

 
3,274

 
115,085

 
5,922

 
222,870

 
9,196

Total investment grade securities
 
3,486,068

 
119,783

 
2,191,890

 
146,503

 
5,677,958

 
266,286

 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
573,014

 
65,766

 
137,674

 
28,670

 
710,688

 
94,436

Residential mortgage-backed securities
 
22,774

 
411

 
10,445

 
481

 
33,219

 
892

Asset-backed securities
 
6,506

 
1,368

 
8,818

 
1,696

 
15,324

 
3,064

Commercial mortgage-backed securities
 

 

 
3,207

 
293

 
3,207

 
293

Other foreign government, supranational and foreign government-sponsored enterprises
 
36,134

 
2,482

 
58,897

 
10,013

 
95,031

 
12,495

Total below investment grade securities
 
638,428

 
70,027

 
219,041

 
41,153

 
857,469

 
111,180

Total fixed maturity securities
 
$
4,124,496

 
$
189,810

 
$
2,410,931

 
$
187,656

 
$
6,535,427

 
$
377,466

Non-redeemable preferred stock
 
$
15,334

 
$
356

 
$
22,821

 
$
7,754

 
$
38,155

 
$
8,110

Other equity securities
 
13,263

 
702

 
11,649

 
252

 
24,912

 
954

Total equity securities
 
$
28,597

 
$
1,058

 
$
34,470

 
$
8,006

 
$
63,067

 
$
9,064


12


 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
December 31, 2015:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
$
6,388,148

 
$
323,961

 
$
294,755

 
$
40,861

 
$
6,682,903

 
$
364,822

Canadian and Canadian provincial governments
 
122,746

 
2,532

 

 

 
122,746

 
2,532

Residential mortgage-backed securities
 
452,297

 
7,036

 
82,314

 
4,057

 
534,611

 
11,093

Asset-backed securities
 
581,701

 
9,825

 
199,298

 
7,100

 
780,999

 
16,925

Commercial mortgage-backed securities
 
514,877

 
9,806

 
31,177

 
997

 
546,054

 
10,803

U.S. government and agencies
 
1,010,387

 
57,718

 

 

 
1,010,387

 
57,718

State and political subdivisions
 
157,837

 
5,349

 
13,016

 
3,718

 
170,853

 
9,067

Other foreign government, supranational and foreign government-sponsored enterprises
 
702,962

 
18,279

 
38,379

 
4,206

 
741,341

 
22,485

Total investment grade securities
 
9,930,955

 
434,506

 
658,939

 
60,939

 
10,589,894

 
495,445

Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
554,688

 
71,171

 
114,427

 
31,076

 
669,115

 
102,247

Residential mortgage-backed securities
 
22,646

 
282

 
7,679

 
298

 
30,325

 
580

Asset-backed securities
 
6,772

 
201

 
9,335

 
1,250

 
16,107

 
1,451

Commercial mortgage-backed securities
 
3,253

 
248

 
767

 
117

 
4,020

 
365

Other foreign government, supranational and foreign government-sponsored enterprises
 
60,668

 
7,356

 
31,693

 
11,803

 
92,361

 
19,159

Total below investment grade securities
 
648,027

 
79,258

 
163,901

 
44,544

 
811,928

 
123,802

Total fixed maturity securities
 
$
10,578,982

 
$
513,764

 
$
822,840


$
105,483

 
$
11,401,822

 
$
619,247

Non-redeemable preferred stock
 
$
12,331

 
$
2,175

 
$
12,191

 
$
3,787

 
$
24,522

 
$
5,962

Other equity securities
 
38,327

 
2,242

 

 

 
38,327

 
2,242

Total equity securities
 
$
50,658

 
$
4,417

 
$
12,191


$
3,787

 
$
62,849

 
$
8,204

The Company has no intention to sell, nor does it expect to be required to sell, the securities outlined in the table above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.
Unrealized losses on below investment grade securities as of March 31, 2016 are primarily related to high-yield corporate and other foreign government, supranational and foreign government-sponsored enterprise securities. Unrealized losses decreased across most security types as treasury rates decreased during the first three months of 2016.

Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):
 
 
Three months ended March 31,
 
2016
 
2015
Fixed maturity securities available-for-sale
$
312,414

 
$
269,768

Mortgage loans on real estate
39,792

 
34,772

Policy loans
16,134

 
14,040

Funds withheld at interest
55,980

 
112,260

Short-term investments
975

 
695

Other invested assets
9,824

 
12,027

Investment income
435,119

 
443,562

Investment expense
(17,853
)
 
(16,671
)
Investment income, net of related expenses
$
417,266

 
$
426,891


13


Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in thousands): 
 
Three months ended March 31,
 
2016
 
2015
Fixed maturity and equity securities available for sale:
 
 
 
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings
$
(33,817
)
 
$
(2,527
)
Gain on investment activity
27,192

 
19,201

Loss on investment activity
(11,787
)
 
(13,596
)
Other impairment losses and change in mortgage loan provision
(2,060
)
 
(4,168
)
Derivatives and other, net
(100,414
)
 
8,673

Total investment related gains (losses), net
$
(120,886
)
 
$
7,583

The fixed maturity impairments for the three months ended March 31, 2016 and 2015 were largely related to high-yield energy and emerging market corporate securities. The fluctuations in investment related gains (losses) for derivatives and other for the three months ended March 31, 2016, compared to the same period in 2015, are primarily due to changes in the fair value of embedded derivatives related to modified coinsurance and funds withheld treaties.
During the three months ended March 31, 2016 and 2015, the Company sold fixed maturity and equity securities with fair values of $242.6 million and $199.6 million at losses of $11.8 million and $13.6 million, respectively. The Company generally does not buy and sell securities on a short-term basis.
Securities Borrowing and Other
The Company participates in securities borrowing programs whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from third parties. The borrowed securities are used to provide collateral under affiliated reinsurance transactions. The Company is required to maintain a minimum of 100% of the fair value, or par value, under certain programs, of the borrowed securities as collateral. The collateral consists of rights to reinsurance treaty cash flows. If cash flows from the reinsurance treaties are insufficient to maintain the minimum collateral requirement, the Company may substitute cash or securities to meet the requirement. No cash or securities have been pledged by the Company for this purpose.
The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets.
The following table includes the amount of borrowed securities, repurchased securities pledged and repurchased/reverse repurchased securities pledged and received as of March 31, 2016 and December 31, 2015 (dollars in thousands).
 
March 31, 2016
 
December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Borrowed securities
$
268,800

 
$
282,780

 
$
259,540

 
$
266,297

Repurchase program/reverse repurchase program:
 
 
 
 
 
 
 
Securities pledged
454,264

 
479,427

 
443,435

 
465,889

Securities received
n/a

 
479,482

 
n/a

 
481,197

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

14


 
March 31, 2016
 
Remaining Contractual Maturity of the Agreements
 
Overnight and Continuous
 
Up to 30 Days
 
30-90 Days
 
Greater than 90 Days
 
Total
Collateral on repurchase program
 
 
 
 
 
 
 
 
 
Corporate securities
$

 
$

 
$
1,445

 
$
157,995

 
$
159,440

Residential mortgage-backed securities

 

 

 
97,398

 
97,398

U.S. government and agencies

 

 

 
212,081

 
212,081

Foreign government

 

 

 
3,303

 
3,303

Other
7,205

 

 

 

 
7,205

Total borrowings
$
7,205

 
$

 
$
1,445

 
$
470,777

 
$
479,427

 
 
 
 
 
 
 
 
 
 
Gross amount of recognized liabilities for repurchase agreement in preceding table
 
$
479,482

Amounts related to agreements not included in offsetting disclosure
 
$
55

 
December 31, 2015
 
Remaining Contractual Maturity of the Agreements
 
Overnight and Continuous
 
Up to 30 Days
 
30-90 Days
 
Greater than 90 Days
 
Total
Collateral on repurchase program
 
 
 
 
 
 
 
 
 
Corporate securities
$

 
$
2,951

 
$

 
$
147,324

 
$
150,275

Residential mortgage-backed securities

 

 

 
97,639

 
97,639

U.S. government and agencies

 

 

 
199,431

 
199,431

Foreign government

 

 

 
3,358

 
3,358

Other
15,186

 

 

 

 
15,186

Total borrowings
$
15,186

 
$
2,951

 
$

 
$
447,752

 
$
465,889

 
 
 
 
 
 
 
 
 

Gross amount of recognized liabilities for repurchase agreement in preceding table
 
$
481,197

Amounts related to agreements not included in offsetting disclosure
 
$
15,308

Mortgage Loans on Real Estate
Mortgage loans represented approximately 7.6% and 7.5% of the Company’s total investments as of March 31, 2016 and December 31, 2015. The Company makes mortgage loans on income producing properties that are geographically diversified, with the largest concentration being in the state of California, which represented 22.2% and 22.3% of mortgage loans on real estate as of March 31, 2016 and December 31, 2015, respectively. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans by property type, gross of valuation allowances, is as follows as of March 31, 2016 and December 31, 2015 (dollars in thousands):
 
 
 
March 31, 2016
 
December 31, 2015
 Property type:
 
Recorded
Investment
 
% of Total
 
Recorded
Investment
 
% of Total
Office building
 
$
1,044,806

 
31.7
%
 
$
980,858

 
31.3
%
Retail
 
1,011,124

 
30.6

 
1,026,018

 
32.7

Industrial
 
656,171

 
19.9

 
527,485

 
16.8

Apartment
 
399,653

 
12.1

 
420,014

 
13.4

Other commercial
 
187,566

 
5.7

 
182,389

 
5.8

Total
 
$
3,299,320

 
100.0
%
 
$
3,136,764

 
100.0
%

15


The maturities of the mortgage loans, gross of valuation allowances, as of March 31, 2016 and December 31, 2015 are as follows (dollars in thousands):
 
 
 
March 31, 2016
 
December 31, 2015
 
 
Recorded
Investment
 
% of Total
 
Recorded
Investment
 
% of Total
Due within five years
 
$
844,192

 
25.6
%
 
$
873,280

 
27.8
%
Due after five years through ten years
 
1,709,137

 
51.8

 
1,561,535

 
49.8

Due after ten years
 
745,991

 
22.6

 
701,949

 
22.4

Total
 
$
3,299,320

 
100.0
%
 
$
3,136,764

 
100.0
%
Information regarding the Company’s credit quality indicators, as determined by the Company's internal evaluation methodology for its recorded investment in mortgage loans, gross of valuation allowances, as of March 31, 2016 and December 31, 2015 is as follows (dollars in thousands):
 
 
March 31, 2016
 
December 31, 2015
Internal credit quality grade:
 
Recorded
Investment
 
% of Total
 
Recorded
Investment
 
% of Total
High investment grade
 
$
1,739,464

 
52.8
%
 
$
1,621,601

 
51.7
%
Investment grade
 
1,449,516

 
43.9

 
1,397,996

 
44.6

Average