0000355429pl:StableValueProductsMember2018-12-31
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.DC 20549
FORM 10-Q
ý☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2018
2019  
or
o☐ TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from              to       
 
Commission File Number 001-11339
 
PROTECTIVE LIFE CORPORATION
(Exact name of registrant as specified in its charter) 

DELAWAREDelaware95-2492236
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
 
2801 HIGHWAYHighway 280 SOUTHSouth
BIRMINGHAM, ALABAMABirmingham, Alabama 35223
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code (205) 268-1000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A
 
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 ý☒ No o☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ý☒ No o☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer☐Accelerated Filer☐
Non-accelerated filer☒Smaller Reporting Company☐
Large accelerated filer o
Accelerated Filer o
Non-accelerated filer x
Smaller Reporting Company o
Emerging Growth Companyo
☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý☒
 
Number of shares of Common Stock, $0.01 Par Value, outstanding as of October 23, 2018:2019:  1,000





Table of Contents
PROTECTIVE LIFE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 20182019
 
TABLE OF CONTENTS
 
PART I
 
Page
Item 1.Financial Statements (unaudited):
2
3
4
6
78
910
Item 2.
6067
Item 3.
111122
Item 4.
111122
PART II
Item 1.
122
Item 1.1A.
111122
Item 1A.2.
111
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
117126
Item 6.
118128
119129





Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)(Dollars In Thousands)
Revenues  
Premiums and policy fees$1,028,082  $878,182  $2,904,293  $2,709,216  
Reinsurance ceded(316,983) (269,335) (975,356) (1,005,699) 
Net of reinsurance ceded711,099  608,847  1,928,937  1,703,517  
Net investment income785,285  672,139  2,197,020  1,809,464  
Realized investment gains (losses)(13,994) (47,334) (52,622) (94,211) 
Other-than-temporary impairment losses(39,752) (14) (41,245) (715) 
Portion recognized in other comprehensive income (before taxes)28,934  —  26,587  (2,949) 
Net impairment losses recognized in earnings(10,818) (14) (14,658) (3,664) 
Other income147,139  113,530  392,839  341,802  
Total revenues1,618,711  1,347,168  4,451,516  3,756,908  
Benefits and expenses    
Benefits and settlement expenses, net of reinsurance ceded: (three and nine months 2019 - $227,027 and $742,213; three and nine months 2018 - $215,848 and $861,501)1,172,297  952,353  3,149,050  2,600,703  
Amortization of deferred policy acquisition costs and value of business acquired61,319  33,511  125,502  144,009  
Other operating expenses, net of reinsurance ceded: (three and nine months 2019 - $58,555 and $164,970; three and nine months 2018 - $54,439 and $149,115)257,252  224,585  744,132  684,907  
Total benefits and expenses1,490,868  1,210,449  4,018,684  3,429,619  
Income before income tax127,843  136,719  432,832  327,289  
Income tax expense27,217  26,619  85,811  61,582  
Net income$100,626  $110,100  $347,021  $265,707  

 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Revenues 
      
Premiums and policy fees$878,182
 $855,088
 $2,709,216
 $2,583,813
Reinsurance ceded(269,335) (325,120) (1,005,699) (984,094)
Net of reinsurance ceded608,847
 529,968

1,703,517
 1,599,719
Net investment income672,139
 507,914
 1,809,464
 1,522,098
Realized investment gains (losses): 
  
  
  
Derivative financial instruments(27,465) (82,341) 62,859
 (260,407)
All other investments(19,869) 18,150
 (157,070) 94,708
Other-than-temporary impairment losses(14) (366) (715) (3,124)
Portion recognized in other comprehensive income (before taxes)—
 93
 (2,949) (7,765)
Net impairment losses recognized in earnings(14) (273) (3,664) (10,889)
Other income113,530
 110,970
 341,802
 331,523
Total revenues1,347,168
 1,084,388
 3,756,908
 3,276,752
Benefits and expenses 
  
  
  
Benefits and settlement expenses, net of reinsurance ceded: (three and nine months 2018 - $215,848 and $861,501; three and nine months 2017 - $256,703 and $806,314)952,353
 743,934
 2,600,703
 2,205,937
Amortization of deferred policy acquisition costs and value of business acquired33,511
 3,991
 144,009
 47,612
Other operating expenses, net of reinsurance ceded: (three and nine months 2018 - $54,439 and $149,115; three and nine months 2017 - $57,293 and $161,615)224,585
 225,613
 684,907
 674,236
Total benefits and expenses1,210,449
 973,538
 3,429,619
 2,927,785
Income before income tax136,719
 110,850
 327,289
 348,967
Income tax expense26,619
 28,308
 61,582
 106,743
Net income$110,100
 $82,542
 $265,707
 $242,224
See Notes to Consolidated Condensed Financial Statements

2
Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)(Dollars In Thousands)
Net income$100,626  $110,100  $347,021  $265,707  
Other comprehensive income (loss):  
Change in net unrealized gains (losses) on investments, net of income tax: (three and nine months 2019 - $227,013 and $793,599; three and nine months 2018 - $(53,488) and $(320,520))854,000  (201,216) 2,985,443  (1,206,478) 
Reclassification adjustment for investment amounts included in net income, net of income tax: (three and nine months 2019 - $(1,022) and $(1,521); three and nine months 2018 - $427 and $(554))(3,846) 1,605  (5,722) (2,086) 
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three and nine months 2019 - $(5,318) and $1,146; three and nine months 2018 - $— and $6)(20,008) —  4,308  22  
Change in accumulated (loss) gain - derivatives, net of income tax: (three and nine months 2019 - $(893) and $(2,157); three and nine months 2018 - $61 and $813)(3,362) 229  (8,116) 3,060  
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three and nine months 2019 - $157 and $285; three and nine months 2018 - $101 and $168)589  380  1,075  631  
Total other comprehensive income (loss)827,373  (199,002) 2,976,988  (1,204,851) 
Total comprehensive income (loss)$927,999  $(88,902) $3,324,009  $(939,144) 

 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Net income$110,100
 $82,542
 $265,707
 $242,224
Other comprehensive income (loss): 
      
Change in net unrealized gains (losses) on investments, net of income tax: (three months: 2018 - $(53,488); 2017 - $54,464; nine months: 2018 - $(320,520); 2017 - $295,743)(201,216) 101,148
 (1,206,478) 549,234
Reclassification adjustment for investment amounts included in net income, net of income tax: (three months: 2018 - $427; 2017 - $(146); nine months: 2018 - $(554); 2017 - $631)1,605
 (271) (2,086) 1,174
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three months: 2018 - $0; 2017 - $452; nine months: 2018 - $6; 2017 - $3,837)—
 839
 22
 7,125
Change in accumulated (loss) gain - derivatives, net of income tax: (three months: 2018 - $61; 2017 - $445; nine months: 2018 - $813; 2017 - $19)229
 828
 3,060
 36
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three months: 2018 - $101; 2017 - $14; nine months: 2018 - $168; 2017 - $139)380
 24
 631
 257
Total other comprehensive income (loss)(199,002) 102,568
 (1,204,851) 557,826
Total comprehensive income (loss)$(88,902) $185,110
 $(939,144) $800,050
See Notes to Consolidated Condensed Financial Statements

3
Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 
As of
September 30, 2019December 31, 2018
(Dollars In Thousands)
Assets  
Fixed maturities, at fair value (amortized cost: 2019 - $63,659,719; 2018 - $54,466,305)$66,680,596  $51,904,699  
Fixed maturities, at amortized cost (fair value: 2019 - $2,685,076; 2018 - $2,547,210)2,544,054  2,633,474  
Equity securities, at fair value (cost: 2019 - $604,474; 2018 - $627,087)619,341  595,884  
Mortgage loans (related to securitizations: 2019 - $—; 2018 - $134)9,327,911  7,724,733  
Investment real estate, net of accumulated depreciation (2019 - $350; 2018 - $251)7,274  6,816  
Policy loans1,686,832  1,695,886  
Other long-term investments1,149,755  759,354  
Short-term investments1,597,919  807,283  
Total investments83,613,682  66,128,129  
Cash293,299  173,714  
Accrued investment income737,549  634,921  
Accounts and premiums receivable120,779  113,507  
Reinsurance receivables4,477,663  4,764,743  
Deferred policy acquisition costs and value of business acquired3,424,874  3,023,154  
Goodwill825,511  825,511  
Other intangibles, net of accumulated amortization (2019 - $239,846; 2018 - $197,583)596,336  613,431  
Property and equipment, net of accumulated depreciation (2019 - $44,346; 2018 - $33,199)214,425  184,957  
Other assets1,849,949  250,036  
Income tax receivable40,363  —  
Assets related to separate accounts: 
Variable annuity12,542,212  12,288,919  
Variable universal life1,066,999  937,732  
Reinsurance assumed9,947,404  —  
Total assets$119,751,045  $89,938,754  

See Notes to Consolidated Condensed Financial Statements
 As of
 September 30, 2018 December 31, 2017
 (Dollars In Thousands)
Assets 
  
Fixed maturities, at fair value (amortized cost: 2018 - $54,555,431; 2017 - $41,153,551)$52,381,464
 $41,176,052
Fixed maturities, at amortized cost (fair value: 2018 - $2,577,841; 2017 - $2,776,327)2,653,605
 2,718,904
Equity securities, at fair value (cost: 2018 - $663,338; 2017 - $740,813)662,880
 754,360
Mortgage loans (related to securitizations: 2018 - $505; 2017 - $226,409)7,572,349
 6,817,723
Investment real estate, net of accumulated depreciation (2018 - $219; 2017 - $132)7,147
 8,355
Policy loans1,703,462
 1,615,615
Other long-term investments1,051,719
 915,595
Short-term investments532,053
 615,210
Total investments66,564,679

54,621,814
Cash194,460
 252,310
Accrued investment income652,462
 491,802
Accounts and premiums receivable167,635
 124,934
Reinsurance receivables4,816,606
 5,075,698
Deferred policy acquisition costs and value of business acquired2,974,293
 2,199,577
Goodwill793,470
 793,470
Other intangibles, net of accumulated amortization (2018 - $183,268; 2017 - $140,368)626,424
 663,572
Property and equipment, net of accumulated depreciation (2018 - $30,569; 2017 - $22,926)106,638
 111,417
Other assets238,068
 227,357
Income tax receivable—
 76,543
Assets related to separate accounts   
Variable annuity13,555,469
 13,956,071
Variable universal life1,077,842
 1,035,202
Total assets$91,768,046

$79,629,767
4

Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(continued)
 
As of
September 30, 2019December 31, 2018
 (Dollars In Thousands)
Liabilities  
Future policy benefits and claims$53,892,978  $41,901,552  
Unearned premiums887,079  872,594  
Total policy liabilities and accruals54,780,057  42,774,146  
Stable value product account balances5,450,981  5,234,731  
Annuity account balances14,181,458  13,720,081  
Other policyholders’ funds1,622,475  1,128,379  
Other liabilities3,884,452  2,374,112  
Income tax payable—  38,547  
Deferred income taxes1,411,539  839,316  
Non-recourse funding obligations2,545,049  2,632,497  
Secured financing liabilities352,732  495,307  
Debt2,069,224  1,101,827  
Subordinated debt605,528  605,426  
Liabilities related to separate accounts:  
Variable annuity12,542,212  12,288,919  
Variable universal life1,066,999  937,732  
Reinsurance assumed9,947,404  —  
Total liabilities110,460,110  84,171,020  
Commitments and contingencies - Note 11
Shareowner’s equity  
Common Stock: 2019 and 2018 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000—  —  
Additional paid-in-capital5,804,059  5,554,059  
Retained earnings1,935,654  1,639,441  
Accumulated other comprehensive income (loss):  
Net unrealized (losses) gains on investments, net of income tax: (2019 - $423,248; 2018 - $(368,830))1,592,217  (1,387,504) 
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2019 - $(4,908); 2018 - $(6,054))(18,465) (22,773) 
Accumulated gain (loss) - derivatives, net of income tax: (2019 - $(1,873); 2018 - $(2))(7,048) (7) 
Postretirement benefits liability adjustment, net of income tax: (2019 - $(4,112); 2018 - $(4,112))(15,482) (15,482) 
Total shareowner’s equity9,290,935  5,767,734  
Total liabilities and shareowner’s equity$119,751,045  $89,938,754  

 As of
 September 30, 2018 December 31, 2017
 (Dollars In Thousands)
Liabilities 
  
Future policy benefits and claims$42,013,542
 $30,957,592
Unearned premiums875,095
 875,405
Total policy liabilities and accruals42,888,637
 31,832,997
Stable value product account balances5,211,668
 4,698,371
Annuity account balances13,590,482
 10,921,190
Other policyholders’ funds1,142,522
 1,267,198
Other liabilities2,575,056
 2,353,565
Income tax payable1,259
 —
Deferred income taxes890,421
 1,232,407
Non-recourse funding obligations2,651,967
 2,747,477
Secured financing liabilities514,413
 1,017,749
Debt1,107,388
 945,052
Subordinated debt605,392
 495,289
Liabilities related to separate accounts 
  
Variable annuity13,555,469
 13,956,071
Variable universal life1,077,842
 1,035,202
Total liabilities85,812,516

72,502,568
Commitments and contingencies - Note 12

 

Shareowner’s equity 
  
Common Stock: 2018 and 2017 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000—
 —
Additional paid-in-capital5,554,059
 5,554,059
Retained earnings1,604,178
 1,560,444
Accumulated other comprehensive income (loss): 
  
Net unrealized (losses) gains on investments, net of income tax: (2018 - $317,185; 2017 - $6,883)(1,193,220) 25,896
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2018 - $0; 2017 - $(6))—
 (22)
Accumulated gain (loss) - derivatives, net of income tax: (2018 - $1,180; 2017 - $198)4,438
 747
Postretirement benefits liability adjustment, net of income tax: (2018 - $(3,469); 2017 - $(3,469))(13,925) (13,925)
Total shareowner’s equity5,955,530

7,127,199
Total liabilities and shareowner’s equity$91,768,046

$79,629,767
See Notes to Consolidated Condensed Financial Statements

5
Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)


Common StockAdditional Paid-In- CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Shareowner’s Equity
 (Dollars In Thousands)
Balance, December 31, 2018$—  $5,554,059  $1,639,441  $(1,425,766) $5,767,734  
Net income for the three months ended March 31, 2019138,284  138,284  
Other comprehensive income1,141,817  1,141,817  
Comprehensive income for the three months ended March 31, 20191,280,101  
Cumulative effect adjustments(50,808) (50,808) 
Balance, March 31, 2019—  5,554,059  1,726,917  (283,949) 6,997,027  
Net income for the three months ended June 30, 2019      108,111     108,111  
Other comprehensive income         1,007,798  1,007,798  
Comprehensive income for the three months ended June 30, 2019            1,115,909  
Capital contributions from parent250,000  250,000  
Balance, June 30, 2019—  5,804,059  1,835,028  723,849  8,362,936  
Net income for the three months ended September 30, 2019100,626  100,626  
Other comprehensive income827,373  827,373  
Comprehensive income for the three months ended September 30, 2019927,999  
Balance, September 30, 2019$—  $5,804,059  $1,935,654  $1,551,222  $9,290,935  



See Notes to Consolidated Condensed Financial Statements
6
Table of Contents
 
Common
Stock
 
Additional
Paid-In-
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareowner’s
Equity
 (Dollars In Thousands)
Balance, December 31, 2017$—
 $5,554,059
 $1,560,444
 $12,696
 $7,127,199
Net income for the nine months ended September 30, 2018 
  
 265,707
  
 265,707
Other comprehensive loss 
  
  
 (1,204,851) (1,204,851)
Comprehensive loss for the nine months ended September 30, 2018 
  
  
  
 (939,144)
Cumulative effect adjustments    (81,973) (10,552) (92,525)
Dividends to parent    (140,000)   (140,000)
Balance, September 30, 2018$—
 $5,554,059
 $1,604,178
 $(1,202,707) $5,955,530
PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)
(continued)



Common StockAdditional Paid-In- CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Shareowner’s Equity
 (Dollars In Thousands)
Balance, December 31, 2017$—  $5,554,059  $1,560,444  $12,696  $7,127,199  
Net income for the three months ended March 31, 201874,112  74,112  
Other comprehensive loss(576,444) (576,444) 
Comprehensive loss for the three months ended March 31, 2018(502,332) 
Cumulative effect adjustments(81,973) (10,552) (92,525) 
Dividends to parent(140,000) (140,000) 
Balance, March 31, 2018—  5,554,059  1,412,583  (574,300) 6,392,342  
Net income for the three months ended June 30, 2018      81,495     81,495  
Other comprehensive loss         (429,405) (429,405) 
Comprehensive loss for the three months ended June 30, 2018            (347,910) 
Balance, June 30, 2018—  5,554,059  1,494,078  (1,003,705) 6,044,432  
Net income for the three months ended September 30, 2018110,100  110,100  
Other comprehensive loss(199,002) (199,002) 
Other comprehensive loss for the three months ended September 30, 2018(88,902) 
Balance, September 30, 2018$—  $5,554,059  $1,604,178  $(1,202,707) $5,955,530  

See Notes to Consolidated Condensed Financial Statements
7
Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 


For The
Nine Months Ended
September 30,
20192018
 (Dollars In Thousands)
Cash flows from operating activities 
Net income$347,021  $265,707  
Adjustments to reconcile net income to net cash used in operating activities:  
Realized investment (gains) losses67,280  97,875  
Amortization of DAC and VOBA125,502  144,009  
Capitalization of DAC(341,883) (331,277) 
Depreciation and amortization expense56,312  50,826  
Deferred income tax(205,151) 10,340  
Accrued income tax(78,910) 77,802  
Interest credited to universal life and investment products954,213  689,612  
Policy fees assessed on universal life and investment products(1,269,614) (1,139,583) 
Change in reinsurance receivables287,080  259,429  
Change in accrued investment income and other receivables(562) (11,823) 
Change in policy liabilities and other policyholders’ funds of traditional life and health products(545,433) (491,110) 
Trading securities:  
Maturities and principal reductions of investments82,603  140,851  
Sale of investments327,852  307,632  
Cost of investments acquired(270,800) (403,355) 
Other net change in trading securities(57,240) 10,641  
Amortization of premiums and accretion of discounts on investments and mortgage loans238,181  232,401  
Change in other liabilities505,388  21,569  
Other, net(188,415) (44,951) 
Net cash provided by (used in) operating activities$33,424  $(113,405) 
 For The
Nine Months Ended
September 30,
 2018 2017
 (Dollars In Thousands)
Cash flows from operating activities   
Net income$265,707
 $242,224
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Realized investment (gains) losses97,875
 176,588
Amortization of DAC and VOBA144,009
 47,612
Capitalization of DAC(331,277) (249,640)
Depreciation and amortization expense50,826
 49,227
Deferred income tax10,340
 86,463
Accrued income tax77,802
 17,453
Interest credited to universal life and investment products630,770
 507,229
Policy fees assessed on universal life and investment products(1,146,980) (1,004,829)
Change in reinsurance receivables259,429
 132,617
Change in accrued investment income and other receivables(11,823) (17,550)
Change in policy liabilities and other policyholders’ funds of traditional life and health products(512,879) (273,640)
Trading securities: 
  
Maturities and principal reductions of investments140,851
 131,563
Sale of investments307,632
 195,733
Cost of investments acquired(403,355) (277,423)
Other net change in trading securities10,641
 17,741
Amortization of premiums and accretion of discounts on investments and mortgage loans232,401
 232,939
Change in other liabilities21,569
 36,239
Other, net(44,952) (58,308)
Net cash used in operating activities$(201,414) $(7,762)




 

See Notes to Consolidated Condensed Financial Statements
8
Table of Contents
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)




For The
Nine Months Ended
September 30,
20192018
(Dollars In Thousands)
Cash flows from investing activities  
Maturities and principal reductions of investments, available-for-sale$1,364,815  $1,249,048  
Sale of investments, available-for-sale3,164,002  1,935,178  
Cost of investments acquired, available-for-sale(4,841,261) (4,304,036) 
Change in investments, held-to-maturity86,000  62,000  
Mortgage loans:  
New lendings(968,656) (1,185,316) 
Repayments723,325  797,450  
Change in investment real estate, net(319) 647  
Change in policy loans, net53,056  43,642  
Change in other long-term investments, net81,809  (292,893) 
Change in short-term investments, net(722,615) 82,748  
Net unsettled security transactions(154,791) 84,036  
Purchase of property, equipment, and intangibles(24,511) (9,888) 
Cash received from reinsurance transaction—  20,669  
Payment for business acquisition, net of cash acquired(777,807) —  
Net cash used in investing activities$(2,016,953) $(1,516,715) 
Cash flows from financing activities  
Borrowings under line of credit arrangement, debt, and subordinated debt$1,000,000  $1,075,000  
Principal payments on line of credit arrangement, debt, and subordinated debt(9,325) (757,884) 
Issuance (repayment) of non-recourse funding obligations(86,000) (100,000) 
Secured financing liabilities(142,575) (503,336) 
Dividends to shareowner—  (140,000) 
Capital contributions from parent250,000  —  
Deposits to universal life and investment contracts4,258,248  4,416,962  
Withdrawals from universal life and investment contracts(3,166,505) (2,418,181) 
Other financing activities, net(729) (291) 
Net cash provided by financing activities$2,103,114  $1,572,270  
Change in cash119,585  (57,850) 
Cash at beginning of period173,714  252,310  
Cash at end of period$293,299  $194,460  

See Notes to Consolidated Condensed Financial Statements
9
 For The
Nine Months Ended
September 30,
 2018 2017
 (Dollars In Thousands)
Cash flows from investing activities 
  
Maturities and principal reductions of investments, available-for-sale$1,249,048
 $541,155
Sale of investments, available-for-sale1,935,178
 1,302,576
Cost of investments acquired, available-for-sale(4,304,036) (3,248,911)
Change in investments, held-to-maturity62,000
 36,000
Mortgage loans: 
  
New lendings(1,185,316) (1,081,226)
Repayments797,450
 644,189
Change in investment real estate, net647
 3,679
Change in policy loans, net43,642
 24,280
Change in other long-term investments, net(292,893) (282,506)
Change in short-term investments, net82,748
 (203,169)
Net unsettled security transactions84,036
 349,544
Purchase of property, equipment, and intangibles(9,888) (34,229)
Cash received from reinsurance transaction20,669
 —
Net cash used in investing activities$(1,516,715) $(1,948,618)
Cash flows from financing activities 
  
Borrowings under line of credit arrangement, debt, and subordinated debt$1,075,000
 $975,000
Principal payments on line of credit arrangement, debt, and subordinated debt(757,884) (934,123)
Issuance (repayment) of non-recourse funding obligations(100,000) (36,000)
Secured financing liabilities(503,336) (198,165)
Dividends to shareowner(140,000) (143,848)
Investment product deposits and change in universal life deposits4,397,886
 3,901,051
Investment product withdrawals(2,311,096) (1,698,062)
Other financing activities, net(291) (93)
Net cash provided by financing activities$1,660,279
 $1,865,760
Change in cash(57,850) (90,620)
Cash at beginning of period252,310
 348,182
Cash at end of period$194,460
 $257,562
Table of Contents

PROTECTIVE LIFE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.BASIS OF PRESENTATION
Basis of Presentation
On February 1, 2015, Protective Life Corporation (the “Company”) became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into the Company (the “Merger”). Prior to February 1, 2015, the Company’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, the Company remains as an SEC registrant within the United States. The Company is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. Founded in 1907, Protective Life Insurance Company (“PLICO”) is the Company’s largest operating subsidiary.
These consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the interim periods presented herein. In the opinion of management, the accompanying consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statementpresentation of the results for the interim periods presented. Operating results for the three and nine months ended September 30, 2018,2019, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.2019. The year-end consolidated condensed financial data included herein was derived from audited financial statements but this report does not include all disclosures required by GAAP within this report.GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.
During the fourth quarter of 2018, the Company identified certain cash flows that were incorrectly classified in the Company’s historical consolidated statements of cash flows. The Company has determined that these misclassifications were not material to the financial statements for any period. These amounts have been corrected in the comparative consolidated statements of cash flows for the nine months ended September 30, 2019. The nine months ended September 30, 2018 amounts have been revised resulting in an increase in operating cash flows and corresponding decrease in financing cash flows of $88.0 million compared to the amounts previously reported.
Entities Included
The consolidated condensed financial statements in this report include the accounts of Protective Life Corporation and subsidiaries and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.
During the second quarter of 2019, the Company recorded an adjustment related to prior periods to correct an error pertaining to the deferred policy acquisition costs (“DAC”) tax reimbursements paid under reinsurance agreements the Company entered in previous years. The adjustment resulted in an $8.96 million increase to accounts and premiums receivable on the Company’s consolidated balance sheet, with a corresponding increase to income. The Company concluded that the adjustment was not quantitatively or qualitatively material to previously reported periods or the current interim period. As a result, this adjustment was recorded by the Company within the consolidated condensed financial statements as of and for the period ended June 30, 2019.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. There were no significant changes to the Company’s accounting policies during the nine months ended September 30, 2018 other than those discussed below.2019.
Property and Casualty Insurance Products
Property and casualty insurance products include service contract business, surety bonds, and guaranteed asset protection (“GAP”). Premiums and fees associated with service contracts and GAP products are recognized based on expected claim patterns. For all other products, premiums are generally recognized over the terms of the contract on a pro-rata basis. Commissions and fee income associated with other products are recognized as earned when the related services are provided to the customer. Unearned premium reserves are maintained for the portion of the premiums that is related to the unexpired period of the policy. Benefit reserves are recorded when insured events occur. Benefit reserves include case basis reserves for known but unpaid claims as of the balance sheet date as well as incurred but not reported (“IBNR”) reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date. The case basis reserves and IBNR are calculated based on historical experience and on assumptions relating to claim severity and frequency, the level of used vehicle prices, and other factors. These assumptions are modified as necessary to reflect anticipated trends.

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. In consideration of the amendments in this Update, the Company revised its recognition pattern for administrative fees associated with certain vehicle service and GAP products. Previously, these fees were recognized based on the work effort involved in satisfying the Company’s contract obligations. The Company will recognize these fees on a claims occurrence basis in future periods. To reflect this change in accounting principle, the Company recorded a cumulative effect adjustment as of January 1, 2018 that resulted in a decrease in retained earnings of $92.5 million. The pre-tax impact to each affected line item on the Company’s financial statements is reflected in the table below:

10
  As of September 30, 2018
  As Reported Previous Accounting Method
  (Dollars In Millions)
Financial Statement Line Item:    
Balance Sheet    
Deferred policy acquisition costs and value of business acquired $2,974.3
 $2,832.4
Other liabilities $2,575.1
 $2,308.7

Table of Contents
  
For The
Three Months Ended
September 30, 2018
 
For The
Nine Months Ended
September 30, 2018
  As Reported Previous Accounting Method As Reported Previous Accounting Method
  (Dollars In Millions) (Dollars In Millions)
Financial Statement Line Item:        
Statements of Income        
Other income $113.5
 $115.1
 $341.8
 $345.3
Amortization of deferred policy acquisition costs and value of business acquired $33.5
 $21.7
 $144.0
 $107.3
Other operating expenses, net of reinsurance ceded $224.6
 $237.7
 $684.9
 $725.1
Accounting Pronouncements Recently Adopted
ASUAccounting Standards Update (“ASU” or “Update”) No. 2014-092016-02 - Revenue from Contracts with Customers (Topic 606). This Update provides for significant revisions to the recognition of revenue from contracts with customers across various industries. Under the new guidance, entities are required to apply a prescribed 5-step process to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting for revenues associated with insurance products is not within the scope of this Update. The Update was originally effective for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14 - Revenues from Contracts with Customers: Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. The Company adopted this Update using the modified retrospective approach via a cumulative effect adjustment to retained earnings as of January 1, 2018. The amendments in the Update, along with clarifying updates issued subsequent to ASU 2014-09, impacted some of the Company’s smaller lines of business, specifically revenues at the Company’s affiliated broker dealers and insurance agency, and certain revenues associated with the Company’s Asset Protection products. The lines of business to which the revised guidance applies are not material to the Company’s financial statements. In consideration of the amendments in this Update, the Company revised its recognition pattern for administrative fees associated with certain vehicle service and GAP products. Previously, these fees were recognized based on the work effort involved in satisfying the Company’s contract obligations. The Company will recognize these fees on a claims occurrence basis in future periods. To reflect this change in accounting principle, the Company recorded a cumulative effect adjustment as of January 1, 2018 that resulted in a decrease in retained earnings of $92.5 million. The Company also implemented minor changes to its accounting and disclosures with respect to the lines of business referenced above to ensure compliance with the revised guidance. See above for additional discussion.
ASU No. 2016-01 - Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities.Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably,leases. The most significant change relates to the accounting model used by lessees. The Update requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair valueall leases with changes in fair value recognized in net income. The Update also introduces a single-step impairment model for equity investments without a readily determinable fair value. Additionally, the Update requires changes in instrument-specific credit risk for fair value option liabilitiesterms greater than 12 months to be recorded on the balance sheet in other comprehensive income.the form of a lease asset and liability. The lease asset and liability are measured at the present value of the minimum lease payments less any upfront payments or fees. The amendments in thisthe Update arebecame effective for annual and interim periods beginning after December 15, 2017 and were applied2018 on a modified retrospective basis. The Company recorded a cumulative-

cumulative effect adjustment atas of the date of adoption, January 1, 2018, transferring unrealized gains2019, establishing a right of use asset and losseslease liability of $21.5 million on available-for-sale equity securities to retained earnings from accumulated its consolidated condensed balance sheet reflected in the property and equipment and other comprehensive income. The impact of this adjustment, net of income tax, resulted in a $10.6 million increase to retained earnings and a corresponding decrease to accumulated other comprehensive income, resulting in no net impact to consolidated shareowner’s equity. The Company has updated its disclosures in Note 5, Investment Operations and Note 6, Fair Value of Financial Instruments in accordance with the ASU.liabilities line items, respectively.


ASU No. 2016-152017-08 - Statement of Cash Flows: Classification of Certain Cash ReceiptsReceivables - Nonrefundable Fees and Cash Payments. Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update require that premiums on callable debt securities be amortized to the first call date. This is a change from previous guidance, under which premiums are intendedamortized to reduce diversity in practice in how certain transactions are classified in the statementmaturity date of cash flows. Specific transactions addressed in the new guidance include:Debt prepayment/extinguishment costs, contingent consideration payments, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investments. security. The Update does not introduce any new accounting or financial reporting requirements, and isamendments became effective for annual and interim periods beginning after December 15, 2017 using2018. The Company recorded a cumulative effect adjustment as of the retrospective method. There was no financial impact.adoption date, January 1, 2019, resulting in a $50.8 million reduction to retained earnings, net of income tax.


ASU No. 2016-182017-12 - Statement of Cash FlowsDerivatives and Hedging (Topic 230)815): Restricted Cash (a consensus of the FASB Emerging Task Force). Targeted Improvements to Accounting for Hedging Activities. The amendments in this update provide guidance on the presentationUpdate are designed to permit hedge accounting to be applied to a broader range of restricted cash or restricted cash equivalentshedging strategies as well as to more closely align hedge accounting and risk management objectives. Specific provisions include requiring changes in the statementfair value of cash flows, thereby reducing diversity in practice related to the presentation of these amounts. The amendments require that a statement of cash flows explain the change during the periodhedging instrument be recorded in the total of cash, cash equivalents, and amounts generally describedsame income statement line as restricted cash or restricted cash equivalents. Thethe hedged item when it affects earnings. In addition, after a hedge has initially qualified as an effective hedge the Update is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact topermits the Company on adoption.

ASU No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definitionuse of a Business. The purpose of this update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.qualitative hedge effectiveness test in subsequent periods. The amendments in thethis Update provide a specific test by which an entity may determine whether an acquisition involves a set of assets or a business. The amendments in the Update are to be applied prospectivelybecame effective for annual and interim periods beginning after December 15, 2017. The Company has reviewed the revised requirements,2018 and does not anticipate that the changes will impact its policies or recent conclusions related to its acquisition activities.

ASU No. 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments inearly adoption is permitted. At adoption, January 1, 2019, this update require entities to disaggregate the current-service-cost component from other components of net benefit cost and present it with other current compensation costs in the income statement. The other components of net benefit cost must be presented outside of income from operations if that subtotal is presented. In addition, the Update requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendments in this update are effective for interim and annual periods beginning after December 15, 2017. As provided for in the ASU, the Company expects to apply the provisions of the statement retrospectively for components of net periodic pension costs and prospectively for capitalization of the service costs component of net periodic costs and net periodic postretirement benefits. The Updatestandard did not have an impact on the Company’s financial position, results of operations or current disclosures.financial results.
Accounting Pronouncements Not Yet Adopted

ASU No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change will relate to the accounting model used by lessees. The Update will require all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability will be measured at the present value of the minimum lease payments less any upfront payments or fees. The amendments in the Update are effective for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis. The Company has completed an inventory of all leases in the organization. Based on our lease portfolio as of September 30, 2018, the Company expects to record a right of use asset and lease liability of approximately $21 million on its consolidated condensed balance sheet in the period of adoption. However, the ultimate impact of adopting the ASU will depend on the Company’s lease portfolio as of the adoption date.

ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update, along with related amendments in ASU No. 2018-19 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. The Company has completed its scoping and gap analysis with respect to the implementation of the new standard. Additionally, the Company is reviewingin the testing phase with respect to its policiescalculation of the allowance for credit losses for its portfolio of commercial mortgage loans and mortgage loan commitments and reinsurance receivables. A vendor-sourced credit loss model will be used to measure the allowance for the majority of the Company’s commercial mortgage loans and unfunded mortgage loan commitments, and the Company will use an internally-developed calculation to measure the allowance for reinsurance receivables. Testing and review activities which have not yet been completed include final user acceptance testing of the vendor model for commercial mortgage loans, as well as final approval of certain model inputs such as economic forecasts and mean reversion parameters which will materially impact the final allowance. The Company is on track to complete its testing and assumption review in the fourth quarter. In addition to development and testing of the calculation of the allowance for credit losses for these assets, the Company continues to implement new processes and controls with respect to ensure compliancethe measurement and recognition of the allowance, along with the requirements in this Update, upon adoption,additional disclosures required by the Update. The Company expects to record a cumulative effect adjustment which includes an additional allowance for credit losses for commercial mortgage loans and assessing the impact this standard will have on its operations and financial results.

ASU No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. reinsurance receivables. The amendments in this Update require that premiums on callable debt securities be amortized to the first call date. This is a change from current guidance, under which premiums are amortized to the maturity dateamount of the security. The amendments are effective for annual and interim periods beginning after December 15, 2018, and early adoption

is permitted. Transition will be through a modified retrospective approach in which the cumulative effect of application isadjustment cannot yet be reasonably estimated, as the allowance for credit losses recorded to retained earnings at the beginning of the annual period in which an entity adopts the revised guidance. Based on our population of callable debt securities held as of September 30, 2018, the Company estimates it would record a reduction to retained earnings of approximately $56.1 million as a result of adopting the ASU. However, the adoption impact will ultimately depend on the population of callable debt securities held as of the adoption date.

ASU No. 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this Update are designed to permit hedge accounting toJanuary 1, 2020 may be applied to a broader range of hedging strategies as well as to more closely align hedge accounting and risk management objectives. Specific provisions include requiringmaterially impacted by a) model inputs that have not been finalized or b) changes in the fair valuemacroeconomic conditions or other events and circumstances that cannot be reasonably forecasted.

11
Table of a hedging instrument be recorded in the same income statement line as the hedged item when it affects earnings. In addition, after a hedge has initially qualified as an effective hedge the Update permits the use of a qualitative hedge effectiveness test in subsequent periods. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its operations or financial results.Contents

ASU No. 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. The amendments in this Update are designed to make improvements to the existing recognition, measurement, presentation, and disclosure requirements for certain long-duration contracts issued by an insurance company. The new amendments require insurance entities to provide a more current measure of the liability for future policy benefits for traditional and limited-payment contracts by regularly refining the liability for actual past experience and updated future assumptions. This differs from current requirements where assumptions are locked-in at contract issuance for these contract types. In addition, the updated liability will be discounted using an upper-medium grade (low-credit-risk) fixed income instrument yield that reflects the characteristics of the liability which differs from currently used rates based on the invested assets supporting the liability. In addition, the amendments introduce new requirements to assess market-based insurance contract options and guarantees for Market Risk Benefits and measure them at fair value. This Update also requires insurance entities to amortize deferred acquisition costs on a constant-level basis over the expected life of the contract. Finally this Update requires new disclosures including liability rollforwards and information about significant inputs, judgements,judgments, assumptions, and methods used in the measurement. The amendments in this Update are currently effective for annual and interim periods beginning after December 15, 2020 with early adoption permitted. However, in October 2019, the Financial Accounting Standards Board (the “FASB”) affirmed their previous decision to delay the effective date of the Update by one year for larger SEC filers and two or three years for others, with early adoption permitted. A final Update is currently being drafted and when issued will extend the implementation deadline for the Company by one year to periods beginning after December 15, 2021. The Company has started its implementation efforts and is currently reviewing its policies, processes, and applicable systems to determine the impact this standard will have on its operations and financial results. While it is not possible to estimate the expected impact of adoption at this time, given the nature and extent of the required changes to a significant portion of the Company’s operations, adoption is expected to have a significant impact on our consolidated financial statements and related disclosures and will require changes to certain of our processes, systems, and controls. 

ASU No. 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments in this update require customers in a cloud computing arrangement accounted for as a service contract to capitalize implementation costs incurred in the arrangement.Capitalization should be based on the nature of the costs and the project stage at which the cost was incurred. The amendments in the Update are effective for annual and interim periods beginning after December 15, 2019 on either a retrospective or prospective basis. There will be no impact at the adoption date as the Company will adopt the amendments on a prospective basis.
3.SIGNIFICANT TRANSACTIONS
The Lincoln National Life Insurance Company

On May 1, 2018, The Lincoln National Life Insurance Company (“Lincoln Life”) completed its previously announced acquisition (the “Closing”“Liberty Closing”) of Liberty Mutual Group Inc.’s (“Liberty Mutual”) Group Benefits Business and Individual Life and Annuity Business (the “Life Business”) through the acquisition of all of the issued and outstanding capital stock of Liberty Life Assurance Company of Boston (“Liberty”). In connection with the Liberty Closing and  pursuant to the Master Transaction Agreement, dated January 18, 2018 (the “Master Transaction Agreement”), previously reported in our Current Report on Form 8-K filed on January 23, 2018, PLICO and Protective Life and Annuity Insurance Company (“PLAIC”), a wholly owned subsidiary of PLICO, entered into reinsurance agreements (the “Reinsurance“Liberty Reinsurance Agreements”) and related ancillary documents (including administrative services agreements and transition services agreements) providing for the reinsurance and administration of the Life Business. 


Pursuant to the Liberty Reinsurance Agreements, Liberty ceded to PLICO and PLAIC the insurance policies related to the Life Business on a 100% coinsurance basis. The aggregate ceding commission for the reinsurance of the Life Business was $422.4 million, which is the purchase price. Other than cash received as part of the acquired Liberty investment portfolio as reflected in “amounts received from reinsurance transaction” in the Consolidated Condensed Statement of Cash Flows and as reflected in the table below, this was a non-cash transaction.


All policies issued in states other than New York were ceded to PLICO under a reinsurance agreement between Liberty and PLICO, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between Liberty and PLAIC.  The aggregate statutory reserves of Liberty ceded to PLICO and PLAIC as of the closingdate of the TransactionLiberty Closing were approximately $13.3$13.2 billion, which amount was based on initial estimates and isestimates. The final reserve amount determined, as adjusted during the measurement period, was $13.7 billion. In addition, there are certain pending items which remain subject to adjustment followingin accordance with the Closing.Master Transaction Agreement and could result in a gain in future periods. Pursuant to the terms of the Liberty Reinsurance Agreements, each of PLICO and PLAIC are required to maintain assets in trust for the benefit of Liberty to secure their respective obligations to Liberty under the Liberty Reinsurance Agreements. The trust accounts were initially funded by each of PLICO and PLAIC principally with the investment assets that were received from Liberty. Additionally, PLICO and PLAIC have each agreed to provide, on behalf of Liberty, administration and policyholder servicing of the Life Business reinsured by it pursuant to administrative services agreements between Liberty and each of PLICO and PLAIC.

12
Table of Contents
The terms of the Liberty Reinsurance Agreements resulted in an acquisition of the Life Business by the Company in accordance with Accounting Standards Codification (“ASC”("ASC" or "Codification") Topic 805, Business Combinations.
  
The following table details the purchase consideration and preliminaryfinal allocation of assets acquired and liabilities assumed from the Life Business reinsurance transaction as of the transaction date. These estimates remain preliminary and are subject to adjustment. While they are not expected to be materially different than those shown, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition.Liberty Closing.

Fair Value
as of
May 1, 2018
(Dollars In Thousands)
ASSETS
Fixed maturities$12,588,512 
Mortgage loans435,405 
Policy loans131,489 
Total investments13,155,406 
Cash35,179 
Accrued investment income152,030 
Reinsurance receivables272 
Value of business acquired379,717 
Other assets916 
Total assets13,723,520 
LIABILITIES
Future policy benefits and claims$11,751,895 
Unearned premiums— 
Total policy liabilities and accruals11,751,895 
Annuity account balances1,864,141 
Other policyholders’ funds41,936 
Other liabilities65,548 
Total liabilities13,723,520 
NET ASSETS ACQUIRED$— 


  
Fair Value
as of
May 1, 2018
  (Dollars In Thousands)
ASSETS  
Fixed maturities $12,588,512
Mortgage loans 435,405
Policy loans 131,489
Total investments 13,155,406
Cash 20,669
Accrued investment income 151,610
Reinsurance receivables 337
Value of business acquired 336,437
Other assets 2,542
Total assets 13,667,001
LIABILITIES  
Future policy benefits and claims $11,744,496
Unearned premiums —
Total policy liabilities and accruals 11,744,496
Annuity account balances 1,823,444
Other policyholders’ funds 41,954
Other liabilities 57,107
Total liabilities 13,667,001
NET ASSETS ACQUIRED $—

The following unaudited pro forma condensed consolidated results of operations assumes that the aforementioned transactions of the Life Business were completed as of January 1, 2017. The unaudited pro forma condensed results of operations are presented solely for information purposes and are not necessarily indicative of the consolidated condensed results of operations that might have been achieved had the transaction been completed as of the date indicated.indicated:
Unaudited
For The
Three Months Ended
September 30, 2018		For The
Nine Months Ended
September 30, 2018
(Dollars In Thousands) 
Revenue$1,347,168  $4,078,285  
Net income$110,100  $311,851  
Great-West Life & Annuity Insurance Company

On January 23, 2019, PLICO entered into a Master Transaction Agreement (the “GWL&A Master Transaction Agreement”) with Great-West Life & Annuity Insurance Company (“GWL&A”), Great-West Life & Annuity Insurance Company of New York (“GWL&A of NY”), The Canada Life Assurance Company (“CLAC”) and The Great-West Life Assurance Company (“GWL” and, together with GWL&A, GWL&A of NY and CLAC, the “Sellers”), pursuant to which PLICO will acquire via reinsurance (the “Transaction”) substantially all of the Sellers’ individual life insurance and annuity business (the “Individual Life Business”). 
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 Unaudited Unaudited
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Revenue$1,344,806
 $1,397,739
 $4,078,285
 $4,231,177
        
Net income$110,100
 $118,547
 $311,851
 $347,113
On June 3, 2019, PLICO and PLAIC completed the Transaction (the “GWL&A Closing”). Pursuant to the GWL&A Master Transaction Agreement PLICO and PLAIC entered into reinsurance agreements (the “GWL&A Reinsurance Agreements”) and related ancillary documents at the GWL&A Closing. On the terms and subject to the conditions of the GWL&A Reinsurance Agreements, the Sellers ceded to PLICO and PLAIC, effective as of the date of the GWL&A Closing, substantially all of the insurance policies related to the Individual Life Business on a 100% indemnity basis net of reinsurance recoveries. The aggregate ceding commission for the reinsurance of the Individual Life Business paid at the GWL&A Closing was $765.7 million, which amount is subject to adjustment in accordance with the GWL&A Master Transaction Agreement. All policies issued in states other than New York were ceded to PLICO under reinsurance agreements between the applicable Seller and PLICO, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between GWL&A of NY and PLAIC. The aggregate statutory reserves of the Sellers ceded to PLICO and PLAIC as of the GWL&A Closing were approximately $20.4 billion, which amount was based on initial estimates and is subject to adjustment following the GWL&A Closing. To support its obligations under the GWL&A Reinsurance Agreements, PLICO established trust accounts for the benefit of GWL&A, CLAC and GWL, and PLAIC established a trust account for the benefit of GWL&A of NY. The Sellers retained a block of participating policies, which will be administered by the Company.
As of the purchase date, the Company has recorded an estimate in the amount of $49.5 million related to contingent consideration. The final ceding commission is subject to adjustment based on these amounts. These amounts are accrued within other liabilities in the Company’s consolidated condensed balance sheet.

The contingent consideration is comprised of a holdback provision and a post-closing sales adjustment. The holdback amount is related to the performance of certain blocks of business for a specified period of time after the close of the transaction.  The range of amounts payable to Great West under this provision is $0 - $40.0 million. The Company established a liability of $37.6 million as of the transaction date, which represents the Company's best estimate of the present value of future payments.

Great West is also entitled to a payment for certain post-closing sales occurring between June 1, 2019 and December 31, 2019. At this time, a range for this payment cannot be estimated and the Company established a liability of $11.9 million on the transaction date, which represents the Company's best estimate of the present value of future payments as of the transaction date. During the three months ended September 30, 2019, this estimate was revised based on sales and returns achieved during that period. The liability as of September 30, 2019 was $8.2 million, which represents the Company's best estimate of the present value of future payments. The reduction in the liability was recorded as a component of earnings.

The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of the parties, and certain customary covenants regarding the Sellers and the Individual Life Business, and provide for indemnification, among other things, for breaches of those representations, warranties, and covenants. The terms of the GWL&A Reinsurance Agreements resulted in an acquisition of the Individual Life Business by the Company in accordance with ASC Topic 805, Business Combinations.

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The following table details the preliminary allocation of assets acquired and liabilities assumed from the Individual Life Business reinsurance transaction as of the date of the GWL&A Closing. The Company has not completed the process of determining the fair value of assets acquired and liabilities assumed, but will do so in the twelve month measurement period subsequent to the date of the GWL&A Closing. These estimates are provisional and subject to adjustment. Any adjustments to these fair value estimates will be reflected, retroactively, as of the date of the acquisition, and may result in adjustments to the value of business acquired.
Fair Value
as of
June 1, 2019
Unaudited
(Dollars In Thousands)
ASSETS
Fixed maturities$8,697,966 
Mortgage loans1,386,228 
Policy loans44,002 
Other long-term investments1,579 
Total investments10,129,775 
Cash34,835 
Accrued investment income101,452 
Accounts and premiums receivable62 
Premium due and deferred1,642 
Value of business acquired510,875 
Other intangibles21,300 
Other assets1,525,911 
Assets related to separate accounts9,583,217 
Total assets21,909,069 
LIABILITIES
Future policy benefits and claims$11,000,902 
Annuity account balances220,064 
Other policyholders’ funds220,117 
Other liabilities72,127 
Liabilities related to separate accounts9,583,217 
Total liabilities21,096,427 
NET ASSETS ACQUIRED$812,642 

Assets related to separate accounts and liabilities related to separate accounts represent amounts receivable and payable for variable annuity and variable universal life products reinsured on a modified co-insurance basis.

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Table of Contents
The following unaudited pro forma condensed consolidated results of operations assumes that the aforementioned transactions of the Individual Life Business were completed as of January 1, 2018. The unaudited pro forma condensed results of operations are presented solely for information purposes and are not necessarily indicative of the consolidated condensed results of operations that might have been achieved had the transaction been completed as of the date indicated:
UnauditedUnaudited
For The
Three Months Ended
September 30,
For The
Nine Months Ended
September 30,
2019201820192018
(Dollars In Thousands) 
Revenue$1,618,711  $1,584,261  $4,822,409  $4,412,630  
Net income$100,626  $116,229  $364,116  $298,263  
The amount of revenue and income before income tax of the Individual Life Business since the transaction date, MayJune 1, 2018,2019, included in the consolidated condensed statements of income for the three and nine months ended September 30, 2018 amounted to $218.1 million and $360.9 million and $26.1 million and $33.7 million, respectively. Also, included in the income before income tax for the nine months ended September 30, 2018, is2019, amounted to $352.5 million and $74.0 million. The Company incurred approximately $5.5$12.2 million of non-recurring transaction costs.costs for the nine months ended September 30, 2019.

Intangible assets recognized by the Company included the following (excluding goodwill):
Estimated Fair Value on Acquisition DateEstimated Useful Life
(Dollars In Thousands) (In Years) 
Distribution relationships$15,000  18
Technology6,300  10
  Total intangible assets$21,300  

Amortizable intangible assets will be amortized on a straight line basis over their assigned useful lives. The following is a schedule of future estimated aggregate amortization expense:
YearAmount
(Dollars In Thousands) 
Remainder of 2019$366  
20201,463  
20211,463  
20221,463  
20231,463  

Based on the balance recorded as of MayJune 1, 2018,2019, the expected amortization of VOBAvalue of business acquired ("VOBA") for the next five years is as follows:

YearAmount
(Dollars In Thousands) 
Remainder of 2019$(3,616) 
2020(19,741) 
2021(12,153) 
2022(5,090) 
20231,143  

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Years 
Expected
Amortization
  (Dollars In Thousands)
Remainder of 2018 $5,265
2019 21,063
2020 19,950
2021 18,329
2022 16,611
VOBA is calculated at a product level and can either be positive or negative depending on the underlying fair values of the associated product lines. VOBA is amortized in accordance with ASC 944-805-35-1, which requires that the amortization should be on a basis consistent with the related reinsurance liability. As such, the net amortization related to a specific transaction in a given year can be either positive or negative as amortization patterns differ between the product lines.


4.MONY CLOSED BLOCK OF BUSINESS
In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.
Assets allocated to the Closed Block inure solely to the benefit of each Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.
The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in AOCI)accumulated other comprehensive income (loss) (“AOCI”) at the acquisition date of October 1, 2013, represented the estimated maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. In connection with the acquisition of MONY, the Company developed an actuarial calculation of the expected timing of MONY’s Closed Block’s earnings as of October 1, 2013. Pursuant to the acquisition of the Company by Dai-ichi Life, this actuarial calculation of the expected timing of MONY’s Closed Block earnings was recalculated and reset as February 1, 2015, along with the establishment of a policyholder dividend obligation as of such date.
If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.


Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.

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Table of Contents
Summarized financial information for the Closed Block as of September 30, 2018,2019, and December 31, 2017,2018, is as follows:
As of
September 30, 2019December 31, 2018
 (Dollars In Thousands)
Closed block liabilities  
Future policy benefits, policyholders’ account balances and other policyholder liabilities$5,579,389  $5,679,732  
Policyholder dividend obligation319,865  —  
Other liabilities11,366  22,505  
Total closed block liabilities5,910,620  5,702,237  
Closed block assets  
Fixed maturities, available-for-sale, at fair value$4,694,274  $4,257,437  
Mortgage loans on real estate73,563  75,838  
Policy loans648,805  672,213  
Cash75,828  116,225  
Other assets106,481  136,388  
Total closed block assets5,598,951  5,258,101  
Excess of reported closed block liabilities over closed block assets311,669  444,136  
Portion of above representing accumulated other comprehensive income:  
Net unrealized investment gains (losses) net of policyholder dividend obligation: $198,285 and $(141,128); and net of income tax: $(41,640) and $61,676—  (120,528) 
Future earnings to be recognized from closed block assets and closed block liabilities$311,669  $323,608  
 As of
 September 30, 2018 December 31, 2017
 (Dollars In Thousands)
Closed block liabilities 
  
Future policy benefits, policyholders’ account balances and other policyholder liabilities$5,699,118
 $5,791,867
Policyholder dividend obligation—
 160,712
Other liabilities42,640
 30,764
Total closed block liabilities5,741,758
 5,983,343
Closed block assets 
  
Fixed maturities, available-for-sale, at fair value$4,339,342
 $4,669,856
Mortgage loans on real estate76,608
 108,934
Policy loans679,760
 700,769
Cash72,868
 31,182
Other assets144,077
 122,637
Total closed block assets5,312,655
 5,633,378
Excess of reported closed block liabilities over closed block assets429,103
 349,965
Portion of above representing accumulated other comprehensive income: 
  
Net unrealized investment gains (losses) net of policyholder dividend obligation: $(149,219) and $(13,429); and net of income tax: $57,054 and $2,820(96,749) —
Future earnings to be recognized from closed block assets and closed block liabilities$332,354
 $349,965

Reconciliation of the policyholder dividend obligation is as follows:
For The
Nine Months Ended
September 30,
20192018
 (Dollars In Thousands)
Policyholder dividend obligation, beginning of period$—  $160,712  
Applicable to net revenue (losses)(19,548) (24,922) 
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation339,413  (135,790) 
Policyholder dividend obligation, end of period$319,865  $—  
18
 For The
Nine Months Ended
September 30,
 2018 2017
 (Dollars In Thousands)
Policyholder dividend obligation, beginning of period$160,712
 $31,932
Applicable to net revenue (losses)(24,922) (38,147)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation(135,790) 142,219
Policyholder dividend obligation, end of period$—
 $136,004
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Closed Block revenues and expenses were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Revenues  
Premiums and other income$37,652  $39,691  $115,202  $121,768  
Net investment income52,018  50,833  154,808  152,248  
Net investment gains (losses)1,104  40  693  66  
Total revenues90,774  90,564  270,703  274,082  
Benefits and other deductions   
Benefits and settlement expenses84,531  83,588  250,410  251,480  
Other operating expenses229  291  836  310  
Total benefits and other deductions84,760  83,879  251,246  251,790  
Net revenues before income taxes6,014  6,685  19,457  22,292  
Income tax expense1,263  1,404  4,086  4,681  
Net revenues$4,751  $5,281  $15,371  $17,611  

 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Revenues 
      
Premiums and other income$39,691
 $40,962
 $121,768
 $128,697
Net investment income50,833
 50,780
 152,248
 153,481
Net investment gains40
 341
 66
 448
Total revenues90,564
 92,083
 274,082
 282,626
Benefits and other deductions 
    
  
Benefits and settlement expenses83,588
 81,721
 251,480
 249,319
Other operating expenses291
 621
 310
 1,216
Total benefits and other deductions83,879
 82,342
 251,790
 250,535
Net revenues before income taxes6,685
 9,741
 22,292
 32,091
Income tax expense1,404
 3,409
 4,681
 11,232
Net revenues$5,281
 $6,332
 $17,611
 $20,859
5.INVESTMENT OPERATIONS
Net realized gains (losses) for all other investments are summarized as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Fixed maturities$15,686  $(2,018) $21,901  $6,304  
Equity gains and losses6,310  (6,638) 44,723  (16,466) 
Modco trading portfolio67,674  (10,901) 252,147  (148,427) 
Other investments(1,261) (312) (1,270) 1,519  
Realized gains (losses) - all other investments88,409  (19,869) 317,501  (157,070) 
Realized gains (losses) - derivatives(1)
(102,403) (27,465) (370,123) 62,859  
Realized investment gains (losses)$(13,994) $(47,334) $(52,622) $(94,211) 
Net impairments losses recognized in earnings$(10,818) $(14) $(14,658) $(3,664) 
(1) See Note 7, Derivative Financial Instruments
19
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Fixed maturities$(2,018) $1,042
 $6,304
 $10,482
Equity gains and losses(1)
(6,638) (352) (16,466) (1,398)
Impairments(14) (273) (3,664) (10,889)
Modco trading portfolio(10,901) 19,399
 (148,427) 93,181
Other investments(312) (1,939) 1,519
 (7,557)
Total realized gains (losses) - investments$(19,883) $17,877
 $(160,734) $83,819
        
(1) Beginning January 1, 2018, all changes in the fair market value of equity securities are recorded as a realized gains (loss) as a result of the adoption of ASU No. 2016-01.
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Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities and short-term investments) are as follows:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Gross realized gains$3,410
 $1,933
 $21,596
 $14,968
Gross realized gains$20,155  $3,410  $34,837  $21,596  
Gross realized losses:      

Gross realized losses:
Impairment losses$(14) $(273) $(3,664) $(10,889)Impairment losses$(10,818) $(14) $(14,658) $(3,664) 
Other realized losses$(5,428) $(1,243) $(15,292) $(5,884)Other realized losses$(4,469) $(5,428) $(12,936) $(15,292) 
The chart below summarizes the fair value (proceeds)proceeds and the gains (losses) realized on available-for-sale securities the Company sold that were in an unrealized gain position and an unrealized loss position.
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Securities in an unrealized gain position:       Securities in an unrealized gain position:
Fair value (proceeds)$306,600
 $121,459
 $914,885
 $566,064
Fair value proceedsFair value proceeds$679,514  $306,600  $1,819,526  $914,885  
Gains realized$3,410
 $1,933
 $21,596
 $14,968
Gains realized$20,155  $3,410  $34,837  $21,596  
       
Securities in an unrealized loss position(1):
       
Securities in an unrealized loss position(1):
Fair value (proceeds)$122,317
 $37,186
 $380,493
 $121,450
Fair value proceedsFair value proceeds$37,488  $122,317  $375,617  $380,493  
Losses realized$(5,428) $(1,243) $(15,292) $(5,884)Losses realized$(4,469) $(5,428) $(12,936) $(15,292) 
       
(1) The Company made the decision to exit these holdings in conjunction with its overall asset/liability management process.(1) The Company made the decision to exit these holdings in conjunction with its overall asset/liability management process.(1) The Company made the decision to exit these holdings in conjunction with its overall asset/liability management process.
The chart below summarizes the realized gains (losses) on equity securities sold during the period and equity securities still held at the reporting date.
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Net gains (losses) recognized during the period on equity securities$6,310  $(6,638) $44,723  $(16,466) 
Less: net gains (losses) recognized on equity securities sold during the period$(648) $(1,476) $(395) $(3,856) 
Gains (losses) recognized during the period on equity securities still held$6,958  $(5,162) $45,118  $(12,610) 


20
 For The
Three Months Ended
September 30, 2018		 
For The
Nine Months Ended
September 30, 2018
 (Dollars In Thousands)
Net gains (losses) recognized during the period on equity securities$(6,638) $(16,466)
Less: net gains (losses) recognized on equity securities sold during the period$(1,476) $(3,856)
Gains (losses) recognized during the period on equity securities still held$(5,162) $(12,610)
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The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:
As of September 30, 2019Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Total OTTI
Recognized
in OCI(1)
 (Dollars In Thousands) 
Fixed maturities:     
Residential mortgage-backed securities$5,162,112  $194,376  $(5,024) $5,351,464  $—  
Commercial mortgage-backed securities2,657,041  88,906  (1,119) 2,744,828  —  
Other asset-backed securities1,878,663  32,830  (13,017) 1,898,476  —  
U.S. government-related securities1,154,940  9,836  (2,569) 1,162,207  (3) 
Other government-related securities554,434  52,547  (1,630) 605,351  —  
States, municipals, and political subdivisions4,503,629  331,625  (597) 4,834,657  1,274  
Corporate securities45,125,038  2,658,289  (323,790) 47,459,537  (24,644) 
Redeemable preferred stocks87,348  4,217  (4,003) 87,562  
 61,123,205  3,372,626  (351,749) 64,144,082  (23,373) 
Short-term investments1,498,936  —  —  1,498,936  —  
 $62,622,141  $3,372,626  $(351,749) $65,643,018  $(23,373) 
As of December 31, 2018Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Total OTTI
Recognized
in OCI(1)
(Dollars In Thousands) 
Fixed maturities:
Residential mortgage-backed securities$3,650,539  $23,247  $(62,196) $3,611,590  $(18) 
Commercial mortgage-backed securities2,349,274  3,911  (58,101) 2,295,084  —  
Other asset-backed securities1,410,059  17,232  (35,398) 1,391,893  —  
U.S. government-related securities1,683,432  1,795  (45,722) 1,639,505  —  
Other government-related securities545,522  4,292  (33,850) 515,964  —  
States, municipals, and political subdivisions3,682,037  25,706  (118,902) 3,588,841  876  
Corporate securities38,634,888  112,992  (2,385,052) 36,362,828  (29,685) 
Redeemable preferred stocks94,362  —  (11,560) 82,802  —  
52,050,113  189,175  (2,750,781) 49,488,507  (28,827) 
Short-term investments776,357  —  —  776,357  —  
$52,826,470  $189,175  $(2,750,781) $50,264,864  $(28,827) 
(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.
21
As of September 30, 2018 Amortized
Cost		 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI(1)
  (Dollars In Thousands)  
Fixed maturities:  
  
  
  
  
Residential mortgage-backed securities $3,515,247
 $5,808
 $(105,950) $3,415,105
 $—
Commercial mortgage-backed securities 2,344,653
 181
 (82,063) 2,262,771
 —
Other asset-backed securities 1,456,768
 13,749
 (16,382) 1,454,135
 —
U.S. government-related securities 1,653,626
 160
 (72,807) 1,580,979
 —
Other government-related securities 548,343
 2,926
 (21,688) 529,581
 —
States, municipals, and political subdivisions 3,691,930
 6,070
 (139,927) 3,558,073
 —
Corporate securities 38,778,746
 167,850
 (1,924,671) 37,021,925
 —
Redeemable preferred stock 94,362
 —
 (7,223) 87,139
 —
  52,083,675
 196,744
 (2,370,711) 49,909,708
 —
Short-term investments 476,188
 —
 —
 476,188
 —
  $52,559,863
 $196,744
 $(2,370,711) $50,385,896
 $—
           
As of December 31, 2017 Amortized
Cost		 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI(1)
  (Dollars In Thousands)  
Fixed maturities:          
Residential mortgage-backed securities $2,330,832
 $19,413
 $(23,033) $2,327,212
 $10
Commercial mortgage-backed securities 1,914,998
 5,010
 (30,186) 1,889,822
 —
Other asset-backed securities 1,234,376
 20,936
 (5,763) 1,249,549
 —
U.S. government-related securities 1,255,244
 185
 (32,177) 1,223,252
 —
Other government-related securities 282,767
 9,463
 (4,948) 287,282
 —
States, municipals, and political subdivisions 1,770,299
 16,959
 (45,613) 1,741,645
 (37)
Corporate securities 29,606,484
 623,713
 (528,187) 29,702,010
 (1)
Redeemable preferred stock 94,362
 232
 (3,503) 91,091
 —
  38,489,362
 695,911
 (673,410) 38,511,863
 (28)
Equity securities 735,569
 22,318
 (8,771) 749,116
 —
Short-term investments 558,949
 —
 —
 558,949
 —
  $39,783,880
 $718,229
 $(682,181) $39,819,928
 $(28)
           
(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.
Table of Contents

  The Company holds certain investments pursuant to certain modified coinsurance (“Modco”) arrangements. The fixed maturities held as part of these arrangements are classified as trading securities. The fair valuesvalue of the Company’s investments classified as tradingheld pursuant to these Modco arrangements are as follows: 
As of
 
As of
September 30, 2018
 
As of
December 31, 2017
September 30, 2019December 31, 2018
 (Dollars In Thousands) (Dollars In Thousands)
Fixed maturities:  
  
Fixed maturities:  
Residential mortgage-backed securities $254,037
 $259,694
Residential mortgage-backed securities$202,963  $241,836  
Commercial mortgage-backed securities 135,403
 146,804
Commercial mortgage-backed securities208,935  188,925  
Other asset-backed securities 111,770
 138,097
Other asset-backed securities137,732  159,907  
U.S. government-related securities 58,081
 27,234
U.S. government-related securities48,112  59,794  
Other government-related securities 43,030
 63,925
Other government-related securities26,792  44,207  
States, municipals, and political subdivisions 296,618
 326,925
States, municipals, and political subdivisions300,332  286,413  
Corporate securities 1,569,652
 1,698,183
Corporate securities1,599,453  1,423,833  
Redeemable preferred stock 3,165
 3,327
Redeemable preferred stocksRedeemable preferred stocks12,195  11,277  
 2,471,756
 2,664,189
 2,536,514  2,416,192  
Equity securities 3,801
 5,244
Equity securities6,647  9,892  
Short-term investments 55,865
 56,261
Short-term investments98,983  30,926  
 $2,531,422
 $2,725,694
 $2,642,144  $2,457,010  
The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of September 30, 2018,2019, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.
Available-for-Sale Held-to-Maturity Available-for-SaleHeld-to-Maturity
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
(Dollars In Thousands) (Dollars In Thousands)
Due in one year or less$957,984
 $955,779
 $—
 $—
Due in one year or less$1,831,024  $1,829,527  $—  $—  
Due after one year through five years9,269,777
 9,096,671
 —
 —
Due after one year through five years9,983,745  10,170,970  —  —  
Due after five years through ten years9,259,344
 9,001,644
 —
 —
Due after five years through ten years13,732,775  14,362,164  —  —  
Due after ten years32,596,570
 30,855,614
 2,653,605
 2,577,841
Due after ten years35,575,661  37,781,421  2,544,054  2,685,076  
$52,083,675
 $49,909,708
 $2,653,605
 $2,577,841
 $61,123,205  $64,144,082  $2,544,054  $2,685,076  
The chartschart below summarizesummarizes the Company’s other-than-temporary impairments of investments. All of the impairments were related to fixed maturities.
 
For The
Three Months Ended
September 30, 2018
 
For The
Nine Months Ended
September 30, 2018
 
Fixed
Maturities
 
Fixed
Maturities
 (Dollars In Thousands)
Other-than-temporary impairments$(14) $(715)
Non-credit impairment losses recorded in other comprehensive income—
 (2,949)
Net impairment losses recognized in earnings$(14) $(3,664)

For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2017 20172019201820192018
Fixed
Maturities
 
Equity
Securities
 
Total
Securities
 Fixed Maturities Equity Securities Total SecuritiesFixed
Maturities		Fixed
Maturities		Fixed MaturitiesFixed Maturities
(Dollars In Thousands) (Dollars In Thousands)
Other-than-temporary impairments$(366) $—
 $(366) $(494) $(2,630) $(3,124)Other-than-temporary impairments$(39,752) $(14) $(41,245) $(715) 
Non-credit impairment losses recorded in other comprehensive income93
 —
 93
 (7,765) —
 (7,765)
Non-credit impairment losses recorded in other comprehensive income (loss)Non-credit impairment losses recorded in other comprehensive income (loss)28,934  —  26,587  (2,949) 
Net impairment losses recognized in earnings$(273) $—
 $(273) $(8,259) $(2,630) $(10,889)Net impairment losses recognized in earnings$(10,818) $(14) $(14,658) $(3,664) 
There were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell for the three and nine months ended September 30, 20182019 and 2017.2018.
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The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Beginning balance$2
 $2,783
 $3,268
 $12,685
Beginning balance$12,498  $2  $24,868  $3,268  
Additions for newly impaired securities—
 266
 —
 266
Additions for newly impaired securities10,805  —  11,556  —  
Additions for previously impaired securities—
 6
 2
 2,791
Additions for previously impaired securities—  —  3,007  2  
Reductions for previously impaired securities due to a change in expected cash flows—
 (37) —
 (12,724)Reductions for previously impaired securities due to a change in expected cash flows(12,498) —  (21,332) —  
Reductions for previously impaired securities that were sold in the current period(2) (600) (3,270) (600)Reductions for previously impaired securities that were sold in the current period—  (2) (7,294) (3,270) 
Ending balance$—
 $2,418
 $—
 $2,418
Ending balance$10,805  $—  $10,805  $—  
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2018:2019:
 Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
 (Dollars In Thousands)
Residential mortgage-backed securities$484,979  $(2,069) $288,103  $(2,955) $773,082  $(5,024) 
Commercial mortgage-backed securities67,255  (78) 117,799  (1,041) 185,054  (1,119) 
Other asset-backed securities453,923  (7,510) 162,369  (5,507) 616,292  (13,017) 
U.S. government-related securities265,257  (844) 335,336  (1,725) 600,593  (2,569) 
Other government-related securities57,008  (488) 10,427  (1,142) 67,435  (1,630) 
States, municipals, and political subdivisions35,092  (297) 15,215  (300) 50,307  (597) 
Corporate securities2,137,102  (43,897) 3,631,827  (279,893) 5,768,929  (323,790) 
Redeemable preferred stocks—  —  16,935  (4,003) 16,935  (4,003) 
 $3,500,616  $(55,183) $4,578,011  $(296,566) $8,078,627  $(351,749) 
 Less Than 12 Months 12 Months or More Total
 Fair
Value		 Unrealized
Loss		 Fair
Value		 Unrealized
Loss		 Fair
Value		 Unrealized
Loss
 (Dollars In Thousands)
Residential mortgage-backed securities$2,831,969
 $(80,873) $407,345
 $(25,077) $3,239,314
 $(105,950)
Commercial mortgage-backed securities1,442,862
 (40,080) 757,095
 (41,983) 2,199,957
 (82,063)
Other asset-backed securities645,956
 (9,131) 125,847
 (7,251) 771,803
 (16,382)
U.S. government-related securities551,939
 (14,066) 1,012,450
 (58,741) 1,564,389
 (72,807)
Other government-related securities256,902
 (7,459) 111,089
 (14,229) 367,991
 (21,688)
States, municipalities, and political subdivisions2,268,935
 (51,019) 998,399
 (88,908) 3,267,334
 (139,927)
Corporate securities21,828,788
 (787,017) 9,771,234
 (1,137,654) 31,600,022
 (1,924,671)
Redeemable preferred stock43,712
 (1,902) 43,427
 (5,321) 87,139
 (7,223)
 $29,871,063
 $(991,547) $13,226,886
 $(1,379,164) $43,097,949
 $(2,370,711)
RMBSResidential mortgage-backed securities (“RMBS”) and CMBScommercial mortgage-backed securities (“CMBS”) had gross unrealized losses greater than twelve months of $25.1$3.0 million and $42.0$1.0 million respectively, as of September 30, 2018.2019. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.

The other asset-backed securities had a gross unrealized loss greater than twelve months of $7.3$5.5 million as of September 30, 2018.2019. This category predominately includes student loan backed auction rate securities (“ARS”) whose underlying collateral is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The U.S. government-related securities and the other government-related securities had gross unrealized losses greater than twelve months of $58.7$1.7 million and $14.2$1.1 million, respectively, as of September 30, 2018, respectively.2019. These declines were related to changes in interest rates.
The states, municipalities,municipals, and political subdivisions category had gross unrealized losses greater than twelve months of $88.9$0.3 million as of September 30, 2018.2019. The aggregate decline in marketfair value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.
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The corporate securities category had gross unrealized losses greater than twelve months of $1.1 billion$279.9 million as of September 30, 2018.2019. The aggregate decline in marketfair value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, interest rate movement, and other pertinent information.
  As of September 30, 2018,2019, the Company had a total of 4,367809 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2017:2018:
 Less Than 12 Months 12 Months or More Total
 Fair
Value		 Unrealized
Loss		 Fair
Value		 Unrealized
Loss		 Fair
Value		 Unrealized
Loss
 (Dollars In Thousands)
Residential mortgage-backed securities$766,599
 $(9,671) $416,221
 $(13,362) $1,182,820
 $(23,033)
Commercial mortgage-backed securities757,471
 (8,592) 796,456
 (21,594) 1,553,927
 (30,186)
Other asset-backed securities86,506
 (322) 134,316
 (5,441) 220,822
 (5,763)
U.S. government-related securities94,110
 (688) 1,072,232
 (31,489) 1,166,342
 (32,177)
Other government-related securities24,830
 (169) 115,294
 (4,778) 140,124
 (4,947)
States, municipalities, and political subdivisions170,268
 (1,738) 1,027,747
 (43,874) 1,198,015
 (45,612)
Corporate securities5,054,316
 (55,795) 10,962,689
 (472,394) 16,017,005
 (528,189)
Redeemable preferred stock22,048
 (1,120) 23,197
 (2,383) 45,245
 (3,503)
Equities86,586
 (1,401) 91,195
 (7,370) 177,781
 (8,771)
 $7,062,734
 $(79,496) $14,639,347
 $(602,685) $21,702,081
 $(682,181)
RMBS and CMBS had gross unrealized losses greater than twelve months of $13.4 million and $21.6 million, respectively, as of December 31, 2017. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities had a gross unrealized loss greater than twelve months of $5.4 million as of December 31, 2017. This category predominately includes student loan backed auction rate securities whose underlying collateral is at least 97% guaranteed by the FFELP. At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The U.S. government-related securities and other government-related securities had gross unrealized losses greater than twelve months of $31.5 million and $4.8 million as of December 31, 2017, respectively. These declines were related to changes in interest rates.
The states, municipalities, and political subdivisions category had gross unrealized losses greater than twelve months of $43.9 million as of December 31, 2017. These declines were related to changes in interest rates.
The corporate securities category had gross unrealized losses greater than twelve months of $472.4 million as of December 31, 2017. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.

 Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
 (Dollars In Thousands)
Residential mortgage-backed securities$1,485,009  $(31,302) $804,364  $(30,894) $2,289,373  $(62,196) 
Commercial mortgage-backed securities422,438  (7,442) 1,429,384  (50,659) 1,851,822  (58,101) 
Other asset-backed securities687,271  (30,963) 148,871  (4,435) 836,142  (35,398) 
U.S. government-related securities130,290  (4,668) 1,085,654  (41,054) 1,215,944  (45,722) 
Other government-related securities226,201  (15,267) 131,569  (18,583) 357,770  (33,850) 
States, municipals, and political subdivisions1,004,262  (27,180) 1,129,152  (91,722) 2,133,414  (118,902) 
Corporate securities18,326,331  (970,553) 12,859,732  (1,414,499) 31,186,063  (2,385,052) 
Redeemable preferred stocks41,147  (4,467) 41,655  (7,093) 82,802  (11,560) 
 $22,322,949  $(1,091,842) $17,630,381  $(1,658,939) $39,953,330  $(2,750,781) 
  As of September 30, 2018,2019, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.7$1.6 billion and had an amortized cost of $1.7 billion. In addition, included in the Company’s trading portfolio, the Company held $175.6$113.5 million of securities which were rated below investment grade. Approximately $263.1$235.2 million of the available-for-sale and trading securities that were below investment grade were not publicly traded.
The change in unrealized gains (losses), net of income tax, on fixed maturities, classified as available-for-sale is summarized as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Fixed maturities$1,310,979  $(229,912) $4,410,162  $(1,735,210) 
24
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Fixed maturities$(229,912) $168,062
 $(1,735,210) $868,767
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The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of September 30, 20182019 and December 31, 2017,2018, are as follows:
As of September 30, 2018 Amortized
Cost		 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 Fair
Value		 Total OTTI
Recognized
in OCI
As of September 30, 2019As of September 30, 2019Amortized
Cost		Gross
Unrecognized
Holding
Gains		Gross
Unrecognized
Holding
Losses		Fair
Value		Total OTTI
Recognized
in OCI
 (Dollars In Thousands) (Dollars In Thousands)
Fixed maturities:  
  
  
  
  
Fixed maturities:     
Securities issued by affiliates:          Securities issued by affiliates:
Red Mountain, LLC $736,605
 $—
 $(77,492) $659,113
 $—
Red Mountain, LLC$782,054  $10,406  $—  $792,460  $—  
Steel City, LLC 1,917,000
 1,728
 —
 1,918,728
 —
Steel City, LLC1,762,000  130,616  —  1,892,616  —  
 $2,653,605
 $1,728
 $(77,492) $2,577,841
 $—
 $2,544,054  $141,022  $—  $2,685,076  $—  
          
As of December 31, 2017 Amortized
Cost		 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 Fair
Value		 Total OTTI
Recognized
in OCI
As of December 31, 2018As of December 31, 2018Amortized
Cost		Gross
Unrecognized
Holding
Gains		Gross
Unrecognized
Holding
Losses		Fair
Value		Total OTTI
Recognized
in OCI
 (Dollars In Thousands)(Dollars In Thousands)
Fixed maturities:          Fixed maturities:
Securities issued by affiliates:          Securities issued by affiliates:
Red Mountain, LLC $704,904
 $—
 $(19,163) $685,741
 $—
Red Mountain, LLC$750,474  $—  $(81,657) $668,817  $—  
Steel City, LLC 2,014,000
 76,586
 —
 2,090,586
 —
Steel City, LLC1,883,000  —  (4,607) 1,878,393  —  
 $2,718,904
 $76,586
 $(19,163) $2,776,327
 $—
$2,633,474  $—  $(86,264) $2,547,210  $—  
During the three and nine months ended September 30, 20182019 and 2017,2018, the Company recorded no other-than-temporary impairments on held-to-maturity securities.
The Company’s held-to-maturity securities had $1.7$141.0 million of gross unrecognized holding gains and $77.5 million of gross unrecognized holding losses by maturity as of September 30, 2018. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information.2019. These held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities (“VIEs”). The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.
The Company’s held-to-maturity securities had $76.6 million of gross unrecognized holding gains and $19.2$86.3 million of gross unrecognized holding losses by maturity as of December 31, 2017.2018. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information.

Variable Interest Entities
The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a VIE. If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
Based on this analysis, the Company had an interest in two2 subsidiaries as of September 30, 20182019 and December 31, 2017,2018, Red Mountain, LLC (“Red Mountain”) and Steel City, LLC (“Steel City”), that were determined to be VIEs.
The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued a note (the “Red Mountain Note”) to Golden Gate V. For details of this transaction, see Note 11, 10, Debt and Other Obligations. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary
25
Table of Contents
risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment, through an affiliate, of $10,000. Additionally, the Company has guaranteed Red Mountain’s payment obligation for the credit enhancement fee to the unrelated third party provider. As of September 30, 2018, no2019, 0 payments have been made or required related to this guarantee.
Steel City, a wholly owned subsidiary of the Company, entered into a financing agreement on January 15, 2016 involving Golden Gate Captive Insurance Company ("Golden Gate"), in which Golden Gate issued non-recourse funding obligations to Steel City and Steel City issued three3 notes (the “Steel City Notes”) to Golden Gate. Credit enhancement on the Steel City Notes is provided by unrelated third parties. For details of the financing transaction, see Note 11, 10, Debt and Other Obligations. The activity most significant to Steel City is the issuance of the Steel City Notes. The Company had the power, via its 100% ownership, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third parties in their function as providers of credit enhancement on the Steel City Notes. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the Company has guaranteed Steel City’s payment obligation for the credit enhancement fee to the unrelated third party providers. As of September 30, 2018, no2019, 0 payments have been made or required related to this guarantee.
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6.FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:
•Level 1:  Unadjusted quoted prices for identical assets or liabilities in an active market.

•Level 2:  Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a.a) Quoted prices for similar assets or liabilities in active markets;
b.b) Quoted prices for identical or similar assets or liabilities in non-active markets;
c.c) Inputs other than quoted market prices that are observable; and
d.Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

d) Inputs that are derived principally from or corroborated by observable market data through correlation or other means.
•Level 3:  Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own estimates about the assumptions a market participant would use in pricing the asset or liability.


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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, 2018:2019:
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Thousands)
Assets:    
Fixed maturity securities - available-for-sale    
Residential mortgage-backed securities4$—  $5,351,464  $—  $5,351,464  
Commercial mortgage-backed securities4—  2,735,193  9,635  2,744,828  
Other asset-backed securities4—  1,482,414  416,062  1,898,476  
U.S. government-related securities4801,931  360,276  —  1,162,207  
Other government-related securities4—  605,351  —  605,351  
States, municipals, and political subdivisions4—  4,834,657  —  4,834,657  
Corporate securities4—  46,134,425  1,325,112  47,459,537  
Redeemable preferred stocks470,627  16,935  —  87,562  
Total fixed maturity securities - available-for-sale872,558  61,520,715  1,750,809  64,144,082  
Fixed maturity securities - trading    
Residential mortgage-backed securities3—  202,963  —  202,963  
Commercial mortgage-backed securities3—  208,935  —  208,935  
Other asset-backed securities3—  76,205  61,527  137,732  
U.S. government-related securities325,756  22,356  —  48,112  
Other government-related securities3—  26,792  —  26,792  
States, municipals, and political subdivisions3—  300,331  —  300,331  
Corporate securities3—  1,592,418  7,036  1,599,454  
Redeemable preferred stocks312,195  —  —  12,195  
Total fixed maturity securities - trading37,951  2,430,000  68,563  2,536,514  
Total fixed maturity securities910,509  63,950,715  1,819,372  66,680,596  
Equity securities3549,487  36  69,818  619,341  
Other long-term investments(1)
3 & 462,772  567,702  167,960  798,434  
Short-term investments31,517,313  80,606  —  1,597,919  
Total investments3,040,081  64,599,059  2,057,150  69,696,290  
Cash3293,299  —  —  293,299  
Other assets334,621  —  —  34,621  
Assets related to separate accounts    
Variable annuity312,542,212  —  —  12,542,212  
Variable universal life31,066,999  —  —  1,066,999  
Total assets measured at fair value on a recurring basis$16,977,212  $64,599,059  $2,057,150  $83,633,421  
Liabilities:    
Annuity account balances (2)
3$—  $—  $71,820  $71,820  
Other liabilities(1)
3 & 412,579  251,378  1,474,952  1,738,909  
Total liabilities measured at fair value on a recurring basis$12,579  $251,378  $1,546,772  $1,810,729  
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income (Loss)


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Measurement
Category
 Level 1 Level 2 Level 3 Total
   (Dollars In Thousands)
Assets:   
  
  
  
Fixed maturity securities - available-for-sale   
  
  
  
Residential mortgage-backed securities4 $—
 $3,415,105
 $—
 $3,415,105
Commercial mortgage-backed securities4 —
 2,243,304
 19,467
 2,262,771
Other asset-backed securities4 —
 951,874
 502,261
 1,454,135
U.S. government-related securities4 946,679
 634,300
 —
 1,580,979
State, municipalities, and political subdivisions4 —
 3,558,073
 —
 3,558,073
Other government-related securities4 —
 529,581
 —
 529,581
Corporate securities4 —
 36,393,641
 628,284
 37,021,925
Redeemable preferred stock4 69,550
 17,589
 —
 87,139
Total fixed maturity securities - available-for-sale  1,016,229
 47,743,467
 1,150,012
 49,909,708
Fixed maturity securities - trading   
  
  
  
Residential mortgage-backed securities3 —
 254,037
 —
 254,037
Commercial mortgage-backed securities3 —
 135,403
 —
 135,403
Other asset-backed securities3 —
 83,758
 28,012
 111,770
U.S. government-related securities3 26,859
 31,222
 —
 58,081
State, municipalities, and political subdivisions3 —
 296,618
 —
 296,618
Other government-related securities3 —
 43,030
 —
 43,030
Corporate securities3 —
 1,564,429
 5,223
 1,569,652
Redeemable preferred stock3 3,165
 —
 —
 3,165
Total fixed maturity securities - trading  30,024
 2,408,497
 33,235
 2,471,756
Total fixed maturity securities  1,046,253
 50,151,964
 1,183,247
 52,381,464
Equity securities3 598,576
 36
 64,268
 662,880
Other long-term investments(1)
3 & 4 52,728
 402,312
 181,546
 636,586
Short-term investments3 434,734
 97,319
 —
 532,053
Total investments  2,132,291
 50,651,631
 1,429,061
 54,212,983
Cash3 194,460
 —
 —
 194,460
Other assets3 31,743
 —
 —
 31,743
Assets related to separate accounts   
  
  
  
Variable annuity3 13,555,469
 —
 —
 13,555,469
Variable universal life3 1,077,842
 —
 —
 1,077,842
Total assets measured at fair value on a recurring basis  $16,991,805
 $50,651,631
 $1,429,061
 $69,072,497
Liabilities:   
  
  
  
Annuity account balances (2)
3 $—
 $—
 $78,463
 $78,463
Other liabilities(1)
3 & 4 8,243
 272,724
 554,480
 835,447
Total liabilities measured at fair value on a recurring basis  $8,243
 $272,724
 $632,943
 $913,910
          
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income         
(4) Fair Value through Other Comprehensive Income         
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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:2018:
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Thousands)
Assets:    
Fixed maturity securities - available-for-sale    
Residential mortgage-backed securities4$—  $3,611,590  $—  $3,611,590  
Commercial mortgage-backed securities4—  2,295,084  —  2,295,084  
Other asset-backed securities4—  970,251  421,642  1,391,893  
U.S. government-related securities41,010,485  629,020  —  1,639,505  
Other government-related securities4—  515,964  —  515,964  
State, municipals, and political subdivisions4—  3,588,841  —  3,588,841  
Corporate securities4—  35,724,552  638,276  36,362,828  
Redeemable preferred stocks465,536  17,266  —  82,802  
Total fixed maturity securities - AFS1,076,021  47,352,568  1,059,918  49,488,507  
Fixed maturity securities - trading    
Residential mortgage-backed securities3—  241,836  —  241,836  
Commercial mortgage-backed securities3—  188,925  —  188,925  
Other asset-backed securities3—  133,851  26,056  159,907  
U.S. government-related securities327,453  32,341  —  59,794  
Other government-related securities3—  44,207  —  44,207  
State, municipals, and political subdivisions3—  286,413  —  286,413  
Corporate securities3—  1,417,591  6,242  1,423,833  
Redeemable preferred stocks311,277  —  —  11,277  
Total fixed maturity securities - trading38,730  2,345,164  32,298  2,416,192  
Total fixed maturity securities1,114,751  49,697,732  1,092,216  51,904,699  
Equity securities3531,523  36  64,325  595,884  
Other long-term investments(1)
3&483,047  180,438  112,344  375,829  
Short-term investments3730,067  77,216  —  807,283  
Total investments2,459,388  49,955,422  1,268,885  53,683,695  
Cash3173,714  —  —  173,714  
Other assets329,257  —  —  29,257  
Assets related to separate accounts    
Variable annuity312,288,919  —  —  12,288,919  
Variable universal life3937,732  —  —  937,732  
Total assets measured at fair value on a recurring basis$15,889,010  $49,955,422  $1,268,885  $67,113,317  
Liabilities:    
Annuity account balances(2)
3$—  $—  $76,119  $76,119  
Other liabilities(1)
3&456,018  69,501  629,942  755,461  
Total liabilities measured at fair value on a recurring basis$56,018  $69,501  $706,061  $831,580  
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income (Loss)
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 Level 1 Level 2 Level 3 Total
 (Dollars In Thousands)
Assets: 
  
  
  
Fixed maturity securities - available-for-sale 
  
  
  
Residential mortgage-backed securities$—
 $2,327,212
 $—
 $2,327,212
Commercial mortgage-backed securities—
 1,889,822
 —
 1,889,822
Other asset-backed securities—
 745,184
 504,365
 1,249,549
U.S. government-related securities958,775
 264,477
 —
 1,223,252
State, municipalities, and political subdivisions—
 1,741,645
 —
 1,741,645
Other government-related securities—
 287,282
 —
 287,282
Corporate securities—
 29,075,109
 626,901
 29,702,010
Redeemable preferred stock72,471
 18,620
 —
 91,091
Total fixed maturity securities - available-for-sale1,031,246
 36,349,351
 1,131,266
 38,511,863
Fixed maturity securities - trading 
  
  
  
Residential mortgage-backed securities—
 259,694
 —
 259,694
Commercial mortgage-backed securities—
 146,804
 —
 146,804
Other asset-backed securities—
 102,875
 35,222
 138,097
U.S. government-related securities21,183
 6,051
 —
 27,234
State, municipalities, and political subdivisions—
 326,925
 —
 326,925
Other government-related securities—
 63,925
 —
 63,925
Corporate securities—
 1,692,741
 5,442
 1,698,183
Redeemable preferred stock3,327
 —
 —
 3,327
Total fixed maturity securities - trading24,510
 2,599,015
 40,664
 2,664,189
Total fixed maturity securities1,055,756
 38,948,366
 1,171,930
 41,176,052
Equity securities688,214
 36
 66,110
 754,360
Other long-term investments(1)
51,102
 417,969
 136,004
 605,075
Short-term investments482,461
 132,749
 —
 615,210
Total investments2,277,533
 39,499,120
 1,374,044
 43,150,697
Cash252,310
 —
 —
 252,310
Other assets28,771
 —
 —
 28,771
Assets related to separate accounts 
  
  
  
Variable annuity13,956,071
 —
 —
 13,956,071
Variable universal life1,035,202
 —
 —
 1,035,202
Total assets measured at fair value on a recurring basis$17,549,887
 $39,499,120
 $1,374,044
 $58,423,051
Liabilities: 
  
  
  
Annuity account balances(2)
$—
 $—
 $83,472
 $83,472
Other liabilities(1)
5,755
 240,927
 760,890
 1,007,572
Total liabilities measured at fair value on a recurring basis$5,755
 $240,927
 $844,362
 $1,091,044
        
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
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Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one1 of three3 primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three3 pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately 93.3%91.6% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, when available the Company obtains one2 quotes per security. Where multiple broker quotes are obtained, the Company reviews the quotes and selects the quote per security, typically fromthat provides the broker from which we purchasedbest estimate of the security.price a market participant would pay for these specific assets in an arm’s length transaction. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted averageweighted-average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.
For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices.value. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporateCompany’s assessment incorporates various metrics (yield curves, credit spreads, prepayment rates, etc.) along with other information available to the Company from both internal and external sources to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the nine months ended September 30, 2018.2019.
The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.
Asset-Backed Securities
This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of September 30, 2018,2019, the Company held $7.1$10.1 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types
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of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.
After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
As of September 30, 2018,2019, the Company held $549.7$487.2 million of Level 3 ABS, which included $521.7$425.7 million of other asset-backed securities classified as available-for-sale and $28.0$61.5 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. TheAs a result of the ARS market collapse during 2008, the Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics

of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be level threeLevel 3 measurements due to the nature of the transaction.
Corporate Securities, Redeemable Preferred Stocks, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government-Related Securities
As of September 30, 2018,2019, the Company classified approximately $43.1$53.9 billion of corporate securities, redeemable preferred stocks, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted averageweighted-average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
The brokers and third party pricing service utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.

As of September 30, 2018,2019, the Company classified approximately $633.5 million$1.3 billion of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.
Equities
As of September 30, 2018,2019, the Company held approximately $64.3$69.9 million of equity securities classified as Level 2 and Level 3. Of this total, $63.4$68.5 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.
Other Long-term Investments and Other Liabilities
Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 7, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of September 30, 2018,2019, 100% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. Inputs used to value derivatives include, but are not
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limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.
Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.
Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.


Derivative instruments classified as Level 3 wereare embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.


The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.

The embedded derivatives are carried at fair value in “otherother long-term investments”investments and “other liabilities”other liabilities on the Company’s consolidated condensed balance sheet. The changes in fair value are recorded in earnings as “RealizedRealized investment gains (losses) - Derivative financial instruments”. Refer to Note 7, Derivative Financial Instruments for more information related to each embedded derivatives gains and losses.
The fair value of the guaranteed living withdrawal benefits ("GLWB"(“GLWB”) embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity

volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table, with attained age factors varying from 91.1%87.0% - 106.6%.100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). For expected lapse and utilization, assumptions are used and updated for actual experience, as necessary, using an internal predictive model developed by the Company. As a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. Policyholder assumptions are reviewed on an annual basis.
The balance of the FIAfixed indexed annuity (“FIA”) embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior, assumptions expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 2015 Ruark ALB mortality table, modified with company experience, with attained age factors varying from 87%87.0% - 100%.100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.
The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables, modified with company experience, with attained age factors varying from 37%37.0% - 577%.577.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.
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Table of Contents
The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements where the Company has ceded certain blocks of policies are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. As of September 30, 2018,2019, the fair value of the embedded derivative is based upon the relationship between the statutory policy liabilities (net of policy loans) of $2.3$3.5 billion and the statutory unrealized gain (loss) of the securities of $60.0$285.9 million. As a result, changes in the fair value of the embedded derivatives where the Company has ceded certain blocks of policies are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.
Annuity Account Balances
The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values. The Level 3 fair value as of September 30, 20182019 is $78.5$71.8 million.
Separate Accounts
Separate account assets are invested in open-ended mutual funds and are included in Level 1.

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Table of Contents
Valuation of Level 3 Financial Instruments
The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:
 Fair Value
As of
September 30, 2018		 
Valuation
Technique
 
Unobservable
Input
 
Range
(Weighted Average)
 (Dollars In Thousands)      
Assets:       
Other asset-backed securities$502,020
 Liquidation Liquidation value $90 - $97 ($94.92)
   Discounted cash flow Liquidity premium 0.0% - 1.40% (0.62%)
     Paydown rate 11.09% - 13.15% (12.38%)
Corporate securities621,392
 Discounted cash flow Spread over treasury 0.90% - 4.23% (1.51%)
Liabilities:(1)
 
      
Embedded derivatives - GLWB(2)
$37,794
 Actuarial cash flow model Mortality 87% to 100% of
  
     Ruark 2015 ALB table
  
   Lapse Ruark Predictive Model
  
   Utilization 99%. 10% of policies have a one-
  
     time over-utilization of 400%
  
   Nonperformance risk 0.13% - 0.88%
Embedded derivative - FIA256,912
 Actuarial cash flow model Expenses $145 per policy
  
   Withdrawal rate 1.5% prior to age 70, 100% of the
  
     RMD for ages 70+
  
   Mortality 1994 MGDB table with company
  
     experience
  
   Lapse 1.0% - 30.0%, depending
  
     on duration/surrender
  
     charge period
  
   Nonperformance risk 0.13% - 0.88%
Embedded derivative - IUL95,739
 Actuarial cash flow model Mortality 37% - 577% of 2015
  
     VBT Primary Tables
  
   Lapse 0.5% - 10.0%, depending
  
     on duration/distribution
  
     channel and smoking class
  
   Nonperformance risk 0.13% - 0.88%
        
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
Fair Value as of September 30, 2019Valuation
Technique		Unobservable
Input		Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities$415,950 LiquidationLiquidation value$95.39 - $97.00 ($96.48)
Discounted cash flowLiquidity premium0.01% - 1.32% (0.44%)
Paydown rate9.96% - 12.61% (11.62%)
Corporate securities1,325,112 Discounted cash flowSpread over treasury0.89% - 3.93% (1.73%)
Liabilities:(1)
Embedded derivatives - GLWB(2)
$547,306 Actuarial cash flow modelMortality87% to 100% of
Ruark 2015 ALB table
LapseInternal Predictive Model
UtilizationInternal Predictive Model
Nonperformance risk0.12% - 0.97%
Embedded derivative - FIA308,861 Actuarial cash flow modelExpenses$195 per policy
Withdrawal rate0.4% - 1.2% prior to age 70, 100% of the
RMD for ages 70+
Mortality87% to 100% of Ruark 2015 ALB
table
Lapse.5% - 50%, depending
on duration/surrender
charge period
Dynamically adjusted for WB moneyness and projected market rates vs credited rates
Nonperformance risk0.12% - 0.97%
Embedded derivative - IUL141,793 Actuarial cash flow modelMortality37% - 156% of 2015
VBT Primary Tables
Lapse0.5% - 10.0%, depending
on duration/distribution
channel and smoking class
Nonperformance risk0.12% - 0.97%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
The chart above excludes Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value.
The Company has considered all reasonably available quantitative inputs as of September 30, 2018,2019, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $60.5$79.4 million of financial instruments being classified as Level 3 as of September 30, 2018.2019. Of the $60.5$79.4 million, $47.7$71.3 million are other asset-backed securities, $12.1$7.0 million are corporate securities, and $0.7$1.1 million are equity securities.
In certain cases, the Company has determined that book value materially approximates fair value. As of September 30, 2018,2019, the Company held $63.6$68.7 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.

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Table of Contents
The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:
 Fair Value
As of
December 31, 2017		 
Valuation
Technique
 
Unobservable
Input
 
Range
(Weighted Average)
 (Dollars In Thousands)      
Assets:       
Other asset-backed securities$504,228
 Liquidation Liquidation value $90 - $97 ($94.91)
   Discounted Cash Flow Liquidity premium 0.06% - 1.17% (0.75%)
     Paydown rate 11.31% - 11.97% (11.54%)
Corporate securities617,770
 Discounted cash flow Spread over treasury 0.81% - 3.95% (1.06%)
Liabilities:(1)
 
      
Embedded derivatives - GLWB(2)
$111,760
 Actuarial cash flow model Mortality 91.1% to 106.6% of
  
     Ruark 2015 ALB table
  
   Lapse 1.0% - 30.0%, depending on
  
     product/duration/funded
  
     status of guarantee
  
   Utilization 99%. 10% of policies have a one-
       time over-utilization of 400%
  
   Nonperformance risk 0.11% - 0.79%
Embedded derivative - FIA218,676
 Actuarial cash flow model Expenses $146 per policy
  
   Withdrawal rate 1.5% prior to age 70, 100% of the
  
     RMD for ages 70+
  
   Mortality 1994 MGDB table with company
  
     experience
  
   Lapse 1.0% - 30.0%, depending
  
     on duration/surrender
  
     charge period
  
   Nonperformance risk 0.11% - 0.79%
Embedded derivative - IUL80,212
 Actuarial cash flow model Mortality 34% - 152% of 2015
  
     VBT Primary Tables
  
   Lapse 0.5% - 10.0%, depending
  
     on duration/distribution
  
     channel and smoking class
  
   Nonperformance risk 0.11% - 0.79%
        
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
Fair Value as of December 31, 2018Valuation
Technique		Unobservable
Input		Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities$421,458 LiquidationLiquidation value$85.75 - $99.99 ($95.36)
Discounted Cash FlowLiquidity premium0.02% - 1.25% (0.64%)
Paydown rate10.96% - 13.11% (12.03%)
Corporate securities631,068 Discounted cash flowSpread over treasury0.84% - 3.0% (1.84%)
Liabilities:(1)
Embedded derivatives - GLWB(2)
$184,071 Actuarial cash flow modelMortality87% to 100% of
Ruark 2015 ALB table
LapseRuark Predictive Model
Utilization99%. 10% of policies have a one-
time over-utilization of 400%
Nonperformance risk0.21% - 1.16%
Embedded derivative - FIA217,288 Actuarial cash flow modelExpenses$145 per policy
Withdrawal rate1.5% prior to age 70, 100% of the
RMD for ages 70+
Mortality87% to 100% of Ruark 2015 ALB
table
Lapse1.0% - 30.0%, depending
on duration/surrender
charge period
Nonperformance risk0.21% - 1.16%
Embedded derivative - IUL90,231 Actuarial cash flow modelMortality37% - 577% of 2015
VBT Primary Tables
Lapse0.5% - 10.0%, depending
on duration/distribution
channel and smoking class
Nonperformance risk0.21% - 1.16%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
The chart above excludes Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value.
The Company had considered all reasonably available quantitative inputs as of December 31, 2017,2018, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $50.4$40.4 million of financial instruments being classified as Level 3 as of December 31, 2017.2018. Of the $50.4$40.4 million, $35.4$26.2 million are other asset-backed securities, $14.6$13.5 million are corporate securities, and $0.4$0.7 million are equity securities.
In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2017,2018, the Company held $65.7$63.6 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.
The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities. The liquidation values for these securities are sensitive to the issuer’s available cash flows and ability to redeem the securities, as well as the current holders’ willingness to liquidate at the specified price.

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Table of Contents
The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company-specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and decreases when spreads increase.
The fair value of the GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.
The fair value of the FIA embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.
The fair value of the IUL embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the IUL embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.


36
Table of Contents
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2019, for which the Company has used significant unobservable inputs (Level 3):
Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
Beginning
Balance		Included
 in
Earnings		Included 
in
Other
Comprehensive
Income		Included 
in
Earnings		Included 
in
Other
Comprehensive
Income		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance
 (Dollars In Thousands)
Assets:             
Fixed maturity securities AFS             
Residential mortgage-backed securities$—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  
Commercial mortgage-backed securities9,366  —  294  —  —  —  (19) —  —  —  (6) 9,635  —  
Other asset-backed securities418,310  —  865  (14) (3,276) —  (8) —  —  —  185  416,062  —  
Corporate securities1,328,491  —  22,910  —  (3,408) 9,150  (72,215) —  —  41,319  (1,135) 1,325,112  —  
Total fixed maturity securities - AFS1,756,167  —  24,069  (14) (6,684) 9,150  (72,242) —  —  41,319  (956) 1,750,809  —  
Fixed maturity securities - trading             
Other asset-backed securities62,180  294  —  (34) —  —  (879) —  —  —  (34) 61,527  274  
Corporate securities5,294  67  —  —  —  1,700  —  —  —  —  (25) 7,036  6,906  
Total fixed maturity securities - trading67,474  361  —  (34) —  1,700  (879) —  —  —  (59) 68,563  7,180  
Total fixed maturity securities1,823,641  361  24,069  (48) (6,684) 10,850  (73,121) —  —  41,319  (1,015) 1,819,372  7,180  
Equity securities69,627  192  —  (1) —  —  —  —  —  —  —  69,818  191  
Other long-term investments(1)
110,923  57,037  —  —  —  —  —  —  —  —  —  167,960  57,037  
Total investments2,004,191  57,590  24,069  (49) (6,684) 10,850  (73,121) —  —  41,319  (1,015) 2,057,150  64,408  
Total assets measured at fair value on a recurring basis$2,004,191  $57,590  $24,069  $(49) $(6,684) $10,850  $(73,121) $—  $—  $41,319  $(1,015) $2,057,150  $64,408  
Liabilities:             
Annuity account balances(2)
$72,585  $—  $—  $(523) $—  $—  $—  $91  $1,379  $—  $—  $71,820  $—  
Other liabilities(1)
1,097,077  —  —  (344,191) —  33,684  —  —  —  —  —  1,474,952  (344,191) 
Total liabilities measured at fair value on a recurring basis$1,169,662  $—  $—  $(344,714) $—  $33,684  $—  $91  $1,379  $—  $—  $1,546,772  $(344,191) 
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the three months ended September 30, 2019, there were $52.1 million of securities transferred into Level 3 from Level 2.
For the three months ended September 30, 2019, there were $10.8 million of securities transferred into Level 2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2019.
For the three months ended September 30, 2019, there were 0 transfers from Level 2 into Level 1.
For the three months ended September 30, 2019, there were 0 transfers from Level 1 into Level 2.

37
Table of Contents
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2019, for which the Company has used significant unobservable inputs (Level 3):
Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
Beginning
Balance		Included
 in
Earnings		Included 
in
Other
Comprehensive
Income		Included 
in
Earnings		Included 
in
Other
Comprehensive
Income		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance
 (Dollars In Thousands)
Assets:             
Fixed maturity securities AFS             
Residential mortgage-backed securities$—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  
Commercial mortgage-backed securities—  —  310  —  —  9,359  (26) —  —  —  (8) 9,635  —  
Other asset-backed securities421,642  446  11,525  (71) (8,075) —  (10,023) —  —  —  618  416,062  —  
Corporate securities638,276  82  66,866  —  (6,917) 704,777  (157,171) —  —  80,574  (1,375) 1,325,112  —  
Total fixed maturity securities - AFS1,059,918  528  78,701  (71) (14,992) 714,136  (167,220) —  —  80,574  (765) 1,750,809  —  
Fixed maturity securities - trading             
Other asset-backed securities26,056  4,300  —  (3,618) —  15,463  (6,771) —  —  26,267  (170) 61,527  (2,442) 
Corporate securities6,242  236  —  (31) —  1,700  (1,035) —  —  —  (76) 7,036  5,274  
Total fixed maturity securities - trading32,298  4,536  —  (3,649) —  17,163  (7,806) —  —  26,267  (246) 68,563  2,832  
Total fixed maturity securities1,092,216  5,064  78,701  (3,720) (14,992) 731,299  (175,026) —  —  106,841  (1,011) 1,819,372  2,832  
Equity securities64,325  431  —  (17) —  5,079  —  —  —  —  —  69,818  345  
Other long-term investments(1)
112,344  83,959  —  (29,922) —  1,579  —  —  —  —  —  167,960  54,037  
Total investments1,268,885  89,454  78,701  (33,659) (14,992) 737,957  (175,026) —  —  106,841  (1,011) 2,057,150  57,214  
Total assets measured at fair value on a recurring basis$1,268,885  $89,454  $78,701  $(33,659) $(14,992) $737,957  $(175,026) $—  $—  $106,841  $(1,011) $2,057,150  $57,214  
Liabilities:             
Annuity account balances(2)
$76,119  $—  $—  $(1,675) $—  $—  $—  $158  $6,132  $—  $—  $71,820  $—  
Other liabilities(1)
629,942  12,034  —  (786,156) —  70,888  —  —  —  —  —  1,474,952  (774,122) 
Total liabilities measured at fair value on a recurring basis$706,061  $12,034  $—  $(787,831) $—  $70,888  $—  $158  $6,132  $—  $—  $1,546,772  $(774,122) 
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the nine months ended September 30, 2019, there were $138.2 million securities transferred into Level 3 from Level 2.
For the nine months ended September 30, 2019, there were $31.4 million securities transferred into Level 2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2019.
For the nine months ended September 30, 2019, there were 0 transfers from Level 2 into Level 1.
For the nine months ended September 30, 2019, there were 0 transfers from Level 1 into Level 2.

38
Table of Contents
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2018, for which the Company has used significant unobservable inputs (Level 3):
  
Total
Realized and Unrealized
Gains
 
Total
Realized and Unrealized
Losses
               Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date		Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
Beginning
Balance
 
Included
 in
Earnings
 
Included 
in
Other
Comprehensive
Income
 
Included 
in
Earnings
 
Included 
in
Other
Comprehensive
Income
 Purchases Sales Issuances Settlements 
Transfers
in/out of
Level 3
 Other 
Ending
Balance
 Beginning
Balance		Included
 in
Earnings		Included 
in
Other
Comprehensive
Income		Included 
in
Earnings		Included 
in
Other
Comprehensive
Income		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
(Dollars In Thousands) (Dollars In Thousands)
Assets: 
  
  
  
  
  
  
  
  
  
  
  
  
Assets:             
Fixed maturity securities available-for-sale 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities AFSFixed maturity securities AFS             
Residential mortgage-backed securities$21,780
 $—
 $—
 $—
 $(538) $—
 $—
 $—
 $—
 $(21,281) $39
 $—
 $—
Residential mortgage-backed securities$21,780  $—  $—  $—  $(538) $—  $—  $—  $—  $(21,281) $39  $—  $—  
Commercial mortgage-backed securities47,227
 —
 —
 —
 (1,212) —
 (151) —
 —
 (26,372) (25) 19,467
 —
Commercial mortgage-backed securities47,227  —  —  —  (1,212) —  (151) —  —  (26,372) (25) 19,467  —  
Other asset-backed securities515,701
 —
 17
 (62) (14,802) —
 (24) —
 —
 —
 1,431
 502,261
 —
Other asset-backed securities515,701  —  17  (62) (14,802) —  (24) —  —  —  1,431  502,261  —  
Corporate securities644,811
 —
 1,422
 —
 (4,044) 15,000
 (47,935) —
 —
 19,903
 (873) 628,284
 —
Corporate securities644,811  —  1,422  —  (4,044) 15,000  (47,935) —  —  19,903  (873) 628,284  —  
Total fixed maturity securities - available-for-sale1,229,519
 —
 1,439
 (62) (20,596) 15,000
 (48,110) —
 —
 (27,750) 572
 1,150,012
 —
Total fixed maturity securities - AFSTotal fixed maturity securities - AFS1,229,519  —  1,439  (62) (20,596) 15,000  (48,110) —  —  (27,750) 572  1,150,012  —  
Fixed maturity securities - trading 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities - trading             
Other asset-backed securities24,852
 84
 —
 (76) —
 4,128
 (926) —
 —
 —
 (50) 28,012
 68
Other asset-backed securities24,852  84  —  (76) —  4,128  (926) —  —  —  (50) 28,012  68  
Corporate securities5,254
 —
 —
 (6) —
 —
 —
 —
 —
 —
 (25) 5,223
 (6)Corporate securities5,254  —  —  (6) —  —  —  —  —  —  (25) 5,223  (6) 
Total fixed maturity securities - trading30,106
 84
 —
 (82) —
 4,128
 (926) —
 —
 —
 (75) 33,235
 62
Total fixed maturity securities - trading30,106  84  —  (82) —  4,128  (926) —  —  —  (75) 33,235  62  
Total fixed maturity securities1,259,625
 84
 1,439
 (144) (20,596) 19,128
 (49,036) —
 —
 (27,750) 497
 1,183,247
 62
Total fixed maturity securities1,259,625  84  1,439  (144) (20,596) 19,128  (49,036) —  —  (27,750) 497  1,183,247  62  
Equity securities66,083
 287
 —
 —
 —
 —
 (2,102) —
 —
 —
 —
 64,268
 287
Equity securities66,083  287  —  —  —  —  (2,102) —  —  —  —  64,268  287  
Other long-term investments(1)
156,674
 24,872
 —
 —
 —
 —
 —
 —
 —
 —
 —
 181,546
 24,872
Other long-term investments(1)
156,674  24,872  —  —  —  —  —  —  —  —  —  181,546  24,872  
Total investments1,482,382
 25,243
 1,439
 (144) (20,596) 19,128
 (51,138) —
 —
 (27,750) 497
 1,429,061
 25,221
Total investments1,482,382  25,243  1,439  (144) (20,596) 19,128  (51,138) —  —  (27,750) 497  1,429,061  25,221  
Total assets measured at fair value on a recurring basis$1,482,382
 $25,243
 $1,439
 $(144) $(20,596) $19,128
 $(51,138) $—
 $—
 $(27,750) $497
 $1,429,061
 $25,221
Total assets measured at fair value on a recurring basis$1,482,382  $25,243  $1,439  $(144) $(20,596) $19,128  $(51,138) $—  $—  $(27,750) $497  $1,429,061  $25,221  
Liabilities: 
  
  
  
  
  
  
  
  
  
  
  
  
Liabilities:             
Annuity account balances(2)
$80,098
 $—
 $—
 $(896) $—
 $—
 $—
 $40
 $2,571
 $—
 $—
 $78,463
 $—
Annuity account balances(2)
$80,098  $—  $—  $(896) $—  $—  $—  $40  $2,571  $—  $—  $78,463  $—  
Other liabilities(1)
572,916
 70,887
 —
 (52,451) —
 —
 —
 —
 —
 —
 —
 554,480
 18,436
Other liabilities(1)
572,916  70,887  —  (52,451) —  —  —  —  —  —  —  554,480  18,436  
Total liabilities measured at fair value on a recurring basis$653,014
 $70,887
 $—
 $(53,347) $—
 $—
 $—
 $40
 $2,571
 $—
 $—
 $632,943
 $18,436
Total liabilities measured at fair value on a recurring basis$653,014  $70,887  $—  $(53,347) $—  $—  $—  $40  $2,571  $—  $—  $632,943  $18,436  
                         
(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.
For the three months ended September 30, 2018, there were $19.9 million securities transferred into Level 3.
For the three months ended September 30, 2018, there were $47.7 million of securities transferred into Level 2. This amount was transferred2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2018.
For the three months ended September 30, 2018, there were no0 transfers from Level 2 tointo Level 1.
For the three months ended September 30, 2018, there were no0 transfers from Level 1 into Level 2.






39
Table of Contents
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2018, for which the Company has used significant unobservable inputs (Level 3):
  
Total
Realized and Unrealized
Gains
 
Total
Realized and Unrealized
Losses
               Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date		Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
Beginning
Balance
 
Included
 in
Earnings
 
Included 
in
Other
Comprehensive
Income
 
Included 
in
Earnings
 
Included 
in
Other
Comprehensive
Income
 Purchases Sales Issuances Settlements 
Transfers
in/out of
Level 3
 Other 
Ending
Balance
 Beginning
Balance		Included
 in
Earnings		Included 
in
Other
Comprehensive
Income		Included 
in
Earnings		Included 
in
Other
Comprehensive
Income		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance		Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
(Dollars In Thousands) (Dollars In Thousands)
Assets: 
  
  
  
  
  
  
  
  
  
  
  
  
Assets:             
Fixed maturity securities available-for-sale 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities AFSFixed maturity securities AFS             
Residential mortgage-backed securities$—
 $—
 $—
 $—
 $(995) $22,225
 $—
 $—
 $—
 $(21,281) $51
 $—
 $—
Residential mortgage-backed securities$—  $—  $—  $—  $(995) $22,225  $—  $—  $—  $(21,281) $51  $—  $—  
Commercial mortgage-backed securities—
 —
 —
 —
 (2,496) 48,621
 (245) —
 —
 (26,372) (41) 19,467
 —
Commercial mortgage-backed securities—  —  —  —  (2,496) 48,621  (245) —  —  (26,372) (41) 19,467  —  
Other asset-backed securities504,365
 —
 11,884
 (62) (16,449) —
 (47) —
 —
 222
 2,348
 502,261
 —
Other asset-backed securities504,365  —  11,884  (62) (16,449) —  (47) —  —  222  2,348  502,261  —  
Corporate securities626,901
 —
 8,483
 —
 (22,973) 93,491
 (86,388) —
 —
 12,009
 (3,239) 628,284
 —
Corporate securities626,901  —  8,483  —  (22,973) 93,491  (86,388) —  —  12,009  (3,239) 628,284  —  
Total fixed maturity securities - available-for-sale1,131,266
 —
 20,367
 (62) (42,913) 164,337
 (86,680) —
 —
 (35,422) (881) 1,150,012
 —
Total fixed maturity securities - AFSTotal fixed maturity securities - AFS1,131,266  —  20,367  (62) (42,913) 164,337  (86,680) —  —  (35,422) (881) 1,150,012  —  
Fixed maturity securities - trading 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities - trading             
Other asset-backed securities35,222
 278
 —
 (3,674) —
 8,728
 (12,595) —
 —
 164
 (111) 28,012
 (3,337)Other asset-backed securities35,222  278  —  (3,674) —  8,728  (12,595) —  —  164  (111) 28,012  (3,337) 
Corporate securities5,442
 —
 —
 (145) —
 —
 —
 —
 —
 —
 (74) 5,223
 (145)Corporate securities5,442  —  —  (145) —  —  —  —  —  —  (74) 5,223  (145) 
Total fixed maturity securities - trading40,664
 278
 —
 (3,819) —
 8,728
 (12,595) —
 —
 164
 (185) 33,235
 (3,482)Total fixed maturity securities - trading40,664  278  —  (3,819) —  8,728  (12,595) —  —  164  (185) 33,235  (3,482) 
Total fixed maturity securities1,171,930
 278
 20,367
 (3,881) (42,913) 173,065
 (99,275) —
 —
 (35,258) (1,066) 1,183,247
 (3,482)Total fixed maturity securities1,171,930  278  20,367  (3,881) (42,913) 173,065  (99,275) —  —  (35,258) (1,066) 1,183,247  (3,482) 
Equity securities66,110
 288
 —
 (64) —
 36
 (2,102) —
 —
 —
 —
 64,268
 224
Equity securities66,110  288  —  (64) —  36  (2,102) —  —  —  —  64,268  224  
Other long-term investments(1)
136,004
 46,557
 —
 (1,015) —
 —
 —
 —
 —
 —
 —
 181,546
 45,542
Other long-term investments(1)
136,004  46,557  —  (1,015) —  —  —  —  —  —  —  181,546  45,542  
Short-term investments—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Short-term investments—  —  —  —  —  —  —  —  —  —  —  —  —  
Total investments1,374,044
 47,123
 20,367
 (4,960) (42,913) 173,101
 (101,377) —
 —
 (35,258) (1,066) 1,429,061
 42,284
Total investments1,374,044  47,123  20,367  (4,960) (42,913) 173,101  (101,377) —  —  (35,258) (1,066) 1,429,061  42,284  
Total assets measured at fair value on a recurring basis$1,374,044
 $47,123
 $20,367
 $(4,960) $(42,913) $173,101
 $(101,377) $—
 $—
 $(35,258) $(1,066) $1,429,061
 $42,284
Total assets measured at fair value on a recurring basis$1,374,044  $47,123  $20,367  $(4,960) $(42,913) $173,101  $(101,377) $—  $—  $(35,258) $(1,066) $1,429,061  $42,284  
Liabilities: 
  
  
  
  
  
  
  
  
  
  
  
  
Liabilities:             
Annuity account balances(2)
$83,472
 $—
 $—
 $(2,749) $—
 $—
 $—
 $570
 $8,328
 $—
 $—
 $78,463
 $—
Annuity account balances(2)
$83,472  $—  $—  $(2,749) $—  $—  $—  $570  $8,328  $—  $—  $78,463  $—  
Other liabilities(1)
760,890
 328,343
 —
 (121,933) —
 —
 —
 —
 —
 —
 —
 554,480
 206,410
Other liabilities(1)
760,890  328,343  —  (121,933) —  —  —  —  —  —  —  554,480  206,410  
Total liabilities measured at fair value on a recurring basis$844,362
 $328,343
 $—
 $(124,682) $—
 $—
 $—
 $570
 $8,328
 $—
 $—
 $632,943
 $206,410
Total liabilities measured at fair value on a recurring basis$844,362  $328,343  $—  $(124,682) $—  $—  $—  $570  $8,328  $—  $—  $632,943  $206,410  
                         
(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.
For the nine months ended September 30, 2018, there were $30.9 million securities transferred into Level 3.
For the nine months ended September 30, 2018, there were $66.2 million securities transferred into Level 2. This amount was transferred2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2018.
For the nine months ended September 30, 2018, there were no0 transfers from Level 2 tointo Level 1.
For the nine months ended September 30, 2018, there were no0 transfers from Level 1 into Level 2.


The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2017, for which the Company has used significant unobservable inputs (Level 3):
   
Total
Realized and Unrealized
Gains
 
Total
Realized and Unrealized
Losses
               Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
 
Beginning
Balance
 
Included
 in
Earnings
 
Included 
in
Other
Comprehensive
Income
 
Included 
in
Earnings
 
Included 
in
Other
Comprehensive
Income
 Purchases Sales Issuances Settlements 
Transfers
in/out of
Level 3
 Other 
Ending
Balance
 
 (Dollars In Thousands)
Assets: 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities available-for-sale 
  
  
  
  
  
  
  
  
  
  
  
  
Residential mortgage-backed securities$11,862
 $—
 $83
 $—
 $—
 $—
 $—
 $—
 $—
 $(11,944) $(1) $—
 $—
Commercial mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Other asset-backed securities552,963
 —
 1,682
 —
 (2,285) 100
 (109) —
 —
 —
 798
 553,149
 —
Corporate securities662,654
 —
 8,301
 —
 (2,222) 5,071
 (42,242) —
 —
 (5,486) (1,523) 624,553
 —
Total fixed maturity securities - available-for-sale1,227,479
 —
 10,066
 —
 (4,507) 5,171
 (42,351) —
 —
 (17,430) (726) 1,177,702
 —
Fixed maturity securities - trading 
  
  
  
  
  
  
  
  
  
  
  
  
Other asset-backed securities54,923
 —
 —
 (353) —
 —
 (19,188) —
 —
 —
 108
 35,490
 (209)
Corporate securities5,520
 27
 —
 —
 —
 —
 —
 —
 —
 —
 (23) 5,524
 27
Total fixed maturity securities - trading60,443
 27
 —
 (353) —
 —
 (19,188) —
 —
 —
 85
 41,014
 (182)
Total fixed maturity securities1,287,922
 27
 10,066
 (353) (4,507) 5,171
 (61,539) —
 —
 (17,430) (641) 1,218,716
 (182)
Equity securities66,300
 —
 31
 —
 —
 —
 (169) —
 —
 —
 —
 66,162
 1
Other long-term investments(1)
120,023
 10,331
 —
 (2) —
 —
 —
 —
 —
 —
 —
 130,352
 10,329
Total investments1,474,245
 10,358
 10,097
 (355) (4,507) 5,171
 (61,708) —
 —
 (17,430) (641) 1,415,230
 10,148
Total assets measured at fair value on a recurring basis$1,474,245
 $10,358
 $10,097
 $(355) $(4,507) $5,171
 $(61,708) $—
 $—
 $(17,430) $(641) $1,415,230
 $10,148
Liabilities: 
  
  
  
  
  
  
  
  
  
  
  
  
Annuity account balances(2)
$86,094
 $—
 $—
 $(977) $—
 $—
 $—
 $9
 $2,052
 $—
 $—
 $85,028
 $—
Other liabilities(1)
702,218
 12,201
 —
 (46,396) —
 —
 —
 —
 —
 —
 —
 736,413
 (34,195)
Total liabilities measured at fair value on a recurring basis$788,312
 $12,201
 $—
 $(47,373) $—
 $—
 $—
 $9
 $2,052
 $—
 $—
 $821,441
 $(34,195)
                          
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the three months ended September 30, 2017, there were no securities transferred into Level 3.
For the three months ended September 30, 2017, $17.4 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2017.
For the three months ended September 30, 2017, there were no securities transferred into Level 1.
For the three months ended September 30, 2017, there were no securities transferred into Level 2.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2017, for which the Company has used significant unobservable inputs (Level 3):
   
Total
Realized and Unrealized
Gains
 
Total
Realized and Unrealized
Losses
               Total Gains (losses) included in Earnings related to Instruments still held at
the 
Reporting
Date
 
Beginning
Balance
 
Included
 in
Earnings
 
Included 
in
Other
Comprehensive
Income
 
Included 
in
Earnings
 
Included 
in
Other
Comprehensive
Income
 Purchases Sales Issuances Settlements 
Transfers
in/out of
Level 3
 Other 
Ending
Balance
 
 (Dollars In Thousands)
Assets: 
  
  
  
  
  
  
  
  
  
  
  
  
Fixed maturity securities available-for-sale   
  
  
  
  
  
  
  
  
  
  
  
Residential mortgage-backed securities$3
 $—
 $83
 $—
 $—
 $11,862
 $(3) $—
 $—
 $(11,944) $(1) $—
 $—
Commercial mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Other asset-backed securities562,604
 —
 5,212
 —
 (7,373) 100
 (2,136) —
 —
 (6,643) 1,385
 553,149
 —
Corporate securities664,046
 —
 26,099
 —
 (2,764) 85,822
 (135,192) —
 —
 (10,353) (3,105) 624,553
 —
Total fixed maturity securities - available-for-sale1,226,653
 —
 31,394
 —
 (10,137) 97,784
 (137,331) —
 —
 (28,940) (1,721) 1,177,702
 —
Fixed maturity securities - trading 
  
  
  
  
  
  
  
  
  
  
  
  
Other asset-backed securities84,563
 3,679
 —
 (1,154) —
 —
 (52,516) —
 —
 —
 918
 35,490
 3,397
Corporate securities5,492
 101
 —
 —
 —
 —
 —
 —
 —
 —
 (69) 5,524
 101
Total fixed maturity securities - trading90,055
 3,780
 —
 (1,154) —
 —
 (52,516) —
 —
 —
 849
 41,014
 3,498
Total fixed maturity securities1,316,708
 3,780
 31,394
 (1,154) (10,137) 97,784
 (189,847) —
 —
 (28,940) (872) 1,218,716
 3,498
Equity securities69,010
 —
 52
 (2,630) —
 —
 (273) —
 —
 3
 —
 66,162
 2
Other long-term investments(1)
124,325
 21,452
 —
 (15,425) —
 —
 —
 —
 —
 —
 —
 130,352
 6,027
Total investments1,510,043
 25,232
 31,446
 (19,209) (10,137) 97,784
 (190,120) —
 —
 (28,937) (872) 1,415,230
 9,527
Total assets measured at fair value on a recurring basis$1,510,043
 $25,232
 $31,446
 $(19,209) $(10,137) $97,784
 $(190,120) $—
 $—
 $(28,937) $(872) $1,415,230
 $9,527
Liabilities: 
  
  
  
  
  
  
  
  
  
  
  
  
Annuity account balances(2)
$87,616
 $—
 $—
 $(2,973) $—
 $—
 $—
 $402
 $5,963
 $—
 $—
 $85,028
 $—
Other liabilities(1)
571,843
 56,464
 —
 (221,034) —
 —
 —
 —
 —
 —
 —
 736,413
 (164,570)
Total liabilities measured at fair value on a recurring basis$659,459
 $56,464
 $—
 $(224,007) $—
 $—
 $—
 $402
 $5,963
 $—
 $—
 $821,441
 $(164,570)
                          
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the nine months ended September 30, 2017, there were an immaterial amount of transfers of securities into Level 3.
For the nine months ended September 30, 2017, $28.9 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2017.
For the nine months ended September 30, 2017, there were no securities transferred into Level 1.
For the nine months ended September 30, 2017, there were no securities transferred into Level 2.
Total realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either realized investment gains (losses) within the consolidated condensed statements of income (loss) or other comprehensive income (loss) within shareowner’s equity based on the appropriate accounting treatment for the item.
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Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.
The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. The asset transfers

in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.
The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.
Estimated Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:
 As ofAs of
 September 30, 2018 December 31, 2017September 30, 2019December 31, 2018
Fair Value
Level
 
Carrying
Amounts
 Fair Values 
Carrying
Amounts
 Fair ValuesFair Value
Level		Carrying
Amounts		Fair ValuesCarrying
Amounts		Fair Values
  (Dollars In Thousands)  (Dollars In Thousands)
Assets:   
  
  
  
Assets:     
Mortgage loans on real estate3 $7,572,349
 $7,335,547
 $6,817,723
 $6,740,177
Mortgage loans on real estate3  $9,327,911  $9,529,865  $7,724,733  $7,447,702  
Policy loans3 1,703,462
 1,703,462
 1,615,615
 1,615,615
Policy loans3  1,686,832  1,686,832  1,695,886  1,695,886  
Fixed maturities, held-to-maturity(1)
3 2,653,605
 2,577,841
 2,718,904
 2,776,327
Fixed maturities, held-to-maturity(1)
3  2,544,054  2,685,076  2,633,474  2,547,210  
Liabilities:   
  
  
  
Liabilities:     
Stable value product account balances3 $5,211,668
 $5,147,084
 $4,698,371
 $4,698,868
Stable value product account balances3  $5,450,981  $5,547,509  $5,234,731  $5,200,723  
Future policy benefits and claims(2)
3 223,091
 223,091
 220,498
 220,498
Future policy benefits and claims(2)
3  1,707,238  1,709,444  1,671,414  1,671,434  
Other policyholders’ funds(3)
3 131,338
 130,672
 133,508
 134,253
Other policyholders’ funds(3)
3  104,395  106,285  131,150  131,782  
Debt:(4)
   
  
  
  
Debt:(4)
     
Bank borrowings3 $—
 $—
 $—
 $—
Bank borrowings(5)
Bank borrowings(5)
3  $599,653  $600,000  $—  $—  
Senior Notes2 1,105,978
 1,074,695
 943,370
 933,926
Senior Notes2  1,467,245  1,531,330  1,100,508  1,065,338  
Subordinated debentures2 495,392
 497,760
 495,289
 501,215
Subordinated debentures2  495,528  511,690  495,426  494,265  
Subordinated funding obligations3 110,000
 97,451
 —
 —
Subordinated funding obligations3  110,000  113,369  110,000  95,476  
Non-recourse funding obligations(5)
3 2,651,967
 2,580,278
 2,747,477
 2,804,983
Non-recourse funding obligations(6)
Non-recourse funding obligations(6)
3  2,545,049  2,723,594  2,632,497  2,550,237  
        
Except as noted below, fair values were estimated using quoted market prices.Except as noted below, fair values were estimated using quoted market prices.Except as noted below, fair values were estimated using quoted market prices.
(1) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.(1) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.(1) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.
(2) Single premium immediate annuity without life contingencies.(2) Single premium immediate annuity without life contingencies.(2) Single premium immediate annuity without life contingencies.
(3) Supplementary contracts without life contingencies.(3) Supplementary contracts without life contingencies.(3) Supplementary contracts without life contingencies.
(4) Excludes capital lease obligations of $1.4 million and $1.7 million as of September 30, 2018 and December 31, 2017, respectively.
(5) As of September 30, 2018, carrying amount of $2.6 billion and a fair value of $2.6 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2017, carrying amount of $2.7 billion and a fair value of $2.8 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.
(4) Excludes capital lease obligations of $2.3 million and $1.3 million as of September 30, 2019 and December 31, 2018, respectively.(4) Excludes capital lease obligations of $2.3 million and $1.3 million as of September 30, 2019 and December 31, 2018, respectively.
(5) As September 30, 2019, includes the Term Loan Credit Agreement.(5) As September 30, 2019, includes the Term Loan Credit Agreement.
(6) As of September 30, 2019, carrying amount of $2.7 billion and a fair value of $2.5 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2018, carrying amount of $2.6 billion and a fair value of $2.5 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.(6) As of September 30, 2019, carrying amount of $2.7 billion and a fair value of $2.5 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2018, carrying amount of $2.6 billion and a fair value of $2.5 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.
Fair Value Measurements
Mortgage loans on real estate
The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.
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Policy loans
The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policyholders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the faircarrying value of policy loans approximates carryingfair value.
Fixed maturities, held-to-maturity
The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

Stable value product and other investment contract balances
The Company estimates the fair value of stable value product account balances and other investment contract balances (included in Future policy benefits and claims as well as Other policyholderpolicyholders’ funds line items on our consolidated condensed balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.
Debt
Bank borrowings
The Company believes the carrying value of its bank borrowings approximates fair value as the borrowings pay a floating interest rate plus a spread based on the rating of the Company’s senior debt which the Company believes approximates a market interest rate.
Senior notes and subordinated debentures
The Company estimates the fair value of its Senior Notes and Subordinated debentures using quoted market prices from third party pricing services, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate.
Funding obligations
The Company estimates the fair value of its subordinated and non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.
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7.DERIVATIVE FINANCIAL INSTRUMENTS
Types of Derivative Instruments and Derivative Strategies
The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’s analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into the Company’s risk management program.
Derivative instruments expose the Company to credit and market risk and could result in material changes from period to period. The Company attempts to minimize its credit in connection with its overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.
Derivatives Related to Interest Rate Risk Management
Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions.
Derivatives Related to Foreign Currency Exchange Risk Management
Derivative instruments that are used as part of the Company’s foreign currency exchange risk management strategy include foreign currency swaps, foreign currency futures, foreign equity futures, and foreign equity options.
Derivatives Related to Risk Mitigation of Certain Annuity Contracts
The Company may use the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to VAvariable annuity (“VA”) contracts, fixed indexed annuities, and indexed universal life contracts:
•Foreign Currency Futures
•Variance Swaps
•Interest Rate Futures
•Equity Options
•Equity Futures
•Credit Derivatives
•Interest Rate Swaps
•Interest Rate Swaptions
•Volatility Futures
•Volatility Options
•Total Return Swaps
Accounting for Derivative Instruments
The Company records its derivative financial instruments in the consolidated balance sheet in “otherother long-term investments”investments and “other liabilities”other liabilities in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.
It is the Company's policy not to offset assets and liabilities associated with open derivative contracts. However, the Chicago Mercantile Exchange (“CME”) rules characterize variation margin transfers as settlement payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally cleared derivatives for which the CME serves as the central clearing party are presented as if these derivatives had been settled as of the reporting date.
For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.

The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship through earnings in the period of change. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realizedrealized investment gains (losses)-Derivative financial instruments”.
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Derivative Instruments Designated and Qualifying as Hedging Instruments
Cash-Flow Hedges
•To hedge a fixed rate note denominated in a foreign currency, the Company entered into a fixed-to-fixed foreign currency swap in order to hedge the foreign currency exchange risk associated with the note. The cash flows received on the swap are identical to the cash flowflows paid on the note.
•To hedge a floating rate note, the Company entered into an interest rate swap to exchange the floating rate on the note for a fixed rate in order to hedge the interest rate risk associated with the note. The cash flows received on the swap are identical to the cash flow variability paid on the note.
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments
The Company uses various other derivative instruments for risk management purposes that do not qualify for hedge accounting treatment. Changes in the fair value of these derivatives are recognized in earnings during the period of change.
Derivatives Related to Variable Annuity Contracts
•The Company uses equity futures, equity options, total return swaps, interest rate futures, interest rate swaps, interest rate swaptions, currency futures, volatility futures, volatility options, and variance swaps to mitigate the risk related to certain guaranteed minimum benefits, including GLWB, within its VA products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility.
•The Company markets certain VA products with a GLWB rider. The GLWB component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.
Derivatives Related to Fixed Annuity Contracts
•The Company uses equity futures and options to mitigate the risk within its fixed indexed annuity products. In general, the cost of such benefits varies with the level of equity markets and overall volatility.
•The Company markets certain fixed indexed annuity products. The FIA component is considered an embedded derivative as it is, not considered to be clearly and closely related to the host contract.
Derivatives Related to Indexed Universal Life Contracts
•The Company uses equity futures and options to mitigate the risk within its indexed universal life products. In general, the cost of such benefits varies with the level of equity markets.
•The Company markets certain IUL products. The IUL component is considered an embedded derivative as it is not considered to be clearly and closely related to the host contract.
Other Derivatives
•The Company uses various swaps and other types of derivatives to manage risk related to other exposures.
•The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives. Changes in their fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had fair value changes which substantially offset the gains or losses on these embedded derivatives.

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The following table sets forth realized investments gains and losses for the periods shown:
Realized investment gains (losses) - derivative financial instruments
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Derivatives related to VA contracts:  
Interest rate futures$727  $2,111  $(16,575) $(13,229) 
Equity futures5,220  (5,733) 37,517  (23,025) 
Currency futures9,181  3,410  11,028  7,890  
Equity options(3,957) (21,206) (97,354) (47,406) 
Interest rate swaptions—  —  —  (14) 
Interest rate swaps149,766  (41,288) 342,561  (131,147) 
Total return swaps(1,950) (32,343) (50,522) (35,908) 
Embedded derivative - GLWB(224,091) 57,706  (378,409) 149,552  
Total derivatives related to VA contracts(65,104) (37,343) (151,754) (93,287) 
Derivatives related to FIA contracts:  
Embedded derivative(4,335) (14,360) (67,968) (7,957) 
Equity futures962  (388) 964  (716) 
Equity options4,785  18,474  60,026  21,203  
Total derivatives related to FIA contracts1,412  3,726  (6,978) 12,530  
Derivatives related to IUL contracts:  
Embedded derivative6,261  (9,535) (18,395) (877) 
Equity futures91  (1) 347  135  
Equity options586  4,928  9,372  5,764  
Total derivatives related to IUL contracts6,938  (4,608) (8,676) 5,022  
Embedded derivative - Modco reinsurance treaties(44,027) 10,811  (199,704) 138,652  
Other derivatives(1,622) (51) (3,011) (58) 
Total realized gains (losses) - derivatives$(102,403) $(27,465) $(370,123) $62,859  
45
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Derivatives related to VA contracts: 
      
Interest rate futures$2,111
 $549
 $(13,229) $16,746
Equity futures(5,733) (25,959) (23,025) (75,389)
Currency futures3,410
 (6,092) 7,890
 (22,366)
Equity options(21,206) (23,307) (47,406) (76,376)
Interest rate swaptions—
 (292) (14) (2,423)
Interest rate swaps(41,288) 5,342
 (131,147) 31,331
Total return swaps(32,343) (8,057) (35,908) (9,675)
Embedded derivative - GLWB57,706
 740
 149,552
 (15,904)
Total derivatives related to VA contracts(37,343) (57,076) (93,287) (154,056)
Derivatives related to FIA contracts: 
 

    
Embedded derivative(14,360) (18,606) (7,957) (40,351)
Equity futures(388) 66
 (716) 161
Equity options18,474
 11,242
 21,203
 29,511
Total derivatives related to FIA contracts3,726
 (7,298) 12,530
 (10,679)
Derivatives related to IUL contracts: 
 

    
Embedded derivative(9,535) (297) (877) (10,958)
Equity futures(1) 58
 135
 (878)
Equity options4,928
 1,975
 5,764
 6,437
Total derivatives related to IUL contracts(4,608) 1,736
 5,022
 (5,399)
Embedded derivative - Modco reinsurance treaties10,811
 (19,746) 138,652
 (90,314)
Other derivatives(51) 43
 (58) 41
Total realized gains (losses) - derivatives$(27,465) $(82,341) $62,859
 $(260,407)
Table of Contents

The following table presents the components of the gain or loss on derivatives that qualify as a cash flow hedging relationship.
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Amount of Gains (Losses)
Deferred in
Accumulated Other
Comprehensive Income
(Loss) on Derivatives		Amount and Location of
Gains (Losses)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income (Loss)		Amount and Location of
Gains (Losses) Recognized in
Income (Loss) on
Derivatives
Amount of Gains (Losses)
Deferred in
Accumulated Other
Comprehensive Income
(Loss) on Derivatives
 
Amount and Location of
Gains (Losses)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income (Loss)
 
Amount and Location of
(Losses) Recognized in
Income (Loss) on
Derivatives
 (Effective Portion)(Effective Portion)(Ineffective Portion)
(Effective Portion) (Effective Portion) (Ineffective Portion)  Benefits and settlementRealized investment
  Benefits and settlement Realized investment expensesgains (losses)
  expenses gains (losses)  (Dollars In Thousands) 
For The Three Months Ended September 30, 2019For The Three Months Ended September 30, 2019   
Foreign currency swapsForeign currency swaps$(4,163) $(373) $—  
Interest rate swapsInterest rate swaps(93) (373) —  
TotalTotal$(4,256) $(746) $—  
For The Nine Months Ended September 30, 2019For The Nine Months Ended September 30, 2019
Foreign currency swapsForeign currency swaps$(7,789) $(767) $—  
Interest rate swapsInterest rate swaps(2,484) (593) —  
TotalTotal$(10,273) $(1,360) $—  
  (Dollars In Thousands)  
For The Three Months Ended September 30, 2018 
  
  
For The Three Months Ended September 30, 2018
Foreign currency swaps$190
 $(155) $—
Foreign currency swaps$190  $(155) $—  
Interest rate swaps101
 (326) —
Interest rate swaps101  (326) —  
Total$291
 $(481) $—
Total$291  $(481) $—  
     
For The Nine Months Ended September 30, 2018 
  
  
For The Nine Months Ended September 30, 2018
Foreign currency swaps$3,772
 $(473) $—
Foreign currency swaps$3,772  $(473) $—  
Interest rate swaps101
 (326) —
Interest rate swaps101  (326) —  
Total$3,873
 $(799) $—
Total$3,873  $(799) $—  
     
For The Three Months Ended September 30, 2017 
  
  
Foreign currency swaps$1,273
 $(38) $—
Total$1,273
 $(38) $—
     
For The Nine Months Ended September 30, 2017 
  
  
Foreign currency swaps$55
 $(396) $—
Total$55
 $(396) $—
     
Based on expected cash flows of the underlying hedged items, the Company expects to reclassify $0.3$3.3 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

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The table below presents information about the nature and accounting treatment of the Company’s primary derivative financial instruments and the location in and effect on the consolidated condensed financial statements for the periods presented below:
As of
 September 30, 2019December 31, 2018
Notional
Amount		Fair
Value		Notional
Amount		Fair
Value
 (Dollars In Thousands)
Other long-term investments    
Derivatives not designated as hedging instruments:
Interest rate swaps$2,228,000  $131,894  $1,515,500  $28,501  
Total return swaps424,662  2,120  138,070  3,971  
Embedded derivative - Modco reinsurance treaties1,245,889  30,600  585,294  7,072  
Embedded derivative - GLWB2,388,462  137,360  3,984,070  105,272  
Interest rate futures844,428  8,256  286,208  10,302  
Equity futures322,478  2,425  12,633  483  
Currency futures271,290  2,316  —  —  
Equity options6,339,766  483,463  5,624,081  220,092  
Other—  —  157  136  
 $14,064,975  $798,434  $12,146,013  $375,829  
Other liabilities    
Cash flow hedges:
Interest rate swaps$350,000  $—  $350,000  $—  
Foreign currency swaps117,178  13,516  117,178  904  
Derivatives not designated as hedging instruments:
Interest rate swaps50,000  —  775,000  11,367  
Total return swaps126,177  916  768,177  23,054  
Embedded derivative - Modco reinsurance treaties2,283,624  245,792  1,795,287  32,828  
Embedded derivative - GLWB7,583,625  735,465  6,282,712  289,343  
Embedded derivative - FIA2,792,499  306,063  2,576,033  217,288  
Embedded derivative - IUL276,466  141,793  233,550  90,231  
Interest rate futures650,353  7,776  863,706  20,100  
Equity futures137,284  1,935  659,357  33,753  
Currency futures—  —  202,747  2,163  
Equity options4,169,543  239,814  4,199,687  34,178  
Other193,069  45,839  3,288  252  
 $18,729,818  $1,738,909  $18,826,722  $755,461  
 As of
 September 30, 2018 December 31, 2017
 
Notional
Amount
 
Fair
Value
 
Notional
Amount
 
Fair
Value
 (Dollars In Thousands)
Other long-term investments 
  
  
  
Cash flow hedges:       
Interest rate swaps$350,000
 $—
 $—
 $—
Foreign currency swaps117,178
 10,902
 117,178
 6,016
Derivatives not designated as hedging instruments: 
  
  
  
Interest rate swaps565,000
 8,402
 1,265,000
 55,411
Total return swaps482,523
 3,676
 190,938
 135
Embedded derivative - Modco reinsurance treaties322,308
 2,650
 64,472
 1,009
Embedded derivative - GLWB6,200,196
 178,896
 4,897,069
 134,995
Interest rate futures875,566
 8,329
 1,071,870
 3,178
Equity futures205,872
 2,387
 62,266
 154
Currency futures135,112
 1,096
 1,117
 2
Equity options6,026,348
 420,107
 4,436,467
 403,961
Interest rate swaptions—
 —
 225,000
 14
Other157
 141
 157
 200
 $15,280,260
 $636,586
 $12,331,534
 $605,075
Other liabilities 
  
  
  
Derivatives not designated as hedging instruments: 
  
  
  
Interest rate swaps$1,547,500
 $26,321
 $597,500
 $2,960
Total return swaps—
 —
 243,388
 318
Embedded derivative - Modco reinsurance treaties2,082,638
 60,683
 2,390,539
 215,247
Embedded derivative - GLWB3,587,620
 141,102
 4,718,311
 246,755
Embedded derivative - FIA2,459,246
 256,912
 1,951,650
 218,676
Embedded derivative - IUL219,226
 95,739
 168,349
 80,212
Interest rate futures348,749
 7,122
 230,404
 917
Equity futures77,916
 1,043
 318,795
 2,593
Currency futures79,861
 15
 255,248
 2,087
Equity options4,174,072
 246,466
 3,112,812
 237,807
Other341
 44
 —
 —
 $14,577,169
 $835,447
 $13,986,996
 $1,007,572


8. OFFSETTING OF ASSETS AND LIABILITIES
Certain of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company's repurchase agreements provide for net settlement on termination of the agreement. Refer to Note 11, 10, Debt and Other Obligations for details of the Company’s repurchase agreement programs.
Collateral received includes both cash and non-cash collateral.  Cash collateral received by the Company is recorded on the consolidated condensed balance sheet as “cash”, with a corresponding amount recorded in “other liabilities” to represent the Company’s obligation to return the collateral. Non-cash collateral received by the Company is not recognized on the consolidated condensed balance sheet unless the Company exercises its right to sell or re-pledge the underlying asset. As of
47
Table of Contents
September 30, 2019, the fair value of non-cash collateral received was $34.4 million. As of December 31, 2018, the fair value of non-cash collateral received was $8.2$45.0 million. As of December 31, 2017, the Company had not received any non-cash collateral.

The tables below present the derivative instruments by assets and liabilities for the Company as of September 30, 2018:2019:
Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Statement of
Financial
Position		Net Amounts
of Assets
Presented in
the
Statement of
Financial
Position		Gross Amounts Not Offset
in the Statement of
Financial Position
Financial
Instruments		Collateral ReceivedNet Amount
 (Dollars In Thousands)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$630,474  $—  $630,474  $263,245  $255,776  $111,453  
Total derivatives, subject to a master netting arrangement or similar arrangement630,474  —  630,474  263,245  255,776  111,453  
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties30,600  —  30,600  —  —  30,600  
Embedded derivative - GLWB137,360  —  137,360  —  —  137,360  
Other—  —  —  —  —  —  
Total derivatives, not subject to a master netting arrangement or similar arrangement167,960  —  167,960  —  —  167,960  
Total derivatives798,434  —  798,434  263,245  255,776  279,413  
Total Assets$798,434  $—  $798,434  $263,245  $255,776  $279,413  

48
Table of Contents
Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Statement of
Financial
Position		Net Amounts
of Liabilities
Presented in
the
Statement of
Financial
Position		Gross Amounts Not Offset
in the Statement of
Financial Position
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset in the
Statement of
Financial
Position
 
Net Amounts
of Assets
Presented in
the
Statement of
Financial
Position
 
Gross Amounts Not Offset
in the Statement of
Financial Position
  Financial
Instruments		Collateral PostedNet Amount
 
Financial
Instruments
 Collateral Received Net Amount (Dollars In Thousands)
(Dollars In Thousands)
Offsetting of Assets 
  
  
  
  
  
Offsetting of LiabilitiesOffsetting of Liabilities      
Derivatives: 
  
  
  
  
  
Derivatives:      
Free-Standing derivatives$454,899
 $—
 $454,899
 $270,878
 $68,809
 $115,212
Free-Standing derivatives$263,957  $—  $263,957  $263,245  $186  $526  
Total derivatives, subject to a master netting arrangement or similar arrangement454,899
 —
 454,899
 270,878
 68,809
 115,212
Total derivatives, subject to a master netting arrangement or similar arrangement263,957  —  263,957  263,245  186  526  
Derivatives not subject to a master netting arrangement or similar arrangement 
  
  
  
  
  
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties2,650
 —
 2,650
 —
 —
 2,650
Embedded derivative - Modco reinsurance treaties245,792  —  245,792  —  245,792  
Embedded derivative - GLWB178,896
 —
 178,896
 —
 —
 178,896
Embedded derivative - GLWB735,465  —  735,465  —  —  735,465  
Embedded derivative - FIAEmbedded derivative - FIA306,063  —  306,063  —  —  306,063  
Embedded derivative - IULEmbedded derivative - IUL141,793  —  141,793  —  —  141,793  
Other141
 —
 141
 —
 —
 141
Other45,839  —  45,839  —  —  45,839  
Total derivatives, not subject to a master netting arrangement or similar arrangement181,687
 —
 181,687
 —
 —
 181,687
Total derivatives, not subject to a master netting arrangement or similar arrangement1,474,952  —  1,474,952  —  —  1,474,952  
Total derivatives636,586
 —
 636,586
 270,878
 68,809
 296,899
Total derivatives1,738,909  —  1,738,909  263,245  186  1,475,478  
Total Assets$636,586
 $—
 $636,586
 $270,878
 $68,809
 $296,899
Repurchase agreements(1)
Repurchase agreements(1)
272,127  —  272,127  —  —  272,127  
Total LiabilitiesTotal Liabilities$2,011,036  $—  $2,011,036  $263,245  $186  $1,747,605  
(1) Borrowings under repurchase agreements are for a term less than 90 days.(1) Borrowings under repurchase agreements are for a term less than 90 days.
49
 
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset in the
Statement of
Financial
Position
 
Net Amounts
of Liabilities
Presented in
the
Statement of
Financial
Position
 
Gross Amounts Not Offset
in the Statement of
Financial Position
  
    
Financial
Instruments
 Collateral Posted Net Amount
 (Dollars In Thousands)
Offsetting of Liabilities 
  
  
  
  
  
Derivatives: 
  
  
  
  
  
Free-Standing derivatives$280,967
 $—
 $280,967
 $270,878
 $10,089
 $—
Total derivatives, subject to a master netting arrangement or similar arrangement280,967
 —
 280,967
 270,878
 10,089
 —
Derivatives not subject to a master netting arrangement or similar arrangement 
  
  
  
  
  
Embedded derivative - Modco reinsurance treaties60,683
 —
 60,683
 —
 —
 60,683
Embedded derivative - GLWB141,102
 —
 141,102
 —
 —
 141,102
Embedded derivative - FIA256,912
 —
 256,912
 —
 —
 256,912
Embedded derivative - IUL95,739
 —
 95,739
 —
 —
 95,739
Other44
 —
 44
 —
 —
 44
Total derivatives, not subject to a master netting arrangement or similar arrangement554,480
 —
 554,480
 —
 —
 554,480
Total derivatives835,447
 —
 835,447
 270,878
 10,089
 554,480
Repurchase agreements(1)
417,094
 —
 417,094
 —
 —
 417,094
Total Liabilities$1,252,541
 $—
 $1,252,541
 $270,878
 $10,089
 $971,574
            
(1) Borrowings under repurchase agreements are for a term less than 90 days.
Table of Contents

The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 2017:2018: 
Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Statement of
Financial
Position		Net Amounts
of Assets
Presented in
the
Statement of
Financial
Position		Gross Amounts Not Offset
in the Statement of
Financial Position
Financial
Instruments		Collateral
Received		Net Amount
 (Dollars In Thousands)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$263,349  $—  $263,349  $70,322  $99,199  $93,828  
Total derivatives, subject to a master netting arrangement or similar arrangement263,349  —  263,349  70,322  99,199  93,828  
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties7,072  —  7,072  —  —  7,072  
Embedded derivative - GLWB105,272  —  105,272  —  —  105,272  
Other136  —  136  —  —  136  
Total derivatives, not subject to a master netting arrangement or similar arrangement112,480  —  112,480  —  —  112,480  
Total derivatives375,829  —  375,829  70,322  99,199  206,308  
Total Assets$375,829  $—  $375,829  $70,322  $99,199  $206,308  

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Table of Contents
Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Statement of
Financial
Position		Net Amounts
of Liabilities
Presented in
the
Statement of
Financial
Position		Gross Amounts Not Offset
in the Statement of
Financial Position
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset in the
Statement of
Financial
Position
 
Net Amounts
of Assets
Presented in
the
Statement of
Financial
Position
 
Gross Amounts Not Offset
in the Statement of
Financial Position
  Financial
Instruments		Collateral
Posted		Net Amount
 
Financial
Instruments
 
Collateral
Received
 Net Amount (Dollars In Thousands)
(Dollars In Thousands)
Offsetting of Assets 
  
  
  
  
  
Offsetting of LiabilitiesOffsetting of Liabilities      
Derivatives: 
  
  
  
  
  
Derivatives:      
Free-Standing derivatives$468,871
 $—
 $468,871
 $242,105
 $108,830
 $117,936
Free-Standing derivatives$125,519  $—  $125,519  $70,322  $47,856  $7,341  
Total derivatives, subject to a master netting arrangement or similar arrangement468,871
 —
 468,871
 242,105
 108,830
 117,936
Total derivatives, subject to a master netting arrangement or similar arrangement125,519  —  125,519  70,322  47,856  7,341  
Derivatives not subject to a master netting arrangement or similar arrangement 
  
  
  
  
  
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties1,009
 —
 1,009
 —
 —
 1,009
Embedded derivative - Modco reinsurance treaties32,828  —  32,828  —  —  32,828  
Embedded derivative - GLWB134,995
 —
 134,995
 —
 —
 134,995
Embedded derivative - GLWB289,343  —  289,343  —  —  289,343  
Embedded derivative - FIAEmbedded derivative - FIA217,288  —  217,288  —  —  217,288  
Embedded derivative - IULEmbedded derivative - IUL90,231  —  90,231  —  —  90,231  
Other200
 —
 200
 —
 —
 200
Other252  —  252  —  —  252  
Total derivatives, not subject to a master netting arrangement or similar arrangement136,204
 —
 136,204
 —
 —
 136,204
Total derivatives, not subject to a master netting arrangement or similar arrangement629,942  —  629,942  —  —  629,942  
Total derivatives605,075
 —
 605,075
 242,105
 108,830
 254,140
Total derivatives755,461  —  755,461  70,322  47,856  637,283  
Total Assets$605,075
 $—
 $605,075
 $242,105
 $108,830
 $254,140
Repurchase agreements(1)
Repurchase agreements(1)
418,090  —  418,090  —  —  418,090  
Total LiabilitiesTotal Liabilities$1,173,551  $—  $1,173,551  $70,322  $47,856  $1,055,373  
(1) Borrowings under repurchase agreements are for a term less than 90 days.(1) Borrowings under repurchase agreements are for a term less than 90 days.

 
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset in the
Statement of
Financial
Position
 
Net Amounts
of Liabilities
Presented in
the
Statement of
Financial
Position
 
Gross Amounts Not Offset
in the Statement of
Financial Position
  
    
Financial
Instruments
 
Collateral
Posted
 Net Amount
 (Dollars In Thousands)
Offsetting of Liabilities 
  
  
  
  
  
Derivatives: 
  
  
  
  
  
Free-Standing derivatives$246,682
 $—
 $246,682
 $242,105
 $4,577
 $—
Total derivatives, subject to a master netting arrangement or similar arrangement246,682
 —
 246,682
 242,105
 4,577
 —
Derivatives not subject to a master netting arrangement or similar arrangement 
  
  
  
  
  
Embedded derivative - Modco reinsurance treaties215,247
 —
 215,247
 —
 —
 215,247
Embedded derivative - GLWB246,755
 —
 246,755
 —
 —
 246,755
Embedded derivative - FIA218,676
 —
 218,676
 —
 —
 218,676
Embedded derivative - IUL80,212
 —
 80,212
 —
 —
 80,212
Total derivatives, not subject to a master netting arrangement or similar arrangement760,890
 —
 760,890
 —
 —
 760,890
Total derivatives1,007,572
 —
 1,007,572
 242,105
 4,577
 760,890
Repurchase agreements(1)
885,000
 —
 885,000
 —
 —
 885,000
Total Liabilities$1,892,572
 $—
 $1,892,572
 $242,105
 $4,577
 $1,645,890
            
(1) Borrowings under repurchase agreements are for a term less than 90 days.

9.MORTGAGE LOANS
Mortgage Loans
The Company invests a portion of its investment portfolio in commercial mortgage loans. As of September 30, 2018,2019, the Company’s mortgage loan holdings were approximately $7.6$9.3 billion. The Company has specialized in making loans on credit-oriented commercial properties, credit-anchored strip shopping centers, senior living facilities, and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the Company’s mortgage loans portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.
The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.
Certain of the mortgage loans have call options that occur within the next 1110 years. However, if interest rates were to significantly increase, the Company may be unable to exercise the call options on its existing mortgage loans commensurate with the significantly increased market rates. As of September 30, 2018,2019, assuming the loans are called at their next call dates, approximately $80.7$54.4 million of principal would become due for the remainder of 2018, $933.42019, $850.9 million in 20192020 through 2023, $91.82024 and $59.4 million in 20242025 through 2028, and $1.9 million thereafter.2029.
The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of September 30, 2018
51
Table of Contents
2019 and December 31, 2017,2018, approximately $757.0$757.4 million and $669.3$700.6 million, respectively, of the Company’s total mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and nine months ended September 30, 20182019 and 2017,2018, the Company recognized $3.8 million and $18.0 million, and $9.5 million $22.0 million, $14.2 million, and $25.7$22.0 million, respectively, of participating mortgage loan income.
As of September 30, 2018, $3.02019, $3.2 million of the Company’s invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. For all mortgage loans, the impactThe Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of troubled debt restructurings is generally reflected in our investment balanceassets and in the allowance for mortgage loan credit losses.liabilities. During the nine months ended September 30, 2018,2019, the Company recognized one4 troubled debt restructuringrestructurings as a result of the Company granting a concessionconcessions to a borrowerborrowers which included loan terms unavailable from other lenders. This concession wasDuring the result of an agreement between the creditorthree and the debtor, andnine months ended September 30, 2019, the Company did not identifyrecognize any loans whose principal was permanently impaired.
The Company’s mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of September 30, 2018, the Company held $3.0 million of mortgage loans not subject to a pooling and servicing agreement that were nonperforming mortgage loans, restructured, or mortgage loans that were foreclosed and were converted to real estate properties. The Company did not foreclose onidentify any nonperforming loans not subject to a pooling and servicing agreementwhose principal was permanently impaired during the three and nine months ended September 30, 2018.2019.
As of September 30, 2018, none of the loans subject to a pooling2019 and servicing agreement were nonperforming or restructured. The Company did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the nine months ended September 30, 2018.
As of September 30,December 31, 2018, the Company had an allowance for mortgage loan credit losses of $1.5$4.1 million and as of December 31, 2017, there was no allowance for mortgage loan credit losses.$1.3 million, respectively. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a more accurate presentation of expected losses in the portfolio and is consistent with the applicable guidance for loan impairments in ASC Subtopic 310. Since the Company uses the specific identification method for calculating the allowance, it is necessary to review the economic situation of each borrower to determine those that have higher risk of credit impairment. The Company has a team of professionals that monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. When issues are identified, the severity of the issues are assessed and reviewed for possible credit impairment. If a loss is probable, an expected loss calculation is performed and an allowance is established for that loan based on the expected loss. The expected loss is calculated as the excess carrying value of a loan over either the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the current estimated fair value of the loan’s underlying collateral. A loan may be subsequently charged off at such point that the Company no longer expects to receive cash payments, the present value of future expected payments of the renegotiated loan is less than the current principal balance, or at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan.


52
Table of Contents
A charge off is recorded by eliminating the allowance against the mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property.
As of September 30, 2019 and December 31, 2018, the Company had allowances for mortgage loan credit losses of $4.1 million and $1.3 million, respectively, which is shown in the chart below.
As of
 
For The Nine Months Ended
September 30, 2018
September 30, 2019December 31, 2018
 (Dollars In Thousands) (Dollars In Thousands)
Beginning balance, December 31, 2017 $—
Beginning balanceBeginning balance$1,296  $—  
Charge offs —
Charge offs(350) —  
Recoveries (24)Recoveries—  (209) 
Provision 1,505
Provision3,110  1,505  
Ending balance, September 30, 2018 $1,481
Ending balanceEnding balance$4,056  $1,296  
It is the Company’s policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is the Company’s general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status of delinquency or categorization of those in nonperforming status. An analysis
The carrying value of the delinquent loans is shown in the following chart.
   Greater 
30-59 Days60-89 Daysthan 90 DaysTotal
As of September 30, 2019DelinquentDelinquentDelinquentDelinquent
 (Dollars In Thousands)
Commercial mortgage loans$1,641  $—  $730  $2,371  
Number of delinquent commercial mortgage loans2  —  3  5  
As of December 31, 2018
Commercial mortgage loans$1,044  $—  $1,234  $2,278  
Number of delinquent commercial mortgage loans4  —  1  5  
53
      Greater  
  30-59 Days 60-89 Days than 90 Days Total
As of September 30, 2018 Delinquent Delinquent Delinquent Delinquent
  (Dollars In Thousands)
Commercial mortgage loans $1,180
 $—
 $1,243
 $2,423
Number of delinquent commercial mortgage loans 1
 —
 1
 2
         
As of December 31, 2017        
Commercial mortgage loans $1,817
 $—
 $—
 $1,817
Number of delinquent commercial mortgage loans 2
 —
 —
 2
Table of Contents

  The Company’s commercial mortgage loan portfolio consists of mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to 90 days of interest. Once accrued interest on the impaireda non-accrual loan is received, interest income is recognized on a cash basis.
The following table includes the recorded investment, unpaid principal balance, related allowance, average recorded investment, interest income recognized, and cash basis interest income of the commercial loan portfolio as of September 30, 2019 and December 31, 2018:
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized		Cash Basis
Interest
Income
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Cash Basis
Interest
Income
(Dollars In Thousands)
(Dollars In Thousands)
As of September 30, 2018 
As of September 30, 2019As of September 30, 2019
Commercial mortgage loans: Commercial mortgage loans: 
With no related allowance recorded$—
$—
$—
$—
$—
$—
With no related allowance recorded$730  $722  $—  $243  $20  $28  
With an allowance recorded5,714
5,327
1,481
1,905
197
225
With an allowance recorded$14,373  $14,259  $4,056  $3,593  $540  $536  
December 31, 2017 
As of December 31, 2018As of December 31, 2018
Commercial mortgage loans: Commercial mortgage loans:
With no related allowance recorded$—
$—
$—
$—
$—
$—
With no related allowance recorded$—  $—  $—  $—  $—  $—  
With an allowance recorded—
—
—
—
—
—
With an allowance recorded$5,684  $5,309  $1,296  $1,895  $267  $293  
  Mortgage loans that were modified in a troubled debt restructuring as of September 30, 20182019 and December 31, 20172018 were as follows:
Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
 (Dollars In Thousands)
As of September 30, 2019
Troubled debt restructuring:
Commercial mortgage loans2  $3,776  $3,776  
As of December 31, 2018
Troubled debt restructuring:
Commercial mortgage loans1$2,688  $1,742  

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Table of Contents
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 (Dollars In Thousands)
As of September 30, 2018     
Troubled debt restructuring:     
Commercial mortgage loans1 $2,694
 $1,748
      
As of December 31, 2017   
  
Troubled debt restructuring:     
Commercial mortgage loans1 $418
 $418
10.GOODWILL
The balance of goodwill for the Company as of September 30, 2018 was $793.5 million. There has been no change to goodwill during the nine months ended September 30, 2018.
Accounting for goodwill requires an estimate of the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill. The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares its estimate of the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The Company utilizes a fair value measurement (which includes a discounted cash flows analysis) to assess the carrying value of the reporting units in consideration of the recoverability of the goodwill balance assigned to each reporting unit as of the measurement date. The Company’s material goodwill balances are attributable to certain of its operating segments (which are each considered to be reporting units). The cash flows used to determine the fair value of the Company’s reporting units are dependent on a number of significant assumptions. The Company’s estimates, which consider a market participant view of fair value, are subject to change given the inherent uncertainty in predicting future results and cash flows, which are impacted by such things as policyholder behavior, competitor pricing, capital limitations, new product introductions, and specific industry and market conditions.
The balance recognized as goodwill is not amortized, but is reviewed for impairment on an annual basis, or more frequently as events or circumstances may warrant, including those circumstances which would more likely than not reduce the fair value of the Company’s reporting units below its carrying amount. During the fourth quarter of 2017, the Company performed its annual

evaluation of goodwill based on information as of October 1, 2017, and determined that no adjustment to impair goodwill was necessary. During the nine months ended September 30, 2018, the Company did not identify any events or circumstances which would indicate that the fair value of its operating segments would have declined below their book value, either individually or in the aggregate.
11. DEBT AND OTHER OBLIGATIONS
Debt and Subordinated Debt
Debt and subordinated debt are summarized as follows:
As ofAs of
September 30, 2018 December 31, 2017September 30, 2019December 31, 2018
Outstanding Principal Carrying Amounts Outstanding Principal Carrying AmountsOutstanding PrincipalCarrying AmountsOutstanding PrincipalCarrying Amounts
(Dollars In Thousands) (Dollars In Thousands)
Debt (year of issue):   
    
Debt (year of issue):  
Credit Facility$—
 $—
 $—
 $—
Credit Facility$—  $—  $—  $—  
Term Loan Credit AgreementTerm Loan Credit Agreement600,000  599,653  —  —  
Capital lease obligation1,411
 1,411
 1,682
 1,682
Capital lease obligation2,325  2,325  1,319  1,319  
6.40% Senior Notes (2007), due 2018—
 —
 150,000
 150,518
7.375% Senior Notes (2009), due 2019400,000
 421,346
 400,000
 435,806
7.375% Senior Notes (2009), due 2019400,000  401,662  400,000  416,469  
8.45% Senior Notes (2009), due 2039190,044
 289,250
 232,928
 357,046
8.45% Senior Notes (2009), due 2039180,719  272,337  190,044  288,547  
4.30% Senior Notes (2018), due 2028400,000
 395,381
 —
 —
4.30% Senior Notes (2018), due 2028400,000  395,826  400,000  395,492  
3.40% Senior Notes (2019), due 20303.40% Senior Notes (2019), due 2030400,000  397,421  —  —  
$991,455
 $1,107,388
 $784,610
 $945,052
 $1,983,044  $2,069,224  $991,363  $1,101,827  
Subordinated debt (year of issue):   
    
Subordinated debt (year of issue):  
5.35% Subordinated Debentures (2017), due 2052$500,000
 $495,392
 $500,000
 $495,289
5.35% Subordinated Debentures (2017), due 2052$500,000  $495,528  $500,000  $495,426  
3.55% Subordinated Funding Obligations (2018), due 203855,000
 55,000
 —
 —
3.55% Subordinated Funding Obligations (2018), due 203855,000  55,000  55,000  55,000  
3.55% Subordinated Funding Obligations (2018), due 203855,000
 55,000
 —
 —
3.55% Subordinated Funding Obligations (2018), due 203855,000  55,000  55,000  55,000  
$610,000
 $605,392
 $500,000
 $495,289
 $610,000  $605,528  $610,000  $605,426  
During the nine months ended September 30, 2018,2019, the Company repurchased and subsequently extinguished $65.6$14.1 million (par value - $42.9$9.3 million) of the Company’s 8.45% Senior Notes due 2039. These repurchases resulted in a $1.8$1.1 million pre-tax gain for the Company. The gain is recorded in other income in the consolidated condensed statements of income.
During the three months ended September 30, 2019, the Company issued $400.0 million of its Senior Notes at a rate of 3.40%, due 2030. These notes were issued net of a discount of $1.2 million. These notes are carried on the Company's balance sheet net of the discount and the associated deferred issuance expense of $1.4 million. The Company used the net proceeds from the offering for general corporate purposes, including repayment of its 7.375% Senior Notes issued in 2009 which matured on October 15, 2019.
During 2019, the Company entered into a $600.0 million Term Loan Credit Agreement, due 2024. The loan is classified as debt on the Company’s balance sheet and is carried net of the associated deferred issuance expenses of $0.4 million. The loan pays interest at a rate equal to the one-month LIBOR plus 100 bps. The Company used the net loan proceeds to assist with funding the GWL&A transaction.
During 2018, PLICO issued $110.0 million of Subordinated Funding Obligations at a rate of 3.55% due 2038. These obligations are non-recourse to the Company.
During 2018, the Company issued $400.0 million of its Senior Notes at a rate of 4.30%, due 2028. These notes were issued net of a discount of $1.0 million. These notes are carried on the Company’s balance sheet net of the discount and the associated deferred issuance expenses of $3.7 million. The Company used the net proceeds from the offering for general corporate purposes, including the repayment of amounts outstanding under our Credit Facility.
During 2017, the Company issued $500.0 million of its Subordinated Debentures due 2052. These Subordinated Debentures are carried on the Company’s balance sheet net of the associated deferred issuance expenses of $4.8 million. The Company used the net proceeds from the offering to call and redeem, at par, the entire $150.0 million of 6.00% Subordinated Debentures due 2042 and $287.5 million of 6.25% Subordinated Debentures due 2042.
Under a revolving line of credit arrangement that was in effect until May 3, 2018 (the “2015 Credit Facility”), the Company had the ability to borrow on an unsecured basis up to an aggregate principal amount of $1.0 billion. The Company had the right in certain circumstances to request that the commitment under the 2015 Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the 2015 Credit Facility accrued interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of the Company’s Senior Debt, or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s Prime rate, (y) 0.50% above the Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of the Company’s Senior Debt. The 2015 Credit Facility also
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provided for a facility fee at a rate that varies with the ratings of the Company’s Senior Debt and that is calculated on the aggregate amount of commitments under the 2015 Credit Facility, whether used or unused. The annual facility fee rate is 0.125% of the aggregate principal amount. The 2015 Credit Facility provides that the Company is liable for the full amount of any obligations for borrowings or letters of credit, including those of PLICO, incurred under the 2015 Credit Facility. The maturity date of the 2015 Credit Facility was February 2, 2020.
On May 3, 2018, the Company amended the 2015 Credit Facility (as amended, the "Credit Facility"). Under the Credit Facility, the Company has the ability to borrow on an unsecured basis up to an aggregate principal amount of $1.0 billion. The

Company has the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.5 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of the Company’s Senior Debt, or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s Prime rate, (y) 0.50% above the Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of the Company’s Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of the Company’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The annual facility fee rate is 0.125% of the aggregate principal amount. The Credit Facility provides that the Company is liable for the full amount of any obligations for borrowings or letters of credit, including those of PLICO, under the Credit Facility. The maturity date of the Credit Facility is May 3, 2023. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of September 30, 2018.2019. There was no0 outstanding balance as of September 30, 2018.2019.


Non-RecourseFunding Obligations


Non-recourse funding obligations outstanding as of September 30, 2019, on a consolidated basis, are shown in the following table:
IssuerOutstanding Principal
Carrying Value(1)
Maturity
Year		Year-to-Date
Weighted-Avg
Interest Rate
 (Dollars In Thousands)  
Golden Gate Captive Insurance Company(2)(3)
$1,762,000  $1,762,000  20394.75 %
Golden Gate II Captive Insurance Company20,600  17,742  20525.48 %
Golden Gate V Vermont Captive Insurance Company(2)(3)
705,000  763,018  20375.12 %
MONY Life Insurance Company(3)
1,091  2,289  20246.19 %
Total$2,488,691  $2,545,049    
(1)  Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of the Company. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of PLICO.
(3)  Fixed rate obligations
Non-recourse funding obligations outstanding as of December 31, 2018, on a consolidated basis, are shown in the following table:
IssuerOutstanding Principal
Carrying Value(1)
Maturity
Year		Year-to-Date
Weighted-Avg
Interest Rate
 (Dollars In Thousands)  
Golden Gate Captive Insurance Company(2)(3)
$1,883,000  $1,883,000  20394.75 %
Golden Gate II Captive Insurance Company20,600  17,703  20524.99 %
Golden Gate V Vermont Captive Insurance Company(2)(3)
670,000  729,454  20375.12 %
MONY Life Insurance Company(3)
1,091  2,340  20246.19 %
Total$2,574,691  $2,632,497    
(1)  Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of the Company. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of PLICO.
(3)  Fixed rate obligations
56
Issuer Outstanding Principal 
Carrying Value(1)
 Maturity
Year		 Year-to-Date
Weighted-Avg
Interest Rate
  (Dollars In Thousands)    
Golden Gate Captive Insurance Company(2)(3)
 $1,917,000
 $1,917,000
 2039 4.75%
Golden Gate II Captive Insurance Company 20,600
 17,689
 2052 4.87%
Golden Gate V Vermont Captive Insurance Company(2)(3)
 655,000
 714,921
 2037 5.12%
MONY Life Insurance Company(3)
 1,091
 2,357
 2024 6.19%
Total $2,593,691
 $2,651,967
    
         
(1)  Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of the Company. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of PLICO.
(3)  Fixed rate obligations
During the nine months ended September 30, 2018, the Company and its affiliates repurchased $38.0 millionTable of its outstanding non-recourse funding obligations, at a discount. These repurchases did not result in a material gain or loss for the Company.Contents
Non-recourse funding obligations outstanding as of December 31, 2017, on a consolidated basis, are shown in the following table:
Issuer Outstanding Principal 
Carrying Value(1)
 
Maturity
Year
 
Year-to-Date
Weighted-Avg
Interest Rate
  (Dollars In Thousands)    
Golden Gate Captive Insurance Company(2)(3)
 $2,014,000
 $2,014,000
 2039 4.75%
Golden Gate II Captive Insurance Company 58,600
 49,787
 2052 3.88%
Golden Gate V Vermont Captive Insurance Company(2)(3)
 620,000
 681,285
 2037 5.12%
MONY Life Insurance Company(3)
 1,091
 2,405
 2024 6.19%
Total $2,693,691
 $2,747,477
    
         
(1)  Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of the Company. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of PLICO.
(3)  Fixed rate obligations
Secured Financing Transactions
Repurchase Program Borrowings
While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment

commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements providedprovide for net settlement in the event of default or on termination of the agreements. As of September 30, 2018,2019, the fair value of securities pledged under the repurchase program was $457.5$278.0 million, and the repurchase obligation of $417.1$272.1 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 223215 basis points). During the nine months ended September 30, 2019, the maximum balance outstanding at any one point in time related to these programs was $540.0 million. The average daily balance was $160.1 million (at an average borrowing rate of 242 basis points) during the nine months ended September 30, 2019. As of December 31, 2018, the fair value of securities pledged under the repurchase program was $451.9 million, and the repurchase obligation of $418.1 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 245 basis points). During 2018, the maximum balance outstanding at any one point in time related to these programs was $427.5$885.0 million. The average daily balance was $225.9$511.4 million (at an average borrowing rate of 208 basis points) during the nine months ended September 30, 2018. As of December 31, 2017, the fair value of securities pledged under the repurchase program was $1,006.6 million, and the repurchase obligation of $885.0 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 142 basis points). During 2017, the maximum balance outstanding at any one point in time related to these programs was $988.5 million. The average daily balance was $624.7 million (at an average borrowing rate of 101184 basis points) during the year ended December 31, 2017.2018.

Securities Lending
The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. The Company requires initial collateral of 102% of the marketfair value of the loaned securities to be separately maintained. The loaned securities’ marketfair value is monitored on a daily basis. As of September 30, 2018,2019, securities with a marketfair value of $92.0$76.7 million were loaned under this program. As collateral for the loaned securities, the Company receives cash and short-term investments, which is invested in collateralized short-term investments. These collateralized short-term investments are recorded in “short-term investments” short-term investments with a corresponding liability recorded in “secured secured financing liabilities”liabilities to account for its obligation to return the collateral. As of September 30, 2018,2019, the fair value of the collateral related to this program was $97.3$80.6 million and the Company has an obligation to return $97.3$80.6 million of collateral to the securities borrowers.
The following table provides the amount by asset class of securities of collateral pledged for repurchase agreements and securities that have been loaned as part of securities lending transactions as of September 30, 20182019 and December 31, 2017:2018:


Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions
Accounted for as Secured Borrowings
 Remaining Contractual Maturity of the Agreements
 As of September 30, 2019
 (Dollars In Thousands)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$265,684  $12,357  $—  $—  $278,041  
Total repurchase agreements and repurchase-to-maturity transactions265,684  12,357  —  —  278,041  
Securities lending transactions
Corporate securities65,547  —  —  —  65,547  
Equity securities10,266  —  —  —  10,266  
Other government related securities837  —  —  —  837  
Total securities lending transactions76,650  —  —  —  76,650  
Total securities$342,334  $12,357  $—  $—  $354,691  
57
 Remaining��Contractual Maturity of the Agreements
 As of September 30, 2018
 (Dollars In Thousands)
 Overnight and
Continuous		 Up to 30 days 30-90 days Greater Than
90 days		 Total
Repurchase agreements and repurchase-to-maturity transactions 
  
  
  
  
U.S. Treasury and agency securities$401,011
 $56,513
 $—
 $—
 $457,524
Other asset-backed securities—
 —
 —
 —
 —
Mortgage loans—
 —
 —
 —
 —
Total repurchase agreements and repurchase-to-maturity transactions401,011
 56,513
 —
 —
 457,524
Securities lending transactions         
Fixed maturities91,040
 —
 —
 —
 91,040
Equity securities982
 —
 —
 —
 982
Redeemable preferred stock—
 —
 —
 —
 —
Other government related securities—
 —
 —
 —
 —
Total securities lending transactions92,022
 —
 —
 —
 92,022
Total securities$493,033
 $56,513
 $—
 $—
 $549,546
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Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions
Accounted for as Secured Borrowings
 Remaining Contractual Maturity of the Agreements
 As of December 31, 2018
 (Dollars In Thousands)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$433,182  $18,713  $—  $—  $451,895  
Total repurchase agreements and repurchase-to-maturity transactions433,182  18,713  —  —  451,895  
Securities lending transactions
Fixed maturity securities$71,285  $—  $—  $—  $71,285  
Equity securities891  —  —  —  891  
Total securities lending transactions72,176  —  —  —  72,176  
Total securities$505,358  $18,713  $—  $—  $524,071  

 Remaining Contractual Maturity of the Agreements
 As of December 31, 2017
 (Dollars In Thousands)
 Overnight and
Continuous		 Up to 30 days 30-90 days Greater Than
90 days		 Total
Repurchase agreements and repurchase-to-maturity transactions 
  
  
  
  
U.S. Treasury and agency securities$307,633
 $—
 $—
 $—
 $307,633
Corporate securities—
 —
 —
 —
 —
Mortgage loans698,974
 —
 —
 —
 698,974
Total securities$1,006,607
 $—
 $—
 $—
 $1,006,607
          
Securities lending transactions         
Corporate securities$118,817
 $—
 $—
 $—
 $118,817
Equity securities5,699
 —
 —
 —
 5,699
Redeemable preferred stock755
 —
 —
 —
 755
Total securities lending transactions125,271
 —
 —
 —
 125,271
Total securities$1,131,878
 $—
 $—
 $—
 $1,131,878
12.11. COMMITMENTS AND CONTINGENCIES
The Company has entered into indemnity agreements with each of its current directors other than those that are employees of Dai-ichi Life that provide, among other things and subject to certain limitations, a contractual right to indemnification to the fullest extent permissible under the law. The Company has agreements with certain of its officers providing up to $10$10.0 million in indemnification. These obligations are in addition to the customary obligation to indemnify officers and directors contained in the Company’s governance documents.
The Company leases administrative and marketing office space in approximately 19 cities (excluding the home office building), as well as various office equipment. Most leases have terms ranging from one year to ten years. Leases with an initial term of 12 months or less are not recorded on the consolidated condensed balance sheet. The Company accounts for lease components separately from non-lease components (e.g., common area maintenance). Certain of the Company’s lease agreements include options to renew at the Company's discretion. Management has concluded that the Company is not reasonably certain to elect any of these renewal options. The Company will use the interest rates received on its funding agreement backed notes as the collateralized discount rate when calculating the present value of remaining lease payments when the rate implicit in the lease is unavailable. Additionally, the Company previously leased a building contiguous to its home office. The lease was renewed in December 2013 and was extended to December 2018. At the end of the lease term in December 2018, the Company purchased the building for approximately $75.0 million. The building is recorded in property and equipment on the consolidated condensed balance sheet.

Under the insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. From time to time, companies may be asked to contribute amounts beyond prescribed limits. It is possible that the Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other specialty products, that increases the cost of future assessments or alters future premium tax offsets received in connection with guaranty fund assessments. The Company cannot predict the amount, nature, or timing of any future assessments or legislation, any of which could have a material and adverse impact on the Company’s financial condition or results of operations.


A number of civil jury verdicts have been returned against insurers, broker-dealers, and other providers of financial services involving sales, refund, or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The financial services and insurance
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industries in particular are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.


The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures, and estimates of reasonably possible losses or range of loss based on such reviews.
Certain of the Company’s insurance subsidiaries, as well as certain other insurance companies for which the Company has coinsured blocks of life insurance and annuity policies, are under audit for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments or unclaimed property administrators in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded

limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company is presently unable to estimate the reasonably possible loss or range of loss that may result from the audits due to a number of factors, including uncertainty as to the legal theory or theories that may give rise to liability, the early stages of the audits being conducted, and uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with certain co-insured policies. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.
Certain of the Company’s subsidiaries are under a targeted multi-state examination with respect to their claims paying practices and their use of the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”) to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed, and substantial legal authority exists to support the position that the prevailing industry practice was lawful. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest to the state if the beneficiary could not be found, and paying penalties to the state, if required. It has been publicly reported that the life insurers have paid administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements. The Company believes that insurance regulators could demand from the Company administrative and/or examination fees relating to the targeted multi-state examination. Based on publicly reported payments by other life insurers, the Company does not believe such fees, if assessed, would have a material effect on its financial statements.

Advance Trust & Life Escrow Services, LTA, as Securities Intermediary of Life Partners Position Holder Trust v. Protective Life Insurance Company, Case No. 2:18-CV-01290, is a putative class action that was filed on August 13, 2018 in the United States District Court for the Northern District of Alabama. Plaintiff alleges that PLICO required policyholders to pay unlawful and excessive cost of insurance charges. Plaintiff seeks to represent all owners of universal life and variable universal life policies issued or administered by PLICO or its predecessors that provide that cost of insurance rates are to be determined based on expectations of future mortality experience. The plaintiff seeks class certification, compensatory damages, pre-judgment and post-judgment interest, costs, and other unspecified relief. The Company is vigorously defending this matter and cannot predict the outcome of or reasonably estimate the possible loss or range of loss that might result from this litigation.


13.Scottish Re (U.S.), Inc. ("SRUS") was placed in rehabilitation on March 6, 2019 by the State of Delaware. Under the related order, the Insurance Commissioner of the State of Delaware has been appointed the receiver of SRUS and provided with authority to conduct and continue the business of SRUS in the interest of its cedents, creditors, and stockholder. The order was accompanied by an injunction requiring the continued payment of reinsurance premiums to SRUS and temporarily prohibiting cedents, including the Company, from offsetting premiums payable against receivables from SRUS. On June 20, 2019, the Delaware Court of Chancery entered an order approving a Revised Offset Plan, which allows cedents, including the Company, to offset premiums under certain circumstances.
As of September 30, 2019, the Company had outstanding claims receivable from SRUS of $18.4 million, and other exposures associated with reinsurance receivables of approximately $96.4 million and statutory reserve credit of approximately $105.7 million. The Company continues to monitor SRUS and the actions of the receiver through discussions with legal counsel and review of publicly available information. However, management does not have sufficient information about the current assets or capital position of SRUS. Additionally, it is unclear how the rehabilitation process will proceed or whether or to what extent the ultimate outcome of the rehabilitation process will be unfavorable to the Company.
The Company considered whether the accrual of a loss contingency under FASB ASC Topic 450, Contingencies, was appropriate with respect to amounts receivable from SRUS for ceded claims and reserves as of September 30, 2019. Due to the lack of sufficient information to support an analysis of SRUS's financial condition as of September 30, 2019 and uncertainty regarding whether and to what extent the ultimate outcome of the rehabilitation process will result in an outcome unfavorable to the Company, management concluded that any possible impairment of its reinsurance receivables balance could not be reasonably estimated.

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12. EMPLOYEE BENEFIT PLANS
Components of the net periodic benefit cost for the three and nine months ended September 30, 20182019 and 2017,2018, are as follows:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
Qualified
Pension
Plan		 Nonqualified
Excess
Pension Plan		 
Qualified
Pension
Plan
 
Nonqualified
Excess
Pension Plan
 
Qualified
Pension
Plan
 
Nonqualified
Excess
Pension Plan
 Qualified
Pension
Plan		 Nonqualified
Excess
Pension Plan		Qualified
Pension
Plan		Nonqualified
Excess
Pension Plan		Qualified
Pension
Plan		Nonqualified
Excess
Pension Plan		Qualified
Pension
Plan		Nonqualified
Excess
Pension Plan		Qualified
Pension
Plan		Nonqualified
Excess
Pension Plan
(Dollars In Thousands) (Dollars In Thousands)
Service cost — benefits earned during the period$3,006
 $288
 $3,348
 $334
 $9,888
 $1,062
 $10,044
 $1,002
Service cost — benefits earned during the period$3,114  $285  $3,006  $288  $9,342  $855  $9,888  $1,062  
Interest cost on projected benefit obligation2,577
 359
 2,191
 297
 7,371
 1,077
 6,573
 891
Interest cost on projected benefit obligation2,778  371  2,577  359  8,334  1,113  7,371  1,077  
Expected return on plan assets(4,743) —
 (3,352) —
 (12,795) —
 (10,056) —
Expected return on plan assets(4,463) —  (4,743) —  (13,389) —  (12,795) —  
Amortization of prior service cost—
 —
 —
 —
 —
 —
 —
 —
Amortization of actuarial loss/(gain)—
 196
 —
 118
 —
 726
 —
 354
Amortization of actuarial lossAmortization of actuarial loss—  74  —  196  —  222  —  726  
Preliminary net periodic benefit cost840
 843
 2,187
 749
 4,464
 2,865
 6,561
 2,247
Preliminary net periodic benefit cost1,429  730  840  843  4,287  2,190  4,464  2,865  
Settlement/curtailment expense(1)
—
 986
 —
 —
 —
 986
 —
 —
Settlement/curtailment expenseSettlement/curtailment expense—  —  —  986  —  —  986  
Total net periodic benefit costs$840
 $1,829
 $2,187
 $749
 $4,464
 $3,851
 $6,561
 $2,247
Total net periodic benefit costs$1,429  $730  $840  $1,829  $4,287  $2,190  $4,464  $3,851  
               
(1) The unfunded excess benefit plan triggered settlement accounting for the nine months ended September 30, 2018 since total lump sum payments exceeded the settlement threshold of service cost plus interest cost.
During the nine months ended September 30, 2018,2019, the Company contributed $18.8$17.4 million to its defined benefit pension plan for the 20172018 plan year. The Company will make contributions in future periods as necessary to at least satisfy minimum funding requirements, to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80% and to avoid certain Pension Benefit Guaranty Corporation (“PBGC”) reporting triggers. The Company may also make additional discretionary contributions in excess of the contribution amounts established by the current funding policy.

14.13.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) as of September 30, 20182019 and December 31, 2017.2018.

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Changes in Accumulated Other Comprehensive Income (Loss) by Component
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss
Derivatives		Minimum
Pension Liability
Adjustment		Total
Accumulated
Other
Comprehensive
Income (Loss)
 (Dollars In Thousands, Net of Tax)
Balance, December 31, 2017$25,874  $747  $(13,925) $12,696  
Other comprehensive income (loss) before reclassifications(1,420,499) (1,884) (3,546) (1,425,929) 
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings(20,751) —  —  (20,751) 
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
15,651  1,130  1,989  18,770  
Cumulative effect adjustments(10,552) —  —  (10,552) 
Balance, December 31, 2018$(1,410,277) $(7) $(15,482) $(1,425,766) 
Other comprehensive income (loss) before reclassifications2,985,443  (8,116) —  2,977,327  
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings4,308  —  —  4,308  
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
(5,722) 1,075  —  (4,647) 
Balance, September 30, 2019$1,573,752  $(7,048) $(15,482) $1,551,222  
(1)  See Reclassifications Out of Accumulated Other Comprehensive Income (Loss) table below for details.
(2)  As of December 31, 2018 and September 30, 2019, net unrealized losses reported in AOCI were offset by $613.4 million and $(837.6) million, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
  
Unrealized
Gains and Losses
on Investments(2)
 Accumulated
Gain and Loss
Derivatives		 
Minimum
Pension Liability
Adjustment
 Total
Accumulated
Other
Comprehensive
Income (Loss)
  (Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2017 $25,874
 $747
 $(13,925) $12,696
Other comprehensive income (loss) before reclassifications (1,206,478) 3,060
 —
 (1,203,418)
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings 22
 —
 —
 22
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
 (2,086) 631
 —
 (1,455)
Net current-period other comprehensive income (loss) (1,208,542) 3,691
 —
 (1,204,851)
Cumulative effect adjustments (10,552) —
 —
 (10,552)
Ending Balance, September 30, 2018 $(1,193,220) $4,438
 $(13,925) $(1,202,707)
         
(1)  See Reclassification table below for details.
(2)  As of September 30, 2018, net unrealized losses reported in AOCI were offset by $524.1 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
  
Unrealized
Gains and Losses
on Investments(2)
 Accumulated
Gain and Loss
Derivatives		 
Minimum
Pension Liability
Adjustment
 Total
Accumulated
Other
Comprehensive
Income (Loss)
  (Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2016 $(656,322) $727
 $1,072
 $(654,523)
Other comprehensive income (loss) before reclassifications 700,536
 (563) (15,726) 684,247
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings 7,153
 —
 —
 7,153
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
 642
 451
 501
 1,594
Net current-period other comprehensive income (loss) 708,331
 (112) (15,225) 692,994
Cumulative effect adjustments (26,135) 132
 228
 (25,775)
Ending Balance, December 31, 2017 $25,874
 $747
 $(13,925) $12,696
         
(1)  See Reclassification table below for details.
(2)  As of December 31, 2016 and December 31, 2017, net unrealized losses reported in AOCI were offset by $424.1 million and $(6.3) million, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.


The following tables summarize the reclassifications amounts out of AOCI for the three and nine months ended September 30, 20182019 and 2017.2018.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Affected Line Item in the Condensed Consolidated Financial Statements
Gains/(losses) in net income:Statements of IncomeFor The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Derivative instruments
Benefits and settlement expenses, net of reinsurance ceded(1)
$(746) $(481) $(1,360) $(799) 
Tax (expense) benefit157  101  285  168  
$(589) $(380) $(1,075) $(631) 
 
Unrealized gains and losses on available-for-sale securitiesRealized investment gains (losses): All other investments$15,686  $(2,018) $21,901  $6,304  
Net impairment losses recognized in earnings(10,818) (14) (14,658) (3,664) 
 Tax (expense) benefit(1,022) 427  (1,521) (554) 
 $3,846  $(1,605) $5,722  $2,086  
(1) See Note 7, Derivative Financial Instruments for additional information.

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  Amount
Reclassified
from Accumulated		  
  Other Comprehensive Affected Line Item in the
For The Three Months Ended September 30, 2018 Income (Loss) Consolidated Condensed Statements of Income
  (Dollars In Thousands)  
Gains and losses on derivative instruments    
Net settlement (expense)/benefit(1)
 $(481) Benefits and settlement expenses, net of reinsurance ceded
  (481) Total before tax
  101
 Tax (expense) or benefit
  $(380) Net of tax
Unrealized gains and losses on available-for-sale securities  
  
Net investment gains (losses) $(2,018) Realized investment gains (losses): All other investments
Impairments recognized in earnings (14) Net impairment losses recognized in earnings
  (2,032) Total before tax
  427
 Tax (expense) or benefit
  $(1,605) Net of tax
     
(1) See Note 7, Derivative Financial Instruments for additional information.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
  Amount
Reclassified
from Accumulated		  
  Other Comprehensive Affected Line Item in the
For The Nine Months Ended September 30, 2018 Income (Loss) Consolidated Condensed Statements of Income
  (Dollars In Thousands)  
Gains and losses on derivative instruments    
Net settlement (expense)/benefit(1)
 $(799) Benefits and settlement expenses, net of reinsurance ceded
  (799) Total before tax
  168
 Tax (expense) or benefit
  $(631) Net of tax
Unrealized gains and losses on available-for-sale securities  
  
Net investment gains (losses) $6,304
 Realized investment gains (losses): All other investments
Impairments recognized in earnings (3,664) Net impairment losses recognized in earnings
  2,640
 Total before tax
  (554) Tax (expense) or benefit
  $2,086
 Net of tax
     
(1) See Note 7, Derivative Financial Instruments for additional information.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
  Amount
Reclassified
from Accumulated		  
  Other Comprehensive Affected Line Item in the
For The Three Months Ended September 30, 2017 Income (Loss) Consolidated Condensed Statements of Income
  (Dollars In Thousands)  
Gains and losses on derivative instruments  
  
Net settlement (expense)/benefit(1)
 $(38) Benefits and settlement expenses, net of reinsurance ceded
  (38) Total before tax
  14
 Tax (expense) or benefit
  $(24) Net of tax
Unrealized gains and losses on available-for-sale securities  
  
Net investment gains (losses) $690
 Realized investment gains (losses): All other investments
Impairments recognized in earnings (273) Net impairment losses recognized in earnings
  417
 Total before tax
  (146) Tax (expense) or benefit
  $271
 Net of tax
     
(1) See Note 7, Derivative Financial Instruments for additional information.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
  Amount
Reclassified
from Accumulated		  
  Other Comprehensive Affected Line Item in the
For The Nine Months Ended September 30, 2017 Income (Loss) Consolidated Condensed Statements of Income
  (Dollars In Thousands)  
Gains and losses on derivative instruments  
  
Net settlement (expense)/benefit(1)
 $(396) Benefits and settlement expenses, net of reinsurance ceded
  (396) Total before tax
  139
 Tax (expense) or benefit
  $(257) Net of tax
Unrealized gains and losses on available-for-sale securities  
  
Net investment gains (losses) $9,084
 Realized investment gains (losses): All other investments
Impairments recognized in earnings (10,889) Net impairment losses recognized in earnings
  (1,805) Total before tax
  631
 Tax (expense) or benefit
  $(1,174) Net of tax
     
(1) See Note 7, Derivative Financial Instruments for additional information.


15.14.INCOME TAXES
The Company used its respective estimates for its annual 20182019 and 20172018 incomes in computing its effective income tax rates for the three and nine months ended September 30, 2019 and 2018. The effective tax rates for the three and nine months ended September 30, 2019 and 2018, were 21.3% and 2017. The estimate19.8% and 19.5% and 18.8%, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
As of
September 30, 2019December 31, 2018
(Dollars In Thousands) 
Balance, beginning of period$7,134  $11,353  
Additions for tax positions of the current year—  —  
Additions for tax positions of prior years—  —  
Reductions of tax positions of prior years:
  Changes in judgment—  (4,219) 
  Settlements during the period(5,343) —  
  Lapses of applicable statute of limitations—  —  
Balance, end of period$1,791  $7,134  
Included in the end of period balance above, as of September 30, 2019 and December 31, 2018 there were 0 unrecognized tax benefits for which the ultimate deductibility is certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual 2018effective income excluded unrealized gains and losses on equity securities duetax rate but would accelerate to an inabilityearlier period the payment of cash to forecast future gains and losses.the taxing authority. The Company’stotal amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate is approximately $1.8 million and $7.1 million for the period ending September 30, 2019 and the year ending December 31, 2018, respectively.
Any accrued interest related to continuing operations varied from the maximum federalunrecognized tax benefits and other accrued income taxes have been included in income tax rates as follows:
  For The
Three Months Ended
September 30,		 
For The
Nine Months Ended
September 30,
  2018 2017 2018 2017
Statutory federal income tax rate applied to pre-tax income 21.0 % 35.0 % 21.0 % 35.0 %
State income taxes 1.2
 0.5
 1.2
 0.6
Investment income not subject to tax (1.8) (5.4) (2.6) (3.8)
Uncertain tax positions —
 (2.0) —
 (0.3)
Change in State Tax Rate —
 —
 (0.5) —
Prior period adjustments —
 (2.6) —
 (0.8)
Other (0.9) —
 (0.3) (0.1)
  19.5 % 25.5 % 18.8 % 30.6 %
expense. These amounts were a $0.7 million detriment and a $0.04 million detriment for the period ending September 30, 2019 and the year ending December 31, 2018, respectively (before taking into account the related income tax benefit associated with such an expense).
In April 2017, a routine review by Congress’ Joint Committee on Taxation related to2019, the IRS examinations for 2003 through 2011 was finalizedproposed favorable and the Company received an approximate $6.2 million net refund in the fourth quarter of 2017. The resulting net adjustmentunfavorable adjustments to the Company’s current income2014 through 2016 reported taxable income. The Company agreed to these adjustments. The resulting taxes have been settled, other than interest, and the collectionsettlement of this refund for the years 2003 through 2011 didinterest will not materially affectimpact the Company or its effective tax rate.
There have been no material changes to This agreement with the balanceIRS is the primary cause for the reductions of unrecognized tax benefits whereshown in the changes impact earnings, during the quarter ending September 30, 2018. chart above.
The Company believes that in the next twelve months, none of the unrecognized tax benefits will be reduced.
InStatute of limitations for years before 2017 are still open but, in general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before 2014. Furthermore, due2017.
Due to the aforementioned IRS adjustments to the Company's pre-2014 taxable income, the Company has amended certain of its 2003 through 2013 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns.
During the year ended December 31, 2016, the Company entered into a reinsurance transaction. This transaction generated an operating loss on the Company’s consolidated 2016 U.S. income tax return. The Company partially carried back this loss and received refunds for substantially all of the U.S. income taxes it paid in 2014 and 2015 and expects to fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of September 30, 2018 and December 31, 2017.
In the tax year ended December 31, 2017, the Company recognized provisional impacts related to the revaluation of certain deferred tax assets under the Tax Reform Act under Staff Accounting Bulletin No. 118. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional regulatory guidance that may be issued, additional analysis, and resulting changes in interpretations and assumptions the Company has made. Any adjustments to these provisional amounts will be reported as a component of income tax expense (benefit) in the reporting period in which any such adjustments are determined. There are no material adjustments for the nine months ended September 30, 2018. The accounting is expected to be complete by December 22, 2018.
16.15.OPERATINGSEGMENTS
The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments and makes adjustments to its segment reporting as needed. A brief description of each segment follows.
•The Life Marketing segment markets fixed universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.
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•The Acquisitions segment focuses on acquiring, converting, and servicing policies and contracts acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Therefore

marketed, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Life Marketing and/or Annuities segment. As a result, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.
•The Annuities segment markets fixed and VA products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.
•The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. This segment also issues funding agreements to the FHLB, and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. The Company also has an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.
•The Asset Protection segment markets extended service contracts, GAPguaranteed asset protection (“GAP”) products, credit life and disability insurance, and other specialized ancillary products to protect consumers’ investments in automobiles, recreational vehicles, watercraft, and powersports. GAP products are designed to cover the difference between the scheduled loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.
•The Corporate and Other segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead and expenses not attributable to the segments above (including interest on corporate debt). This segment includes earnings from several non-strategic or runoff lines of business, various financing and investment related transactions, and the operations of several small subsidiaries.
The Company's management and Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax adjusted operating income (loss)" and "after-tax adjusted operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is the Company's measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income tax," by excluding the following items:


•realized gains and losses on investments and derivatives,
•changes in the GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,
•actual GLWB incurred claims, and
•the amortization of deferred policy acquisition costs (“DAC”),DAC, value of business acquired (“VOBA”), and certain policy liabilities that is impacted by the exclusion of these items.
The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.
After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. For periods ending on and prior to December 31, 2017, a rate of 35% was used. Beginning in 2018, a statutory federal income tax rate of 21% will be used to allocate income tax expense or benefits to items excluded from pre-tax adjusted operating income (loss). Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in the Company’s effective income tax rate.
In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each
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operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.
There were no significant intersegment transactions during the three and nine months ended September 30, 20182019 and 2017.2018.

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The following tables present a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Revenues  
Life Marketing$472,649  $438,585  $1,371,548  $1,288,455  
Acquisitions859,524  581,054  2,136,497  1,469,787  
Annuities92,565  129,280  332,189  413,170  
Stable Value Products59,954  59,328  187,118  158,944  
Asset Protection75,884  79,158  228,096  233,347  
Corporate and Other58,135  59,763  196,068  193,205  
Total revenues$1,618,711  $1,347,168  $4,451,516  $3,756,908  
Pre-tax Adjusted Operating Income (Loss)  
Life Marketing$(25,347) $2,521  $(24,575) $(23,065) 
Acquisitions103,210  93,648  247,932  208,206  
Annuities35,860  45,587  135,347  142,052  
Stable Value Products20,863  27,126  71,208  76,198  
Asset Protection10,405  8,029  29,359  21,413  
Corporate and Other(22,664) (19,937) (62,783) (58,413) 
Pre-tax adjusted operating income122,327  156,974  396,488  366,391  
Realized gains (losses) on investments and derivatives5,516  (20,255) 36,344  (39,102) 
Income before income tax127,843  136,719  432,832  327,289  
Income tax expense(27,217) (26,619) (85,811) (61,582) 
Net income$100,626  $110,100  $347,021  $265,707  
Pre-tax adjusted operating income$122,327  $156,974  $396,488  $366,391  
Adjusted operating income tax expense(26,059) (30,873) (78,179) (69,793) 
After-tax adjusted operating income96,268  126,101  318,309  296,598  
Realized gains (losses) on investments and derivatives5,516  (20,255) 36,344  (39,102) 
Income tax (expense) benefit on adjustments(1,158) 4,254  (7,632) 8,211  
Net income$100,626  $110,100  $347,021  $265,707  
Realized investment gains (losses):
Derivative financial instruments$(102,403) $(27,465) $(370,123) $62,859  
All other investments88,409  (19,869) 317,501  (157,070) 
Net impairment losses recognized in earnings(10,818) (14) (14,658) (3,664) 
Less: related amortization(1)
(6,205) (5,859) (37,406) 5,060  
Less: VA GLWB economic cost(24,123) (21,234) (66,218) (63,833) 
Realized gains (losses) on investments and derivatives$5,516  $(20,255) $36,344  $(39,102) 
(1)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).

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 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Revenues 
      
Life Marketing$438,585
 $424,165
 $1,288,455
 $1,252,603
Acquisitions581,054
 375,819
 1,469,787
 1,164,650
Annuities129,280
 97,488
 413,170
 318,452
Stable Value Products59,328
 49,933
 158,944
 132,863
Asset Protection79,158
 83,597
 233,347
 246,142
Corporate and Other59,763
 53,386
 193,205
 162,042
Total revenues$1,347,168
 $1,084,388
 $3,756,908
 $3,276,752
Pre-tax Adjusted Operating Income (Loss) 
      
Life Marketing$2,521
 $8,969
 $(23,065) $51,157
Acquisitions93,648
 62,880
 208,206
 184,825
Annuities45,587
 62,000
 142,052
 161,585
Stable Value Products27,126
 27,992
 76,198
 74,258
Asset Protection8,029
 6,963
 21,413
 19,098
Corporate and Other(19,937) (26,870) (58,413) (67,466)
Pre-tax adjusted operating income156,974
 141,934
 366,391
 423,457
Realized (losses) gains on investments and derivatives(20,255) (31,084) (39,102) (74,490)
Income before income tax136,719
 110,850
 327,289
 348,967
Income tax expense(26,619) (28,308) (61,582) (106,743)
Net income$110,100
 $82,542
 $265,707
 $242,224
        
Pre-tax adjusted operating income$156,974
 $141,934
 $366,391
 $423,457
Adjusted operating income tax (expense) benefit(30,873) (39,187) (69,793) (132,815)
After-tax adjusted operating income126,101
 102,747
 296,598
 290,642
Realized (losses) gains on investments and derivatives(20,255) (31,084) (39,102) (74,490)
Income tax benefit (expense) on adjustments4,254
 10,879
 8,211
 26,072
Net income$110,100
 $82,542
 $265,707
 $242,224
        
Realized investment (losses) gains:       
Derivative financial instruments$(27,465) $(82,341) $62,859
 $(260,407)
All other investments(19,869) 18,150
 (157,070) 94,708
Net impairment losses recognized in earnings(14) (273) (3,664) (10,889)
Less: related amortization(1)
(5,859) (12,123) 5,060
 (38,570)
Less: VA GLWB economic cost(21,234) (21,257) (63,833) (63,528)
Realized (losses) gains on investments and derivatives$(20,255) $(31,084) $(39,102) $(74,490)
        
(1)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).
Operating Segment Assets
As of September 30, 2019
 (Dollars In Thousands)
Life
Marketing		AcquisitionsAnnuitiesStable Value
Products
Investments and other assets$15,780,011  $52,877,466  $21,500,280  $5,324,149  
DAC and VOBA1,467,865  885,600  895,121  6,019  
Other intangibles248,475  37,287  161,509  6,889  
Goodwill215,254  23,862  343,247  113,924  
Total assets$17,711,605  $53,824,215  $22,900,157  $5,450,981  



Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assets$1,059,284  $18,363,134  $114,904,324  
DAC and VOBA170,269  —  3,424,874  
Other intangibles114,703  27,473  596,336  
Goodwill129,224  —  825,511  
Total assets$1,473,480  $18,390,607  $119,751,045  

Operating Segment Assets
As of December 31, 2018
 (Dollars In Thousands)
Life
Marketing		AcquisitionsAnnuitiesStable Value
Products
Investments and other assets$14,575,702  $31,859,520  $20,199,597  $5,107,334  
DAC and VOBA1,499,386  458,977  889,697  6,121  
Other intangibles262,758  31,975  156,785  7,389  
Goodwill215,254  23,862  343,247  113,924  
Total assets$16,553,100  $32,374,334  $21,589,326  $5,234,768  

Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assets$1,019,297  $12,715,208  $85,476,658  
DAC and VOBA168,973  —  3,023,154  
Other intangibles122,590  31,934  613,431  
Goodwill129,224  —  825,511  
Total assets$1,440,084  $12,747,142  $89,938,754  

 Operating Segment Assets
As of September 30, 2018
 (Dollars In Thousands)
 
Life
Marketing
 Acquisitions Annuities 
Stable Value
Products
Investments and other assets$14,687,943
 $32,234,422
 $21,118,911
 $5,083,328
DAC and VOBA1,468,989
 455,343
 876,390
 7,001
Other intangibles267,684
 32,622
 160,118
 7,556
Goodwill200,274
 14,524
 336,677
 113,813
Total assets$16,624,890
 $32,736,911
 $22,492,096
 $5,211,698
 
Asset
Protection
 
Corporate
and Other
 
Total
Consolidated
Investments and other assets$1,026,634
 $13,222,621
 $87,373,859
DAC and VOBA166,570
 —
 2,974,293
Other intangibles125,251
 33,193
 626,424
Goodwill128,182
 —
 793,470
Total assets$1,446,637
 $13,255,814
 $91,768,046
 Operating Segment Assets
As of December 31, 2017
 (Dollars In Thousands)
 
Life
Marketing
 Acquisitions Annuities 
Stable Value
Products
Investments and other assets$14,914,418
 $19,588,133
 $20,938,409
 $4,569,639
DAC and VOBA1,320,776
 74,862
 772,634
 6,864
Other intangibles282,361
 34,548
 170,117
 8,056
Goodwill200,274
 14,524
 336,677
 113,813
Total assets$16,717,829
 $19,712,067
 $22,217,837
 $4,698,372
 
Asset
Protection
 
Corporate
and Other
 
Total
Consolidated
Investments and other assets$918,952
 $15,043,597
 $75,973,148
DAC and VOBA24,441
 —
 2,199,577
Other intangibles133,234
 35,256
 663,572
Goodwill128,182
 —
 793,470
Total assets$1,204,809
 $15,078,853
 $79,629,767

17.16.SUBSEQUENT EVENTS
The Company has evaluated the effects of events subsequent to September 30, 2018,2019, and through the date wethe Company filed ourits consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in ourthe Company's consolidated condensed financial statements.






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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2017,2018, included in our most recent Annual Report on Form 10-K.
For a more complete understanding of our business and current period results, please read the following MD&A in conjunction with our latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the “SEC”).
Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or shareowner’s equity.
FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE
This report reviews our financial condition and results of operations, including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties, and other factors that could affect our future results, please refer to Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors, of this report, as well as Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
IMPORTANT INVESTOR INFORMATION
We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports as required. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains theseour annual quarterly and current reports and other information filed electronically by us. the Company.
We make available through our website, http://www.protective.com, our annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC. We will furnish such documents to anyone who requests such copies in writing. Requests for copies should be directed to: Financial Information, Protective Life Corporation, P. O.P.O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 268-3912, Fax (205) 268-3642.
We also make available to the public current information, including financial information, regarding the Company and our affiliates on the Financial Information page of our website, www.protective.com. We encourage investors, the media, and others interested in us and our affiliates to review the information we post on our website. The information found on our website is not part of this or any other report filed with or furnished to the SEC.
OVERVIEW
Our Business
On February 1, 2015, Protective Life Corporation (the “Company”) became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into the Company (the “Merger”). Prior to February 1, 2015, our stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, we remain an SEC registrant for financial reporting purposes in the United States. The Company, which is headquartered in Birmingham, Alabama, operates as a holding company for its insurance and other subsidiaries that provide financial services primarily in the United States through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company (“PLICO”) is our largest operating subsidiary. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Corporation and our subsidiaries.
We have several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. We periodically evaluate our operating segments and make adjustments to our segment reporting as needed.
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Our operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection, andProtection. We have an additional reporting segment referred to as Corporate and Other.

•Life Marketing—We market fixed universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”VUL��), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent distribution organizations, and affinity groups.
•Acquisitions—We focus on acquiring, converting, and/or servicing policies and contracts from other companies. This segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Thereforemarketed, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Life Marketing and/or Annuities segment. As a result, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.
•Annuities—We market fixed and variable annuity (“VA”) products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.
•Stable Value Products—We sell fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. We also have an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.
•Asset Protection—We market extended service contracts, guaranteed asset protection (“GAP”) products, credit life and disability insurance, and other specialized ancillary products to protect consumers’ investments in automobiles, recreational vehicles, watercraft, and powersports. GAP products are designed to cover the difference between the scheduled loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.
•Corporate and Other—This segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead, and expenses not attributable to the segments above (including interest on corporate debt). This segment includes earnings from several non-strategic or runoff lines of business, financing and investment relatedinvestment-related transactions, and the operations of several small subsidiaries.
RECENT DEVELOPMENTSSIGNIFICANT TRANSACTIONS
Great-West Life & Annuity Insurance Company
On May 1, 2018, The Lincoln NationalJanuary 23, 2019, PLICO entered into a Master Transaction Agreement (the “GWL&A Master Transaction Agreement”) with Great-West Life & Annuity Insurance Company (“Lincoln Life”GWL&A”), Great-West Life & Annuity Insurance Company of New York (“GWL&A of NY”), The Canada Life Assurance Company (“CLAC”), and The Great-West Life Assurance Company (“GWL” and, together with GWL&A, GWL&A of NY, and CLAC, the “Sellers”), pursuant to which PLICO acquired via reinsurance (the “Transaction”) completed its previously announced acquisition (the “Closing”) of Liberty Mutual Group Inc.’s (“Liberty Mutual”) Group Benefits Business and Individual Life and Annuity Business (the “Life Business”) through the acquisition ofsubstantially all of the issuedSellers’ individual life insurance and outstanding capital stock of Libertyannuity business (the “Individual Life Assurance Company of Boston (“Liberty”Business”). In connection with
On June 3, 2019, PLICO and PLAIC completed the Closing and  pursuantTransaction (the “GWL&A Closing”). Pursuant to the GWL&A Master Transaction Agreement, dated January 18, 2018 (the “Master Transaction Agreement”), previously reported in our Current Report on Form 8-K filed on January 23, 2018, PLICO and Protective Life and Annuity Insurance Company (“PLAIC”), a wholly owned subsidiary of PLICO, entered into reinsurance agreements (the “Reinsurance“GWL&A Reinsurance Agreements”) and related ancillary documents (including administrative services agreementsat the GWL&A Closing. On the terms and transition services agreements) providing forsubject to the reinsurance and administrationconditions of the Life Business. 

Pursuant to theGWL&A Reinsurance Agreements, Libertythe Sellers ceded to PLICO and PLAIC, effective as of the date of the GWL&A Closing, substantially all of the insurance policies relatedrelating to the Individual Life Business on a 100% coinsurance basis.Business. The aggregate ceding commission for the reinsurance of the Individual Life Business paid at the GWL&A Closing was $422.4 million.$765.7 million, which amount is subject to adjustment in accordance with the GWL&A Master Transaction Agreement. All policies issued in states other than New York were ceded to PLICO under a reinsurance agreementagreements between Libertythe applicable Seller and PLICO, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between LibertyGWL&A of NY and PLAIC. The aggregate statutory reserves of Libertythe Sellers ceded to PLICO and PLAIC as of the closing of the TransactionGWL&A Closing were approximately $13.3$20.4 billion, which amount was based on initial estimates and is subject to adjustment following the GWL&A
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Closing. Pursuant toTo support its obligations under the terms of theGWL&A Reinsurance Agreements, each of PLICO and PLAIC are required to maintain assets inestablished trust accounts for the benefit of Liberty to secure their respective obligations to Liberty underGWL&A, CLAC and GWL, and PLAIC established a trust account for the Reinsurance Agreements.benefit of GWL&A of NY. The trust accounts were initially fundedSellers will retain a block of participating policies, which will be administered by the Company.

The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of PLICOthe parties, and PLAIC principally withcertain customary covenants regarding the investment assets that were received from Liberty. Additionally, PLICOSellers and PLAIC have each agreed to provide, on behalf of Liberty, administration and policyholder servicing of the Individual Life Business, reinsured by it pursuant to administrative services agreements between Liberty and eachprovide for indemnification, among other things, for breaches of PLICOthose representations, warranties, and PLAIC.covenants.


RISKS AND UNCERTAINTIES
The factors which could affect our future results include, but are not limited to, general economic conditions and the following risks and uncertainties:
General
•we are controlled by Dai-ichi Life, which has the ability to make important decisions affecting our business;
•exposure to risks related to natural and man-made disasters and catastrophes, such as diseases, epidemics, pandemics, malicious acts, cyber-attacks,cyber attacks, terrorist acts, and climate change, which could adversely affect our operations and results;
•a disruption or cyber attack affecting the electronic, communication, and information technology systems or other technologies of the Company or those on whom the Company relies could adversely affect our business, financial condition, and results of operations;

•confidential information maintained in the systems of the Company or other parties upon which the Company relieswe rely could be compromised or misappropriated as a result of security breaches or other related lapses or incidents, damaging our business and reputation and adversely affecting our financial condition and results of operations;
•our results and financial condition may be negatively affected should actual experience differ from management’s models, assumptions, andor estimates;
•we may not realize our anticipated financial results from our acquisitions strategy;
•we may experience competition in our acquisition segment;
•assets allocated to the MONY Closed Block benefit only the holders of certain policies; adverse performance of Closed Block assets or adverse experience of Closed Block liabilities may negatively affect us;
•we are dependent on the performance of others;
•our risk management policies, practices, and procedures could leave us exposed to unidentified or unanticipated risks, which could negatively affect our business or result in losses;
•our strategies for mitigating risks arising from our day-to-day operations may prove ineffective, resulting in a material adverse effect on our results of operations and financial condition;
•events that damage our reputation or the reputation of our industry could adversely impact our business, results of operations, or financial condition;
•we may not be able to protect our intellectual property and may be subject to infringement claims;
•developments in technology may impact our business;
Financial Environment
•interest rate fluctuations orand sustained periods of highlow or lowhigh interest rates could negatively affect our interest earnings and spread income, or otherwise impact our business;
•our investments are subject to market and credit risks, which could be heightened during periods of extreme volatility or disruption in financial and credit markets;
•credit market volatility or disruption could adversely impact the Company’s financial condition or results from operations;
•disruption of the capital and credit markets could negatively affect the Company’s ability to meet its liquidity and financial needs;
•equity market volatility could negatively impact our business;
•our use of derivative financial instruments within our risk management strategy may not be effective or sufficient;
credit market volatility or disruption could adversely impact our financial condition or results from operations;
•our ability to grow depends in large part upon the continued availability of capital;
we could be adversely affected by a ratings downgrade or other negative action by a rating organization;
•we could be forced to sell investments at a loss to cover policyholder withdrawals;
disruption of the capital and credit markets could negatively affect our ability to meet our liquidity and financing needs;
•difficult general economic conditions could materially adversely affect our business and results of operations;
•we may be required to establish a valuation allowance against our deferred tax assets, which could have a material adverse effect on our results of operations, financial condition, and capital position;
•we could be adversely affected by an inability to access our credit facility;
we could be adversely affected by an inability to access FHLB lending;
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our securities lending program may subject us to liquidity and other risks;
our financial condition or results of operations could be adversely impacted if our assumptions regarding the fair value and future performance of our investments differ from actual experience;
adverse actions of certain funds or their advisers could have a detrimental impact on our ability to sell our variable life and annuity products, or maintain current levels of assets in those products;
•the amount of statutory capital or risk-based capital that we have and the amount of statutory capital or risk-based capital that we must hold to maintain our financial strength and credit ratings and meet other requirements can vary significantly from time to time and such amounts areis sensitive to a number of factors outside of our control;
•we could be adversely affected by a ratings downgrade or other negative action by a rating organization;
•we operate as a holding company and depend on the ability of our subsidiaries to transfer funds to us to meet our obligations;
•we could be adversely affected by an inability to access FHLB lending;
•our securities lending program may subject us to liquidity and other risks;
•our financial condition or results of operations could be adversely impacted if our assumptions regarding the fair value and future performance of our investments differ from actual experience;
•adverse actions of certain funds or their advisers could have a detrimental impact on our ability to sell our variable life and annuity products, or maintain current levels of assets in those products;
Industry and Regulation
•the business of our company is highly regulated and is subject to routine audits, examinations, and actions by regulators, law enforcement agencies, and self-regulatory organizations;
•we may be subject to regulations of, or regulations influenced by, international regulatory authorities or initiatives;
•NAIC actions, pronouncements, and initiatives may affect our product profitability, reserve and capital requirements, financial condition, or results of operations;
•our use of captive reinsurance companies to finance statutory reserves related to our term and universal life products and to reduce volatility affecting our variable annuity products, may be limited or adversely affected by regulatory action, pronouncements, and interpretations;
•laws, regulations, and initiatives related to unreported deaths and unclaimed property and death benefits may result in operational burdens, fines, unexpected payments or escheatments;
•we are subject to insurance guaranty fund laws, rules, and regulations whichthat could adversely affect our financial condition or results of operations;
•we are subject to insurable interest laws, rules and regulations whichthat could adversely affect our financial condition or results of operations;
•the Healthcare Act and related regulations could adversely affect our results of operations or financial condition;
•laws, rules and regulations promulgated in connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely affect our results of operations or financial condition;
•new and amended regulations regarding the standard of care or standard of conduct applicable to investment professionals, insurance agencies, and financial institutions that recommend or sell annuities or life insurance products may have a material adverse impact on our ability to sell annuities and other products and to retain in-force business and on our financial condition or results of operations;
•we may be subject to regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, FINRA and other federal and international regulators in connection with our business operations;

•changes to tax law, such as the effect of the Tax Cuts and Jobs Act which was enacted on December 22, 2017, or interpretations of existing tax law could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products;
•financial services companies are frequently the targets of legal proceedings, including class action litigation, which could result in substantial judgments;
•the financial services and insurance industries are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny;
•new accounting rules, changes to existing accounting rules, or the grant of permitted accounting practices to competitors could negatively impact us;
•if our business does not perform well, we may be required to recognize an impairment of our goodwill and indefinite lived intangible assets which could adversely affect our results of operations or financial condition;
•use of reinsurance introduces variability in our statements of income;
•our reinsurers could fail to meet assumed obligations, increase rates, terminate agreements or be subject to adverse developments that could affect us;
•our policy claims fluctuate from period to period resulting in earnings volatility;
•we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry and negatively affect profitability; and
•our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business; andbusiness.
we may not be able to protect our intellectual property and may be subject to infringement claims.
For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part II, Item 1A, Risk Factorsof this report and Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K.
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CRITICAL ACCOUNTING POLICIES
Our accounting policies require the use of judgments relating to a variety of assumptions and estimates, including, but not limited to expectations of current and future mortality, morbidity, persistency, expenses, and interest rates, as well as expectations around the valuations of securities. Because of the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from those reported in the consolidated condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
RESULTS OF OPERATIONS
Our management and Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax adjusted operating income (loss)" and "after-tax adjusted operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is our measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income tax," by excluding the following items:


•realized gains and losses on investments and derivatives,
•changes in the guaranteed living withdrawal benefits (“GLWB”) embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,
•actual GLWB incurred claims, and
•the amortization of deferred policy acquisition costs (“DAC”), value of business acquired (“VOBA”), and certain policy liabilities that is impacted by the exclusion of these items.


After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. For periods ending on and prior to December 31, 2017 a rate of 35% was used. Beginning in 2018, a statutory federal income tax rate of 21% will be used to allocate income tax expense or benefits to items excluded from pre-tax adjusted operating income (loss). Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in our effective income tax rate.
The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. Our belief is that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.
In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on policy liabilities net of associated policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.
We periodically review and update as appropriate our key assumptions used to measure certain balances related to insurance products, including future mortality, expenses, lapses, premium persistency, benefit utilization, investment yields, interest

rates, and separate account fund returns. Changes to these assumptions result in adjustments which increase or decrease DAC and VOBA amortization and/or benefits and expenses. TheAssumptions may be updated as part of our annual assumption review process, as well as during our quarterly update of historical business activity. This periodic review and updating of assumptions is collectively referred to as “unlocking.” When referring to unlocking the reference is to changes in all balance sheet components associated with these assumption changes. The adjustments associated with unlocking can create significant variability from period to period in the profitability of certain of the Company’s operating segments.
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The following table presents a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Pre-tax Adjusted Operating Income (Loss)  
Life Marketing$(25,347) $2,521  $(24,575) $(23,065) 
Acquisitions103,210  93,648  247,932  208,206  
Annuities35,860  45,587  135,347  142,052  
Stable Value Products20,863  27,126  71,208  76,198  
Asset Protection10,405  8,029  29,359  21,413  
Corporate and Other(22,664) (19,937) (62,783) (58,413) 
Pre-tax adjusted operating income122,327  156,974  396,488  366,391  
Realized gains (losses) on investments and derivatives5,516  (20,255) 36,344  (39,102) 
Income before income tax127,843  136,719  432,832  327,289  
Income tax expense(27,217) (26,619) (85,811) (61,582) 
Net income$100,626  $110,100  $347,021  $265,707  
Pre-tax adjusted operating income$122,327  $156,974  $396,488  $366,391  
Adjusted operating income tax expense(26,059) (30,873) (78,179) (69,793) 
After-tax adjusted operating income96,268  126,101  318,309  296,598  
Realized gains (losses) on investments and derivatives5,516  (20,255) 36,344  (39,102) 
Income tax (expense) benefit on adjustments(1,158) 4,254  (7,632) 8,211  
Net income$100,626  $110,100  $347,021  $265,707  
Realized investment gains (losses):
Derivative financial instruments$(102,403) $(27,465) $(370,123) $62,859  
All other investments88,409  (19,869) 317,501  (157,070) 
Net impairment losses recognized in earnings(10,818) (14) (14,658) (3,664) 
Less: related amortization(1)
(6,205) (5,859) (37,406) 5,060  
Less: VA GLWB economic cost(24,123) (21,234) (66,218) (63,833) 
Realized gains (losses) on investments and derivatives$5,516  $(20,255) $36,344  $(39,102) 
(1) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)    
Pre-tax Adjusted Operating Income (Loss) 
      
Life Marketing$2,521
 $8,969
 $(23,065) $51,157
Acquisitions93,648
 62,880
 208,206
 184,825
Annuities45,587
 62,000
 142,052
 161,585
Stable Value Products27,126
 27,992
 76,198
 74,258
Asset Protection8,029
 6,963
 21,413
 19,098
Corporate and Other(19,937) (26,870) (58,413) (67,466)
Pre-tax adjusted operating income156,974
 141,934
 366,391
 423,457
Realized (losses) gains on investments and derivatives(20,255) (31,084) (39,102) (74,490)
Income before income tax136,719
 110,850
 327,289
 348,967
Income tax expense(26,619) (28,308) (61,582) (106,743)
Net income$110,100
 $82,542
 $265,707
 $242,224
        
Pre-tax adjusted operating income$156,974
 $141,934
 $366,391
 $423,457
Adjusted operating income tax (expense) benefit(30,873) (39,187) (69,793) (132,815)
After-tax adjusted operating income126,101
 102,747
 296,598
 290,642
Realized (losses) gains on investments and derivatives(20,255) (31,084) (39,102) (74,490)
Income tax benefit (expense) on adjustments4,254
 10,879
 8,211
 26,072
Net income$110,100
 $82,542
 $265,707
 $242,224
        
Realized investment (losses) gains:       
Derivative financial instruments$(27,465) $(82,341) $62,859
 $(260,407)
All other investments(19,869) 18,150
 (157,070) 94,708
Net impairment losses recognized in earnings(14) (273) (3,664) (10,889)
Less: related amortization(1)
(5,859) (12,123) 5,060
 (38,570)
Less: VA GLWB economic cost(21,234) (21,257) (63,833) (63,528)
Realized (losses) gains on investments and derivatives$(20,255) $(31,084) $(39,102) $(74,490)
        
(1) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).

During the three months ended September 30, 2019, we completed our annual assumption review process related to certain insurance products. Through this process, we review key assumptions such as mortality, expenses, lapses, premium persistency, benefit utilization, investment yields, and separate account fund returns. Changes in these assumptions this quarter led to prospective unlocking which reduced pre-tax adjusted operating income and income before income tax for the three month period by $35.8 million and $57.4 million, respectively. The primary drivers of the reduction to pretax adjusted operating income were the revision of our assumptions related to investment yields and lapses. The impact reported in realized gains (losses) on investments and derivatives was $(21.6) million and resulted primarily from updates to lapse and benefit utilization assumptions in our VA and FIA product lines.

When calculating the reinvestment rate for the investment yield assumption, we assumed a starting and ultimate 10 year and 30 year Treasury rate of 2.2% and 2.6%, respectively. We assumed a starting 10 and 30 year credit spread of 123 basis points and 141 basis points, respectively. The starting credit spread assumption stays level for 5 years and grades to an ultimate
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10 year and 30 year credit spread of 158 basis points and 188 basis points, respectively, based upon a historical average in years 6-10 of the projection.
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Net income for the three months ended September 30, 2018 included2019 was $100.6 million, a $15.0 million, or 10.6%, increase in pre-taxdecrease of $9.5 million. Pre-tax adjusted operating income.income was $122.3 million, a decrease of $34.6 million. The increasedecrease consisted of a $30.8$27.9 million increase in the Acquisitions segment, a $1.1 million increase in the Asset Protection segment, and a $6.9 million increase in the Corporate and Other segment. These increases were partially offset by a decrease of $6.4 million in the Life Marketing segment, a $16.4$9.7 million decrease in the Annuities segment, a $2.7 million decrease in the Corporate and Other segment, and a $0.9$6.3 million decrease in the Stable Value Products segment. These decreases were partially offset by a $9.6 million increase in the Acquisitions segment and a $2.4 million increase in the Asset Protection segment
Net realized lossesgains on investments and derivatives for the three months ended September 30, 2018 was $20.32019 were $5.5 million as compared to $31.1net realized losses of $20.3 million for the three months ended September 30, 2017.2018.

•Life Marketing segment pre-tax adjusted operating incomeloss was $2.5$25.3 million for the three months ended September 30, 2018,2019, representing a decrease of $6.4$27.9 million from the three months ended September 30, 2017.2018. The decrease was primarily due to the impact of unlocking during the current quarter compared to the prior year.unlocking. The segment recorded an unfavorable $30.6 million of unlocking for the three months ended September 30, 2019, as compared to an unfavorable $6.9 million of unlocking for the three months ended September 30, 2018, as compared to2018. The unlocking in 2019 was primarily driven by a favorable $1.8 million of unlocking for the three months ended September 30, 2017.reduction in assumed interest rates.
•Acquisitions segment pre-tax adjusted operating income was $93.6$103.2 million for the three months ended September 30, 2018,2019, an increase of $30.8$9.6 million as compared to the three months ended September 30, 2017,2018, primarily due to the favorable impact of $26.1$29.8 million from the LibertyGWL&A reinsurance transaction, completed on May 1, 2018 and a decrease in benefit and settlement expenses onpartly offset by the otherexpected runoff of the in-force blocks of business. For the three months ended September 30, 2018,2019, the segment recorded favorable prospectiveunfavorable unlocking of $0.7$13.3 million as compared to unfavorable $3.7favorable unlocking of $0.5 million of prospective unlocking for the three months ended September 30, 2017.2018.
•Annuities segment pre-tax adjusted operating income was $35.9 million for the three months ended September 30, 2019, as compared to $45.6 million for the three months ended September 30, 2018, as compared to $62.0 million for the three months ended September 30, 2017, a decrease of $16.4$9.7 million, or 26.5%21.3%. This variance was primarily the result of unfavorable unlocking andlower interest spreads, a decline in variable annuityannuities (“VA”) fee income, higher operating expenses, and an unfavorable change in guaranteed benefit reserves, partially offset by increased interest spreads and a favorable changechanges in single premium immediate annuities (“SPIA”("SPIA") mortality.mortality and unlocking. Segment results were negatively impacted by $3.8 million of unfavorable unlocking for the three months ended September 30, 2019, as compared to $4.8 million of unfavorable unlocking for the three months ended September 30, 2018, as compared to $13.0 million of favorable unlocking for the three months ended September 30, 2017.2018.
•Stable Value segment pre-tax adjusted operating income was $27.1$20.9 million, and decreased $0.9a decrease of $6.3 million, or 3.1%23.1%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The decrease in pre-tax adjusted operating earningsincome primarily resulted from lower participating mortgage income and higher interest expenses.credited interest. Participating mortgage income for the three months ended September 30, 2018,2019, was $9.0$3.7 million as compared to $12.4$9.0 million for the three months ended September 30, 2017.2018. The adjusted operating spread, which excludes participating income, decreased by 1020 basis points for the three months ended September 30, 2018,2019, from the prior year, due primarily to an increase in credited interest.
•Asset Protection segment pre-tax adjusted operating income was $8.0$10.4 million, representing an increase of $1.1$2.4 million, or 15.3%29.6%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. Earnings from the GAP product line increased $2.2 million due to lower loss ratios. Service contract earnings increased $1.3$0.3 million primarily due to favorable loss ratios and higher investment income. Earnings from the GAP and credit insurance product lines bothline decreased $0.1 million primarily due to lower volume and higher losses.volume.
•The Corporate and Other segment pre-tax adjusted operating loss was $22.7 million for the three months ended September 30, 2019, as compared to a pre-tax adjusted operating loss of $19.9 million for the three months ended September 30, 2018, as compared to a pre-tax adjusted operating loss of $26.9 million for the three months ended September 30, 2017.2018. The decreasedincreased operating loss was primarily due to an increasea decrease in investment income due to highera decrease in invested asset balancesbalance and decreasedincreased interest andexpense, partially offset by a decrease in corporate overhead expenses.expense.
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For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Net income for the nine months ended September 30, 2018 included a $57.12019 was $347.0 million, or 13.5%, decrease in pre-taxan increase of $81.3 million. Pre-tax adjusted operating income.income was $396.5 million, an increase of $30.1 million. The decreaseincrease consisted of a $74.2$39.7 million increase in the Acquisitions segment and a $7.9 million increase in the Asset Protection segment. These increases were partially offset by a $4.4 million decrease in the Corporate and Other segment, a $1.5 million decrease in the Life Marketing segment, a $19.5$6.7 million decrease in the Annuities segment. These decreases were partially offset bysegment, and a $23.4$5.0 million increase in the Acquisitions segment, a $1.9 million increasedecrease in the Stable Value Products segment, a $2.3 million increase in the Asset Protection segment, and an increase of $9.1 million in the Corporate and Other segment.
Net realized lossesgains on investments and derivatives for the nine months ended September 30, 2018 was $39.12019 were $36.3 million as compared to $74.5net realized losses of $39.1 million for the nine months ended September 30, 2018.

•Life Marketing segment pre-tax adjusted operating loss was $24.6 million for the nine months ended September 30, 2017.
Life Marketing segment pre-tax adjusted operating loss was $23.1 million for the nine months ended September 30, 2018,2019, representing a decreasean increase of $74.2$1.5 million from the nine months ended September 30, 2017.2018. The decreaseincrease in the operating loss was primarily due to higher claims and the impact of unlocking in the universal life block, partly offset by higher investment income and higherlower expenses in the universal life block and lower claims compared toin the prior year.traditional life block. The segment recorded an unfavorable $29.2 million of unlocking for the nine months ended September 30, 2019, as compared to an unfavorable $19.8 million of unlocking for the nine months ended September 30, 2018, as compared to2018. The unlocking in 2019 was primarily driven by a favorable $3.0 million of unlocking for the nine months ended September 30, 2017. Life claims were approximately $57.3 million higher for the nine months ended September 30, 2018 when compared to the nine months ended September 30, 2017.reduction in assumed interest rates.
•Acquisitions segment pre-tax adjusted operating income was $208.2$247.9 million for the nine months ended September 30, 2018,2019, an increase of $23.4$39.7 million as compared to the nine months ended September 30, 2017,2018, primarily due to the favorable impactaddition of $33.1 million from the Liberty reinsurance transaction. The Liberty reinsurance transaction completed on May 1, 2018added $75.4 million of pre-tax adjusted operating income for the nine months ended September 30, 2019, an increase of $42.3 million as compared to the nine months ended September 30, 2018. In addition, the GWL&A reinsurance transaction added $25.9 million of pre-tax adjusted operating income for the nine months ended September 30, 2019. This was partly offset by the expected runoff of the in-force blocks of business. For the nine months ended September 30, 2018,2019, the segment recorded favorable prospectiveunfavorable unlocking of $0.7$7.2 million as compared to unfavorable $3.7unlocking of $0.4 million of prospective unlocking for the nine months ended September 30, 2017.2018.
•Annuities segment pre-tax adjusted operating income was $135.3 million for the nine months ended September 30, 2019, as compared to $142.1 million for the nine months ended September 30, 2018, as compared to $161.6 million for the nine months ended September 30, 2017, a decrease of $19.5$6.7 million, or 12.1%4.7%. This variance was primarily the result of unfavorable unlocking, a decline in VA fee income, an unfavorable change in SPIA mortality, and higher non-deferredoperating expenses, partially offset by favorable unlocking, increased interest spreads, a favorable change in SPIA mortality, and increased interest spreads.a favorable change in guaranteed benefit reserves. Segment results were negativelypositively impacted by $3.9 million of favorable unlocking for the nine months ended September 30, 2019, as compared to $11.7 million of unfavorable unlocking for the nine months ended September 30, 2018, as compared to $14.9 million of favorable unlocking for the nine months ended September 30, 2017.2018.

•Stable Value segment pre-tax adjusted operating income was $76.2$71.2 million, and increased $1.9a decrease of $5.0 million, or 2.6%6.5%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The increasedecrease in pre-tax adjusted operating earningsincome primarily resulted from lower participation income and higher average account values.credited interest. Participating mortgage income for the nine months ended September 30, 2018,2019, was $20.9$15.2 million as compared to $23.6$20.9 million for the nine months ended September 30, 2017.2018. The adjusted operating spread, which excludes participating income, decreased by 2120 basis points for the nine months ended September 30, 2018,2019, from the prior year, due primarily to an increase in credited interest.
•Asset Protection segment pre-tax adjusted operating income was $21.4$29.4 million, representing an increase of $2.3$7.9 million, or 12.1%37.1%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. Earnings from the GAP product line increased $6.1 million due to lower loss ratios. Service contract earnings increased $2.5$1.7 million primarily due to favorable loss ratioshigher administrative fees and higher investment income. Earnings from the GAPcredit insurance product line increased $0.3$0.1 million primarily due to lower expenses. Credit insurance earnings decreased $0.4 million primarily due to lower volume and higher losses.
•The Corporate and Other segment pre-tax adjusted operating loss was $62.8 million for the nine months ended September 30, 2019, as compared to a pre-tax adjusted operating loss of $58.4 million for the nine months ended September 30, 2018, as compared to a pre-tax adjusted operating loss of $67.5 million for the nine months ended September 30, 2017.2018. The decreasedincreased operating loss was primarily due to an increasedecrease in investment income due to higherdecreased invested asset balances partlyand increased interest expenses, partially offset by an increasea decrease in corporate overhead expenses.



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Table of Contents
Life Marketing
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$495,262  $422,430  $1,476,149  $1,416,241  
Reinsurance ceded(202,520) (144,607) (631,907) (630,736) 
Net premiums and policy fees292,742  277,823  844,242  785,505  
Net investment income143,684  138,017  428,858  413,276  
Other income32,485  30,630  96,606  94,536  
Total operating revenues468,911  446,470  1,369,706  1,293,317  
Realized investment gains (losses)3,738  (7,885) 1,842  (4,862) 
Total revenues472,649  438,585  1,371,548  1,288,455  
BENEFITS AND EXPENSES
Benefits and settlement expenses392,652  383,653  1,136,676  1,081,769  
Amortization of DAC/VOBA55,928  16,776  116,474  82,222  
Other operating expenses45,678  43,520  141,131  152,391  
Operating benefits and settlement expenses494,258  443,949  1,394,281  1,316,382  
Benefits and settlement expenses related to realized gains (losses)4,766  (5,721) (2,138) (2,335) 
Amortization of DAC/VOBA related to realized gains (losses)341  819  2,096  1,205  
Total benefits and expenses499,365  439,047  1,394,239  1,315,252  
INCOME (LOSS) BEFORE INCOME TAX(26,716) (462) (22,691) (26,797) 
Less: realized gains (losses)3,738  (7,885) 1,842  (4,862) 
Less: related benefits and settlement expenses(4,766) 5,721  2,138  2,335  
Less: related amortization of DAC/VOBA(341) (819) (2,096) (1,205) 
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)$(25,347) $2,521  $(24,575) $(23,065) 
75
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
REVENUES 
      
Gross premiums and policy fees$422,430
 $458,468
 $1,416,241
 $1,372,864
Reinsurance ceded(144,607) (200,616) (630,736) (601,839)
Net premiums and policy fees277,823
 257,852
 785,505
 771,025
Net investment income138,017
 137,001
 413,276
 412,652
Other income30,630
 27,241
 94,536
 80,997
Total operating revenues446,470
 422,094
 1,293,317
 1,264,674
Realized gains (losses) - investments(3,277) 334
 (9,884) (6,671)
Realized gains (losses) - derivatives(4,608) 1,737
 5,022
 (5,400)
Total revenues438,585

424,165
 1,288,455
 1,252,603
BENEFITS AND EXPENSES       
Benefits and settlement expenses383,653
 345,501
 1,081,769
 993,424
Amortization of DAC/VOBA16,776
 26,984
 82,222
 86,934
Other operating expenses43,520
 40,640
 152,391
 133,159
Operating benefits and settlement expenses443,949
 413,125
 1,316,382
 1,213,517
Amortization related to benefits and settlement expenses(5,721) (396) (2,335) (10,250)
Amortization of DAC/VOBA related to realized gains (losses) - investments819
 427
 1,205
 938
Total benefits and expenses439,047
 413,156
 1,315,252
 1,204,205
INCOME (LOSS) BEFORE INCOME TAX(462) 11,009
 (26,797) 48,398
Less: realized gains (losses)(7,885) 2,071
 (4,862) (12,071)
Less: amortization related to benefits and settlement expenses5,721
 396
 2,335
 10,250
Less: related amortization of DAC/VOBA(819) (427) (1,205) (938)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)$2,521
 $8,969
 $(23,065) $51,157
Table of Contents

The following table summarizes key data for the Life Marketing segment:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
(Dollars In Thousands)
Sales By Product(1)
Traditional life$19,106  $13,034  $57,315  $39,184  
Universal life18,009  30,712  63,053  92,348  
$37,115  $43,746  $120,368  $131,532  
Sales By Distribution Channel
Traditional brokerage$22,550  $35,813  $76,698  $107,386  
Institutional12,645  5,881  37,646  17,603  
Direct1,920  2,052  6,024  6,543  
$37,115  $43,746  $120,368  $131,532  
Average Life Insurance In-force(2)
Traditional$360,112,093  $352,442,802  $358,590,816  $348,875,590  
Universal life288,396,760  280,352,234  286,909,706  276,612,519  
$648,508,853  $632,795,036  $645,500,522  $625,488,109  
Average Account Values
Universal life$7,803,697  $7,765,543  $7,799,086  $7,741,229  
Variable universal life802,244  786,953  772,810  777,037  
$8,605,941  $8,552,496  $8,571,896  $8,518,266  
(1) Sales data for traditional life insurance is based on annualized premiums. Universal life sales are based on annualized planned premiums, or “target” premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. “Target” premiums for universal life are those premiums upon which full first year commissions are paid.
(2) Amounts are not adjusted for reinsurance ceded.
76
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Sales By Product(1)
 
      
Traditional life$13,034
 $721
 $39,184
 $1,325
Universal life30,712
 41,244
 92,348
 127,743
 $43,746
 $41,965
 $131,532
 $129,068
Sales By Distribution Channel       
Traditional brokerage$38,282
 $35,320
 $113,962
 $110,066
Institutional3,412
 4,459
 11,027
 12,262
Direct2,052
 2,186
 6,543
 6,740
 $43,746
 $41,965
 $131,532
 $129,068
Average Life Insurance In-force(2)
       
Traditional$352,442,802
 $342,522,847
 $348,875,590
 $347,481,484
Universal life280,352,234
 260,101,843
 276,612,519
 248,933,690
 $632,795,036
 $602,624,690
 $625,488,109
 $596,415,174
Average Account Values       
Universal life$7,765,543
 $7,644,822
 $7,741,229
 $7,607,208
Variable universal life786,953
 729,171
 777,037
 705,045
 $8,552,496
 $8,373,993
 $8,518,266
 $8,312,253
        
(1) Sales data for traditional life insurance is based on annualized premiums. Universal life sales are based on annualized planned premiums, or “target” premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. “Target” premiums for universal life are those premiums upon which full first year commissions are paid.
(2) Amounts are not adjusted for reinsurance ceded.
Table of Contents

Operating expenses detail
Other operating expenses for the segment were as follows:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Insurance companies: 
      
Insurance companies:  
First year commissions$48,673
 $48,643
 $148,275
 $147,618
First year commissions$38,877  $48,673  $121,541  $148,275  
Renewal commissions9,455
 9,503
 29,971
 28,932
Renewal commissions10,131  9,455  29,831  29,971  
First year ceding allowances(273) (729) (499) (1,766)First year ceding allowances(185) (273) (591) (499) 
Renewal ceding allowances(47,509) (48,218) (126,167) (134,492)Renewal ceding allowances(51,422) (47,509) (144,519) (126,167) 
General & administrative54,178
 55,534
 166,628
 170,928
General & administrative59,087  54,178  168,737  166,628  
Taxes, licenses, and fees9,173
 9,592
 29,023
 26,268
Taxes, licenses, and fees9,857  9,173  29,492  29,023  
Other operating expenses incurred73,697
 74,325
 247,231
 237,488
Other operating expenses incurred66,345  73,697  204,491  247,231  
Less: commissions, allowances & expenses capitalized(62,180) (62,593) (192,961) (189,574)Less: commissions, allowances & expenses capitalized(52,885) (62,180) (162,506) (192,961) 
Other insurance company operating expenses11,517
 11,732
 54,270
 47,914
Insurance company other operating expensesInsurance company other operating expenses13,460  11,517  41,985  54,270  
Distribution companies: 
  
  
  
Distribution companies:    
Commissions22,922
 20,462
 69,198
 59,996
Commissions22,532  22,922  70,366  69,198  
Other operating expenses9,081
 8,446
 28,923
 25,249
Other operating expenses9,686  9,081  28,780  28,923  
Other distribution company operating expenses32,003
 28,908
 98,121
 85,245
Distribution company other operating expensesDistribution company other operating expenses32,218  32,003  99,146  98,121  
Other operating expenses$43,520
 $40,640
 $152,391
 $133,159
Other operating expenses$45,678  $43,520  $141,131  $152,391  
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating incomeloss was $2.5$25.3 million for the three months ended September 30, 2018,2019, representing a decrease of $6.4$27.9 million from the three months ended September 30, 2017.2018. The decrease was primarily due to the impact of unlocking during the current quarter compared to the prior year.unlocking. The segment recorded an unfavorable $30.6 million of unlocking for the three months ended September 30, 2019, as compared to an unfavorable $6.9 million of unlocking for the three months ended September 30, 2018, as compared to2018. The unlocking in 2019 was primarily driven by a favorable $1.8 million of unlocking for the three months ended September 30, 2017.reduction in assumed interest rates.

Operating revenues

Total operating revenues for the three months ended September 30, 2018,2019, increased $24.4$22.4 million, or 5.8%5.0%, as compared to the three months ended September 30, 2017.2018. This increase was driven by higher traditional life premiums during the current quarter compared to the prior year.and policy fees and higher investment income.
Net premiums and policy fees
Net premiums and policy fees increased by $20.0$14.9 million, or 7.7%5.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017, due to an increase2018, driver by higher net premiums in the traditional life premiums.block.
Net investment income
Net investment income in the segment increased $1.0$5.7 million, or 0.7%4.1%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, driven by higher universal life investment income of $1.9$7.0 million, due to growth in reserves in the block and higher yields, partly offset by lower traditional lifedistribution company investment income of $0.8$1.0 million.
Other income
Other income increased $3.4$1.9 million, or 6.1%, for the three months ended September 30, 2018,2019 as compared to the three months ended September 30, 20172018 due to higher revenue in the segment’s non-insurance operations.
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Benefits and settlement expenses
Benefits and settlement expenses increased by $9.0 million, or 2.3%, for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, driven by an increase in universal life reserves, partly offset by unlocking. For the three months ended September 30, 2019, universal life unlocking increased policy benefits and settlement expenses $5.4 million, as compared to an increase of $12.2 million for the three months ended September 30, 2018.

Amortization of DAC/VOBA

DAC/VOBA amortization increased $39.2 million for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, primarily due to higher amortization in the traditional life block and unlocking in the universal life block. For the three months ended September 30, 2019, universal life unlocking increased amortization $25.2 million, as compared to a decrease of $5.3 million for the three months ended September 30, 2018.
Other operating expenses
Other operating expenses increased $2.2 million for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018. This increase was driven by higher new business costs after capitalization and higher general and administrative expenses, offset by higher ceded allowances and lower commissions.
Sales
Sales for the segment decreased $6.6 million for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, primarily due to lower sales in the universal life block, partly offset by higher sales in the traditional life block. The change between products was due to a shift in sales from products within the universal life block to new term life products.
For The Nine Months Ended September 30, 2019, as compared to The Nine Months Ended September 30, 2018
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $24.6 million for the nine months ended September 30, 2019, representing an an increase of $1.5 million from the nine months ended September 30, 2018. The increase in the operating loss was primarily due to higher claims and the impact of unlocking in the universal life block, partly offset by higher investment income and lower expenses in the universal life block and lower claims in the traditional life block. The segment recorded an unfavorable $29.2 million of unlocking for the nine months ended September 30, 2019, as compared to an unfavorable $19.8 million of unlocking for the nine months ended September 30, 2018. The unlocking in 2019 was primarily driven by a reduction in assumed interest rates.
Operating revenues
Total operating revenues for the nine months ended September 30, 2019 increased $76.4 million, or 5.9%, as compared to the nine months ended September 30, 2018. This increase was driven by higher premiums and policy fees and investment income.
Net premiums and policy fees
Net premiums and policy fees increased by $58.7 million, or 7.5%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, driven by higher net premiums in the traditional life block.
Net investment income
Net investment income in the segment increased $15.6 million, or 3.8%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, driven by higher universal life investment income of $14.7 million, due to growth in reserves in the block and higher yields.
Other income
Other income increased $2.1 million for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018 due to higher revenue in the segment’s non-insurance operations.
Benefits and settlement expenses
Benefits and settlement expenses increased by $38.2$54.9 million, or 11.0%5.1%, for the threenine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, as compared todriven by an increase in reserves and higher universal life claims,
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partly offset by lower traditional life claims and universal life unlocking. For the threenine months ended September 30, 2017, due to unlocking and an increase in traditional life reserves. For the three months ended September 30, 2018,2019, universal life unlocking increaseddecreased policy benefits and settlement expenses $12.2$4.3 million, as compared to an increase of $1.8$20.1 million for the threenine months ended September 30, 2017.2018.


Amortization of DAC/VOBA


DAC/VOBA amortization decreased $10.2increased $34.3 million, or 37.8%41.7%, for the threenine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, as comparedprimarily due to unlocking in the threeuniversal life block. For the nine months ended September 30, 2017, primarily due to lower VOBA amortization in the traditional life block. For the three months ended September 30, 2018,2019, universal life unlocking decreasedincreased amortization $5.3$25.0 million, as compared to a decrease of $3.6$0.3 million for the threenine months ended September 30, 2017.2018.
Other operating expenses
Other operating expenses increased $2.9decreased $11.3 million for the threenine months ended September 30, 2018,2019, as compared to the threenine months ended September 30, 2017.2018. This increasedecrease was primarily driven by higher commissionsceding allowances and lower ceding allowances,commissions, partly offset by a decrease in general and administrative expenses.higher new business costs after capitalization.
Sales
Sales for the segment increased $1.8decreased $11.2 million for the threenine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, as compared to the three months ended September 30, 2017, primarily due to higher traditional life sales, offset by lower sales in the universal life block, offset by higher sales in the traditional life block. The change between products was due to a shift in sales focus from a productproducts within the universal life block to a new term life product.
For The Nine Months Ended September 30, 2018, as compared to The Nine Months Ended September 30, 2017
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $23.1 million for the nine months ended September 30, 2018, representing a decrease of $74.2 million from the nine months ended September 30, 2017. The decrease was primarily due to the impact of unlocking and higher life claims compared to the prior year. The segment recorded an unfavorable $19.8 million of unlocking for the nine months ended September 30, 2018, as compared to a favorable $3.0 million of unlocking for the nine months ended September 30, 2017. Life claims were approximately $57.3 million higher for the nine months ended September 30, 2018 when compared to the nine months ended September 30, 2017.
Operating revenues
Total operating revenues for the nine months ended September 30, 2018, increased $28.6 million, or 2.3%, as compared to the nine months ended September 30, 2017. This increase was driven by higher premiums and policy fees and distribution company revenue.
Net premiums and policy fees
Net premiums and policy fees increased by $14.5 million, or 1.9%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, due to an increase in premiums and policy fees associated with continued growth in universal life and traditional life business.
Net investment income
Net investment income in the segment increased $0.6 million, or 0.2%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, due to higher universal life investment income of $6.1 million, offset by lower traditional life and distribution company investment income of $4.4 million and $0.7 million, respectively.
Other income
Other income increased $13.5 million for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, due to higher revenue in the segment’s non-insurance operations.
Benefits and settlement expenses
Benefits and settlement expenses increased by $88.3 million, or 8.9%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, driven by unlocking and an increase in claims. For the nine months ended September 30, 2018, universal life unlocking increased policy benefits and settlement expenses $20.1 million, as compared to an increase of $1.3 million for the nine months ended September 30, 2017.
Amortization of DAC/VOBA

DAC/VOBA amortization decreased $4.7 million, or 5.4%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, due to lower VOBA amortization in the traditional life blocks, offset by higher VOBA amortization in the universal life block. For the nine months ended September 30, 2018, universal life unlocking decreased amortization $0.3 million, as compared to a decrease of $4.4 million for the nine months ended September 30, 2017.
Other operating expenses
Other operating expenses increased $19.2 million for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. This increase was driven by higher commissions and lower ceding allowances.

Sales
Sales for the segment increased $2.5 million for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, primarily due to higher traditional life sales, offset by lower sales in the universal life block. The change between products was due to a shift in sales focus from a product within the universal life block to a new term life product.products.
Reinsurance
Currently, the Life Marketing segment reinsures significant amounts of its life insurance in-force. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. Reinsurance allowances represent the amount the reinsurer is willing to pay for reimbursement of acquisition costs incurred by the direct writer of the business. A portion of reinsurance allowances received is deferred as part of DAC and a portion is recognized immediately as a reduction of other operating expenses. As the non-deferred portion of allowances reduces operating expenses in the period received, these amounts represent a net increase to adjusted operating income during that period.
Reinsurance allowances do not affect the methodology used to amortize DAC or the period over which such DAC is amortized. However, they do affect the amounts recognized as DAC amortization. DAC on universal life-type, limited-payment long duration, and investment contracts business is amortized based on the estimated gross profits of the policies in-force. Reinsurance allowances are considered in the determination of estimated gross profits, and therefore, impact DAC amortization on these lines of business. Deferred reinsurance allowances on level term business are recorded as ceded DAC, which is amortized over estimated ceded premiums of the policies in-force. Thus, deferred reinsurance allowances may impact DAC amortization. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
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Impact of reinsurance
Reinsurance impacted the Life Marketing segment line items as shown in the following table:
Life Marketing Segment
Line Item Impact of Reinsurance
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
REVENUES  
Reinsurance ceded$(202,520) $(144,607) $(631,907) $(630,736) 
BENEFITS AND EXPENSES
Benefits and settlement expenses(141,679) (131,528) (484,139) (579,246) 
Amortization of DAC/VOBA(1,613) (1,409) (3,841) (4,120) 
Other operating expenses(1)
(50,192) (45,570) (140,353) (121,420) 
Total benefits and expenses(193,484) (178,507) (628,333) (704,786) 
NET IMPACT OF REINSURANCE$(9,036) $33,900  $(3,574) $74,050  
Allowances received$(51,607) $(47,782) $(145,110) $(126,666) 
Less: Amount deferred1,415  2,212  4,757  5,246  
Allowances recognized (ceded other operating expenses)(1)
$(50,192) $(45,570) $(140,353) $(121,420) 
(1)  Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
REVENUES 
      
Reinsurance ceded$(144,607) $(200,616) $(630,736) $(601,839)
BENEFITS AND EXPENSES 
  
  
  
Benefits and settlement expenses(131,528) (170,468) (579,246) (504,652)
Amortization of DAC/VOBA(1,409) (1,418) (4,120) (4,270)
Other operating expenses(1)
(45,570) (46,756) (121,420) (130,426)
Total benefits and expenses(178,507) (218,642) (704,786) (639,348)
        
NET IMPACT OF REINSURANCE$33,900
 $18,026
 $74,050
 $37,509
        
Allowances received$(47,782) $(48,948) $(126,666) $(136,258)
Less: Amount deferred2,212
 2,192
 5,246
 5,832
Allowances recognized (ceded other operating expenses)(1)
$(45,570) $(46,756) $(121,420) $(130,426)
(1)  Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.
The table above does not reflect the impact of reinsurance on our net investment income. By ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed, which will increase the assuming companies’ profitability on the business that we cede. The net investment income impact to us and the assuming companies has not been quantified. The impact of including foregone investment income would be to substantially reduce the favorable net impact of reinsurance reflected above. We estimate that the impact of foregone investment income would be to reduce the net impact of reinsurance presented in the table above by 275%265% to 480%310%. The Life Marketing segment’s reinsurance programs do not materially impact the “other income”other income line of our income statement.
As shown above, reinsurance generally has a favorable impact on the Life Marketing segment’s operating income results. The impact of reinsurance is largely due to our quota share coinsurance program in place prior to mid-2005. Under that program,

generally 90% of the segment’s traditional new business was ceded to reinsurers. Since mid-2005, a much smaller percentage of overall term business has been ceded due to a change in reinsurance strategy on traditional business. In addition, since 2012, a much smaller percentage of the segment’s new universal life business has been ceded. As a result of that change, the relative impact of reinsurance on the Life Marketing segment’s overall results is expected to decrease over time. While the significance of reinsurance is expected to declinedecline over time, the overall impact of reinsurance for a given period may fluctuate due to variations in mortality and the unlocking of balances.
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
The lowerhigher ceded premium and policy fees for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, was caused primarily by lowerhigher ceded traditional life premiums of $76.9$48.9 million partially offset byand higher ceded universal life policy fees of $20.9$9.1 million.
Ceded benefits and settlement expenses were lowerhigher for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to lower cededhigher traditional life ceded reserves, and claims, partly offset by higher cededlower universal life ceded reserves and ceded claims. Traditional life ceded reserves decreased $82.3were $63.8 million higher and universal life ceded reserves increased $48.2claims were $16.3 million lower as compared to the three months ended September 30, 2017. Ceded traditional2018. Universal life claimsceded reserves were $13.7also $38.0 million lower and ceded universal life claims were $8.2 million higher for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017.2018, due in part to unlocking.
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Ceded amortization of DAC and VOBA decreasedincreased slightly for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018.
Ceded other operating expenses increased for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, primarily due to higher ceding allowances on the traditional life block. Ceded other operating expenses reflect the impact of reinsurance allowances, net of amounts deferred.
For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
The higher ceded premium and policy fees for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, was caused primarily by higher ceded universal life policy fees of $51.5$20.7 million, mostly offset by lower ceded traditional life premiums of $23.2$19.6 million.
Ceded benefits and settlement expenses were higherlower for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to higher ceded claims, partly offset by lower ceded traditional life reserves.claims. Universal life and traditional life ceded claims were $82.3$37.0 million and $20.3$54.0 million higher,lower, respectively, as compared to the nine months ended September 30, 2017. Traditional life ceded reserves decreased $31.0 million as compared to the nine months ended September 30, 2017.2018.
Ceded amortization of DAC and VOBA decreased slightly for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018.
Ceded other operating expenses increased for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to higher ceding allowances on the universal life block and a settlement in the prior year that reduced traditional life ceding allowances by approximately $6.2 million. Ceded other operating expenses reflect the impact of reinsurance allowances, net of amounts deferred.




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Acquisitions
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$413,045  $332,863  $1,069,932  $922,260  
Reinsurance ceded(63,778) (75,743) (193,999) (231,988) 
Net premiums and policy fees349,267  257,120  875,933  690,272  
Net investment income426,510  323,117  1,106,782  785,579  
Realized investment gains (losses)(3,300) —  (3,300) —  
Other income37,317  3,225  68,997  10,143  
Total operating revenues809,794  583,462  2,048,412  1,485,994  
Realized investment gains (losses)49,730  (2,408) 88,085  (16,207) 
Total revenues859,524  581,054  2,136,497  1,469,787  
BENEFITS AND EXPENSES    
Benefits and settlement expenses629,922  452,324  1,615,121  1,174,632  
Amortization of VOBA6,133  (2,627) 16,641  (1,309) 
Other operating expenses70,529  40,117  168,718  104,465  
Operating benefits and expenses706,584  489,814  1,800,480  1,277,788  
Benefits and settlement expenses related to realized gains (losses)4,927  2,015  9,370  7,545  
Amortization of VOBA related to realized gains (losses)1,255  (93) 1,708  312  
Total benefits and expenses712,766  491,736  1,811,558  1,285,645  
INCOME BEFORE INCOME TAX146,758  89,318  324,939  184,142  
Less: realized gains (losses)49,730  (2,408) 88,085  (16,207) 
Less: related benefits and settlement expenses(4,927) (2,015) (9,370) (7,545) 
Less: related amortization of VOBA(1,255) 93  (1,708) (312) 
PRE-TAX ADJUSTED OPERATING INCOME$103,210  $93,648  $247,932  $208,206  
82
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
REVENUES 
      
Gross premiums and policy fees$332,863
 $270,303
 $922,260
 $828,252
Reinsurance ceded(75,743) (78,647) (231,988) (239,785)
Net premiums and policy fees257,120
 191,656
 690,272
 588,467
Net investment income323,117
 181,714
 785,579
 561,632
Other income3,225
 2,515
 10,143
 8,350
Total operating revenues583,462
 375,885
 1,485,994
 1,158,449
Realized gains (losses) - investments(13,200) 19,675
 (156,191) 95,135
Realized gains (losses) - derivatives10,792
 (19,741) 139,984
 (88,934)
Total revenues581,054
 375,819
 1,469,787
 1,164,650
BENEFITS AND EXPENSES 
  
  
  
Benefits and settlement expenses452,324
 286,035
 1,174,632
 894,509
Amortization of VOBA(2,627) (453) (1,309) (3,362)
Other operating expenses40,117
 27,423
 104,465
 82,477
Operating benefits and expenses489,814
 313,005
 1,277,788
 973,624
Amortization related to benefits and settlement expenses2,015
 2,603
 7,545
 7,109
Amortization of VOBA related to realized gains (losses) - investments(93) (27) 312
 (183)
Total benefits and expenses491,736
 315,581
 1,285,645
 980,550
INCOME BEFORE INCOME TAX89,318
 60,238
 184,142
 184,100
Less: realized gains (losses)(2,408) (66) (16,207) 6,201
Less: amortization related to benefits and settlement expenses(2,015) (2,603) (7,545) (7,109)
Less: related amortization of VOBA93
 27
 (312) 183
PRE-TAX ADJUSTED OPERATING INCOME$93,648
 $62,880
 $208,206
 $184,825
Table of Contents

The following table summarizes key data for the Acquisitions segment:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Average Life Insurance In-Force(1)
 
      
Average Life Insurance In-Force(1)
  
Traditional$233,481,851
 $225,506,328
 $225,828,144
 $229,375,136
Traditional$264,696,924  $233,481,851  $243,981,484  $225,828,144  
Universal life32,702,123
 27,216,155
 29,450,423
 27,725,925
Universal life68,517,839  32,702,123  50,120,940  29,450,423  
$266,183,974
 $252,722,483
 $255,278,567
 $257,101,061
 $333,214,763  $266,183,974  $294,102,424  $255,278,567  
Average Account Values 
  
  
  
Average Account Values            
Universal life$8,173,378
 $4,194,821
 $6,164,475
 $4,203,635
Universal life$16,867,238  $8,173,378  $12,439,589  $6,164,475  
Fixed annuity(2)
11,884,932
 3,545,906
 7,716,996
 3,523,691
Fixed annuity(2)
12,586,009  11,884,932  12,119,198  7,716,996  
Variable annuity1,197,979
 1,194,958
 1,197,039
 1,181,037
Variable annuity1,109,578  1,197,979  1,099,226  1,197,039  
$21,256,289
 $8,935,685
 $15,078,510
 $8,908,363
 $30,562,825  $21,256,289  $25,658,013  $15,078,510  
Interest Spread - Fixed Annuities 
  
  
  
Interest Spread - Fixed Annuities    
Net investment income yield4.23% 3.97% 4.15% 3.99%Net investment income yield4.45 %4.23 %4.37 %4.15 %
Interest credited to policyholders3.53% 3.29% 3.47% 3.27%Interest credited to policyholders3.85 %3.53 %3.53 %3.47 %
Interest spread(3)
0.70% 0.68% 0.68% 0.72%
Interest spread(3)
0.60 %0.70 %0.84 %0.68 %
       
(1) Amounts are not adjusted for reinsurance ceded.(1) Amounts are not adjusted for reinsurance ceded.(1) Amounts are not adjusted for reinsurance ceded.
(2) Includes general account balances held within variable annuity products and is net of coinsurance ceded.(2) Includes general account balances held within variable annuity products and is net of coinsurance ceded.(2) Includes general account balances held within variable annuity products and is net of coinsurance ceded.
(3) Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.(3) Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.(3) Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $93.6$103.2 million for the three months ended September 30, 2018,2019, an increase of $30.8$9.6 million as compared to the three months ended September 30, 2017,2018, primarily due to the favorable impact of $26.1$29.8 million from the LibertyGWL&A reinsurance transaction, completed on May 1, 2018 and a decrease in benefit and settlement expenses onpartly offset by the expected runoff of the other in-force blocks of business. For the three months ended September 30, 2018,2019, the segment recorded favorable prospectiveunfavorable unlocking of $0.7$13.3 million as compared to unfavorable $3.7favorable unlocking of $0.5 million of prospective unlocking for the three months ended September 30, 2017.2018.
Operating revenues
Net premiums and policy fees increased $65.5$92.1 million, or 34.2%,35.8% for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to the premiums associated with the GWL&A reinsurance transactions more than offsetting the expected runoff of the in-force blocks of business. Net investment income increased $103.4 million, or 32.0%, for the three months ended September 30, 2019, primarily due to the $104.1 million impact of the GWL&A transaction, partly offset by the expected runoff of the other in-force blocks of business.

Total benefits and expenses

Total benefits and expenses increased $221.0 million, or 44.9%, for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018. The increase was primarily due to the GWL&A reinsurance transaction, which increased benefits and expenses $208.5 million, as well as higher amortization of VOBA in the other in-force blocks of business.
For The Nine Months Ended September 30, 2019, as compared to The Nine Months Ended September 30, 2018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $247.9 million for the nine months ended September 30, 2019, an increase of $39.7 million as compared to the nine months ended September 30, 2018, primarily due to the addition of the Liberty reinsurance transaction. The Liberty reinsurance transaction added $75.4 million of pre-tax adjusted operating income for the nine months ended September 30, 2019, an increase of $42.3 million as compared to the nine months ended September 30,
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2018. In addition, the GWL&A reinsurance transaction added $25.9 million of pre-tax adjusted operating income for the nine months ended September 30, 2019. This was partly offset by the expected runoff of the other in-force blocks of business. For the nine months ended September 30, 2019, the segment recorded unfavorable unlocking of $7.2 million as compared to unfavorable unlocking of $0.4 million for the nine months ended September 30, 2018.
Operating revenues
Net premiums and policy fees increased $185.7 million, or 26.9%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to the premiums associated with the Liberty and GWL&A reinsurance transaction more than offsetting the expected runoff of the in-force blocks of business. Net investment income increased $141.4$321.2 million, or 77.8%40.9%, for the threenine months ended September 30, 2018,2019, primarily due to the $140.0addition of the Liberty reinsurance transaction and the $138.0 million impact of the LibertyGWL&A reinsurance transaction.transaction, partly offset by the expected runoff of the other in-force blocks of business.


Total benefits and expenses

Total benefits and expenses increased $176.2$525.9 million, or 55.8%40.9%, for the threenine months ended September 30, 2018,2019, as compared to the threenine months ended September 30, 2017.2018. The increase was primarily due to the LibertyGWL&A reinsurance transaction, which increased benefits and expenses $192.0 million.$278.5 million, as well as the addition of four more months of Liberty business in 2019. This was partly offset by the expected runoff of the other in-force blocks of business.
For The Nine Months Ended September 30, 2018, as compared to The Nine Months Ended September 30, 2017
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $208.2 million for the nine months ended September 30, 2018, an increase of $23.4 million as compared to the nine months ended September 30, 2017, primarily due to the favorable impact of $33.1 million from the Liberty reinsurance transaction completed on May 1, 2018, partly offset by the expected runoff of the in-force blocks of business. For the nine months ended September 30, 2018, the segment recorded favorable prospective unlocking of $0.7 million as compared to unfavorable $3.7 million of prospective unlocking for the nine months ended September 30, 2017.
Operating revenues
Net premiums and policy fees increased $101.8 million, or 17.3%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, primarily due to the premiums associated with the Liberty reinsurance

transaction more than offsetting the expected runoff of the in-force blocks of business. Net investment income increased $223.9 million, or 39.9%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017,due to the $232.9 million impact of the Liberty reinsurance transaction, partly offset by the expected runoff of the in-force blocks of business.

Total benefits and expenses
Total benefits and expenses increased $305.1 million, or 31.1%, for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The increase was primarily due to the Liberty reinsurance transaction, which increased benefits and expenses $327.2 million.
Reinsurance
The Acquisitions segment currently reinsures portions of both its life and annuity in-force. The cost of reinsurance to the segment is reflected in the chart shown below. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
Impact of reinsurance
Reinsurance impacted the Acquisitions segment line items as shown in the following table:
Acquisitions Segment
Line Item Impact of Reinsurance
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
REVENUES 
      
REVENUES  
Reinsurance ceded$(75,743) $(78,647) $(231,988) $(239,785)Reinsurance ceded$(63,778) $(75,743) $(193,999) $(231,988) 
BENEFITS AND EXPENSES 
  
  
  
BENEFITS AND EXPENSES
Benefits and settlement expenses(52,497) (53,233) (192,117) (207,339)Benefits and settlement expenses(54,216) (52,497) (170,467) (192,117) 
Amortization of VOBA(138) (183) (513) (440)Amortization of VOBA(494) (138) (763) (513) 
Other operating expenses(8,994) (9,710) (26,488) (29,272)Other operating expenses(8,143) (8,994) (23,892) (26,488) 
Total benefits and expenses(61,629) (63,126) (219,118) (237,051)Total benefits and expenses(62,853) (61,629) (195,122) (219,118) 
       
NET IMPACT OF REINSURANCE(1)
$(14,114) $(15,521) $(12,870) $(2,734)
NET IMPACT OF REINSURANCE(1)
$(925) $(14,114) $1,123  $(12,870) 
       
(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.
The segment’s reinsurance programs do not materially impact the other income line of theour income statement. In addition, net investment income generally has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company. For business ceded under modified coinsurance arrangements, the amount of investment income attributable to the assuming company is included as part of the overall change in policy reserves and, as such, is reflected in benefit and settlement expenses. The net investment income impact to us and the assuming companies has not been quantified as it is not fully reflected in our consolidated financial statements.
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The net impact of reinsurance was more favorable by $1.4$13.2 million for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to lower ceded revenue partly offset by lowerrevenues and higher ceded benefits and expenses. For the three months ended September 30, 2018,2019, ceded revenues decreased by $2.9$12.0 million, while ceded benefits and expenses decreasedincreased by $1.5$1.2 million.

The net impact of reinsurance was lessmore favorable by $10.1$14.0 million for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to lower ceded benefits and expenses,revenues partly offset by lower ceded revenue.benefits and expenses. For the nine months ended September 30, 2018,2019, ceded revenues decreased by $7.8$38.0 million, while ceded benefits and expenses decreased by $17.9$24.0 million.


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Annuities
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$35,228  $35,462  $103,303  $112,210  
Reinsurance ceded—  —  —  —  
Net premiums and policy fees35,228  35,462  103,303  112,210  
Net investment income92,718  85,957  275,791  252,039  
Realized investment gains (losses)(20,823) (21,234) (62,918) (63,833) 
Other income41,130  43,087  119,898  129,298  
Total operating revenues148,253  143,272  436,074  429,714  
Realized investment gains (losses)(55,688) (13,992) (103,885) (16,544) 
Total revenues92,565  129,280  332,189  413,170  
BENEFITS AND EXPENSES    
Benefits and settlement expenses71,059  55,061  186,879  159,192  
Amortization of DAC/VOBA1,697  6,004  (3,101) 14,936  
Other operating expenses39,637  36,620  116,949  113,534  
Operating benefits and expenses112,393  97,685  300,727  287,662  
Benefits and settlement expenses related to realized gains (losses)3,195  778  9,556  1,306  
Amortization of DAC/VOBA related to realized gains (losses)(20,689) (3,657) (57,998) (2,973) 
Total benefits and expenses94,899  94,806  252,285  285,995  
INCOME (LOSS) BEFORE INCOME TAX(2,334) 34,474  79,904  127,175  
Less: realized investment gains (losses)(55,688) (13,992) (103,885) (16,544) 
Less: related benefits and settlement expenses(3,195) (778) (9,556) (1,306) 
Less: related amortization of DAC/VOBA20,689  3,657  57,998  2,973  
PRE-TAX ADJUSTED OPERATING INCOME$35,860  $45,587  $135,347  $142,052  
86
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
REVENUES 
      
Gross premiums and policy fees$35,462
 $38,259
 $112,210
 $114,294
Reinsurance ceded—
 —
 —
 —
Net premiums and policy fees35,462
 38,259
 112,210
 114,294
Net investment income85,957
 80,206
 252,039
 239,416
Realized gains (losses) - derivatives(21,234) (21,257) (63,833) (63,528)
Other income43,087
 43,262
 129,298
 129,733
Total operating revenues143,272
 140,470
 429,714
 419,915
Realized gains (losses) - investments(1,610) 135
 379
 (256)
Realized gains (losses) - derivatives, net of economic cost(12,382) (43,117) (16,923) (101,207)
Total revenues129,280
 97,488
 413,170
 318,452
BENEFITS AND EXPENSES 
  
  
  
Benefits and settlement expenses55,061
 53,105
 159,192
 159,537
Amortization of DAC/VOBA6,004
 (11,741) 14,936
 (11,647)
Other operating expenses36,620
 37,106
 113,534
 110,440
Operating benefits and expenses97,685
 78,470
 287,662
 258,330
Amortization related to benefits and settlement expenses778
 1,157
 1,306
 3,569
Amortization of DAC/VOBA related to realized gains (losses) - investments(3,657) (15,887) (2,973) (39,753)
Total benefits and expenses94,806
 63,740
 285,995
 222,146
INCOME BEFORE INCOME TAX34,474
 33,748
 127,175
 96,306
Less: realized gains (losses) - investments(1,610) 135
 379
 (256)
Less: realized gains (losses) - derivatives, net of economic cost(12,382) (43,117) (16,923) (101,207)
Less: amortization related to benefits and settlement expenses(778) (1,157) (1,306) (3,569)
Less: related amortization of DAC/VOBA3,657
 15,887
 2,973
 39,753
PRE-TAX ADJUSTED OPERATING INCOME$45,587
 $62,000
 $142,052
 $161,585
Table of Contents

The following tables summarize key data for the Annuities segment:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Sales(1)
  
Fixed annuity$433,850  $513,990  $1,392,044  $1,597,767  
Variable annuity53,832  69,125  163,179  230,144  
 $487,682  $583,115  $1,555,223  $1,827,911  
Average Account Values .  
   Fixed annuity(2)
$9,970,444  $9,198,082  $9,737,304  $8,882,096  
Variable annuity12,053,880  12,891,627  12,069,246  12,977,629  
 $22,024,324  $22,089,709  $21,806,550  $21,859,725  
Interest Spread - Fixed Annuities(3)
    
Net investment income yield3.59 %3.59 %3.65 %3.63 %
Interest credited to policyholders2.62  2.44  2.54  2.49  
Interest spread0.97 %1.15 %1.11 %1.14 %
(1) Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(2)  Includes general account balances held within VA products.
(3)  Interest spread on average general account values.
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Sales(1)
 
      
Fixed annuity$513,990
 $246,914
 $1,597,767
 $806,432
Variable annuity69,125
 87,045
 230,144
 323,650
 $583,115
 $333,959
 $1,827,911
 $1,130,082
Average Account Values 
 .
  
  
   Fixed annuity(2)
$9,198,082
 $8,297,792
 $8,882,096
 $8,188,092
Variable annuity12,891,627
 13,082,417
 12,977,629
 12,977,656
 $22,089,709
 $21,380,209
 $21,859,725
 $21,165,748
Interest Spread - Fixed Annuities(3)
 
  
  
  
Net investment income yield3.59% 3.73% 3.63% 3.68%
Interest credited to policyholders2.44
 2.53
 2.49
 2.52
Interest spread1.15% 1.20% 1.14% 1.16%
        
(1) Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(2)  Includes general account balances held within VA products.
(3)  Interest spread on average general account values.


 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Derivatives related to VA contracts: 
      
Interest rate futures$2,111
 $549
 $(13,229) $16,746
Equity futures(5,733) (25,959) (23,025) (75,389)
Currency futures3,410
 (6,092) 7,890
 (22,366)
Equity options(21,206) (23,307) (47,406) (76,376)
Interest rate swaptions—
 (292) (14) (2,423)
Interest rate swaps(41,288) 5,342
 (131,147) 31,331
  Total return swaps(32,343) (8,057) (35,908) (9,675)
   Embedded derivative - GLWB(1)
57,706
 740
 149,552
 (15,904)
Total derivatives related to VA contracts(37,343) (57,076) (93,287) (154,056)
Derivatives related to FIA contracts: 
  
  
  
Embedded derivative(14,360) (18,606) (7,957) (40,351)
Equity futures(388) 66
 (716) 161
Equity options18,474
 11,242
 21,203
 29,511
Total derivatives related to FIA contracts3,726
 (7,298) 12,530
 (10,679)
Other1
 —
 1
 —
VA GLWB economic cost(2)
21,234
 21,257
 63,833
 63,528
Realized gains (losses) - derivatives, net of economic cost$(12,382) $(43,117) $(16,923) $(101,207)
        
(1) Includes impact of nonperformance risk of $(8.6) million and $10.5 million for the three and nine months ended September 30, 2018 and $0.7 million and $(31.6) million for the three and nine months ended September 30, 2017.
(2) Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).
As ofAs of
September 30, 2018 December 31, 2017September 30, 2019December 31, 2018
(Dollars In Thousands) (Dollars In Thousands)
GMDB - Net amount at risk(1)
$76,371
 $72,825
GMDB - Net amount at risk(1)
$97,505  $274,399  
GMDB Reserves33,827
 30,944
GMDB Reserves36,290  39,240  
GLWB and GMAB Reserves(37,794) 111,760
GLWB and GMAB Reserves547,306  184,071  
Account value subject to GLWB rider9,232,492
 9,718,263
Account value subject to GLWB rider8,322,876  8,399,300  
GLWB Benefit Base10,371,802
 10,560,893
GLWB Benefit Base9,972,087  10,265,545  
GMAB Benefit Base1,924
 3,298
GMAB Benefit Base—  1,238  
S&P 500® Index2,914
 2,674
S&P 500® Index2,977  2,507  
   
(1) Guaranteed benefits in excess of contract holder account balance.(1) Guaranteed benefits in excess of contract holder account balance.(1) Guaranteed benefits in excess of contract holder account balance.
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $35.9 million for the three months ended September 30, 2019, as compared to $45.6 million for the three months ended September 30, 2018, as compared to $62.0 million for the three months ended September 30, 2017, a decrease of $16.4$9.7 million, or 26.5%21.3%. This variance was primarily the result of unfavorable unlocking andlower interest spreads, a decline in VA fee income, higher operating expenses, and an unfavorable change in guaranteed benefit reserves, partially offset by increased interest spreads and a favorable changechanges in SPIA mortality.mortality and unlocking. Segment results were negatively impacted by $3.8 million of unfavorable unlocking for the three months ended September 30, 2019, as compared to $4.8 million of unfavorable unlocking for the three months ended September 30, 2018, as compared to $13.0 million of favorable unlocking for the three months ended September 30, 2017.2018.
Operating revenues
Segment operating revenues increased $2.8$5.0 million, or 2.0%3.5%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to higher investment income, partially offset by lower VA fee income.

The higher investment income related to growth in fixed account value.values and lower VA fee income related to a decline in variable account values. Average fixed account balances increased 10.8%8.4% and average variable account balances decreased 1.5%6.5% for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018.
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Benefits and settlement expenses
Benefits and settlement expenses increased $2.0$16.0 million, or 3.7%29.1%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. This increase was primarily the result of higher credited interest, and unfavorable unlocking, partially offset by a favorableand an unfavorable change in SPIA mortality.guaranteed benefit reserves. Included in benefits and settlement expenses was $6.5 million of unfavorable unlocking for the three months ended September 30, 2019, as compared to $2.4 million of unfavorable unlocking for the three months ended September 30, 2018, as compared to $0.1 million of favorable unlocking for the three months ended September 30, 2017.2018.
Amortization of DAC and VOBA
DAC and VOBA amortization unfavorablyfavorably changed by $17.7$4.3 million for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The unfavorablefavorable change was primarily due to unfavorablefavorable unlocking. DAC and VOBA unlocking for the three months ended September 30, 2018,2019, was $2.7 million favorable as compared to $2.4 million unfavorable as compared to $12.9 million favorable for the three months ended September 30, 2017.2018.
Other operating expenses


Other operating expenses decreased $0.5increased $3.0 million, or 1.3%8.2%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017. Lower2018. Higher non-deferred acquisition expenses and maintenance and overhead expense and commission expenses were partially offset by higherlower non-deferred acquisition expense.commission expenses.
Sales
Total sales increased $249.2decreased $95.4 million, or 74.6%16.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. Sales of variable annuities decreased $17.9$15.3 million, or 20.6%22.1% for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to the relative competitiveness of our product within the market. Sales of fixed annuities increaseddecreased by $267.1$80.1 million, or 108.2%,15.6% for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to an increasea decrease in single premium deferred annuities (“SPDA”("SPDA") and fixed indexed annuities (“FIA”) sales, partially offset by an increase in SPIA sales.

For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $135.3 million for the nine months ended September 30, 2019, as compared to $142.1 million for the nine months ended September 30, 2018, as compared to $161.6 million for the nine months ended September 30, 2017, a decrease of $19.5$6.7 million, or 12.1%4.7%. This variance was primarily the result of unfavorable unlocking, a decline in VA fee income, and higher non-deferred expenses, partially offset by a favorablean unfavorable change in SPIA mortality, and higher operating expenses, partially offset by favorable unlocking, increased interest spreads.spreads, and a favorable change in guaranteed benefit reserves. Segment results were negativelypositively impacted by $3.9 million of favorable unlocking for the nine months ended September 30, 2019, as compared to $11.7 million of unfavorable unlocking for the nine months ended September 30, 2018, as compared to $14.9 million of favorable unlocking for the nine months ended September 30, 2017.2018.
Operating revenues
Segment operating revenues increased $9.8$6.4 million, or 2.3%1.5%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to higher investment income, partially offset by lower VA fee income. The higher investment income related to growth in fixed account value.values and lower VA fee income related to a decline in variable annuity account values. Average fixed account balances increased 8.5%9.6% and average variable account balances were relatively unchangeddecreased 7.0% for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018.
Benefits and settlement expenses
Benefits and settlement expenses decreased $0.3increased $27.7 million, or 0.2%17.4%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. This decreaseincrease was primarily the result of a favorablehigher credited interest, unfavorable unlocking, and an unfavorable change in SPIA mortality, partially offset by higher credited interest and unfavorable unlocking.a favorable change in guaranteed benefit reserves. Included in benefits and settlement expenses was $9.0 million of unfavorable unlocking for the nine months ended September 30, 2019, as compared to $3.5 million of unfavorable unlocking for the nine months ended September 30, 2018, as compared to $0.2 million2018.
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Table of favorable unlocking for the nine months ended September 30, 2017.Contents
Amortization of DAC and VOBA
DAC and VOBA amortization unfavorablyfavorably changed by $26.6$18.0 million for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The unfavorablefavorable change was primarily due to unfavorablefavorable unlocking. DAC and VOBA unlocking for the nine months ended September 30, 2018,2019, was $12.9 million favorable as compared to $8.2 million unfavorable as compared to $14.7 million favorable for the nine months ended September 30, 2017.2018.
Other operating expenses

Other operating expenses increased $3.1$3.4 million, or 2.8%3.0%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017. Increases in2018. Higher non-deferred acquisition expense and maintenance and overhead expense were partially offset by lower non-deferred commission expense.

Sales
Total sales increased $697.8decreased $272.7 million, or 61.8%14.9%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. Sales of variable annuities decreased $93.5$67.0 million, or 28.9%29.1% for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to the relative competitiveness of our product within the market. Sales of fixed annuities increaseddecreased by $791.3$205.7 million, or 98.1%12.9%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to a decrease in SPDA and FIA sales, partially offset by an increase in SPDASPIA sales.



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Stable Value Products
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
REVENUES 
Net investment income$59,707  $59,420  $184,450  $159,391  
Other income5  37  10  215  
Total operating revenues59,712  59,457  184,460  159,606  
Realized investment gains (losses)242  (129) 2,658  (662) 
Total revenues59,954  59,328  187,118  158,944  
BENEFITS AND EXPENSES    
Benefits and settlement expenses37,471  30,698  108,532  78,917  
Amortization of DAC857  869  2,584  2,321  
Other operating expenses521  764  2,136  2,170  
Total benefits and expenses38,849  32,331  113,252  83,408  
INCOME BEFORE INCOME TAX21,105  26,997  73,866  75,536  
Less: realized gains (losses)242  (129) 2,658  (662) 
PRE-TAX ADJUSTED OPERATING INCOME$20,863  $27,126  $71,208  $76,198  
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
REVENUES       
Net investment income$59,420
 $49,962
 $159,391
 $130,816
Other income37
 —
 215
 —
Total operating revenues59,457
 49,962
 159,606
 130,816
Realized gains (losses)(129) (29) (662) 2,047
Total revenues59,328
 49,933
 158,944
 132,863
BENEFITS AND EXPENSES 
  
  
  
Benefits and settlement expenses30,698
 19,121
 78,917
 51,074
Amortization of DAC869
 607
 2,321
 1,613
Other operating expenses764
 2,242
 2,170
 3,871
Total benefits and expenses32,331
 21,970
 83,408
 56,558
INCOME BEFORE INCOME TAX26,997
 27,963
 75,536
 76,305
Less: realized gains (losses)(129) (29) (662) 2,047
PRE-TAX ADJUSTED OPERATING INCOME$27,126
 $27,992
 $76,198
 $74,258

The following table summarizes key data for the Stable Value Products segment: 
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2019201820192018
 (Dollars In Thousands)
Sales(1)
  
GIC$—  $27,000  $—  $37,000  
GFA—  350,000  1,350,000  1,150,000  
 $—  $377,000  $1,350,000  $1,187,000  
Average Account Values$5,754,449  $5,219,360  $5,663,201  $4,873,790  
Ending Account Values$5,450,981  $5,211,668  $5,450,981  $5,211,668  
Operating Spread
Net investment income yield4.15 %4.57 %4.34 %4.37 %
Other income yield—  —  —  0.01  
Interest credited2.60  2.36  2.55  2.16  
Operating expenses0.10  0.13  0.11  0.13  
Operating spread1.45 %2.08 %1.68 %2.09 %
Adjusted operating spread(2)
1.19 %1.39 %1.32 %1.52 %
(1) Sales are measured at the time the purchase payments are received.
(2)  Excludes participating mortgage loan income.
90
 For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,
 2018 2017 2018 2017
 (Dollars In Thousands)
Sales(1)
 
      
GIC$27,000
 $50,000
 $37,000
 $107,000
GFA350,000
 900,000
 1,150,000
 1,650,000
 $377,000
 $950,000
 $1,187,000
 $1,757,000
        
Average Account Values$5,219,360
 $4,184,418
 $4,873,790
 $3,947,056
Ending Account Values$5,211,668
 $4,793,890
 $5,211,668
 $4,793,890
        
Operating Spread 
  
  
  
Net investment income yield4.57% 4.79% 4.37% 4.43%
Other income yield—
 —
 0.01
 —
Interest credited2.36
 1.83
 2.16
 1.73
Operating expenses0.13
 0.28
 0.13
 0.18
Operating spread2.08% 2.68% 2.09% 2.52%
   

    
Adjusted operating spread(2)
1.39% 1.49% 1.52% 1.73%
        
(1) Sales are measured at the time the purchase payments are received.
(2)  Excludes participating mortgage loan income.
Table of Contents

For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $27.1$20.9 million, and decreased $0.9a decrease of $6.3 million, or 3.1%23.1%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The decrease in pre-tax adjusted operating earningsincome primarily resulted from lower participation income and higher interest expenses.credited interest. Participating mortgage income for the three months ended September 30, 2018,2019, was $9.0$3.7 million as compared to $12.4$9.0 million for the three months ended September 30, 2017.2018. The adjusted operating spread, which excludes participating income, decreased by 1020 basis points for the three months ended September 30, 2018,2019, from the prior year, due primarily to an increase in credited interest.
For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $76.2$71.2 million, and increased $1.9a decrease of $5.0 million, or 2.6%6.5%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The increasedecrease in pre-tax adjusted operating earningsincome primarily resulted from lower participation income and higher average account values.credited interest. Participating mortgage income for the nine months ended September 30, 2018,2019, was $20.9$15.2 million as compared to $23.6$20.9 million for the nine months ended September 30, 2017.2018. The adjusted operating spread, which excludes participating income, decreased by 2120 basis points for the nine months ended September 30, 2018,2019, from the prior year, due primarily to an increase in credited interest.



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Asset Protection
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
REVENUES 
      REVENUES 
Gross premiums and policy fees$84,413
 $84,955
 $249,334
 $258,760
Gross premiums and policy fees$81,754  $84,413  $246,056  $249,334  
Reinsurance ceded(48,982) (45,867) (142,944) (142,398)Reinsurance ceded(50,682) (48,982) (149,311) (142,944) 
Net premiums and policy fees35,431
 39,088
 106,390
 116,362
Net premiums and policy fees31,072  35,431  96,745  106,390  
Net investment income7,909
 7,043
 22,231
 20,100
Net investment income8,640  7,909  25,300  22,231  
Other income35,818
 37,472
 104,726
 109,686
Other income36,172  35,818  106,051  104,726  
Realized gains (losses)—
 (6) —
 (6)
Total operating revenues79,158
 83,597
 233,347
 246,142
Total operating revenues75,884  79,158  228,096  233,347  
BENEFITS AND EXPENSES 
  
    BENEFITS AND EXPENSES  
Benefits and settlement expenses29,093
 32,547
 87,042
 95,891
Benefits and settlement expenses24,076  29,093  72,585  87,042  
Amortization of DAC/VOBA15,420
 4,081
 47,295
 13,072
Amortization of DAC/VOBA15,797  15,420  47,098  47,295  
Other operating expenses26,616
 40,012
 77,597
 118,087
Other operating expenses25,606  26,616  79,054  77,597  
Total benefits and expenses71,129
 76,640
 211,934
 227,050
Total benefits and expenses65,479  71,129  198,737  211,934  
INCOME BEFORE INCOME TAX8,029
 6,957
 21,413
 19,092
INCOME BEFORE INCOME TAX10,405  8,029  29,359  21,413  
Less: realized gains (losses)—
 (6) —
 (6)
PRE-TAX ADJUSTED OPERATING INCOME$8,029
 $6,963
 $21,413
 $19,098
PRE-TAX ADJUSTED OPERATING INCOME$10,405  $8,029  $29,359  $21,413  
The following table summarizes key data for the Asset Protection segment: 
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Sales(1)
 
      
Sales(1)
  
Credit insurance$2,978
 $3,880
 $9,387
 $11,759
Credit insurance$2,177  $2,978  $6,800  $9,387  
Service contracts106,242
 109,118
 310,754
 317,176
Service contracts114,315  106,242  318,074  310,754  
GAP17,632
 26,965
 50,874
 86,565
GAP21,726  17,632  58,691  50,874  
$126,852
 $139,963
 $371,015
 $415,500
 $138,218  $126,852  $383,565  $371,015  
Loss Ratios(2)
 
  
  
  
Loss Ratios(2)
    
Credit insurance30.1% 9.8% 26.8% 19.2%Credit insurance11.3 %30.1 %19.5 %26.8 %
Service contracts63.0
 65.8
 60.0
 64.7
Service contracts68.1  63.0  63.6  60.0  
GAP132.5
 121.8
 132.0
 120.5
GAP118.4  132.5  117.4  132.0  
       
(1) Sales are based on the amount of single premiums and fees received(1) Sales are based on the amount of single premiums and fees received(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums(2) Incurred claims as a percentage of earned premiums(2) Incurred claims as a percentage of earned premiums
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $8.0$10.4 million, representing an increase of $1.1$2.4 million, or 15.3%29.6%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. Earnings from the GAP product line increased $2.2 million due to lower loss ratios. Service contract earnings increased $1.3$0.3 million primarily due to favorable loss ratios and higher investment income. Earnings from the GAP and credit insurance product lines bothline decreased $0.1 million primarily due to lower volume and higher losses.volume.

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Net premiums and policy fees
Net premiums and policy fees decreased $3.7$4.4 million, or 9.4%12.3%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. GAP premiums decreased $4.0$3.3 million due to previously discontinuing the relationship with two significant distribution partners and creditthe related impact on earned premiums. Credit insurance premiums decreased $0.4$0.7 million as a result of lower sales. ThisThere was partly offset by a small increasedecrease in service contract premiums of $0.8 million.$0.3 million due to higher ceded premiums.
Other income
Other income decreased $1.7increased $0.4 million, or 4.4%,1.0% for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017. The change was primarily2018. Other income from the service contract line increased $0.5 million due to higher sales and GAP product line other income decreased $0.1 million as a result of lower volume and the impact of an accounting change implemented in conjunction with the adoption of ASU No. 2014-09.volume.
Benefits and settlement expenses
Benefits and settlement expenses decreased $3.5$5.0 million, or 10.6%17.2%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. GAP claims decreased $3.7$5.4 million due to lower loss ratios and lower volume as a result of previously discontinuing the relationship with two significant distribution partners. Credit insurance claims decreased $0.5 million due to lower volume. Service contract claims decreased $0.1increased $0.9 million due to lower loss ratios. Credit insurance claims increased $0.4 million due tohigher volume and higher loss ratios.
Amortization of DAC and VOBA and Other operating expenses
Amortization of DAC and VOBA increased $11.3$0.4 million, and other operating expenses decreased $13.4 millionor 2.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017. The changes were2018, primarily due to higher volume in the impact of an accounting change implementedservice contract product line partly offset by lower volume in conjunction with the adoption of ASU No. 2014-09.
Sales
Total segment salescredit product line. Other operating expenses decreased $13.1$1.0 million or 9.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017. GAP2018, primarily due to lower retrospective commissions in the service contract line.
Sales
Total segment sales decreased $9.3increased $11.4 million, or 9.0%, for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018. Service contract sales increased $8.1 million due to discontinuing the relationship withhigher volume. GAP sales increased $4.1 million as a significantresult of lower cancellations from two discontinued distribution partner. Service contract sales decreased $2.9 million due to lower volume resulting from the impact of previous price increases.partners. Credit insurance sales decreased $0.9$0.8 million due to decreasing demand for the product.
For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Pre-tax adjusted operating income
Pre-tax adjusted operating income was $21.4$29.4 million, representing an increase of $2.3$7.9 million, or 12.1%37.1%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017. Service contract earnings increased $2.5 million primarily due to favorable loss ratios and higher investment income.2018. Earnings from the GAP product line increased $0.3$6.1 million due to lower loss ratios. Service contract earnings increased $1.7 million primarily due to higher administrative fees and investment income. Earnings from the credit insurance product line increased $0.1 million primarily due to lower expenses. Credit insurance earnings decreased $0.4 million primarily due to lower volume and higher losses.
Net premiums and policy fees
Net premiums and policy fees decreased $10.0$9.6 million, or 8.6%9.1%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. GAP premiums decreased $8.6$10.7 million due to previously discontinuing the relationship with two significant distribution partners and creditthe related impact on earned premiums. Credit insurance premiums decreased $2.0$1.7 million as a result of lower sales. This was partly offset by a smallan increase in service contract premiums of $0.6 million.$2.8 million resulting from higher volume.
Other income
Other income decreased $5.0increased $1.3 million, or 4.5%,1.3% for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017. The change was primarily2018. Other income from the service contract line increased $2.2 million due to higher sales. Other income from the GAP product line decreased $0.9 million due to lower volume and the impact of an accounting change implemented in conjunction with the adoption of ASU No. 2014-09.volume.
Benefits and settlement expenses
Benefits and settlement expenses decreased $8.8$14.5 million, or 9.2%16.6%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. GAP claims decreased $6.3 million due to lower volume. Service contract claims decreased $2.6$17.8 million due to lower loss ratios.ratios and
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lower volume as a result of previously discontinuing the relationship with two significant distribution partners. Credit insurance claims increased $0.1decreased $0.8 million due to lower volume and loss ratios. Service contract claims increased $4.1 million due to higher volume and higher loss ratios.
Amortization of DAC and VOBA and Other operating expenses
Amortization of DAC and VOBA increased $34.2decreased $0.2 million, and other operating expenses decreased $40.5 million for the nine months ended September 30, 2018,or 0.4%, as compared to the nine months ended September 30, 2017. The changes were2018, primarily due to lower volume in the impact of an accounting change implementedcredit product line, partly offset by higher volume in conjunction with the adoption of ASU No. 2014-09.
Sales
Total segment sales decreased $44.5service contract product line. Other operating expenses increased $1.5 million, or 10.7%1.9%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018, primarily due to higher expenses in the service contract line.
Sales
Total segment sales increased $12.6 million, or 3.4%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. GAP sales decreased $35.7increased $7.8 million due to discontinuing the relationship withas a significantresult of lower cancellations from a discontinued distribution partner. Service contract sales decreased $6.4increased $7.3 million due to lower volume resulting from the impact of previous price increases.higher volume. Credit insurance sales decreased $2.4$2.6 million due to decreasing demand for the product.

Reinsurance
The majority of the Asset Protection segment’s reinsurance activity relates to the cession of single premium credit life and credit accident and health insurance, vehicle service contracts, and guaranteed asset protection insurance to producer affiliated reinsurance companies (“PARCs”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at 100% to limit ourthe segment’s exposure and allow the PARCs to share in the underwriting income of the product. Reinsurance contracts do not relieve usthe Asset Protection segment from our obligations to our policyholders. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies, to ourthe Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
Impact of Reinsurance
Reinsurance impacted the Asset Protection segment line items as shown in the following table:
Asset Protection Segment
Line Item Impact of Reinsurance
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
REVENUES 
      
REVENUES  
Reinsurance ceded$(48,982) $(45,867) $(142,944) $(142,398)Reinsurance ceded$(50,682) $(48,982) $(149,311) $(142,944) 
BENEFITS AND EXPENSES 
  
  
  BENEFITS AND EXPENSES
Benefits and settlement expenses(21,291) (24,290) (63,085) (62,818)Benefits and settlement expenses(24,153) (21,291) (68,791) (63,085) 
Amortization of DAC/VOBA(1,012) (804) (2,977) (2,298)Amortization of DAC/VOBA(1,218) (1,012) (3,344) (2,977) 
Other operating expenses133
 (845) (1,154) (3,126)Other operating expenses(221) 133  (695) (1,154) 
Total benefits and expenses(22,170) (25,939) (67,216) (68,242)Total benefits and expenses(25,592) (22,170) (72,830) (67,216) 
NET IMPACT OF REINSURANCE(1)
$(26,812) $(19,928) $(75,728) $(74,156)
NET IMPACT OF REINSURANCE(1)
$(25,090) $(26,812) $(76,481) $(75,728) 
       
(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Reinsurance premiums ceded increased $3.1$1.7 million, or 6.8%3.5%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The increase was primarily due to an increase in the percentage of ceded service contract and GAP premiums versus retained service contract and GAP premiums over time.
Benefits and settlement expenses ceded decreased $3.0increased $2.9 million, or 12.3%13.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The decreaseincrease was primarily due to lower ceded losses in the GAP product line, as a result of Hurricane Harvey claims incurred in 2017 somewhat offset by higher ceded losses in the service contract product line.
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Amortization of DAC and VOBA ceded increased $0.2 million for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, as the result of changes in ceded activity in allthe service contract and GAP product lines. Other operating expenses ceded decreased $1.0increased $0.4 million for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, as a result of changes in ceded activity in allthe service contract product lines.
Net investment income has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgothe Asset Protection segment forgoes investment income on the assets backing the reserves ceded. Conversely, the assuming companies will receive investment income on the assets backing the reserves assumed which generally will increase the assuming companies’ profitability on business we cede.ceded. The net investment income impact to us and the assuming companies has not been quantified as it is not reflected in ourthe consolidated condensed financial statements.
For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Reinsurance premiums ceded increased $0.5$6.4 million, or 0.4%4.5%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The increase was primarily due to an increase in the percentage of ceded service contract and GAP premiums offset by declines in cededversus retained service contract and GAP and credit premiums over time.
Benefits and settlement expenses ceded increased $0.3$5.7 million, or 0.4%9.0%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The increase was primarily due to higher ceded losses in the service contract product line offset by lower ceded losses in the GAP product line as a result of Hurricane Harvey claims incurred in 2017.line.
Amortization of DAC and VOBA ceded increased $0.7$0.4 million for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, as the result of changes in ceded activity in the service contract and credit product

lines. line. Other operating expenses ceded decreased $2.0$0.5 million for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, as a result of changes in ceded activity in allthe credit product lines.line.
Net investment income has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgothe Asset Protection segment forgoes investment income on the assets backing the reserves ceded. Conversely, the assuming companies will receive investment income on the assets backing the reserves assumed which generally will increase the assuming companies’ profitability on business we cede.ceded. The net investment income impact to us and the assuming companies has not been quantified as it is not reflected in ourthe consolidated condensed financial statementstatements.




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Corporate and Other
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
REVENUES 
      
REVENUES  
Gross premiums and policy fees$3,014
 $3,103
 $9,171
 $9,643
Gross premiums and policy fees$2,793  $3,014  $8,853  $9,171  
Reinsurance ceded(3) 10
 (31) (72)Reinsurance ceded(3) (3) (139) (31) 
Net premiums and policy fees3,011
 3,113
 9,140
 9,571
Net premiums and policy fees2,790  3,011  8,714  9,140  
Net investment income57,719
 51,988
 176,948
 157,482
Net investment income54,026  57,719  175,839  176,948  
Other income733
 480
 2,884
 2,757
Other income30  733  1,277  2,884  
Total operating revenues61,463
 55,581
 188,972
 169,810
Total operating revenues56,846  61,463  185,830  188,972  
Realized gains (losses) - investments(1,667) (2,232) 5,624
 (6,430)
Realized gains (losses) - derivatives(33) 37
 (1,391) (1,338)
Realized investment gains (losses)Realized investment gains (losses)1,289  (1,700) 10,238  4,233  
Total revenues59,763
 53,386
 193,205
 162,042
Total revenues58,135  59,763  196,068  193,205  
BENEFITS AND EXPENSES 
  
  
  
BENEFITS AND EXPENSES    
Benefits and settlement expenses4,452
 4,261
 12,635
 11,074
Benefits and settlement expenses4,229  4,452  12,469  12,635  
Amortization of DAC/VOBA—
 —
 —
 —
Amortization of DAC/VOBA—  —  —  —  
Other operating expenses76,948
 78,190
 234,750
 226,202
Other operating expenses75,281  76,948  236,144  234,750  
Total benefits and expenses81,400
 82,451
 247,385
 237,276
Total benefits and expenses79,510  81,400  248,613  247,385  
INCOME (LOSS) BEFORE INCOME TAX(21,637) (29,065) (54,180) (75,234)INCOME (LOSS) BEFORE INCOME TAX(21,375) (21,637) (52,545) (54,180) 
Less: realized gains (losses) - investments(1,667) (2,232) 5,624
 (6,430)
Less: realized gains (losses) - derivatives(33) 37
 (1,391) (1,338)
Less: realized investment gains (losses)Less: realized investment gains (losses)1,289  (1,700) 10,238  4,233  
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)$(19,937) $(26,870) $(58,413) $(67,466)PRE-TAX ADJUSTED OPERATING INCOME (LOSS)$(22,664) $(19,937) $(62,783) $(58,413) 
For The Three Months Ended September 30, 2018,2019, as compared to The Three Months Ended September 30, 20172018
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $22.7 million for the three months ended September 30, 2019, as compared to a pre-tax adjusted operating loss of $19.9 million for the three months ended September 30, 2018, as compared to a pre-tax adjusted operating loss of $26.9 million for the three months ended September 30, 2017.2018. The decreasedincreased operating loss was primarily due to an increasea decrease in investment income due to highera decrease in invested asset balancesbalance and decreasedincreased interest andexpense, partially offset by a decrease in corporate overhead expenses.
Operating revenues
Net investment income for the segment increased $5.7decreased $3.7 million, or 11.0%6.4%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017.2018. The increasedecrease was primarily due to an increasea decrease in invested asset balances.
Total benefits and expenses
Total benefits and expenses decreased $1.1$1.9 million or 1.3%2.3%, for the three months ended September 30, 2018,2019, as compared to the three months ended September 30, 2017,2018, primarily due to decreasesa decrease in corporate overhead expenses, partially offset by an increase in interest expense and corporate overhead expenses.expense.
For The Nine Months Ended September 30, 2018,2019, as compared to The Nine Months Ended September 30, 20172018
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $62.8 million for the nine months ended September 30, 2019, as compared to a pre-tax adjusted operating loss of $58.4 million for the nine months ended September 30, 2018, as compared to a pre-tax adjusted operating loss of $67.5 million for the nine months ended September 30, 2017.2018. The decreasedincreased operating loss was primarily due to an increasea decrease in investment income due to higherdecreased invested asset balances and increased interest expense, partially offset by an increasea decrease in corporate overhead expenses.

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Operating revenues
Net investment income for the segment increased $19.5decreased $1.1 million, or 12.4%0.6%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017.2018. The increasedecrease was primarily due to an increasedecrease in invested asset balances.
Total benefits and expenses
Total benefits and expenses increased $10.1$1.2 million or 4.3%0.5%, for the nine months ended September 30, 2018,2019, as compared to the nine months ended September 30, 2017,2018, primarily due to increasesan increase in interest expense, andpartially offset by a decrease in corporate overhead expenses.




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CONSOLIDATED INVESTMENTS
As of September 30, 2018,2019, our investment portfolio was approximately $66.6$83.6 billion. The types of assets in which we may invest are influenced by various state insurance laws which prescribe qualified investment assets. Within the parameters of these laws, we invest in assets giving consideration to such factors as liquidity and capital needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.
Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, “trading”, and “held-to-maturity”. We purchase our available-for-sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $49.9$64.1 billion, or 90.7%92.7%, of our fixed maturities as “available-for-sale” as of September 30, 2018.2019. These securities are carried at fair value on our consolidated condensed balance sheets. Changes in fair value for our available-for-sale portfolio, net of tax and the related impact on certain insurance assets and liabilities are recorded directly to shareowner’s equity. Declines in fair value that are other-than-temporary are recorded as realized losses in the consolidated condensed statements of income, net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income (loss).
Trading securities are carried at fair value and changes in fair value are recorded on the income statement as they occur. Our trading portfolio accounted for $2.5 billion, or 4.5%3.7%, of our fixed maturities and $55.9$99.0 million of short-term investments as of September 30, 2018.2019. Changes in fair value on the Modco trading portfolios, including gains and losses from sales, are passed to third party reinsurers through the contractual terms of the related reinsurance arrangements. Partially offsetting these amounts are corresponding changes in the fair value of the embedded derivative associated with the underlying reinsurance arrangement.
Fixed maturities with respect to which we have both the positive intent and ability to hold to maturity are classified as “held-to-maturity”. We classified $2.7$2.5 billion, or 4.8%3.7%, of our fixed maturities as “held-to-maturity” as of September 30, 2018.2019. These securities are carried at amortized cost on our consolidated condensed balance sheets.
Fair values for private, non-traded securities are determined as follows: 1) we obtain estimates from independent pricing services and 2) we estimate fair value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. We analyze the independent pricing services valuation methodologies and related inputs, including an assessment of the observability of market inputs. Upon obtaining this information related to fair value, management makes a determination as to the appropriate valuation amount. For more information about the fair values of our investments please refer to Note 6, Fair Value of Financial Instruments, to the financial statements.
The following table presents the reported values of our invested assets:
As of
As ofSeptember 30, 2019December 31, 2018
September 30, 2018 December 31, 2017 (Dollars In Thousands)
(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2018 - $40,864,922; 2017 - $30,880,196)$39,105,287
 58.7% $30,860,541
 56.5%
Privately issued bonds (amortized cost: 2018 - $16,246,587; 2017 - $12,984,569)15,839,478
 23.8
 12,939,997
 23.7
Preferred stock (amortized cost: 2018 - $97,527; 2017 - $97,690)90,304
 0.1
 94,418
 0.1
Publicly issued bonds (amortized cost: 2019 - $43,598,363; 2018 - $40,496,617)Publicly issued bonds (amortized cost: 2019 - $43,598,363; 2018 - $40,496,617)$45,731,919  54.7 %$38,346,708  58.1 %
Privately issued bonds (amortized cost: 2019 - $22,505,866; 2018 - $16,497,523)Privately issued bonds (amortized cost: 2019 - $22,505,866; 2018 - $16,497,523)23,392,974  28.0  16,097,386  24.3  
Redeemable preferred stocks (amortized cost: 2019 - $99,544; 2018 - $105,639)Redeemable preferred stocks (amortized cost: 2019 - $99,544; 2018 - $105,639)99,757  0.1  94,079  0.1  
Fixed maturities55,035,069
 82.6% 43,894,956
 80.3%Fixed maturities69,224,650  82.8 %54,538,173  82.5 %
Equity securities (cost: 2018 - $663,338; 2017 - $740,813)662,880
 1.0
 754,360
 1.4
Equity securities (cost: 2019 - $604,474; 2018 - $627,087)Equity securities (cost: 2019 - $604,474; 2018 - $627,087)619,341  0.7  595,884  0.9  
Mortgage loans7,572,349
 11.4
 6,817,723
 12.5
Mortgage loans9,327,911  11.2  7,724,733  11.7  
Investment real estate7,147
 —
 8,355
 —
Investment real estate7,274  —  6,816  —  
Policy loans1,703,462
 2.6
 1,615,615
 3.0
Policy loans1,686,832  2.0  1,695,886  2.6  
Other long-term investments1,051,719
 1.6
 915,595
 1.7
Other long-term investments1,149,755  1.4  759,354  1.1  
Short-term investments532,053
 0.8
 615,210
 1.1
Short-term investments1,597,919  1.9  807,283  1.2  
Total investments$66,564,679
 100.0% $54,621,814
 100.0%Total investments$83,613,682  100.0 %$66,128,129  100.0 %
Included in the preceding table are $2.5 billion and $2.7$2.4 billion of fixed maturities and $55.9$99.0 million and $56.3$30.9 million of short-term investments classified as trading securities as of September 30, 20182019 and December 31, 2017,2018, respectively. All of
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the fixed maturities in the trading portfolio are invested assets that are held pursuant to Modco arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above are $2.7 billion and $2.7 billion of securities classified as held-to-maturity as of September 30, 2018 and December 31, 2017, respectively.

Fixed Maturity Investments
As of September 30, 2018,2019, our fixed maturity investment holdings were approximately $55.0$69.2 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows: 
 As of As of
Rating September 30, 2018 December 31, 2017RatingSeptember 30, 2019December 31, 2018
 (Dollars In Thousands)(Dollars In Thousands) 
AAA $6,666,135
 12.1% $5,740,115
 13.1%AAA$8,986,126  13.0 %$6,822,118  12.5 %
AA 6,220,422
 11.3
 3,577,512
 8.2
AA7,864,381  11.4  6,219,579  11.4  
A 17,970,336
 32.6
 13,969,721
 31.8
A23,101,986  33.4  17,694,697  32.4  
BBB 19,677,646
 35.8
 15,752,970
 35.9
BBB25,035,489  36.2  19,455,634  35.7  
Below investment grade 1,846,925
 3.4
 2,135,734
 4.8
Below investment grade1,692,614  2.3  1,712,671  3.2  
Not rated(1)
 2,653,605
 4.8
 2,718,904
 6.2
Not rated(1)
2,544,054  3.7  2,633,474  4.8  
 $55,035,069
 100.0% $43,894,956
 100.0% $69,224,650  100.0 %$54,538,173  100.0 %
        
(1) Our “not rated” securities are $2.7 billion or 4.8% of our fixed maturity investments, of held-to-maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIEs”) and are discussed in Note 5, Investment Operations, to the consolidated condensed financial statements. We are not the primary beneficiary of these entities and thus these securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.
(1) Our “not rated” securities are $2.5 billion or 3.7% of our fixed maturity investments, of held-to-maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIEs”) and are discussed in Note 5, Investment Operations, to the consolidated condensed financial statements. We are not the primary beneficiary of these entities and thus these securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.
(1) Our “not rated” securities are $2.5 billion or 3.7% of our fixed maturity investments, of held-to-maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIEs”) and are discussed in Note 5, Investment Operations, to the consolidated condensed financial statements. We are not the primary beneficiary of these entities and thus these securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.
We use various Nationally Recognized Statistical Rating Organizations’ (“NRSRO”) ratings when classifying securities by quality ratings. When the various NRSRO ratings are not consistent for a security, we use the second-highest convention in assigning the rating. When there are no such published ratings, we assign a rating based on the statutory accounting rating system if such ratings are available.
The distribution of our fixed maturity investments by type is as follows:
 As of
TypeSeptember 30, 2019December 31, 2018
 (Dollars In Thousands)
Corporate securities$49,058,990  70.9 %$37,786,661  69.3 %
Residential mortgage-backed securities5,554,427  8.0  3,853,426  7.1  
Commercial mortgage-backed securities2,953,763  4.3  2,484,009  4.6  
Other asset-backed securities2,036,208  2.9  1,551,800  2.9  
U.S. government-related securities1,210,319  1.7  1,699,299  3.1  
Other government-related securities632,143  0.9  560,171  1.0  
States, municipals, and political subdivisions5,134,989  7.4  3,875,254  7.1  
Redeemable preferred stocks99,757  0.2  94,079  0.1  
Securities issued by affiliates2,544,054  3.7  2,633,474  4.8  
Total fixed income portfolio$69,224,650  100.0 %$54,538,173  100.0 %

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  As of
Type September 30, 2018 December 31, 2017
  (Dollars In Thousands)
Corporate securities $38,591,577
 $31,400,193
Residential mortgage-backed securities 3,669,142
 2,586,906
Commercial mortgage-backed securities 2,398,174
 2,036,626
Other asset-backed securities 1,565,905
 1,387,646
U.S. government-related securities 1,639,060
 1,250,486
Other government-related securities 572,611
 351,207
States, municipals, and political subdivisions 3,854,691
 2,068,570
Redeemable preferred stock 90,304
 94,418
Securities issued by affiliates 2,653,605
 2,718,904
Total fixed income portfolio $55,035,069
 $43,894,956

We periodically update our industry segmentation based on an industry accepted index. Updates to this index can result in a change in segmentation for certain securities between periods.
The industry segment composition of our fixed maturity securities is presented in the following table: 
As of
September 30, 2018		 
% Fair
Value
 As of
December 31, 2017		 
% Fair
Value
As of September 30, 2019% Fair
Value		As of December 31, 2018% Fair
Value
(Dollars In Thousands) (Dollars In Thousands)
Banking$5,291,659
 9.6% $4,301,821
 9.8%Banking$6,367,194  9.2 %$5,260,725  9.6 %
Other finance249,601
 0.5
 60,697
 0.1
Other finance1,014,371  1.4  255,445  0.5  
Electric utility4,595,009
 8.3
 3,977,035
 9.1
Electric utility5,577,656  8.1  4,550,917  8.3  
Energy4,307,435
 7.8
 4,009,926
 9.1
Energy4,984,846  7.2  4,064,340  7.5  
Natural gas793,423
 1.4
 736,626
 1.7
Natural gas1,119,521  1.6  829,685  1.5  
Insurance4,000,538
 7.3
 3,689,572
 8.4
Insurance5,018,869  7.2  3,916,905  7.2  
Communications2,172,038
 3.9
 1,691,391
 3.9
Communications2,678,249  3.9  2,086,592  3.8  
Basic industrial1,876,929
 3.4
 1,629,349
 3.7
Basic industrial2,255,990  3.3  1,744,853  3.2  
Consumer noncyclical5,300,850
 9.6
 3,816,011
 8.7
Consumer noncyclical6,621,199  9.5  5,217,111  9.6  
Consumer cyclical1,827,971
 3.3
 1,232,991
 2.8
Consumer cyclical2,606,047  3.8  1,850,868  3.4  
Finance companies205,512
 0.4
 162,673
 0.4
Finance companies233,352  0.3  192,074  0.4  
Capital goods2,748,746
 5.0
 1,910,950
 4.4
Capital goods3,507,024  5.1  2,711,728  5.0  
Transportation1,681,872
 3.1
 1,210,272
 2.8
Transportation2,133,387  3.1  1,669,627  3.1  
Other industrial380,915
 0.7
 239,368
 0.5
Other industrial662,902  1.0  382,138  0.7  
Brokerage1,004,397
 1.8
 921,295
 2.1
Brokerage1,386,006  2.0  999,554  1.8  
Technology1,973,878
 3.6
 1,756,746
 4.0
Technology2,413,878  3.5  1,908,823  3.5  
Real estate218,351
 0.4
 82,125
 0.2
Real estate539,778  0.8  206,795  0.4  
Other utility52,757
 0.3
 65,763
 0.1
Other utility38,478  0.1  32,560  0.1  
Commercial mortgage-backed securities2,398,174
 4.4
 2,036,626
 4.6
Commercial mortgage-backed securities2,953,763  4.3  2,484,009  4.6  
Other asset-backed securities1,565,905
 2.8
 1,387,646
 3.2
Other asset-backed securities2,036,208  2.9  1,551,800  2.8  
Residential mortgage-backed non-agency securities2,830,950
 5.1
 1,861,883
 4.2
Residential mortgage-backed non-agency securities4,669,181  6.7  3,017,064  5.5  
Residential mortgage-backed agency securities838,192
 1.5
 725,023
 1.7
Residential mortgage-backed agency securities885,246  1.3  836,362  1.5  
U.S. government-related securities1,639,060
 3.0
 1,250,486
 2.8
U.S. government-related securities1,210,319  1.7  1,699,299  3.1  
Other government-related securities572,611
 1.0
 351,207
 0.8
Other government-related securities632,143  0.9  560,171  1.0  
State, municipals, and political divisions3,854,691
 7.0
 2,068,570
 4.7
State, municipals, and political divisions5,134,989  7.4  3,875,254  7.1  
Securities issued by affiliates2,653,605
 4.8
 2,718,904
 6.2
Securities issued by affiliates2,544,054  3.7  2,633,474  4.8  
Total$55,035,069
 100.0% $43,894,956
 100.0%Total$69,224,650  100.0 %$54,538,173  100.0 %
The total Modco trading portfolio fixed maturities by rating is as follows: 
 As of As of
Rating September 30, 2018 December 31, 2017RatingSeptember 30, 2019December 31, 2018
 (Dollars In Thousands)(Dollars In Thousands) 
AAA $291,123
 11.8% $355,719
 13.4%AAA$277,984  11.0 %$301,155  12.5 %
AA 300,647
 12.2
 277,984
 10.4
AA309,844  12.2  299,438  12.4  
A 873,677
 35.3
 911,490
 34.2
A841,025  33.2  798,691  33.1  
BBB 830,729
 33.6
 890,101
 33.4
BBB994,136  39.2  872,613  36.1  
Below investment grade 175,580
 7.1
 228,895
 8.6
Below investment grade113,525  4.4  144,295  5.9  
 $2,471,756
 100.0% $2,664,189
 100.0% $2,536,514  100.0 %$2,416,192  100.0 %
        
A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of September 30, 2018,2019, were approximately $7.6$10.5 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility
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as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Excluding limitations on access

to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates.
The following tables include the percentage of our collateral grouped by rating category and categorizes the estimated fair value by year of security origination for our Prime, Non-Prime, Commercial, and Other asset-backed securities as of September 30, 20182019 and December 31, 2017.2018.
As of September 30, 2019
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
FairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
ValueCostValueCostValueCostValueCostValueCost
(Dollars In Millions)
Rating $
AAA$4,573.4  $4,407.8  $3.4  $3.3  $1,726.5  $1,682.3  $657.3  $650.3  $6,960.6  $6,743.7  
AA2.2  2.1  0.2  0.2  579.1  563.5  258.2  251.6  839.7  817.4  
A887.5  863.8  10.2  10.2  588.5  560.4  940.2  936.4  2,426.4  2,370.8  
BBB8.1  8.0  2.9  2.9  59.7  59.7  142.5  139.6  213.2  210.2  
Below28.2  28.5  38.3  38.3  —  —  38.0  38.5  104.5  105.3  
$5,499.4  $5,310.2  $55.0  $54.9  $2,953.8  $2,865.9  $2,036.2  $2,016.4  $10,544.4  $10,247.4  
Rating %
AAA83.3 %83.0 %6.1 %6.1 %58.5 %58.6 %32.2 %32.3 %66.0 %65.8 %
AA—  —  0.4  0.4  19.6  19.7  12.7  12.5  8.0  8.0  
A16.1  16.3  18.6  18.6  19.9  19.6  46.2  46.4  23.0  23.1  
BBB0.1  0.2  5.2  5.2  2.0  2.1  7.0  6.9  2.0  2.1  
Below0.5  0.5  69.7  69.7  —  —  1.9  1.9  1.0  1.0  
100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Estimated Fair Value of Security by Year of Security Origination
2015 and prior$1,778.0  $1,727.3  $51.7  $51.6  $1,914.4  $1,867.0  $1,129.4  $1,110.9  $4,873.5  $4,756.8  
2016378.2  360.4  —  —  527.5  514.0  152.8  153.1  1,058.5  1,027.5  
2017873.5  836.9  3.3  3.3  260.7  252.5  487.4  485.4  1,624.9  1,578.1  
20181,439.7  1,372.9  —  —  149.3  140.0  192.4  193.0  1,781.4  1,705.9  
20191,030.0  1,012.7  —  —  101.9  92.4  74.2  74.0  1,206.1  1,179.1  
Total$5,499.4  $5,310.2  $55.0  $54.9  $2,953.8  $2,865.9  $2,036.2  $2,016.4  $10,544.4  $10,247.4  
(1) Included in Residential Mortgage-Backed securities.

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  As of September 30, 2018
  
Prime(1)
 
Non-Prime(1)
 Commercial Other asset-backed Total
  Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized
  Value Cost Value Cost Value Cost Value Cost Value Cost
  (Dollars In Millions)
Rating $                    
AAA $2,699.2
 $2,775.2
 $—
 $—
 $1,363.5
 $1,407.6
 $611.6
 $610.8
 $4,674.3
 $4,793.6
AA 1.9
 1.9
 —
 —
 537.3
 563.4
 197.3
 196.3
 736.5
 761.6
A 840.4
 864.6
 14.9
 14.9
 494.8
 506.5
 649.8
 653.8
 1,999.9
 2,039.8
BBB 3.2
 3.2
 1.2
 1.2
 2.6
 2.6
 63.9
 64.4
 70.9
 71.4
Below 25.2
 25.2
 83.1
 83.1
 —
 —
 43.3
 43.2
 151.6
 151.5
  $3,569.9
 $3,670.1
 $99.2
 $99.2
 $2,398.2
 $2,480.1
 $1,565.9
 $1,568.5
 $7,633.2
 $7,817.9
                     
Rating %                    
AAA 75.6% 75.5% —% —% 56.9% 56.8% 39.0% 38.9% 61.3% 61.4%
AA 0.1
 0.1
 —
 —
 22.4
 22.7
 12.6
 12.5
 9.6
 9.7
A 23.5
 23.6
 15.0
 15.0
 20.6
 20.4
 41.5
 41.7
 26.2
 26.1
BBB 0.1
 0.1
 1.2
 1.2
 0.1
 0.1
 4.1
 4.1
 0.9
 0.9
Below 0.7
 0.7
 83.8
 83.8
 —
 —
 2.8
 2.8
 2.0
 1.9
  100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
                     
Estimated Fair Value of Security by Year of Security Origination
2014 and prior $1,122.3
 $1,147.1
 $99.2
 $99.2
 $1,509.9
 $1,555.2
 $815.7
 $813.7
 $3,547.1
 $3,615.2
2015 576.9
 591.4
 —
 —
 283.2
 291.1
 61.3
 61.4
 921.4
 943.9
2016 289.5
 303.7
 —
 —
 434.7
 458.5
 229.1
 230.5
 953.3
 992.7
2017 659.8
 691.4
 —
 —
 97.7
 102.3
 387.9
 390.7
 1,145.4
 1,184.4
2018 921.4
 936.5
 —
 —
 72.7
 73.0
 71.9
 72.2
 1,066.0
 1,081.7
Total $3,569.9
 $3,670.1
 $99.2
 $99.2
 $2,398.2
 $2,480.1
 $1,565.9
 $1,568.5
 $7,633.2
 $7,817.9
                     
(1) Included in Residential Mortgage-Backed securities.

 As of December 31, 2017As of December 31, 2018
 
Prime(1)
 
Non-Prime(1)
 Commercial Other asset-backed Total
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
 Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair AmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
 Value Cost Value Cost Value Cost Value Cost Value CostValueCostValueCostValueCostValueCostValueCost
 (Dollars In Millions)(Dollars In Millions)
Rating $                    Rating $
AAA $2,264.2
 $2,268.0
 $—
 $—
 $1,258.2
 $1,271.1
 $591.5
 $590.5
 $4,113.9
 $4,129.6
AAA$2,900.5  $2,930.7  $—  $—  $1,398.8  $1,427.2  $533.3  $536.3  $4,832.6  $4,894.2  
AA 1.4
 1.4
 —
 —
 522.9
 533.6
 158.5
 150.1
 682.8
 685.1
AA2.9  2.9  0.2  0.2  543.1  562.7  209.8  207.2  756.0  773.0  
A 1.1
 1.1
 15.9
 15.9
 252.2
 253.9
 512.9
 508.6
 782.1
 779.5
A837.9  846.6  19.0  19.0  503.5  509.9  671.1  687.5  2,031.5  2,063.0  
BBB 1.5
 1.5
 1.5
 1.5
 3.3
 3.3
 50.2
 49.6
 56.5
 55.9
BBB3.7  3.7  3.1  3.1  38.6  38.5  99.5  100.4  144.9  145.7  
Below 92.5
 92.1
 208.8
 209.0
 —
 —
 74.5
 73.7
 375.8
 374.8
Below22.4  22.4  63.7  63.7  —  —  38.1  38.6  124.2  124.7  
 $2,360.7
 $2,364.1
 $226.2
 $226.4
 $2,036.6
 $2,061.9
 $1,387.6
 $1,372.5
 $6,011.1
 $6,024.9
$3,767.4  $3,806.3  $86.0  $86.0  $2,484.0  $2,538.3  $1,551.8  $1,570.0  $7,889.2  $8,000.6  
                    
Rating %                    Rating %
AAA 95.9% 95.9% —% —% 61.7% 61.6% 42.6% 43.0% 68.4% 68.5%AAA77.0 %77.0 %— %— %56.2 %56.2 %34.4 %34.1 %61.3 %61.1 %
AA 0.1
 0.1
 —
 —
 25.7
 25.9
 11.4
 10.9
 11.4
 11.4
AA0.1  0.1  0.3  0.3  21.9  22.2  13.5  13.2  9.6  9.7  
A —
 —
 7.0
 7.0
 12.4
 12.3
 37.0
 37.1
 13.0
 12.9
A22.2  22.2  22.1  22.1  20.3  20.1  43.2  43.8  25.7  25.8  
BBB 0.1
 0.1
 0.6
 0.6
 0.2
 0.2
 3.6
 3.6
 0.9
 0.9
BBB0.1  0.1  3.6  3.6  1.6  1.5  6.4  6.4  1.8  1.8  
Below 3.9
 3.9
 92.4
 92.4
 —
 —
 5.4
 5.4
 6.3
 6.3
Below0.6  0.6  74.0  74.0  —  —  2.5  2.5  1.6  1.6  
 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
                    
Estimated Fair Value of Security by Year of Security OriginationEstimated Fair Value of Security by Year of Security OriginationEstimated Fair Value of Security by Year of Security Origination
2013 and prior $897.4
 $898.8
 $226.2
 $226.4
 $1,025.2
 $1,039.4
 $761.2
 $752.4
 $2,910.0
 $2,917.0
2014 203.8
 202.8
 —
 —
 239.0
 243.8
 31.2
 31.6
 474.0
 478.2
2014 and prior2014 and prior$1,114.3  $1,121.7  $86.0  $86.0  $1,510.6  $1,538.9  $729.0  $730.7  $3,439.9  $3,477.3  
2015 456.4
 458.4
 —
 —
 213.7
 211.9
 29.4
 28.7
 699.5
 699.0
2015579.1  586.5  —  —  298.7  303.1  64.4  66.2  942.2  955.8  
2016 237.0
 240.0
 —
 —
 456.2
 463.8
 232.9
 230.3
 926.1
 934.1
2016340.6  348.2  —  —  441.0  460.1  227.5  230.0  1,009.1  1,038.3  
2017 566.1
 564.1
 —
 —
 102.5
 103.0
 332.9
 329.5
 1,001.5
 996.6
2017666.6  689.1  —  —  123.0  126.4  406.1  415.5  1,195.7  1,231.0  
201820181,066.8  1,060.8  —  —  110.7  109.8  124.8  127.6  1,302.3  1,298.2  
Total $2,360.7
 $2,364.1
 $226.2
 $226.4
 $2,036.6
 $2,061.9
 $1,387.6
 $1,372.5
 $6,011.1
 $6,024.9
Total$3,767.4  $3,806.3  $86.0  $86.0  $2,484.0  $2,538.3  $1,551.8  $1,570.0  $7,889.2  $8,000.6  
                    
(1) Included in Residential Mortgage-Backed securities(1) Included in Residential Mortgage-Backed securities(1) Included in Residential Mortgage-Backed securities
The majority of our RMBS holdings as of September 30, 2018,2019, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 13.775.8 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of September 30, 2018: 
2019: 
Weighted-Average
Non-agency portfolioLife
Prime13.825.84 
Alt-A4.313.99 
Sub-prime3.174.04 

Mortgage Loans
We invest a portion of our investment portfolio in commercial mortgage loans. As of September 30, 2018,2019, our mortgage loan holdings were approximately $7.6$9.3 billion. We have specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. Our underwriting procedures relative to our commercial loan portfolio are based, in our view, on a conservative and disciplined approach. We concentrate on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). We believe that these asset types tend to weather economic downturns better than other commercial asset classes in which we have chosen not to participate. We believe this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout our history. The majority of our mortgage loans portfolio was underwritten and funded by us. From time to time, we may acquire loans in conjunction with an acquisition.
Our commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances.an allowance for loan losses. Interest income is accrued on the principal amount of the loan based on the
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loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income.

Certain of the mortgage loans have call options that occur within the next 1110 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing mortgage loans commensurate with the significantly increased market rates. As of September 30, 2018,2019, assuming the loans are called at their next call dates, approximately $80.7$54.4 million of principal would become due for the remainder of 2018, $933.42019, $850.9 million in 20192020 through 2023, $91.82024, and $59.4 million in 20242025 through 2028, and $1.9 million thereafter.2029.
We offer a type of commercial mortgage loan under which we will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of September 30, 20182019 and December 31, 2017,2018, approximately $757.0$757.4 million and $669.3$700.6 million, respectively, of our total mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and nine months ended September 30, 20182019 and 2017,2018, we recognized $3.8 million and $18.0 million and $9.5 million $22.0 million, $14.2 million, and $25.7$22.0 million, respectively, of participating mortgage loan income.

The following table includes a breakdown of our commercial mortgage loan portfolio:
Commercial Mortgage Loan Portfolio Profile
As of September 30, 2019As of December 31, 2018
(Dollars In Thousands)
Total number of loans1,884  1,732  
Total amortized cost9,327,911  7,724,733  
Total unpaid principal balance9,207,880  7,602,389  
Current allowance for loan losses(4,056) (1,296) 
Average loan size4,993  4,389  
Weighted-average amortization20.5 years22.5 years
Weighted-average coupon4.50 %4.60 %
Weighted-average LTV53.73 %55.39 %
Weighted-average debt coverage ratio1.55  1.55  

We record mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that have indicators of potential impairment based on current information and events. As of September 30, 2019 and December 31, 2018, there was an allowancewere allowances for mortgage loan credit losslosses of $1.5$4.1 million and as of December 31, 2017, there was no allowance for mortgage loan credit losses. $1.3 million, respectively.
While our mortgage loans do not have quoted market values, as of September 30, 2018,2019, we estimated the fair value of our mortgage loans to be $7.3$9.5 billion (using an internal fair value model which calculates the value of most loans by using the loan’s discounted cash flows to the loan’s call or maturity date), which was approximately 3.13% less2.2% more than the amortized cost, less any related loan loss reserve.
At the time of origination, our mortgage lending criteria targets that the loan-to-value ratio on each mortgage is 75% or less. We target projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) of 70% of the property’s projected operating expenses and debt service.
As of September 30, 2018, $3.02019, $3.2 million of the Company’sour invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. For all mortgage loans, the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for mortgage loan credit losses. During the nine months ended September 30, 2018, we recognized one troubled debt restructuring as a result of granting a concession to a borrower which included loan terms unavailable from other lenders. This concession was the result of an agreement between the creditor and the debtor, and we did not identify any loans whose principal was permanently impaired.
Our mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of September 30, 2018, the Company held $3.0 million of mortgage loans not subject to a pooling and servicing agreement that were nonperforming mortgage loans, restructured, or mortgage loans that were foreclosed and were converted to real estate properties. We did not foreclose on any nonperforming loans not subject to a pooling and servicing agreement during the nine months ended September 30, 2018.
As of September 30, 2018, none of the loans subject to a pooling and servicing agreement were nonperforming or restructured. We did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the nine months ended September 30, 2018.
We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities. During the nine months ended September 30, 2019, we recognized four troubled debt restructurings as a result of granting concession to borrowers which included loan terms unavailable from other lenders. During the three and nine months ended September 30, 2019, we did not recognize any mortgage loans that were foreclosed and were converted to real estate properties. We did not identify any loans whose principal was permanently impaired during the three and nine months ended September 30, 2019.
It is our policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status
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Table of delinquency or categorization of those in nonperforming status.Contents
Unrealized Gains and Losses — Available-for-Sale Securities
The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after September 30, 2018,2019, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized lossgain of $2.2$3.0 billion, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of September 30, 2018,2019, and an overall net unrealized gainloss of $36.0 million$2.6 billion as of December 31, 2017.

2018.
For fixed maturity securities held that are in an unrealized loss position as of September 30, 2018,2019, the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below: 
Fair
Value
 
% Fair
Value
 
Amortized
Cost
 
% Amortized
Cost
 
Unrealized
Loss
 
% Unrealized
Loss
Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		Unrealized
Loss		% Unrealized
Loss
(Dollars In Thousands) (Dollars In Thousands)
<= 90 days$12,288,063
 28.5% $12,492,886
 27.5% $(204,823) 8.6%<= 90 days$3,113,367  38.4 %$3,152,113  37.3 %$(38,746) 11.0 %
>90 days but <= 180 days4,452,728
 10.3
 4,599,552
 10.1
 (146,824) 6.2
>90 days but <= 180 days86,218  1.1  94,589  1.1  (8,371) 2.4  
>180 days but <= 270 days8,210,371
 19.1
 8,646,353
 19.0
 (435,982) 18.4
>180 days but <= 270 days150,610  1.9  153,092  1.8  (2,482) 0.7  
>270 days but <= 1 year4,919,900
 11.4
 5,123,821
 11.3
 (203,921) 8.6
>270 days but <= 1 year150,419  1.9  156,005  1.9  (5,586) 1.6  
>1 year but <= 2 years5,810,729
 13.5
 6,251,848
 13.7
 (441,119) 18.6
>1 year but <= 2 years1,341,898  16.6  1,407,736  16.7  (65,838) 18.7  
>2 years but <= 3 years658,072
 1.5
 731,385
 1.6
 (73,313) 3.1
>2 years but <= 3 years1,063,531  13.2  1,087,960  12.9  (24,429) 6.9  
>3 years but <= 4 years6,758,086
 15.7
 7,622,815
 16.8
 (864,729) 36.5
>3 years but <= 4 years184,150  2.3  191,172  2.3  (7,022) 2.0  
>4 years but <= 5 years—
 —
 —
 —
 —
 —
>4 years but <= 5 years1,988,434  24.6  2,187,709  26.0  (199,275) 56.7  
>5 years—
 —
 —
 —
 —
 —
>5 years—  —  —  —  —  —  
Total$43,097,949
 100.0% $45,468,660
 100.0% $(2,370,711) 100.0%Total$8,078,627  100.0 %$8,430,376  100.0 %$(351,749) 100.0 %
The range of maturity dates for securities in an unrealized loss position as of September 30, 2018,2019, varies, with 20.6%23.6% maturing in less than 5 years, 18.4%8.5% maturing between 5 and 10 years, and 61.0%67.9% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of September 30, 2018:2019:
S&P or EquivalentFair% FairAmortized% AmortizedUnrealized% Unrealized
DesignationValueValueCostCostLossLoss
 (Dollars In Thousands)
AAA/AA/A$4,125,082  51.1 %$4,186,676  49.7 %$(61,594) 17.5 %
BBB3,287,442  40.7  3,441,457  40.8  (154,015) 43.8  
Investment grade7,412,524  91.8 %7,628,133  90.5 %(215,609) 61.3 %
BB420,477  5.2  468,848  5.6  (48,371) 13.8  
B121,732  1.5  146,297  1.7  (24,565) 7.0  
CCC or lower123,894  1.5  187,098  2.2  (63,204) 17.9  
Below investment grade666,103  8.2 %802,243  9.5 %(136,140) 38.7 %
Total$8,078,627  100.0 %$8,430,376  100.0 %$(351,749) 100.0 %
S&P or Equivalent Fair % Fair Amortized % Amortized Unrealized % Unrealized
Designation Value Value Cost Cost Loss Loss
  (Dollars In Thousands)
AAA/AA/A $26,377,955
 61.2% $27,634,843
 60.8% $(1,256,888) 53.0%
BBB 15,795,450
 36.7
 16,812,397
 37.0
 (1,016,947) 42.9
Investment grade 42,173,405
 97.9% 44,447,240
 97.8% (2,273,835) 95.9%
BB 606,890
 1.4
 658,511
 1.4
 (51,621) 2.1
B 192,470
 0.4
 222,174
 0.5
 (29,704) 1.3
CCC or lower 125,184
 0.3
 140,735
 0.3
 (15,551) 0.7
Below investment grade 924,544
 2.1% 1,021,420
 2.2% (96,876) 4.1%
Total $43,097,949
 100.0% $45,468,660
 100.0% $(2,370,711) 100.0%

As of September 30, 2018,2019, the Barclays Investment Grade Index was priced at 101.8111.4 bps versus a 10 year average of 164.9136.1 bps. Similarly, the Barclays High Yield Index was priced at 333.5401.6 bps versus a 10 year average of 620.7523.8 bps. As of September 30, 2018,2019, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 3.0%1.5%, 3.1%1.7%, and 3.2%2.1%, as compared to 10 year averages of 1.6%1.7%, 2.5%2.4%, and 3.3%3.2%, respectively.
As of September 30, 2018, 95.9%2019, 61.3% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will
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continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.
Expectations that investments in mortgage-backed and asset-backed securities will continue to perform in accordance with their contractual terms are based on assumptions that a market participant would use in determining the current fair value. It is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations and that such an event may lead to adverse changes in the cash flows on our holdings of these types of securities. This could lead to potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. Expectations that our investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities. It is also possible that such unanticipated events would lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.


As of September 30, 2018, there were estimated gross unrealized losses of $0.3 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of September 30, 2018, were primarily the result of continued widening spreads, representing marketplace

uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.
As of September 30, 2018,2019, we held a total of 4,367809 positions that were in an unrealized loss position. Included in that amount were 16071 positions of below investment grade securities with a fair value of $924.5$666.1 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $96.9$136.1 million, $75.1$126.9 million of which had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 1.4%0.8% of invested assets.
As of September 30, 2018,2019, securities in an unrealized loss position that were rated as below investment grade represented 2.1%8.2% of the total fair value and 4.1%38.7% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in marketfair value to be temporary.
The following table includes the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of September 30, 2018:2019:
Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		Unrealized
Loss		% Unrealized
Loss
 (Dollars In Thousands)
<= 90 days$46,557  7.0 %$48,436  6.0 %$(1,879) 1.4 %
>90 days but <= 180 days37,301  5.6  42,387  5.3  (5,086) 3.7  
>180 days but <= 270 days10,188  1.5  10,998  1.4  (810) 0.6  
>270 days but <= 1 year14,987  2.2  16,431  2.0  (1,444) 1.1  
>1 year but <= 2 years180,482  27.1  197,996  24.7  (17,514) 12.9  
>2 years but <= 3 years43,716  6.6  52,278  6.5  (8,562) 6.3  
>3 years but <= 4 years15,810  2.4  17,647  2.2  (1,837) 1.3  
>4 years but <= 5 years317,062  47.6  416,070  51.9  (99,008) 72.7  
>5 years—  —  —  —  —  —  
Total$666,103  100.0 %$802,243  100.0 %$(136,140) 100.0 %

105
  
Fair
Value
 
% Fair
Value
 
Amortized
Cost
 
% Amortized
Cost
 
Unrealized
Loss
 
% Unrealized
Loss
  (Dollars In Thousands)
<= 90 days $78,161
 8.5% $79,783
 7.8% $(1,622) 1.7%
>90 days but <= 180 days 159,432
 17.2
 163,588
 16.0
 (4,156) 4.3
>180 days but <= 270 days 108,841
 11.8
 113,244
 11.1
 (4,403) 4.5
>270 days but <= 1 year 144,924
 15.7
 156,557
 15.3
 (11,633) 12.0
>1 year but <= 2 years 47,378
 5.1
 55,129
 5.4
 (7,751) 8.0
>2 years but <= 3 years 22,560
 2.4
 25,626
 2.5
 (3,066) 3.2
>3 years but <= 4 years 363,248
 39.3
 427,493
 41.9
 (64,245) 66.3
>4 years but <= 5 years —
 —
 —
 —
 —
 —
>5 years —
 —
 —
 —
 —
 —
Total $924,544
 100.0% $1,021,420
 100.0% $(96,876) 100.0%
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We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of September 30, 2018,2019, is presented in the following table:
Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		Unrealized
Loss		% Unrealized
Loss
 (Dollars In Thousands)
Banking$441,628  5.5 %$450,063  5.3 %$(8,435) 2.4 %
Other finance124,722  1.5  131,207  1.6  (6,485) 1.8  
Electric utility1,226,992  15.2  1,266,249  15.0  (39,257) 11.2  
Energy693,745  8.6  801,240  9.5  (107,495) 30.6  
Natural gas237,904  2.9  240,105  2.8  (2,201) 0.6  
Insurance412,806  5.1  434,596  5.2  (21,790) 6.2  
Communications391,811  4.8  411,951  4.9  (20,140) 5.7  
Basic industrial308,809  3.8  320,299  3.8  (11,490) 3.3  
Consumer noncyclical814,457  10.1  880,139  10.4  (65,682) 18.7  
Consumer cyclical373,102  4.6  392,315  4.7  (19,213) 5.5  
Finance companies1,806  —  2,420  —  (614) 0.2  
Capital goods193,618  2.4  199,050  2.4  (5,432) 1.5  
Transportation231,110  2.9  238,130  2.8  (7,020) 2.0  
Other industrial33,968  0.4  34,582  0.4  (614) 0.2  
Brokerage114,507  1.4  117,617  1.4  (3,110) 0.9  
Technology172,576  2.1  181,112  2.1  (8,536) 2.4  
Real estate—  —  —  —  —  —  
Other utility12,300  0.4  12,579  0.2  (279) —  
Commercial mortgage-backed securities185,055  2.3  186,174  2.2  (1,119) 0.3  
Other asset-backed securities616,293  7.6  629,310  7.5  (13,017) 3.7  
Residential mortgage-backed non-agency securities653,124  8.1  657,081  7.8  (3,957) 1.1  
Residential mortgage-backed agency securities119,958  1.5  121,025  1.4  (1,067) 0.3  
U.S. government-related securities600,593  7.4  603,162  7.2  (2,569) 0.7  
Other government-related securities67,436  0.8  69,066  0.8  (1,630) 0.5  
States, municipals, and political divisions50,307  0.6  50,904  0.6  (597) 0.2  
Total$8,078,627  100.0 %$8,430,376  100.0 %$(351,749) 100.0 %
106
 
Fair
Value
 
% Fair
Value
 
Amortized
Cost
 
% Amortized
Cost
 
Unrealized
Loss
 
% Unrealized
Loss
 (Dollars In Thousands)
Banking$4,288,394
 10.0% $4,441,327
 9.8% $(152,933) 6.5%
Other finance188,468
 0.4
 194,528
 0.4
 (6,060) 0.3
Electric utility4,231,718
 9.8
 4,589,511
 10.1
 (357,793) 14.9
Energy2,944,126
 6.8
 3,100,929
 6.8
 (156,803) 6.6
Natural gas752,141
 1.7
 815,649
 1.8
 (63,508) 2.7
Insurance3,406,174
 7.9
 3,642,084
 8.0
 (235,910) 10.0
Communications1,818,946
 4.2
 1,976,716
 4.3
 (157,770) 6.7
Basic industrial1,411,472
 3.3
 1,495,431
 3.3
 (83,959) 3.5
Consumer noncyclical4,468,834
 10.4
 4,762,867
 10.5
 (294,033) 12.4
Consumer cyclical1,473,057
 3.4
 1,555,738
 3.4
 (82,681) 3.5
Finance companies110,197
 0.3
 115,677
 0.3
 (5,480) 0.2
Capital goods2,467,027
 5.7
 2,594,789
 5.7
 (127,762) 5.4
Transportation1,541,111
 3.6
 1,623,942
 3.6
 (82,831) 3.5
Other industrial335,588
 0.8
 353,691
 0.8
 (18,103) 0.8
Brokerage767,963
 1.8
 805,167
 1.8
 (37,204) 1.6
Technology1,297,704
 3.0
 1,362,698
 3.0
 (64,994) 2.7
Real estate131,481
 0.3
 133,696
 0.3
 (2,215) 0.1
Other utility52,760
 0.1
 54,615
 —
 (1,855) —
Commercial mortgage-backed securities2,199,956
 5.1
 2,282,019
 5.0
 (82,063) 3.5
Other asset-backed securities771,803
 1.8
 788,185
 1.7
 (16,382) 0.7
Residential mortgage-backed non-agency securities2,504,841
 5.8
 2,585,397
 5.7
 (80,556) 3.4
Residential mortgage-backed agency securities734,473
 1.7
 759,867
 1.7
 (25,394) 1.1
U.S. government-related securities1,564,389
 3.6
 1,637,196
 3.6
 (72,807) 3.1
Other government-related securities367,991
 0.9
 389,679
 0.9
 (21,688) 0.9
States, municipals, and political divisions3,267,335
 7.6
 3,407,262
 7.5
 (139,927) 5.9
Total$43,097,949
 100.0% $45,468,660
 100.0% $(2,370,711) 100.0%
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We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2017,2018, is presented in the following table:
 Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		Unrealized
Loss		% Unrealized
Loss
 (Dollars In Thousands)
Banking$4,446,658  10.9 %$4,653,309  10.8 %$(206,651) 7.5 %
Other finance106,041  0.3  111,260  0.3  (5,219) 0.2  
Electric utility4,070,115  10.2  4,426,609  10.4  (356,494) 13.0  
Energy3,380,552  8.5  3,679,048  8.6  (298,496) 10.9  
Natural gas723,330  1.8  782,418  1.8  (59,088) 2.1  
Insurance3,420,321  8.6  3,699,793  8.7  (279,472) 10.2  
Communications1,834,029  4.6  2,030,590  4.8  (196,561) 7.1  
Basic industrial1,393,953  3.5  1,509,059  3.5  (115,106) 4.2  
Consumer noncyclical4,256,258  10.7  4,629,877  10.8  (373,619) 13.6  
Consumer cyclical1,391,705  3.5  1,496,425  3.5  (104,720) 3.8  
Finance companies143,679  0.4  154,974  0.4  (11,295) 0.4  
Capital goods2,258,807  5.7  2,406,722  5.6  (147,915) 5.4  
Transportation1,394,137  3.5  1,489,670  3.5  (95,533) 3.5  
Other industrial191,055  0.5  203,221  0.5  (12,166) 0.4  
Brokerage807,667  2.0  848,231  2.0  (40,564) 1.5  
Technology1,359,020  3.4  1,449,903  3.4  (90,883) 3.3  
Real estate73,098  0.2  74,323  0.2  (1,225) —  
Other utility18,442  —  20,047  —  (1,605) —  
Commercial mortgage-backed securities1,851,821  4.6  1,909,922  4.5  (58,101) 2.1  
Other asset-backed securities836,141  2.1  871,539  2.0  (35,398) 1.3  
Residential mortgage-backed non-agency securities1,749,478  4.4  1,798,817  4.2  (49,339) 1.8  
Residential mortgage-backed agency securities539,896  1.4  552,753  1.3  (12,857) 0.5  
U.S. government-related securities1,215,944  3.0  1,261,666  3.0  (45,722) 1.7  
Other government-related securities357,770  0.9  391,620  0.9  (33,850) 1.2  
States, municipals, and political divisions2,133,413  5.3  2,252,315  5.3  (118,902) 4.3  
Total$39,953,330  100.0 %$42,704,111  100.0 %$(2,750,781) 100.0 %

 
Fair
Value
 
% Fair
Value
 
Amortized
Cost
 
% Amortized
Cost
 
Unrealized
Loss
 
% Unrealized
Loss
 (Dollars In Thousands)
Banking$1,733,309
 8.0% $1,758,549
 7.9% $(25,240) 3.7%
Other finance54,454
 0.3
 58,198
 0.3
 (3,744) 0.5
Electric utility3,111,719
 14.3
 3,242,952
 14.5
 (131,233) 19.2
Energy1,397,312
 6.4
 1,458,690
 6.5
 (61,378) 9.0
Natural gas604,431
 2.8
 624,203
 2.8
 (19,772) 2.9
Insurance1,697,233
 7.8
 1,743,140
 7.8
 (45,907) 6.7
Communications1,238,082
 5.7
 1,303,264
 5.8
 (65,182) 9.6
Basic industrial581,249
 2.7
 603,248
 2.7
 (21,999) 3.2
Consumer noncyclical2,016,112
 9.3
 2,077,552
 9.3
 (61,440) 9.0
Consumer cyclical630,915
 2.9
 651,415
 2.9
 (20,500) 3.0
Finance companies39,710
 0.2
 40,581
 0.2
 (871) 0.1
Capital goods1,121,919
 5.2
 1,146,545
 5.1
 (24,626) 3.6
Transportation791,776
 3.6
 812,358
 3.6
 (20,582) 3.0
Other industrial174,797
 0.8
 185,701
 0.8
 (10,904) 1.6
Brokerage380,331
 1.8
 384,860
 1.7
 (4,529) 0.7
Technology576,855
 2.7
 598,112
 2.7
 (21,257) 3.1
Real estate43,096
 0.2
 43,610
 0.2
 (514) 0.1
Other utility46,731
 0.1
 47,514
 0.2
 (783) 0.3
Commercial mortgage-backed securities1,553,928
 7.2
 1,584,114
 7.1
 (30,186) 4.4
Other asset-backed securities220,822
 1.0
 226,586
 1.0
 (5,764) 0.8
Residential mortgage-backed non-agency securities822,794
 3.8
 838,846
 3.7
 (16,052) 2.4
Residential mortgage-backed agency securities360,025
 1.7
 367,006
 1.6
 (6,981) 1.0
U.S. government-related securities1,166,342
 5.4
 1,198,519
 5.4
 (32,177) 4.7
Other government-related securities140,124
 0.6
 145,071
 0.6
 (4,947) 0.7
States, municipals, and political divisions1,198,015
 5.5
 1,243,628
 5.6
 (45,613) 6.7
Total$21,702,081
 100.0% $22,384,262
 100.0% $(682,181) 100.0%
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Risk Management and Impairment Review
We monitor the overall credit quality of our portfolio within established guidelines. The following table includes our available-for-sale fixed maturities by credit rating as of September 30, 2018:2019: 
   Percent of  Percent of
Rating Fair Value Fair ValueRatingFair ValueFair Value
 (Dollars In Thousands)   (Dollars In Thousands) 
AAA $6,375,012
 12.8%AAA$8,708,142  13.6 %
AA 5,919,775
 11.9
AA7,554,537  11.8  
A 17,096,659
 34.3
A22,260,961  34.7  
BBB 18,846,917
 37.7
BBB24,041,353  37.5  
Investment grade 48,238,363
 96.7
Investment grade62,564,993  97.6  
BB 1,202,041
 2.4
BB1,106,483  1.7  
B 283,471
 0.6
B210,287  0.3  
CCC or lower 185,833
 0.3
CCC or lower262,319  0.4  
Below investment grade 1,671,345
 3.3
Below investment grade1,579,089  2.4  
Total $49,909,708
 100.0%Total$64,144,082  100.0 %
Not included in the table above are $2.3$2.4 billion of investment grade and $175.6$113.5 million of below investment grade fixed maturities classified as trading securities and $2.7$2.5 billion of fixed maturities classified as held-to-maturity.
Limiting bond exposure to any creditor group is another way we manage credit risk. We held no credit default swaps on the positions listed below as of September 30, 2018.2019. The following table summarizes our ten largest fixed maturity exposures to an individual creditor group as of September 30, 2018:2019: 
  Fair Value of  
  Funded Unfunded Total
Creditor Securities Exposures Fair Value
  (Dollars In Millions)
AT&T Inc. $325.5
 $—
 $325.5
Federal Home Loan Bank 320.2
 —
 320.2
Wells Fargo & Co. 258.3
 0.7
 259.0
Berkshire Hathaway 254.4
 —
 254.4
Duke Energy Corp. 245.4
 —
 245.4
Morgan Stanley 236.3
 —
 236.3
Goldman Sachs Group Inc. 226.7
 —
 226.7
Bank of America Corp. 224.6
 1.7
 226.3
JPMorgan Chase & Co. 217.2
 7.7
 224.9
Exelon Corp. 223.0
 —
 223.0
Total $2,531.6
 $10.1
 $2,541.7
 Fair Value of 
 FundedUnfundedTotal
CreditorSecuritiesExposuresFair Value
 (Dollars In Millions)
Berkshire Hathaway Inc$295.1  $—  $295.1  
Duke Energy Corp281.2  —  281.2  
UnitedHealth Group Inc276.3  —  276.3  
Comcast Corp265.9  —  265.9  
Apple Inc260.3  —  260.3  
Exelon Corp259.5  —  259.5  
Microsoft Corp257.5  —  257.5  
Verizon Communications Inc252.1  —  252.1  
HSBC Holdings PLC251.1  0.5  251.6  
JPMorgan Chase & Co248.5  0.6  249.1  
Total$2,647.5  $1.1  $2,648.6  
Determining whether a decline in the current fair value of invested assets is an other-than-temporary decline in value is both objective and subjective, and can involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets. We review our positions on a monthly basis for possible credit concerns and review our current exposure, credit enhancement, and delinquency experience.
Management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Since it is possible for the impairment of one investment to affect other investments, we engage in ongoing risk management to safeguard against and limit any further risk to our investment portfolio. Special attention is given to correlative risks within specific industries, related parties, and business markets.
For certain securitized financial assets with contractual cash flows, including RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”), GAAP requires us to periodically update our best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last revised estimate,
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considering both timing and amount, an other-than-temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon

new information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.
Securities in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of our intent to sell the security (including a more likely than not assessment of whether we will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, along with an analysis regarding our expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the nine months ended September 30, 2018,2019, we recognized approximately $3.7$14.7 million of credit related impairments on investment securities in an unrealized loss position that were other-than-temporarily impaired resulting in a charge to earnings.
There are certain risks and uncertainties associated with determining whether declines in fair values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud, and legislative actions. We continuously monitor these factors as they relate to the investment portfolio in determining the status of each investment.
We have deposits with certain financial institutions which exceed federally insured limits. We have reviewed the creditworthiness of these financial institutions and believe that there is minimal risk of a material loss.
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Certain European countries have experienced varying degrees of financial stress, which could have a detrimental impact on regional or global economic conditions and on sovereign and non-sovereign obligations. The chart shown below includes our non-sovereign fair value exposures in these countries as of September 30, 2018.2019. As of September 30, 2018,2019, we had no material unfunded exposure and had no material direct sovereign exposure. 
   Total Gross
 Non-sovereign DebtFunded
Financial Instrument and CountryFinancialNon-financialExposure
 (Dollars In Millions)
Securities:   
United Kingdom$1,069.9  $1,292.6  $2,362.5  
France406.3  510.6  916.9  
Germany127.6  651.0  778.6  
Netherlands350.0  345.9  695.9  
Switzerland393.0  240.0  633.0  
Spain97.9  378.4  476.3  
Belgium—  196.9  196.9  
Ireland55.8  129.0  184.8  
Norway4.1  148.4  152.5  
Finland147.2  —  147.2  
Italy—  139.2  139.2  
Sweden37.5  57.1  94.6  
Luxembourg—  58.3  58.3  
Denmark53.7  —  53.7  
Portugal—  23.3  23.3  
Total securities2,743.0  4,170.7  6,913.7  
Derivatives:   
Germany54.5  —  54.5  
United Kingdom27.6  —  27.6  
Switzerland21.5  —  21.5  
France5.6  —  5.6  
Total derivatives109.2  —  109.2  
Total securities$2,852.2  $4,170.7  $7,022.9  

      Total Gross
  Non-sovereign Debt Funded
Financial Instrument and Country Financial Non-financial Exposure
  (Dollars In Millions)
Securities:  
  
  
United Kingdom $771.1
 $935.3
 $1,706.4
France 301.3
 392.9
 694.2
Netherlands 301.0
 271.5
 572.5
Germany 114.7
 387.3
 502.0
Switzerland 296.7
 199.2
 495.9
Spain 50.6
 262.9
 313.5
Belgium —
 185.5
 185.5
Norway 4.0
 135.6
 139.6
Ireland 40.2
 85.9
 126.1
Italy 9.9
 113.9
 123.8
Finland 110.6
 —
 110.6
Luxembourg —
 69.1
 69.1
Sweden 40.9
 15.3
 56.2
Denmark 31.1
 —
 31.1
Portugal —
 22.8
 22.8
Austria —
 11.9
 11.9
Total securities 2,072.1
 3,089.1
 5,161.2
Derivatives:  
  
  
Germany 19.1
 —
 19.1
United Kingdom 18.3
 —
 18.3
Switzerland 3.0
 —
 3.0
France 2.7
 —
 2.7
Total derivatives 43.1
 —
 43.1
Total securities $2,115.2
 $3,089.1
 $5,204.3
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Realized Gains and Losses
The following table sets forth realized investment gains and losses for the periods shown: 
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2018 2017 2018 20172019201820192018
(Dollars In Thousands) (Dollars In Thousands)
Fixed maturity gains - sales$3,410
 $1,933
 $21,596
 $14,968
Fixed maturity gains - sales$20,155  $3,410  $34,837  $21,596  
Fixed maturity losses - sales(5,428) (891) (15,292) (4,486)Fixed maturity losses - sales(4,469) (5,428) (12,936) (15,292) 
Equity gains and losses(6,638) (352) (16,466) (1,398)Equity gains and losses6,310  (6,638) 44,723  (16,466) 
Impairments on fixed maturity securities(14) —
 (3,664) (2,630)Impairments on fixed maturity securities(10,818) (14) (14,658) (3,664) 
Impairments on equity securities—
 (273) —
 (8,259)
Modco trading portfolio(10,901) 19,399
 (148,427) 93,181
Modco trading portfolio67,674  (10,901) 252,147  (148,427) 
Other(312) (1,939) 1,519
 (7,557)Other(1,261) (312) (1,270) 1,519  
Total realized gains (losses) - investments$(19,883) $17,877
 $(160,734) $83,819
Total realized gains (losses) - investments$77,591  $(19,883) $302,843  $(160,734) 
Derivatives related to VA contracts: 
  
  
  
Derivatives related to VA contracts:    
Interest rate futures$2,111
 $549
 $(13,229) $16,746
Interest rate futures$727  $2,111  $(16,575) $(13,229) 
Equity futures(5,733) (25,959) (23,025) (75,389)Equity futures5,220  (5,733) 37,517  (23,025) 
Currency futures3,410
 (6,092) 7,890
 (22,366)Currency futures9,181  3,410  11,028  7,890  
Equity options(21,206) (23,307) (47,406) (76,376)Equity options(3,957) (21,206) (97,354) (47,406) 
Interest rate swaptions—
 (292) (14) (2,423)Interest rate swaptions—  —  —  (14) 
Interest rate swaps(41,288) 5,342
 (131,147) 31,331
Interest rate swaps149,766  (41,288) 342,561  (131,147) 
Total return swaps(32,343) (8,057) (35,908) (9,675)Total return swaps(1,950) (32,343) (50,522) (35,908) 
Embedded derivative - GLWB57,706
 740
 149,552
 (15,904)Embedded derivative - GLWB(224,091) 57,706  (378,409) 149,552  
Total derivatives related to VA contracts(37,343) (57,076) (93,287) (154,056)Total derivatives related to VA contracts(65,104) (37,343) (151,754) (93,287) 
Derivatives related to FIA contracts: 
  
  
  
Derivatives related to FIA contracts:  
Embedded derivative(14,360) (18,606) (7,957) (40,351)Embedded derivative(4,335) (14,360) (67,968) (7,957) 
Equity futures(388) 66
 (716) 161
Equity futures962  (388) 964  (716) 
Equity options18,474
 11,242
 21,203
 29,511
Equity options4,785  18,474  60,026  21,203  
Total derivatives related to FIA contracts3,726
 (7,298) 12,530
 (10,679)Total derivatives related to FIA contracts1,412  3,726  (6,978) 12,530  
Derivatives related to IUL contracts: 
  
  
  
Derivatives related to IUL contracts:  
Embedded derivative(9,535) (297) (877) (10,958)Embedded derivative6,261  (9,535) (18,395) (877) 
Equity futures(1) 58
 135
 (878)Equity futures91  (1) 347  135  
Equity options4,928
 1,975
 5,764
 6,437
Equity options586  4,928  9,372  5,764  
Total derivatives related to IUL contracts(4,608) 1,736
 5,022
 (5,399)Total derivatives related to IUL contracts6,938  (4,608) (8,676) 5,022  
Embedded derivative - Modco reinsurance treaties10,811
 (19,746) 138,652
 (90,314)Embedded derivative - Modco reinsurance treaties(44,027) 10,811  (199,704) 138,652  
Other derivatives(51) 43
 (58) 41
Other derivatives(1,622) (51) (3,011) (58) 
Total realized gains (losses) - derivatives$(27,465) $(82,341) $62,859
 $(260,407)Total realized gains (losses) - derivatives(102,403) (27,465) (370,123) 62,859  
Total realized investment gains (losses)Total realized investment gains (losses)$(24,812) $(47,348) $(67,280) $(97,875) 
Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains (losses), excluding impairments and Modco trading portfolio activity during the three and nine months ended September 30, 2018,2019, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment.

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Realized losses are comprised of other-than-temporary impairments and actual sales of investments. These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These other-than-temporary impairments are presented in the chart below: 
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
For The
Three Months Ended
September 30,		 For The
Nine Months Ended
September 30,		2019201820192018
2018 2017 2018 2017 (Dollars In Thousands)
(Dollars In Thousands)
Alt-A MBS$—
 $—
 $—
 $—
Other MBS14
 6
 50
 44
Other MBS$(13) $14  $(94) $50  
Corporate securities—
 —
 3,614
 7,948
Corporate securities(10,805) —  (14,564) 3,614  
Equities—
 —
 —
 2,630
Other—
 267
 —
 267
Total$14
 $273
 $3,664
 $10,889
Total$(10,818) $14  $(14,658) $3,664  
As previously discussed, management considers several factors when determining other-than-temporary impairments. Although we purchase securities with the intent to hold them until maturity, we may change our position as a result of a change in circumstances. Any such decision is consistent with our classification of all but a specific portion of our investment portfolio as available-for-sale. For the nine months ended September 30, 2018,2019, we sold securities in an unrealized loss position with a fair value of $380.5$375.6 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table below:
Proceeds % Proceeds Realized Loss % Realized Loss Proceeds% ProceedsRealized Loss% Realized Loss
(Dollars In Thousands) (Dollars In Thousands)
<= 90 days$286,478
 75.3% $(6,509) 42.5%<= 90 days$229,467  61.0 %$(3,048) 23.6 %
>90 days but <= 180 days67,310
 17.7
 (6,812) 44.5
>90 days but <= 180 days—  —  —  —  
>180 days but <= 270 days1,582
 0.4
 (102) 0.7
>180 days but <= 270 days13,797  3.7  (1,348) 10.4  
>270 days but <= 1 year1,843
 0.5
 (73) 0.5
>270 days but <= 1 year5,862  1.6  (743) 5.7  
>1 year23,280
 6.1
 (1,796) 11.8
>1 year126,491  33.7  (7,797) 60.3  
Total$380,493
 100.0% $(15,292) 100.0%Total$375,617  100.0 %$(12,936) 100.0 %
  For the three and nine months ended September 30, 2018,2019, we sold securities in an unrealized loss position with a fair value (proceeds) of $122.3$37.5 million and $380.5 million.$375.6 million, respectively. The losses realized on the sale of these securities were $5.4$4.5 million and $15.3 million.$12.9 million, respectively. We made the decision to exit these holdings in conjunction with our overall asset/asset liability management process.
For the three and nine months ended September 30, 2018,2019, we sold securities in an unrealized gain position with a fair value of $306.6$679.5 million and $914.9 million.$1.8 billion. The gains realized on the sale of these securities were $3.4$20.2 million and $21.6$34.8 million.
The $0.3 million of other realized losses recognized for the three months ended September 30, 2018, included $0.5 million of realized losses associated with our mortgage loan portfolio and partnership gains of $0.2 million, respectively.
The $1.5 million of other realized gains recognized for the nine months ended September 30, 2018, included $1.9 million of realized gains associated with our mortgage loan portfolio, partnership gains of $0.3 million, fixed asset losses of $0.1 million, and real estate losses of $0.6 million, respectively.
For the three and nine months ended September 30, 2018,2019, net lossesgains of $10.9$67.7 million and $148.4$252.1 million primarily related to changes in fair value on our Modco trading portfolios were included in realized gains and losses. Of the $148.4$252.1 million for the nine months ended September 30, 2018,2019, approximately $8.3$7.5 million of lossesgains were realized through the sale of certain securities, which will be returnedreimbursed to us from our reinsurance partners over time through the reinsurance settlement process for this block of business.
The Modco embedded derivative, including those associated with the trading portfolios, had realized pre-tax gainslosses of $10.8 $44.0 million and $138.7$199.7 million, during the three and nine months ended September 30, 2018.2019, respectively. The gains duringlosses on the three months ended September 30, 2018,embedded derivative were primarily due to credit spreads tightening which were more than offset by treasury yields increasing. Thedecreasing.
Realized investment gains for the nine months ended September 30, 2018, wereand losses related to equity securities is primarily driven by changes in fair value due to credit spreads widening and treasury yields increasing.market fluctuations as changes in fair value of equity securities are recorded in net income.
Realized investment gains and losses related to derivatives represent changes in their fair value during the period and termination gains/(losses) on those derivatives that were closed during the period.
We use various derivative instruments to manage risks related to certain life insurance and annuity products. We can use these derivatives as economic hedges against risks inherent in the products. These risks have a direct impact on the cost of these products and are correlated with the equity markets, interest rates, foreign currency levels, and overall volatility. The hedged risks are recorded through the recognition of embedded derivatives associated with the products. These products include the GLWB

rider associated with the variable annuity, fixed indexed annuityVA product, FIA products as well as indexed universal lifeIUL products. During the three and nine months ended September 30, 2018,2019, we experienced net realized losses on derivatives related to VA contracts of approximately $37.3 $65.1 million and $93.3 million.$151.8 million. These net losses on derivatives related to VA contracts were affected by capital market impacts, changes in our non-performance risk, unlocking of assumptions, and variations in actual sub-account fund performance from the indices included in our
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hedging program, and updates to our lapse and policyholder behavior assumptions during the three and nine months ended September 30, 2018.2019.
We also use various swaps and other types of derivatives to mitigate risk related to other exposures. ForThese contracts generated losses of $1.6 million and $3.0 million for the three and nine months ended September 30, 2018, these contracts generated losses of $0.1 million.2019, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
Overview
Our primary sources of funding are dividends from our operating subsidiaries; revenues from investment management, data processing, legal, and management services rendered to subsidiaries; investment income; and external financing. These sources of cash support our general corporate needs including our common stock dividends and debt service.We expect to usedid not pay a portion of our positive cash flow from operations to pay dividends to our parent, Dai-ichi Life. We paid a $140.0 million dividend duringfor the nine months ended September 30, 2018, and do not expect to pay a dividend for the remainder of 2018.2019.
The states in which our insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay us dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus. Generally, these restrictions pose no short-term liquidity concerns. We plan to retain portions of the earnings of our insurance subsidiaries in those companies primarily to support their future growth.
Debt and other capital resources
Our primary sources of capital are through retained income from our operating subsidiaries, capital infusions from our parent, Dai-ichi Life, as well as our ability to access debt financing markets. Additionally, we have access to the Credit Facility discussed below.
On May 3, 2018, we amended the 2015 Credit Facility (as amended the “Credit Facility”). We have the ability to borrow under athe Credit Facility arrangement on an unsecured basis up to an aggregate principal amount of $1.0 billion. We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.5 billion. We are not aware of any non-compliance with thethe financial debt covenants of the Credit Facility as of September 30, 2018.2019. There was no outstanding balance under the Credit Facility as of September 30, 2018.2019.
Liquidity
Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We meet our liquidity requirements primarily through positive cash flows from our operating subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, interest payments, and other operating expenses. We believe that we have sufficient liquidity to fund our cash needs under normal operating scenarios.
In the event of significant unanticipated cash requirements beyond our normal liquidity needs, we have additional sources of liquidity available depending on market conditions and the amount and timing of the liquidity need. These additional sources of liquidity include cash flows from operations, the sale of liquid assets, accessing our credit facility,Credit Facility, and other sources described herein. Our decision to sell investment assets could be impacted by accounting rules, including rules relating to the likelihood of a requirement to sell securities before recovery of our cost basis. Under stressful market and economic conditions, liquidity may broadly deteriorate, which could negatively impact our ability to sell investment assets. If we require on short notice significant amounts of cash in excess of normal requirements, we may have difficulty selling investment assets in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.
The liquidity requirements of our regulated insurance subsidiaries primarily relate to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.agreements.


Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments. In addition, our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund our expected operating expenses, surrenders, and withdrawals. As of September��September 30, 2018,2019, our total cash and invested assets were $66.8$83.9 billion. The life insurance subsidiaries were committed as of September 30, 2018,2019, to fund mortgage loans in the amount of $825.6$794.9 million.
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Our positive cash flows are used to fund an investment portfolio that provides for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations.

The holding company held $146.5$536.6 million of cash and short-term investments, and our subsidiaries held approximately $527.8 million$1.3 billion in cash and short-term investments as of September 30, 2018.2019.
The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:
For The
Nine Months Ended
September 30,
 For The
Nine Months Ended
September 30,		20192018
 2018 2017 (Dollars In Thousands)
 (Dollars In Thousands)
Net cash used in provided by operating activities $(201,414) $(7,762)
Net cash provided by (used in) investing activities (1,516,715) (1,948,618)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities$33,424  $(113,405) 
Net cash used in investing activitiesNet cash used in investing activities(2,016,953) (1,516,715) 
Net cash provided by financing activities 1,660,279
 1,865,760
Net cash provided by financing activities2,103,114  1,572,270  
Total $(57,850) $(90,620)Total$119,585  $(57,850) 
For The Nine Months Ended September 30, 20182019 as compared to theThe Nine Months Ended September 30, 20172018
Net cash (used in) provided byused in operating activities - Cash flows from operating activities are affected by the timing of premiums received, investment income, and benefits and expenses paid. Principal sources of cash inflows from operating activities include sales of our products and services as well as income from investments. Due to the nature of our business and the fact that many of the products we sell produce financing and investing cash flows it is important to consider cash flows generated by investing and financing activities in conjunction with those generated by operating activities.activities.
Net cash provided by (used in)used in investing activities- Changes in cash from investing activities primarily related to our investment portfolio. We had payments for business acquisition of $777.8 million, net of cash acquired, for the GWL&A acquisition for the nine months ended September 30, 2019, as compared to cash received of $20.7 million for the Liberty transaction for the nine months ended September 30, 2018.
Net cash provided by financing activities - Changes in cash from financing activities included $503.3$142.6 million of outflows from secured financing liabilities for the nine months ended September 30, 2018,2019, as compared to the $198.2$503.3 million of outflows for the nine months ended September 30, 20172018 and $2.1$1.1 billion inflows of investment product and universal life net activity as compared to $2.2$2.0 billion in the prior year. Net activity related to the Credit Facilityline of credit arrangement, debt, and subordinated debt resulted in inflows of $317.1$990.7 million for the nine months ended September 30, 2018,2019, as compared to $40.9$317.1 million of inflows for the nine months ended September 30, 2017.2018. Net repayment of non-recourse funding obligations equaledwas $86.0 million during the nine months ended September 30, 2019, as compared to $100.0 million during the nine months ended September 30, 2018,2018. The Company did not pay a dividend during the nine months ended September 30, 2019, as compared to $36.0a dividend of $140.0 million during the nine months ended September 30, 2017.2018. The Company paidreceived a dividend during the nine month period ended September 30, 2018capital contribution from its parent of $140.0 million, as compared to a dividend of $143.8$250.0 million during the nine months ended September 30, 2017.2019.
Through our subsidiaries, we are members of the FHLB of Cincinnati and the FHLB of New York. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stock based on a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of September 30, 2018,2019, we had $550.9 million$1.2 billion of funding agreement-related advances and accrued interest outstanding under the FHLB program.
While we anticipate that the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on its investments will equal or exceed its borrowing rate. Under this program, we may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The marketfair value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements providedprovide for net settlement in the event of default or on termination of the agreements. As of September 30, 2018,2019, the fair value of securities pledged under the repurchase program was $457.5$278.0 million and the repurchase obligation of $417.1$272.1 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 223 215
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basis points). During the nine months ended September 30, 2019, the maximum balance outstanding at any one point in time related to these programs was $540.0 million. The average daily balance was $160.1 million (at an average borrowing rate of 242 basis points) during the nine months ended September 30, 2019. As of December 31, 2018, the fair value of securities pledged under the repurchase program was $451.9 million and the repurchase obligation of $418.1 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 245 basis points). During the year ended December 31, 2018, the maximum balance outstanding at any one point in time related to these programs was $427.5$885.0 million. The average daily balance was $225.9$511.4 million (at an average borrowing rate of 208 basis points) during the nine months ended September 30, 2018. As of December 31, 2017, the fair value of securities pledged under the repurchase program was $1,006.6 million and the repurchase obligation of $885.0 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 142 basis points). During 2017, the maximum balance outstanding at any one point in time related to these programs was $988.5 million. The average daily balance was $624.7 million (at an average borrowing rate of 101184 basis points) during the year ended December 31, 2017.2018.

We participate in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. We require initial collateral of 102%1% of the market value of the loaned securities to be separately maintained. The loaned securities’ marketfair value is monitored on a daily basis. As of September 30, 2018,2019, securities with a market value of $92.0$76.7 million were loaned under this program. As collateral for the loaned securities, we receive cash and short-term investments, which is invested in collateralized short-term investments. These collateralized short-term investments are recorded in “short-term investments”short-term investments with a corresponding liability

recorded in “other liabilities”other liabilities to account for its obligation to return the collateral. As of September 30, 2018,2019, the fair value of the collateral related to this program was $97.3$80.6 million and we have an obligation to return $97.3$80.6 million of collateral to the securities borrowers. 
Statutory Capital
A life insurance company’s statutory capital is computed according to rules prescribed by the NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval of the insurance commissioner of the state of domicile. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend to us from our insurance subsidiaries in 20182019 is approximately $853.2$434.0 million.


State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.


Statutory reserves established for VA contracts are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and equity market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.


Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our fixed MVAmarket value adjusted (“MVA”) annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.


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We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For the three and nine months ended September 30, 2018,2019, we ceded premiums to third party reinsurers amounting to $269.3$317.0 million and $1.0 billion, respectively.$975.4 million. In addition, we had receivables from reinsurers amounting to $4.8$4.5 billion as of September 30, 2018.2019. We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.

Scottish Re (U.S.), Inc. ("SRUS") was placed in rehabilitation on March 6, 2019 by the State of Delaware. Under the related order, the Insurance Commissioner of the State of Delaware has been appointed the receiver of SRUS and provided with authority to conduct and continue the business of SRUS in the interest of its cedents, creditors, and stockholder. The order was accompanied by an injunction requiring the continued payment of reinsurance premiums to SRUS and temporarily prohibiting cedents, including the Company, from offsetting premiums payable against receivables from SRUS. On June 20, 2019, the Delaware Court of Chancery entered an order approving a Revised Offset Plan, which allows cedents, including the Company, to offset premiums under certain circumstances.
As of September 30, 2019, we had outstanding claims receivable from SRUS of $18.4 million, and other exposures associated with GAAP reinsurance receivables of approximately $96.4 million, and statutory reserve credit of approximately $105.7 million. We continue to monitor SRUS and the actions of the receiver through discussions with legal counsel and review of publicly available information. We have considered the possible impact of an adverse outcome of the rehabilitation process and believe an adverse outcome would not have a material adverse impact on our operations, liquidity or financial condition.

Captive Reinsurance Companies
Our life insurance subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX.”AXXX”. The regulation and supporting guideline require insurers to establish statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that these levels of reserves are non-economic. We use captive reinsurance companies to implement reinsurance and capital management actions to satisfy these reserve requirements by financing the non-economic reserves either through the issuance of non-recourse funding obligations by the captives or obtaining Lettersletters of Creditcredit from third-party financial institutions.
Our captive reinsurance companies assume business from affiliates only. Our captives are capitalized to a level we believe is sufficient to support the contractual risks and other general obligations of the respective captive entity. All of our captive reinsurance companies are wholly owned subsidiaries and are located domestically. The captive insurance companies are subject to regulations in the state of domicile.

The National Association of Insurance Commissioners (“NAIC”), through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and several committees have adopted or exposed for comment white papers and reports that, if or when implemented, could impose additional requirements on the use of captives and other reinsurers. The Financial Condition (E) Committee of the NAIC established a Variable Annuity Issues Working Group to examine company use of variable annuity captives. The Committee has proposed changes in the regulation of variable annuities and variable annuity captives, which could adversely affect our future financial condition and results of operations if adopted.
The NAIC has adopted Actuarial Guideline XLVIII (“AG48”) and the substantially similar “Term and Universal Life Insurance Reserve Financing Model Regulation” (the “Reserve Model”) which establish national standards for new reserve financing arrangements for term life insurance and universal life insurance with secondary guarantees. AG48 and the Reserve Model govern collateral requirements for captive reinsurance arrangements. In order to obtain reserve credit, AG48 and the Reserve Model require a minimum level of funds, consisting of primary and other securities, to be held by or on behalf of ceding insurers as security under each captive life reinsurance treaty. As a result of AG48 and the Reserve Model, the implementation of new captive structures in the future may be less capital efficient, lead to lower product returns and/or increased product pricing or result in reduced sales of certain products. In some circumstances, AG48 and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

We also use a captive reinsurance company to reinsure risks associated with GLWB and GMDBguaranteed minimum death benefits (“GMDB”) riders which helps us to manage those risks on an economic basis. In an effort to mitigate the equity market
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risks relative to our RBC ratio, in the fourth quarter of 2012, we established an insurance subsidiary, Shades Creek Captive Insurance Company (“Shades Creek”), to which PLICO has reinsured GLWB and GMDB riders related to its VA contracts. The purpose of Shades Creek is to reduce the volatility in RBC due to non-economic variables included within the RBC calculation.


We maintain an intercompany capital support agreement with Shades Creek that provides through a guarantee that we will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of September 30, 2018,2019, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.
Ratings
Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in an insurer’s products, its ability to market its products and its competitive position. The following table summarizes the current financial strength ratings of our significant member companies from the major independent rating organizations:
Standard &
RatingsA.M. BestFitchPoor’sMoody’s
Insurance company financial strength rating:
Protective Life Insurance CompanyA+A+A+ AA-AA- A1
West Coast Life Insurance CompanyA+A+A+ AA-AA- A1
Protective Life and Annuity Insurance CompanyA+A+A+ AA-AA- —
Protective Property & Casualty Insurance CompanyA—— ——— 
MONY Life Insurance CompanyA+A+A+ A+A+ A1
Our ratings are subject to review and change by the rating organizations at any time and without notice. A downgrade or other negative action by a rating organization with respect to the financial strength ratings of our insurance subsidiaries could adversely affect sales, relationships with distributors, the level of policy surrenders and withdrawals, competitive position in the marketplace, and the cost or availability of reinsurance. The rating agencies may take various actions, positive or negative, with respect to the financial strength ratings of our insurance subsidiaries, including as a result of our status as a subsidiary of Dai-ichi Life.
Rating organizations also publish credit ratings for the issuers of debt securities, including the Company. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important in the debt issuer’s overall ability to access credit markets and other types of liquidity. Ratings are not recommendations to buy our securities or products. A downgrade or other negative action by a rating organization with respect to our credit rating could limit our access to capital markets, increase the cost of issuing debt, and a downgrade of sufficient magnitude, combined with other negative factors, could require us to post collateral. The rating agenciesorganizations may take various actions, positive or negative, with respect to our debt ratings, including as a result of our status as a subsidiary of Dai-ichi Life.

LIABILITIES
Many of our products contain surrender charges and other features that are designed to reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect us against investment losses if interest rates are higher at the time of surrender than at the time of issue.
As of September 30, 2018,2019, we had policy liabilities and accruals of approximately $42.9$54.8 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.47%3.46%.
Contractual Obligations
We enter into various obligations to third parties in the ordinary course of our operations. However, we do not believe that our cash flow requirements can be assessed solely based upon an analysis of these obligations. The most significant factors
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affecting our future cash flows are our ability to earn and collect cash from our customers, and the cash flows arising from our investment program. Future cash outflows, whether they are contractual obligations or not, will also vary based upon our future needs. Although some outflows are fixed, others depend on future events. Examples of fixed obligations include our obligations to pay principal and interest on fixed-rate borrowings. Examples of obligations that will vary include obligations to pay interest on variable-rate borrowings and insurance liabilities that depend on future interest rates, market performance, or surrender provisions. Many of our obligations are linked to cash-generating contracts. In addition, our operations involve significant expenditures that are not based upon contractual obligations. These include expenditures for income taxes and payroll.
As of September 30, 2018,2019, we carried a $6.7$1.8 million liability for uncertain tax positions, including interest on unrecognized tax benefits. These amounts are not included in the long-term contractual obligations table because of the difficulty in making reasonably reliable estimates of the occurrence or timing of cash settlements with the respective taxing authorities.
The table below sets forth future maturities of our contractual obligations: 
  Payments due by period
TotalLess than
1 year		1-3 years3-5 yearsMore than
5 years
 (Dollars In Thousands)
Debt(1)
$2,662,982  $465,881  $132,870  $726,082  $1,338,149  
Non-recourse funding obligations(2)
4,110,684  312,304  664,627  552,955  2,580,798  
Subordinated debt(3)
1,561,603  30,655  61,310  61,310  1,408,328  
Stable value products(4)
5,795,273  1,447,023  3,104,845  1,110,134  133,271  
Leases(5)
25,708  6,061  9,075  6,937  3,635  
Mortgage loan and investment commitments885,854  655,108  230,746  —  —  
Secured financing liabilities(6)
352,732  352,732  —  —  —  
Policyholder obligations(7)
68,961,515  3,753,903  8,316,857  6,674,952  50,215,803  
Total(8)
$84,356,351  $7,023,667  $12,520,330  $9,132,370  $55,679,984  
(1) Debt includes all principal amounts owed on note agreements and expected interest payments due over the term of the notes.
(2) Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.7 billion relates to the Golden Gate V transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. Additionally, $2.4 billion relates to the Golden Gate transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate receives from notes issued by a nonconsolidated variable interest entity. The remaining amounts are associated with the Golden Gate II notes held by third parties as well as certain obligations assumed with the acquisition of MONY Life Insurance Company.
(3) Subordinated debt includes all principal amounts and interest payments due over the term of the obligations.
(4) Anticipated stable value products includes cash flows including interest.
(5) Includes all lease payments required under operating and finance lease agreements.
(6) Represents secured borrowings and accrued interest as part of our repurchase program as well as liabilities associated with securities lending transactions.
(7) Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to our historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and include expected interest crediting, but do not incorporate an expectation of future market growth, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As variable separate account obligations are legally insulated from general account obligations, the variable separate account obligations will be fully funded by cash flows from variable separate account assets. We expect to fully fund the general account obligations from cash flows from general account investments.
(8) Excluded from this table are certain pension obligations.
    Payments due by period
  Total 
Less than
1 year
 1-3 years 3-5 years 
More than
5 years
  (Dollars In Thousands)
Debt(1)
 $1,530,675
 $62,759
 $467,747
 $66,517
 $933,652
Non-recourse funding obligations(2)
 4,389,587
 281,364
 647,474
 628,193
 2,832,556
Subordinated debt(3)
 1,592,258
 30,655
 61,310
 61,310
 1,438,983
Stable value products(4)
 5,500,754
 1,453,493
 3,210,755
 697,764
 138,742
Operating leases(5)
 25,445
 5,739
 7,354
 6,180
 6,172
Home office lease(6)
 75,915
 75,915
 —
 —
 —
Mortgage loan and investment commitments 959,446
 854,676
 104,770
 —
 —
Secured financing liabilities(7)
 514,495
 514,495
 —
 —
 —
Policyholder obligations(8)
 56,479,119
 11,950,755
 5,144,914
 5,446,220
 33,937,230
Total(9)
 $71,067,694
 $15,229,851
 $9,644,324
 $6,906,184
 $39,287,335
           
(1) Debt includes all principal amounts owed on note agreements and expected interest payments due over the term of the notes.
(2) Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.7 billion relates to the Golden Gate V transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. Additionally, $2.6 billion relates to the Golden Gate transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate receives from notes issued by a nonconsolidated variable interest entity. The remaining amounts are associated with the Golden Gate II notes held by third parties as well as certain obligations assumed with the acquisition of MONY Life Insurance Company.
(3) Subordinated debt securities includes all principal amounts and interest payments due over the term of the obligations.
(4) Anticipated stable value products cash flows including interest.
(5) Includes all lease payments required under operating lease agreements.
(6) The lease payments shown assume we exercise our option to purchase the building at the end of the lease term.
(7) Represents secured borrowings and accrued interest as part of our repurchase program as well as liabilities associated with securities lending transactions.
(8) Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to our historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and include expected interest crediting, but do not incorporate an expectation of future market growth, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As variable separate account obligations are legally insulated from general account obligations, the variable separate account obligations will be fully funded by cash flows from variable separate account assets. We expect to fully fund the general account obligations from cash flows from general account investments.
(9) Excluded from this table are certain pension obligations.


OFF-BALANCE SHEET ARRANGEMENTS
We have entered into indemnity agreements with each of our directors as well as operating leases that do not result in an obligation being recorded on the balance sheet. Refer to Note 12, 11, Commitments and Contingencies, of the consolidated condensed financial statements for more information on our indemnity agreements.
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MARKET RISK EXPOSURES
Our financial position and earnings are subject to various market risks including changes in interest rates, the yield curve, spreads between risk-adjusted and risk-free interest rates, foreign currency rates, used vehicle prices, and equity price risks and issuer defaults. We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk. See Note 7, Derivative Financial Instruments, to the consolidated financial statements included in this report for additional information on our financial instruments.
The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilitiescharacteristics to maintain an appropriate balance between risk and profitability for each product category, and for us as a whole.
It is our policy to maintain asset and liability durations within one year of one another, although, from time to time, a broader interval may be allowed.
We are exposed to credit risk within our investment portfolio and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. We manage credit risk through established investment policies which attempt to address quality of obligors and counterparties, credit concentration limits, diversification requirements, and acceptable risk levels under expected and stressed scenarios. Derivative counterparty credit risk is measured as the amount owed to us, net of collateral held, based upon current market conditions. In addition, we periodically assess exposure related to potential payment obligations between us and our counterparties. We minimize the credit risk in derivative financial instruments by entering into transactions with high quality counterparties (A-rated or higher at the time we enter into the contract), and we maintain credit support annexes with certain of those counterparties.
We utilize a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through our analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into our risk management program.

See Note 7, Derivative Financial Instruments, to the consolidated financial statements included in this report for additional information on our financial instruments.
Derivative instruments expose us to credit and market risk and could result in material changes from period to period. We attempt to minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market risk by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. We monitor our use of derivatives in connection with our overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.
Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions.
Derivative instruments that are used as part of the Company’s foreign currency exchange risk management strategy include foreign currency swaps, foreign currency futures, foreign equity futures, and foreign equity options.
We may use the following types of derivative contracts to mitigate our exposure to certain guaranteed benefits related to VA andcontracts, fixed indexed annuities:annuities, and indexed universal life:
•Foreign Currency Futures
•Variance Swaps
•Interest Rate Futures
•Equity Options
•Equity Futures
•Credit Derivatives
•Interest Rate Swaps
•Interest Rate Swaptions
•Volatility Futures
•Volatility Options
•Total Return Swaps
We believe that our asset/liability management programs and procedures and certain product features provide protection against the effects of changes in interest rates under various scenarios. Additionally, we believe our asset/liability management programs and procedures provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts. However, our asset/liability management programs and procedures incorporate
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assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, spread movements, implied volatility, policyholder behavior, and other factors, and

the effectiveness of our asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.
  In the ordinary course of our commercial mortgage lending operations, we may commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in our financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. As of September 30, 2018,2019, we had outstanding mortgage loan commitments of $825.6$794.9 million at an average rate of 4.4%5.68%.
Impact of Continued Low Interest Rate Environment
Significant changes in interest rates expose us to the risk of not realizing anticipated spreads between the interest rate earned on investments and the interest rate credited to in-force policies and contracts. In addition, certain of our insurance and investment products guarantee a minimum guaranteed interest rate (“MGIR”). In periods of prolonged low interest rates, the interest spread earned may be negatively impacted to the extent our ability to reduce policyholder crediting rates is limited by the guaranteed minimum credited interest rates. Additionally, those policies without account values may exhibit lower profitability in periods of prolonged low interest rates due to reduced investment income.
The tables below present account values by range of current minimum guaranteed interest rates and current crediting rates for our universal life and deferred fixed annuity products as of September 30, 2018,2019, and December 31, 2017:2018: 


Credited Rate Summary
As of September 30, 20182019
  1-50 bpsMore than 
Minimum Guaranteed Interest RateAtabove50 bps 
Account ValueMGIRMGIRabove MGIRTotal
 (Dollars In Millions)
Universal Life Insurance    
2%$—  $82  $1,684  $1,766  
>2% - 3%4,187  1,338  1,697  7,222  
>3% - 4%9,199  570  515  10,284  
>4% - 5%2,458  441  1  2,900  
>5% - 6%329  —  —  329  
Subtotal16,173  2,431  3,897  22,501  
Fixed Annuities    
1%  $206  $548  $2,075  $2,829  
>1% - 2%326  224  1,807  2,357  
>2% - 3%1,536  109  2  1,647  
>3% - 4%288  4  —  292  
>4% - 5%255  —  —  255  
>5% - 6%2  —  —  2  
Subtotal2,613  885  3,884  7,382  
Total$18,786  $3,316  $7,781  $29,883  
Percentage of Total63 %11 %26 %100 %
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    1-50 bps More than  
Minimum Guaranteed Interest Rate At above 50 bps  
Account Value MGIR MGIR above MGIR Total
  (Dollars In Millions)
Universal Life Insurance  
  
  
  
>2% - 3% $2,394
 $1,316
 $2,027
 $5,737
>3% - 4% 4,537
 928
 506
 5,971
>4% - 5% 2,463
 433
 1
 2,897
>5% - 6% 190
 —
 —
 190
Subtotal 9,584
 2,677
 2,534
 14,795
Fixed Annuities  
  
  
  
1% $425
 $561
 $2,339
 $3,325
>1% - 2% 397
 184
 783
 1,364
>2% - 3% 1,760
 81
 3
 1,844
>3% - 4% 266
 4
 —
 270
>4% - 5% 262
 —
 —
 262
>5% - 6% 2
 —
 —
 2
Subtotal 3,112
 830
 3,125
 7,067
Total $12,696
 $3,507
 $5,659
 $21,862
         
Percentage of Total 58% 16% 26% 100%
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Credited Rate Summary
As of December 31, 20172018
  1-50 bpsMore than 
Minimum Guaranteed Interest RateAtabove50 bps 
Account ValueMGIRMGIRabove MGIRTotal
 (Dollars In Millions)
Universal Life Insurance    
>2% - 3%$2,392  $1,322  $2,031  $5,745  
>3% - 4%4,512  924  499  5,935  
>4% - 5%2,445  435  1  2,881  
>5% - 6%188  —  —  188  
Subtotal9,537  2,681  2,531  14,749  
Fixed Annuities    
1%  $341  $584  $2,278  $3,203  
>1% - 2%370  165  1,145  1,680  
>2% - 3%1,686  102  3  1,791  
>3% - 4%261  4  —  265  
>4% - 5%260  —  —  260  
>5% - 6%2  —  —  2  
Subtotal2,920  855  3,426  7,201  
Total$12,457  $3,536  $5,957  $21,950  
Percentage of Total57 %16 %27 %100 %
    1-50 bps More than  
Minimum Guaranteed Interest Rate At above 50 bps  
Account Value MGIR MGIR above MGIR Total
  (Dollars In Millions)
Universal Life Insurance  
  
  
  
>2% - 3% $206
 $1,252
 $2,006
 $3,464
>3% - 4% 4,146
 993
 8
 5,147
>4% - 5% 1,987
 13
 1
 2,001
>5% - 6% 199
 —
 —
 199
Subtotal 6,538
 2,258
 2,015
 10,811
Fixed Annuities  
  
  
  
1% $571
 $239
 $540
 $1,350
>1% - 2% 473
 331
 70
 874
>2% - 3% 1,897
 63
 4
 1,964
>3% - 4% 254
 —
 —
 254
>4% - 5% 271
 —
 —
 271
>5% - 6% 2
 —
 —
 2
Subtotal 3,468
 633
 614
 4,715
Total $10,006
 $2,891
 $2,629
 $15,526
         
Percentage of Total 64% 19% 17% 100%


We are active in mitigating the impact of a continued low interest rate environment through product design, as well as adjusting crediting rates on current in-force policies and contracts. We also manage interest rate and reinvestment risks through our asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations; cash flow testing under various interest rate scenarios; and the regular rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk.
IMPACT OF INFLATION
Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of our investment products.
The higher interest rates that have traditionally accompanied inflation could also affect our operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The marketfair value of our fixed-rate, long-term investments may decrease, we may be unable to implement fully the interest rate reset and call provisions of our mortgage loans, and our ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates. During the periods covered by this report, we believe inflation has not had a material impact on our business.

RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2, Summary of Significant Accounting Policies, to the consolidated condensed financial statements for information regarding recently issued accounting standards.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations,  “Liquidity and Capital Resources” and Part II, Item 1A,  “Market Risk Factors,Exposures”.
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Item 4. Controls and Procedures
(a) Disclosure controls and procedures
In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)Rule 13a -15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), except as otherwise noted below. Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.
In conductingAs described in Note 3, Significant Transactions, we acquired substantially all of the individual life insurance and annuity business of Great-West Life & Annuity Insurance Company and certain of its affiliates (“GWL&A”) effective June 1, 2019. Pursuant to the SEC’s guidance that an assessment of recently acquired business may be omitted from the scope of an assessment of internal controls over financial reporting for one year from the date of acquisition, our evaluation of the effectiveness of the Company’s disclosure controls and procedures since the acquisition date has excluded those internal controlcontrols over financial reporting as of September 30, 2018, theat Great-West Life & Annuity Insurance Company has excluded the internal controls relating(“GWL&A”) that relate to the administrative systems and processes being provided by third parties for the Liberty Life Assurance Company of Boston (Liberty) block of business reinsured from Liberty. As of September 30, 2018, the Company is in the process of, but has not completed its own evaluationassets and liabilities of the design and operation of the internal controls relating to the administrativeacquired business that were not integrated into our existing systems. The acquired GWL&A business not integrated into our existing systems and processes, including those currently being provided by third parties,controls represents approximately $11.3 billion of consolidated assets, approximately $168.4 million of consolidated revenue, approximately $254.0 million of consolidated benefits and expenses, and approximately $21.5 billion of liabilities on the related consolidated financial statements as of and for the Liberty business. For the nine months ended September 30, 2018, Liberty Business represented revenues and income before income tax of $360.9 million and $33.7 million, of the Company’s consolidated income before income tax.2019.


(b) Changes in internal control over financial reporting

During the second quarter of 2018, the Company began the conversion and integration of administrative processing into its internal controls over financial reporting for the Liberty block of business.business acquired on May 1, 2018. See Note 3, Significant Transactions, for additional information regarding the transaction with Liberty Mutual and Lincoln Life. The conversion to the Company’s operating environment was still in process, but not yet completed, as of September 30, 2018.    2019. The Company has, therefore, included in its internal controls over financial reporting certain additional controls associated with the Liberty insurance and annuities administrative systems that have not yet been integrated into the Company’s operating environment.


ThereOther than as described in the preceding paragraph, there were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2018,2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.
PART II
Item 1. Legal Proceedings
SeeTo the knowledge and in the opinion of management, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of our properties is the subject, other than as set forth in Note 12, 11, Commitments and Contingencies,, of the notes to the Notes to Consolidated Condensed Financial Statementsconsolidated condensed financial statements, included in this report.herein.


Item 1A. Risk Factors
The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, which could materially affect the Company’s business, financial condition, or future results of operations which are discussed more fully below.
The Company’s use
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The Company uses derivative financial instruments within its risk management strategy to mitigate risks to which it is exposed, including risks related to credit and equity markets, interest rate levels, foreign exchange, and volatility on its fixed indexed annuity and variable annuity products and associated guaranteed benefit features. The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to investments in individual issuers or sectors of issuers and to mitigate the adverse effects of interest rate levels or volatility on its overall financial condition or results of operations.

These derivative financial instruments may not effectively offset the changes in the carrying value of the exposures due to, among other things, the time lag between changes in the value of such exposures and the changes in the value of the derivative financial instruments purchased by the Company, extreme credit and/or equity market and/or interest rate levels or volatility, contract holder behavior that differs from the Company’s expectations, and basis risk.

The use of derivative financial instruments by the Company generally to hedge various risks that impact GAAP earnings may have an adverse impact on the level of statutory capital and risk-based capital ratios because earnings are recognized differently under GAAP and statutory accounting methods.


The Company may also choose not to hedge, in whole or in part, these or other risks that it has identified, due to, for example, the availability and/or cost of a suitable derivative financial instrument. In addition, the Company may fail to identify risks, or the magnitude thereof, to which it is exposed. The derivative financial instruments used by the Company in its risk management strategy may not be properly designed, may not be properly implemented as designed and/or may be insufficient to hedge the risks in relationRisks Related to the Company’s obligations.Financial Environment

The Company is subject to the risk that its derivative counterparties or clearinghouse may fail or refuse to meet their obligations to the Company, which may result in associated derivative financial instruments becoming ineffective or inefficient.

The above factors, either alone or in combination, may have a material adverse effect on the Company’s financial condition and results of operations.


The Company may be required to establish a valuation allowance against its deferred tax assets, which could have a material adverse effect on the Company’s results of operations, financial condition, and capital position.


Deferred tax assets are attributable to certain differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets represent future savings of taxes that would otherwisefinancial statement tax expense which will not be paid in cash. In general, the realization of the deferred tax assets is dependent upon the generation of sufficient future ordinary and capital taxable income. Realization may also be limited for other reasons, including but not limited to changes in the tax law. If it is determined that a certain deferred tax asset cannot be realized, then a deferred tax valuation allowance must beis established, with a corresponding charge to either adjusted operating income or other comprehensive income (depending on the nature of the deferred tax asset).


Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that itthe Company will generate sufficient taxable income to realize its material deferred tax assets net of any existing valuation allowance. The Company has recognized valuation allowances of $4.6$8.9 million and $5.0$6.4 million as of September 30, 20182019 and December 31, 2017,2018, respectively, related to state operating loss carryforwardscertain deferred tax assets which are more likely than not to expire unutilized. These assets are state income tax-related. If future events differ from the Company’s current forecasts,expectations, an additional valuation allowance may need to be established, which could have a material adverse effect on the Company’s results of operations, financial condition, or capital position.

The Company could be adversely affected by an inability to access FHLB lending.
Certain subsidiaries of the Company are members of the Federal Home Loan Bank (the “FHLB”) of Cincinnati and the FHLB of New York. Membership provides these Company subsidiaries with access to FHLB financial services, including advances that provide an attractive funding source for short-term borrowing and for the sale of funding agreements. The extent to which these services are available could be impacted by legislative or regulatory action at the state or federal level. It is unclear at this time whether or to what extent additional or new legislation or regulatory action regarding continued access to FHLB financial services will be enacted or adopted. Any developments that limit access to FHLB financial services could have a material adverse effect on the Company.


The amount of statutory capital or risk-based capital that the Company has and the amount of statutory capital or risk-based capital that it must hold to maintain its financial strength and credit ratings and meet other requirements can vary significantly from time to time and such amounts are sensitive to a number of factors outside of the Company’s control.


The Company primarily conducts business through licensed insurance company subsidiaries. Insurance regulators have established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life and property and casualty companies. The risk-based capital formula for life insurance companies establishes capital requirements relating to insurance, business, asset, interest rate, and certain other risks. The risk-based capital formula for property and casualty companies establishes capital requirements relating to asset, credit, underwriting, and certain other risks.


In any particular year, statutory surplus amounts and risk-based capital ratios may increase or decrease depending on a variety of factors, including, but not limited to, the amount of statutory income or losses generated by the Company’s insurance subsidiaries, (which itself is sensitive to equity market and credit market conditions), the amount of additional capital its insurance subsidiaries must hold to support business growth, changes in the Company’s statutory reserve requirements, the Company’s ability to secure capital market solutions to provide statutory reserve relief, changes in equity market levels, the value of certain fixed-income and equity securities in its investment portfolio, the credit ratings of investments held in its portfolio, including those issued by, or explicitly or implicitly guaranteed by, a government, the value of certain derivative instruments, changes in interest rates, foreign currency exchange rates or tax rates, credit market volatility, changes in consumer behavior, and changes to the National Association of Insurance Commissioners (the “NAIC”) risk-based capital formulas. Most of these factors are outside of the Company’s control.


At its June 2018 meeting, the NAIC’s Capital Adequacy Task Force adopted a change to the formulas used to calculate risk-based capital to reflect the lower federal corporate income tax rate. The NAIC’s risk-based capital formulas now employ a tax factor of 21%, instead of 35%. This change will have a one-time lowering effect on the risk-based capital ratios of the Company and its subsidiaries when it becomes effective at the end of 2018.
Another proposed changeProposed changes to the NAIC’s risk-based capital formula that isare currently under consideration would update the factors used to calculate required capital for bonds.bonds and life insurance risk. While the extent and timing of this change isthese proposed changes are unknown, if adopted, the revisionthey would likely increase the Company’s required capital and decrease the statutory risk-based capital ratios of the Company and its subsidiaries.



The Company’s financial strength and credit ratings are significantly influenced by the statutory surplus amounts and risk-based capital ratios of its insurance company subsidiaries. Rating agenciesorganizations may implement changes to their internal models that have the effect of increasing or decreasing the amount of statutory capital the Company must hold in order to maintain its current ratings. In addition, rating agencies may downgrade the investments held in the Company’s portfolio, which could result in a reduction of the Company’s capital and surplus and/or its risk-based capital ratio.


In scenarios of equity market declines, the amount of additional statutory reserves or risk-based capital the Company is required to hold for its variable product guarantees may increase at a rate greater than the rate of change of the markets. Increases in reserves or risk-based capital could result in a reduction to the Company’s capital, surplus, and/or risk-based capital ratio. Also, in environments where there is not a correlative relationship between interest rates and spreads, the Company’s market value adjusted annuity product can have a material adverse effect on the Company’s statutory surplus position.


The Company may be subject to regulations
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Industry and Regulatory Related Risks
The NAIC and the Company’s state regulators may be influenced by the initiatives of international regulatory bodies, and those initiatives may not translate readily into the legal system under which U.S. insurers must operate. There is increasing pressure to conform to international standards due to the globalization of the business of insurance and the most recent financial crisis. In addition to developments at the NAIC and in the United States, the Financial Stability Board (“FSB”), consisting of representatives of national financial authorities of the G20 nations, and the G20 have issued a series of proposals intended to produce significant changes in how financial companies, particularly companies that are members of large and complex financial groups, should be regulated.

The International Association of Insurance Supervisors (“IAIS”), at the direction of the FSB, has published an evolving methodology for identifying “global systemically important insurers” (“G-SIIs”) and high-level policy measures that will apply to G-SIIs. The FSB, working with national authorities and the IAIS, has designated nine insurance groups as G-SIIs. The IAIS is working on the policy measures which include higher capital requirements and enhanced supervision. Although neither the Company nor Dai-ichi Life has been designated as a G-SII, the list of designated insurers will be updated periodically by the FSB. It is possible that the greater size and reach of the combined group as a result of the Company becoming a subsidiary of Dai-ichi Life, or a change in the methodologies or their application, could lead to the combined group’s designation as a G-SII.

The IAIS is also in the process of developing a common framework for the supervision of internationally active insurance groups (“IAIGs”). The framework, which is currently under discussion, may include a global capital measurement standard for insurance groups deemed to be IAIGs that could exceed the sum of state or other local capital requirements. In addition, the IAIS is developing a model framework for the supervision of IAIGs that contemplates “group wide supervision” across national boundaries and legal entities, which could require each IAIG to conduct its own risk and solvency assessment to monitor and manage its overall solvency. It is likely that, as a result of the Merger, the combined group will be deemed an IAIG, in which case it may be subject to supervision requirements and capital measurement standards beyond those applicable to any competitors who are not designated as an IAIG.

The Company’s sole stockholder, Dai-ichi Life, is also subject to regulation by the Japanese Financial Services Authority (“JFSA”). Under applicable laws and regulations, Dai-ichi Life is required to provide notice to or obtain the consent of the JFSA prior to taking certain actions or engaging in certain transactions, either directly or indirectly through its subsidiaries, including the Company and its consolidated subsidiaries, which could limit the ability of the Company to engage in certain transactions or business initiatives.

While it is not yet known how or the extent to which the Company will be impacted by these regulations, the Company may experience increased costs of compliance, increased disclosure, less flexibility in capital management, and more burdensome regulation and capital requirements for specific lines of business. In addition, such regulations could impact the business of the Company and its reserve and capital requirements, financial condition or results of operations.

NAIC actions, pronouncements and initiatives may affect the Company’s product profitability, reserve and capital requirements, financial condition or results of operations.

Although some NAIC pronouncements, particularly as they affect accounting, reserving and risk-based capital issues, may take effect automatically without affirmative action taken by the states, the NAIC is not a governmental entity and its processes and procedures do not comport with those to which governmental entities typically adhere. Therefore, it is possible that actions could be taken by the NAIC that become effective without the procedural safeguards that would be present if governmental action was required. In addition, with respect to some financial regulations and guidelines, states sometimes defer to the interpretation of the insurance department of a non-domiciliary state. Neither the action of the non-domiciliary state nor the action of the NAIC is binding on a domiciliary state. Accordingly, a state could choose to follow a different interpretation. The Company is also subject to the risk that compliance with any particular regulator’s interpretation of a legal, accounting or actuarial issue may result in non-compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. There is an additional risk that any particular regulator’s interpretation of a legal, accounting or actuarial issue may change over time to the Company’s detriment, or that changes to the overall legal or market environment may cause the Company to change its practices in ways that may, in some cases, limit its growth or profitability. Statutes, regulations, interpretations, and instructions may be applied with retroactive impact, particularly in areas such as accounting, reserve and risk-based capital requirements. Also, regulatory actions with prospective impact can potentially have a significant impact on currently sold products.

The NAIC has announced more focused inquiries on certain matters that could have an impact on the Company’s financial condition and results of operations. Such inquiries concern, for example, insurer use of captive reinsurance companies, variable

annuity reserves and capital treatment, certain aspects of insurance holding company reporting and disclosure, reinsurance, cybersecurity practices, liquidity assessment, and risk-based capital calculations. In addition, the NAIC continues to consider various initiatives to change and modernize its financial and solvency requirements and regulations. It has adopted principles-based reserving methodologies for life insurance and annuity reserves, but additional formulas and/or guidance relevant to the new standard are being developed. The NAIC is also considering changes to accounting and risk-based capital regulations, risk-based capital calculations, governance practices of insurers, and other items. Additionally, the NAIC is studying a group capital calculation that would aggregate required capital across U.S.-based insurance groups. The Company cannot currently estimate what impact these more focused inquiries or proposed changes, if they occur, will have on its product mix, product profitability, reserve and capital requirements, financial condition or results of operations.


The Company’s use of captive reinsurance companies to finance statutory reserves related to its term and universal life products and to reduce volatility affecting its variable annuity products may be limited or adversely affected by regulatory action, pronouncements and interpretations.


The Company currently uses affiliated captive reinsurance companies in various structures to finance certain statutory reserves based on a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX,” which are associated with term life insurance and universal life insurance with secondary guarantees, respectively, as well as to reduce the volatility in statutory risk-based capital associated with certain guaranteed minimum withdrawal and death benefit riders associated with certain of the Company’s variable annuity products.


The NAIC has adopted Actuarial Guideline XLVIII (“AG48”) and the substantially similar “Term and Universal Life Insurance Reserve Financing Model Regulation” (the “Reserve Model”) which establish national standards for new reserve financing arrangements for term life insurance and universal life insurance with secondary guarantees. AG48 and the Reserve Model govern collateral requirements for captive reinsurance arrangements. In order to obtain reserve credit, AG48 and the Reserve Model require a minimum level of funds, consisting of primary and other securities, to be held by or on behalf of ceding insurers as security under each captive life reinsurance treaty. As a result of AG48 and the Reserve Model, the implementation of new captive structures in the future may be less capital efficient, lead to lower product returns and/or increased product pricing, or result in reduced sales of certain products. In some circumstances, AG48 and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.


The Financial Condition (E) Committee of the NAIC has adopted a framework forNAIC’s 2020 Valuation Manual includes changes to current rules and regulations applicable to the determination of variable annuity reserves and risk-based capital. The changes are intended to decrease incentives for insurers to establish variable annuities captives and will apply to both in-force and new business. The new rules and regulations will likely have a January 1, 2020 effective date and an optional 3- to 7-year transition period from current rules and regulations, beginning onwhich the effective date.Company may elect to utilize. The changes could adversely affect our future financial condition and results of operations.


The NAIC adopted revisions to the Part A Laws and Regulations Preamble (the “Preamble”) of the NAIC Financial Regulation Standards and Accreditation Program that includes within the definition of “multi-state insurer” certain insurer-owned captives and special purpose vehicles that are single-state licensed but assume reinsurance from cedants operating in multiple states. The revised definition subjects certain captives, including XXX/AXXX captives, variable annuity and long-term care captives, to all of the accreditation standards applicable to other traditional multi-state insurers, including standards related to capital and surplus requirements, risk-based capital requirements, investment laws, and credit for reinsurance laws. Although we do not expect the revised definition to affect our existing life insurance captives (or our ability to engage in life insurance captive transactions in the future), such application will likely prevent us from engaging in variable annuity captive transactions on the same or a similar basis as in the past and, if applied retroactively, would likely cause us to recapture business from and unwind our existing variable annuity captive (“VA Captive”).


While the recapture of business from our existing VA Captive, caused either by actions ofchanges to the VAIWGNAIC’s 2020 Valuation Manual or the effect of the Preamble, would not have a material adverse effect on the Company given current market conditions, in the future the Company could experience fluctuations in its risk-based capital ratio due to market volatility if it were prohibited from engaging in similar transactions or required to unwind its existing VA Captive, which could adversely affect our future financial condition and results of operations.


Any regulatory action or change in interpretation that materially adversely affects the Company’s use or materially increases the Company’s cost of using captives or reinsurers for the affected business, either retroactively or prospectively, could have a material adverse impact on the Company’s financial condition or results of operations. If the Company were required to discontinue its use of captives for intercompany reinsurance transactions on a retroactive basis, adverse impacts would include early termination fees payable to third party finance providers with respect to certain structures, diminished capital position, and higher cost of capital. Additionally, finding alternative means to support policy liabilities efficiently is an unknown factor that would be dependent, in part, on future market conditions and the Company’s ability to obtain required regulatory approvals. On a prospective basis, discontinuation of the use of captives could impact the types, amounts and pricing of products offered by the Company’s insurance subsidiaries.



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Laws, regulations, and initiatives related to unreported deaths and unclaimed property and death benefits may result in operational burdens, fines, unexpected payments, or escheatments.


Since 2012, various states have enacted laws that require life insurers to search for unreported deaths. The National Conference of Insurance Legislators (“NCOIL”) has adopted the Model Unclaimed Life Insurance Benefits Act (the “Unclaimed Benefits Act”) and legislation or regulations have been enacted in numerous states that are similar to the Unclaimed Benefits Act, although each state’s version differs in some respects. The Unclaimed Benefits Act if adopted by any state, imposes new requirements on insurers to periodically compare their life insurance and annuity contracts and retained asset accounts against the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”), investigate any potential matches to confirm the death and determine whether benefits are due, and to attempt to locate the beneficiaries of any benefits that are due or, if no beneficiary can be located, escheat the benefit to the state as unclaimed property. Other states in which the Company does business may also consider adopting legislation similar to the Unclaimed Benefits Act. The Company cannot predict whether such legislation will be proposed or enacted in additional states.


The Uniform Laws Commission has adopted revisions to the Uniform Unclaimed Property Act in a manner likely to impact state unclaimed property laws and requirements, though it is not clear at this time to what extent or whether requirements will conflict with otherwise imposed search requirements. Other life insurance industry associations and regulatory associations are also considering these matters. Certain states have amended or may amend their unclaimed property laws to require insurers to compare in-force and certain terminatedin a manner which creates additional obligations for life insurance policies, annuity contracts, and retained asset accounts against a Death Database, to investigate potential matches to determine whether the named insured is deceased, to attempt to locate and pay beneficiaries any unclaimed benefits required to be paid, and, if no beneficiary can be located, to escheat policy benefits to the appropriate state as unclaimed property.companies. The enactment or amendment of such unclaimed property laws may require the Company to incur significant expenses, including benefits with respect to terminated policies for which no reserves are currently held and unanticipated operational expenses. Any of the foregoing could have a material adverse effect on the Company’s financial condition and results of operations.


A number of state treasury departments and administrators of unclaimed property have audited life insurance companies for compliance with unclaimed property laws. The focus of the audits has been to determine whether there have been maturities of policies or contracts, or policies that have exceeded limiting age with respect to which death benefits or other payments under the policies should be treated as unclaimed property that should be escheated to the state. In addition, the audits have sought to identify unreported deaths of insureds. There is no clear basis in previously existing law for treating an unreported death as giving rise to a policy benefit that would be subject to unclaimed property procedures. A number of life insurers, however, have entered into resolution agreements withlaws, and state treasury departments and administrators of unclaimed property under which the life insurers agreed to procedures for comparing their previously issued life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest, in some cases at a negotiated rate, to the state if the beneficiary could not be found, and paying penalties to the state, if required. The amounts publicly reported to have been paid to beneficiaries and/or escheated to the states have been substantial.

State insurance regulators have initiated targeted multi-state examinations of life insurance companies with respect to the companies’ claims paying practices and use of a Death Database to identify unreported deaths in their life insurance policies, annuity contracts, and retained asset accounts, despite havingaccounts. There is no clear basis in previously existing law for requiringtreating an unreported death as giving rise to a life insurerpolicy benefit that would be subject to search for unreported deaths in order to determine whetherunclaimed property procedures. However, a benefit is owed. A number of life insurers however, have entered into resolution agreements with state treasury departments and administrators of unclaimed property or settlement or consent agreements with state insurance regulators under which the life insurers agreedregulators. The amounts publicly reported to implement systems and procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving risehave been paid to a death benefit under their policies, locating beneficiaries, and paying them the benefits and interest, escheating the benefits and interestescheated to the state if the beneficiary could not be found, and paying penalties to the state, if required. It has been publicly reported that the life insurers havestates, and/or paid substantialas administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements.agreements have been substantial.


Certain of the Company’s subsidiaries as well as certain other insurance companies from whom the Company has coinsured blocks of life insurance and annuity policies are subject to unclaimed property audits and/or targeted multi-state examinations by insurance regulators similar to those described above. It is possible that the audits, examinations, and/or the enactment of state laws similar to the Unclaimed Benefits Act could result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, payment of administrative penalties and/or examination fees to state authorities, and changes to the Company’s procedures for identifying unreported deaths and escheatment of abandoned property. It is possible any such additional payments and any costs related to changes in Company proceduressuch audits could materially impact the Company’s financial condition and/or results of operations. It is also possible that life insurers, including the Company and other insurance companies from whom the Company has coinsured blocks of life insurance and annuity policies, may be subject to claims, regulatory actions, law enforcement actions, and civil litigation arising from their prior business practices, unclaimed property practices, or related audits and examinations. Any resulting liabilities, payments or costs including initial and ongoing costs of changes to the Company’s procedures or systems, could be significant and could have a material adverse effect on the Company’s financial condition and/or results of operations.


During December 2012, the West Virginia Treasurer filed actions againstThe Company is subject to insurance guaranty fund laws, rules and regulations that could adversely affect the Company’s subsidiaries Protective Life Insurance Company and West Coast Life Insurance Companyfinancial condition or results of operations.

Under insurance guaranty fund laws in West Virginia state court (State of West Virginia ex rel. John D. Perdue v. Protective Life Insurance Company; State of West Virginia ex rel. John D. Perdue v. West Coast Life Insurance Company; Defendants’ Motions to Dismiss granted on December 27, 2013; Notice of Appeal filed on January 27, 2014; dismissal reversed by the West Virginia Supreme Court of Appeals on June 16, 2015; Petition for Rehearing filed by Defendantmost states, insurance companies denied on September 21, 2015). The actions, which also name numerous other life insurancedoing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. From time to time, companies allege that the companies violated the West Virginia Uniform Unclaimed Property Act, seekmay be asked to compel compliance with the Act, and seek payment of

unclaimed property, interest, and penalties. While the legal theory or theories that may give rise to liability in the West Virginia Treasurer litigation are uncertain, itcontribute amounts beyond prescribed limits. It is possible that the Company could be assessed with respect to product lines not offered by the Company. In 2017, the NAIC adopted revisions to the Life and Health Insurance Guaranty Association Model Act that, if adopted by states, would result in an increase to the percentage of liabilities attributable to any future long term care provider insolvency that can be assessed to life insurers. Legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other jurisdictions may pursue similar actions. The Company does not currently believespecialty products, that losses, if any, arisingdiffers from the West Virginia Treasurer litigation will be material.revised Model Act and which increases the cost of future assessments and/or alters future premium tax offsets received in connection with guaranty fund assessments. Additionally, judicial review may affect liquidation orders against insolvent companies, which could impact the guaranty fund system. The Company cannot however, predict whether other jurisdictions will pursue similar actionsthe amount, nature or if they do, whether such actions willtiming of any future assessments or legislation, any of which could have a material and adverse impact on the Company’s financial condition and/or results of operations.

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New and amended regulations regarding the standard of care or standard of conduct applicable to investment professionals, insurance agencies, and financial institutions that recommend or sell annuities or life insurance products may have a material adverse impact on our ability to sell annuities and other products and to retain in-force business and on our financial condition or results of operations.


Sales of life insurance policies contracts, and annuitiesannuity contracts offered by the Company are subject to regulations relating to sales practices adopted by a variety of federal and state regulatory authorities. Certain annuities and life insurance policies such as variable annuities and variable universal life insurance are regulated under the federal securities laws administered by the U.S. Securities and Exchange Commission (the “SEC”).SEC. On April 18, 2018,June 5, 2019, the SEC voted to proposeadopted a comprehensive package of rulemakings and interpretations relating to the standard of conduct applicable to broker-dealers, investment advisers, and their representatives when making certain recommendations to retail customers. Specifically, under the proposed regulations,Regulation Best Interest (“Regulation BI”), a broker-dealer would be requirednew rule establishing a “best interest” standard of conduct for broker-dealers and their natural associated persons when making recommendations to act in the best interestretail customers of a retail customer when recommending any securities transaction or investment strategy involving securities or regarding the opening of an account. Specifically, Regulation BI requires a broker-dealer (or associated person) to aact in the retail customer. Thecustomer’s best interest and not place its (or his or her) own interests ahead of the retail customer’s interests. In addition to Regulation BI, the SEC also proposed an interpretation reaffirmingadopted a new rule and in some cases, clarifying its views of the fiduciary duty that investment advisers oweamended existing rules to their clients. Another SEC proposal would require broker-dealers and registered investment advisers to provide each customera brief relationship summary to retail investors (“Form CRS Rules”). The Form CRS Rules are intended to assist retail investors with their initial selection of, and ongoing decision to maintain an existing relationship with, a summaryfinancial professional or firm by summarizing in one place certain specified information about the broker-dealer or investment adviser. The rulemaking package also includes two interpretations: (i) the investment adviser interpretation, which clarifies certain aspects of the naturestandard of conduct applicable to registered investment advisers under section 206 of the customer’s relationship withInvestment Advisers Act of 1940 (“Advisers Act”), and (ii) the investment professional, as well as a restriction on“solely incidental” interpretation, which clarifies the usebroker-dealer exclusion from the definition of “investment adviser” under section 202 of the terms “adviser” and “advisor” by broker-dealers.Advisers Act.


In addition, broker-dealers, insurance agencies and other financial institutions sell the Company’s annuities to employee benefit plans governed by provisions of the Employee Retirement Income Security Act (“ERISA”) and Individual Retirement Accounts (“IRAs”) that are governed by similar provisions under the Internal Revenue Code (the “Code”). Consequently, our activities and those of the firms that sell the Company’s products are subject to restrictions that require ERISA fiduciaries to perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that prohibit ERISA fiduciaries from causing a covered plan or retirement account to engage in certain prohibited transactions absent an exemption.


The NAIC is considering revisions to the Suitability in Annuity Transactions Model Regulation which, if adopted by regulators, could impose a stricter standard of care upon insurers who sell annuities. Likewise, several states are considering or have adopted legislation or regulatory measures that would implement new requirements and standards applicable to the sale of annuities and, in some cases, life insurance products. The NAIC and several states, including Connecticut, Nevada, New Jersey, and New York have passed laws or proposed regulations requiring insurers, investment advisers, broker-dealers, and/or agents to disclose conflicts of interest to clients or to meet standards that their advice be in the customer’s best interest. These standards vary widely in scope, applicability, and timing of implementation. The adoption and enactment of these or any revised standards as law or regulation could have a material adverse effect upon the manner in which the Company’s products are sold.sold and impact the overall market for such products.


There remains significant uncertainty surrounding the final form that these regulations may take. Our current distributors may continue to move forward with their plans to limit the number of products they offer, including the types of products offered by the Company. The Company may find it necessary to change sales representative and/or broker compensation, to limit the assistance or advice it can provide to owners of the Company’s annuities, to replace or engage additional distributors, or otherwise change the manner in which it designs, supervises, and supports sales of its annuities.annuities and, where applicable, life insurance products. In addition, the Company continues to incur expenses in connection with initial and ongoing compliance obligations with respect to such rules, and in the aggregate these expenses may be significant. Any of the foregoing regulatory, legislative, or judicial measures or the reaction to such activity by consumers or other members of the insurance industry could have a material adverse impact on our ability to sell annuities and other products, to retain in-force business, and on our financial condition or results of operations.


The Company may be subject to regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, FINRA and other federal and international regulators in connection with its business operations.

Certain life insurance policies, contracts, and annuities offered by the Company are subject to regulation under the federal securities laws administered by the SEC. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions. From time to time, the SEC and the Financial Industry Regulatory Authority (“FINRA”) examine or investigate the activities of broker-dealers and investment advisors, including the Company’s affiliated broker-dealers and investment advisers. These examinations or investigations often focus on the activities of the registered representatives and registered investment advisers doing business through such entities and the entities’ supervision of those persons. It is possible that any examination or investigation could lead to enforcement action by the regulator and/or may result in payments of fines and penalties, payments to customers, or both, as well as changes in systems or procedures of such entities, any of which could have a material adverse effect on the Company’s financial condition or results of operations.

The Company may also be subject to regulation by governments of the countries in which it currently does, or may in the future, do, business, as well as regulation by the U.S. Government with respect to its operations in foreign countries, such as the Foreign Corrupt Practices Act. Penalties for violating the various laws governing the Company’s business in other countries may include restrictions upon business operations, fines and imprisonment, both within the U.S. and abroad. U.S. enforcement of anti-corruption laws continues to increase in magnitude, and penalties may be substantial.

The Company is subject to conditions and requirements set forth in the Telephone Consumer Protection Act (“TCPA”), which places restrictions on the use of automated telephone and facsimile machines. Class action lawsuits alleging violations of the act have been filed against a number of companies, including life insurance carriers. These class action lawsuits contain allegations that defendant carriers were vicariously liable for the alleged wrongful conduct of agents who violated the TCPA.

Some of the class actions have resulted in substantial settlements against other insurers. Any such actions against the Company could result in a material adverse effect upon our financial condition or results of operations.

Other types of regulation that could affect the Company and its subsidiaries include, but are not limited to, insurance company investment laws and regulations, state statutory accounting and reserving practices, antitrust laws, minimum solvency requirements, enterprise risk requirements, state securities laws, federal privacy laws, cybersecurity regulation, technology and data regulations, insurable interest laws, federal anti-money laundering and anti-terrorism laws, employment and immigration laws (including laws in Alabama where over half of the Company’s employees are located), and because the Company owns and operates real property, state, federal, and local environmental laws. Under some circumstances, severe penalties may be imposed for breach of these laws.

The Company cannot predict what form any future changes to laws and/or regulations affecting participants in the financial services sector and/or insurance industry, including the Company and its competitors or those entities with which it does business, may take, or what effect, if any, such changes may have.

The Company’s ability to enter into certain transactions is influenced by how such a transaction might affect Dai-ichi Life’s taxation in Japan.

Changes to tax law, such as the effect of the Tax Cuts and Jobs Act (the “Tax Reform Act”) which was enacted on December 22, 2017, or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products.

In general, existing law exempts policyholders from current taxation on the increase in value of most insurance and annuity products during these products’ accumulation phase. This favorable tax treatment provides some of the Company’s products with a competitive advantage over products offered by non-insurance companies. To the extent that the law is revised to either reduce the tax-deferred status of life insurance and annuity products, or to establish the tax-deferred status of competing products, then all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell their products. Furthermore, such changes would generally cause increased surrenders of existing life insurance and annuity products. For example, a change in law that further restricts the deductibility of interest expense when a business owns a life insurance product would result in increased surrenders of these products.

The Company is subject to corporate income, excise, franchise, and premium taxes. Federal tax law provides certain benefits to the Company, such as the dividends-received deduction, the deferral of current taxation on derivatives’ and securities’ economic income and the current deduction for future policy benefits and claims. The Tax Reform Act will require the Company to report higher amounts of taxable income both currently and in the future. However, the legislation also significantly reduced the corporate income tax rate. Overall, the Company expects to pay less income tax in the future.

The Company’s mid-2005 transition from relying on reinsurance for newly-written traditional life products to reinsuring some of these products’ reserves into its captive insurance companies resulted in a net reduction in its current taxes, offset by an increase in its deferred taxes. The resulting benefit of reduced current taxes is attributed to the applicable life products and is an important component of the profitability of these products. The Tax Reform Act, with its overall lower tax rate, has decreased the economic tax benefit associated with these products. Ultimately, the profitability and competitive position of these products is dependent on the Company’s ability to continue deducting its provision for future policy benefits and claims and the Company’s ability to generate taxable income.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended September 30, 2018,2019, the Company sold no equity securities in transactions which were not registered under the Securities Act of 1933, as amended.
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Purchases of Equity Securities by the Issuer
During the quarter ended September 30, 2018,2019, 100% of the Company’s common stock was owned by Dai-ichi Life Holdings, Inc., and was not available for repurchase by the Company.

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Item 6. Exhibits
Exhibit
Number
Certificate of Incorporation of the Company effective as of February 1, 2015, incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed February 26, 2015 (No. 001-11339).
Amended and Restated Bylaws of the Company, effective as of August 6, 2018,February 25, 2019, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed August 8, 2018March 1, 2019 (No. 001-11339).
Senior Indenture, dated as of June 1, 1994, between Protective Life Corporation and The Bank of New York MellonMellow Trust Company, N.A., as successor Trustee incorporated(incorporated by reference to Exhibit 4(c)(1) to Protective Life Corporation’sCorporation's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 2, 2018 (No. 001-11339)2018).
Supplemental Indenture No. 15,16, dated as of August 23, 2018,September 20, 2019, between Protective Life Corporation and The Bank of New York Mellon Trust Company, N.A., as successor Trustee, supplementing the Senior Indenture dated June 1, 1994, incorporated by reference to Exhibit 4.2 of the Company’sCompany's Current Report on Form 8-K filed August 24, 2018September 20, 2019 (No. 001-11339).
Form of 4.300%3.400% Senior Note due 20282030 (included in Exhibit 4(b), above).4.2)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101Financial statements from the quarterly report on Form 10-Q of Protective Life Corporation for the quarter ended September 30, 2018,2019, filed on November 9, 2018,12, 2019, formatted in XBRL: (i) the Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed Statements of Comprehensive Income (Loss), (iii) the Consolidated Condensed Balance Sheets, (iv) the Consolidated Condensed Statement of Shareowner’s Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (iv) the Notes to Consolidated Condensed Financial Statements.
*Incorporated by Reference
± Pursuant to Item 601(b)(2) of Regulation S-K, the schedules have been omitted and will be furnished to the SEC supplementally upon request.


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SIGNATURE
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PROTECTIVE LIFE CORPORATION
Date: November 9, 201812, 2019By:/s/ PAUL R. WELLS
Paul R. Wells
Senior Vice President, Chief Accounting Officer, and
Controller



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