UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q




(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
x		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, ~~2016~~2017
		OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
¨		OF THE SECURITIES EXCHANGE ACT OF 1934
		Commission File Number 1-11848

REINSURANCE GROUP OF AMERICA, INCORPORATED

(Exact name of Registrant as specified in its charter)



MISSOURI		43-1627032
(State or other jurisdiction		(IRS employer
of incorporation or organization)		identification number)

16600 Swingley Ridge Road

Chesterfield, Missouri 63017

(Address of principal executive offices)

(636) 736-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes Tx No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes Tx No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Tx Accelerated filer o Non-accelerated filer o

Smaller reporting companyo Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No Tx

As of July 31, ~~2016,~~ ~~64,065,779~~2017, 64,493,846 shares of the registrant’s common stock were outstanding.

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


Item		Page		Page

	PART I – FINANCIAL INFORMATION		PART I – FINANCIAL INFORMATION

1	Financial Statements		Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) June 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2016 and 2015	5	Condensed Consolidated Balance Sheets (Unaudited) June 30, 2017 and December 31, 2016	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2016 and 2015	6	Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2017 and 2016	4
	Notes to Condensed Consolidated Financial Statements (Unaudited):	7	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2017 and 2016	5
	1. Business and Basis of Presentation	7	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2017 and 2016	6
	2. Earnings Per Share	7	Notes to Condensed Consolidated Financial Statements (Unaudited):	7
	3. Equity	8	1. Business and Basis of Presentation	7
	4. Investments	9	2. Earnings Per Share	7
	5. Derivative Instruments	18	3. Equity	8
	6. Fair Value of Assets and Liabilities	26	4. Investments	10
	7. Segment Information	40	5. Derivative Instruments	20
	8. Commitments, Contingencies and Guarantees	41	6. Fair Value of Assets and Liabilities	28
	9. Income Tax	42	7. Segment Information	42
	10. Employee Benefit Plans	43	8. Commitments, Contingencies and Guarantees	43
	11. Equity Based Compensation	43	9. Income Tax	44
	12. Reinsurance	43	10. Employee Benefit Plans	45
	13. Financing Activities	44	11. Reinsurance	45
	14. New Accounting Standards	44	12. New Accounting Standards	46
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
3	Quantitative and Qualitative Disclosures About Market Risk	83	Quantitative and Qualitative Disclosures About Market Risk	80
4	Controls and Procedures	83	Controls and Procedures	81

	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION

1	Legal Proceedings	84	Legal Proceedings	82
1A	Risk Factors	84	Risk Factors	82
2	Unregistered Sales of Equity Securities and Use of Proceeds	84	Unregistered Sales of Equity Securities and Use of Proceeds	82
6	Exhibits	85	Exhibits	82
	Signatures	86	Signatures	83
	Index to Exhibits	87	Index to Exhibits	84

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
	(Dollars in thousands, except share data)						(Dollars in thousands, except share data)
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $30,076,884 and $28,322,977)	$	33,160,976		$	29,642,905
Mortgage loans on real estate (net of allowances of $6,499 and $6,813)	3,377,039			3,129,951
Available-for-sale at fair value (amortized cost of $33,738,334 and $30,211,787)							$	36,345,426		$	32,093,625
Mortgage loans on real estate (net of allowances of $8,156 and $7,685)							4,104,487			3,775,522
Policy loans	1,445,410			1,468,796			1,406,774			1,427,602
Funds withheld at interest	5,899,289			5,880,203			5,968,856			5,875,919
Short-term investments	195,979			558,284			123,308			76,710
Other invested assets	1,682,143			1,298,120			1,498,370			1,591,940
Total investments	45,760,836			41,978,259			49,447,221			44,841,318
Cash and cash equivalents	1,034,329			1,525,275			1,123,350			1,200,718
Accrued investment income	368,926			339,452			388,008			347,173
Premiums receivable and other reinsurance balances	1,917,844			1,797,504			2,205,631			1,930,755
Reinsurance ceded receivables	681,425			637,859			798,365			683,972
Deferred policy acquisition costs	3,401,935			3,392,437			3,334,094			3,338,605
Other assets	711,408			712,366			841,403			755,338
Total assets	$	53,876,703		$	50,383,152		$	58,138,072		$	53,097,879
Liabilities and Stockholders’ Equity
Future policy benefits	$	19,605,021		$	19,612,251		$	20,665,256		$	19,581,573
Interest-sensitive contract liabilities	14,024,012			13,663,873			16,440,873			14,029,354
Other policy claims and benefits	4,305,219			4,094,640			4,809,780			4,263,026
Other reinsurance balances	344,527			296,899			399,517			388,989
Deferred income taxes	2,901,264			2,218,328			3,162,666			2,770,640
Other liabilities	1,157,252			1,165,071			1,077,223			1,041,880
Short-term debt	299,807			—
Long-term debt	2,788,473			2,297,548			2,788,494			3,088,635
Collateral finance and securitization notes	870,482			899,161			823,108			840,700
Total liabilities	46,296,057			44,247,771			50,166,917			46,004,797
Commitments and contingent liabilities (See Note 8)
Stockholders’ Equity:
Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding	—			—			—			—
Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at June 30, 2016 and December 31, 2015	791			791
Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at June 30, 2017 and December 31, 2016							791			791
Additional paid-in capital	1,834,995			1,816,142			1,860,001			1,848,611
Retained earnings	4,870,711			4,620,303			5,523,622			5,199,130
Treasury stock, at cost - 15,068,009 and 13,933,232 shares	(1,111,225		)	(1,010,139		)
Treasury stock, at cost - 14,645,901 and 14,835,256 shares							(1,085,157		)	(1,094,779		)
Accumulated other comprehensive income	1,985,374			708,284			1,671,898			1,139,329
Total stockholders’ equity	7,580,646			6,135,381			7,971,155			7,093,082
Total liabilities and stockholders’ equity	$	53,876,703		$	50,383,152		$	58,138,072		$	53,097,879

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Revenues:	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net premiums	$	2,346,945		$	2,129,043		$	4,503,950		$	4,152,895		$	2,480,451		$	2,346,945		$	4,846,147		$	4,503,950
Investment income, net of related expenses	507,666			450,539			924,932			877,430			518,538			507,666			1,032,902			924,932
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(846		)	(4,137		)	(34,663		)	(6,664		)	(3,401		)	(846		)	(20,590		)	(34,663		)
Other investment related gains (losses), net	119,110			(12,041		)	32,041			(1,931		)	59,696			119,110			137,408			32,041
Total investment related gains (losses), net	118,264			(16,178		)	(2,622		)	(8,595		)	56,295			118,264			116,818			(2,622		)
Other revenues	66,193			66,936			125,376			129,223			73,992			66,193			142,149			125,376
Total revenues	3,039,068			2,630,340			5,551,636			5,150,953			3,129,276			3,039,068			6,138,016			5,551,636
Benefits and Expenses:
Claims and other policy benefits	1,997,502			1,866,183			3,884,266			3,641,634			2,164,363			1,997,502			4,270,508			3,884,266
Interest credited	95,849			77,246			183,754			197,924			115,285			95,849			222,969			183,754
Policy acquisition costs and other insurance expenses	405,681			300,412			639,444			577,455			319,832			405,681			699,221			639,444
Other operating expenses	159,895			131,600			317,319			253,218			154,356			159,895			312,862			317,319
Interest expense	20,331			35,851			53,138			71,478			29,352			20,331			71,754			53,138
Collateral finance and securitization expense	6,587			5,258			12,912			11,329			6,773			6,587			13,543			12,912
Total benefits and expenses	2,685,845			2,416,550			5,090,833			4,753,038			2,789,961			2,685,845			5,590,857			5,090,833
Income before income taxes	353,223			213,790			460,803			397,915			339,315			353,223			547,159			460,803
Provision for income taxes	117,120			83,399			148,228			142,410			107,125			117,120			169,457			148,228
Net income	$	236,103		$	130,391		$	312,575		$	255,505		$	232,190		$	236,103		$	377,702		$	312,575
Earnings per share:
Basic earnings per share	$	3.68		$	1.97		$	4.86		$	3.80		$	3.60		$	3.68		$	5.86		$	4.86
Diluted earnings per share	$	3.64		$	1.94		$	4.81		$	3.76		$	3.54		$	3.64		$	5.76		$	4.81
Dividends declared per share	$	0.37		$	0.33		$	0.74		$	0.66		$	0.41		$	0.37		$	0.82		$	0.74

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended June 30,					Six months ended June 30,						Three months ended June 30,				Six months ended June 30,
	2016		2015			2016			2015			2017		2016		2017		2016
Comprehensive income (loss)	(Dollars in thousands)
Comprehensive income												(Dollars in thousands)
Net income	$	236,103	$	130,391		$	312,575		$	255,505		$	232,190	$	236,103	$	377,702	$	312,575
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:
Foreign currency translation adjustments	9,942		21,935			87,675			(95,836		)	43,565		9,942		21,352		87,675
Net unrealized investment gains	643,893		(757,641		)	1,191,118			(413,717		)	306,329		643,893		509,444		1,191,118
Defined benefit pension and postretirement plan adjustments	1,156		834			(1,703		)	1,788			849		1,156		1,773		(1,703		)
Total other comprehensive income (loss), net of tax	654,991		(734,872		)	1,277,090			(507,765		)
Total comprehensive income (loss)	$	891,094	$	(604,481	)	$	1,589,665		$	(252,260	)
Total other comprehensive income, net of tax												350,743		654,991		532,569		1,277,090
Total comprehensive income												$	582,933	$	891,094	$	910,271	$	1,589,665

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended June 30,						Six months ended June 30,
	2016			2015			2017			2016
	(Dollars in thousands)						(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	312,575		$	255,505		$	377,702		$	312,575
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	(34,705		)	(26,656		)	(34,676		)	(34,705		)
Premiums receivable and other reinsurance balances	(98,610		)	(19,683		)	(230,650		)	(98,610		)
Deferred policy acquisition costs	(5,435		)	5,136			35,870			(5,435		)
Reinsurance ceded receivable balances	(60,465		)	(115,355		)	(127,995		)	(60,465		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	380,297			353,946			745,799			380,297
Deferred income taxes	101,163			77,047			142,044			101,163
Other assets and other liabilities, net	(43,708		)	42,363			(63,811		)	(43,708		)
Amortization of net investment premiums, discounts and other	(42,843		)	(39,021		)	(47,563		)	(42,843		)
Depreciation and amortization expense							13,869			12,888
Investment related (gains) losses, net	2,622			8,595			(116,818		)	2,622
Other, net	83,555			63,815			(37,797		)	70,667
Net cash provided by operating activities	594,446			605,692			655,974			594,446
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	2,271,414			2,742,814			4,288,713			2,271,414
Maturities of fixed maturity securities available-for-sale	273,552			232,712			313,530			273,552
Sales of equity securities	132,932			50,083			166,916			132,932
Principal payments on mortgage loans on real estate	294,843			166,583			135,450			294,843
Principal payments on policy loans	25,065			441			26,658			25,065
Purchases of fixed maturity securities available-for-sale	(4,416,290		)	(2,806,351		)	(5,311,818		)	(4,416,290		)
Purchases of equity securities	(408,684		)	(68,116		)	(32,299		)	(408,684		)
Cash invested in mortgage loans on real estate	(543,454		)	(531,317		)	(463,063		)	(543,454		)
Cash invested in policy loans	(1,679		)	(686		)	(5,830		)	(1,679		)
Cash invested in funds withheld at interest	(27,868		)	(57,708		)	(6,910		)	(27,868		)
Purchase of businesses, net of cash acquired of $19,377	—			(191,450		)
Purchases of property and equipment	—			(22,944		)	31,686			—
Cash paid under securities repurchase agreements	—			(101,203		)
Change in short-term investments	350,062			22,543			22,671			350,062
Change in other invested assets	(8,100		)	91,562			(55,379		)	(8,100		)
Net cash used in investing activities	(2,058,207		)	(473,037		)	(889,675		)	(2,058,207		)
Cash Flows from Financing Activities:
Dividends to stockholders	(47,746		)	(44,519		)	(52,815		)	(47,746		)
Repayment of collateral finance and securitization notes	(35,369		)	(17,632		)	(23,761		)	(35,369		)
Proceeds from issuance of collateral finance and securitization notes	—			160,060
Proceeds from long-term debt issuance	799,984			—			—			799,984
Debt issuance costs	(9,026		)	(1,170		)	—			(9,026		)
Principal payments of long-term debt	(1,227		)	(1,178		)	(301,278		)	(1,227		)
Purchases of treasury stock	(120,806		)	(262,515		)	(10,578		)	(120,806		)
Exercise of stock options, net	5,219			12,641			2,527			5,219
Change in cash collateral for derivative positions and other arrangements	57,055			(31,244		)	(7,046		)	57,055
Deposits on universal life and other investment type policies and contracts	513,679			132,679			917,675			513,679
Withdrawals on universal life and other investment type policies and contracts	(208,743		)	(363,600		)	(402,528		)	(208,743		)
Net cash provided by (used in) financing activities	953,020			(416,478		)
Net cash provided by financing activities							122,196			953,020
Effect of exchange rate changes on cash	19,795			(26,185		)	34,137			19,795
Change in cash and cash equivalents	(490,946		)	(310,008		)	(77,368		)	(490,946		)
Cash and cash equivalents, beginning of period	1,525,275			1,645,669			1,200,718			1,525,275
Cash and cash equivalents, end of period	$	1,034,329		$	1,335,661		$	1,123,350		$	1,034,329
Supplemental disclosures of cash flow information:
Interest paid	$	68,445		$	74,637		$	90,425		$	68,445
Income taxes paid, net of refunds	$	43,838		$	(19,307	)	$	26,447		$	43,838
Non-cash transactions:
Transfer of invested assets	$	1,730		$	118		$	2,243,360		$	1,730
Accrual for capitalized assets	$	—		$	2,121
Purchase of businesses:
Assets acquired, excluding cash acquired	$	—		$	3,681,699
Liabilities assumed	—			(3,490,249		)
Net cash paid on purchase	$	—		$	191,450

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	Business and Basis of Presentation

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Results for the six months ended June 30, ~~2016~~2017 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2016.~~2017. These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries, and all intercompany accounts and transactions have been eliminated. These condensed consolidated statements should be read in conjunction with the Company’s ~~2015~~2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February ~~29, 2016~~28, 2017 (the ~~"2015~~“2016 Annual ~~Report"~~Report”).


2.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Earnings:
Net income (numerator for basic and diluted calculations)	$	236,103	$	130,391	$	312,575	$	255,505	$	232,190	$	236,103	$	377,702	$	312,575
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,126		66,351		64,348		67,246		64,449		64,126		64,401		64,348
Equivalent shares from outstanding stock options	670		769		660		785		1,159		670		1,204		660
Denominator for diluted calculation	64,796		67,120		65,008		68,031		65,608		64,796		65,605		65,008
Earnings per share:
Basic	$	3.68	$	1.97	$	4.86	$	3.80	$	3.60	$	3.68	$	5.86	$	4.86
Diluted	$	3.64	$	1.94	$	4.81	$	3.76	$	3.54	$	3.64	$	5.76	$	4.81

The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended June 30, ~~2016~~2017, no0.2 million stock options and approximately ~~0.7~~0.3 million performance contingent shares were excluded from the calculation. For the three months ended June 30, ~~2015~~2016, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. Year-to-date amounts for equivalent shares from outstanding stock options and performance contingent shares are the weighted average of the individual quarterly amounts.

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3.	Equity

Common Stock

The changes in number of common stock shares, issued, held in treasury and outstanding are as follows for the periods indicated:

Issued Held In Treasury Outstanding
Balance, December 31, 2015 79,137,758
13,933,232
65,204,526
Common stock acquired —
1,352,211
(1,352,211 )
Stock-based compensation ⁽¹⁾
—
(217,434 ) 217,434
Balance, June 30, 2016 79,137,758
15,068,009
64,069,749



	Issued	Held In Treasury		Outstanding
Balance, December 31, 2016	79,137,758	14,835,256		64,302,502
Stock-based compensation ⁽¹⁾	—	(189,355	)	189,355
Balance, June 30, 2017	79,137,758	14,645,901		64,491,857


	Issued	Held In Treasury		Outstanding		Issued	Held In Treasury		Outstanding
Balance, December 31, 2014	79,137,758	10,364,797		68,772,961
Balance, December 31, 2015						79,137,758	13,933,232		65,204,526
Common stock acquired	—	2,791,360		(2,791,360	)	—	1,352,211		(1,352,211	)
Stock-based compensation ⁽¹⁾	—	(440,059	)	440,059		—	(217,434	)	217,434
Balance, June 30, 2015	79,137,758	12,716,098		66,421,660
Balance, June 30, 2016						79,137,758	15,068,009		64,069,749


(1)	Represents net shares issued from treasury pursuant to the ~~Company's~~Company’s equity-based compensation programs.

Common Stock Held in Treasury

Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of common stock held in treasury are credited to additional paid-in capital. Losses resulting from the reissuance of common stock held in treasury are charged first to additional paid-in capital to the extent the Company has previously recorded gains on treasury share transactions, then to retained earnings.

On January ~~21, 2016, RGA's~~26, 2017, RGA’s board of directors authorized a share repurchase program for up to $400.0 million of ~~RGA's~~RGA’s outstanding common stock. The authorization was effective immediately and does not have an expiration date. In connection with this new authorization, the board of directors terminated the stock repurchase authority granted in ~~2015.~~2016. During the first six months of ~~2016, RGA repurchased 1.4 million shares of~~2017, no common stock was repurchased by RGA under this ~~program for $116.1 million.~~program.

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 are as follows (dollars in thousands):

AOCI, Net of Income Tax

Accumulated
Currency
Translation
Adjustments

Unrealized
Appreciation
(Depreciation)
of Investments⁽¹⁾

Pension and
Postretirement
Benefits
Total
Balance, December 31, 2015 $ (181,151 ) $ 935,697
$ (46,262 ) $ 708,284
Other comprehensive income before reclassifications 99,374
1,759,753
(6,083 ) 1,853,044
Amounts reclassified to (from) AOCI —
(24,366 ) 3,467
(20,899 )
Deferred income tax benefit (expense) (11,699 ) (544,269 ) 913
(555,055 )
Balance, June 30, 2016 $ (93,476 ) $ 2,126,815
$ (47,965 ) $ 1,985,374



	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2016	$	(172,541	)	$	1,355,033		$	(43,163	)	$	1,139,329
Other comprehensive income (loss) before reclassifications	(13,936		)	774,688			(196		)	760,556
Amounts reclassified to (from) AOCI	—			(39,360		)	2,935			(36,425		)
Deferred income tax benefit (expense)	35,288			(225,884		)	(966		)	(191,562		)
Balance, June 30, 2017	$	(151,189	)	$	1,864,477		$	(41,390	)	$	1,671,898

AOCI, Net of Income Tax

Accumulated
Currency
Translation
Adjustments

Unrealized
Appreciation
(Depreciation)
of Investments⁽¹⁾

Pension and
Postretirement
Benefits
Total
Balance, December 31, 2014 $ 81,847
$ 1,624,773
$ (49,491 ) $ 1,657,129
Other comprehensive income before reclassifications (89,220 ) (612,314 ) 733
(700,801 )
Amounts reclassified to (from) AOCI —
(6,192 ) 1,965
(4,227 )
Deferred income tax benefit (expense) (6,616 ) 204,789
(910 ) 197,263
Balance, June 30, 2015 $ (13,989 ) $ 1,211,056
$ (47,703 ) $ 1,149,364



	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2015	$	(181,151	)	$	935,697		$	(46,262	)	$	708,284
Other comprehensive income (loss) before reclassifications	99,374			1,759,753			(6,083		)	1,853,044
Amounts reclassified to (from) AOCI	—			(24,366		)	3,467			(20,899		)
Deferred income tax benefit (expense)	(11,699		)	(544,269		)	913			(555,055		)
Balance, June 30, 2016	$	(93,476	)	$	2,126,815		$	(47,965	)	$	1,985,374


(1)	Includes cash flow hedges of $1,131 and $(2,496) as of June 30, 2017 and December 31, 2016, respectively, and $(41,192) and $(29,397) as of June 30, 2016 and December 31, 2015, ~~respectively, and $(23,901) and $(31,591) as of June 30, 2015 and December 31, 2014,~~ respectively. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.

Table of Contents

The following table presents the amounts of AOCI reclassifications for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands):


	Amount Reclassified from AOCI													Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,							Three months ended June 30,						Six months ended June 30,
Details about AOCI Components	2016			2015			2016			2015			Affected Line Item in Statements of Income	2017			2016			2017			2016			Affected Line Item in Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	30,190		$	1,829		$	11,899		$	4,908		Investment related gains (losses), net
Cash flow hedges - Interest rate swaps	93			231			253			291			(1)
Net unrealized gains and losses on available-for-sale securities														$	40,374		$	30,190		$	28,517		$	11,899		Investment related gains (losses), net
Cash flow hedges - Currency/Interest rate														132			93			329			253			(1)
Cash flow hedges - Forward bond purchase commitments	(1,045		)	1,807			(257		)	967			(1)	51			(1,045		)	101			(257		)	(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	5,365			(4,307		)	12,471			26			(2)	4,565			5,365			10,413			12,471			(2)
Total	34,603			(440		)	24,366			6,192				45,122			34,603			39,360			24,366
Provision for income taxes	(9,646		)	(245		)	(4,996		)	(537		)		(15,218		)	(9,646		)	(12,024		)	(4,996		)
Net unrealized gains (losses), net of tax	$	24,957		$	(685	)	$	19,370		$	5,655			$	29,904		$	24,957		$	27,336		$	19,370
Amortization of defined benefit plan items:
Prior service cost	$	(75	)	$	(80	)	$	(153	)	$	(163	)	(3)
Actuarial gains (losses)	(1,841		)	(1,098		)	(3,314		)	(1,802		)	(3)
Prior service cost (credit)														$	60		$	(75	)	$	142		$	(153	)	(3)
Actuarial gains/(losses)														(1,539		)	(1,841		)	(3,077		)	(3,314		)	(3)
Total	(1,916		)	(1,178		)	(3,467		)	(1,965		)		(1,479		)	(1,916		)	(2,935		)	(3,467		)
Provision for income taxes	670			413			1,213			688				517			670			1,027			1,213
Amortization of defined benefit plans, net of tax	$	(1,246	)	$	(765	)	$	(2,254	)	$	(1,277	)		$	(962	)	$	(1,246	)	$	(1,908	)	$	(2,254	)

Total reclassifications for the period	$	23,711		$	(1,450	)	$	17,116		$	4,378			$	28,942		$	23,711		$	25,428		$	17,116


(1)	See Note 5 - ~~"Derivative Instruments"~~“Derivative Instruments” for additional information on cash flow hedges.


(2)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the ~~2015~~2016 Annual Report for additional details.


(3)	This AOCI component is included in the computation of the net periodic pension cost. See Note 10 – “Employee Benefit Plans” for additional details.

Equity Based Compensation

Equity compensation expense was $11.4 million and $18.9 million in the first six months of 2017 and 2016, respectively. In the first quarter of 2017, the Company granted 0.2 million stock appreciation rights at $129.72 weighted average exercise price per share and 0.2 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 8,177 shares of common stock. As of June 30, 2017, 1.7 million share options at a weighted average strike price per share of $60.31 were vested and exercisable, with a remaining weighted average exercise period of 4.8 years. As of June 30, 2017, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $38.6 million. It is estimated that these costs will vest over a weighted average period of 1.4 years.

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4.	Investments

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities by sector as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


June 30, 2016:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
June 30, 2017:														Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	18,417,375	$	1,260,330	$	134,468	$	19,543,237	58.9	%	$	—		$	21,252,180	$	1,189,750	$	100,269	$	22,341,661	61.5	%	$	—
Canadian and Canadian provincial governments	2,607,276		1,497,998		—		4,105,274		12.4		—			2,713,972		1,296,242		2,460		4,007,754		11.0		—
Residential mortgage-backed securities	1,225,718		72,733		5,673		1,292,778		3.9		(300		)	1,505,474		42,619		8,794		1,539,299		4.2		—
Asset-backed securities	1,377,736		11,054		32,113		1,356,677		4.1		275			1,630,499		17,266		5,924		1,641,841		4.5		275
Commercial mortgage-backed securities	1,441,091		67,727		1,125		1,507,693		4.5		(1,609		)	1,558,035		28,928		4,935		1,582,028		4.4		—
U.S. government and agencies	1,907,648		99,690		—		2,007,338		6.1		—			1,738,419		15,193		32,048		1,721,564		4.7		—
State and political subdivisions	538,037		74,042		6,137		605,942		1.8		—			599,622		47,564		8,216		638,970		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,562,003		190,688		10,654		2,742,037		8.3		—			2,740,133		141,973		9,797		2,872,309		7.9		—
Total fixed maturity securities	$	30,076,884	$	3,274,262	$	190,170	$	33,160,976	100.0	%	$	(1,634	)	$	33,738,334	$	2,779,535	$	172,443	$	36,345,426	100.0	%	$	275
Non-redeemable preferred stock	$	66,464	$	2,575	$	7,936	$	61,103	14.6	%				$	34,545	$	435	$	3,021	$	31,959	30.6	%
Other equity securities	349,577		7,952		446		357,083		85.4					75,413		522		3,617		72,318		69.4
Total equity securities	$	416,041	$	10,527	$	8,382	$	418,186	100.0	%				$	109,958	$	957	$	6,638	$	104,277	100.0	%

~~Table of Contents~~


December 31, 2015:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
December 31, 2016:														Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	17,575,507	$	599,718	$	467,069	$	17,708,156	59.7	%	$	—		$	18,924,711	$	911,618	$	217,245	$	19,619,084	61.1	%	$	—
Canadian and Canadian provincial governments	2,469,009		1,110,282		2,532		3,576,759		12.1		—			2,561,605		1,085,982		3,541		3,644,046		11.4		—
Residential mortgage-backed securities	1,277,998		45,152		11,673		1,311,477		4.4		(300		)	1,258,039		33,917		13,380		1,278,576		4.0		(375		)
Asset-backed securities	1,219,000		12,052		18,376		1,212,676		4.1		354			1,443,822		9,350		23,828		1,429,344		4.5		275
Commercial mortgage-backed securities	1,456,848		37,407		11,168		1,483,087		5.0		(1,609		)	1,342,440		28,973		7,759		1,363,654		4.2		—
U.S. government and agencies	1,423,791		15,586		57,718		1,381,659		4.7		—			1,518,702		12,644		63,044		1,468,302		4.6		—
State and political subdivisions	480,067		40,014		9,067		511,014		1.7		—			566,761		37,499		12,464		591,796		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,420,757		78,964		41,644		2,458,077		8.3		—			2,595,707		123,054		19,938		2,698,823		8.4		—
Total fixed maturity securities	$	28,322,977	$	1,939,175	$	619,247	$	29,642,905	100.0	%	$	(1,555	)	$	30,211,787	$	2,243,037	$	361,199	$	32,093,625	100.0	%	$	(100	)
Non-redeemable preferred stock	$	85,645	$	7,837	$	5,962	$	87,520	69.5	%				$	55,812	$	1,648	$	6,337	$	51,123	18.6	%
Other equity securities	40,584		—		2,242		38,342		30.5					229,767		1,792		7,321		224,238		81.4
Total equity securities	$	126,229	$	7,837	$	8,204	$	125,862	100.0	%				$	285,579	$	3,440	$	13,658	$	275,361	100.0	%

The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):

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	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	189,370	$	202,763	$	169,678	$	176,782	$	69,849	$	74,441	$	207,066	$	210,676
Fixed maturity securities received as collateral	n/a		261,461		n/a		242,914		n/a		457,801		n/a		300,925
Assets in trust held to satisfy collateral requirements	12,318,432		13,375,925		10,535,729		10,928,393		14,706,225		15,723,178		12,135,258		12,874,370

The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands).


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Quebec									$	1,060,922	$	1,785,573	$	1,004,261	$	1,612,957
Canadian province of Ontario	$	853,014	$	1,257,954	$	864,444	$	1,199,080	886,518		1,228,391		832,764		1,126,433
Canadian province of Quebec	1,026,507		1,854,422		943,484		1,525,903

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale at June 30, ~~2016~~2017 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.

~~Table of Contents~~


	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in one year or less	$	776,005	$	783,582	$	861,051	$	868,405
Due after one year through five years	6,682,598		7,007,050		7,421,897		7,696,337
Due after five years through ten years	8,706,784		9,309,939		9,514,341		10,016,984
Due after ten years	9,866,952		11,903,257		11,247,037		13,000,532
Asset and mortgage-backed securities	4,044,545		4,157,148		4,694,008		4,763,168
Total	$	30,076,884	$	33,160,976	$	33,738,334	$	36,345,426

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


June 30, 2016:			Estimated
June 30, 2017:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	6,268,530	$	6,577,989	33.8	%	$	7,741,482	$	8,077,195	36.1	%
Industrial	10,192,465		10,811,758		55.2		11,215,292		11,792,664		52.9
Utility	1,956,380		2,153,490		11.0		2,295,406		2,471,802		11.0
Total	$	18,417,375	$	19,543,237	100.0	%	$	21,252,180	$	22,341,661	100.0	%

December 31, 2015:			Estimated
December 31, 2016:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	5,408,791	$	5,555,044	31.4	%	$	6,725,199	$	6,888,968	35.2	%
Industrial	10,211,426		10,129,917		57.2		10,228,813		10,639,613		54.2
Utility	1,955,290		2,023,195		11.4		1,970,699		2,090,503		10.6
Total	$	17,575,507	$	17,708,156	100.0	%	$	18,924,711	$	19,619,084	100.0	%

Table of Contents

Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the ~~2015~~2016 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities, the net amount recognized in the condensed consolidated statements of income (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):

Three months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Balance, beginning of period $ 7,284
$ 7,284
$ 7,284
$ 7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period (310 ) —
(310 ) —
Balance, end of period $ 6,974
$ 7,284
$ 6,974
$ 7,284

~~Table of Contents~~



	Three months ended June 30,					Six months ended June 30,
	2017		2016			2017			2016
Balance, beginning of period	$	3,677	$	7,284		$	6,013		$	7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	—		(310		)	(2,336		)	(310		)
Balance, end of period	$	3,677	$	6,974		$	3,677		$	6,974

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the ~~908~~1,134 and ~~2,080~~1,535 fixed maturity and equity securities as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	150,638	75.8	%	$	463,109	73.8	%	$	150,762	84.2	%	$	337,831	90.1	%
20% or more for less than six months	8,933		4.5		142,495		22.7		7,593		4.2		19,438		5.2
20% or more for six months or greater	38,981		19.7		21,847		3.5		20,726		11.6		17,588		4.7
Total	$	198,552	100.0	%	$	627,451	100.0	%	$	179,081	100.0	%	$	374,857	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for ~~908~~1,134 and ~~2,080~~1,535 fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.

Less than 12 months 12 months or greater Total
Gross Gross Gross
June 30, 2016: Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
Corporate securities $ 649,275
$ 15,424
$ 1,208,939
$ 59,206
$ 1,858,214
$ 74,630
Residential mortgage-backed securities 67,472
1,672
120,431
3,990
187,903
5,662
Asset-backed securities 534,180
18,943
258,828
10,507
793,008
29,450
Commercial mortgage-backed securities 78,002
423
41,399
702
119,401
1,125
State and political subdivisions 9,697
443
56,930
5,694
66,627
6,137
Other foreign government, supranational and foreign government-sponsored enterprises 99,330
1,135
79,592
3,677
178,922
4,812
Total investment grade securities 1,437,956
38,040
1,766,119
83,776
3,204,075
121,816

Below investment grade securities:

Corporate securities 282,830
14,077
335,351
45,761
618,181
59,838
Residential mortgage-backed securities —
—
379
11
379
11
Asset-backed securities 5,858
1,118
8,623
1,545
14,481
2,663
Other foreign government, supranational and foreign government-sponsored enterprises 2,328
23
59,437
5,819
61,765
5,842
Total below investment grade securities 291,016
15,218
403,790
53,136
694,806
68,354
Total fixed maturity securities $ 1,728,972
$ 53,258
$ 2,169,909
$ 136,912
$ 3,898,881
$ 190,170
Non-redeemable preferred stock $ 3,248
$ 261
$ 24,247
$ 7,675
$ 27,495
$ 7,936
Other equity securities —
—
6,606
446
6,606
446
Total equity securities $ 3,248
$ 261
$ 30,853
$ 8,121
$ 34,101
$ 8,382

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	Less than 12 months				12 months or greater				Total				Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross				Gross				Gross				Gross
December 31, 2015:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
June 30, 2017:													Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	6,388,148	$	323,961	$	294,755	$	40,861	$	6,682,903	$	364,822	$	2,895,605	$	46,389	$	399,546	$	23,252	$	3,295,151	$	69,641
Canadian and Canadian provincial governments	122,746		2,532		—		—		122,746		2,532		116,719		2,457		—		—		116,719		2,457
Residential mortgage-backed securities	452,297		7,036		82,314		4,057		534,611		11,093		471,933		6,872		100,785		1,918		572,718		8,790
Asset-backed securities	581,701		9,825		199,298		7,100		780,999		16,925		285,211		1,451		204,154		3,916		489,365		5,367
Commercial mortgage-backed securities	514,877		9,806		31,177		997		546,054		10,803		352,867		4,897		2,195		38		355,062		4,935
U.S. government and agencies	1,010,387		57,718		—		—		1,010,387		57,718		1,378,976		31,962		13,763		86		1,392,739		32,048
State and political subdivisions	157,837		5,349		13,016		3,718		170,853		9,067		125,465		5,098		13,558		3,118		139,023		8,216
Other foreign government, supranational and foreign government-sponsored enterprises	702,962		18,279		38,379		4,206		741,341		22,485		440,670		7,189		29,234		1,616		469,904		8,805
Total investment grade securities	9,930,955		434,506		658,939		60,939		10,589,894		495,445		6,067,446		106,315		763,235		33,944		6,830,681		140,259
Below investment grade securities:
Corporate securities	554,688		71,171		114,427		31,076		669,115		102,247		255,991		4,547		93,562		26,081		349,553		30,628
Canadian and Canadian provincial governments													1,247		3		—		—		1,247		3
Residential mortgage-backed securities	22,646		282		7,679		298		30,325		580		—		—		107		4		107		4
Asset-backed securities	6,772		201		9,335		1,250		16,107		1,451		—		—		7,295		557		7,295		557
Commercial mortgage-backed securities	3,253		248		767		117		4,020		365
Other foreign government, supranational and foreign government-sponsored enterprises	60,668		7,356		31,693		11,803		92,361		19,159		38,069		287		17,606		705		55,675		992
Total below investment grade securities	648,027		79,258		163,901		44,544		811,928		123,802		295,307		4,837		118,570		27,347		413,877		32,184
Total fixed maturity securities	$	10,578,982	$	513,764	$	822,840	$	105,483	$	11,401,822	$	619,247	$	6,362,753	$	111,152	$	881,805	$	61,291	$	7,244,558	$	172,443
Non-redeemable preferred stock	$	12,331	$	2,175	$	12,191	$	3,787	$	24,522	$	5,962	$	—	$	—	$	24,807	$	3,021	$	24,807	$	3,021
Other equity securities	38,327		2,242		—		—		38,327		2,242		64,990		3,617		—		—		64,990		3,617
Total equity securities	$	50,658	$	4,417	$	12,191	$	3,787	$	62,849	$	8,204	$	64,990	$	3,617	$	24,807	$	3,021	$	89,797	$	6,638



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2016:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	4,661,706	$	124,444	$	549,273	$	43,282	$	5,210,979	$	167,726
Canadian and Canadian provincial governments	101,578		3,541		—		—		101,578		3,541
Residential mortgage-backed securities	490,473		9,733		112,216		3,635		602,689		13,368
Asset-backed securities	563,259		12,010		257,166		9,653		820,425		21,663
Commercial mortgage-backed securities	368,465		6,858		10,853		166		379,318		7,024
U.S. government and agencies	1,056,101		63,044		—		—		1,056,101		63,044
State and political subdivisions	187,194		9,396		13,635		3,068		200,829		12,464
Other foreign government, supranational and foreign government-sponsored enterprises	524,236		13,372		51,097		2,981		575,333		16,353
Total investment grade securities	7,953,012		242,398		994,240		62,785		8,947,252		305,183
Below investment grade securities:
Corporate securities	330,757		7,914		163,152		41,605		493,909		49,519
Residential mortgage-backed securities	—		—		412		12		412		12
Asset-backed securities	5,904		700		12,581		1,465		18,485		2,165
Commercial mortgage-backed securities	5,815		735		—		—		5,815		735
Other foreign government, supranational and foreign government-sponsored enterprises	32,355		1,258		39,763		2,327		72,118		3,585
Total below investment grade securities	374,831		10,607		215,908		45,409		590,739		56,016
Total fixed maturity securities	$	8,327,843	$	253,005	$	1,210,148	$	108,194	$	9,537,991	$	361,199
Non-redeemable preferred stock	$	10,831	$	831	$	21,879	$	5,506	$	32,710	$	6,337
Other equity securities	202,068		7,020		6,751		301		208,819		7,321
Total equity securities	$	212,899	$	7,851	$	28,630	$	5,807	$	241,529	$	13,658

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The Company has no intention to sell, nor does it expect to be required to sell, the securities outlined in the table above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

Unrealized losses on below investment grade securities as of June 30, ~~2016~~2017 are primarily related to high-yield corporate securities. Changes in unrealized losses are primarily being driven by changes in credit spreads and other foreign government, supranational and foreign government-sponsored enterprise securities. Unrealized losses decreased across most security types as treasury rates decreased during the first six months of 2016.interest rates.

Investment Income, Net of Related Expenses

Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):

Three months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Fixed maturity securities available-for-sale $ 323,592
$ 303,792
$ 636,007
$ 573,560
Mortgage loans on real estate 41,900
37,121
81,692
71,893
Policy loans 16,372
16,248
32,506
30,288
Funds withheld at interest 112,893
87,325
168,873
199,585
Short-term investments 985
814
1,960
1,509
Other invested assets 29,487
22,418
39,311
34,445
Investment income 525,229
467,718
960,349
911,280
Investment expense (17,563 ) (17,179 ) (35,417 ) (33,850 )
Investment income, net of related expenses $ 507,666
$ 450,539
$ 924,932
$ 877,430

~~Table of Contents~~



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Fixed maturity securities available-for-sale	$	355,735		$	323,592		$	680,235		$	636,007
Mortgage loans on real estate	44,442			41,900			88,789			81,692
Policy loans	15,194			16,372			30,466			32,506
Funds withheld at interest	97,367			112,893			224,945			168,873
Short-term investments and cash and cash equivalents	1,779			2,322			3,289			4,513
Other invested assets	23,066			28,150			42,893			36,758
Investment income	537,583			525,229			1,070,617			960,349
Investment expense	(19,045		)	(17,563		)	(37,715		)	(35,417		)
Investment income, net of related expenses	$	518,538		$	507,666		$	1,032,902		$	924,932

Investment Related Gains (Losses), Net

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


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings	$	(846	)	$	(4,137	)	$	(34,663	)	$	(6,664	)	$	(3,401	)	$	(846	)	$	(20,590	)	$	(34,663	)
Gain on investment activity	53,615			20,009			80,807			39,210			54,220			53,615			72,113			80,807
Loss on investment activity	(22,556		)	(14,475		)	(34,343		)	(28,071		)	(10,471		)	(22,556		)	(23,034		)	(34,343		)
Other impairment losses and change in mortgage loan provision	211			143			(1,849		)	(4,025		)	(6,675		)	211			(6,774		)	(1,849		)
Derivatives and other, net	87,840			(17,718		)	(12,574		)	(9,045		)	22,622			87,840			95,103			(12,574		)
Total investment related gains (losses), net	$	118,264		$	(16,178	)	$	(2,622	)	$	(8,595	)	$	56,295		$	118,264		$	116,818		$	(2,622	)

The fixed maturity impairments for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 were largely related to high-yield energy and emerging market corporate securities. The other impairment losses and change in mortgage loan provision for the three and six months ended June 30, 2017 and 2016 were primarily due to impairments on limited partnerships. The fluctuations in investment related gains (losses) for derivatives and other for the three and six months ended June 30, ~~2016,~~2017, compared to the same ~~period~~periods in ~~2015,~~2016, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps.

During the three months ended June 30, ~~2016~~2017 and ~~2015,~~2016, the Company sold fixed maturity and equity securities with fair values of ~~$343.3~~$710.5 million and ~~$651.3~~$343.3 million at losses of ~~$22.6~~$10.5 million and ~~$14.5~~$22.6 million, respectively. During the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, the Company sold fixed maturity and equity securities with fair values of ~~$585.8~~$1,286.7 million and ~~$850.9~~$585.8 million at losses of ~~$34.3~~$23.0 million and ~~$28.1~~$34.3 million, respectively. The Company generally does not buy and sell securities on a short-term basis.

Securities Borrowing, Lending and Other

The Company participates in securities borrowing programs whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from third parties. The borrowed securities are used to provide collateral under affiliated reinsurance transactions. The Company is required to maintain a minimum of 100% of the fair value, or par value, under certain programs, of the borrowed securities as collateral. The collateral consists of rights to reinsurance treaty cash flows. If cash flows from the reinsurance treaties are insufficient to maintain the minimum collateral requirement, the Company may substitute cash or securities to meet the requirement. No cash or securities have been pledged by the Company for this purpose.

Table of Contents

The Company also participates in a securities lending program whereby securities, reflected as investments on the Company’s condensed consolidated balance sheets, are loaned to a third party. The Company receives securities as collateral, in an amount equal to a minimum of 105% of the fair value of the securities lent. The securities received are not reflected on the Company’s condensed consolidated balance sheets.

The Company also participates in repurchase/reverse repurchase ~~program~~programs in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third ~~party.~~parties. In return, the Company receives securities from the third ~~party~~parties with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets.

The Company also participates in a repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives cash from the third party, which is reflected as a payable to the third party and included in other liabilities on the condensed consolidated balance sheets. The Company is required to maintain a minimum collateral balance with a fair value of 102% of the cash received.

The following table includes the amount of borrowed securities, ~~repurchased~~ securities ~~pledged~~lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands).


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	269,740	$	289,454	$	259,540	$	266,297	$	269,280	$	284,083	$	263,820	$	279,186
Securities lending:
Securities loaned									117,217		121,064		74,389		73,625
Securities received									n/a		109,000		n/a		80,000
Repurchase program/reverse repurchase program:
Securities pledged	448,615		480,618		443,435		465,889		486,700		509,579		476,531		499,891
Securities received	n/a		485,826		n/a		481,197		n/a		517,871		n/a		515,200

The Company also held cash collateral for securities lending and the repurchase program/reverse repurchase programs of $47.9 million and $28.8 million at June 30, 2017 and December 31, 2016, respectively.

The following table presents information on the Company’s securities ~~pledged as collateral by the Company related to its repurchase/reverse~~lending and repurchase ~~program~~transactions as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the table, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

~~Table of Contents~~

June 30, 2016
Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
Collateral on repurchase program:
Corporate securities $ —
$ 5,329
$ 4,031
$ 137,505
$ 146,865
Residential mortgage-backed securities —
—
—
101,715
101,715
U.S. government and agencies —
—
—
212,918
212,918
Foreign government —
—
—
14,524
14,524
Other 4,596
—
—
—
4,596
Total borrowings $ 4,596
$ 5,329
$ 4,031
$ 466,662
$ 480,618

Gross amount of recognized liabilities for repurchase agreement in preceding table $ 485,826
Amounts related to agreements not included in offsetting disclosure $ 5,208

December 31, 2015
Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
Collateral on repurchase program:
Corporate securities $ —
$ 2,951
$ —
$ 147,324
$ 150,275
Residential mortgage-backed securities —
—
—
97,639
97,639
U.S. government and agencies —
—
—
199,431
199,431
Foreign government —
—
—
3,358
3,358
Other 15,186
—
—
—
15,186
Total borrowings $ 15,186
$ 2,951
$ —
$ 447,752
$ 465,889

Gross amount of recognized liabilities for repurchase agreement in preceding table $ 481,197
Amounts related to agreements not included in offsetting disclosure $ 15,308

~~Mortgage Loans on Real Estate~~

~~Mortgage loans represented approximately 7.4% and 7.5% of the Company’s total investments as of June 30, 2016 and~~ ~~December 31, 2015~~. The Company makes mortgage loans on income producing properties that are geographically diversified, with the largest concentration being in the state of California, which represented 24.1% and 22.3% of mortgage loans on real estate as of ~~June 30, 2016~~ ~~and~~ ~~December 31, 2015, respectively. Loan-to-value ratios at the time of loan approval are~~ ~~75%~~ ~~or less. The distribution of mortgage loans by property type, gross of valuation allowances, is as follows as of~~ ~~June 30, 2016~~ ~~and~~ ~~December 31, 2015~~ ~~(dollars in thousands):~~

June 30, 2016 December 31, 2015
Property type:
Recorded
Investment
% of Total Recorded
Investment % of Total
Office building $ 1,057,245
31.3 % $ 980,858
31.3 %
Retail 1,033,538
30.5
1,026,018
32.7
Industrial 708,764
20.9
527,485
16.8
Apartment 397,719
11.8
420,014
13.4
Other commercial 186,272
5.5
182,389
5.8
Total $ 3,383,538
100.0 % $ 3,136,764
100.0 %



	June 30, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Securities lending transactions:
Corporate securities	$	—	$	—	$	—	$	121,064	$	121,064
Total	—		—		—		121,064		121,064
Repurchase transactions:
Corporate securities	—		—		1,311		177,555		178,866
Residential mortgage-backed securities	—		—		—		89,333		89,333
U.S. government and agencies	—		—		—		219,522		219,522
Foreign government	—		—		—		20,953		20,953
Other	905		—		—		—		905
Total	905		—		1,311		507,363		509,579
Total transactions	$	905	$	—	$	1,311	$	628,427	$	630,643

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table									$	674,817
Amounts related to agreements not included in offsetting disclosure									$	44,174

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	December 31, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Securities lending transactions:
Corporate securities	$	—	$	—	$	4,017	$	69,608	$	73,625
Total	$	—	$	—	$	4,017	$	69,608	$	73,625
Repurchase transactions:
Corporate securities	$	—	$	—	$	3,220	$	166,979	$	170,199
Residential mortgage-backed securities	—		—		—		92,546		92,546
U.S. government and agencies	—		—		—		216,000		216,000
Foreign government	—		—		—		19,900		19,900
Other	1,246		—		—		—		1,246
Total	1,246		—		3,220		495,425		499,891
Total borrowings	$	1,246	$	—	$	7,237	$	565,033	$	573,516

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table									$	624,032
Amounts related to agreements not included in offsetting disclosure									$	50,516

The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the consolidated balance sheets was a liability of $5.1 million and $5.5 million of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, the Company recognized payables resulting from cash received as collateral associated with a repurchase agreement as discussed above. Amounts owed to and due from the counterparties may be settled in cash or offset, in accordance with the agreements.

Mortgage Loans on Real Estate

Mortgage loans represented approximately 8.3% and 8.4% of the Company’s total investments as of June 30, 2017 and December 31, 2016. The Company makes mortgage loans on income producing properties that are geographically diversified throughout the U.S. with the largest concentration being in the state of California, which represented 22.0% and 22.1% of mortgage loans on real estate as of June 30, 2017 and December 31, 2016, respectively. The recorded investment in mortgage loans on real estate presented below is gross of unamortized deferred loan origination fees and expenses, and valuation allowances.

The distribution of mortgage loans by property type is as follows as of June 30, 2017 and December 31, 2016 (dollars in thousands):



	June 30, 2017					December 31, 2016
Property type:	Carrying Value			% of Total		Carrying Value			% of Total
Office building	$	1,402,369		34.1	%	$	1,270,113		33.6	%
Retail	1,248,238			30.3		1,179,936			31.2
Industrial	809,309			19.7		713,461			18.8
Apartment	483,811			11.8		447,088			11.8
Other commercial	170,305			4.1		172,609			4.6
Recorded investment	4,114,032			100.0	%	$	3,783,207		100.0	%
Unamortized balance of loan origination fees and expenses	(1,389		)			—
Valuation allowances	(8,156		)			(7,685		)
Total mortgage loans on real estate	$	4,104,487				$	3,775,522

The maturities of the mortgage loans ~~gross of valuation allowances,~~ as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	768,747	22.7	%	$	873,280	27.8	%	$	1,037,000	25.2	%	$	822,073	21.7	%
Due after five years through ten years	1,800,601		53.2		1,561,535		49.8		2,236,805		54.4		2,099,559		55.5
Due after ten years	814,190		24.1		701,949		22.4		840,227		20.4		861,575		22.8
Total	$	3,383,538	100.0	%	$	3,136,764	100.0	%	$	4,114,032	100.0	%	$	3,783,207	100.0	%

~~Information regarding the Company’s~~

Table of Contents

The following tables set forth certain key credit quality indicators ~~as determined by~~of the ~~Company's internal evaluation methodology for its~~Company’s recorded investment in mortgage loans ~~gross of valuation allowances, as of~~ ~~June 30, 2016~~ ~~and~~ ~~December 31, 2015~~ ~~is as follows (dollars in thousands):~~

June 30, 2016 December 31, 2015
Internal credit quality grade:
Recorded
Investment
% of Total
Recorded
Investment
% of Total
High investment grade $ 1,904,494
56.3 % $ 1,621,601
51.7 %
Investment grade 1,396,572
41.3
1,397,996
44.6
Average 39,444
1.2
87,196
2.8
Watch list 36,035
1.0
13,550
0.4
In or near default 6,993
0.2
16,421
0.5
Total $ 3,383,538
100.0 % $ 3,136,764
100.0 %

~~None of the payments due to the Company on its recorded investment in mortgage loans were delinquent~~ as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016 (dollars in thousands):



	Recorded Investment
	Debt Service Ratios
	>1.20x		1.00x - 1.20x		<1.00x		Total		% of Total
June 30, 2017:
Loan-to-Value Ratio
0% - 59.99%	$	2,009,905	$	60,110	$	4,060	$	2,074,075	50.4	%
60% - 69.99%	1,453,061		57,332		7,684		1,518,077		36.9
70% - 79.99%	377,744		20,575		37,091		435,410		10.6
Greater than 80%	61,704		—		24,766		86,470		2.1
Total	$	3,902,414	$	138,017	$	73,601	$	4,114,032	100.0	%



	Recorded Investment
	Debt Service Ratios
	>1.20x		1.00x - 1.20x		<1.00x		Total		% of Total
December 31, 2016:
Loan-to-Value Ratio
0% - 59.99%	$	1,859,640	$	64,749	$	1,366	$	1,925,755	50.8	%
60% - 69.99%	1,257,788		34,678		—		1,292,466		34.2
70% - 79.99%	370,092		20,869		24,369		415,330		11.0
Greater than 80%	114,297		—		35,359		149,656		4.0
Total	$	3,601,817	$	120,296	$	61,094	$	3,783,207	100.0	%

The age analysis of the Company’s past due recorded investments in mortgage loans as of June 30, 2017 and December 31, 2016.



	June 30, 2017		December 31, 2016
31-60 days past due	$	—	$	—
61-90 days past due	3,729		—
Greater than 90 days	—		—
Total past due	$	3,729	$	—
Current	4,110,303		3,783,207
Total	$	4,114,032	$	3,783,207

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Mortgage loans:
Individually measured for impairment	$	6,993	$	16,421	$	2,077	$	2,216
Collectively measured for impairment	3,376,545		3,120,343		4,111,955		3,780,991
Mortgage loans, gross of valuation allowances	3,383,538		3,136,764
Recorded investment					$	4,114,032	$	3,783,207
Valuation allowances:
Individually measured for impairment	—		588		$	—	$	—
Collectively measured for impairment	6,499		6,225		8,156		7,685
Total valuation allowances	6,499		6,813		$	8,156	$	7,685
Mortgage loans, net of valuation allowances	$	3,377,039	$	3,129,951

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Information regarding the Company’s loan valuation allowances for mortgage loans for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 is as follows (dollars in thousands):

Three months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Balance, beginning of period $ 6,824
$ 6,130
$ 6,813
$ 6,471
Provision (release) (325 ) (188 ) (314 ) (529 )
Balance, end of period $ 6,499
$ 5,942
$ 6,499
$ 5,942

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	Three months ended June 30,					Six months ended June 30,
	2017		2016			2017		2016
Balance, beginning of period	$	7,786	$	6,824		$	7,685	$	6,813
Provision (release)	366		(325		)	467		(314		)
Translation adjustment	4		—			4		—
Balance, end of period	$	8,156	$	6,499		$	8,156	$	6,499

Information regarding the portion of the Company’s mortgage loans that were impaired as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 is as follows (dollars in thousands):


	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value		Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
June 30, 2016:
June 30, 2017:
Impaired mortgage loans with no valuation allowance recorded	$	7,495	$	6,993	$	—	$	6,993	$	2,620	$	2,077	$	—	$	2,077
Impaired mortgage loans with valuation allowance recorded	—		—		—		—		—		—		—		—
Total impaired mortgage loans	$	7,495	$	6,993	$	—	$	6,993	$	2,620	$	2,077	$	—	$	2,077
December 31, 2015:
December 31, 2016:
Impaired mortgage loans with no valuation allowance recorded	$	4,033	$	4,033	$	—	$	4,033	$	2,758	$	2,216	$	—	$	2,216
Impaired mortgage loans with valuation allowance recorded	12,898		12,388		588		11,800		—		—		—		—
Total impaired mortgage loans	$	16,931	$	16,421	$	588	$	15,833	$	2,758	$	2,216	$	—	$	2,216

The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
	Three months ended June 30,								Three months ended June 30,
	2016				2015				2017				2016
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	3,901	$	107	$	5,524	$	35	$	2,088	$	33	$	3,901	$	107
Impaired mortgage loans with valuation allowance recorded	4,724		—		11,397		229		—		—		4,724		—
Total impaired mortgage loans	$	8,625	$	107	$	16,921	$	264	$	2,088	$	33	$	8,625	$	107

	Six months ended June 30,								Six months ended June 30,
	2016				2015				2017				2016
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	3,945	$	216	$	5,920	$	141	$	2,131	$	67	$	3,945	$	216
Impaired mortgage loans with valuation allowance recorded	7,279		—		11,036		384		—		—		7,279		—
Total impaired mortgage loans	$	11,224	$	216	$	16,956	$	525	$	2,131	$	67	$	11,224	$	216

(1) Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.

The Company did not acquire any impaired mortgage loans during the six months ended June 30, ~~2016~~2017 and ~~2015.~~2016. The Company had no mortgage loans that were on a nonaccrual status at June 30, ~~2016~~2017 and December 31, ~~2015~~2016.

Policy Loans

Policy loans comprised approximately ~~3.2%~~2.8% and ~~3.5%~~3.2% of the Company’s total investments as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively, the majority of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

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Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~12.9%~~12.1% and ~~14.0%~~13.1% of the Company’s total investments as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively. Of the ~~$5.9~~$6.0 billion funds withheld at interest balance, net of embedded derivatives, as of June 30, ~~2016,~~2017, $4.0 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed to the Company from the ceding company.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, joint ventures (other than operating joint ventures), derivative contracts and fair value option ~~("FVO"~~(“FVO”) contractholder-directed unit-linked investments. Other invested assets also

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include Federal Home Loan Bank of Des Moines ~~("FHLB"~~(“FHLB”) common stock, ~~real estate held-for-investment,~~ equity release mortgages and structured loans, all of which are included in other in the table below. The fair value option was elected for contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting as separate accounts. Other invested assets represented approximately ~~3.7%~~3.0% and ~~3.1%~~3.6% of the Company’s total investments as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. Carrying values of these assets as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows (dollars in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Equity securities	$	418,186	$	125,862	$	104,277	$	275,361
Limited partnership interests and real estate joint ventures	635,574		567,697		746,573		687,522
Derivatives	310,796		256,178		158,048		229,108
FVO contractholder-directed unit-linked investments	195,842		197,547		204,630		190,120
Other	121,745		150,836		284,842		209,829
Total other invested assets	$	1,682,143	$	1,298,120	$	1,498,370	$	1,591,940

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5. Derivative Instruments

Derivatives, except for embedded derivatives and longevity and mortality swaps, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Longevity and mortality swaps are included on the condensed consolidated balance sheets in other assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modified coinsurance or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016						December 31, 2015						June 30, 2017						December 31, 2016
	Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value
	Amount		Assets		Liabilities		Amount		Assets		Liabilities		Amount		Assets		Liabilities		Amount		Assets		Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps	$	1,118,523	$	175,987	$	970	$	1,123,057	$	85,075	$	4,196	$	973,825	$	63,370	$	4,375	$	949,556	$	78,405	$	5,949
Financial futures	508,310		—		—		420,665		—		—		477,407		—		—		475,968		—		—
Foreign currency forwards	43,000		1,703		2,732		45,000		44		6,768		15,000		21		63		25,000		—		5,070
Consumer price index swaps	29,208		—		613		28,561		—		292		21,991		—		187		20,615		—		262
Credit default swaps	865,000		8,635		5,300		897,000		8,230		11,053		945,000		7,620		1,043		926,000		12,012		2,871
Equity options	541,749		54,322		—		453,435		46,653		—		541,532		28,301		—		525,894		33,459		—
Longevity swaps	888,480		17,781		—		868,960		15,003		7		914,080		33,349		—		841,360		26,958		—
Mortality swaps	50,000		—		1,997		50,000		—		2,619		50,000		—		1,552		50,000		—		2,462
Synthetic guaranteed investment contracts	8,235,734		—		—		7,098,825		—		—		9,141,018		—		—		8,834,700		—		—
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	—		—		91,981		—		—		76,698		—		61,281		—		—		—		22,529
Indexed annuity products	—		—		841,832		—		—		878,114		—		—		812,718		—		—		805,672
Variable annuity products	—		—		283,548		—		—		192,470		—		—		161,913		—		—		184,636
Total non-hedging derivatives	12,280,004		258,428		1,228,973		10,985,503		155,005		1,172,217		13,079,853		193,942		981,851		12,649,093		150,834		1,029,451
Derivatives designated as hedging instruments:
Interest rate swaps	435,000		—		42,038		120,000		—		29,986		435,000		1,267		22,120		435,000		27,901		31,223
Foreign currency swaps	909,524		102,406		3,383		823,486		146,265		—		896,873		86,318		7,176		928,505		104,359		734
Foreign currency forwards													150,211		—		4,158		—		—		—
Total hedging derivatives	1,344,524		102,406		45,421		943,486		146,265		29,986		1,482,084		87,585		33,454		1,363,505		132,260		31,957
Total derivatives	$	13,624,528	$	360,834	$	1,274,394	$	11,928,989	$	301,270	$	1,202,203	$	14,561,937	$	281,527	$	1,015,305	$	14,012,598	$	283,094	$	1,061,408

Netting Arrangements

Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.

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The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – ~~"Investments"~~“Investments” for information regarding the Company’s securities borrowing, lending, repurchase and repurchase/reverse repurchase programs. See “Embedded Derivatives” below for information regarding the Company’s bifurcated embedded derivatives.

The following table provides information relating to the Company’s derivative instruments as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


								Gross Amounts Not Offset in the Balance Sheet																Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments ⁽¹⁾			Cash Collateral Pledged/ Received			Net Amount			Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments ⁽¹⁾			Cash Collateral Pledged/ Received			Net Amount
June 30, 2016:
June 30, 2017:
Derivative assets	$	360,834	$	(32,257	)	$	328,577	$	(40,876	)	$	(298,459	)	$	(10,758	)	$	220,246	$	(28,849	)	$	191,397	$	(17,847	)	$	(183,179	)	$	(9,629	)
Derivative liabilities	57,033		(32,257		)	24,776		(74,538		)	(16,822		)	(66,584		)	40,674		(28,849		)	11,825		(59,540		)	(7,461		)	(55,176		)
December 31, 2015:
December 31, 2016:
Derivative assets	$	301,270	$	(30,096	)	$	271,174	$	(20,888	)	$	(245,038	)	$	5,248		$	283,094	$	(27,028	)	$	256,066	$	(16,913	)	$	(254,498	)	$	(15,345	)
Derivative liabilities	54,921		(30,096		)	24,825		(47,149		)	(12,540		)	(34,864		)	48,571		(27,028		)	21,543		(95,863		)	(1,441		)	(75,761		)


(1)	Includes initial margin posted to a central clearing partner.

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Accounting for Derivative Instruments and Hedging Activities

The Company does not enter into derivative instruments for speculative purposes. As discussed below under “Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging,” the Company uses various derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting ~~treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits.~~treatment. As of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the Company held interest rate swaps that were designated and qualified as cash flow hedges of interest rate risk, for variable rate liabilities and foreign currency assets, foreign currency swaps and foreign currency forwards that were designated and qualified as hedges of a portion of its net investment in its foreign operations, foreign currency swaps that were designated and qualified as fair value hedges of foreign currency risk, and derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s ~~2015~~2016 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contracts.

Fair Value Hedges

The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of June 30, 2017 and 2016, were (dollars in thousands):


Type of Fair Value Hedge		Hedged Item	Gains (Losses) Recognized for Derivatives			Gains (Losses) Recognized for Hedged Items			Ineffectiveness Recognized in Investment Related Gains (Losses), net			Hedged Item	Gains (Losses) Recognized for Derivatives			Gains (Losses) Recognized for Hedged Items			Ineffectiveness Recognized in Investment Related Gains (Losses), net
For the three months ended June 30, 2017:											For the three months ended June 30, 2017:
Foreign currency swaps												Foreign-denominated fixed maturity securities	$	905		$	(905	)	$	—
For the three months ended June 30, 2016:	For the three months ended June 30, 2016:										For the three months ended June 30, 2016:
Foreign currency swaps												Foreign-denominated fixed maturity securities	$	(3,755	)	$	3,755		$	—
For the six months ended June 30, 2017:											For the six months ended June 30, 2017:
Foreign currency swaps		Foreign-denominated fixed maturity securities	$	(3,755	)	$	3,755		$	—		Foreign-denominated fixed maturity securities	$	7,441		$	(7,441	)	$	—
For the six months ended June 30, 2016:	For the six months ended June 30, 2016:										For the six months ended June 30, 2016:
Foreign currency swaps		Foreign-denominated fixed maturity securities	$	2,112		$	(2,112	)	$	—		Foreign-denominated fixed maturity securities	$	2,112		$	(2,112	)	$	—

A regression analysis was used, both at inception of the hedge and on an ongoing basis, to determine whether each derivative used in a hedged transaction is highly effective in offsetting changes in the hedged item. For the foreign currency swaps, the change in fair value related to changes in the benchmark interest rate and credit spreads are excluded from the hedge effectiveness. For the three and six months ended June 30, 2017, $0.5 million loss and $0.5 million gain, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness. For the three and six months ended June 30, 2016, $2.4 million and $7.0 million, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness. ~~There were no fair value hedges as of June 30, 2015.~~

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and ~~Hedging~~.Hedging. The Company designates and accounts for the following as cash ~~flow hedges:~~flows: (i) certain interest rate swaps, in which the cash flows of liabilities are variable based on a benchmark rate; (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps; ~~(ii) certain interest rate swaps, in which the cash flows of liabilities are variable based on a benchmark rate (LIBOR);~~ and (iii) forward bond purchase commitments.

1921

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The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands):


	Three months ended June 30,						Three months ended June 30,
	2016			2015			2017			2016
Balance beginning of period	$	(21,794	)	$	(30,598	)	$	7,690		$	(21,794	)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	(20,350		)	8,735			(6,417		)	(20,350		)
Amounts reclassified to investment related gains (losses), net	1,010			(1,495		)
Amounts reclassified to investment related (gains) losses, net							41			1,010
Amounts reclassified to investment income	(58		)	(543		)	(183		)	(58		)
Balance end of period	$	(41,192	)	$	(23,901	)	$	1,131		$	(41,192	)

	Six months ended June 30,						Six months ended June 30,
	2016			2015			2017			2016
Balance beginning of period	$	(29,397	)	$	(31,591	)	$	(2,496	)	$	(29,397	)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	(11,799		)	8,948			4,016			(11,799		)
Amounts reclassified to investment related (gains) losses, net	169			(655		)	41			169
Amounts reclassified to investment income	(165		)	(603		)	(430		)	(165		)
Balance end of period	$	(41,192	)	$	(23,901	)	$	1,131		$	(41,192	)

As of June 30, ~~2016~~,2017, the before-tax deferred net gains (losses) on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are approximately ~~$0.5 million~~.$(0.1) million. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to investment income over the term of the ~~inve stment~~investment cash flows.

The following table presents the effective portion of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands):


	Effective Portion										Effective Portion
Derivative Type	Gain (Loss) Recognized in OCI			Gain (Loss) Reclassified into Income from OCI							Gain (Loss) Deferred in OCI			Gain (Loss) Reclassified into Income from OCI
				Investment Related Gains (Losses), net			Investment Income							Investment Related Gains (Losses)			Investment Income
For the three months ended June 30, 2016:
Interest rate swaps	$	(20,350	)	$	—		$	93
For the three months ended June 30, 2017:										For the three months ended June 30, 2017:
Interest rate											$	(7,643	)	$	—		$	—
Currency/Interest rate											1,226			—			132
Forward bond purchase commitments	—			(1,010		)	(35		)		—			(41		)	51
Total	$	(20,350	)	$	(1,010	)	$	58			$	(6,417	)	$	(41	)	$	183
For the three months ended June 30, 2015:
Interest rate swaps	$	2,417		$	—		$	231
For the three months ended June 30, 2016:
Interest rate											$	(17,464	)	$	—		$	—
Currency/Interest rate											(2,886		)	—			93
Forward bond purchase commitments	6,318			1,495			312				—			(1,010		)	(35		)
Total	$	8,735		$	1,495		$	543			$	(20,350	)	$	(1,010	)	$	58

For the six months ended June 30, 2016:
Interest rate swaps	$	(11,799	)	$	—		$	253
For the six months ended June 30, 2017:
Interest rate											$	(5,427	)	$	—		$	—
Currency/Interest rate											9,443			—			329
Forward bond purchase commitments	—			(169		)	(88		)		—			(41		)	101
Total	$	(11,799	)	$	(169	)	$	165			$	4,016		$	(41	)	$	430
For the six months ended June 30, 2015:
Interest rate swaps	$	(5,150	)	$	—		$	291
For the six months ended June 30, 2016:
Interest rate											$	(12,335	)	$	—		$	—
Currency/Interest rate											536			—			253
Forward bond purchase commitments	14,098			655			312				—			(169		)	(88		)
Total	$	8,948		$	655		$	603			$	(11,799	)	$	(169	)	$	165

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All components of each ~~derivative's~~derivative’s gain or loss were included in the assessment of hedge effectiveness. For the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, the ineffective portion of derivatives reported as cash flow hedges was not material to the ~~Company's~~Company’s results of operations. Also, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

~~Table of Contents~~

Hedges of Net Investments in Foreign Operations

The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands):


	Derivative Gains (Losses) Deferred in AOCI										Derivative Gains (Losses) Deferred in AOCI
	For the three months ended June 30,					For the six months ended June 30,					For the three months ended June 30,					For the six months ended June 30,
Type of NIFO Hedge ^{(1) (2)}	2016		2015			2016			2015		2017			2016		2017			2016
Foreign currency swaps	$	302	$	(12,945	)	$	(31,493	)	$	37,021	$	(17,919	)	$	302	$	(25,525	)	$	(31,493	)
Foreign currency forwards											4,158			—		4,158			—
Total											$	(13,761	)	$	302	$	(21,367	)	$	(31,493	)


(1)	There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.


(2)	There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations.

The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $~~140.4~~140.3 million and $~~171.9~~161.6 million at June 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively. If a foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a foreign operation.

Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging

The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting ~~treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits.~~treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net in the condensed consolidated statements of income, except where otherwise noted.

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A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 is as follows (dollars in thousands):


		Gain (Loss) for the three months ended June 30,							Gain (Loss) for the three months ended June 30,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2016			2015			Income Statement Location of Gain (Loss)	2017			2016
Interest rate swaps	Investment related gains (losses), net	$	41,500		$	(41,729	)	Investment related gains (losses), net	$	14,289		$	41,500
Financial futures	Investment related gains (losses), net	(7,557		)	(2,183		)	Investment related gains (losses), net	(6,442		)	(7,557		)
Foreign currency forwards	Investment related gains (losses), net	3,577			(1,433		)	Investment related gains (losses), net	(351		)	3,577
CPI swaps	Investment related gains (losses), net	(520		)	168			Investment related gains (losses), net	(4		)	(520		)
Credit default swaps	Investment related gains (losses), net	3,518			(187		)	Investment related gains (losses), net	3,879			3,518
Equity options	Investment related gains (losses), net	(3,225		)	(2,606		)	Investment related gains (losses), net	(9,273		)	(3,225		)
Longevity swaps	Other revenues	2,394			1,911			Other revenues	1,981			2,394
Mortality swaps	Other revenues	1,046			(478		)	Other revenues	(395		)	1,046
Subtotal		40,733			(46,537		)		3,684			40,733
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	Investment related gains (losses), net	76,966			(23,098		)	Investment related gains (losses), net	15,108			76,966
Indexed annuity products	Interest credited	(2,019		)	8,080			Interest credited	(5,955		)	(2,019		)
Variable annuity products	Investment related gains (losses), net	(28,137		)	50,878			Investment related gains (losses), net	360			(28,137		)
Total non-hedging derivatives		$	87,543		$	(10,677	)		$	13,197		$	87,543

		Gain (Loss) for the six months ended June 30,							Gain (Loss) for the six months ended June 30,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2016			2015			Income Statement Location of Gain (Loss)	2017			2016
Interest rate swaps	Investment related gains (losses), net	$	104,027		$	(12,385	)	Investment related gains (losses), net	$	11,677		$	104,027
Interest rate options	Investment related gains (losses), net	—			3,275
Financial futures	Investment related gains (losses), net	(18,608		)	(9,514		)	Investment related gains (losses), net	(19,217		)	(18,608		)
Foreign currency forwards	Investment related gains (losses), net	6,077			(1,653		)	Investment related gains (losses), net	553			6,077
CPI swaps	Investment related gains (losses), net	(700		)	97			Investment related gains (losses), net	(9		)	(700		)
Credit default swaps	Investment related gains (losses), net	6,864			2,471			Investment related gains (losses), net	11,237			6,864
Equity options	Investment related gains (losses), net	(5,928		)	(10,672		)	Investment related gains (losses), net	(26,462		)	(5,928		)
Longevity swaps	Other revenues	2,481			3,731			Other revenues	3,847			2,481
Mortality swaps	Other revenues	622			(957		)	Other revenues	(790		)	622
Subtotal		94,835			(25,607		)		(19,164		)	94,835
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	Investment related gains (losses), net	(15,283		)	(25,423		)	Investment related gains (losses), net	83,810			(15,283		)
Indexed annuity products	Interest credited	(626		)	(21,246		)	Interest credited	(22,357		)	(626		)
Variable annuity products	Investment related gains (losses), net	(91,077		)	25,745			Investment related gains (losses), net	22,723			(91,077		)
Total non-hedging derivatives		$	(12,151	)	$	(46,531	)		$	65,012		$	(12,151	)

Types of Derivatives Used by the Company

Interest Rate Swaps

Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates, to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches) and to manage the risk of cash flows of liabilities that are variable based on a benchmark ~~rate (LIBOR).~~rate. With an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between two rates, which can be either fixed-rate or floating-rate interest amounts, tied to an agreed-upon notional principal amount. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments at each due date. The Company utilizes interest rate swaps in cash flow and non-qualifying hedging relationships.

Table of Contents

~~Interest Rate Options~~

Interest rate options, commonly referred to as swaptions, have been used by the Company primarily to hedge living benefit guarantees embedded in certain variable annuity products. A swaption, used to hedge against adverse changes in interest rates, is an option to enter into a swap with a forward starting effective date. The Company pays an upfront premium for the right to exercise this option in the future.

Financial Futures

Exchange-traded futures are used primarily to economically hedge liabilities embedded in certain variable annuity products. With exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant indices, and to post variation margin on a daily basis in an amount equal to the difference between the daily estimated fair values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange.

Equity Options

Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products. To hedge against adverse changes in equity indices volatility, the Company buys put options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price. Equity warrants are also used by the Company to economically hedge the variability in anticipated cash flows for the acquisition of investment securities.

Consumer Price Index Swaps

Consumer price index (“CPI”) swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products where value is directly affected by changes in a designated benchmark consumer price index. With a CPI swap transaction, the Company agrees with another party to exchange the actual amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.

Foreign Currency Swaps

Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the termination of the currency swap by each party. The Company uses foreign currency swaps ~~to hedge a portion~~in hedges of ~~its~~ net ~~investment~~investments in ~~certain~~ foreign operations and ~~foreign currency securities against adverse movements in exchange rates. The Company also uses foreign currency swaps to~~non-qualifying hedge ~~its exposure to market risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell.~~relationships.

Foreign Currency Forwards

Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date. The Company uses foreign currency forwards in hedges of net investments in foreign operations and non-qualifying hedge relationships.

Forward Bond Purchase Commitments

Forward bond purchase commitments have been used by the Company to hedge against the variability in the anticipated cash flows required to purchase securities. With forward bond purchase commitments, the forward price is agreed upon at the time of the contract and payment for such contract is made at the future specified settlement date of the securities.

Credit Default Swaps

The Company sells protection under single name credit default swaps and credit default swap index tranches to diversify its credit risk exposure in certain portfolios and, in combination with purchasing securities, to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for indexed reference entities and single name reference entities are defined in the contracts. The Company’s maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default of a referencing entity, the Company is typically required to pay the protection holder the full notional value less a recovery amount determined at auction.

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The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016						December 31, 2015						June 30, 2017					December 31, 2016
Rating Agency Designation of Referenced Credit Obligations⁽¹⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾
AA/AA-/A+/A/A-
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps	$	851		$	151,500	4.2	$	1,689		$	152,500	3.9	$	2,857	$	155,500	3.5	$	1,726		$	150,500	3.8
Credit default swaps referencing indices	—			—		—	—			—		—
Subtotal	851			151,500		4.2	1,689			152,500		3.9	2,857		155,500		3.5	1,726			150,500		3.8
BBB+/BBB/BBB-
Single name credit default swaps	(2,451		)	289,200		4.2	(5,066		)	315,200		4.2	3,351		365,200		3.3	1,426			347,200		3.7
Credit default swaps referencing indices	4,554			416,000		5.0	2,274			416,000		5.0	82		416,000		4.5	6,295			416,000		5.0
Subtotal	2,103			705,200		4.7	(2,792		)	731,200		4.6	3,433		781,200		3.9	7,721			763,200		4.4
BB+/BB
BB+/BB/BB-
Single name credit default swaps	(134		)	5,000		3.2	(2,900		)	10,000		4.1	1		5,000		2.0	(477		)	9,000		3.5
Credit default swaps referencing indices	—			—		—	—			—		—
Subtotal	(134		)	5,000		3.2	(2,900		)	10,000		4.1	1		5,000		2.0	(477		)	9,000		3.5
Total	$	2,820		$	861,700	4.6	$	(4,003	)	$	893,700	4.5	$	6,291	$	941,700	3.8	$	8,970		$	922,700	4.3


(1)	The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).


(2)	Assumes the value of the referenced credit obligations is zero.


(3)	The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.

The Company also purchases credit default swaps to reduce its risk against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, the Company is able to put the bond back to the counterparty at par.

Longevity Swaps

The Company enters into longevity swaps in the form of out-of-the-money options, which provide protection against changes in mortality improvement to retirement plans and insurers of such plans. With a longevity swap transaction, the Company agrees with another party to exchange a proportion of a notional value. The proportion is determined by the difference between a predefined benefit, and the realized benefit plus the future expected benefit, calculated by reference to a population index for a fixed premium.

Mortality Swaps

Mortality swaps are used by the Company to hedge risk from changes in mortality experience associated with its reinsurance of life insurance risk. The Company agrees with another party to exchange, at specified intervals, a proportion of a notional value determined by the difference between a predefined expected and realized claim amount on a designated index of reinsured lives, for a fixed percentage (premium) each term.

Synthetic Guaranteed Investment Contracts

The Company sells fee-based synthetic guaranteed investment contracts to retirement plans which include investment-only, stable value contracts. The assets are owned by the trustees of such plans, who invest the assets under the terms of investment guidelines to which the Company agrees. The contracts contain a guarantee of a minimum rate of return on participant balances supported by the underlying assets, and a guarantee of liquidity to meet certain participant-initiated plan cash flow requirements. These contracts are reported as derivatives, recorded at fair value and classified as interest rate derivatives.

Embedded Derivatives

The Company has certain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance ~~("modco"~~(“modco”) or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits. The changes in fair values of embedded derivatives on equity-indexed annuities described below relate to changes in the fair value associated with capital market and other related assumptions. The Company’s utilization of a credit valuation adjustment ~~("CVA"~~(“CVA”) did not have a material effect on the change in fair value of its embedded derivatives for the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.

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The related gains (losses) and the effect on net income after amortization of deferred acquisition costs (“DAC”) and income taxes for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 are reflected in the following table (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Embedded derivatives in modco or funds withheld arrangements included in investment related gains	$	76,966		$	(23,098	)	$	(15,283	)	$	(25,423	)	$	15,108		$	76,966		$	83,810		$	(15,283	)
After the associated amortization of DAC and taxes, the related amounts included in net income	18,807			(3,917		)	(7,970		)	(6,504		)	2,941			18,807			28,785			(7,970		)
Embedded derivatives in variable annuity contracts included in investment related gains	(28,137		)	50,878			(91,077		)	25,745			360			(28,137		)	22,723			(91,077		)
After the associated amortization of DAC and taxes, the related amounts included in net income	(40,167		)	19,608			(66,010		)	10,198			3,023			(40,167		)	31,859			(66,010		)
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses	(2,019		)	8,080			(626		)	(21,246		)	(5,955		)	(2,019		)	(22,357		)	(626		)
After the associated amortization of DAC and taxes, the related amounts included in net income	(7,816		)	1,233			3,418			(14,766		)	(6,925		)	(7,816		)	(28,322		)	3,418

Credit Risk

The Company manages its credit risk related to over-the-counter ~~("OTC"~~(“OTC”) derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination.

The credit exposure of the ~~Company's~~Company’s OTC derivative transactions is represented by the contracts with a positive fair value (market value) at the reporting date. To reduce credit exposures, the Company seeks to (i) enter into OTC derivative transactions pursuant to master netting agreements that provide for a netting of payments and receipts with a single counterparty, and (ii) enter into agreements that allow the use of credit support annexes, which are bilateral rating-sensitive agreements that require collateral postings at established threshold levels. Certain of the ~~Company's~~Company’s OTC derivatives are cleared derivatives, which are bilateral transactions between the Company and a counterparty where the transactions are cleared through a clearinghouse, such that each derivative counterparty is only exposed to the default of the clearinghouse. These cleared transactions require initial and daily variation margin collateral postings and include certain interest rate swaps and credit default swaps entered into on or after June 10, 2013, related to guidelines implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, the Company enters into exchange-traded futures through regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of non-performance by counterparties to such financial instruments.

The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that may vary depending on the posting party’s ratings. Additionally, a decline in the Company’s or the counterparty’s credit ratings to specified levels could result in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Company also has exchange-traded futures, which require the maintenance of a margin account. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties.

The Company’s credit exposure related to derivative contracts is generally limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company’s credit exposure to mortality swaps is minimal, as they are fully collateralized by a counterparty. Information regarding the Company’s credit exposure related to its over-the-counter derivative contracts, centrally cleared derivative contracts and margin account for exchange-traded futures, excluding mortality swaps, at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are reflected in the following table (dollars in thousands):


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
Estimated fair value of derivatives in net asset position	$	305,798		$	248,968		$	181,124		$	236,985
Cash provided as collateral⁽¹⁾	16,822			12,540			7,461			1,441
Securities pledged to counterparties as collateral⁽²⁾	74,538			47,149			59,540			95,863
Cash pledged from counterparties as collateral⁽³⁾	(298,459		)	(245,038		)	(183,179		)	(254,498		)
Securities pledged from counterparties as collateral⁽⁴⁾	(40,876		)	(20,888		)	(17,847		)	(16,913		)
Initial margin for cleared derivatives⁽²⁾	(62,577		)	(34,898		)	(58,526		)	(73,571		)
Net amount after application of master netting agreements and collateral	$	(4,754	)	$	7,833		$	(11,427	)	$	(10,693	)
Margin account related to exchange-traded futures⁽⁵⁾	$	10,503		$	11,004		$	8,530		$	9,687


(1)	Consists of receivable from counterparty, included in other assets.


(2)	Included in available-for-sale securities, primarily consists of U.S. Treasury and government agency securities.


(3)	Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities.


(4)	Consists of U.S. Treasury and government securities.


(5)	Included in other assets.

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6. Fair Value of Assets and Liabilities

Fair Value Measurement

General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets ~~include assets~~ and liabilities ~~that~~ are traded in active exchange markets.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions that use significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques that require management’s judgment or estimation in developing inputs that are consistent with those other market participants would use when pricing similar assets and liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties and longevity and mortality swaps, are classified in Level 3 since their values include significant unobservable inputs.

When inputs used to measure the fair value of an asset or liability fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety, except for fair value measurements using net asset value. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

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Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are summarized below (dollars in thousands):


June 30, 2016:				Fair Value Measurements Using:
June 30, 2017:															Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities	$	19,543,237		$	252,082	$	17,993,773		$	1,297,382		$	22,341,661		$	603,002	$	20,447,605		$	1,291,054
Canadian and Canadian provincial governments	4,105,274			—		3,551,082			554,192			4,007,754			—		3,474,484			533,270
Residential mortgage-backed securities	1,292,778			—		1,126,799			165,979			1,539,299			—		1,390,614			148,685
Asset-backed securities	1,356,677			—		1,057,861			298,816			1,641,841			—		1,440,252			201,589
Commercial mortgage-backed securities	1,507,693			—		1,469,758			37,935			1,582,028			—		1,580,085			1,943
U.S. government and agencies	2,007,338			1,874,944		106,139			26,255			1,721,564			1,597,777		100,220			23,567
State and political subdivisions	605,942			—		570,696			35,246			638,970			—		604,536			34,434
Other foreign government supranational and foreign government-sponsored enterprises	2,742,037			289,633		2,438,698			13,706			2,872,309			326,033		2,534,282			11,994
Total fixed maturity securities – available-for-sale	33,160,976			2,416,659		28,314,806			2,429,511			36,345,426			2,526,812		31,572,078			2,246,536
Funds withheld at interest – embedded derivatives	(91,981		)	—		—			(91,981		)	61,281			—		—			61,281
Cash equivalents	213,556			213,556		—			—			300,516			300,516		—			—
Short-term investments	160,901			133,716		27,185			—			91,024			21,586		65,890			3,548
Other invested assets:
Non-redeemable preferred stock	61,103			48,030		13,073			—			31,959			31,959		—			—
Other equity securities	357,083			357,083		—			—			72,318			72,318		—			—
Derivatives:
Interest rate swaps	159,611			—		159,611			—			55,154			—		55,154			—
Foreign currency forwards	1,498			—		1,498			—
CPI swaps	(613		)	—		(613		)	—			(187		)	—		(187		)	—
Credit default swaps	5,625			—		5,625			—			6,258			—		6,258			—
Equity options	43,543			—		43,543			—			15,804			—		15,804			—
Foreign currency swaps	101,132			—		101,132			—			81,019			—		81,019			—
FVO contractholder-directed unit-linked investments	195,842			194,604		1,238			—			204,630			203,150		1,480			—
Other	934			934		—			—			7,047			7,047		—			—
Total other invested assets	925,758			600,651		325,107			—			474,002			314,474		159,528			—
Other assets - longevity swaps	17,781			—		—			17,781			33,349			—		—			33,349
Total	$	34,386,991		$	3,364,582	$	28,667,098		$	2,355,311		$	37,305,598		$	3,163,388	$	31,797,496		$	2,344,714
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	1,125,380		$	—	$	—		$	1,125,380		$	974,631		$	—	$	—		$	974,631
Other liabilities:
Derivatives:
Interest rate swaps	26,632			—		26,632			—			17,012			—		17,012			—
Foreign currency forwards	2,527			—		2,527			—			4,200			—		4,200			—
Credit default swaps	2,290			—		2,290			—			(319		)	—		(319		)	—
Equity options	(10,779		)	—		(10,779		)	—			(12,497		)	—		(12,497		)	—
Foreign currency swaps	2,109			—		2,109			—			1,877			—		1,877			—
Mortality swaps	1,997			—		—			1,997			1,552			—		—			1,552
Total	$	1,150,156		$	—	$	22,779		$	1,127,377		$	986,456		$	—	$	10,273		$	976,183

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December 31, 2015:				Fair Value Measurements Using:
December 31, 2016:															Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities	$	17,708,156		$	269,039	$	16,212,147		$	1,226,970		$	19,619,084		$	310,995	$	18,035,836		$	1,272,253
Canadian and Canadian provincial governments	3,576,759			—		3,160,683			416,076			3,644,046			—		3,168,081			475,965
Residential mortgage-backed securities	1,311,477			—		980,828			330,649			1,278,576			—		1,118,285			160,291
Asset-backed securities	1,212,676			—		908,840			303,836			1,429,344			—		1,210,064			219,280
Commercial mortgage-backed securities	1,483,087			—		1,414,524			68,563			1,363,654			—		1,342,509			21,145
U.S. government and agencies	1,381,659			1,227,858		127,536			26,265			1,468,302			1,345,755		98,059			24,488
State and political subdivisions	511,014			—		472,672			38,342			591,796			—		550,130			41,666
Other foreign government, supranational and foreign government-sponsored enterprises	2,458,077			260,552		2,183,460			14,065			2,698,823			276,729		2,409,225			12,869
Total fixed maturity securities – available-for-sale	29,642,905			1,757,449		25,460,690			2,424,766			32,093,625			1,933,479		27,932,189			2,227,957
Funds withheld at interest – embedded derivatives	(76,698		)	—		—			(76,698		)	(22,529		)	—		—			(22,529		)
Cash equivalents	406,521			406,521		—			—			338,601			338,601		—			—
Short-term investments	530,773			524,946		5,827			—			44,241			8,276		32,619			3,346
Other invested assets:
Non-redeemable preferred stock	87,520			81,809		5,711			—			51,123			38,317		12,806			—
Other equity securities	38,342			38,342		—			—			224,238			224,238		—			—
Derivatives:
Interest rate swaps	71,882			—		71,882			—			93,508			—		93,508			—
Foreign currency forwards	20			—		20			—
CPI swaps	(292		)	—		(292		)	—
Credit default swaps	2,567			—		2,567			—			9,136			—		9,136			—
Equity options	40,644			—		40,644			—			26,070			—		26,070			—
Foreign currency swaps	141,357			—		141,357			—			100,394			—		100,394			—
FVO contractholder-directed unit-linked investments	197,547			195,317		2,230			—			190,120			188,891		1,229			—
Other	8,170			8,170		—			—			11,036			11,036		—			—
Total other invested assets	587,757			323,638		264,119			—			705,625			462,482		243,143			—
Other assets - longevity swaps	14,996			—		—			14,996			26,958			—		—			26,958
Total	$	31,106,254		$	3,012,554	$	25,730,636		$	2,363,064		$	33,186,521		$	2,742,838	$	28,207,951		$	2,235,732
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	1,070,584		$	—	$	—		$	1,070,584		$	990,308		$	—	$	—		$	990,308
Other liabilities:
Derivatives:
Interest rate swaps	20,989			—		20,989			—			24,374			—		24,374			—
Foreign currency forwards	6,744			—		6,744			—			5,070			—		5,070			—
CPI swaps												262			—		262			—
Credit default swaps	5,390			—		5,390			—			(5		)	—		(5		)	—
Equity options	(6,009		)	—		(6,009		)	—			(7,389		)	—		(7,389		)	—
Foreign currency swaps	(4,908		)	—		(4,908		)	—			(3,231		)	—		(3,231		)	—
Mortality swaps	2,619			—		—			2,619			2,462			—		—			2,462
Total	$	1,095,409		$	—	$	22,206		$	1,073,203		$	1,011,851		$	—	$	19,081		$	992,770

The Company may utilize information from third parties, such as pricing services and brokers, to assist in determining the fair value for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s condensed consolidated financial statements. This includes responsibility for monitoring the fair value process, ensuring objective and reliable valuation practices and pricing of assets and liabilities, and approving changes to valuation methodologies and pricing sources. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.

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The Company performs initial and ongoing analysis and review of the various techniques utilized in determining fair value to ensure that they are appropriate and consistently applied, and that the various assumptions are reasonable. The Company analyzes and reviews the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value and to monitor controls around pricing, which includes quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, review of pricing trends, comparison of a sample of executed prices of securities sold to the fair value estimates, comparison of fair value estimates to management’s knowledge of the current market, and ongoing confirmation that third party pricing services use, wherever possible, market-based parameters for valuation. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company also determines if the inputs used in estimated fair values received from pricing services are observable by assessing whether these inputs can be corroborated by observable market data.

For assets and liabilities reported at fair value, the Company utilizes, when available, fair values based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market valuation techniques, market comparable pricing and the income approach. The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings. For the periods presented, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.

Fixed Maturity Securities – The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately uses the price from the vendor that is highest in the hierarchy for the respective asset type. To validate reasonableness, prices are periodically reviewed as explained above. Consistent with the fair value hierarchy described above, securities with quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service.

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of fair value, non-binding broker quotes are used, if available. If the Company concludes that the values from both pricing services and brokers are not reflective of fair value, an internally developed valuation may be prepared; however, this occurs infrequently. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These valuations may use significant unobservable inputs, which reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset. Observable market data may not be available in certain circumstances, such as market illiquidity and credit events related to the security. Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significant unobservable inputs and are reflected as Level 3 in the valuation hierarchy.

The inputs used in the valuation of corporate and government securities include, but are not limited to standard market observable inputs which are derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.

When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.

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The fair values of private placement securities are primarily determined using a discounted cash flow model. In certain cases these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 3. For certain private fixed maturities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the security. To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.

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Embedded Derivatives – The fair value of embedded derivative liabilities, including those calculated by third parties, are monitored through the use of attribution reports to quantify the effect of underlying sources of fair value change, including capital market inputs based on policyholder account values, interest rates and short-term and long-term implied volatilities, from period to period. Actuarial assumptions are based on experience studies performed internally in combination with available industry information and are reviewed on a periodic basis, at least annually.

For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a discounted cash flow model, which includes an estimate of future equity option purchases and an adjustment for a CVA. The variable annuity embedded derivative calculations are performed by third parties based on methodology and input assumptions provided by the Company. To validate the reasonableness of the resulting fair value, the Company’s internal actuaries perform reviews and analytical procedures on the results. The capital market inputs to the model, such as equity indexes, short-term equity volatility and interest rates, are generally observable. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset with an adjustment for a CVA. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

Credit Valuation Adjustment – The Company uses a structural default risk model to estimate a CVA. The input assumptions are a combination of externally derived and published values (default threshold and uncertainty), market inputs (interest rate, equity price per share, debt per share, equity price volatility) and insurance industry data (Loss Given Default), adjusted for market recoverability.

Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The fair value of certain other cash equivalents and short-term investments, such as floating rate notes and bonds with original maturities less than twelve months, are based upon other market observable data and are typically classified as Level 2. However, certain short-term investments may incorporate significant unobservable inputs resulting in a Level 3 classification. Various time deposits carried as cash equivalents or short-term investments are not measured at estimated fair value and therefore are excluded from the tables presented.

Equity Securities – Equity securities consist principally of exchange-traded funds and preferred stock of publicly and privately traded companies. The fair values of publicly traded equity securities are primarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities, for which quoted market prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair value hierarchy. Non-binding broker quotes for equity securities are generally based on significant unobservable inputs and are reflected as Level 3 in the fair value hierarchy.

FVO Contractholder-Directed Unit-Linked Investments – FVO contractholder-directed investments supporting unit-linked variable annuity type liabilities primarily consist of exchange-traded funds and, to a lesser extent, fixed maturity securities and cash and cash equivalents. The fair values of the exchange-traded securities are primarily based on quoted market prices in active markets and are classified within Level 1 of the hierarchy. The fair value of the fixed maturity contractholder-directed securities is determined on a basis consistent with the methodologies described above for fixed maturity securities and are classified within Level 2 of the hierarchy.

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Derivative Assets and Derivative Liabilities – All of the derivative instruments utilized by the Company, except for longevity and mortality swaps, are classified within Level 2 on the fair value hierarchy. These derivatives are principally valued using an income approach. Valuations of interest rate contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) basis curves, and repurchase rates. Valuations of foreign currency contracts, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, currency spot rates, and cross currency basis curves. Valuations of credit contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, credit curves, and recovery rates. Valuations of equity market contracts, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, spot equity index levels, and dividend yield curves. Valuations of equity market contracts, option-based, are based on option pricing models, which utilize significant inputs that may include the swap yield curve, spot equity index levels, dividend yield curves, and equity volatility. The Company does not currently have derivatives, except for longevity and mortality swaps, included in Level 3 measurement.

Longevity and Mortality Swaps – The Company utilizes a discounted cash flow model to estimate the fair value of longevity and mortality swaps. The fair value of these swaps includes an accrual for premiums payable and receivable. Some inputs to the

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valuation model are generally observable, such as interest rates and actual population mortality experience. The valuation also requires significant inputs that are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy.

Level 3 Measurements and Transfers

As of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the Company classified approximately ~~7.3%~~6.2% and ~~8.2%~~6.9%, respectively, of its fixed maturity securities in the Level 3 category. These securities primarily consist of private placement corporate securities and bank loans as well as Canadian provincial strips with inactive trading markets. Additionally, the Company has included asset-backed securities with subprime exposure and mortgage-backed securities with below investment grade ratings in the Level 3 category due to market uncertainty associated with these securities and the Company’s utilization of unobservable information from third parties for the valuation of these securities.

The significant unobservable inputs used in the fair value measurement of the Company’s corporate, sovereign, government-backed, and other political subdivision investments are probability of default, liquidity premium and subordination premium. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumptions used for the liquidity premium and subordination premium. For securities with a fair value derived using the market comparable pricing valuation technique, liquidity premium is the only significant unobservable input.

The significant unobservable inputs used in the fair value measurement of the Company’s asset and mortgage-backed securities are prepayment rates, probability of default, liquidity premium and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the liquidity premium and loss severity and a directionally opposite change in the assumption used for prepayment rates.

The actuarial assumptions used in the fair value of embedded derivatives which include assumptions related to lapses, withdrawals, and mortality, are based on experience studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually. The significant unobservable inputs used in the fair value measurement of embedded derivatives are assumptions associated with policyholder experience and selected capital market assumptions for equity-indexed and variable annuities. The selected capital market assumptions, which include long-term implied volatilities, are projections based on short-term historical information. Changes in interest rates, equity indices, equity volatility, CVA, and actuarial assumptions regarding policyholder experience may result in significant fluctuations in the value of embedded derivatives.

Fair value measurements associated with funds withheld reinsurance treaties are generally not materially sensitive to changes in unobservable inputs associated with policyholder experience. The primary drivers of change in these fair values are related to movements of credit spreads, which are generally observable. Increases (decreases) in market credit spreads tend to decrease (increase) the fair value of embedded derivatives. Increases (decreases) in the CVA assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

Fair value measurements associated with variable annuity treaties are sensitive to both capital markets inputs and policyholder experience inputs. Increases (decreases) in lapse rates tend to decrease (increase) the value of the embedded derivatives associated with variable annuity treaties. Increases (decreases) in the long-term volatility assumption tend to increase (decrease) the fair value of embedded derivatives. Increases (decreases) in the CVA assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

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The actuarial assumptions used in the fair value of longevity and mortality swaps include assumptions related to the level and volatility of mortality. The assumptions are based on studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually.

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The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	Estimated Fair Value				Valuation Technique		Unobservable Inputs		Range (Weighted Average)					Estimated Fair Value							Valuation Technique		Unobservable Inputs		Range (Weighted Average)
	June 30, 2016		December 31, 2015				Unobservable Inputs	June 30, 2016			December 31, 2015		June 30, 2017				December 31, 2016					June 30, 2017			December 31, 2016
Assets:
Corporate securities	$167,602		$195,557		Valuation Technique	Market comparable securities		Liquidity premium		0-2% (1%)			0-2% (1%)		$	158,309			$	167,815	Valuation Technique		Unobservable Inputs	Market comparable securities		Liquidity premium	0-2% (1%)		0-2% (1%)
U.S. government and agencies	26,255		26,265		Market comparable securities		Liquidity premium		0-1% (1%)			0-1% (1%)		23,567				24,488			Market comparable securities		Liquidity premium		0-1% (1%)		0-1% (1%)
State and political subdivisions	4,941		4,770		Market comparable securities		Liquidity premium		1	%		1	%	4,607				4,670			Market comparable securities		Liquidity premium		1	%	1	%
Funds withheld at interest- embedded derivatives	(91,981	)	(76,698	)	Total return swap		Mortality		0-100% (2%)			0-100% (2%)		61,281				(22,529		)	Total return swap		Mortality		0-100% (2%)		0-100% (2%)
							Lapse		0-35% (8%)			0-35% (7%)											Lapse		0-35% (9%)		0-35% (8%)
							Withdrawal		0-5% (3%)			0-5% (3%)											Withdrawal		0-5% (3%)		0-5% (3%)
							CVA		0-5% (1%)			0-5% (1%)											CVA		0-5% (1%)		0-5% (1%)
							Crediting rate		2-4% (2%)			2-4% (3%)											Crediting rate		2-4% (2%)		2-4% (2%)
Longevity swaps	17,781		14,996		Discounted cash flow		Mortality		0-100% (2%)			0-100% (2%)		33,349				26,958			Discounted cash flow		Mortality		0-100% (2%)		0-100% (2%)
							Mortality improvement		(10%)-10% (3%)			(10%)-10% (3%)											Mortality improvement		(10%)-10% (3%)		(10%)-10% (3%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	841,832		878,114		Discounted cash flow		Mortality		0-100% (2%)			0-100% (2%)		812,718				805,672			Discounted cash flow		Mortality		0-100% (2%)		0-100% (2%)
							Lapse		0-35% (8%)			0-35% (7%)											Lapse		0-35% (9%)		0-35% (8%)
							Withdrawal		0-5% (3%)			0-5% (3%)											Withdrawal		0-5% (3%)		0-5% (3%)
							Option budget projection		2-4% (2%)			2-4% (3%)											Option budget projection		2-4% (2%)		2-4% (2%)

Interest sensitive contract liabilities- embedded derivatives- variable annuities	283,548		192,470		Discounted cash flow		Mortality		0-100% (2%)			0-100% (2%)		161,913				184,636			Discounted cash flow		Mortality		0-100% (2%)		0-100% (2%)
							Lapse		0-25% (7%)			0-25% (7%)											Lapse		0-25% (6%)		0-25% (6%)
							Withdrawal		0-7% (3%)			0-7% (3%)											Withdrawal		0-7% (3%)		0-7% (3%)
							CVA		0-5% (1%)			0-5% (1%)											CVA		0-5% (1%)		0-5% (1%)
							Long-term volatility		0-27% (14%)			0-27% (14%)											Long-term volatility		0-27% (9%)		0-27% (14%)
Mortality swaps	1,997		2,619		Discounted cash flow		Mortality		0-100% (1%)			0-100% (1%)		1,552				2,462			Discounted cash flow		Mortality		0-100% (1%)		0-100% (1%)

The Company recognizes transfers of assets and liabilities into and out of levels within the fair value hierarchy at the beginning of the quarter in which the actual event or change in circumstances that caused the transfer occurs. Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Assets and liabilities are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset or liability, a specific event, one or more significant input(s) becoming observable. Transfers out of Level 3 were primarily the result of the Company obtaining observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those assets and liabilities. In addition, certain transfers out of Level 3 were also due to ratings upgrades on mortgage-backed securities that had previously had below investment-grade ratings.

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Transfers from Level 1 to Level 2 are due to the lack of observable market data when pricing these securities, while transfers from Level 2 to Level 1 are due to an increase in the availability of market observable data in an active market. There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2016. The following tables present the transfers between Level 1 and Level 2 during the three and six months ended June 30, ~~2016 and 2015~~2017 (dollars in thousands):


	2016				2015				2017
	Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1		Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1		Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1
Three months ended June 30:
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	—	$	—	$	31,896	$	—	$	49,999

Six months ended June 30:
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	—	$	625	$	36,996	$	—	$	88,674

The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three and six months ended June 30, ~~2016~~2017, as well as the portion of gains or losses included in income for the three and six months ended June 30, ~~2016~~2017 attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, ~~2016~~2017 (dollars in thousands):


For the three months ended June 30, 2016:	Fixed maturity securities - available-for-sale
For the three months ended June 30, 2017:																		Fixed maturity securities - available-for-sale
	Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. government and agencies			Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities
Fair value, beginning of period	$	1,243,660		$	487,383	$	333,253		$	285,220		$	63,574		$	25,880		$	1,263,925		$	483,560	$	143,430		$	208,436
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(592		)	3,049		116			252			490			(122		)	(396		)	3,201		(29		)	511
Investment related gains (losses), net	12			—		(1,891		)	823			(2,669		)	—			8,427			—		115			—
Interest credited	—			—		—			—			—			—
Included in other comprehensive income	30,391			63,760		3,839			2,793			453			461			(4,548		)	46,509		1,962			1,136
Other revenues	—			—		—			—			—			—
Purchases⁽¹⁾	72,982			—		42,913			59,779			—			144			104,087			—		29,318			34,366
Sales⁽¹⁾	(901		)	—		(167,236		)	(30,181		)	(22,338		)	—			(23,174		)	—		(4,467		)	—
Settlements⁽¹⁾	(47,461		)	—		(13,464		)	(4,196		)	(68		)	(108		)	(74,531		)	—		(4,655		)	(27,569		)
Transfers into Level 3	5,023			—		—			18,398			—			—			17,264			—		5,423			3,500
Transfers out of Level 3	(5,732		)	—		(31,551		)	(34,072		)	(1,507		)	—			—			—		(22,412		)	(18,791		)
Fair value, end of period	$	1,297,382		$	554,192	$	165,979		$	298,816		$	37,935		$	26,255		$	1,291,054		$	533,270	$	148,685		$	201,589
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(608	)	$	3,049	$	530		$	187		$	485		$	(122	)	$	(396	)	$	3,201	$	(37	)	$	239
Investment related gains (losses), net	—			—		—			—			—			—			(1,495		)	—		—			—
Interest credited	—			—		—			—			—			—



For the three months ended June 30, 2017 (continued):	Fixed maturity securities available-for-sale
	Commercial mortgage- backed securities			U.S. government and agencies			State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises
Fair value, beginning of period	$	1,923		$	23,474		$	33,858		$	12,344
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(115		)	(6		)	—
Included in other comprehensive income	21			211			823			(12		)
Purchases⁽¹⁾	—			132			—			—
Settlements⁽¹⁾	(1		)	(135		)	(241		)	(338		)
Fair value, end of period	$	1,943		$	23,567		$	34,434		$	11,994
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	—		$	(115	)	$	(6	)	$	—

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For the three months ended June 30, 2016 (continued):	Fixed maturity securities available-for-sale
	State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps			Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
For the three months ended June 30, 2017 (continued):																			Short-term Investments			Funds withheld at interest- embedded derivatives		Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	34,624		$	13,936		$	(168,948	)	$	15,806		$	(1,118,069	)	$	(3,043	)	$	3,276		$	46,173	$	29,170	$	(972,930	)	$	(2,857	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	12			—			—			—			—			—
Investment related gains (losses), net	—			—			76,967			—			(28,137		)	—			—			15,108		—		360			—
Interest credited	—			—			—			—			(2,019		)	—			—			—		—		(5,955		)	—
Included in other comprehensive income	837			95			—			(419		)	—			—			(29		)	—		2,198		—			—
Other revenues	—			—			—			2,394			—			1,046			—			—		1,981		—			(395		)
Purchases⁽¹⁾	—			—			—			—			4,703			—			324			—		—		(19,533		)	—
Sales⁽¹⁾	—			—			—			—			—			—
Settlements⁽¹⁾	(227		)	(325		)	—			—			18,142			—			(23		)	—		—		23,427			1,700
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Fair value, end of period	$	35,246		$	13,706		$	(91,981	)	$	17,781		$	(1,125,380	)	$	(1,997	)	$	3,548		$	61,281	$	33,349	$	(974,631	)	$	(1,552	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	12		$	—		$	—		$	—		$	—		$	—
Investment related gains (losses), net	—			—			76,967			—			(31,333		)	—			—			15,108		—		(1,794		)	—
Other revenues	—			—			—			2,394			—			1,046			—			—		1,981		—			(395		)
Interest credited	—			—			—			—			(20,162		)	—			—			—		—		(29,382		)	—


For the six months ended June 30, 2016:	Fixed maturity securities - available-for-sale
For the six months ended June 30, 2017:																		Fixed maturity securities - available-for-sale
	Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. government and agencies			Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities
Fair value, beginning of period	$	1,226,970		$	416,076	$	330,649		$	303,836		$	68,563		$	26,265		$	1,272,253		$	475,965	$	160,291		$	219,280
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(1,419		)	6,051		(371		)	426			1,133			(245		)	(819		)	6,271		(274		)	1,529
Investment related gains (losses), net	(21,856		)	—		(1,922		)	1,101			(3,289		)	—			7,196			—		480			—
Interest credited	—			—		—			—			—			—
Included in other comprehensive income	56,073			132,065		(493		)	(7,734		)	(2,359		)	1,057			400			51,034		2,612			6,903
Other revenues	—			—		—			—			—			—
Purchases⁽¹⁾	140,578			—		72,228			97,050			1,545			257			150,001			—		45,817			45,215
Sales⁽¹⁾	(10,483		)	—		(167,684		)	(38,681		)	(25,976		)	—			(23,174		)	—		(15,071		)	—
Settlements⁽¹⁾	(96,955		)	—		(24,904		)	(7,921		)	(137		)	(1,079		)	(146,001		)	—		(11,439		)	(45,723		)
Transfers into Level 3	10,206			—		—			24,796			—			—			31,198			—		5,500			38,758
Transfers out of Level 3	(5,732		)	—		(41,524		)	(74,057		)	(1,545		)	—			—			—		(39,231		)	(64,373		)
Fair value, end of period	$	1,297,382		$	554,192	$	165,979		$	298,816		$	37,935		$	26,255		$	1,291,054		$	533,270	$	148,685		$	201,589
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(1,428	)	$	6,051	$	42		$	350		$	1,031		$	(245	)	$	(819	)	$	6,271	$	(128	)	$	400
Investment related gains (losses), net	(21,726		)	—		—			—			—			—			(2,788		)	—		(346		)	—
Interest credited	—			—		—			—			—			—

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For the six months ended June 30, 2016 (continued):	Fixed maturity securities available-for-sale
For the six months ended June 30, 2017 (continued):																		Fixed maturity securities available-for-sale
	State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps			Commercial mortgage- backed securities			U.S. government and agencies			State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises
Fair value, beginning of period	$	38,342		$	14,065		$	(76,698	)	$	14,996	$	(1,070,584	)	$	(2,619	)	$	21,145		$	24,488		$	41,666		$	12,869
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	195			—			—			—		—			—			709			(232		)	(94		)	—
Investment related gains (losses), net	—			—			(15,283		)	—		(91,077		)	—			(595		)	—			—			—
Interest credited	—			—			—			—		(626		)	—
Included in other comprehensive income	1,171			288			—			304		—			—			(62		)	263			(20		)	(203		)
Other revenues	—			—			—			2,481		—			622			—			—			—			—
Purchases⁽¹⁾	—			—			—			—		2,035			—			—			236			—			—
Sales⁽¹⁾	—			—			—			—		—			—			(3,720		)	—			—			—
Settlements⁽¹⁾	(258		)	(647		)	—			—		34,872			—			(5,402		)	(1,188		)	(274		)	(672		)
Transfers into Level 3	—			—			—			—		—			—
Transfers out of Level 3	(4,204		)	—			—			—		—			—			(10,132		)	—			(6,844		)	—
Fair value, end of period	$	35,246		$	13,706		$	(91,981	)	$	17,781	$	(1,125,380	)	$	(1,997	)	$	1,943		$	23,567		$	34,434		$	11,994
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	195		$	—		$	—		$	—	$	—		$	—		$	—		$	(232	)	$	(94	)	$	—
Investment related gains (losses), net	—			—			(15,283		)	—		(96,811		)	—
Other revenues	—			—			—			2,481		—			622
Interest credited	—			—			—			—		(35,497		)	—



For the six months ended June 30, 2017 (continued):	Short-term Investments			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	3,346		$	(22,529	)	$	26,958	$	(990,308	)	$	(2,462	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net	—			83,810			—		22,723			—
Interest credited	—			—			—		(22,357		)	—
Included in other comprehensive income	4			—			2,545		—			—
Other revenues	—			—			3,846		—			(790		)
Purchases⁽¹⁾	356			—			—		(25,927		)	—
Settlements⁽¹⁾	(158		)	—			—		41,238			1,700
Fair value, end of period	$	3,548		$	61,281		$	33,349	$	(974,631	)	$	(1,552	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment related gains (losses), net	—			83,810			—		18,505			—
Other revenues	—			—			3,846		—			(790		)
Interest credited	—			—			—		(63,596		)	—


(1)	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.

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The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three and six months ended June 30, ~~2015~~2016, as well as the portion of gains or losses included in income for the three and six months ended June 30, ~~2015~~2016 attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, ~~2015~~2016 (dollars in thousands):


For the three months ended June 30, 2015:	Fixed maturity securities - available-for-sale
For the three months ended June 30, 2016:																			Fixed maturity securities - available-for-sale
	Corporate securities			Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. government and agencies			State and political subdivisions			Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. government and agencies
Fair value, beginning of period	$	1,286,979		$	192,579		$	609,436		$	93,869		$	27,756		$	41,875		$	1,243,660		$	487,383	$	333,253		$	285,220		$	63,574		$	25,880
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(1,051		)	(156		)	1,511			677			112			8			(592		)	3,049		116			252			490			(122		)
Investment related gains (losses), net	(166		)	17			283			(770		)	(10		)	(5		)	12			—		(1,891		)	823			(2,669		)	—
Interest credited	—			—			—			—			—			—
Included in other comprehensive income	(16,902		)	(1,291		)	(301		)	(386		)	(559		)	(1,480		)	30,391			63,760		3,839			2,793			453			461
Other revenues																			—			—		—			—			—			—
Purchases⁽¹⁾	76,982			118,868			44,181			42			154			—			72,982			—		42,913			59,779			—			144
Sales⁽¹⁾	(3,949		)	—			(1,615		)	(2,000		)	—			—			(901		)	—		(167,236		)	(30,181		)	(22,338		)	—
Settlements⁽¹⁾	(103,696		)	(8,617		)	(63,751		)	(893		)	(94		)	(212		)	(47,461		)	—		(13,464		)	(4,196		)	(68		)	(108		)
Transfers into Level 3	413			1,800			—			—			—			—			5,023			—		—			18,398			—			—
Transfers out of Level 3	(1,293		)	(4,824		)	(9,234		)	(12,720		)	—			—			(5,732		)	—		(31,551		)	(34,072		)	(1,507		)	—
Fair value, end of period	$	1,237,317		$	298,376		$	580,510		$	77,819		$	27,359		$	40,186		$	1,297,382		$	554,192	$	165,979		$	298,816		$	37,935		$	26,255
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(997	)	$	(156	)	$	706		$	640		$	112		$	8		$	(608	)	$	3,049	$	530		$	187		$	485		$	(122	)
Investment related gains (losses), net	—			—			—			—			—			—
Interest credited	—			—			—			—			—			—


For the three months ended June 30, 2015 (continued):	Fixed maturity securities available-for-sale
For the three months ended June 30, 2016 (continued):																		Fixed maturity securities available-for-sale
	Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other invested assets - non-redeemable preferred stock			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps			State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps			Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	15,202		$	19,769		$	7,992		$	8,602	$	(1,132,271	)	$	(1,276	)	$	34,624		$	13,936		$	(168,948	)	$	15,806		$	(1,118,069	)	$	(3,043	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			—			—			—		—			—			12			—			—			—			—			—
Investment related gains (losses), net	—			(23,098		)	—			—		50,878			—			—			—			76,967			—			(28,137		)	—
Interest credited	—			—			—			—		8,080			—			—			—			—			—			(2,019		)	—
Included in other comprehensive income	(232		)	—			(104		)	340		—			—			837			95			—			(419		)	—			—
Other revenues	—			—			—			1,911		—			(478		)	—			—			—			2,394			—			1,046
Purchases⁽¹⁾	—			—			4,500			—		(13,924		)	—			—			—			—			—			4,703			—
Sales⁽¹⁾	—			—			—			—		—			—
Settlements⁽¹⁾	(313		)	—			—			—		18,083			—			(227		)	(325		)	—			—			18,142			—
Transfers into Level 3	—			—			—			—		—			—
Transfers out of Level 3	—			—			—			—		—			—
Fair value, end of period	$	14,657		$	(3,329	)	$	12,388		$	10,853	$	(1,069,154	)	$	(1,754	)	$	35,246		$	13,706		$	(91,981	)	$	17,781		$	(1,125,380	)	$	(1,997	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	—		$	—		$	—		$	—	$	—		$	—		$	12		$	—		$	—		$	—		$	—		$	—
Investment related gains (losses), net	—			(23,098		)	—			—		48,603			—			—			—			76,967			—			(31,333		)	—
Other revenues	—			—			—			1,911		—			(478		)	—			—			—			2,394			—			1,046
Interest credited	—			—			—			—		(10,003		)	—			—			—			—			—			(20,162		)	—

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For the six months ended June 30, 2015:	Fixed maturity securities - available-for-sale
For the six months ended June 30, 2016:																			Fixed maturity securities - available-for-sale
	Corporate securities			Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. government and agencies			State and political subdivisions			Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			��	U.S. government and agencies
Fair value, beginning of period	$	1,310,427		$	188,094		$	572,960		$	86,746		$	28,529		$	42,711		$	1,226,970		$	416,076	$	330,649		$	303,836		$	68,563			$	26,265
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(1,854		)	(296		)	2,930			1,271			93			15			(1,419		)	6,051		(371		)	426			1,133				(245		)
Investment related gains (losses), net	(571		)	(65		)	356			(683		)	(117		)	(9		)	(21,856		)	—		(1,922		)	1,101			(3,289		)		—
Interest credited	—			—			—			—			—			—			—			—		—			—			—				—
Included in other comprehensive income	(10,833		)	(768		)	3,331			(696		)	(383		)	(1,455		)	56,073			132,065		(493		)	(7,734		)	(2,359		)		1,057
Purchases⁽¹⁾	113,882			130,307			85,172			42			275			—			140,578			—		72,228			97,050			1,545				257
Sales⁽¹⁾	(3,949		)	(714		)	(8,971		)	(2,956		)	—			—			(10,483		)	—		(167,684		)	(38,681		)	(25,976		)		—
Settlements⁽¹⁾	(163,296		)	(14,336		)	(67,873		)	(6,013		)	(1,038		)	(241		)	(96,955		)	—		(24,904		)	(7,921		)	(137		)		(1,079		)
Transfers into Level 3	413			2,400			9,055			12,828			—			—			10,206			—		—			24,796			—				—
Transfers out of Level 3	(6,902		)	(6,246		)	(16,450		)	(12,720		)	—			(835		)	(5,732		)	—		(41,524		)	(74,057		)	(1,545		)		—
Fair value, end of period	$	1,237,317		$	298,376		$	580,510		$	77,819		$	27,359		$	40,186		$	1,297,382		$	554,192	$	165,979		$	298,816		$	37,935			$	26,255
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(1,800	)	$	(297	)	$	2,105		$	1,229		$	93		$	15		$	(1,428	)	$	6,051	$	42		$	350		$	1,031			$	(245	)
Investment related gains (losses), net	—			—			—			—			—			—			(21,726		)	—		—			—			—				—
Interest credited	—			—			—			—			—			—


For the six months ended June 30, 2015 (continued):	Fixed maturity securities available-for-sale
For the six months ended June 30, 2016 (continued):																			Fixed maturity securities available-for-sale
	Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other invested assets - non-redeemable preferred stock			Other assets - longevity swaps			Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps			State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	19,663		$	22,094		$	7,904		$	7,727		$	(1,085,166	)	$	(797	)	$	38,342		$	14,065		$	(76,698	)	$	14,996	$	(1,070,584	)	$	(2,619	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			—			—			—			—			—			195			—			—			—		—			—
Investment related gains (losses), net	—			(25,423		)	—			—			25,745			—			—			—			(15,283		)	—		(91,077		)	—
Policy acquisition costs and other insurance expenses	—			—			—			—			(21,246		)	—
Interest credited																			—			—			—			—		(626		)	—
Included in other comprehensive income	(50		)	—			(16		)	(605		)	—			—			1,171			288			—			304		—			—
Other revenues	—			—			—			3,731			—			(957		)	—			—			—			2,481		—			622
Purchases⁽¹⁾	—			—			4,529			—			(25,568		)	—			—			—			—			—		2,035			—
Sales⁽¹⁾	—			—			—			—			—			—
Settlements⁽¹⁾	(623		)	—			—			—			—			—			(258		)	(647		)	—			—		34,872			—
Transfers into Level 3	—			—			—			—			37,081			—
Transfers out of Level 3	(4,333		)	—			(29		)	—			—			—			(4,204		)	—			—			—		—			—
Fair value, end of period	$	14,657		$	(3,329	)	$	12,388		$	10,853		$	(1,069,154	)	$	(1,754	)	$	35,246		$	13,706		$	(91,981	)	$	17,781	$	(1,125,380	)	$	(1,997	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	—		$	—		$	—		$	—		$	—		$	—		$	195		$	—		$	—		$	—	$	—		$	—
Investment related gains (losses), net	—			(25,423		)	—			—			20,358			—			—			—			(15,283		)	—		(96,811		)	—
Other revenues	—			—			—			3,731			—			(957		)	—			—			—			2,481		—			622
Interest credited	—			—			—			—			(58,327		)	—			—			—			—			—		(35,497		)	—


(1)	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.

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Nonrecurring Fair Value Measurements

The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods ~~presented; they are subject to fair value adjustments only in certain circumstances~~presented and still held at the reporting date (for example, when there is evidence of impairment). The estimated fair values for these assets were determined using significant unobservable inputs (Level 3).


	Carrying Value After Measurement				Net Investment Gains (Losses)												Carrying Value After Measurement				Net Investment Gains (Losses)
	At June 30,				Three months ended June 30,						Six months ended June 30,						At June 30,				Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2016		2015		2016			2015			2016			2015			2017		2016		2017			2016			2017			2016
Mortgage loans⁽¹⁾	$	6,993	$	5,850	$	(400	)	$	(11	)	$	(702	)	$	39		$	—	$	6,993	$	—		$	(400	)	$	—		$	(702	)
Limited partnership interests⁽²⁾	4,460		13,667		(112		)	—			(2,039		)	(4,509		)	3,690		4,460		(6,308		)	(112		)	(6,308		)	(2,039		)

(1)

~~Mortgage loans — The impaired mortgage loans presented above were written down to their estimated~~Estimated fair values ~~at the date the impairments were recognized and are reported as losses above. Subsequent improvements in estimated fair value on previously~~for impaired ~~loans recorded through a reduction in the previously established valuation allowance are reported as gains above. Nonrecurring fair value adjustments on~~ mortgage loans are based on internal valuation models using unobservable inputs or, if the ~~fair value~~loans are in foreclosure or are otherwise determined to be collateral dependent, are based on external appraisals of the underlying ~~collateral or discounted cash flows.~~collateral.

(2)

~~Limited partnership interests —~~ The impaired limited partnership interests presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The market for these investments has limited activity and price transparency.

Fair Value of Financial Instruments

The Company is required by general accounting principles for Fair Value Measurements and Disclosures to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands). This table excludes any payables or receivables for collateral under repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.

June 30, 2016: Carrying Value
Estimated
Fair Value
Fair Value Measurement Using:
Level 1 Level 2 Level 3 NAV
Assets:
Mortgage loans on real estate $ 3,377,039
$ 3,502,098
$ —
$ —
$ 3,502,098
$ —
Policy loans 1,445,410
1,445,410
—
1,445,410
—
—
Funds withheld at interest⁽¹⁾
5,987,794
6,368,471
—
—
6,368,471
—
Cash and cash equivalents⁽²⁾
820,773
820,773
820,773
—
—
—
Short-term investments⁽²⁾
35,078
35,078
35,078
—
—
—
Other invested assets⁽²⁾
383,295
409,054
4,297
36,151
86,092
282,514
Accrued investment income 368,926
368,926
—
368,926
—
—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾
$ 10,058,118
$ 10,650,840
$ —
$ —
$ 10,650,840
$ —
Short-term debt 299,807
308,457
—
—
308,457
—
Long-term debt 2,788,473
2,954,981
—
—
2,954,981
—
Collateral finance and securitization notes 870,482
790,304
—
—
790,304
—

December 31, 2015: Carrying Value
Estimated
Fair Value
Fair Value Measurement Using:
Level 1 Level 2 Level 3 NAV
Assets:
Mortgage loans on real estate $ 3,129,951
$ 3,197,808
$ —
$ —
$ 3,197,808
$ —
Policy loans 1,468,796
1,468,796
—
1,468,796
—
—
Funds withheld at interest⁽¹⁾
5,956,380
6,311,780
—
—
6,311,780
—
Cash and cash equivalents⁽²⁾
1,118,754
1,118,754
1,118,754
—
—
—
Short-term investments⁽²⁾
27,511
27,511
27,511
—
—
—
Other invested assets⁽²⁾
399,799
444,342
4,445
34,886
111,412
293,599
Accrued investment income 339,452
339,452
—
339,452
—
—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾
$ 9,746,870
$ 9,841,576
$ —
$ —
$ 9,841,576
$ —
Long-term debt 2,297,548
2,415,119
—
—
2,415,119
—
Collateral finance and securitization notes 899,161
791,275
—
—
791,275
—

~~Table of Contents~~



June 30, 2017:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
June 30, 2017:	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		NAV
Assets:
Mortgage loans on real estate	$	4,104,487	$	4,215,094	$	—	$	—	$	4,215,094	$	—
Policy loans	1,406,774		1,406,774		—		1,406,774		—		—
Funds withheld at interest⁽¹⁾	5,904,679		6,258,874		—		—		6,258,874		—
Cash and cash equivalents⁽²⁾	822,834		822,834		822,834		—		—		—
Short-term investments⁽²⁾	32,284		32,284		32,284		—		—		—
Other invested assets⁽²⁾	567,448		603,783		27,815		66,501		198,931		310,536
Accrued investment income	388,008		388,008		—		388,008		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	12,718,836	$	12,711,801	$	—	$	—	$	12,711,801	$	—
Long-term debt	2,788,494		3,029,601		—		—		3,029,601		—
Collateral finance and securitization notes	823,108		730,809		—		—		730,809		—

December 31, 2016:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
December 31, 2016:	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		NAV
Assets:
Mortgage loans on real estate	$	3,775,522	$	3,786,987	$	—	$	—	$	3,786,987	$	—
Policy loans	1,427,602		1,427,602		—		1,427,602		—		—
Funds withheld at interest⁽¹⁾	5,893,381		6,193,166		—		—		6,193,166		—
Cash and cash equivalents⁽²⁾	862,117		862,117		862,117		—		—		—
Short-term investments⁽²⁾	32,469		32,469		32,469		—		—		—
Other invested assets⁽²⁾	477,132		510,640		26,294		55,669		131,904		296,773
Accrued investment income	347,173		347,173		—		347,173		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	10,225,099	$	10,234,544	$	—	$	—	$	10,234,544	$	—
Long-term debt	3,088,635		3,186,173		—		—		3,186,173		—
Collateral finance and securitization notes	840,700		745,805		—		—		745,805		—


(1)	Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are embedded derivatives and are measured at fair value on a recurring basis.


(2)	Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are measured at fair value on a recurring basis.

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Mortgage Loans on Real Estate – The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates for mortgage loans with similar credit ratings and similar remaining maturities. As such, inputs include current treasury yields and spreads, which are based on the credit rating and average life of the loan, corresponding to the market spreads. The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.

Policy Loans – Policy loans typically carry an interest rate that is adjusted annually based on an observable market index and therefore carrying value approximates fair value. The valuation of policy loans is considered Level 2 in the fair value hierarchy.

Funds Withheld at Interest – The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. Ceding companies use a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs, to value the securities that are held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.

Cash and Cash Equivalents and Short-term Investments – The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments and are considered Level 1 in the fair value hierarchy.

Other Invested Assets – This primarily includes limited partnership interests accounted for using the cost method, structured loans, FHLB common stock, cash collateral and equity release mortgages. The fair value of limited partnership interests and other investments accounted for using the cost method is determined using the net asset ~~values ("NAV"~~value (“NAV”) of the Company’s ownership interest as provided in the financial statements of the investees. The fair value of structured loans is estimated based on a discounted cash flow analysis using discount rates applicable to each structured loan, this is considered Level 3 in the fair value hierarchy. The fair value of the Company’s common stock investment in the FHLB is considered to be the carrying value and it is considered Level 2 in the fair value hierarchy. The fair value of the ~~Company's~~Company’s cash collateral is considered to be the carrying value and considered to be Level 1 in the fair value hierarchy. The fair value of the Company’s equity release mortgage loan portfolio, considered Level 3 in the fair value hierarchy, is estimated by discounting cash flows, both principal and interest, using ~~current interest rates and credit spread adjustments derived from benchmarking against similar loans, allowing also for United Kingdom house price inflation~~a risk free rate plus an illiquidity premium. The cash flow analysis considers future expenses, changes in property prices, and actuarial ~~analyses~~analysis of borrower behavior, mortality and morbidity.

Accrued Investment Income – The carrying value for accrued investment income approximates fair value as there are no adjustments made to the carrying value. This is considered Level 2 in the fair value hierarchy.

Interest-Sensitive Contract Liabilities – The carrying and fair values of interest-sensitive contract liabilities reflected in the table above exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities utilizes a market standard technique with both capital market inputs and policyholder behavior assumptions, as well as cash values adjusted for recapture fees. The capital market inputs to the model, such as interest rates, are generally observable. Policyholder behavior assumptions are generally not observable and may require use of significant management judgment. The valuation of interest-sensitive contract liabilities is considered Level 3 in the fair value hierarchy.

~~Short- and~~ Long-term Debt/Collateral Finance and Securitization Notes – The fair value of the Company’s ~~short- and~~ long-term, debt and collateral finance and securitization notes is generally estimated by discounting future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company, including inputs when available, from actively traded debt of the Company or other companies with similar credit quality. The valuation of ~~short- and~~ long-term debt, and collateral finance and securitization notes are generally obtained from brokers and is considered Level 3 in the fair value hierarchy. ~~The Company's short-term debt represents the portion of long-term debt maturing within one year.~~

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7.	Segment Information

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the ~~2015~~2016 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets. ~~Investment income is allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.~~

The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income is attributed to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.

The ~~Company’s reportable segments~~Company has geographic-based and business-based operational segments. Geographic-based operations are ~~strategic business units that are primarily segregated by geographic region.~~further segmented into traditional and financial solutions businesses. Information related to revenues, income (loss) before income taxes and total assets of the Company for each reportable segment are summarized below (dollars in thousands).


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
Revenues:	2016		2015		2016		2015		2017		2016		2017		2016
U.S. and Latin America:
Traditional	$	1,494,003	$	1,342,248	$	2,894,820	$	2,597,538	$	1,522,698	$	1,494,003	$	3,011,201	$	2,894,820
Non-Traditional	305,077		191,775		343,982		384,448
Financial Solutions									271,976		305,077		570,822		343,982
Total	1,799,080		1,534,023		3,238,802		2,981,986		1,794,674		1,799,080		3,582,023		3,238,802
Canada:
Traditional	288,912		270,090		546,912		535,094		269,273		288,912		533,548		546,912
Non-Traditional	11,854		11,458		22,538		23,332
Financial Solutions									12,003		11,854		23,810		22,538
Total	300,766		281,548		569,450		558,426		281,276		300,766		557,358		569,450
Europe, Middle East and Africa:
Traditional	301,642		284,192		591,276		579,424		345,920		301,642		664,006		591,276
Non-Traditional	80,977		75,308		148,733		130,684
Financial Solutions									73,405		80,977		153,394		148,733
Total	382,619		359,500		740,009		710,108		419,325		382,619		817,400		740,009
Asia Pacific:
Traditional	477,571		411,314		871,770		805,189		561,529		477,571		1,066,759		871,770
Non-Traditional	17,045		7,076		37,116		26,646
Financial Solutions									17,984		17,045		38,436		37,116
Total	494,616		418,390		908,886		831,835		579,513		494,616		1,105,195		908,886
Corporate and Other	61,987		36,879		94,489		68,598		54,488		61,987		76,040		94,489
Total	$	3,039,068	$	2,630,340	$	5,551,636	$	5,150,953	$	3,129,276	$	3,039,068	$	6,138,016	$	5,551,636


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,					Six months ended June 30,
Income (loss) before income taxes:	2016			2015			2016			2015			2017		2016			2017			2016
U.S. and Latin America:
Traditional	$	111,430		$	82,793		$	162,528		$	100,636		$	90,594	$	111,430		$	120,554		$	162,528
Non-Traditional	108,854			70,393			93,958			124,898
Financial Solutions													106,985		108,854			210,571			93,958
Total	220,284			153,186			256,486			225,534			197,579		220,284			331,125			256,486
Canada:
Traditional	43,309			22,736			63,404			45,463			32,836		43,309			52,164			63,404
Non-Traditional	2,128			3,094			2,720			7,225
Financial Solutions													4,425		2,128			8,017			2,720
Total	45,437			25,830			66,124			52,688			37,261		45,437			60,181			66,124
Europe, Middle East and Africa:
Traditional	6,834			9,159			5,718			19,641			11,354		6,834			25,330			5,718
Non-Traditional	27,469			31,432			52,893			51,066
Financial Solutions													28,905		27,469			60,823			52,893
Total	34,303			40,591			58,611			70,707			40,259		34,303			86,153			58,611
Asia Pacific:
Traditional	34,482			4,315			75,642			56,963			53,322		34,482			95,010			75,642
Non-Traditional	(73		)	(1,405		)	8,480			8,740
Financial Solutions													5,377		(73		)	11,249			8,480
Total	34,409			2,910			84,122			65,703			58,699		34,409			106,259			84,122
Corporate and Other	18,790			(8,727		)	(4,540		)	(16,717		)	5,517		18,790			(36,559		)	(4,540		)
Total	$	353,223		$	213,790		$	460,803		$	397,915		$	339,315	$	353,223		$	547,159		$	460,803

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Assets:	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
U.S. and Latin America:
Traditional	$	17,806,550	$	16,554,509	$	18,588,924	$	18,140,825
Non-Traditional	13,935,486		13,405,878
Financial Solutions					16,370,238		13,712,106
Total	31,742,036		29,960,387		34,959,162		31,852,931
Canada:
Traditional	3,894,407		3,604,344		3,965,235		3,846,682
Non-Traditional	16,933		27,543
Financial Solutions					104,804		85,405
Total	3,911,340		3,631,887		4,070,039		3,932,087
Europe, Middle East and Africa:
Traditional	2,669,404		2,757,593		2,852,309		2,559,124
Non-Traditional	4,076,547		4,162,703
Financial Solutions					4,016,788		3,876,131
Total	6,745,951		6,920,296		6,869,097		6,435,255
Asia Pacific:
Traditional	3,757,131		3,227,530		4,449,350		3,968,081
Non-Traditional	742,063		742,528
Financial Solutions					1,179,010		676,281
Total	4,499,194		3,970,058		5,628,360		4,644,362
Corporate and Other	6,978,182		5,900,524		6,611,414		6,233,244
Total	$	53,876,703	$	50,383,152	$	58,138,072	$	53,097,879


8.	~~Commitments, Contingencies and Guarantees~~

8. Commitments, Contingencies and Guarantees

Commitments

Funding of Investments

The ~~Company's~~Company’s commitments to fund investments as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are presented in the following table (dollars in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Limited partnerships and real estate joint ventures	$	252,864	$	263,163
Limited partnership interests and real estate joint ventures					$	328,739	$	332,169
Commercial mortgage loans	56,139		86,325		84,685		126,248
Bank loans	51,041		48,686
Bank loans and private placements					51,627		58,318
Equity release mortgages	40,091		8,504		173,203		130,324

The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Investments in limited ~~partnerships~~partnership interests and real estate joint ventures are carried at cost or reported using the equity method and included in other invested assets in the condensed consolidated balance sheets. Bank loans and private placements are carried at fair value and included in fixed maturity securities available-for-sale. Equity release mortgages are carried at unpaid principal balances, net of any amortized premium or discount and valuation allowance and included in other invested assets.

Contingencies

Litigation

The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.

Other Contingencies

The Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.

Guarantees

Statutory Reserve Support

RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third parties have recourse to RGA should the subsidiary fail to provide the required funding,

Table of Contents

however, as of June 30, ~~2016,~~2017, the Company does not believe that it will be required to provide any funding under these commitments

~~Table of Contents~~

as the occurrence of the defined events is considered remote. The following table presents the maximum potential obligation for these commitments as of June 30, ~~2016~~2017 (dollars in millions):


Commitment Period:	June 30, 2016		Maximum Potential Obligation
2023	$	500.0	$	500.0
2033	950.0		450.0
2034	3,000.0		2,000.0
2035	1,314.2		1,314.2
2036	1,432.0		2,932.0
2037			5,657.4

Other Guarantees

RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain securities borrowing and repurchase arrangements, financing arrangements and office lease obligations, whereby, if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. Additionally, in limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to ~~borrowed~~ securities borrowing and repurchase arrangements provide additional security to third parties should a subsidiary fail to ~~return the borrowed~~provide securities when due. RGA’s guarantees issued as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are reflected in the following table (dollars in thousands):


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Treaty guarantees	$	759,175	$	765,505	$	964,978	$	902,216
Treaty guarantees, net of assets in trust	631,267		634,909		833,654		780,786
Borrowed securities	269,740		259,540
Securities borrowing and repurchase arrangements					207,140		263,820
Financing arrangements	121,369		100,000		106,681		119,073
Lease obligations	3,140		5,217		2,162		2,428


9.	Income Tax

Provision for income tax expense differed from the amounts computed by applying the U.S. federal income tax statutory rate of ~~35%~~35.0% to pre-tax income as a result of the following for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Tax provision at U.S. statutory rate	$	123,628		$	74,826		$	161,281		$	139,270		$	118,760		$	123,628		$	191,506		$	161,281
Increase (decrease) in income taxes resulting from:
Foreign tax rate differing from U.S. tax rate	(8,398		)	(764		)	(12,282		)	(6,285		)	(4,261		)	(8,398		)	(10,413		)	(12,282		)
Differences in tax bases in foreign jurisdictions	(5,553		)	(6,931		)	(14,489		)	(13,601		)	(13,375		)	(5,553		)	(16,759		)	(14,489		)
Deferred tax valuation allowance	4,288			4,967			9,287			11,758			13,031			4,288			14,213			9,287
Amounts related to tax audit contingencies	3,288			952			3,889			1,905			(1,783		)	3,288			(1,172		)	3,889
Corporate rate changes													44			—			(1,193		)	—
Subpart F	738			11,452			1,433			17,886			1,140			738			1,326			1,433
Foreign tax credits	(427		)	(1,104		)	(721		)	(3,448		)	(1,938		)	(427		)	(2,064		)	(721		)
Equity compensation excess benefit													(2,609		)	—			(4,464		)	—
Return to provision adjustments	(442		)	(212		)	(316		)	(4,977		)	(633		)	(442		)	(403		)	(316		)
Other, net	(2		)	213			146			(98		)	(1,251		)	(2		)	(1,120		)	146
Total provision for income taxes	$	117,120		$	83,399		$	148,228		$	142,410		$	107,125		$	117,120		$	169,457		$	148,228
Effective tax rate	33.2		%	39.0		%	32.2		%	35.8		%	31.6		%	33.2		%	31.0		%	32.2		%

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The effective tax rates for the second quarter and the first six months of ~~2016 effective tax rate was~~2017 were lower than the U.S. Statutory rate of 35.0% primarily as a result of income generated in non-U.S. jurisdictions, predominately related to income earned in RGA Life Reinsurance Company of Canada and the United Kingdom Branch of RGA International Reinsurance Company dac, with statutory rates of approximately 26.6% and 19.3%, respectively. Further, tax benefits derived from differences in tax bases in foreign jurisdictions and benefits related to the filing of an amended tax return also lowered the effective tax rate. These items were partially offset with a valuation allowance established related to the amended return filing. The effective tax rates for the second quarter and first six months of 2016 were lower than the U.S. Statutory rate of 35.0% primarily as a result of tax benefits from income in non-U.S. jurisdictions, mostly related to RGA Life Reinsurance Company of Canada, with lower tax rates than the U.S. and differences in tax bases in foreign jurisdictions. ~~The 2015 tax~~These benefits ~~from income in non-U.S. jurisdictions~~ were partially offset by ~~a tax~~an accrual related to ~~the Active Financing Exception business extender provision that the U.S. Congress did not pass prior to June 30, 2015.~~an uncertain tax position.

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10. Employee Benefit Plans

The components of net periodic benefit costs, included in other operating expenses on the condensed consolidated statements of income, for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 were as follows (dollars in thousands):


	Pension Benefits						Other Benefits				Pension Benefits						Other Benefits
	Three months ended June 30,						Three months ended June 30,				Three months ended June 30,						Three months ended June 30,
	2016			2015			2016		2015		2017			2016			2017			2016
Service cost	$	2,652		$	2,586		$	1,015	$	589	$	2,819		$	2,652		$	721		$	1,015
Interest cost	1,076			1,283			643		491		1,431			1,076			565			643
Expected return on plan assets	(1,345		)	(1,331		)	—		—		(1,823		)	(1,345		)	—			—
Amortization of prior service cost	75			80			—		—		95			75			(155		)	—
Amortization of prior actuarial loss	1,224			833			617		265		1,082			1,224			457			617
Settlements											256			—			—			—
Net periodic benefit cost	$	3,682		$	3,451		$	2,275	$	1,345	$	3,860		$	3,682		$	1,588		$	2,275

Pension Benefits Other Benefits
Six months ended June 30, Six months ended June 30,
2016 2015 2016 2015
Service cost $ 4,958
$ 4,616
$ 2,031
$ 1,178
Interest cost 2,335
2,526
1,286
982
Expected return on plan assets (2,569 ) (2,449 ) —
—
Amortization of prior service cost 153
163
—
—
Amortization of prior actuarial loss 2,081
1,272
1,233
530
Net periodic benefit cost $ 6,958
$ 6,128
$ 4,550
$ 2,690



	Pension Benefits						Other Benefits
	Six months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Service cost	$	5,399		$	4,958		$	1,442		$	2,031
Interest cost	2,629			2,335			1,130			1,286
Expected return on plan assets	(3,108		)	(2,569		)	—			—
Amortization of prior service cost	169			153			(311		)	—
Amortization of prior actuarial loss	2,163			2,081			914			1,233
Settlements	513			—			—			—
Net periodic benefit cost	$	7,765		$	6,958		$	3,175		$	4,550

The Company has made ~~$4.0~~$5.0 million in pension contributions during the first six months of ~~2016~~2017 and expects to make total pension contributions ~~of $8.0~~between $5.0 million and $10.0 million in ~~2016.~~

2017.


11.	~~Equity Based Compensation~~

~~Equity compensation expense was~~ ~~$7.4 million~~ ~~and~~ ~~$3.1 million~~ ~~in the second quarter of 2016 and 2015, respectively. In the first quarter of 2016, the Company granted~~ ~~0.3 million~~ ~~stock appreciation rights at~~ ~~$93.53~~ ~~weighted average exercise price per share and~~ ~~0.2 million~~ ~~performance contingent units to employees. Additionally, non-employee directors were granted a total of 8,908 shares of common stock. As of~~ ~~June 30, 2016~~, ~~1.8 million~~ ~~share options at a weighted average strike price per share of~~ ~~$56.13~~ ~~were vested and exercisable, with a remaining weighted average exercise period of~~ ~~4.7~~ ~~years. As of~~ ~~June 30, 2016, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was~~ ~~$40.7 million. It is estimated that these costs will vest over a weighted average period of~~ ~~2.1~~ ~~years.~~


~~12.~~	Reinsurance

The Company generally reports retrocession activity on a gross basis. Amounts paid or deemed to have been paid for reinsurance are reflected in reinsurance ceded receivables. The cost of reinsurance related to long-duration contracts is recognized over the terms of the reinsured policies on a basis consistent with the reporting of those policies.

Retrocession reinsurance treaties do not relieve the Company from its obligations to direct writing companies. Failure of retrocessionaires to honor their obligations could result in losses to the Company. Consequently, allowances would be established for amounts deemed uncollectible. At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, no allowances were deemed necessary. The Company regularly evaluates the financial condition of the insurance companies from which it assumes and to which it cedes reinsurance.

Retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, all rated retrocession pool participants followed by the A.M. Best Company were rated “A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets has been posted. In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. In addition to its third party retrocessionaires, various RGA reinsurance subsidiaries retrocede amounts in excess of their retention to affiliated subsidiaries.

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The following table presents information for the ~~Company's~~Company’s reinsurance ceded receivable assets, including the respective amount and A.M. Best rating for each reinsurer representing in excess of five percent of the total as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


		June 30, 2016				December 31, 2015					June 30, 2017				December 31, 2016
Reinsurer	A.M. Best Rating	Amount		% of Total		Amount		% of Total		A.M. Best Rating	Amount		% of Total		Amount		% of Total
Reinsurer A	A+	$	233,016	34.2	%	$	199,479	31.3	%	A+	$	291,029	36.4	%	$	240,894	35.2	%
Reinsurer B	A+	190,957		28.0		179,522		28.1		A+	195,222		24.4		183,881		26.9
Reinsurer C	A+	68,727		10.1		72,836		11.4		A+	67,691		8.5		68,832		10.1
Reinsurer D	A++	38,098		5.6		41,807		6.6		A++	47,520		6.0		36,202		5.3
Reinsurer E	A	36,847		5.4		37,138		5.8		A	42,808		5.4		35,484		5.2
Other reinsurers		113,780		16.7		107,077		16.8			154,095		19.3		118,679		17.3
Total		$	681,425	100.0	%	$	637,859	100.0	%		$	798,365	100.0	%	$	683,972	100.0	%

Included in the total reinsurance ceded receivables balance were ~~$246.2~~$257.6 million and ~~$233.7~~$242.0 million of claims recoverable, of which ~~$4.7~~$3.8 million and ~~$2.0~~$4.0 million were in excess of 90 days past due, as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

~~13.Financing Activities~~

On June 1, 2016, RGA issued 3.95% Senior Notes due September 15, 2026 with a face amount of $400.0 million and 5.75% Fixed-To-Floating Rate Subordinated Debentures due June 15, 2056 with a face amount of $400.0 million. These securities have been registered with the Securities and Exchange Commission. The net proceeds from these offerings were approximately $791.0 million and will be used in part to repay upon maturity the Company’s $300.0 million 5.625% Senior Notes that mature in March 2017. The remainder will be used for general corporate purposes. Capitalized issue costs were approximately $9.0 million.


~~14.~~12.	New Accounting Standards

Changes to the general accounting principles are established by the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) in the form of accounting standards updates to the FASB Accounting Standards Codification™. Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.

Adoption of New Accounting Standards

~~Transfers and Servicing~~Stock Compensation

In ~~June 2014,~~March 2016, the FASB ~~amended~~updated the general accounting ~~principles~~principal for ~~Transfers~~Stock Compensation which changed how companies account for certain aspects of share-based payment awards to employees. The updated guidance requires excess tax benefits and ~~Servicing~~ ~~as it relates to~~deficiencies from share-based payment awards be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity or deferred taxes on the balance sheet depending on the tax situation of the Company. In addition, the updated guidance also changes the accounting for ~~repurchase-to-maturity transactions, repurchase financings,~~forfeitures and ~~disclosures. This amendment requires entities to account for repurchase-to-maturity transactions~~statutory tax withholding requirements, as ~~secured borrowings, eliminates guidance on linked repurchase financing transactions, and expands disclosure requirements related to certain transfers of financial assets that are accounted for~~well as sales and certain transfers accounted for as secured borrowings. These amendments are effective for annual years, and interim periods within those years, beginning after December 15, 2014. Certain interim period disclosures for repurchase agreements and securities lending transactions were not required until the second quarter of 2015. The adoption of this amendment did not have an impact on the Company's condensed consolidated financial statements other than the addition of the required disclosures. The Company adopted these amendments and the required disclosures are provided in Note 4 "Investments."

~~Business Combinations~~

~~In September 2015, the FASB amended the general accounting principles for~~ ~~Business Combinations~~ as it relates to measurement period adjustments. This amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. The Company adopted this amendment during the three months ended September 30, 2015. Accordingly, the Company applied the amendments in this update to the measurement period adjustments made during the three months ended September 30, 2015 with no material effect on previous-period or current-period earnings.

~~Debt Issuance Costs~~

~~In April 2015, the FASB issued accounting guidance,~~ ~~“Simplifying the Presentation of Debt Issuance Costs”~~ ~~which requires capitalized debt issuance costs related to a recognized debt liability be presented~~classification in the statement of ~~financial position as~~cash flows. The new standard generally requires a ~~direct deduction from the carrying amount of that debt. This standard is effective for fiscal years, and for interim periods within those~~

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~~fiscal years, beginning after December 15, 2015, with early adoption permitted for financial statements not yet issued. The Company elected to adopt this standard~~modified retrospective transition through a cumulative-effect adjustment as of ~~December 31, 2015,~~the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective ~~application to all balance sheets presented.~~

~~Fair Value Measurement~~

In May 2015, the FASB issued amended guidance on the disclosures for investments in certain entities that calculate NAV per share (or its equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those years. Early application is permitted.transition. The Company adopted the new guidance on January 1, 2017. Upon adoption, the Company recognized excess tax benefits of approximately $17.7 million in deferred tax assets that were previously not recognized in a cumulative-effect adjustment increasing retained earnings by $17.7 million. The Company also recorded excess tax benefits of approximately $2.6 million and $4.5 million in the provision for income taxes for the ~~year~~three and six months ended ~~December 31, 2015 and applied~~June 30, 2017, respectively. The number of weighted average diluted shares outstanding were also adjusted to exclude excess tax benefits from the ~~guidance retrospectively. Adoption~~assumed proceeds in the diluted shares calculation resulting in an immaterial increase in the number of dilutive shares outstanding. The Company also elected to continue estimating forfeitures for purposes of recognizing share-based compensation. Other aspects of the adoption of the updated guidance did not have a material impact onto the Company’s ~~condensed consolidated~~ financial statements.

Future Adoption of New Accounting Standards

Financial ~~Services - Insurance~~

~~In May 2015, the FASB amended the general accounting principle for~~ ~~Financial Services - Insurance~~ which expanded the breadth of disclosures that an insurance entity must provide about its short-duration insurance contracts. This amendment requires insurance entities to disclose for annual reporting periods information about the liability for unpaid claims and claim adjustment expenses. The amendment also requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. In addition, the amendment requires insurance entities to disclose for annual and interim reporting periods a roll-forward of the liability for unpaid claims and claim adjustment expenses. This amendment focuses only on disclosure; it does not change the accounting model for short-duration contracts. The update is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The adoption of this amendment is not expected to have an impact on the Company's condensed consolidated financial statements other than the addition of the required disclosures.

~~Financial~~ Instruments

In January 2016, the FASB amended the general accounting principle for Financial Instruments,, effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The amendment revises the accounting related to (1) the classification and measurement of investments in equity securities, (2) the presentation of certain fair value changes for financial liabilities measured at fair value, (3) certain disclosure requirements associated with the fair value of financial instruments. The new guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements.

In June 2016, the FASB amended the existing impairment guidance of Financial ~~Instruments~~.Instruments. The amendment adds to U.S. GAAP an impairment model, ~~(known~~known as current expected credit loss ~~("CECL"~~(“CECL”) ~~model)~~model that is based on expected losses rather than incurred losses. For traditional and other receivables, held-to-maturity debt securities, loans and other instruments entities will be required

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to use the new forward-looking ~~"expected loss"~~“expected loss” model that generally will result in earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses similar to what they do today, except the losses will be recognized as allowances rather than reduction to the amortized cost of the securities. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted. The guidance will be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is currently evaluating the impact of this amendment on its ~~condensed~~ consolidated financial statements.

Leases

In February 2016, the FASB issued guidance which will replace most existing lease accounting guidance. The new standard, based on the principle that entities should recognize assets and liabilities arising from leases, does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new ~~standard's~~standard’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, the new standard expands

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the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. This guidance is effective for fiscal years and interim periods within those fiscal ~~years~~year beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this amendment on its ~~condensed~~ consolidated financial statements.

~~Stock Compensation~~Income Taxes

In ~~March~~October 2016, the FASB ~~updated~~amended the general accounting principal for ~~Stock Compensation~~. This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. This update isIncome Taxes, effective for annual and interim periods beginning after December 15, ~~2016. This guidance~~2017. The amendment requires entities to recognize the tax consequences of intercompany asset transfers, except for inventory, at the transaction date. Current U.S. GAAP prohibits entities from recognizing the income tax consequences from intercompany asset transfers. The seller defers any net tax effect, and the buyer is prohibited from recognizing a deferred tax asset on the difference between the newly created tax basis of the asset in its tax jurisdiction and its financial statement carrying amount as reported in the consolidated financial statements. The amendment requires entities to recognize these tax consequences in the period in which the transfer occurred. There will be an immediate effect on earnings if the tax rates in the seller’s and buyer’s tax jurisdictions are different. This amendment will be applied ~~either prospectively, retrospectively or~~ using a modified retrospective transition method ~~depending on~~with a cumulative effect adjustment to retained earnings as of the ~~area covered in this update. Early adoption is permitted.~~beginning of the period of adoption. The Company is currently evaluating the impact of this amendment on its ~~condensed~~ consolidated financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking ~~and Cautionary~~ Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.

Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, including ongoing uncertainties regarding the amount of ~~United States~~U.S. sovereign debt and the credit ratings thereof, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate acquired blocks of business and entities, (22) action by regulators who have authority over the Company’s reinsurance operations in the jurisdictions in which it operates, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) interruption or failure of the ~~Company's~~Company’s telecommunication, information technology or other operational systems, or the ~~Company's~~Company’s failure to maintain adequate security to protect the confidentiality or privacy of personal or sensitive data stored on such systems, (26) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (27) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (28) other risks and uncertainties described in this document and in the Company’s other filings with the SEC.

Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and ~~the cautionary statements~~ described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. ~~The Company qualifies all of its forward-looking statements by these cautionary statements.~~ For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A – “Risk Factors” in the ~~2015~~2016 Annual Report.

Overview

RGA is an insurance holding company that was formed on December 31, 1992. The condensed consolidated financial statements include the assets, liabilities and results of operations of RGA and its subsidiaries, all of which are wholly owned (collectively, the Company).

The Company ~~provides~~is one of the leading life reinsurers in North America based on premiums and the amount of life reinsurance in force, providing traditional reinsurance and ~~non-traditional reinsurance~~financial solutions to its clients. Traditional reinsurance includes individual and group life and health, disability, and critical illness reinsurance. ~~Non-traditional reinsurance~~Financial solutions includes longevity reinsurance, asset-intensive reinsurance, and financial reinsurance.

The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, fee income from ~~non-traditional reinsurance~~financial solutions business and income earned on invested assets.

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Historically, the Company’s primary business has been traditional life reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a

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period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies. The Company has expanded its ~~non-traditional reinsurance~~financial solutions business, including significant asset-intensive ~~or annuity,~~ transactions, which allow its clients to take advantage of growth opportunities and manage their capital, longevity and investment risk.

The Company’s long-term profitability largely depends on the volume and amount of death- and health-related claims incurred and the ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. Additionally, the Company generates profits on investment spreads associated with the reinsurance of investment type contracts and generates fees from financial reinsurance transactions which are typically shorter duration than its traditional life reinsurance business. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.

As is customary in the reinsurance business, clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its condensed consolidated financial statements and the financial effects resulting from the incorporation of revised data are reflected in the current period.

The Company’s long-term profitability primarily depends on the volume and amount of death and health-related claims incurred and the ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.Segment Presentation

The Company has geographic-based and business-based operational ~~segments: U.S. and Latin America; Canada; Europe, Middle East and Africa; Asia Pacific; and Corporate and Other.~~segments. Geographic-based operations are further segmented into traditional and ~~non-traditional~~financial solutions businesses. ~~The Company’s segments primarily write reinsurance business that is wholly or partially retained in one or more of RGA’s reinsurance subsidiaries.~~

The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a consistent basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses.

As a result of the economic capital allocation process, a portion of investment income is credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses. Segment investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.

Segment premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies, and therefore may fluctuate from period to period. Although reasonably predictable over a period of years, segment claims experience can be volatile over shorter periods. See “Results of Operations by Segment” below for further information about the Company’s segments.

Consolidated Results of Operations

~~Consolidated~~



	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,480,451	$	2,346,945	$	4,846,147	$	4,503,950
Investment income, net of related expenses	518,538		507,666		1,032,902		924,932
Investment related gains (losses), net	56,295		118,264		116,818		(2,622		)
Other revenues	73,992		66,193		142,149		125,376
Total revenues	3,129,276		3,039,068		6,138,016		5,551,636
Benefits and Expenses:
Claims and other policy benefits	2,164,363		1,997,502		4,270,508		3,884,266
Interest credited	115,285		95,849		222,969		183,754
Policy acquisition costs and other insurance expenses	319,832		405,681		699,221		639,444
Other operating expenses	154,356		159,895		312,862		317,319
Interest expense	29,352		20,331		71,754		53,138
Collateral finance and securitization expense	6,773		6,587		13,543		12,912
Total benefits and expenses	2,789,961		2,685,845		5,590,857		5,090,833
Income before income taxes	339,315		353,223		547,159		460,803
Provision for income taxes	107,125		117,120		169,457		148,228
Net income	$	232,190	$	236,103	$	377,702	$	312,575
Earnings per share:
Basic earnings per share	$	3.60	$	3.68	$	5.86	$	4.86
Diluted earnings per share	$	3.54	$	3.64	$	5.76	$	4.81
Dividends declared per share	$	0.41	$	0.37	$	0.82	$	0.74

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Consolidated income before income taxes ~~increased $139.4~~decreased $13.9 million, or ~~65.2%~~3.9%, and ~~$62.9~~increased $86.4 million, or ~~15.8%~~18.7%, for the three and six months ended June 30, ~~2016,~~2017, respectively, as compared to the same periods in ~~2015.~~2016. The decrease in income for second quarter of 2017 was primarily due to an unfavorable change in investment related gains (losses), net and an increase in interest expense, partially offset by higher investment income. The increase in income for the ~~second quarter~~first six months of ~~2016~~2017 was primarily due to ~~improved mortality experience compared to the prior year, higher investment income and an increase in investment related gains. The increase~~a favorable change in investment related gains (losses), net and higher investment income, partially offset by an increase in interest expense. The changes in investment related gains (losses), net for the second quarter ~~was~~and first six months were largely due to changes in the fair value of embedded derivatives on modco or funds withheld treaties within the U.S. ~~segment.~~segment primarily related to changes in interest rates and credit spreads. The effect of the change in fair value of these embedded derivatives on income is discussed below. ~~Results in 2016 also benefited from a $15.4 million reduction~~The increases in interest expense ~~due to~~for the ~~effective settlement of uncertain tax positions. The increase in income for the~~second quarter and first six months ~~of 2016 was partially offset by an increase in impairments on fixed maturity~~are discussed within the Corporate and ~~equity securities of $28.0 million, compared to the same period in 2015.~~Other section. Foreign currency fluctuations relative to the prior year unfavorably affected income before income taxes by approximately ~~$5.7~~$6.5 million and ~~$14.9~~$9.3 million for the second quarter and first six months of ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

The Company recognizes in consolidated income, any changes in the fair value of embedded derivatives on modco or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in an increase in consolidated income before income taxes of approximately ~~$53.9~~$37.3 million and ~~$124.1~~$227.1 million in the second quarter and first six months of ~~2016,~~2017, respectively, as compared to the same periods in ~~2015.~~2016. This fluctuation does not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives, net of related hedging activity and deferred acquisition costs, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited. The individual effect on income before income taxes for these three types of embedded derivatives is as follows:

The change in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis are subject to the general accounting principles for derivatives and hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, resulted in ~~an increase~~a decrease in income before income taxes of ~~$35.0~~$24.4 million in the second quarter of ~~2016~~2017 and ~~a decrease~~an increase of ~~$2.3~~$56.5 million in the first six months of ~~2016,~~2017, as compared to the same periods in ~~2015.~~

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2016.

Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, resulted in ~~an increase~~a decrease in income before income taxes of ~~$3.1~~$4.7 million in the second quarter of ~~2016~~2017 and ~~a decrease~~an increase of ~~$4.6~~$20.0 million in the first six months of ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, ~~decreased~~increased income before income taxes by ~~$92.0~~$66.4 million and ~~$117.2~~$150.6 million in the second quarter and first six months of ~~2016,~~2017, respectively, as compared to the same periods in ~~2015.~~2016. After consideration of the change in fair value of freestanding derivatives used to hedge this liability, income before income taxes increased by $1.5 million and $9.1 million in the second quarter and first six months of 2017, respectively, as compared to the same periods in 2016.

Consolidated net premiums increased ~~$217.9~~$133.5 million, or ~~10.2%~~5.7%, and ~~$351.1~~$342.2 million, or ~~8.5%~~7.6%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015,~~2016, primarily due to growth in life reinsurance in ~~force and large in force block transactions entered into during the latter part of 2015.~~force. Foreign currency fluctuations unfavorably affected net premiums by approximately ~~$45.7~~$30.5 million and ~~$115.9~~$35.6 million for the second quarter and first six months of ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. Consolidated assumed life insurance in force increased to $3,233.1 billion as of June 30, 2017 from $3,090.3 billion as of June 30, 2016 ~~from $2,925.3 billion as of June 30, 2015~~ due to new business production and in force ~~transactions, partially offset by adverse foreign currency fluctuations.~~transactions. The Company added new business production, measured by face amount of insurance in force, of ~~$107.3~~$122.5 billion and ~~$71.7~~$107.3 billion during the second quarter of ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$215.1~~$214.1 billion and ~~$177.5~~$215.1 billion during the first six months of 2017 and 2016, ~~and 2015,~~ respectively. ~~Adverse foreign currency fluctuations offset the increase in assumed life insurance in force from June 30, 2015 by $89.9 million.~~ Management believes industry consolidation, regulatory changes and the established practice of reinsuring mortality and morbidity risks should continue to provide opportunities for growth, albeit at rates less than historically experienced in some markets.

Consolidated investment income, net of related expenses, increased ~~$57.1~~$10.9 million, or ~~12.7%~~2.1%, and ~~$47.5~~$108.0 million, or ~~5.4%~~11.7%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. The increases are primarily attributable~~2016. Market value changes related to ~~strong variable~~the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs increased (decreased) investment income by $(4.4) million and $74.6 million in the second quarter and first six months of 2017, respectively, as compared to the same periods in 2016. The effect on ~~alternative investments and~~ investment ~~prepayments and fees.~~ income of the EIA's market value changes is substantially offset by a corresponding change in interest credited to policyholder account balances resulting in an insignificant effect on net income.

Also contributing to the increase in investment income is a larger average invested asset base, excluding spread related business, partially offset by a decrease in the average investment yield. Average invested assets at amortized cost, excluding spread related

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business, for the six months ended June 30, ~~2016~~2017 totaled ~~$22.7~~$25.1 billion, ~~an 8.3%~~a 10.5% increase over June 30, ~~2015.~~2016. The average yield earned on investments, excluding spread related business, was ~~4.71%~~4.60% and ~~4.88%~~4.71% for the second quarter of ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~4.59%~~4.50% and ~~4.83%~~4.59% for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, prepayment fees and make-whole premiums, changes in the mix of the underlying investments and cash balances, ~~prepayment fees recorded on the early payoff of certain investments~~ and the timing of dividends and distributions on certain investments. A continued low interest rate environment is expected to put downward pressure on this yield in future reporting periods. ~~A portion of investment income is allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment operations.~~

Total investment related gains (losses), net ~~improved~~changed favorably (unfavorably) by ~~$134.4~~$(62.0) million and ~~$6.0~~$119.4 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. The improvement~~2016. A significant portion of theses variances in the second quarter ~~of 2016 was primarily~~and first six months are due to ~~a favorable change~~changes in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis, reflecting the impact of ~~$100.1 million, as compared to~~changes in interest rates and credit spreads on the ~~same period in 2015.~~calculation of fair value. During the second quarter and first six months of ~~2016,~~2017, the favorable ~~change~~(unfavorable) changes in the value of these embedded derivatives was ~~$10.1~~$(24.4) million and $56.5 million respectively, as compared to the same periods in 2016. In addition, impairments on fixed maturity securities decreased by $14.1 million in the first six months of 2017, as compared to the same period in ~~2015. In addition, impairments on fixed maturity and equity securities increased by $28.0 million in the first six months of 2016, as compared to the same period in 2015.~~2016. See Note 4 - “Investments” and Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives.

The effective tax rate on a consolidated basis was ~~33.2%~~31.6% and ~~39.0%~~33.2% for the second quarter of2017 and 2016, ~~and 2015,~~ respectively, and ~~32.2%~~31.0% and ~~35.8%~~32.2% for the first six months of ~~2016~~2017 and ~~2015,~~2016, respectively. The effective tax rate for the second quarter and the first six months of 2017 was lower than the U.S. Statutory rate of 35% primarily as a result of income generated in non-U.S. jurisdictions with lower tax rates than the U.S., and differences in tax bases in foreign jurisdictions. The second quarter of 2017 also includes a valuation allowance established related to amended return filings, which was partially offset with a tax benefit from these amended tax returns. The effective tax rates for the second quarter and first six months of 2016 effective ~~tax rates~~ were lower than the U.S. Statutory rate of 35.0% primarily as a result of tax benefits from income in non-U.S. jurisdictions with lower tax rates than the U.S. and differences in tax bases in foreign jurisdictions. These benefits were partially offset by an accrual related to an uncertain tax position. The second quarter and first six months of 2015 effective tax rates were higher than the U.S. Statutory rate of 35.0% primarily as a result of a tax accrual related to the Active Financing Exception business extender provision that the U.S. Congress did not pass prior to the end of the quarter and a loss in Australia which has a lower tax rate than the U.S. The high tax rate was partially offset with income in other jurisdictions with rates lower than the U.S.

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the condensed consolidated financial statements could change significantly.

Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:

Premiums receivable;

Deferred acquisition costs;

Liabilities for future policy benefits and incurred but not reported claims;

Valuation of investments and other-than-temporary impairments to specific investments;

Valuation of embedded derivatives; and

Income taxes.

A discussion of each of the critical accounting policies may be found in the Company’s ~~2015~~2016 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”

~~Further discussion and analysis of the results for 2016 compared to 2015 are presented by segment.~~

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Results of Operations by Segment

U.S. and Latin America Operations

The U.S. and Latin America operations include business generated by its offices in the U.S., Mexico and Brazil. The offices in Mexico and Brazil provide services to clients in other Latin American countries. U.S. and Latin America operations consist of two major segments: Traditional and ~~Non-Traditional.~~Financial Solutions. The Traditional segment primarily specializes in individual mortality-risk reinsurance and to a lesser extent, group, health and long-term care reinsurance. The ~~Non-Traditional~~Financial Solutions segment consists of Asset-Intensive and Financial Reinsurance. Asset-Intensive within the ~~Non-Traditional~~Financial Solutions segment provides coinsurance of annuities and corporate-owned life insurance policies and to a lesser extent also issues fee-based synthetic guaranteed investment contracts, which include investment-only, stable value contracts. Financial Reinsurance within the ~~Non-Traditional~~Financial Solutions segment primarily involves assisting ceding companies in meeting applicable regulatory requirements by enhancing the ceding companies’ financial strength and regulatory surplus position through relatively low risk reinsurance transactions. Typically these transactions do not qualify as reinsurance under GAAP, due to the low-risk nature of the transactions, so only the related net fees are reflected in other revenues on the ~~condensed~~ consolidated statements of income.


For the three months ended June 30, 2017:															Financial Solutions
(dollars in thousands)															Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
												Traditional
Revenues:
Net premiums												$	1,335,316		$	7,128	$	—	$	1,342,444
Investment income, net of related expenses												183,713			177,957		1,853		363,523
Investment related gains (losses), net												(654		)	32,626		—		31,972
Other revenues												4,323			26,211		26,201		56,735
Total revenues												1,522,698			243,922		28,054		1,794,674
Benefits and expenses:
Claims and other policy benefits												1,194,917			24,503		—		1,219,420
Interest credited												20,838			87,664		—		108,502
Policy acquisition costs and other insurance expenses												186,375			38,211		5,619		230,205
Other operating expenses												29,974			6,542		2,452		38,968
Total benefits and expenses												1,432,104			156,920		8,071		1,597,095
Income before income taxes												$	90,594		$	87,002	$	19,983	$	197,579

For the three months ended June 30, 2016:				Non-Traditional											Financial Solutions
(dollars in thousands)				Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America						Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
	Traditional											Traditional
Revenues:
Net premiums	$	1,307,395		$	5,662		$	—	$	1,313,057		$	1,307,395		$	5,662	$	—	$	1,313,057
Investment income, net of related expenses	182,238			177,681			2,386		362,305			182,238			177,681		2,386		362,305
Investment related gains (losses), net	(882		)	76,830			—		75,948			(882		)	76,830		—		75,948
Other revenues	5,252			24,555			17,963		47,770			5,252			24,555		17,963		47,770
Total revenues	1,494,003			284,728			20,349		1,799,080			1,494,003			284,728		20,349		1,799,080
Benefits and expenses:
Claims and other policy benefits	1,149,665			19,507			—		1,169,172			1,149,665			19,507		—		1,169,172
Interest credited	20,845			68,436			—		89,281			20,845			68,436		—		89,281
Policy acquisition costs and other insurance expenses	182,285			97,078			3,085		282,448			182,285			97,078		3,085		282,448
Other operating expenses	29,778			5,728			2,389		37,895			29,778			5,728		2,389		37,895
Total benefits and expenses	1,382,573			190,749			5,474		1,578,796			1,382,573			190,749		5,474		1,578,796
Income before income taxes	$	111,430		$	93,979		$	14,875	$	220,284		$	111,430		$	93,979	$	14,875	$	220,284

For the three months ended June 30, 2015:				Non-Traditional
(dollars in thousands)				Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America
	Traditional
Revenues:
Net premiums	$	1,170,931		$	5,941		$	—	$	1,176,872
Investment income, net of related expenses	163,390			155,364			1,194		319,948
Investment related gains (losses), net	3,360			(15,075		)	—		(11,715		)
Other revenues	4,567			26,634			17,717		48,918
Total revenues	1,342,248			172,864			18,911		1,534,023
Benefits and expenses:
Claims and other policy benefits	1,041,390			19,983			—		1,061,373
Interest credited	21,875			59,042			—		80,917
Policy acquisition costs and other insurance expenses	169,035			32,976			2,522		204,533
Other operating expenses	27,155			5,113			1,746		34,014
Total benefits and expenses	1,259,455			117,114			4,268		1,380,837
Income before income taxes	$	82,793		$	55,750		$	14,643	$	153,186

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For the six months ended June 30, 2017:															Financial Solutions
(dollars in thousands)															Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America
												Traditional
Revenues:
Net premiums												$	2,639,661		$	11,763		$	—	$	2,651,424
Investment income, net of related expenses												362,708			365,110			3,517		731,335
Investment related gains (losses), net												1,311			90,397			—		91,708
Other revenues												7,521			49,425			50,610		107,556
Total revenues												3,011,201			516,695			54,127		3,582,023
Benefits and expenses:
Claims and other policy benefits												2,420,557			42,039			—		2,462,596
Interest credited												41,127			166,821			—		207,948
Policy acquisition costs and other insurance expenses												367,185			121,864			11,560		500,609
Other operating expenses												61,778			13,199			4,768		79,745
Total benefits and expenses												2,890,647			343,923			16,328		3,250,898
Income before income taxes												$	120,554		$	172,772		$	37,799	$	331,125

For the six months ended June 30, 2016:				Non-Traditional											Financial Solutions
(dollars in thousands)				Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America						Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America
	Traditional											Traditional
Revenues:
Net premiums	$	2,541,789		$	11,881		$	—	$	2,553,670		$	2,541,789		$	11,881		$	—	$	2,553,670
Investment income, net of related expenses	347,261			294,896			4,993		647,150			347,261			294,896			4,993		647,150
Investment related gains (losses), net	(2,982		)	(51,721		)	—		(54,703		)	(2,982		)	(51,721		)	—		(54,703		)
Other revenues	8,752			47,389			36,544		92,685			8,752			47,389			36,544		92,685
Total revenues	2,894,820			302,445			41,537		3,238,802			2,894,820			302,445			41,537		3,238,802
Benefits and expenses:
Claims and other policy benefits	2,269,107			39,340			—		2,308,447			2,269,107			39,340			—		2,308,447
Interest credited	42,245			130,994			—		173,239			42,245			130,994			—		173,239
Policy acquisition costs and other insurance expenses	359,363			57,422			5,653		422,438			359,363			57,422			5,653		422,438
Other operating expenses	61,577			11,540			5,075		78,192			61,577			11,540			5,075		78,192
Total benefits and expenses	2,732,292			239,296			10,728		2,982,316			2,732,292			239,296			10,728		2,982,316
Income before income taxes	$	162,528		$	63,149		$	30,809	$	256,486		$	162,528		$	63,149		$	30,809	$	256,486

For the six months ended June 30, 2015:				Non-Traditional
(dollars in thousands)				Asset-Intensive			Financial Reinsurance		Total U.S. and Latin America
	Traditional
Revenues:
Net premiums	$	2,285,025		$	10,982		$	—	$	2,296,007
Investment income, net of related expenses	306,395			303,201			2,339		611,935
Investment related gains (losses), net	887			(18,274		)	—		(17,387		)
Other revenues	5,231			53,178			33,022		91,431
Total revenues	2,597,538			349,087			35,361		2,981,986
Benefits and expenses:
Claims and other policy benefits	2,080,797			26,709			—		2,107,506
Interest credited	34,819			154,027			—		188,846
Policy acquisition costs and other insurance expenses	327,602			61,030			4,938		393,570
Other operating expenses	53,684			9,431			3,415		66,530
Total benefits and expenses	2,496,902			251,197			8,353		2,756,452
Income before income taxes	$	100,636		$	97,890		$	27,008	$	225,534

Income before income taxes decreased by $22.7 million, or 10.3%, and increased by ~~$67.1~~$74.6 million, or ~~43.8%, and $31.0 million, or 13.7%~~29.1%, for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015. For both~~2016. The decrease in income in the second quarter was primarily due to unfavorable claims experience in the Traditional segment related to group and long-term care business. The increase in income before income taxes for the ~~year, as compared~~first six months was primarily due to ~~same period prior year, the favorable increases were driven by~~ changes in the value of the embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld basis ~~improved~~combined with a decrease in other-than-temporary impairments. The increase in income was partially offset by unfavorable claims experience in the U.S. Traditional segment, and a higher asset base, driven largely by acquisitions of in force blocks late in 2015. Year over year, the increase was somewhat offset by other than temporary impairments in the energy sector of the investment portfolio.segment.

Traditional Reinsurance

The U.S. and Latin America Traditional segment provides life and health reinsurance to clients for a variety of products through yearly renewable term, coinsurance and modified coinsurance agreements. These reinsurance arrangements may involve either facultative or automatic agreements.

Income before income taxes for the U.S. and Latin America Traditional segment ~~increased~~decreased by ~~$28.6~~$20.8 million, or ~~34.6%~~18.7%, and ~~$61.9~~$42.0 million, or ~~61.5%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016~~, as compared to the same periods in 2015. The increases were primarily due to improved claims experience and an increase in the overall asset base primarily associated with large in force block transactions executed in the fourth quarter of 2015.

~~Net premiums increased $136.5 million, or 11.7%, and $256.8 million, or 11.2%~~25.8%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The decrease in the second quarter is due to unfavorable claims experience, primarily in the group line of business, as well as variations in amount at risk and lapse activity as reported by the clients. Offsetting this somewhat was favorable individual life mortality experience. A majority of the increase year to date is attributed to large claim volatility; specifically an increase in the number of large individual life claims reported in the first quarter of 2017.

Net premiums increased $27.9 million, or 2.1%, and $97.9 million, or 3.9%, for the three and six months ended June 30, 2017, as compared to the same periods in 2016. The increases were primarily due to ~~large in force block transactions executed during the latter part of 2015, significant individual health and group life transactions executed in the first six months of 2016, and~~ expected organic premium ~~growth.~~growth and additional premiums associated with a large global health treaty. The segment added new individual life business production, measured by face amount of insurance in force of ~~$32.0~~$23.5 billion and ~~$15.7~~$32.0 billion for the second quarter and ~~$73.3~~$50.3 billion and ~~$35.4~~$73.3 billion for the first six months of ~~2016~~2017 and ~~2015,~~2016, respectively.

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Net investment income increased ~~$18.8~~$1.5 million, or ~~11.5%~~0.8%, and ~~$40.9~~$15.4 million, or ~~13.3%~~4.4%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The increases were primarily due to both an increase in the average invested asset ~~base primarily associated with~~base. Investment related gains (losses), net increased $0.2 million and $4.3 million for the ~~aforementioned in force block transactions along with strong variable investment income during the~~three and six months ended June 30, ~~2016. Investment related gains (losses), net decreased $4.2 million and $3.9 million for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016~~,2017, as compared to the same periods in 2015. A portion of investment income is allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support segment operations. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.2016.

Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were ~~87.9%~~89.5% and ~~88.9%~~87.9% for the second quarter and ~~89.3%~~91.7% and ~~91.1%~~89.3%, for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The ~~decreases~~increase in the loss ~~ratios were~~ratio for the second quarter of 2017, as compared to the same period in 2016 was primarily due to higher ~~than normal adverse volatility~~claims associated with the segment’s individual and group health lines of business and variations in amounts at risk and lapse activity as reported by the clients. The increase in the ~~total count~~loss ratio for the first six months of 2017, as compared to the same period in 2016 was primarily due to a higher number of individual mortality claims ~~during~~in excess of $1.0 million.

Interest credited expense decreased $1.1 million, or 2.6%, for the ~~three and~~ six months ended June 30, ~~2015. Although reasonably predictable over a period of years, claims can be volatile over short-term periods.~~

~~Interest credited expense decreased $1.0 million, or 4.7%, and increased $7.4 million, or 21.3%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016~~,2017, as compared to the same ~~periods~~period in ~~2015.~~2016. Interest credited in this segment relates to amounts credited on cash value products which also have a significant mortality component. The increase in the first six months relates primarily to the interest sensitive whole life products acquired in the acquisition of Aurora National Life Assurance Company ("Aurora") in the second quarter of 2015. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~13.9%~~14.0% and ~~14.4%~~13.9% for the second quarter and ~~14.1%~~13.9% and ~~14.3%~~14.1% for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to ~~period.~~period

~~Other operating expenses increased $2.6 million, or 9.7%, and $7.9 million, or 14.7%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016, as compared to the same periods in 2015. Contributing to the increase was an expansion in underwriting personnel to support clients.~~ Other operating expenses, as a percentage of net premiums ~~were 2.3%~~remained constant at 2.2% and 2.3% for the second quarter and 2.3% and 2.4% first six months of 2017 and ~~2.3% for the six month periods ended~~ ~~June 30,~~ 2016, ~~and 2015,~~ respectively. The expense ratio tends to fluctuate only slightly from period to period due to the maturity and scale of this segment.

~~Non-Traditional~~Financial Solutions - Asset-Intensive Reinsurance

Asset-Intensive reinsurance within the U.S. and Latin America ~~Non-Traditional~~Financial Solutions segment primarily involves assuming investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance with funds withheld or modco. The Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities, income associated with longevity risk, and fees associated with variable annuity account values and guaranteed investment contracts.

Impact of certain derivatives:

Income from the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility, the Company’s own credit risk and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues), and interest credited. These fluctuations are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties.

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The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives, should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes.

~~Table of Contents~~


(dollars in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Revenues:
Total revenues	$	284,728		$	172,864		$	302,445		$	349,087		$	243,922		$	284,728		$	516,695		$	302,445
Less:
Embedded derivatives – modco/funds withheld treaties	77,848			(26,456		)	(12,366		)	(26,309		)	15,762			77,848			82,500			(12,366		)
Guaranteed minimum benefit riders and related free standing derivatives	2,923			10,619			(12,063		)	6,052			3,017			2,923			(3,877		)	(12,063		)
Revenues before certain derivatives	203,957			188,701			326,874			369,344			225,143			203,957			438,072			326,874
Benefits and expenses:
Total benefits and expenses	190,749			117,114			239,296			251,197			156,920			190,749			343,923			239,296
Less:
Embedded derivatives – modco/funds withheld treaties	48,033			(17,072		)	(3,021		)	(15,416		)	10,585			48,033			39,526			(3,021		)
Guaranteed minimum benefit riders and related free standing derivatives	2,545			3,340			(304		)	2,190			1,096			2,545			(1,186		)	(304		)
Equity-indexed annuities	(7,359		)	(4,305		)	5,901			1,296			(2,641		)	(7,359		)	(14,084		)	5,901
Benefits and expenses before certain derivatives	147,530			135,151			236,720			263,127			147,880			147,530			319,667			236,720
Income before income taxes:
Income before income taxes	93,979			55,750			63,149			97,890			87,002			93,979			172,772			63,149
Less:
Embedded derivatives – modco/funds withheld treaties	29,815			(9,384		)	(9,345		)	(10,893		)	5,177			29,815			42,974			(9,345		)
Guaranteed minimum benefit riders and related free standing derivatives	378			7,279			(11,759		)	3,862			1,921			378			(2,691		)	(11,759		)
Equity-indexed annuities	7,359			4,305			(5,901		)	(1,296		)	2,641			7,359			14,084			(5,901		)
Income before income taxes and certain derivatives	$	56,427		$	53,550		$	90,154		$	106,217		$	77,263		$	56,427		$	118,405		$	90,154

Embedded Derivatives - Modco/Funds Withheld Treaties - Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The fair value changes of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. The ~~Company's~~Company’s utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.

The change in fair value of the embedded derivatives - modco/funds withheld treaties increased (decreased) income before income taxes by ~~$29.8~~$5.2 million and ~~$(9.4)~~$29.8 million for the second quarter and ~~$(9.3)~~$43.0 million and ~~$(10.9)~~$(9.3) million for the six months ended June 30, 2017 and 2016, respectively. The increases in income for the second quarter of 2016 and ~~2015, respectively.~~2017 were primarily due to tightening credit spreads. The increase in income for the ~~three~~six months ended June 30, ~~2016~~2017 was primarily due to tightening credit ~~spreads, while the~~spreads. The decrease ~~in income for the three months ended June 30, 2015 was due to a combination of widening credit spreads and increased risk free rates. The decreases~~ in income for the six months ended June 30, 2016 ~~and 2015 were~~was primarily due to widening credit spreads.

Guaranteed Minimum Benefit Riders - Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives (interest rate swaps, financial futures and equity options), purchased by the Company to substantially hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. The ~~Company's~~Company’s utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.

The change in fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased (decreased) income before income taxes by ~~$0.4~~$1.9 million and ~~$7.3~~$0.4 million for the second quarter and ~~$(11.8)~~$(2.7) million and ~~$3.9~~$(11.8) million for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The increase in income for the three months ended June 30, 2017 and 2016 was primarily due to ~~rising equity markets, while the increase in income for the three months ended June 30, 2015 was due to rising equity markets and declining volatility.~~favorable hedging results. The decrease in income for the six months ended June 30, 2017 and 2016 ~~was~~is primarily due to shifts in policyholder ~~experience, while the increase in income for the six months ended June 30, 2015 was due to rising equity markets and declining volatility.~~behavior.

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Equity-Indexed Annuities - Represents changes in the liability for equity-indexed annuities in excess of changes in account value, after adjustments for related deferred acquisition expenses. The change in fair value of embedded derivative liabilities associated with equity-indexed annuities increased (decreased) income before income taxes by ~~$7.4~~$2.6 million and ~~$4.3~~$7.4 million for the second quarter and ~~$(5.9)~~$14.1 million and ~~$(1.3)~~$(5.9) million for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The increase in income for the ~~three months ended June 30,~~second quarter of 2017 and 2016 was primarily due to ~~decreasing interest rates, while the~~rising equity markets. The increase in income for the ~~three~~first six months ~~ended June 30, 2015~~of 2017 was primarily due to ~~increasing interest rates.~~rising equity markets. The decrease in income for the ~~three and~~first six months ~~ended June 30,~~of 2016 ~~and 2015~~ was primarily due to increasing short-term interest rates.

The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), credit valuation adjustments, implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues) and interest credited.

Discussion and analysis before certain derivatives:

Income before income taxes and certain derivatives increased by ~~$2.9~~$20.8 million and ~~decreased by $16.1~~$28.3 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increase in the second quarter was~~increases were primarily due to higher investment related gains (losses), net of the corresponding impact to deferred acquisition costs, associated with coinsurance and funds withheld portfolios. Funds withheld capital gains (losses) are ~~reflected~~reported in investment income. The decrease in the first six months was primarily due to an increase of $21.4 million in other-than-temporary impairments on investments in the first quarter, partially offset by the inclusion of Aurora in the 2016 results.

Revenue before certain derivatives increased by ~~$15.3~~$21.2 million and ~~decreased by $42.5~~$111.2 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The increase in the second quarter was primarily due to the impact to investment income from a new coinsurance transaction in 2017 and higher investment related gains (losses) associated with coinsurance and funds withheld portfolios. The increase in the first six months was primarily due to the change in fair value of equity options associated with the reinsurance of certain ~~EIAs. The decrease in the first six months was primarily due to the decline in fair value of equity options~~EIAs and higher investment related gains (losses) associated with ~~the reinsurance of certain EIAs~~coinsurance and ~~other-than-temporary impairments on investments, which offset the increase in investment income associated with the acquisition of Aurora.~~funds withheld portfolios. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited.

Benefits and expenses before certain derivatives increased by ~~$12.4~~$0.4 million and ~~decreased by $26.4~~$82.9 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same period in ~~2015.~~2016. The increase in the second quarter was primarily due to the impact to interest credited of a new coinsurance transaction in 2017 which was offset by lower interest credited associated with the reinsurance of EIAs. The increase in the first six months was primarily due to higher interest credited associated with the reinsurance of ~~certain~~ EIAs. The decrease in the first six months of 2016 was primarily due to lower interest credited associated with the reinsurance of EIAs which was partially offset by the benefits and expenses associated with the acquisition of Aurora. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income.

The invested asset base supporting this segment ~~decreased~~increased to $15.7 billion as of June 30, 2017 from $13.1 billion as of June 30, ~~2016 from $14.1 billion as of June 30, 2015.~~2016. The ~~decrease~~increase in the asset base was due primarily to the aforementioned new coinsurance transaction in 2017, partially offset by the expected run-off from closed block transactions. As of June 30, ~~2016~~2017, ~~$4.0~~$4.1 billion of the invested assets were funds withheld at interest, of which greater than 90% is associated with one client.

~~Non-Traditional~~Financial Solutions - Financial Reinsurance

Financial Reinsurance within the U.S. and Latin America ~~Non-Traditional~~Financial Solutions segment income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Additionally, a portion of the business is brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.

Income before income taxes increased ~~$0.2~~$5.1 million, or ~~1.6%~~34.3%, and ~~$3.8~~$7.0 million, or ~~14.1%~~22.7%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increase was~~increases were primarily due to growth in new transactions and organic growth on existing transactions which was partially offset by the termination of certain agreements.

At June 30, ~~2016~~2017 and ~~2015,~~2016, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was ~~$7.7~~$12.4 billion and ~~$6.4~~$7.7 billion, respectively. The increase was primarily due to a number of new transactions, as well as organic growth on existing transactions. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.

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Canada Operations

The Company conducts reinsurance business in Canada primarily through RGA Canada, which assists clients with capital management activity and mortality and morbidity risk management. The Canada operations are primarily engaged in Traditional reinsurance, which consists mainly of traditional individual life reinsurance, as well as creditor, group life and health, critical illness and ~~living benefits (disability and critical illness)~~disability reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional individual life insurance. The Canada ~~operations are also engaged in Non-Traditional reinsurance which~~Financial Solutions segment consists of longevity and financial reinsurance.


(dollars in thousands)	Three months ended June 30,															Three months ended June 30,
	2016							2015								2017						2016
Revenues:	Traditional			Non-Traditional		Total Canada		Traditional			Non-Traditional		Total Canada			Traditional		Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada
Net premiums	$	240,107		$	10,192	$	250,299	$	224,960		$	9,725	$	234,685		$	221,380	$	9,314	$	230,694	$	240,107		$	10,192	$	250,299
Investment income, net of related expenses	46,859			228		47,087		45,751			328		46,079			44,830		1,351		46,181		46,859			228		47,087
Investment related gains (losses), net	2,285			—		2,285		(167		)	—		(167		)	2,598		—		2,598		2,285			—		2,285
Other revenues	(339		)	1,434		1,095		(454		)	1,405		951			465		1,338		1,803		(339		)	1,434		1,095
Total revenues	288,912			11,854		300,766		270,090			11,458		281,548			269,273		12,003		281,276		288,912			11,854		300,766
Benefits and expenses:
Claims and other policy benefits	176,478			8,834		185,312		185,742			7,904		193,646			181,197		7,099		188,296		176,478			8,834		185,312
Interest credited	7			—		7		5			—		5			5		—		5		7			—		7
Policy acquisition costs and other insurance expenses	60,021			513		60,534		53,371			148		53,519			47,597		206		47,803		60,021			513		60,534
Other operating expenses	9,097			379		9,476		8,236			312		8,548			7,638		273		7,911		9,097			379		9,476
Total benefits and expenses	245,603			9,726		255,329		247,354			8,364		255,718			236,437		7,578		244,015		245,603			9,726		255,329
Income before income taxes	$	43,309		$	2,128	$	45,437	$	22,736		$	3,094	$	25,830		$	32,836	$	4,425	$	37,261	$	43,309		$	2,128	$	45,437


(dollars in thousands)	Six months ended June 30,													Six months ended June 30,
	2016							2015						2017						2016
Revenues:	Traditional			Non-Traditional		Total Canada		Traditional		Non-Traditional		Total Canada		Traditional		Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada
Net premiums	$	455,570		$	19,143	$	474,713	$	437,510	$	19,692	$	457,202	$	437,142	$	18,724	$	455,866	$	455,570		$	19,143	$	474,713
Investment income, net of related expenses	88,882			612		89,494		95,191		878		96,069		89,336		2,395		91,731		88,882			612		89,494
Investment related gains (losses), net	3,925			—		3,925		1,291		—		1,291		6,441		—		6,441		3,925			—		3,925
Other revenues	(1,465		)	2,783		1,318		1,102		2,762		3,864		629		2,691		3,320		(1,465		)	2,783		1,318
Total revenues	546,912			22,538		569,450		535,094		23,332		558,426		533,548		23,810		557,358		546,912			22,538		569,450
Benefits and expenses:
Claims and other policy benefits	348,879			18,438		367,317		369,276		15,203		384,479		372,249		14,718		386,967		348,879			18,438		367,317
Interest credited	9			—		9		9		—		9		9		—		9		9			—		9
Policy acquisition costs and other insurance expenses	117,159			717		117,876		102,922		255		103,177		93,279		350		93,629		117,159			717		117,876
Other operating expenses	17,461			663		18,124		17,424		649		18,073		15,847		725		16,572		17,461			663		18,124
Total benefits and expenses	483,508			19,818		503,326		489,631		16,107		505,738		481,384		15,793		497,177		483,508			19,818		503,326
Income before income taxes	$	63,404		$	2,720	$	66,124	$	45,463	$	7,225	$	52,688	$	52,164	$	8,017	$	60,181	$	63,404		$	2,720	$	66,124

Income before income taxes ~~increased~~decreased by ~~$19.6~~$8.2 million, or ~~75.9%~~18.0%, and ~~$13.4~~$5.9 million, or ~~25.5%~~9.0%, for the three and six months ended June 30, 2017, as compared to the same periods in 2016. The decrease in income for the second quarter and first six months is primarily due to unfavorable traditional individual life mortality experience compared to favorable experience in the same periods in 2016, partially offset by favorable experience on longevity business. Foreign currency exchange fluctuations in the Canadian dollar resulted in a decrease in income before income taxes of $1.5 million and $0.1 million for the three and six months ended June 30, 2017, as compared to the same periods in 2016.

Traditional Reinsurance

Income before income taxes for the Canada Traditional segment decreased by $10.5 million, or 24.2%, and $11.2 million, or 17.7%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increase~~decrease in income before income taxes for the second quarter ~~is primarily due to improved traditional individual life mortality experience, as compared to the same period in 2015. The increase in income for the~~and first six months is primarily due to ~~improved~~unfavorable traditional individual life mortality experience ~~partially offset by a decrease in investment income and unfavorable experience on longevity business, as~~ compared to favorable experience in the same ~~period~~periods in ~~2015. A weaker~~2016. Foreign currency exchange fluctuations in the Canadian dollar resulted in a decrease in income before income taxes of ~~$2.4~~$1.3 million and ~~$6.1~~$0.1 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

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~~Traditional Reinsurance~~

~~Income before income taxes for the Canada Traditional segment increased by $20.6~~Net premiums decreased $18.7 million, or ~~90.5%~~7.8%, and ~~$17.9~~$18.4 million, or ~~39.5%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016~~, as compared to the same periods in 2015. The increase in income before income taxes for the second quarter is primarily due to favorable traditional individual life mortality experience and a $2.5 million increase in investment related gains (losses), net. The increase in income before income taxes for the first six months, is primarily due to favorable traditional individual life mortality experience and a $2.6 million increase in investment related gains (losses), net, partially offset by a decrease in investment income. Additionally, a weaker Canadian dollar resulted in a decrease in income before income taxes of $2.2 million and $5.4 million for the three and six months ended June 30, 2016, as compared to the same periods in 2015.

~~Net premiums increased $15.1 million, or 6.7%, and $18.1 million, or 4.1%~~4.0%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increases~~decreases in net premiums were primarily due to an ~~increase from~~anticipated decrease in creditor ~~business~~premiums of ~~$16.6~~$20.2 million and ~~$32.1~~$39.3 million ~~as compared to the same periods in 2015. Also contributing to the increase in net premiums~~ for the second quarter and first six months, isrespectively, and foreign currency exchange fluctuation. These decreases were partially offset by an increase in traditional individual life business premiums where the underlying yearly renewable term structure on a significant portion of ~~the~~this block of business ~~which~~ generally increases over time. ~~These increases were partially offset by foreign~~Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately ~~$11.6~~$9.5 million and ~~$33.6~~$2.0 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in 2015. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.2016.

Net investment income ~~increased $1.1~~decreased $2.0 million, or ~~2.4%~~4.3%, and ~~decreased $6.3~~increased $0.5 million, or ~~6.6%~~0.5%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The decrease in investment income for the second quarter is primarily due to foreign currency exchange fluctuation, while the increase for the first six months was primarily the result of an increase in the ~~second quarter was primarily~~invested asset base due to growth in the ~~invested asset base partially~~underlying business volume, offset by ~~adverse~~a decrease in investment yields and foreign currency ~~fluctuations of approximately $2.3 million. The~~exchange fluctuation. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net investment income ~~for the first six months ended June 30, 2016, was primarily due to adverse foreign currency fluctuations~~ of approximately ~~$6.7 million. A portion of investment income is allocated to the segments based upon average assets~~$1.9 million and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.

~~Other revenues increased by $0.1~~$0.4 million ~~or 25.3%, and decreased by $2.6 million, or 232.9%,~~ for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

Other revenues increased by $0.8 million and $2.1 million for the three and six months ended June 30, 2017, as compared to the same periods in 2016. The ~~decrease~~increases in other revenues infor the ~~first~~three and six months of ~~2016 was~~2017 is primarily due to ~~unfavorable foreign currency exchange fluctuations.~~income from the recapture of a previously assumed block of individual life business during the second quarter of 2017.

Loss ratios for this segment were ~~73.5%~~81.8% and ~~82.6%~~73.5% for the second quarter and ~~76.6%~~85.2% and ~~84.4%~~76.6% for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The ~~decreases~~increases in the loss ~~ratios~~ratio for the ~~second quarter~~three and ~~first~~ six months of ~~2016,~~2017, as compared to the same periods in ~~2015,~~2016, are due to ~~improved~~unfavorable traditional life mortality ~~experience.~~experience compared to favorable experience in the same periods in 2016, and a decrease in creditor business premiums. Loss ratios for the traditional individual life mortality business were ~~87.2%~~94.3% and ~~96.2%~~87.2% for the second quarter and ~~92.9%~~98.3% and ~~99.2%~~92.9% for the first six months ended June 30, ~~2016~~2017 and 2015, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 67.6% and 73.4% for the second quarter and 72.7% and 78.8% for the six months ended June 30, 2016, ~~and 2015,~~ respectively. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year claims costs to fund claims in later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. As such, investment income becomes a more significant component of profitability of these in force blocks. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were ~~69.3%~~74.6% and ~~76.3%~~69.3% for the second quarter and ~~73.5%~~77.7% and ~~77.2%~~73.5% for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~25.0%~~21.5% and ~~23.7%~~25.0% for the second quarter and ~~25.7%~~21.3% and ~~23.5%~~25.7% for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. The decrease for the second quarter and first six months reflects a lower level of creditor business. In addition, the amortization patterns of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.

Other operating expenses ~~increased by $0.9~~decreased $1.5 million, or ~~10.5%~~16.0%, ~~for the three months ended~~ ~~June 30, 2016~~, as compared to the same period in 2015. Other operating expenses were essentially flat for the comparable six month periods. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in operating expenses of approximately $0.4and $1.6 million, ~~and $1.2 million~~or 9.2%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016, primarily due to a decrease in allocated corporate expenses. Other operating expenses as a percentage of net premiums were ~~3.8%~~3.5% and ~~3.7%~~3.8% for the second quarter and ~~3.8%~~3.6% and ~~4.0%~~3.8% for the ~~first~~ six ~~months~~month periods ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

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~~Non-Traditional~~Financial Solutions Reinsurance

Income before income taxes ~~decreased~~increased by ~~$1.0~~$2.3 million, or ~~31.2%~~107.9%, and ~~$4.5~~$5.3 million, or ~~62.4%~~194.7%, ~~for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016~~, as compared to the same periods in 2015. The decrease in income for the three months ended June 30, 2016, as compared to the same period in 2015, is primarily due to favorable experience on longevity business for the three months ended June 30, 2015. The decrease in income for the six months ended June 30, 2016, as compared to the same period in 2015 was primarily due to unfavorable experience on longevity business. A weaker Canadian dollar resulted in a decrease in income before income taxes of $0.1 million and $0.7 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~

~~Net premiums increased $0.5 million, or 4.8%,~~2016. The increases in income for both the three and ~~decreased by $0.5 million, or 2.8%,~~six month periods are primarily due to favorable experience on longevity business. Foreign currency exchange fluctuations had a negligible effect on income before income taxes for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015.~~2016.

Net premiums decreased $0.9 million, or 8.6%, and $0.4 million, or 2.2%, for the three and six months ended June 30, 2017, as compared to the same periods in 2016. A weaker Canadian dollar resulted in a decrease in net premiums of approximately ~~$0.5~~$0.4 million and ~~$1.4~~$0.1 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business~~2016.

Net investment income increased $1.1 million and ~~reporting practices of ceding companies~~$1.8 million for the three and ~~therefore may fluctuate from period~~six months ended June 30, 2017, as compared to ~~period.~~the same periods in 2016 primarily due to an increase in the invested asset base.

Claims and other policy benefits ~~increased $0.9~~decreased $1.7 million, or ~~11.8%~~19.6%, and ~~$3.2~~$3.7 million, or ~~21.3%~~20.2%, for the three and six months ended June 30, ~~2016~~2017 as compared to the same periods in ~~2015.~~2016. The ~~increase~~decreases for the second quarter ~~is commensurate with business growth. The increase for the~~and first six months ~~was a result of unfavorable~~are primarily due to favorable experience on longevity ~~business, in addition to growth~~business.

Table of the underlying business. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.Contents

Europe, Middle East and Africa Operations

The Europe, Middle East and Africa (“EMEA”) segment includes business generated by its offices principally in the United Kingdom (“UK”), South Africa, France, Germany, Ireland, Italy, the Netherlands, Poland, Spain and the United Arab Emirates. EMEA consists of two major segments: Traditional and ~~Non-Traditional.~~Financial Solutions. The Traditional segment primarily provides reinsurance through yearly renewable term and coinsurance agreements on a variety of life, health and critical illness products. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and, in some markets, group risks. The ~~Non-Traditional~~Financial Solutions segment consists of reinsurance and other transactions associated with longevity closed blocks, payout annuities, capital management solutions and financial reinsurance.

(dollars in thousands) Three months ended June 30,
2016 2015
Revenues: Traditional Non-Traditional Total EMEA Traditional Non-Traditional Total EMEA
Net premiums $ 286,861
$ 43,484
$ 330,345
$ 275,745
$ 50,234
$ 325,979
Investment income, net of related expenses 13,321
33,417
46,738
13,092
15,782
28,874
Investment related gains (losses), net —
1,468
1,468
(4,509 ) 50
(4,459 )
Other revenues 1,460
2,608
4,068
(136 ) 9,242
9,106
Total revenues 301,642
80,977
382,619
284,192
75,308
359,500
Benefits and expenses:
Claims and other policy benefits 252,336
44,004
296,340
240,942
39,849
280,791
Interest credited —
2,966
2,966
(4,048 ) —
(4,048 )
Policy acquisition costs and other insurance expenses 17,550
723
18,273
14,183
266
14,449
Other operating expenses 24,922
5,815
30,737
23,956
3,761
27,717
Total benefits and expenses 294,808
53,508
348,316
275,033
43,876
318,909
Income before income taxes $ 6,834
$ 27,469
$ 34,303
$ 9,159
$ 31,432
$ 40,591

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(dollars in thousands)	Three months ended June 30,
	2017								2016
Revenues:	Traditional		Financial Solutions			Total EMEA			Traditional		Financial Solutions		Total EMEA
Net premiums	$	330,850	$	38,520		$	369,370		$	286,861	$	43,484	$	330,345
Investment income, net of related expenses	13,585		28,029			41,614			13,321		33,417		46,738
Investment related gains (losses), net	—		2,458			2,458			—		1,468		1,468
Other revenues	1,485		4,398			5,883			1,460		2,608		4,068
Total revenues	345,920		73,405			419,325			301,642		80,977		382,619
Benefits and expenses:
Claims and other policy benefits	295,004		36,797			331,801			252,336		44,004		296,340
Interest credited	—		(291		)	(291		)	—		2,966		2,966
Policy acquisition costs and other insurance expenses	15,349		454			15,803			17,550		723		18,273
Other operating expenses	24,213		7,540			31,753			24,922		5,815		30,737
Total benefits and expenses	334,566		44,500			379,066			294,808		53,508		348,316
Income before income taxes	$	11,354	$	28,905		$	40,259		$	6,834	$	27,469	$	34,303


(dollars in thousands)	Six months ended June 30,													Six months ended June 30,
	2016						2015							2017						2016
Revenues:	Traditional		Non-Traditional		Total EMEA		Traditional		Non-Traditional			Total EMEA		Traditional		Financial Solutions		Total EMEA		Traditional		Financial Solutions		Total EMEA
Net premiums	$	563,296	$	79,090	$	642,386	$	545,491	$	80,094		$	625,585	$	635,522	$	80,515	$	716,037	$	563,296	$	79,090	$	642,386
Investment income, net of related expenses	25,489		62,101		87,590		25,181		32,659			57,840		26,305		57,710		84,015		25,489		62,101		87,590
Investment related gains (losses), net	5		464		469		7,748		901			8,649		7		7,033		7,040		5		464		469
Other revenues	2,486		7,078		9,564		1,004		17,030			18,034		2,172		8,136		10,308		2,486		7,078		9,564
Total revenues	591,276		148,733		740,009		579,424		130,684			710,108		664,006		153,394		817,400		591,276		148,733		740,009
Benefits and expenses:
Claims and other policy benefits	503,579		80,447		584,026		476,249		71,930			548,179		561,405		72,733		634,138		503,579		80,447		584,026
Interest credited	—		3,374		3,374		8,301		—			8,301		—		3,822		3,822		—		3,374		3,374
Policy acquisition costs and other insurance expenses	32,332		530		32,862		26,191		(264		)	25,927		30,512		743		31,255		32,332		530		32,862
Other operating expenses	49,647		11,489		61,136		49,042		7,952			56,994		46,759		15,273		62,032		49,647		11,489		61,136
Total benefits and expenses	585,558		95,840		681,398		559,783		79,618			639,401		638,676		92,571		731,247		585,558		95,840		681,398
Income before income taxes	$	5,718	$	52,893	$	58,611	$	19,641	$	51,066		$	70,707	$	25,330	$	60,823	$	86,153	$	5,718	$	52,893	$	58,611

Income before income taxes ~~decreased~~increased by ~~$6.3~~$6.0 million, or ~~15.5%~~17.4%, and ~~$12.1~~$27.5 million, or ~~17.1%~~47.0%, for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015~~.2016. The ~~decreases~~increase in income for the second quarter was primarily due to growth in traditional business and favorable individual mortality experience partially offset by unfavorable morbidity experience. The increase in income before income taxes ~~were~~for the first six months was primarily due to ~~reduced fee income business and poor~~favorable individual mortality and ~~morbidity experience partially offset by increased payout annuity business. In addition, foreign~~financial solutions closed block longevity experience. Foreign currency exchange fluctuations resulted in a decrease in income before income taxes ~~totaling $1.9~~of $3.8 million and ~~$4.1~~$9.3 million for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015, due primarily to weakness in the British pound.~~2016.

Traditional Reinsurance

Income before income taxes ~~decreased~~increased by ~~$2.3~~$4.5 million, or ~~25.4%~~66.1%, and ~~$13.9~~$19.6 million, or ~~70.9%~~343.0%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015~~2016. The ~~decreases~~increases in income before income taxes were primarily due to ~~unfavorable~~business growth and favorable individual mortality ~~and~~experience partially offset by unfavorable morbidity experience. Foreign currency exchange fluctuations resulted in ~~an increase~~a decrease in income before income taxes ~~totaling $0.1~~of $0.5 million and ~~a decrease in $0.1~~$1.2 million for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015.~~2016.

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Net premiums increased ~~$11.1~~$44.0 million, or ~~4.0%~~15.3%, and ~~$17.8~~$72.2 million, or ~~3.3%~~12.8%, for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015.~~2016. The ~~increases are~~increase in the three and six months was primarily due to increased ~~individual life~~business volumes, most notably in the Middle East, Italy and ~~health premiums.~~South Africa related to new treaties in 2017 and favorable growth from existing treaties. Unfavorable foreign currency exchange fluctuations ~~primarily due to the British pound and the South African rand weakening against the U.S. dollar,~~ decreased net premiums by approximately ~~$20.2~~$17.2 million and ~~$43.2~~$35.1 million for the three and six months ~~of 2016,~~ended June 30, 2017, as compared to the same periods in ~~2015. Premiums from new business and growth in existing business offset the negative currency effect.~~2016.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled ~~$53.8~~$49.2 million and ~~$58.3~~$53.8 million for the second quarter and ~~$107.5~~$95.2 million and ~~$116.5~~$107.5 million for the first six months of 2017 and 2016, ~~and 2015,~~ respectively. ~~Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.~~

Net investment income increased ~~$0.2 million, or 1.7%, and~~ $0.3 million, or ~~1.2%~~2.0%, and $0.8 million, or 3.2%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The increases were primarily due to an increase in the invested asset base related to increased business volumes. Foreign currency exchange fluctuations resulted in a decrease in net investment income of approximately ~~$0.8~~$0.5 million and ~~$1.9~~$1.2 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in 2015. A portion of investment income is allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.2016.

Loss ratios for this segment were ~~88.0%~~89.2% and ~~87.4%~~88.0% for the second quarter and ~~89.4%~~88.3% and ~~87.3%~~89.4% for the first six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The ~~increases~~increase in loss ratio for the second quarter is due in part to the mix of business reflecting higher volume of new single premium business in the second quarter of 2017, which has higher initial reserves at inception. This is somewhat offset with lower acquisition costs as reflected in the decline in the second quarter 2017 policy acquisition cost ratio below. The decrease in loss ~~ratios reflect unfavorable mortality and morbidity~~ratio for the six months is primarily due to favorable UK claims experience ~~compared~~relative to the same periods in 2015. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.prior year.

~~Interest credited expense increased by $4.0 million, or 100.0%, and decreased by $8.3 million, or 100.0%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016, as compared to the same periods in 2015. Interest credited in 2015 relates to amounts credited to~~

~~Table of Contents~~

~~the contractholders of unit-linked products. In 2016, interest credited related to unit-linked products and the related investment income is reflected in Non-Traditional Reinsurance.~~

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~6.1%~~4.6% and ~~5.1%~~6.1% for the second quarter and ~~5.7%~~4.8% and ~~4.8%~~5.7% for the first six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business.

Other operating expenses ~~increased $1.0~~decreased $0.7 million, or ~~4.0%~~2.8%, and ~~$0.6~~$2.9 million, or ~~1.2%~~5.8%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increases~~decreases were ~~in line with expected~~primarily due to expense ~~levels to support business growth.~~timing variability and the effect of foreign currency exchange fluctuations. Foreign currency exchange fluctuations resulted in a decrease in operating expenses of approximately ~~$1.6~~$0.6 million and ~~$4.0~~$1.2 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. Other operating expenses as a percentage of net premiums totaled ~~8.7%~~7.3% and 8.7% for the second quarter and ~~8.8%~~7.4% and ~~9.0%~~8.8% for the first six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.

~~Non-Traditional~~Financial Solutions Reinsurance

Income before income taxes ~~decreased~~increased by ~~$4.0~~$1.4 million, or ~~12.6%~~5.2%, and ~~increased by $1.8~~$7.9 million, or ~~3.6%~~15.0%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015~~2016. The decrease in the second quarter is primarily due to decreased fee income business and strong closed block longevity experience in the prior period partially offset by increased payout annuity reinsurance (longevity) business. The increaseincreases in income before income taxes ~~for the first six months was~~were primarily ~~related~~due to ~~a payout annuity reinsurance transaction executed after the third quarter of 2015 partially offset by a decrease in fee income.~~favorable closed block longevity experience. Unfavorable foreign currency exchange fluctuations resulted in a decrease in income before income taxes totaling ~~$2.0~~$3.3 million and ~~$3.9~~$8.1 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

Net premiums decreased ~~$6.8~~by $5.0 million, or ~~13.4%~~11.4%, and ~~$1.0~~increased by $1.4 million, or ~~1.3%~~1.8%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The decrease in the second quarter ~~is primarily~~was due ~~to currency fluctuations and the recognition of premiums in the second quarter of 2015 related~~ to a new ~~closed block (longevity) transaction.~~retrocession contract, executed for risk management purposes effective in the first quarter of 2017, which cedes longevity risk to third parties, partially offset by an increase from new transactions. The ~~decrease~~increase in the first six months was ~~primarily~~due to increased volumes of closed block longevity business, offset by a decrease related to ~~currency fluctuations largely offset by~~the aforementioned new ~~closed block (longevity) business.~~longevity retrocession contract. Unfavorable foreign currency exchange fluctuations ~~primarily in the British pound,~~ decreased net premiums by approximately ~~$3.1~~$4.4 million and ~~$5.1~~$10.5 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.~~2016.

Net investment income ~~increased $17.6~~decreased $5.4 million, or ~~111.7%~~16.1%, and ~~$29.4~~$4.4 million, or ~~90.1%~~7.1%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015. These increases were~~2016. The decreases in investment income for the second quarter and first six months are primarily due to ~~an increase~~foreign currency exchange fluctuations and a decrease in the invested asset base, ~~related to closed block (longevity) transactions executed~~while the first six months decrease was partially offset by an increase in ~~the fourth quarter of 2015. A portion of~~investment yields. Foreign currency exchange fluctuations resulted in a decrease in net investment income ~~is allocated~~of approximately $3.4 million and $7.4 million for the three and six months ended June 30, 2017, as compared to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.same periods in 2016.

Other revenues ~~decreased~~increased by ~~$6.6~~$1.8 million, or ~~71.8%~~68.6%, and ~~$10.0~~$1.1 million, or ~~58.4%~~14.9%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The ~~decreases in other revenues relate~~increases were due to ~~reduced~~increased fee income ~~associated with treaties terminated at the end of 2015.~~business. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.

Table of Contents

Claims and other policy benefits ~~increased $4.2~~decreased $7.2 million, or ~~10.4%~~16.4%, and ~~$8.5~~$7.7 million, or ~~11.8%~~9.6%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015. Claims~~2016. The decrease in the second quarter and first six months was primarily due to favorable claims experience and the aforementioned new longevity retrocession contract that cedes longevity risk to third parties, net of an increase from new transactions. Foreign currency exchange fluctuations resulted in a decrease in claims and other policy benefits ~~increased due to increased benefits associated with payout annuity reinsurance transactions executed in the fourth quarter~~ of ~~2015. Although reasonably predictable over a period of years, claims can vary over shorter periods and will vary with large transactions. Management views recent experience as normal.~~

~~Interest credited expense increased by $3.0~~approximately $4.2 million and ~~$3.4~~$9.6 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

Interest credited expense decreased by $3.3 million, or 109.8%, and increased by $0.4 million, or 13.3%, for the three and six months ended June 30, 2017, as compared to the same periods in 2016. Interest credited in ~~2016~~this segment relates to amounts credited to the contractholders of unit-linked products. ~~In 2015,~~This amount will vary according to contractholder investment selections, equity returns and interest rates. The effect on interest credited related to unit-linked products ~~was reflected~~is substantially offset by a corresponding change in ~~Traditional Reinsurance.~~investment income.

Other operating expenses increased ~~$2.1~~$1.7 million, or ~~54.6%~~29.7%, and ~~$3.5~~$3.8 million, or ~~44.5%~~32.9%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The increases are primarily due to increased administration costs related to ~~increased~~ longevity ~~business~~transactions and ~~an increase in expenses related to an acquisition in~~are offset partially by the ~~Netherlands completed in the fourth quarter~~effect of ~~2015.~~foreign currency exchange fluctuations. Foreign currency exchange fluctuations resulted in a decrease in operating expenses of approximately ~~$0.2~~$0.5 million and ~~$0.4~~$1.2 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016.

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Asia Pacific Operations

The Asia Pacific operations include business generated by its offices principally in Australia, China, Hong Kong, India, Japan, Malaysia, New Zealand, Singapore, South Korea and Taiwan. The Traditional segment’s principal types of reinsurance include individual and group life and health, critical illness, disability ~~superannuation, which are reported within the Traditional segment.~~and superannuation. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, typically offer life and disability insurance coverage. The ~~Non-Traditional~~Financial Solutions segment includes financial reinsurance, asset-intensive and certain disability and life ~~blocks sourced by the Global Financial Solutions unit.~~blocks. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

(dollars in thousands) Three months ended June 30,
2016 2015
Revenues: Traditional Non-Traditional Total Asia Pacific Traditional Non-Traditional Total Asia Pacific
Net premiums $ 454,629
$ (1,493 ) $ 453,136
$ 390,456
$ 898
$ 391,354
Investment income, net of related expenses 20,461
5,885
26,346
20,043
3,888
23,931
Investment related gains (losses), net —
6,527
6,527
—
(1,549 ) (1,549 )
Other revenues 2,481
6,126
8,607
815
3,839
4,654
Total revenues 477,571
17,045
494,616
411,314
7,076
418,390
Benefits and expenses:
Claims and other policy benefits 338,447
8,237
346,684
325,667
4,706
330,373
Interest credited —
3,136
3,136
—
169
169
Policy acquisition costs and other insurance expenses 67,908
1,667
69,575
49,335
419
49,754
Other operating expenses 36,734
4,078
40,812
31,997
3,187
35,184
Total benefits and expenses 443,089
17,118
460,207
406,999
8,481
415,480
Income (loss) before income taxes $ 34,482
$ (73 ) $ 34,409
$ 4,315
$ (1,405 ) $ 2,910

(dollars in thousands) Six months ended June 30,
2016 2015
Revenues: Traditional Non-Traditional Total Asia Pacific Traditional Non-Traditional Total Asia Pacific
Net premiums $ 828,771
$ 4,193
$ 832,964
$ 762,601
$ 11,180
$ 773,781
Investment income, net of related expenses 40,328
12,259
52,587
40,647
7,537
48,184
Investment related gains (losses), net 14
8,214
8,228
—
(1,027 ) (1,027 )
Other revenues 2,657
12,450
15,107
1,941
8,956
10,897
Total revenues 871,770
37,116
908,886
805,189
26,646
831,835
Benefits and expenses:
Claims and other policy benefits 612,745
11,710
624,455
590,976
10,441
601,417
Interest credited —
6,166
6,166
—
353
353
Policy acquisition costs and other insurance expenses 112,275
2,954
115,229
96,247
965
97,212
Other operating expenses 71,108
7,806
78,914
61,003
6,147
67,150
Total benefits and expenses 796,128
28,636
824,764
748,226
17,906
766,132
Income before income taxes $ 75,642
$ 8,480
$ 84,122
$ 56,963
$ 8,740
$ 65,703

~~Income before income taxes increased by~~ ~~$31.5 million, or 1,082.4%, and $18.4 million, or 28.0%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2016, as compared to the same periods in~~ ~~2015~~. The increases in income before income taxes are primarily attributable to improved mortality experience in Asia and an experience refund on an Australian treaty recognized in the second quarter of 2016. In addition, poor claims experience in Australia had an adverse effect on income before income taxes in the second quarter of 2015. Foreign currency exchange fluctuations resulted in an increase to income before income taxes totaling approximately $0.7 million and a decrease $1.2 million for the ~~three and six~~ ~~months of 2016, as compared to the same periods in~~ ~~2015~~.



(dollars in thousands)	Three months ended June 30,
	2017						2016
Revenues:	Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions			Total Asia Pacific
Net premiums	$	537,352	$	549	$	537,901	$	454,629	$	(1,493	)	$	453,136
Investment income, net of related expenses	22,345		8,570		30,915		20,461		5,885			26,346
Investment related gains (losses), net	—		3,582		3,582		—		6,527			6,527
Other revenues	1,832		5,283		7,115		2,481		6,126			8,607
Total revenues	561,529		17,984		579,513		477,571		17,045			494,616
Benefits and expenses:
Claims and other policy benefits	423,294		1,565		424,859		338,447		8,237			346,684
Interest credited	—		5,572		5,572		—		3,136			3,136
Policy acquisition costs and other insurance expenses	51,259		1,541		52,800		67,908		1,667			69,575
Other operating expenses	33,654		3,929		37,583		36,734		4,078			40,812
Total benefits and expenses	508,207		12,607		520,814		443,089		17,118			460,207
Income (loss) before income taxes	$	53,322	$	5,377	$	58,699	$	34,482	$	(73	)	$	34,409

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~~Traditional Reinsurance~~



(dollars in thousands)	Six months ended June 30,
	2017						2016
Revenues:	Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific
Net premiums	$	1,020,659	$	2,075	$	1,022,734	$	828,771	$	4,193	$	832,964
Investment income, net of related expenses	44,247		14,106		58,353		40,328		12,259		52,587
Investment related gains (losses), net	—		10,767		10,767		14		8,214		8,228
Other revenues	1,853		11,488		13,341		2,657		12,450		15,107
Total revenues	1,066,759		38,436		1,105,195		871,770		37,116		908,886
Benefits and expenses:
Claims and other policy benefits	778,733		8,060		786,793		612,745		11,710		624,455
Interest credited	—		8,569		8,569		—		6,166		6,166
Policy acquisition costs and other insurance expenses	124,116		3,458		127,574		112,275		2,954		115,229
Other operating expenses	68,900		7,100		76,000		71,108		7,806		78,914
Total benefits and expenses	971,749		27,187		998,936		796,128		28,636		824,764
Income before income taxes	$	95,010	$	11,249	$	106,259	$	75,642	$	8,480	$	84,122

Income before income taxes increased by ~~$30.2~~$24.3 million, or ~~699.1%~~70.6%, and ~~$18.7~~$22.1 million, or ~~32.8%~~26.3%, for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015~~.2016. The increases in income before income taxes are primarily due to higher income from offices in ~~2016 were primarily~~Asia driven by improved mortality experience in Asia and an experience refund on an Australian treaty. In addition, poor claims experience in Australia had an adverse effect on income before income taxes in the second quarter of 2015.business growth. Foreign currency exchange fluctuations resulted in an increase (decrease) to income before income taxes totaling approximately ~~$0.5~~$(0.4) million and ~~$(2.2)~~$0.6 million for the three and six months ended June 30, 2017, as compared to the same periods in 2016.

Traditional Reinsurance

Income before income taxes increased by $18.8 million, or 54.6%, and $19.4 million, or 25.6%, for the three and six months ended June 30, 2017, as compared to the same periods in 2016. The increases in income before income taxes are primarily due to higher income from offices in Asia driven by business growth. Foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling approximately $0.3 million and an increase of $0.6 million for the three and six months ~~of 2016,~~ended June 30, 2017, as compared to the same periods in ~~2015~~2016.

Net premiums increased by ~~$64.2~~$82.7 million, or ~~16.4%~~18.2%, and ~~$66.2~~$191.9 million, or ~~8.7%~~23.2%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015.~~2016. The increases were driven by both new and existing business written throughout the ~~segment and an experience refund on an Australian treaty.~~segment. Foreign currency exchange fluctuations resulted in ~~a decrease~~an increase in net premiums of approximately ~~$7.7~~$1.3 million and ~~$29.4~~$13.1 million for the three and six months of ~~2016,~~2017, as compared to the same ~~period~~periods in ~~2015.~~2016.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the segment is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled ~~$113.3~~$174.3 million and ~~$75.1~~$113.3 million for the second quarter and ~~$211.7~~$316.2 million and ~~$145.0~~$211.7 million for the first six months ended June 30, ~~2016~~2017 and ~~2015~~2016, respectively. ~~Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.~~

Net investment income increased ~~$0.4~~$1.9 million, or ~~2.1%~~9.2%, and ~~decreased by $0.3~~$3.9 million, or ~~0.8%~~9.7%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The ~~increase in the second quarter was primarily due to higher invested asset base. The decrease for the first six months was~~increases were primarily due to a ~~decline in investment yield and an unfavorable change in currency fluctuations.~~higher invested asset base. Foreign currency exchange fluctuations resulted in ~~a decrease~~an increase in net investment income ~~and~~of approximately ~~$0.5~~$0.1 million and ~~$1.8~~$0.9 million for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in 2015. A portion of investment income is allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.2016.

Other revenues ~~increased~~decreased by ~~$1.7~~$0.6 million, or ~~204.4%~~26.2%, and ~~$0.7~~$0.8 million, or ~~36.9%~~30.3%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. The increases in other revenues were~~2016. These variances are primarily due to gains and losses related to foreign currency ~~losses recognized in the prior period.~~transactions.

Loss ratios for this segment were ~~74.4%~~78.8% and ~~83.4%~~74.4% for the second quarter and ~~73.9%~~76.3% and ~~77.5%~~73.9% for the first six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The ~~decreases~~increases in the loss ratios for ~~2016, compared to~~ the ~~same periods in 2015,~~second quarter and first six months of 2017 were primarily due to ~~improved mortality experience in Asia in 2016 and an experience refund on an Australian treaty. The experience refund helped to offset poor~~slightly less favorable claims experience in Australia, primarily associated with group business. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the ~~business.~~segment compared to the prior year.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~14.9%~~9.5% and ~~12.6%~~14.9% for the second quarter and ~~13.5%~~12.2% and ~~12.6%~~13.5% for the six months ended June 30, 2017 and 2016, ~~and 2015,~~ respectively. ~~The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does~~These percentages fluctuate ~~periodically~~ due to timing of client company reporting, ~~and~~premium refunds, variations in the mixture of business and the relative maturity of the business.In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.

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Other operating expenses ~~increased $4.7~~decreased $3.1 million, or ~~14.8%~~8.4%, and ~~$10.1~~$2.2 million, or ~~16.6%~~3.1%, for the three and six months ended June 30, ~~2016~~,2017, as compared to the same periods in ~~2015~~2016 mainly due to ~~increased compensation costs relating to new positions filled during~~ the ~~second half~~timing of ~~2015, primarily in the growing Asian operations based in Hong Kong.~~travel and consultant expenditures. Other operating expenses as a percentage of net premiums totaled ~~8.1%~~6.3% and ~~8.2%~~8.1% for the second quarter and ~~8.6%~~6.8% and ~~8.0%~~8.6% for the first six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets within the segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.

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~~Non-Traditional~~Financial Solutions Reinsurance

Income before income taxes increased by ~~$1.3~~$5.5 million ~~or 94.8%,~~ and ~~decreased by $0.3~~$2.8 million ~~or 3.0%,~~ for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015~~2016. The ~~increase~~increases in ~~the second quarter is~~income before income taxes are primarily due to ~~gains on derivatives, partially offset by unfavorable lapse experience~~higher income from a closed block of business ~~associated with~~in Japan as less policies lapsed during the period. Foreign currency exchange fluctuations had a ~~treaty in Japan. The decrease in~~negligible effect on income before income taxes for the first six months of 2016 is primarily attributable to unfavorable lapse experience from the previously mentioned closed block of business. Foreign currency exchange fluctuations resulted in an increase to income before income taxes totaling approximately $0.2 million and $1.0 million for the three and six months ~~of 2016,~~ended June 30, 2017, as compared to the same periods in ~~2015~~2016.

Net premiums ~~decreased $2.4~~increased $2.0 million or ~~266.3%~~136.8%, and ~~$7.0~~decreased by $2.1 million, or ~~62.5%~~50.5%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. The ~~decreases were primarily~~increase compared to prior quarter is mainly due to lower lapses from policies from the ~~aforementioned policy lapses on a~~above mentioned closed block of business in Japan. However, the lower policy base caused a decrease in premiums in the first six months, compared to the same period in 2016. Foreign currency exchange fluctuations ~~resulted in~~had a ~~decrease in~~negligible effect on net premiums ~~of approximately $0.2 million and an increase of $0.1 million~~ for the three and six months ~~of 2016,~~ended June 30, 2017, as compared to the same periods in ~~2015. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.~~2016.

Net investment income increased ~~$2.0~~$2.7 million, or ~~51.4%~~45.6%, and ~~$4.7~~$1.8 million, or ~~62.7%~~15.1%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015~~2016 mainly due to growth in the invested asset base. Foreign currency exchange fluctuations resulted in ~~a decrease~~an increase in net investment income of approximately $0.1 million and ~~$0.5~~$0.3 million for the three and six months ~~of 2016,~~ended June 30, 2017, as compared to the same periods in 2015. A portion of investment income is allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.2016.

Other revenues ~~increased~~decreased by ~~$2.3~~$0.8 million, or ~~59.6%~~13.8%, and ~~$3.5~~$1.0 million, or ~~39.0%~~7.7%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015. The increases in other revenues were primarily due to new non-traditional transactions entered into during the second half of 2015.~~2016. At June 30, ~~2016~~2017 and ~~2015,~~2016, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was ~~$1.0~~$1.4 billion and ~~$1.1~~$1.0 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.

Claims and other policy benefits ~~increased~~decreased by ~~$3.5~~$6.7 million, or ~~75.0%~~81.0%, and ~~$1.3~~$3.7 million, or ~~12.2%~~31.2%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015.~~2016. These ~~increases~~decreases are attributable to lower lapses from policies from the ~~aforementioned unfavorable lapse experience on a~~above mentioned closed block of business ~~associated with a treaty~~ in Japan. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.

Other operating expenses ~~increased $0.9~~decreased by $0.1 million, or ~~28.0%~~3.7%, and ~~$1.7~~$0.7 million, or ~~27.0%~~9.0%, for the three and six months ended June 30, ~~2016~~2017, as compared to the same periods in ~~2015,~~2016, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets within the segment may cause other operating expenses to fluctuate over periods of time.

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Corporate and Other

Corporate and Other revenues primarily include investment income from unallocated invested assets and investment related gains and losses. Corporate and Other ~~benefits and~~ expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance income line item, unallocated overhead and executive costs, interest expense related to debt, and the investment income and expense associated with the Company’s collateral finance and securitization transactions. Additionally, Corporate and Other includes results from certain wholly-owned subsidiaries and joint ventures that, among ~~others, RGA Technology Partners, a wholly-owned subsidiary that develops~~other activities, develop and ~~markets~~market technology solutions for the insurance industry.

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(dollars in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Revenues:
Net premiums	$	108		$	153		$	217		$	320		$	42		$	108		$	86		$	217
Investment income, net of related expenses	25,190			31,707			48,111			63,402			36,305			25,190			67,468			48,111
Investment related gains (losses), net	32,036			1,712			39,459			(121		)	15,685			32,036			862			39,459
Other revenues	4,653			3,307			6,702			4,997			2,456			4,653			7,624			6,702
Total revenues	61,987			36,879			94,489			68,598			54,488			61,987			76,040			94,489
Benefits and expenses:
Claims and other policy benefits	(6		)	—			21			53			(13		)	(6		)	14			21
Interest credited	459			203			966			415			1,497			459			2,621			966
Policy acquisition costs and other insurance income	(25,149		)	(21,843		)	(48,961		)	(42,431		)	(26,779		)	(25,149		)	(53,846		)	(48,961		)
Other operating expenses	40,975			26,137			80,953			44,471			38,141			40,975			78,513			80,953
Interest expense	20,331			35,851			53,138			71,478			29,352			20,331			71,754			53,138
Collateral finance and securitization expense	6,587			5,258			12,912			11,329			6,773			6,587			13,543			12,912
Total benefits and expenses	43,197			45,606			99,029			85,315			48,971			43,197			112,599			99,029
Income (loss) before income taxes	$	18,790		$	(8,727	)	$	(4,540	)	$	(16,717	)	$	5,517		$	18,790		$	(36,559	)	$	(4,540	)

Income ~~(loss)~~ before income taxes ~~improved~~decreased by ~~$27.5~~$13.3 million, or ~~315.3%, and $12.2 million, or 72.8%,~~70.6% for the three ~~and six~~ months ended June 30, ~~2016~~,2017, as compared to the same ~~periods~~period in 2015. The increases were primarily due to improvement in investment related gains (losses), net and a reduction in interest expense related to a reduction in tax-related interest expense. These improvements to income2016. Loss before income taxes ~~were partially offset by increased operating expenses and lower investment income, net of related expenses.~~

~~Total revenues~~ increased by ~~$25.1~~$32.0 million ~~or 68.1%, and $25.9 million, or 37.7%~~705.3%, for the ~~three and~~ six months ended June 30, ~~2016~~,2017, as compared to the same ~~periods~~period in ~~2015.~~2016. The ~~increases were~~decrease in income before income taxes for the second quarter and the increase in loss before income taxes for the first six months is primarily due to ~~increases of $30.3 million and $39.6 million in~~decreased net investment related gains ~~(losses)~~and higher interest expense partially offset by increased investment income.

Total revenues decreased by $7.5 million, or 12.1%, ~~net, primarily from the sale of investment securities,~~and $18.4 million, or 19.5%, for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in ~~2015. These amounts include a reduction in impairments on fixed maturity and equity securities of $2.8 million in~~2016. The decrease for the second quarter is primarily due to a decrease of $16.4 million in investment related gains (losses), net, largely caused by an increase in other-than-temporary impairments of $9.0 million and a decrease in net gains on the sale of securities of $7.4 million. The second quarter decrease was partially offset by an increase of ~~$7.2~~$11.1 million in investment income related to an increase in unallocated invested assets and higher investment yields. The decrease for the first six months is primarily due to a decrease of ~~2016,~~$38.6 million in investment related gains (losses), net, mainly related to an increase in other-than-temporary impairments of $9.6 million and a decrease in net gains on the sale of securities of $29.0 million. The second quarter decrease was partially offset by an increase of $19.4 million in investment income related to an increase in unallocated invested assets and higher investment yields.

Total benefits and expenses increased by $5.8 million, or 13.4%, and $13.6 million, or 13.7%, for the three and six months ended June 30, 2017, as compared to the same periods in ~~2015. Investment income, net~~2016. The increase in the second quarter and first six months is primarily due to an increase in interest expense partially offset by a decrease in other operating expenses and an increase in other insurance income. The increase in interest expense in the second quarter and first six months is primarily due to the issuance of ~~related expenses decreased~~$800.0 million in long-term debt in June 2016, which was partially offset by ~~$6.5~~the repayment of $300 million of long-term debt in 2017, and ~~$15.3~~a lower reduction in tax-related interest expense primarily resulting from settlement with the taxing authority. The reduction in tax-related interest expense resulting from settlement with the taxing authority was $10.0 million in the second quarter and first six months of ~~2016, respectively, primarily due to a reduction~~2017, and $15.4 million in ~~unallocated invested assets and~~ the ~~effect of lower investment yields.~~

Total benefits and expenses decreased by $2.4 million, or 5.3%, and increased by $13.7 million, or 16.1%, for the three and six months ended June 30, 2016, as compared to the same periods in 2015. The decrease in second quarter ~~is primarily due to a reduction in interest expense largely offset by higher other operating expenses. The increase in the~~and first six months is primarily due to higher other operating expenses partially offset by a reduction in interest expense. Other operating expenses increased by $14.8 million and $36.5 million, for the three and six months ended June 30, 2016, as compared to the same periods in 2015, mainly due to increases related to compensation, including incentive compensation accruals, and general expenses. The reduction in interest expense is attributable mainly to a reduction in tax-related interest expense resulting from the effective settlement of ~~uncertain tax positions of $15.4 million.~~2016.

Liquidity and Capital Resources

Overview

The Company believes that cash flows from the source of funds available to it will provide sufficient cash flows for the next twelve months to satisfy the current liquidity requirements of RGA, Inc. and its subsidiaries under various scenarios that include the potential risk of early recapture of reinsurance treaties, market events and higher than expected claims. The Company performs

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periodic liquidity stress testing to ensure its asset portfolio includes sufficient high quality liquid assets that could be utilized to bolster its liquidity position under stress scenarios. These assets could be utilized as collateral for secured borrowing transactions with various third parties or by selling the securities in the open market if needed. The Company’s liquidity requirements have been and will continue to be funded through net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity needs, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These alternatives include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions.

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Current Market Environment

The current interest rate environment in select markets, primarily the U.S. and Canada, continues to negatively affect the ~~Company's~~Company’s earnings. The Company’s average investment yield, excluding spread business, ~~decreased 24 basis points~~ for the six months ended June 30, ~~2016 as compared to~~2017 was 4.60%, 11 basis points below the same period in ~~2015.~~2016. The Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. ~~Lower interest rates for the first six months of 2016 have increased gross~~Gross unrealized gains on fixed maturity and equity securities available-for-sale ~~which totaled $3,284.8~~increased from $2,246.5 million ~~and $1,947.0~~at December 31, 2016 to $2,780.5 million at June 30, ~~2016, and December 31, 2015, respectively.~~2017. Similarly, gross unrealized losses decreased from ~~$627.5~~$374.9 million at December 31, ~~2015~~2016 to ~~$198.6~~$179.1 million at June 30, ~~2016.~~2017.

The Company continues to be in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. As indicated above, gross unrealized gains on investment securities of ~~$3,284.8~~$2,780.5 million remain well in excess of gross unrealized losses of ~~$198.6~~$179.1 million as of June 30, ~~2016.~~2017. Historically low interest rates continued to put pressure on the Company’s investment yield. The Company does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future.

As a result of the June 23, 2016 referendum by British voters to exit the European Union (“Brexit”), global markets and foreign currencies have been adversely affected. In particular, the value of the British pound has sharply declined as compared to the U.S. dollar and other currencies. It is possible this volatility in foreign currencies could continue as the UK negotiates and executes its exit from the European Union. It is also possible that there will be greater restrictions, requirements and regulatory complexities on reinsurance provided in the UK by entities located outside the UK. These changes may adversely affect the Company’s operations and financial results.

The Company projects its reserves to be sufficient, and it would not expect to write down deferred acquisition costs or be required to take any actions to augment capital, even if interest rates remain at current levels for the next five years, assuming all other factors remain constant. While the Company has felt the pressures of sustained low interest rates and volatile equity markets and may continue to do so, its business operations are not overly sensitive to these risks. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.

The Holding Company

RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders, repurchase of common stock and interest payments on its indebtedness. The primary sources of RGA’s liquidity include proceeds from its capital-raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with RGA Reinsurance, RCM and Rockwood Re and dividends from operating subsidiaries. As the Company continues its expansion efforts, RGA will continue to be dependent upon these sources of liquidity. The following tables provide comparative information for RGA (dollars in thousands):


	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Interest expense	$	28,351	$	44,230	$	68,874	$	88,252	$	37,100	$	28,351	$	87,321	$	68,874
Capital contributions to subsidiaries	41,000		2,504		41,000		2,504		11,000		41,000		18,500		41,000
Dividends to shareholders	23,727		21,850		47,746		44,519		26,434		23,727		52,815		47,746
Interest and dividend income	32,844		37,851		55,893		61,694		27,748		32,844		52,281		55,893
Issuance of unaffiliated debt	799,984		—		799,984		—		—		799,984		—		799,984

June 30, 2016 December 31, 2015
Cash and invested assets $ 1,338,424
$ 720,068



	June 30, 2017		December 31, 2016
Cash and invested assets	$	962,405	$	1,443,755

See Item 15, Schedule II - “Condensed Financial Information of the Registrant” in the ~~2015~~2016 Annual Report for additional financial information related to RGA.

RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third-parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third-parties have recourse to RGA should the subsidiary fail to provide the required funding, however, as of June 30, 2016, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. See Note 8 - "Commitments, Contingencies and Guarantees" in the Notes to Condensed Consolidated Financial Statements for a table that presents these commitments by period and maximum obligation.

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RGA established an intercompany revolving credit facility where certain subsidiaries can lend to or borrow from each other and from RGA in order to manage capital and liquidity more efficiently. The intercompany revolving credit facility, which is a series of demand loans among RGA and its affiliates, is permitted under applicable insurance laws. This facility reduces overall borrowing costs by allowing RGA and its operating companies to access internal cash resources instead of incurring third-party transaction costs. The statutory borrowing and lending limit for RGA’s Missouri-domiciled insurance subsidiaries is currently 3% of the insurance company’s admitted assets as of its most recent year-end. There were no amounts outstanding and $45.0 million outstanding under the intercompany revolving credit facility as of ~~June 30, 2016~~ ~~and~~ ~~December 31, 2015~~. In addition to loans associated with the intercompany revolving credit facility, RGA and its subsidiary, RGA Capital LLC, provided loans to RGA Australian Holdings Pty Limited, another RGA subsidiary, with a total outstanding balance of $44.7 million and $43.7 million as of June 30, 2016 and ~~December 31, 2015, respectively.~~

During 2011, to enhance liquidity and capital efficiency within the group, various operating subsidiaries purchased $500.0 million of newly issued RGA subordinated debt. Similarly, RGA also purchased $475.0 million of surplus notes issued by its subsidiary Rockwood Re. These intercompany debt securities are eliminated for consolidated financial reporting.

The undistributed earnings of substantially all of the Company’s foreign subsidiaries have been reinvested indefinitely in such non-U.S. operations, as described in Note 9 - “Income Tax” of the Notes to Consolidated Financial Statements in the ~~2015~~2016 Annual Report. Under current tax laws, should the Company repatriate such earnings, it may be subject to additional U.S. income taxes and foreign withholding taxes.

RGA endeavors to maintain a capital structure that provides financial and operational flexibility to its subsidiaries, credit ratings that support its competitive position in the financial services marketplace, and shareholder returns. As part of the Company’s

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capital deployment strategy, is has in recent years repurchased shares of RGA common stock and paid dividends to RGA shareholders, as authorized by the board of directors. RGA’s current share repurchase program, which was approved by the board of directors in January ~~2016,~~2017, authorizes the repurchase of up to $400.0 million of common stock. The pace of repurchase activity depends on various factors such as the level of available cash, an evaluation of the costs and benefits associated with alternative uses of excess capital, such as acquisitions and in force reinsurance transactions, and RGA’s stock price.

Details underlying dividend and share repurchase program activity were as follows (in thousands, except share data):


	Six months ended June 30,				Six months ended June 30,
	2016		2015		2017		2016
Dividends to shareholders	$	47,746	$	44,519	$	52,815	$	47,746
Repurchases of treasury stock	116,088		253,604		—		116,088
Total amount paid to shareholders	$	163,834	$	298,123	$	52,815	$	163,834

Number of shares repurchased	1,352,211		2,791,360		—		1,352,211
Average price per share	$	85.85	$	90.85	$	—	$	85.85

In July ~~2016, the Company’s~~2017, RGA’s board of directors declared a quarterly dividend ~~was increased to $0.41 per share from $0.37~~of $0.50 per share. All future payments of dividends are at the discretion of RGA’s board of directors and will depend on the Company’s earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. See Note 3 - ~~"Equity"~~“Equity” in the Notes to Condensed Consolidated Financial Statements for information on the ~~Company's~~Company’s share repurchase program.

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Debt

Certain of the Company’s debt agreements contain financial covenant restrictions related to, among others, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of consolidated net worth, maximum ratios of debt to capitalization and change of control provisions. The Company is required to maintain a minimum consolidated net worth, as defined in the debt agreements, of $3.5 billion, calculated as of the last day of each fiscal quarter. Also, consolidated indebtedness, calculated as of the last day of each fiscal quarter, cannot exceed 35% of the sum of the Company’s consolidated indebtedness plus adjusted consolidated ~~stockholders'~~stockholders’ equity. A material ongoing covenant default could require immediate payment of the amount due, including principal, under the various agreements. Additionally, the Company’s debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material uncured covenant default under any of the agreements, including, but not limited to, non-payment of indebtedness when due for an amount in excess of $100.0 million, bankruptcy proceedings, or any other event which results in the acceleration of the maturity of indebtedness. As of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the Company had ~~$3,111.7 million~~$2.8 billion and ~~$2,312.6 million,~~$3.1 billion, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. The ability of the Company to make debt principal and interest payments depends on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, available liquidity at the holding company, and the Company’s ability to raise additional funds.

The Company enters into derivative agreements with counterparties that reference either the Company’s debt rating or its financial strength rating. If either rating is downgraded in the future, it could trigger certain terms in the Company’s derivative agreements, which could negatively affect overall liquidity. For the majority of the Company’s derivative agreements, there is a termination event should the long-term senior debt ratings drop below either BBB+ (S&P) or Baa1 (Moody’s) or the financial strength ratings drop below either A- (S&P) or A3 (Moody’s).

On June 1, 2016, RGA issued 3.95% Senior Notes due September 15, 2026 with a face amount of $400.0 million and 5.75% Fixed-To-Floating Rate Subordinated Debentures due June 15, 2056 with a face amount of $400.0 million. These securities have been registered with the Securities and Exchange Commission. The net proceeds from these offerings were approximately $791.0 million and will be used in part to repay upon maturity the Company’s $300.0 million 5.625% senior notes that mature in March 2017. The remainder will be used for general corporate purposes. Capitalized issue costs were approximately $9.0 million.

The Company may borrow up to $850.0 million in cash and obtain letters of credit in multiple currencies on a revolving credit facility that expires in September 2019. As of June 30, ~~2016~~2017, the Company had no cash borrowings outstanding and ~~$198.1~~$94.0 million in issued, but undrawn, letters of credit under this facility. As of June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the average interest rate on short-term and long-term debt outstanding was ~~5.12%~~5.14% and ~~5.20%~~5.16%, respectively.

Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.

Credit and Committed Facilities

At June 30, ~~2016,~~2017, the Company maintained an $850.0 million syndicated revolving credit facility and certain committed letter of credit facilities aggregating ~~$885.5~~$1,353.8 million. See ~~note~~Note 13 - “Debt” in the Notes to Consolidated Financial Statements in the ~~2015~~2016 Annual Report for further information about these facilities.

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The Company has obtained bank letters of credit in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. Certain of these letters of credit contain financial covenant restrictions similar to those described in the “Debt” discussion above. At June 30, ~~2016,~~2017, there were approximately ~~$218.6~~$147.9 million of outstanding bank letters of credit in favor of third parties. Additionally, in accordance with applicable regulations, the Company utilizes letters of credit to secure statutory reserve credits when it retrocedes business to its affiliated subsidiaries. The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions, such as the U.S. and the UK. The Company believes the capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of June 30, ~~2016, $923.2 million~~2017, $1.4 billion in letters of credit from various banks were outstanding, but undrawn, backing reinsurance between the various subsidiaries of the Company.

~~Statutory Reserve Funding, Collateral Finance and Securitization Notes~~

~~Statutory Reserve Funding~~

The Company uses various internal and third-party reinsurance arrangements and funding sources to manage statutory reserve strain, including reserves associated with Regulation XXX, and collateral requirements. Assets in trust and letters of credit are often used as collateral in these arrangements.

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Regulation XXX, implemented in the U.S. for various types of life insurance business beginning January 1, 2000, significantly increased the level of reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level premium term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. In situations where primary insurers have reinsured business to reinsurers that are unlicensed and unaccredited in the U.S., the reinsurer must provide collateral equal to its reinsurance reserves in order for the ceding company to receive statutory financial statement credit. In order to manage the effect of Regulation XXX on its statutory financial statements, RGA Reinsurance has retroceded a majority of Regulation XXX reserves to unaffiliated and affiliated reinsurers, both licensed and unlicensed.

RGA Reinsurance’s statutory capital may be significantly reduced if the unlicensed unaffiliated or affiliated reinsurer is unable to provide the required collateral to support RGA Reinsurance’s statutory reserve credits and RGA Reinsurance cannot find an alternative source for collateral.

Based on the growth of the Company’s business and the pattern of reserve levels under Regulation XXX associated with term life business and other statutory reserve requirements, the amount of ceded reserve credits is expected to grow, albeit at slower rates than in the immediate past. This growth will require the Company to obtain additional letters of credit, put additional assets in trust, or utilize other funding mechanisms to support reserve credits. If the Company is unable to support the reserve credits, the regulatory capital levels of several of its subsidiaries may be significantly reduced, while the regulatory capital requirements for these subsidiaries would not change. The reduction in regulatory capital would not directly affect the Company’s consolidated shareholders’ equity under GAAP; however, it could affect the Company’s ability to write new business and retain existing business.

Affiliated captives are commonly used in the insurance industry to help manage statutory reserve and collateral requirements and are often domiciled in the same state as the insurance company that sponsors the captive. The NAIC has analyzed the insurance industry’s use of affiliated captive reinsurers to satisfy certain reserve requirements and has adopted measures to promote uniformity in both the approval and supervision of such reinsurers. New standards have been introduced to address the extent that captives can be used to finance reserve growth related to new life insurance business subject to Regulation XXX. There is a commitment to allowing current captives to continue in accordance with their currently approved plans. State insurance regulators that regulate the Company’s domestic insurance companies have placed restrictions on the use of newly established captive reinsurers which pose to make them less effective as a means of helping to finance reserve growth related to business issued in the future. Depending upon how the new standards are ultimately applied and whether additional restrictions are introduced, the Company's ability to reinsure certain products, maintain risk based capital ratios and deploy excess capital could be adversely affected. As a result, the Company may need to alter the type and volume of business it reinsures, increase prices on those products, raise additional capital to support higher regulatory reserves or implement higher cost strategies, all of which could adversely affect the Company’s competitive position and its results of operations.

There may be more changes in the use and regulation of captives, but the Company cannot predict the extent of any changes that may be made. Accordingly, the Company has reevaluated and adjusted its strategy of using captives to enhance its capital efficiency and competitive position while it continues to monitor the regulations related to captives and any proposed changes in such regulations. The Company cannot estimate the impact of discontinuing or altering its captive strategy in response to potential regulatory changes due to many unknown variables such as the cost and availability of alternative capital, potential changes in regulatory reserving requirements under a principle-based reserving approach which would likely reduce required collateral, changes in acceptable collateral for statutory reserves, the introduction of the “certified reinsurer” laws and regulations in certain United States jurisdictions where the Company operates, the potential for increased pricing of products offered by the Company and the potential change in mix of products sold and/or offered by the Company and/or its clients.

In the United States, the introduction of the certified reinsurer has provided an alternative way to manage collateral requirements. In 2014, RGA Americas was designated as a certified reinsurer by the Missouri Department of Insurance, Financial Institutions and Professional Registration. This designation allows the Company to retrocede business to RGA Americas with reduced collateral requirements in lieu of using captives.

~~Collateral Finance Notes~~

In June 2006, RGA’s subsidiary, Timberlake Financial, issued $850.0 million of Series A Floating Rate Insured Notes, due June 2036, in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance and retroceded to Timberlake Re. Proceeds from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes accrues at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly.

In October 2015, RGA's subsidiary, RGA Americas, entered into a collateral financing transaction pursuant to which it issued a CAD$150.0 million note to a third party and, in return, obtained a CAD$150.0 million demand note issued by a designated series

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~~of a Delaware master trust. The demand note matures in October 2020 and is used to support collateral requirements for Canadian reinsurance transactions.~~

The demand note is secured by a portfolio of specified assets that have an aggregate market value at least equal to the principal amount of the demand note and a payment obligation pledged by a third party financial institution. The principal amount of the demand note is payable upon demand by the holder, which creates a corresponding payment under the note issued by RGA Americas. The note issued by RGA Americas bears interest at a rate equal to the rate on the corresponding demand note, plus an amount representing fees payable to the applicable third party financial institution. No principal payments have been received or are currently due on the demand note and, as a result, there was no payment obligation under the note issued by RGA Americas. Accordingly, the notes are not reflected in the Company’s condensed consolidated balance sheets.

In May 2015, RGA’s subsidiary, RGA Barbados obtained CAD$200.0 million of collateral financing from a third party through 2020, enabling RGA Barbados to support collateral requirements for Canadian reinsurance transactions. The obligation is reflected on the condensed consolidated balance sheets in collateral finance and securitization notes. Interest on the collateral financing is payable quarterly and accrues at 3-month Canadian Dealer Offered Rate plus a margin and is reflected on the condensed consolidated statements of income in collateral finance and securitization expense.

~~Securitization Notes~~

In December 2014, RGA's subsidiary, Chesterfield Financial, issued $300.0 million of asset-backed notes due December 2034 in a private placement. The notes were issued as part of an embedded value securitization transaction covering a closed block of policies assumed by RGA Reinsurance and retroceded to Chesterfield Re. Proceeds from the notes, along with a direct investment by the Company, were applied by Chesterfield Financial to (i) pay certain transaction-related expenses, (ii) establish a reserve account owned by Chesterfield Financial and pledged to the indenture trustee for the benefit of the holders of the notes (primarily to cover interest payments on the notes), and (iii) to fund an initial stock purchase from and capital contribution to Chesterfield Re to capitalize Chesterfield Re and to finance the payment of ceding commission by Chesterfield Re to RGA Reinsurance under the retrocession agreement. Interest on the notes accrues at an annual rate of 4.50%, payable quarterly. The notes represent senior, secured indebtedness of Chesterfield Financial. Limited support is provided by RGA for temporary potential liquidity events at Chesterfield Financial and for temporary potential statutory capital and surplus events at Chesterfield Re. Otherwise, there is no legal recourse to RGA or its other subsidiaries. The notes are not insured or guaranteed by any other person or entity.

Cash Flows

The Company’s principal cash inflows from its reinsurance operations include premiums and deposit funds received from ceding companies. The primary liquidity concerns with respect to these cash flows are early recapture of the reinsurance contract by the ceding company and lapses of annuity products reinsured by the Company. The Company’s principal cash inflows from its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. The Company manages these risks very closely. See “Investments” and “Interest Rate Risk” below.

Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities and drawing funds under a revolving credit facility, under which the Company had availability of ~~$651.9~~$756.0 million as of June 30, ~~2016.~~2017. The Company also has ~~$1,008.9~~$1,057.6 million of funds available through collateralized borrowings from the FHLB as of June 30, ~~2016.~~2017. As of June 30, 2017, the Company could have borrowed these additional amounts without violating any of its existing debt covenants.

The Company’s principal cash outflows relate to the payment of claims liabilities, interest credited, operating expenses, income taxes, dividends to shareholders, purchases of treasury stock and principal and interest under debt and other financing obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts (See Note 2, “Summary of Significant Accounting Policies” ofin Notes to Consolidated Financial Statements in the ~~Company's 2015~~2016 Annual Report). The Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires nor to the recoverability of future claims. The Company’s management believes its current sources of liquidity are adequate to meet its cash requirements for the next 12 months.

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Summary of Primary Sources and Uses of Liquidity and Capital

The ~~Company's~~Company’s primary sources and uses of liquidity and capital are summarized as follows:


		For the six months ended June 30,							For the six months ended June 30,
		2016			2015				2017			2016
		(Dollars in thousands)							(Dollars in thousands)
Sources:	Sources:							Sources:
	Net cash provided by operating activities	$	594,446		$	605,692
	Proceeds from issuance of collateral finance and securitization notes	—			160,060			Net cash provided by operating activities	$	655,974		$	594,446
	Proceeds from long-term debt issuance	799,984			—			Proceeds from long-term debt issuance	—			799,984
	Exercise of stock options, net	5,219			12,641			Exercise of stock options, net	2,527			5,219
	Change in cash collateral for derivative positions and other arrangements	57,055			—			Change in cash collateral for derivative positions and other arrangements	—			57,055
	Cash provided by changes in universal life and other							Cash provided by changes in universal life and other
	investment type policies and contracts	304,936			—			investment type policies and contracts	515,147			304,936
	Effect of exchange rate changes on cash	19,795			—			Effect of exchange rate changes on cash	34,137			19,795
	Total sources	1,781,435			778,393			Total sources	1,207,785			1,781,435

Uses:	Uses:							Uses:
	Net cash used in investing activities	2,058,207			473,037			Net cash used in investing activities	889,675			2,058,207
	Dividends to stockholders	47,746			44,519			Dividends to stockholders	52,815			47,746
	Repayment of collateral finance and securitization notes	35,369			17,632			Repayment of collateral finance and securitization notes	23,761			35,369
	Debt issuance costs	9,026			1,170			Debt issuance costs	—			9,026
	Principal payments of long-term debt	1,227			1,178			Principal payments of long-term debt	301,278			1,227
	Purchases of treasury stock	120,806			262,515			Purchases of treasury stock	10,578			120,806
	Change in cash collateral for derivatives and other arrangements	—			31,244			Change in cash collateral for derivatives and other arrangements	7,046			—
	Cash used for changes in universal life and other							Total uses	1,285,153			2,272,381
	investment type policies and contracts	—			230,921
	Effect of exchange rate changes on cash	—			26,185
	Total uses	2,272,381			1,088,401
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(490,946	)	$	(310,008	)	Net change in cash and cash equivalents	$	(77,368	)	$	(490,946	)

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Cash Flows from Operations - The principal cash inflows from the Company’s reinsurance activities come from premiums, investment and fee income, annuity considerations and deposit ~~funds and income tax refunds.~~funds. The principal cash outflows relate to the liabilities associated with various life and health insurance, annuity and disability products, operating expenses, income tax payments and interest on outstanding debt obligations. The primary liquidity concern with respect to these cash flows is the risk of shortfalls in premiums and investment income, particularly in periods with abnormally high claims levels.

Cash Flows from Investments - The principal cash inflows from the Company’s investment activities come from repayments of principal on invested assets, proceeds from maturities of invested assets, sales of invested assets and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. The Company typically has a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with its asset/liability management discipline to fund insurance liabilities. The Company closely monitors and manages these risks through its credit risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption.

Financing Cash Flows - The principal cash inflows from the Company’s financing activities come from issuances of RGA debt and equity securities, and deposit funds associated with universal life and other investment type policies and contracts. The principal cash outflows come from repayments of debt, payments of dividends to stockholders, purchases of treasury stock, and withdrawals associated with universal life and other investment type policies and contracts. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal.

Contractual Obligations

The Company’s obligation ~~for long-term debt, including interest,~~related to future policy benefits and interest-sensitive contract liabilities increased by ~~$1,816.1 million~~$1.0 billion and $3.2 billion, respectively, since December 31, ~~2015 primarily related~~2016 due to a large annuity reinsurance transaction executed during the ~~June 2016 issuance~~second quarter of ~~senior notes and subordinated debentures as previously discussed.~~2017. There were no other material changes in the Company’s contractual obligations from those reported in the ~~2015~~2016 Annual Report.

Asset / Liability Management

The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.

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The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.

The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company’s balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. and Latin America ~~Non-Traditional~~Financial Solutions operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company.

The Company’s liquidity position (cash and cash equivalents and short-term investments) was ~~$1,230.3~~$1,246.7 million and ~~$2,083.6~~$1,277.4 million at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of ~~$298.5~~$183.2 million and ~~$245.0~~$254.5 million as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the Company’s condensed consolidated balance sheets. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.

See “Securities Borrowing, Lending and Other” in Note 4 - “Investments” in the Notes to Condensed Consolidated Financial Statements for information related to the Company’s securities borrowing, lending and repurchase/reverse repurchase programs. In addition to its security agreements with third parties, certain RGA’s subsidiaries have entered into intercompany securities lending agreements to more efficiently source securities for lending to third parties and to provide for more efficient regulatory capital management.

~~RGA Reinsurance~~The Company is a member of the FHLB and holds ~~$36.2~~$66.5 million of FHLB common stock, which is included in other invested assets on the ~~Company's~~Company’s condensed consolidated balance sheets. Membership provides ~~RGA Reinsurance~~the Company access to borrowing

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arrangements (“advances”) and funding agreements, discussed below, with the FHLB. ~~RGA Reinsurance~~The Company did not have any advances from the FHLB at June 30, ~~2016~~2017 and December 31, ~~2015. RGA Reinsurance’s~~2016. The Company’s average outstanding balance of advances was $39.5 million and $21.4 million during the second quarter and the first six months of 2017, respectively, and was $52.8 million and $44.2 million during the second quarter and the first six months of 2016, ~~respectively, and was $24.8 million and $12.5 million during the second quarter and the first six months of 2015,~~ respectively. Interest on advances is reflected in interest expense on the ~~Company's~~Company’s condensed consolidated statements of income.

In addition, ~~RGA Reinsurance~~the Company has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby ~~RGA Reinsurance~~the Company has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on ~~RGA Reinsurance's~~the Company’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize ~~RGA Reinsurance's~~the Company’s obligations under the funding agreements. ~~RGA Reinsurance~~The Company maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by ~~RGA Reinsurance,~~ the ~~FHLB's~~Company, the FHLB’s recovery is limited to the amount of ~~RGA Reinsurance's~~the Company’s liability under the outstanding funding agreements. The amount of the ~~RGA Reinsurance's~~Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was ~~$653.8 million~~$1.3 billion and ~~$622.1 million~~$1.1 billion at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, which is included in interest sensitive contract liabilities on the ~~Company's~~Company’s condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities, ~~and~~ commercial mortgage ~~loans.~~loans, and U.S. Treasury and government agency securities. The amount of collateral exceeds the liability and is dependent on the type of assets collateralizing the guaranteed investment contracts.

Investments

Management of Investments

The Company’s investment and derivative strategies involve matching the characteristics of its reinsurance products and other obligations and to seek to closely approximate the interest rate sensitivity of the assets with estimated interest rate sensitivity of the reinsurance liabilities. The Company achieves its income objectives through strategic and tactical asset allocations, security and derivative strategies within an asset/liability management and disciplined risk management framework. Derivative strategies are employed within the Company’s risk management framework to help manage duration, currency, and other risks in assets and/or liabilities and to replicate the credit characteristics of certain assets. For a discussion of the Company’s risk management process see “Market and Credit Risk” in the “Enterprise Risk Management” section below.

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The Company’s portfolio management groups work with the Enterprise Risk Management function to develop the investment policies for the assets of the Company’s domestic and international investment portfolios. All investments held by the Company, directly or in a funds withheld at interest reinsurance arrangement, are monitored for conformance with the Company’s stated investment policy limits as well as any limits prescribed by the applicable jurisdiction’s insurance laws and regulations. See Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company’s investments.

Portfolio Composition

The Company had total cash and invested assets of ~~$46.8~~$50.6 billion and ~~$43.5~~$46.0 billion at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, as illustrated below (dollars in thousands):


	June 30, 2016		% of Total		December 31, 2015		% of Total		June 30, 2017		% of Total		December 31, 2016		% of Total
Fixed maturity securities, available-for-sale	$	33,160,976	70.9	%	$	29,642,905	68.1	%	$	36,345,426	71.9	%	$	32,093,625	69.6	%
Mortgage loans on real estate	3,377,039		7.2		3,129,951		7.2		4,104,487		8.1		3,775,522		8.2
Policy loans	1,445,410		3.1		1,468,796		3.4		1,406,774		2.8		1,427,602		3.1
Funds withheld at interest	5,899,289		12.6		5,880,203		13.5		5,968,856		11.8		5,875,919		12.8
Short-term investments	195,979		0.4		558,284		1.3		123,308		0.2		76,710		0.2
Other invested assets	1,682,143		3.6		1,298,120		3.0		1,498,370		3.0		1,591,940		3.5
Cash and cash equivalents	1,034,329		2.2		1,525,275		3.5		1,123,350		2.2		1,200,718		2.6
Total cash and invested assets	$	46,795,165	100.0	%	$	43,503,534	100.0	%	$	50,570,571	100.0	%	$	46,042,036	100.0	%

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Investment Yield

The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding spread related business. Spread related business is primarily associated with contracts on which the Company earns an interest rate spread between assets and liabilities. To varying degrees, fluctuations in the yield on other spread related business is generally subject to corresponding adjustments to the interest credited on the liabilities (dollars in thousands).


	Three months ended June 30,								Six months ended June 30,								Three months ended June 30,								Six months ended June 30,
	2016			2015			Increase/ (Decrease)		2016			2015			Increase/ (Decrease)		2017			2016			Increase/ (Decrease)		2017			2016			Increase/ (Decrease)
Average invested assets at amortized cost	$	23,216,459		$	21,029,197		10.4	%	$	22,669,219		$	20,926,385		8.3	%	$	25,172,367		$	23,216,459		8.4	%	$	25,052,849		$	22,669,219		10.5	%
Net investment income	268,747			252,131			6.6	%	514,046			499,369			2.9	%	284,884			268,747			6.0	%	558,092			514,046			8.6	%
Investment yield (ratio of net investment income to average invested assets)	4.71		%	4.88		%	(17) bps		4.59		%	4.83		%	(24) bps		4.60		%	4.71		%	(11) bps		4.50		%	4.59		%	(9) bps

Investment yield decreased for the three and six months ended June 30, ~~2016~~2017 in comparison to the same period in the prior year due to the effect of low interest rate environment.

Fixed Maturity and Equity Securities Available-for-Sale

See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that provide the amortized cost, unrealized gains and losses, estimated fair value of fixed maturity and equity securities, and the other-than-temporary impairments in AOCI by sector as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

The Company’s fixed maturity securities are invested primarily in corporate bonds, mortgage- and asset-backed securities, and U.S. and foreign government securities. As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, approximately ~~95.0%~~95.6% and ~~94.6%~~95.0%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities were investment grade.

Important factors in the selection of investments include diversification, quality, yield, call protection and total rate of return potential. The relative importance of these factors is determined by market conditions and the underlying reinsurance liability and existing portfolio characteristics. The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately ~~58.9%~~61.5% and ~~59.7%~~61.1% of total fixed maturity securities as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. See “Corporate Fixed Maturity Securities” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the major industry types, which comprise the corporate fixed maturity holdings at June 30, ~~2016~~2017 and December 31, ~~2015.~~

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2016.

As of June 30, ~~2016,~~2017, the Company’s investments in Canadian and Canadian provincial government securities represented ~~12.4%~~11.0% of the fair value of total fixed maturity securities compared to ~~12.1%~~11.4% of the fair value of total fixed maturity securities at December 31, ~~2015.~~2016. These assets are primarily high quality, long duration provincial strips, the valuation of which is closely linked to the interest rate curve. These assets are longer in duration and held primarily for asset/liability management to meet Canadian regulatory requirements. See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the various sectors as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

The Company references rating agency designations in some of its investments disclosures. These designations are based on the ratings from nationally recognized statistical rating organizations, primarily those assigned by S&P. In instances where a S&P rating is not available the Company references the rating provided by Moody’s and in the absence of both the Company will assign equivalent ratings based on information from the NAIC. The NAIC assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their U.S. statutory filings. Structured securities (mortgage-backed and asset-backed securities) held by the ~~Company's~~Company’s insurance subsidiaries that maintain the NAIC statutory basis of accounting utilize the NAIC rating methodology. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).

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The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was as follows (dollars in thousands):


		June 30, 2016						December 31, 2015							June 30, 2017						December 31, 2016
NAIC Designation	Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total		Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total
1	AAA/AA/A	$	19,755,011	$	22,392,311	67.5	%	$	17,801,017	$	19,231,535	64.8	%	AAA/AA/A	$	22,039,025	$	24,093,110	66.4	%	$	19,813,653	$	21,369,081	66.5	%
2	BBB	8,679,819		9,130,971		27.5		8,838,444		8,830,172		29.8		BBB	10,097,673		10,626,154		29.2		8,834,469		9,162,483		28.5
3	BB	1,012,092		1,018,629		3.1		1,054,449		1,001,614		3.4		BB	1,140,073		1,167,968		3.2		944,839		955,735		3.0
4	B	456,457		431,649		1.3		399,417		359,591		1.2		B	358,668		369,794		1.0		414,087		411,138		1.3
5	CCC and lower	143,675		135,927		0.4		207,351		197,498		0.7		CCC and lower	94,473		79,662		0.2		187,744		177,481		0.6
6	In or near default	29,830		51,489		0.2		22,299		22,495		0.1		In or near default	8,422		8,738		—		16,995		17,707		0.1
	Total	$	30,076,884	$	33,160,976	100.0	%	$	28,322,977	$	29,642,905	100.0	%	Total	$	33,738,334	$	36,345,426	100.0	%	$	30,211,787	$	32,093,625	100.0	%

The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Residential mortgage-backed securities:
Agency	$	601,728	$	659,526	$	602,524	$	634,077	$	784,648	$	813,463	$	579,686	$	602,549
Non-agency	623,990		633,252		675,474		677,400		720,826		725,836		678,353		676,027
Total residential mortgage-backed securities	1,225,718		1,292,778		1,277,998		1,311,477		1,505,474		1,539,299		1,258,039		1,278,576
Commercial mortgage-backed securities	1,441,091		1,507,693		1,456,848		1,483,087		1,558,035		1,582,028		1,342,440		1,363,654
Asset-backed securities	1,377,736		1,356,677		1,219,000		1,212,676		1,630,499		1,641,841		1,443,822		1,429,344
Total	$	4,044,545	$	4,157,148	$	3,953,846	$	4,007,240	$	4,694,008	$	4,763,168	$	4,044,301	$	4,071,574

The residential mortgage-backed securities include agency-issued pass-through securities and collateralized mortgage obligations. A majority of the agency-issued pass-through securities are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments from the expected, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments from the expected. In addition, non-agency mortgage-backed securities face credit risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.

Asset-backed securities include credit card and automobile receivables, student loans, home equity loans and collateralized debt obligations (primarily collateralized loan obligations). The Company owns floating rate securities that represent approximately

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~~11.8%~~ 13.7% and ~~12.4%~~12.9% of the total fixed maturity securities at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance notes, as well as to enhance asset management strategies. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ cash flow priority in the capital structure and the inherent prepayment sensitivity of the underlying collateral. Credit risks include the adequacy and ability to realize proceeds from the collateral. Credit risks are mitigated by credit enhancements which include excess spread, over-collateralization and subordination. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.

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The Company monitors its fixed maturity and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, current intent and ability to hold securities, and various other subjective factors. Based on ~~management's~~management’s judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. ~~For the three and six months ended June 30, 2016, other-than-temporary impairments on corporate and other fixed maturity securities related primarily to emerging market and high-yield debt exposures.~~ See “Investments – Other-than-Temporary Impairment” in Note 2 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the ~~2015~~2016 Annual Report for additional information. The table below summarizes other-than-temporary impairments and changes in the mortgage loan provision for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (dollars in thousands).


	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,					Six months ended June 30,
	2016			2015			2016			2015			2017		2016			2017		2016
Impairment losses on fixed maturity securities	$	846		$	4,137		$	34,663		$	6,664		$	3,401	$	846		$	20,590	$	34,663
Other impairment losses	114			45			2,163			4,554			6,309		114			6,307		2,163
Change in mortgage loan provision	(325		)	(188		)	(314		)	(529		)	366		(325		)	467		(314		)
Total	$	635		$	3,994		$	36,512		$	10,689		$	10,076	$	635		$	27,364	$	36,512

The fixed maturity impairments for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 were largely related to high-yield ~~energy and emerging market~~ corporate securities. In addition, other impairment losses for the three and six months ended June 30, ~~2016~~2017 and ~~the six months ended June 30, 2015~~2016 are due to impairments on limited partnerships.

There has been increased focus on the energy sector spurred by lower prices for oil. The Company’s exposure to lower oil prices includes fixed maturity and equity securities, funds withheld at interest, credit default swaps and other investments. The fixed maturity and equity securities, and funds withheld at interest consist of corporate bonds, foreign agency bonds and non-redeemable preferred stock. The following table presents information regarding the Company's exposure to these investments as ofAt June 30, ~~2016~~2017 and December 31, ~~2015 (dollars in thousands):~~

June 30, 2016 December 31, 2015
Total energy sector investments, estimated fair value $ 2,598,512
$ 2,342,803
Fixed maturity and equity securities:

Amortized cost $ 2,404,565
$ 2,378,775
Net unrealized gains (losses) 84,519
(157,813 )
Estimated fair value $ 2,489,084
$ 2,220,962
Percentage investment grade 87.6 % 89.0 %
Net written credit default swaps, notional amount $ 98,908
$ 110,608

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~~At June 30,~~ 2016, ~~and December 31, 2015,~~ the Company had ~~$198.6~~$179.1 million and ~~$627.5~~$374.9 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. The distribution of the gross unrealized losses related to these securities is shown below.


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Sector:
Corporate securities	71.9	%	75.8	%	59.7	%	61.6	%
Canadian and Canada provincial governments	—		0.4		1.4		0.9
Residential mortgage-backed securities	2.9		1.9		4.9		3.6
Asset-backed securities	16.1		2.9		3.3		6.4
Commercial mortgage-backed securities	0.6		1.8		2.8		2.1
State and political subdivisions	3.1		9.2		4.6		3.3
U.S. government and agencies	—		1.4		17.8		16.8
Other foreign government, supranational and foreign government-sponsored enterprises	5.4		6.6		5.5		5.3
Total	100.0	%	100.0	%	100.0	%	100.0	%
Industry:
Finance	14.1	%	8.8	%	15.1	%	20.1	%
Asset-backed	16.1		2.9		3.3		6.4
Industrial	55.0		62.1		40.2		32.9
Mortgage-backed	3.5		3.7		7.7		5.7
Government	8.5		17.6		29.3		26.3
Utility	2.8		4.9		4.4		8.6
Total	100.0	%	100.0	%	100.0	%	100.0	%

See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the total gross unrealized losses for fixed maturity and equity securities at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%.

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See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for fixed maturity and equity securities that have estimated fair values below amortized cost, by class and grade security, as well as the length of time the related market value has remained below amortized cost as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company classified approximately ~~7.3%~~6.2% and ~~8.2%~~6.9%, respectively, of its fixed maturity securities in the Level 3 category (refer to Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities, bank loans, Canadian provincial strips, below investment grade ~~commercial and residential~~ mortgage-backed securities, collateralized loan obligations and subprime asset-backed securities with inactive trading markets.

Mortgage Loans on Real Estate

Mortgage loans represented approximately ~~7.2%~~8.1% and 8.2% of the Company’s cash and invested assets as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016, respectively. The Company’s mortgage loan portfolio consists of U.S. and Canada based investments primarily in commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type. Additional information on geographic concentration and property type can be found under ~~"Mortgage~~“Mortgage Loans on Real ~~Estate"~~Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements.

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As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company’s mortgage loans, gross of unamortized deferred loan origination fees and expenses and valuation allowances, were distributed geographically as follows (dollars in thousands):


	June 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
U.S. Region:
Pacific	$	1,047,145	30.9	%	$	894,411	28.5	%	$	1,218,762	29.6	%	$	1,112,636	29.4	%
South Atlantic	691,074		20.4		663,528		21.2		834,828		20.3		782,509		20.7
Mountain	519,620		15.4		486,699		15.5		684,634		16.7		615,915		16.3
East North Central	362,421		10.7		337,002		10.7		469,191		11.4		422,512		11.2
West North Central	293,288		8.7		274,760		8.8		307,889		7.5		318,212		8.4
West South Central	269,326		8.0		237,549		7.6		324,343		7.9		317,194		8.4
Middle Atlantic	102,390		3.0		151,084		4.8		95,363		2.3		92,683		2.4
East South Central	67,251		2.0		59,630		1.9		97,851		2.4		57,216		1.5
New England	13,913		0.4		32,101		1.0		9,230		0.2		9,346		0.2
Subtotal - U.S.	3,366,428		99.5		3,136,764		100.0		4,042,091		98.3		3,728,223		98.5
Canada	17,110		0.5		—		—		71,941		1.7		54,984		1.5
Total	$	3,383,538	100.0	%	$	3,136,764	100.0	%	$	4,114,032	100.0	%	$	3,783,207	100.0	%

Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses. See “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for information regarding valuation allowances and impairments.

Policy Loans

Policy loans comprised approximately ~~3.1%~~2.8% and ~~3.4%~~3.1% of the Company’s cash and invested assets as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, the majority of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

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Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~12.6%~~11.8% and ~~13.5%~~12.8% of the Company’s cash and invested assets as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed by the ceding company. Interest accrues to the total funds withheld at interest assets at rates defined by the treaty terms. Additionally, under certain treaties the Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Ceding companies with funds withheld at interest had an average financial strength rating of “A” at June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. Certain ceding companies maintain segregated portfolios for the benefit of the Company.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, joint ventures (other than operating joint ventures), structured loans, derivative contracts, FVO contractholder-directed unit-linked investments, FHLB common stock ~~real estate held-for-investment~~ and equity release mortgages. Other invested assets represented approximately ~~3.6%~~3.0% and ~~3.0%~~3.5% of the Company’s cash and invested assets as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. See “Other Invested Assets” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the carrying value of the Company’s other invested assets by type as of June 30, ~~2016~~2017 and December 31, ~~2015.~~

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2016.

The Company ~~has utilized~~utilizes derivative financial instruments to protect the Company against possible changes in the fair value of its investment portfolio as a result of interest rate changes, to hedge against risk of changes in the purchase price of securities, to hedge liabilities associated with the reinsurance of variable annuities with guaranteed living benefits and to manage the portfolio’s effective yield, maturity and duration. In addition, the Company ~~has used~~utilizes derivative financial instruments to reduce the risk associated with fluctuations in foreign currency exchange rates. The Company uses both exchange-traded, centrally cleared, and customized over-the-counter derivative financial instruments.

See Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the notional amounts and fair value of investment related derivative instruments held at June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company had no credit exposure related to its derivative contracts, excluding futures and mortality swaps, at June 30, 2017 and December 31, 2016, as the net amount of collateral pledged to the Company from counterparties exceeded the fair value of the derivative contracts. ~~The Company had credit exposure related to its derivative contracts, excluding futures and mortality swaps, of $7.8 million at December 31, 2015.~~

The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Certain of the ~~Company's~~Company’s OTC derivatives are cleared derivatives, which are bilateral transactions between the Company and a counterparty where the transactions are cleared through a clearinghouse, such that each derivative counterparty is only exposed to the default of the clearinghouse. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties. See Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for more information regarding the Company’s derivative instruments.

Enterprise Risk Management

RGA maintains a dedicated Enterprise Risk Management (“ERM”) function that is responsible for analyzing and reporting the Company’s risks on an aggregated basis; facilitating monitoring to ensure the Company’s risks remain within its appetites ~~limits~~ and ~~tolerances;~~limits; and ensuring, on an ongoing basis, that RGA’s ERM objectives are met. This includes ensuring proper risk controls are in place; risks are effectively identified, assessed, and managed; and key risks to which the Company is exposed are disclosed to appropriate stakeholders. The ERM function plays an important role in fostering the Company’s risk management culture and practices.

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Enterprise Risk Management Structure and Governance

The Board of Directors (“the Board”) oversees enterprise risk through its standing committees. The Finance, Investments, and Risk Management ~~(FIRM)~~(“FIRM”) Committee of the Board oversees the management of the Company’s ERM program and policies. The FIRM receives regular reports and assessments which describe the Company’s key risk exposures and include quantitative and qualitative assessments and information about breaches, exceptions, and waivers.

The Company’s Global Chief Risk Officer (“CRO”) leads the dedicated ERM function. The CRO reports to the Chief ~~Operating~~Executive Officer (“~~COO”~~CEO”) and has direct access to the Board through the FIRM Committee with formal reporting occurring quarterly. The CRO is supported by a network of Business Unit Chief Risk Officers and Risk Management Officers throughout the business who are responsible for the analysis and management of risks within their scope. A Lead Risk Management Officer is assigned to each risk to take overall responsibility to monitor and assess the risk consistently across all markets.

In addition to leading the ERM function, the CRO also chairs the Company’s Risk Management Steering Committee (“RMSC”), which is made up of senior management executives, including the ~~Chief Executive Officer ("CEO"), the President,~~CEO, the Chief Financial Officer ~~("CFO"~~(“CFO”), and the ~~COO,~~Chief Operating Officer, among others. The RMSC ~~approves targets~~provides oversight for the Insurance, Market and ~~limits~~Credit, Capital, and Operational risk committees and retains direct risk oversight responsibilities for ~~each material~~the following:

Company’s global ERM framework, activities, and issues.

Identification, assessments, and management of all known, new and emerging strategic risk atexposures.

Risk appetite statement, including the ~~consolidated level~~ongoing alignment of the risk appetite statement with the Company’s strategy and ~~reviews these limits at least annually. Exposure to these risks is calculated~~capital plans.

Review, revise and ~~presented to the RMSC at least quarterly. Any waiver or exception to established~~approve RGA group-level strategic risk limits ~~needs to be approved by~~consistent with the ~~RMSC.~~ risk appetite statement

The ~~Company also has risk-focused~~Insurance, Market and Credit, Capital, and Operational risk committees ~~such as~~have direct oversight accountability for their respective risks areas including the ~~Business Continuity~~identification, assessments, and ~~Information Governance Steering Committee, Consolidated Investment Committee, Derivatives Risk Oversight Committee, Asset Liability Management Committee, Actuarial Standards Group, Collateral~~management of known, new and ~~Liquidity Committee,~~emerging risk exposures and the ~~Currency Risk Management Committee. These committees are comprised~~review and approval of ~~various~~RGA group-level risk limits

To ensure appropriate oversight of enterprise-wide risk management issues without unnecessary duplication, as well as to foster cross-committee communication and ~~technical experts and have overlapping membership, enabling consistent and holistic management of risks. These committees report directly or indirectly to the RMSC.~~coordination regarding risk issues, risk committee chairs attend RMSC meetings. In addition to the risk committees, ~~at a consolidated level,~~their sub-committees and working groups, some ~~of RGA’s~~RGA operating entities have risk management committees that oversee relevant risks ~~relative~~related to segment-level risk ~~targets and~~ limits.

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Enterprise Risk Management Framework

RGA’s ERM framework provides a platform to assess the risk / return profiles of risks throughout the organization to enable enhanced decision making by business leaders. The ERM framework also guides the development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels.

RGA’s ERM framework includes the following elements:


1.	Risk Culture: Risk management is an integral part of the Company’s culture and is embedded in RGA’s business processes in accordance with RGA’s risk philosophy. As the cornerstone of the ERM framework, a culture of prudent risk management reinforced by senior management plays a preeminent role in the effective management of risks assumed by RGA.

Risk ~~Tolerance Statements: Describes~~Appetite Statement: A general and high level overview of the ~~amount of~~ risk profile RGA aims to achieve to meet its strategic objectives. This statement is then supported by more granular risk limits guiding the ~~Company is willing~~businesses to ~~accept, which take into account the interactions and aggregation of risks across multiple risk areas. These statements provide a framework for managing the Company from an overall risk point of view.~~achieve this Risk Appetite Statement.

Risk ~~Targets and~~ Limits: ~~Risk Targets are established and managed in conjunction with strategic planning and set the desired range of risk that the Company seeks to assume.~~ Risk Limits establish the maximum amount of ~~each~~defined risk that the Company is willing to assume to remain within the Company’s overall risk ~~tolerance.~~appetite. These risks have been identified by the management of the Company as relevant to manage the overall risk profile of the Company while allowing achievement of strategic objectives.


4.	Risk Assessment Process: RGA uses qualitative and quantitative methods to assess key risks through a portfolio approach, which analyzes established and emerging risks in conjunction with other risks.


5.	Business Specific Limits/Controls: These limits/controls provide additional safeguards against undesired risk exposures and are embedded in business processes. Examples ~~include:~~include maximum retention limits, pricing and underwriting reviews, per issuer limits, concentration limits, and standard treaty language.

Proactive risk monitoring and reporting enable early detection and mitigation of emerging risks. The RMSC ~~monitors~~and its subcommittees monitor adherence to risk ~~targets and~~ limits through the ERM function, which reports regularly to the RMSC and FIRM Committee. The frequency of monitoring is tailored to the volatility assessment and relative priority of each risk. Risk escalation channels coupled with open communication lines enhance the mitigants explained above. The Company has devoted significant resources to

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developing its ERM program and expects to continue to do so in the future. Nonetheless, the Company’s policies and procedures to identify, manage, and monitor risks may not be fully effective. Many of the Company’s methods for managing risk are based on historical information, which may not be a good predictor of future risk exposures, such as the risk of a pandemic causing a large number of deaths. Management of operational, legal, and regulatory risk relies on policies and procedures which may not be fully effective under all scenarios.

Risk Categories

The Company categorizes its main risks as ~~insurance~~Insurance risk, ~~market~~Market and Credit risk, ~~credit~~Capital risk, Operational risk and ~~operational~~Strategic risk. Specific risk assessments and descriptions can be found below and in Item 1A –- “Risk Factors” of the ~~2015~~2016 Annual Report.

Insurance Risk

Insurance risk is the risk of ~~loss~~lower or negative earnings and potentially a reduction in enterprise value due to ~~experience deviating adversely~~a greater amount of benefits and related expenses paid than expected, or from ~~expectations for mortality, morbidity, longevity and~~adverse policyholder ~~behavior~~ or ~~lost future profits due to treaty recapture by clients.~~client behavior. The Company uses multiple approaches to managing insurance risk: active insurance risk assessment and pricing appropriately for the risks assumed, transferring undesired risks, and managing the retained exposure prudently. These strategies are explained below.

Insurance Risk Assessment and Pricing

The Company has developed extensive expertise in assessing insurance risks which ultimately forms an integral part of ensuring that it is compensated commensurately for the risks it assumes and that it does not overpay for the risks it transfers to third parties. This expertise includes a vast array of market and product knowledge supported by a large information database of historical experience which is closely monitored. Analysis and experience studies derived from this database help form the basis for the Company’s pricing assumptions which are used in developing rates for new risks. If actual mortality or morbidity experience is materially adverse, some reinsurance treaties allow for increases to future premium rates.

Misestimation of any key risk can threaten the long term viability of the enterprise. Further, the pricing process is a key operational risk and significant effort is applied to ensuring the appropriateness of pricing assumptions. Some of the safeguards the Company uses to ensure proper pricing are: experience studies, strict underwriting, sensitivity and scenario testing, pricing guidelines and controls, authority limits and internal and external pricing reviews. In addition, the ERM function provides pricing oversight which includes periodic pricing audits.

Specific stress scenarios and reverse stress tests are analyzed to better understand how the solvency and rating of the Company may be affected by specific events and to better understand the kind of events the Company's capital position can sustain.

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Risk Transfer

To minimize volatility in financial results and reduce the impact of large losses, the Company transfers some of its insurance risk to third parties using vehicles such as retrocession and catastrophe coverage.

Individual Exposure Retrocession

In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises (or retrocessionaires) under excess coverage and coinsurance contracts. In individual life markets, the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations the Company has retained more than $8.0 million per individual life. The Company enters into agreements with other reinsurers to mitigate the residual risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life.

Catastrophic Excess Loss Retrocession

The Company seeks to limit its exposure to loss on its assumed catastrophic excess of loss reinsurance agreements by ceding a portion of its exposure to multiple retrocessionaires through retrocession line slips or directly to retrocession markets. The ~~Company retains~~Company’s policy is to retain a maximum of $20.0 million of catastrophic loss exposure per agreement and ~~retrocedes~~to retrocede up to ~~$50.0~~$30.0 million additional loss exposures to the retrocession markets. The Company limits its exposure on a country-by-country (and state-by-state in the U.S.) basis by managing its total exposure to all catastrophic excess of loss agreements bound within a given country to established maximum aggregate exposures. The maximum exposures are established and managed both on gross amounts issued prior to including retrocession and for amounts net of exposures retroceded.

Catastrophe Coverage

The Company accesses the markets each year for annual catastrophic coverages and reviews current coverage and pricing of current and alternate designs. ~~Purchases~~The coverage may vary from year to year based on the Company’s perceived value of such ~~coverages.~~protection. The current policy covers events involving 8 or more insured deaths from a single occurrence and covers $100.0 million of claims in excess of the Company’s $25.0 million deductible.

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Managing Retained Exposure

The Company retains most of the inbound insurance risk. The Company manages the retained exposure proactively using various mitigating factors such as diversification and limits. Diversification is the primary mitigating factor of short term volatility risk, but it also mitigates adverse impacts of changes in long term trends and catastrophic events. The Company’s insured populations are dispersed globally, diversifying the insurance exposure because factors that cause actual experience to deviate materially from expectations do not affect all areas uniformly and synchronously or in close sequence. A variety of limits mitigate retained insurance risk. Examples of these limits include geographic exposure limits, which set the maximum amount of business that can be written in a given ~~locale,~~country, and jumbo limits, which prevent excessive coverage on a given individual.

In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk.

RGA has various methods to manage its insurance risks, including access to the capital and reinsurance markets.

Market and Credit Risk

Market and Credit risk is the risk ~~that net~~of lower or negative earnings and potentially a reduction in enterprise value due to changes in the market prices of asset and liability values or results of operations will be affected adversely by changes in market conditions such as market prices, exchange rates, and nominal interest rates. The Company is primarily exposed to interest rate, foreign currency, inflation, real estate and equity risks.liabilities.

Interest Rate Risk

Interest ~~rate~~Rate risk is ~~the potential for loss, on a net asset and liability basis, due to~~risk that changes in the level and volatility of nominal interest rates ~~including both risk-free rate~~affect the profitability, value or solvency position of the Company. This includes credit spread changes and inflation but excludes credit ~~spread changes.~~quality deterioration. This risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets, primarily fixed maturity securities, and also has certain interest-sensitive contract liabilities. A prolonged period where market yields are significantly below the book yields of the ~~Company's~~Company’s asset portfolio puts downward pressure on portfolio book yields. The Company has been proactive in its investment strategies, reinsurance structures and overall asset-liability management practices to reduce the risk of unfavorable consequences in this type of environment.

The Company manages interest rate risk to optimize the return on the Company’s capital and to preserve the value created by its business operations within certain constraints. For example, certain management and monitoring processes are designed to minimize

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the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by managing the relative matching of the cash flows of its liabilities and assets.

The Company’s exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fair value of the Company’s financial instruments in the event of a hypothetical change in interest rates. Interest rate cash flow risk exposure is measured using interest rate sensitivity analysis to determine the Company’s variability in cash flows in the event of a hypothetical change in interest rates.

In order to reduce the exposure to changes in fair values from interest rate fluctuations, the Company has developed strategies to manage the net interest rate sensitivity of its assets and liabilities. In addition, from time to time, the Company has utilized the swap market to manage the sensitivity of fair values to interest rate fluctuations.

Inflation can also have direct effects on the Company’s assets and liabilities. The primary direct effect of inflation is the increase in operating expenses. A large portion of the Company’s operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation.

The Company reinsures annuities with benefits indexed to the cost of living. Some of these benefits are hedged with a combination of CPI swaps and indexed bonds when material.

Long Term Care products have an inflation component linked to the future cost of such services. If health care costs increase at a much larger rate than what is prevalent in the nominal interest rates available in the markets, the Company may not earn enough investment yield to pay future claims on such products.

Foreign Currency Risk

~~The Company~~Foreign currency risk is ~~subject to foreign~~the risk of changes in level and volatility of currency ~~translation, transaction, and net income exposure.~~exchange rates affect the profitability, value or solvency position of the Company. The Company manages its exposure to currency principally by currency matching invested assets with the underlying liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canadian operations to reduce excess exposure to these currencies. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the condensed consolidated balance sheets.

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The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). However, the Company has entered into cross currency swaps to manage exposure to specific currencies. The majority of the Company’s foreign currency transactions are denominated in Australian dollars, British pounds, Canadian dollars, Euros, Japanese yen, Korean won, and the South African rand. The maximum amount of assets held in a specific currency (with the exception of the U.S. dollar) is measured relative to risk targets and is monitored regularly.

~~Inflation Risk~~

The primary direct effect on the Company of inflation is the increase in operating expenses. A large portion of the Company’s operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation. The rate of inflation also has an indirect effect on the Company. To the extent that a government’s policies to control the level of inflation result in changes in interest rates, the Company’s investment income is affected.

~~The Company reinsures annuities with benefits indexed to the cost of living. Some of these benefits are hedged with a combination of CPI swaps and indexed bonds when material.~~

Real Estate Risk

Real Estate risk is the risk that changes in the level and volatility of real estate market valuations may impact the profitability, value or solvency position of the Company. The Company has investments in direct real estate equity and debt instruments collateralized by real estate (“real estate loans”). Real estate equity risks include significant reduction in valuations, which could be caused by downturns in the broad economy or in specific geographic regions or sectors. In addition, real estate loan risks include defaults, natural disasters, borrower or tenant bankruptcy and reduced liquidity. Real estate loan risks are partially mitigated by the excess of the value of the property over the loan principle, which provides a buffer should the value of the real estate decrease. The Company manages its real estate loan risk by diversifying by property type and geography and through exposure limits.

Equity Risk

Equity risk is the risk that ~~net asset~~changes in the level and ~~liability (e.g. variable annuities~~volatility of equity market valuations affect the profitability, value or solvency position of the company. This risk includes Variable Annuity and other equity linked ~~exposures) values or revenues will be affected adversely by changes in~~exposures and asset related equity ~~markets.~~exposure. The Company assumes equity risk from alternative investments, fixed indexed annuities and variable annuities. The Company uses derivatives to hedge its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products.

Alternative Investments

Alternative investments are investments in non-traditional asset classes that ~~are most commonly backing~~primarily back the Company’s capital and surplus. The Company generally restricts the alternative investments portfolio to non-liability supporting assets: that is, free surplus. ~~For (re)insurance companies, alternative~~Alternative investments generally encompass: hedge funds, owned commercial real estate, emerging markets debt, distressed debt, commodities, infrastructure, tax credits, and equities, both public and private. The Company mitigates its exposure to alternative investments by limiting the size of the alternative investments ~~holding.~~

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holding and using per-issuer investment limits.

Fixed Indexed Annuities

The Company reinsures fixed indexed annuities ~~("FIAs"~~(“FIAs”). Credits for FIAs are affected by changes in equity markets. Thus the fair value of the benefit is primarily a function of ~~primarily~~ index returns and volatility. The Company hedges most of the underlying FIA equity exposure.

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Variable Annuities

The Company reinsures variable annuities including those with guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). Strong equity markets, increases in interest rates and decreases in equity market volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in equity market volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to substantially mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits, ignoring the Company’s own credit risk assessment. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company’s net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of June 30, ~~2016~~2017 and December 31, ~~2015.~~

2016.

(dollars in millions) June 30, 2016 December 31, 2015
No guarantee minimum benefits $ 732
$ 782
GMDB only 58
62
GMIB only 5
5
GMAB only 29
33
GMWB only 1,367
1,425
GMDB / WB 341
359
Other 20
22
Total variable annuity account values $ 2,552
$ 2,688
Fair value of liabilities associated with living benefit riders $ 284
$ 192

~~Credit Risk~~

Credit risk is the risk of loss due to counterparty (obligor, client, retrocessionaire, or partner) credit deterioration or unwillingness to meet its obligations. Credit risk has two forms: investment credit risk (asset default and credit migration) and insurance counterparty risk.



(dollars in millions)	June 30, 2017		December 31, 2016
No guarantee minimum benefits	$	939	$	731
GMDB only	179		58
GMIB only	23		5
GMAB only	28		28
GMWB only	1,358		1,334
GMDB / WB	339		335
Other	35		19
Total variable annuity account values	$	2,901	$	2,510
Fair value of liabilities associated with living benefit riders	$	162	$	185

Investment Credit Risk

Investment credit risk, which includes default risk, is risk of loss due to credit quality deterioration of an individual financial investment, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the investment credit exposure for fixed maturity securities is limited to the fair value, net of any collateral received, at the reporting date.

The Company manages investment credit risk using per-issuer investment limits. In addition to per-issuer limits, the Company also limits the total amounts of investments per rating category. An automated compliance system checks for compliance for all investment positions and sends warning messages when there is a breach. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because futures are transacted through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.

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The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength ratings. Additionally, a decrease in the Company’s financial strength rating to a specified level results in potential settlement of the derivative positions under the Company’s agreements with its counterparties. A committee is responsible for setting rules and approving and overseeing all transactions requiring collateral. See “Credit Risk” in Note 5 –- “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on credit risk related to derivatives.

~~Insurance~~ Counterparty Risk

~~Insurance counterparty~~Counterparty risk is the potential for the Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk.

Run-on-the-Bank

The risk that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Substantially higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs.

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Collection Risk

For clients and retrocessionaires, this includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to RGA.

The Company manages ~~insurance~~ counterparty risk by limiting the total exposure to a single counterparty and by only initiating contracts with creditworthy counterparties. In addition, some of the counterparties have set up trusts and letters of credit, reducing the Company’s exposure to these counterparties.

Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to certain other RGA ~~Reinsurance, Parkway Re, RGA Barbados, RGA Americas, Rockwood Re, Manor Re, RGA Worldwide or RGA Atlantic.~~insurance subsidiaries. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of June 30, ~~2016,~~2017, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated “A-” or better. A rating of “A-” is the fourth highest rating out of ~~fifteen~~sixteen possible ratings. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.

The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.

Aggregate Counterparty Limits

In addition to investment credit limits and ~~insurance~~ counterparty limits, there are aggregate counterparty risk limits which include counterparty exposures from reinsurance, financing and investment activities at an aggregated level to control total exposure to a single counterparty. Counterparty risk aggregation is important because it enables the Company to capture risk exposures at a comprehensive level and under more extreme circumstances compared to analyzing the components individually.

All counterparty exposures are calculated on a quarterly basis, reviewed by management and monitored by the ERM function.

~~Operational Risks~~Capital Risk

~~Operational risks represent~~Capital risk is the risk of ~~loss,~~lower or ~~lost~~negative earnings and a potential reduction in enterprise value, and/or the ability to conduct business ~~opportunities,~~ due to inadequate or failed internal processes, people, or systems or due to external events. These risks are sometimes residual risks after insurance, market, and credit risks have been identified. Identified operational risks are divided into four areas and are evaluated through a quarterly qualitative assessment involving Risk Management Officers across RGA’s business units. The four areas include the following:

~~Process Risks~~

Process risks include known factors within the Company’s key operational processes (such as administration, claims, underwriting, investment operations, retrocession, pricing process, disruption of operations, information security, andinsufficient financial ~~reporting) that could have potential effects on the Company’s ability to meet business objectives.~~

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~~Legal/Regulatory Risks~~

Legal and regulatory risks include the various legal, compliance, sovereign, and regulatory obligations and concerns faced by the Company. This risk area often intersects with the Company's core operational process risk areas. Given the scope of the Company’s business and the number of countries in which it operates, this set of risks has the potential to affect the business locally, regionally, or globally.

~~Financial Risks~~

~~Financial risks take into account known factors related to fraud, collateral, expenses,~~capacity. Collateral, financing, liquidity and tax ~~and valuation. There are many aspects to this set of~~ risks ~~that~~ are important to the operations of the Company and its ability to meet obligations with its clients, shareholders and regulators.

~~Intangibles Risks~~Operational Risk

~~Intangibles~~Operational risk is the risk of lower or negative earnings and a potential reduction in enterprise value caused by the inadequacy or failure of internal processes, people and systems, or from the adverse impact of external events or actors. The Company regularly monitors the risks ~~include~~related to human capital, ~~ratings, reputation,~~fraud, business conduct and ~~strategy. These~~governance, disruption of operations, business operations and privacy and security related matters. Operational risks are core to managing the Company’s brand and market confidence as well as maintaining its ability to acquire and retain the appropriate expertise to execute and operate the business.

Strategic Risk

Strategic risk is the risk of lower or negative earnings and a potential reduction in enterprise value related to the planning, implementation, and management of the Company’s business plans and strategies. This includes the risks associated with the global environment in which it operates; future law and regulation changes; political and sovereign risks; and relationships with key external parties.

New Accounting Standards

See Note 1312 — “New Accounting Standards” in the Notes to Condensed Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change in the Company’s quantitative or qualitative aspects of market risk during the quarter ended June 30, ~~2016~~2017 from that disclosed in the ~~2015~~2016 Annual Report. See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market and Credit Risk”, which is included herein, for additional information.

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ITEM 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

There was no change in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended June 30, ~~2016,~~2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 1A. Risk Factors

~~In the risk factor below, we refer to the Company as “we,” “us,” or “our”. Other than the risk factor listed below, there have been~~There were no material changes from the risk factors ~~previously~~ disclosed in the ~~Company’s 2015~~2016 Annual Report.

~~Our international operations involve inherent risks.~~

A significant portion of our net premiums come from our operations outside of the United States. One of our strategies is to grow these international operations. International operations subject us to various inherent risks. In addition to the regulatory and foreign currency risks identified above, other risks include the following:

~~managing the growth of these operations effectively, particularly given the recent rates of growth;~~

~~changes in mortality and morbidity experience and the supply and demand for our products that are specific to these markets and that may be difficult to anticipate;~~

~~political and economic instability in the regions of the world where we operate;~~

~~uncertainty arising out of foreign government sovereignty over our international operations; and~~

~~potentially uncertain or adverse tax consequences, including the repatriation of earnings from our non-U.S. subsidiaries.~~

Some of our international operations are in emerging markets where these risks are heightened and we anticipate that we will continue to do business in such markets. Our pricing assumptions may be less predictable in emerging markets, and deviations in actual experience from these assumptions could impact our profitability in these markets. Additionally, lack of legal certainty and stability in the emerging markets exposes us to increased risk of disruption and adverse or unpredictable actions by regulators and may make it more difficult for us to enforce our contracts, which may negatively impact our business.

On June 23, 2016, the United Kingdom (“UK”) held a referendum in which voters approved an exit from the European Union (“EU”), commonly referred to as “Brexit”. As a result of this referendum, it is expected that the British government will negotiate with the EU the terms under which it would ultimately leave participation in the EU and the nature of the future relationship between the UK and the EU. Although it is unknown what those terms might be, it is possible that there will be greater restrictions, requirements and regulatory complexities on reinsurance provided in the UK by entities located outside of the UK. These changes may adversely affect our operations and financial results.

~~We cannot assure you that we will be able to manage these risks effectively or that they will not have an adverse effect on our business, financial condition or results of operations.~~

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table summarizes RGA’s repurchase activity of its common stock during the quarter ended June 30, ~~2016:~~2017:

Total Number of Shares
Purchased (1)

Average Price Paid per
Share

Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (1)

Maximum Number (or
Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under
the Plan or Program
April 1, 2016 -
April 30, 2016
—
$ —
—
$ 294,855,892
May 1, 2016 -
May 31, 2016
42,193
$ 96.48
—
$ 294,855,892
June 1, 2016 -
June 30, 2016
119,796
$ 91.58
119,527
$ 283,911,502



	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program
April 1, 2017 - April 30, 2017	1,409	$	127.23	—	$	400,000,000
May 1, 2017 - May 31, 2017	56,278	$	127.18	—	$	400,000,000
June 1, 2017 - June 30, 2017	1,201	$	127.95	—	$	400,000,000

(1)

RGA ~~repurchased 119,527 shares~~had no repurchases of common stock under its share repurchase program for ~~$10.9 million during~~April, May and June ~~2016.~~2017. The Company net settled - issuing ~~121,354~~4,146, 145,234 and ~~3,462~~4,135 shares from treasury and repurchasing from recipients ~~42,193~~1,409, 56,278 and ~~269~~1,201 shares in April, May and June, respectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award.

~~Table of Contents~~

On January ~~21, 2016,~~26, 2017, RGA’s board of directors authorized a share repurchase program, with no expiration date, for up to $400.0 million of ~~the~~ RGA’s outstanding common stock. In connection with this authorization, the board of directors terminated the stock repurchase authority granted in ~~2015.~~2016.

ITEM 6. Exhibits

See index to exhibits.

8582

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Reinsurance Group of America, Incorporated
Date: August ~~3, 2016~~2, 2017	By:	/s/ ~~A. Greig Woodring~~Anna Manning
		~~A. Greig Woodring~~Anna Manning
		President & Chief Executive Officer
		(Principal Executive Officer)
Date: August ~~3, 2016~~2, 2017	By:	/s/ Todd C. Larson
		Todd C. Larson
		Senior Executive Vice President & Chief Financial Officer
		(Principal Financial and Accounting Officer)

8683

Table of Contents

INDEX TO EXHIBITS




Exhibit Number		Description

3.1		Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed November 25, 2008.

3.2		Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed July 18, 2014.

~~4.1~~10.1		~~Third Supplemental Indenture,~~Letter of Credit Reimbursement Agreement, dated as of ~~June 8, 2016,~~May 17, 2017, by and between ~~the Company~~Reinsurance Group of America, Incorporated and ~~The~~Crédit Agricole Corporate and Investment Bank, ~~of New York Mellon Trust Company, N.A., as Trustee,~~ incorporated by reference to Exhibit ~~4.2 to the~~10.1 of Current Report on Form 8-K filed ~~June 8, 2016.~~May 19, 2017.

~~4.2~~10.2		~~Fourth Supplemental Indenture, dated as~~ Reinsurance Group of ~~June 8, 2016, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee,~~America, Incorporated Amended & Restated Flexible Stock Plan, effective May 23, 2017, incorporated by reference to Exhibit ~~4.3 to the~~10.1 of Current Report on Form 8-K filed ~~June 8, 2016.~~May 24, 2017.

~~4.3~~10.3		~~Form~~ Reinsurance Group of ~~3.95% Senior Note due 2026,~~America, Incorporated Amended & Restated Flexible Stock Plan for Directors, effective May 23, 2017, incorporated by reference to Exhibit ~~4.4 to the~~10.2 of Current Report on Form 8-K filed ~~June 8, 2016.~~May 24, 2017.

~~4.4~~10.4		~~Form~~Reinsurance Group of ~~5.75% Fixed-to-Floating Rate Subordinated Debenture due 2056,~~America, Incorporated Amended & Restated Phantom Stock Plan for Directors, effective May 23, 2017, incorporated by reference to Exhibit ~~4.5 to the~~10.3 of Current Report on Form 8-K filed ~~June 8, 2016.~~May 24, 2017.

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

8784



	AOCI, Net of Income Tax
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2015	$	(181,151	)	$	935,697		$	(46,262	)	$	708,284
Other comprehensive income before reclassifications	99,374			1,759,753			(6,083		)	1,853,044
Amounts reclassified to (from) AOCI	—			(24,366		)	3,467			(20,899		)
Deferred income tax benefit (expense)	(11,699		)	(544,269		)	913			(555,055		)
Balance, June 30, 2016	$	(93,476	)	$	2,126,815		$	(47,965	)	$	1,985,374



	June 30, 2016				December 31, 2015
Internal credit quality grade:	Recorded Investment		% of Total		Recorded Investment		% of Total
High investment grade	$	1,904,494	56.3	%	$	1,621,601	51.7	%
Investment grade	1,396,572		41.3		1,397,996		44.6
Average	39,444		1.2		87,196		2.8
Watch list	36,035		1.0		13,550		0.4
In or near default	6,993		0.2		16,421		0.5
Total	$	3,383,538	100.0	%	$	3,136,764	100.0	%



	June 30, 2016			December 31, 2015
Total energy sector investments, estimated fair value	$	2,598,512		$	2,342,803
Fixed maturity and equity securities:
Amortized cost	$	2,404,565		$	2,378,775
Net unrealized gains (losses)	84,519			(157,813		)
Estimated fair value	$	2,489,084		$	2,220,962
Percentage investment grade	87.6		%	89.0		%
Net written credit default swaps, notional amount	$	98,908		$	110,608