0000898174 us-gaap:CorporateDebtSecuritiesMember us-gaap:InterestIncomeMember 2019-04-01 2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)




~~(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 September 30, 2017~~
		OR
¨		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)~~
¨		~~OF THE SECURITIES EXCHANGE ACT OF 1934~~
		~~Commission File Number 1-11848~~

For the quarterly period ended June 30, 2020

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

16600 Swingley Ridge Road

Chesterfield, Missouri63017

(Address of principal executive offices)

~~(636)~~ (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.

Yesx 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).

Yesx☒ No o

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

Large accelerated filerx Accelerated filer o Non-accelerated filer o

Smaller reporting company o☐ Emerging growth company o☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~Exchange~~ Act). Yes ☐ No ☒

~~Yes~~ o No xSecurities registered pursuant to Section 12(b) of the Act:



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

As of ~~October~~July 31, ~~2017, 64,404,061~~2020, 67,935,859 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, 2020 and December 31, 2019	3
			Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2020 and 2019	4
			Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2020 and 2019	5
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2017 and December 31, 2016	3	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Three and six months ended June 30, 2020 and 2019	6
	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2017 and 2016	4	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2020 and 2019	7
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2017 and 2016	5	Notes to Condensed Consolidated Financial Statements (Unaudited):	8
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2017 and 2016	6	1. Business and Basis of Presentation	8
	Notes to Condensed Consolidated Financial Statements (Unaudited):	7	2. Earnings Per Share	10
	1. Business and Basis of Presentation	7	3. Equity	10
	2. Earnings Per Share	7	4. Investments	13
	3. Equity	8	5. Derivative Instruments	22
	4. Investments	10	6. Fair Value of Assets and Liabilities	28
	5. Derivative Instruments	20	7. Segment Information	36
	6. Fair Value of Assets and Liabilities	28	8. Commitments, Contingencies and Guarantees	38
	7. Segment Information	43	9. Income Tax	40
	8. Commitments, Contingencies and Guarantees	44	10. Employee Benefit Plans	40
	9. Income Tax	45	11. Reinsurance	41
	10. Employee Benefit Plans	46	12. Policy Claims and Benefits	41
	11. Reinsurance	46	13. Financing Activities	42
	12. New Accounting Standards	47	14. New Accounting Standards	42
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
3	Quantitative and Qualitative Disclosures About Market Risk	81	Quantitative and Qualitative Disclosures About Market Risk	75
4	Controls and Procedures	82	Controls and Procedures	75

	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION

1	Legal Proceedings	83	Legal Proceedings	76
1A	Risk Factors	83	Risk Factors	77
2	Unregistered Sales of Equity Securities and Use of Proceeds	83	Unregistered Sales of Equity Securities and Use of Proceeds	80
6	Exhibits	83	Exhibits	80
	Signatures	85	Index to Exhibits	81
	Index to Exhibits	84	Signatures	82

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(Dollars in thousands, except share data)						(Dollars in millions, except share data)
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $33,889,968 and $30,211,787)	$	36,381,742		$	32,093,625
Mortgage loans on real estate (net of allowances of $9,137 and $7,685)	4,322,329			3,775,522
Fixed maturity securities available-for-sale, at fair value (amortized cost $46,903 and $46,753; allowance for credit losses of $33 at June 30, 2020)							$	52,346		$	51,121
Equity securities, at fair value							130			320
Mortgage loans on real estate (net of allowances of $56 and $12)							5,974			5,706
Policy loans	1,340,146			1,427,602			1,310			1,319
Funds withheld at interest	6,020,336			5,875,919			5,250			5,662
Short-term investments	80,582			76,710			84			64
Other invested assets	1,532,523			1,591,940			2,547			2,363
Total investments	49,677,658			44,841,318			67,641			66,555
Cash and cash equivalents	1,204,590			1,200,718			4,313			1,449
Accrued investment income	420,111			347,173			494			493
Premiums receivable and other reinsurance balances	2,411,777			1,930,755			2,852			2,940
Reinsurance ceded receivables	779,118			683,972			945			904
Deferred policy acquisition costs	3,315,237			3,338,605			3,565			3,512
Other assets	885,540			755,338			919			878
Total assets	$	58,694,031		$	53,097,879		$	80,729		$	76,731
Liabilities and Stockholders’ Equity
Future policy benefits	$	21,084,562		$	19,581,573		$	29,897		$	28,672
Interest-sensitive contract liabilities	16,370,090			14,029,354			23,118			22,711
Other policy claims and benefits	4,899,367			4,263,026			6,232			5,711
Other reinsurance balances	415,692			388,989			510			557
Deferred income taxes	3,180,545			2,770,640			2,856			2,712
Other liabilities	1,061,352			1,041,880			1,557			1,188
Long-term debt	2,788,480			3,088,635			3,573			2,981
Collateral finance and securitization notes	796,825			840,700			433			598
Total liabilities	50,596,913			46,004,797			68,176			65,130
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 September 30, 2017 and December 31, 2016	791			791
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, 85,310,598 shares issued at June 30, 2020 and 79,137,758 shares issued at December 31, 2019							1			1
Additional paid-in capital	1,865,699			1,848,611			2,413			1,937
Retained earnings	5,712,590			5,199,130			7,901			7,952
Treasury stock, at cost - 14,769,487 and 14,835,256 shares	(1,107,719		)	(1,094,779		)
Treasury stock, at cost – 17,374,739 and 16,481,656 shares							(1,563		)	(1,426		)
Accumulated other comprehensive income	1,625,757			1,139,329			3,801			3,137
Total stockholders’ equity	8,097,118			7,093,082			12,553			11,601
Total liabilities and stockholders’ equity	$	58,694,031		$	53,097,879		$	80,729		$	76,731

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 September 30,					Nine months ended September 30,						Three months ended June 30,				Six months ended June 30,
	2017			2016		2017			2016			2020		2019		2020			2019
Revenues:	(Dollars in thousands, except per share data)											(Dollars in millions, except per share data)
Net premiums	$	2,489,797		$	2,251,758	$	7,335,944		$	6,755,708		$	2,790	$	2,764	$	5,609		$	5,502
Investment income, net of related expenses	556,918			489,727		1,589,820			1,414,659			645		584		1,239			1,164
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(390		)	—		(20,980		)	(34,663		)
Impairments and change in allowance for credit losses on fixed maturity securities												—		—		(34		)	(9		)
Other investment related gains (losses), net	23,043			86,624		160,451			118,665			81		12		(170		)	29
Total investment related gains (losses), net	22,653			86,624		139,471			84,002			81		12		(204		)	20
Other revenues	75,942			72,468		218,091			197,844			90		107		166			201
Total revenues	3,145,310			2,900,577		9,283,326			8,452,213			3,606		3,467		6,810			6,887
Benefits and Expenses:
Claims and other policy benefits	2,100,680			1,993,064		6,371,188			5,877,330			2,700		2,516		5,364			5,024
Interest credited	126,099			116,848		349,068			300,602			187		158		333			291
Policy acquisition costs and other insurance expenses	365,424			300,962		1,064,645			940,406			290		260		538			572
Other operating expenses	168,417			152,556		481,279			469,875			188		222		383			424
Interest expense	36,836			43,063		108,590			96,201			42		43		83			83
Collateral finance and securitization expense	7,692			6,484		21,235			19,396			4		8		10			16
Total benefits and expenses	2,805,148			2,612,977		8,396,005			7,703,810			3,411		3,207		6,711			6,410
Income before income taxes	340,162			287,600		887,321			748,403			195		260		99			477
Provision for income taxes	112,571			88,881		282,028			237,109			37		58		29			105
Net income	$	227,591		$	198,719	$	605,293		$	511,294		$	158	$	202	$	70		$	372
Earnings per share:
Basic earnings per share	$	3.53		$	3.10	$	9.39		$	7.95		$	2.49	$	3.23	$	1.12		$	5.93
Diluted earnings per share	$	3.47		$	3.07	$	9.23		$	7.87		$	2.48	$	3.18	$	1.11		$	5.83
Dividends declared per share	$	0.50		$	0.41	$	1.32		$	1.15

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Comprehensive income (Dollars in thousands)
Net income $ 227,591
$ 198,719
$ 605,293
$ 511,294
Other comprehensive income, net of tax:
Foreign currency translation adjustments 46,733
(28,233 ) 68,085
59,442
Net unrealized investment gains (93,574 ) 254,658
415,870
1,445,776
Defined benefit pension and postretirement plan adjustments 700
527
2,473
(1,176 )
Total other comprehensive income, net of tax (46,141 ) 226,952
486,428
1,504,042
Total comprehensive income $ 181,450
$ 425,671
$ 1,091,721
$ 2,015,336



	Three months ended June 30,					Six months ended June 30,
	2020			2019		2020			2019
Comprehensive income (loss)	(Dollars in millions)
Net income	$	158		$	202	$	70		$	372
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	13			25		(118		)	46
Net unrealized investment gains (losses)	2,663			851		790			1,960
Defined benefit pension and postretirement plan adjustments	(5		)	—		(8		)	—
Total other comprehensive income (loss), net of tax	2,671			876		664			2,006
Total comprehensive income (loss)	$	2,829		$	1,078	$	734		$	2,378

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions except per share amounts)

(Unaudited)



	Three months ended June 30, 2020 and 2019
	Common Stock		Additional Paid In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, March 31, 2020	$	1	$	1,942		$	7,802		$	(1,574	)	$	1,130	9,301
Net income						158								158
Total other comprehensive income (loss)												2,671		2,671
Dividends to stockholders, $0.70 per share						(43		)						(43		)
Issuance of common stock, net of expenses			481											481
Purchase of treasury stock									(6		)			(6		)
Reissuance of treasury stock			(10		)	(16		)	17					(9		)
Balance, June 30, 2020	$	1	$	2,413		$	7,901		$	(1,563	)	$	3,801	$	12,553



Balance, March 31, 2019	$	1	$	1,906	$	7,412		$	(1,415	)	$	1,766	9,670
Net income					202								202
Total other comprehensive income (loss)											876		876
Dividends to stockholders, $0.60 per share					(38		)						(38		)
Purchase of treasury stock								(19		)			(19		)
Reissuance of treasury stock			14		(26		)	30					18
Balance, June 30, 2019	$	1	$	1,920	$	7,550		$	(1,404	)	$	2,642	$	10,709



	Six months ended June 30, 2020 and 2019
	Common Stock		Additional Paid In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, December 31, 2019	$	1	$	1,937		$	7,952		$	(1,426	)	$	3,137	11,601
Adoption of new accounting standards						(12		)						(12		)
Net income						70								70
Total other comprehensive income (loss)												664		664
Dividends to stockholders, $1.40 per share						(87		)						(87		)
Issuance of common stock, net of expenses			481											481
Purchase of treasury stock									(162		)			(162		)
Reissuance of treasury stock			(5		)	(22		)	25					(2		)
Balance, June 30, 2020	$	1	$	2,413		$	7,901		$	(1,563	)	$	3,801	$	12,553



Balance, December 31, 2018	$	1	$	1,899	$	7,285		$	(1,371	)	$	636	$	8,450
Adoption of new accounting standards													—
Net income					372								372
Total other comprehensive income (loss)											2,006		2,006
Dividends to stockholders, $1.20 per share					(75		)						(75		)
Purchase of treasury stock								(68		)			(68		)
Reissuance of treasury stock			21		(32		)	35					24
Balance, June 30, 2019	$	1	$	1,920	$	7,550		$	(1,404	)	$	2,642	$	10,709

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,						Six months ended June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in millions)
Cash Flows from Operating Activities:
Net income	$	605,293		$	511,294		$	70		$	372
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income	(63,321		)	(58,863		)	(9		)	(12		)
Premiums receivable and other reinsurance balances	(421,027		)	(3,619		)	24			85
Deferred policy acquisition costs	67,471			(15,059		)	(107		)	(115		)
Reinsurance ceded receivable balances	(120,013		)	(77,741		)	(32		)	(109		)
Future policy benefits, other policy claims and benefits, and other reinsurance balances	982,164			479,606			2,360			736
Deferred income taxes	236,185			165,988			(88		)	92
Other assets and other liabilities, net	78,848			29,343			38			(122		)
Amortization of net investment premiums, discounts and other	(95,227		)	(55,967		)	(24		)	(34		)
Depreciation and amortization expense	21,384			19,489			23			22
Investment related (gains) losses, net	(139,471		)	(84,002		)	204			(20		)
Other, net	(47,787		)	109,403			120			75
Net cash provided by operating activities	1,104,499			1,019,872			2,579			970
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	6,364,236			3,649,187			3,835			5,097
Maturities of fixed maturity securities available-for-sale	385,993			349,836			406			439
Sales of equity securities	192,821			331,978			180			—
Principal payments on mortgage loans on real estate	208,052			377,671
Principal payments and sales of mortgage loans on real estate							283			166
Principal payments on policy loans	93,286			59,518			15			44
Purchases of fixed maturity securities available-for-sale	(7,450,749		)	(5,938,302		)	(4,875		)	(5,689		)
Purchases of equity securities	(60,790		)	(523,499		)	(21		)	(57		)
Cash invested in mortgage loans on real estate	(751,702		)	(857,445		)	(604		)	(598		)
Cash invested in policy loans	(5,830		)	(5,685		)	(6		)	(5		)
Cash invested in funds withheld at interest	(12,597		)	(31,222		)	(49		)	(54		)
Purchase of businesses, net of cash acquired of $27							—			4
Purchases of property and equipment	(33,242		)	—			(11		)	(18		)
Change in short-term investments	65,664			418,625			(19		)	67
Change in other invested assets	(51,476		)	(78,068		)	(158		)	(160		)
Net cash used in investing activities	(1,056,334		)	(2,247,406		)	(1,024		)	(764		)
Cash Flows from Financing Activities:
Dividends to stockholders	(85,086		)	(74,034		)	(87		)	(75		)
Proceeds from issuance of common stock, net							481			—
Repayment of collateral finance and securitization notes	(56,637		)	(60,971		)	(160		)	(53		)
Proceeds from long-term debt issuance	—			799,984			598			599
Debt issuance costs	—			(9,026		)	(5		)	(5		)
Principal payments of long-term debt	(301,927		)	(1,850		)	(1		)	(1		)
Purchases of treasury stock	(41,360		)	(121,896		)	(162		)	(68		)
Exercise of stock options, net	4,450			11,752			1			2
Change in cash collateral for derivative positions and other arrangements	(46,206		)	24,749			93			(80		)
Deposits on universal life and other investment type policies and contracts	1,007,563			874,708			1,004			256
Withdrawals on universal life and other investment type policies and contracts	(568,789		)	(386,900		)	(429		)	(390		)
Net cash provided by financing activities	(87,992		)	1,056,516			1,333			185
Effect of exchange rate changes on cash	43,699			25,436			(24		)	7
Change in cash and cash equivalents	3,872			(145,582		)	2,864			398
Cash and cash equivalents, beginning of period	1,200,718			1,525,275			1,449			1,890
Cash and cash equivalents, end of period	$	1,204,590		$	1,379,693		$	4,313		$	2,288
Supplemental disclosures of cash flow information:
Interest paid	$	129,136		$	114,043		$	80		$	86
Income taxes paid, net of refunds	$	27,385		$	47,312
Non-cash transactions:
Income taxes (received) paid, net of refunds							$	(12	)	$	23
Non-cash investing activities:
Transfer of invested assets	$	2,247,136		$	3,621		$	—		$	3,421
Right-of-use assets acquired through operating leases							$	—		$	1
Purchase of businesses:
Assets acquired, excluding cash acquired							$	—		$	8
Liabilities assumed							—			(12		)
Net cash received on purchase							$	—		$	(4	)

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	Business and Basis of Presentation

Business

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

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation ~~S-X.~~S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial ~~statements.~~ statements and should be read in conjunction with the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 (the “2019 Annual Report”).

In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. ~~Results for the nine months ended September 30, 2017~~Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~ 2020.

Consolidation

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~~Entities in ~~conjunction with the Company’s 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017 (the “2016 Annual Report”).~~


2.	~~Earnings Per Share~~

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Earnings:
Net income (numerator for basic and diluted calculations) $ 227,591
$ 198,719
$ 605,293
$ 511,294
Shares:
Weighted average outstanding shares (denominator for basic calculation) 64,488
64,146
64,430
64,281
Equivalent shares from outstanding stock options 1,165
669
1,174
663
Denominator for diluted calculation 65,653
64,815
65,604
64,944
Earnings per share:
Basic $ 3.53
$ 3.10
$ 9.39
$ 7.95
Diluted $ 3.47
$ 3.07
$ 9.23
$ 7.87

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 ~~September 30, 2017, 0.1 million stock options and approximately 0.3 million performance contingent shares were excluded from the calculation. For the three months ended~~ ~~September 30, 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, 2016 79,137,758
14,835,256
64,302,502
Common stock acquired —
208,680
(208,680 )
Stock-based compensation ⁽¹⁾
—
(274,449 ) 274,449
Balance, September 30, 2017 79,137,758
14,769,487
64,368,271

Issued Held In Treasury Outstanding
Balance, December 31, 2015 79,137,758
13,933,232
65,204,526
Common stock acquired —
1,356,892
(1,356,892 )
Stock-based compensation ⁽¹⁾
—
(358,639 ) 358,639
Balance, September 30, 2016 79,137,758
14,931,485
64,206,273


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

~~Common Stock Held in Treasury~~

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

~~On January 26, 2017, RGA’s board of directors authorized a share repurchase program for up to $400.0 million of RGA’s outstanding common stock. The authorization was effective immediately~~significant influence over the operating and does not have an expiration date. In connection with this new authorization, the board of directors terminated the stock repurchase authority granted in 2016. During the first nine months of 2017, RGA repurchased 0.2 million shares of common stock under this program for $26.9 million.

~~Accumulated Other Comprehensive Income (Loss)~~

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

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 23,117
671,564
(191 ) 694,490
Amounts reclassified to (from) AOCI —
(51,407 ) 4,006
(47,401 )
Deferred income tax benefit (expense) 44,968
(204,287 ) (1,342 ) (160,661 )
Balance, September 30, 2017 $ (104,456 ) $ 1,770,903
$ (40,690 ) $ 1,625,757

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 68,271
2,191,823
(6,079 ) 2,254,015
Amounts reclassified to (from) AOCI —
(109,145 ) 4,253
(104,892 )
Deferred income tax benefit (expense) (8,829 ) (636,902 ) 650
(645,081 )
Balance, September 30, 2016 $ (121,709 ) $ 2,381,473
$ (47,438 ) $ 2,212,326


~~(1)~~	Includes cash flow hedges of $347 and $(2,496) as of September 30, 2017 and December 31, 2016, respectively, and $(40,597) and $(29,397) as of September 30, 2016 and December 31, 2015, 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 nine months ended September 30, 2017 and 2016 (dollars in thousands):~~

Amount Reclassified from AOCI
Three months ended September 30, Nine months ended September 30,
Details about AOCI Components 2017 2016 2017 2016
Affected Line Item in
Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains and losses on available-for-sale securities $ 10,515
$ 72,351
$ 39,032
$ 84,250
Investment related gains (losses), net
Cash flow hedges - Currency/Interest rate 230
200
560
454
(1)
Cash flow hedges - Forward bond purchase commitments 224
137
286
(120 ) (1)
Deferred policy acquisition costs attributed to unrealized gains and losses 1,116
12,090
11,529
24,561
(2)
Total 12,085
84,778
51,407
109,145

Provision for income taxes (3,991 ) (27,680 ) (16,015 ) (32,676 )
Net unrealized gains (losses), net of tax $ 8,094
$ 57,098
$ 35,392
$ 76,469

Amortization of defined benefit plan items:
Prior service cost (credit) $ 590
$ 391
$ 732
$ 238
(3)
Actuarial gains/(losses) (1,661 ) (1,177 ) (4,738 ) (4,491 ) (3)
Total (1,071 ) (786 ) (4,006 ) (4,253 )
Provision for income taxes 375
276
1,402
1,489

Amortization of defined benefit plans, net of tax $ (696 ) $ (510 ) $ (2,604 ) $ (2,764 )

Total reclassifications for the period $ 7,398
$ 56,588
$ 32,788
$ 73,705


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


~~(2)~~	~~This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 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 $17.1 million and $27.1 million in the first nine 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 7,696 shares of common stock. As of September 30, 2017, 1.6 million share options at a weighted average strike price per share of $60.77 were vested and exercisable, with a remaining weighted average exercise period of 4.6 years. As of September 30, 2017, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $32.5 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.

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4.	~~Investments~~

~~Fixed Maturity and Equity Securities Available-for-Sale~~

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

September 30, 2017: Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value % of Total Other-than-
temporary impairments in AOCI
Available-for-sale:
Corporate securities $ 21,418,741
$ 1,209,999
$ 92,910
$ 22,535,830
61.9 % $ —
Canadian and Canadian provincial governments 2,850,982
1,142,635
2,432
3,991,185
11.0
—
Residential mortgage-backed securities 1,645,379
42,202
8,276
1,679,305
4.6
—
Asset-backed securities 1,680,918
18,713
5,063
1,694,568
4.7
275
Commercial mortgage-backed securities 1,293,296
25,471
5,445
1,313,322
3.6
—
U.S. government and agencies 1,621,053
13,614
30,998
1,603,669
4.4
—
State and political subdivisions 614,099
52,919
5,987
661,031
1.8
—
Other foreign government, supranational and foreign government-sponsored enterprises 2,765,500
145,025
7,693
2,902,832
8.0
—
Total fixed maturity securities $ 33,889,968
$ 2,650,578
$ 158,804
$ 36,381,742
100.0 % $ 275
Non-redeemable preferred stock $ 41,878
$ 312
$ 3,289
$ 38,901
34.4 %
Other equity securities 74,514
633
1,117
74,030
65.6

Total equity securities $ 116,392
$ 945
$ 4,406
$ 112,931
100.0 %

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 $ 18,924,711
$ 911,618
$ 217,245
$ 19,619,084
61.1 % $ —
Canadian and Canadian provincial governments 2,561,605
1,085,982
3,541
3,644,046
11.4
—
Residential mortgage-backed securities 1,258,039
33,917
13,380
1,278,576
4.0
(375 )
Asset-backed securities 1,443,822
9,350
23,828
1,429,344
4.5
275
Commercial mortgage-backed securities 1,342,440
28,973
7,759
1,363,654
4.2
—
U.S. government and agencies 1,518,702
12,644
63,044
1,468,302
4.6
—
State and political subdivisions 566,761
37,499
12,464
591,796
1.8
—
Other foreign government, supranational and foreign government-sponsored enterprises 2,595,707
123,054
19,938
2,698,823
8.4
—
Total fixed maturity securities $ 30,211,787
$ 2,243,037
$ 361,199
$ 32,093,625
100.0 % $ (100 )
Non-redeemable preferred stock $ 55,812
$ 1,648
$ 6,337
$ 51,123
18.6 %
Other equity securities 229,767
1,792
7,321
224,238
81.4

Total equity securities $ 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 andfinancing decisions but are not ~~recorded on~~required to be consolidated are reported under 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~~equity method of ~~September 30, 2017~~ ~~and~~ ~~December 31, 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 ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands):~~accounting.

Significant Accounting Policies – Update

~~Table of Contents~~

September 30, 2017 December 31, 2016

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Fixed maturity securities pledged as collateral $ 68,841
$ 72,365
$ 207,066
$ 210,676
Fixed maturity securities received as collateral n/a
461,237
n/a
300,925
Assets in trust held to satisfy collateral requirements 14,598,404
15,598,457
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 September 30, 2017 and December 31, 2016 (dollars in thousands).

September 30, 2017 December 31, 2016

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Quebec $ 1,115,505
$ 1,766,749
$ 1,004,261
$ 1,612,957
Canadian province of Ontario 932,872
1,231,201
832,764
1,126,433

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

Amortized Cost Estimated Fair Value
Available-for-sale:
Due in one year or less $ 910,821
$ 915,586
Due after one year through five years 7,339,134
7,618,692
Due after five years through ten years 9,581,912
10,090,704
Due after ten years 11,438,508
13,069,565
Asset and mortgage-backed securities 4,619,593
4,687,195
Total $ 33,889,968
$ 36,381,742

~~Corporate Fixed Maturity Securities~~

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

September 30, 2017: Estimated
Amortized Cost Fair Value % of Total
Finance $ 7,797,576
$ 8,146,891
36.2 %
Industrial 11,323,024
11,914,845
52.8
Utility 2,298,141
2,474,094
11.0
Total $ 21,418,741
$ 22,535,830
100.0 %

December 31, 2016: Estimated
Amortized Cost Fair Value % of Total
Finance $ 6,725,199
$ 6,888,968
35.2 %
Industrial 10,228,813
10,639,613
54.2
Utility 1,970,699
2,090,503
10.6
Total $ 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~~“Significant Accounting ~~Policies”~~Policies and Pronouncements” of the ~~2016~~2019 Annual ~~Report,~~Report. The significant accounting policies discussed below reflect the impact of the adoption of Financial Instruments - Credit Losses on January 1, 2020.

Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale

Beginning on January 1, 2020, credit losses are recognized through an allowance account. The Company identifies fixed maturity securities that could potentially have an allowance for credit losses by monitoring market events that could impact issuers’ credit ratings, business climates, management changes, litigation, government actions and other similar factors. The Company also monitors late payments, pricing levels, rating agency actions, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.

The Company reviews all securities on a ~~portion~~case-by-case basis to determine whether a decline in value exists and whether an allowance for credit losses or impairment for non-credit losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a security is impaired due to credit or non-credit components. Relevant facts and circumstances considered include: (1) the reasons for the decline in fair value; (2) the issuer’s financial position and access to capital; and (3) the Company’s intent to sell a security or whether it is more likely than not it will be required to sell the security before the recovery of ~~certain other-than-temporary~~its amortized cost that, in some cases, may extend to maturity. To the extent the Company determines a security is deemed to be impaired, an allowance is recorded for credit losses and an impairment loss is recognized in accumulated other comprehensive income (“~~OTTI”~~AOCI”) for non-credit losses.

Impairment losses on fixed maturity securities is recognized in ~~AOCI. For these securities,~~ the financial statements are dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that it would be required to sell a security before the recovery of its amortized cost, less any recorded credit loss, it recognizes an impairment loss in investment related gains (losses), net ~~amount recognized in~~on the condensed consolidated statements of income ~~(“credit loss impairments”) represents~~for the difference between amortized cost and fair value.

The Company estimates the amount of the credit loss component of a fixed maturity security impairment as the difference between amortized cost and the present value of the expected cash flows of the security. The Company excludes accrued interest from the amortized cost ~~of the security~~ and the ~~net~~ present value of ~~its projected future~~the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit into the ~~debt~~ security ~~prior~~at the date of purchase or the current yield to ~~impairment. Any remaining difference between~~

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accrete an asset-backed or floating rate security. The techniques and assumptions for establishing the ~~fair value~~best estimate cash flows vary depending on the type of security. The asset-backed securities’ cash flow estimates are based on security-specific facts and ~~amortized cost is recognized in AOCI.~~circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The ~~following table sets forth~~corporate fixed maturity security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the ~~amount~~disposition of ~~pre-tax credit~~assets using security specific facts and circumstances including timing, security interests and loss ~~impairments on~~severity.

The Company writes off uncollectible fixed maturity securities ~~held~~when (1) it has sufficient information to determine that the issuer of the security is insolvent or (2) it has received notice that the issuer of the security has filed for bankruptcy, and the collectability of the asset is expected to be adversely impacted by the bankruptcy.

In periods after an impairment loss is recognized for non-credit loss components on a fixed maturity security, the Company will report the impaired security as if it had been purchased on the date it was impaired and will continue to estimate the present value of the ~~dates indicated, for which a portion~~estimated cash flows of the ~~OTTI loss was recognized~~security. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income over the remaining term of the fixed maturity security in ~~AOCI,~~a prospective manner based on the amount and ~~the corresponding changes in such amounts (dollars in thousands):~~timing of estimated future cash flows.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Balance, beginning of period $ 3,677
$ 6,974
$ 6,013
$ 7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period —
—
(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~~Impairments – Other Invested Assets

The ~~following table presents~~Company considers its cost method investments for impairment when the ~~total gross unrealized losses for~~carrying value of these investments exceeds the ~~1,165 and 1,535 fixed maturity and equity securities as of September 30, 2017 and December 31, 2016, respectively, where~~net asset value. The Company takes into consideration the ~~estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):~~

September 30, 2017 December 31, 2016

Gross
Unrealized
Losses
% of Total
Gross
Unrealized
Losses
% of Total
Less than 20% $ 140,313
86.0 % $ 337,831
90.1 %
20% or more for less than six months 3,407
2.1
19,438
5.2
20% or more for six months or greater 19,490
11.9
17,588
4.7
Total $ 163,210
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~~severity and duration of ~~a decline in value. The Company’s credit analysis of an~~this excess when deciding if the cost method investment ~~includes determining whether the issuer~~ is ~~current on its contractual payments, evaluating whether it is probable that~~impaired. For equity method investments (including real estate joint ventures), the Company ~~will be able to collect all amounts due according to~~considers financial and other information provided by the ~~contractual terms of~~investee, other known information and inherent risks in the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

~~The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,165 and~~ ~~1,535~~ ~~fixed maturity and equity securities that have estimated fair values below amortized cost as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively (dollars in thousands). These~~underlying investments, ~~are presented by class and grade of security,~~ as well as ~~the length of time the related fair value~~future capital commitments, in determining whether an impairment has ~~remained below amortized cost.~~occurred.

~~Table of Contents~~

Less than 12 months 12 months or greater Total
Gross Gross Gross
September 30, 2017: Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
Corporate securities $ 2,035,856
$ 15,923
$ 1,213,026
$ 49,422
$ 3,248,882
$ 65,345
Canadian and Canadian provincial governments 97,100
1,320
46,663
1,112
143,763
2,432
Residential mortgage-backed securities 507,372
5,084
154,469
3,189
661,841
8,273
Asset-backed securities 516,613
2,318
133,848
2,213
650,461
4,531
Commercial mortgage-backed securities 293,834
3,224
61,707
2,221
355,541
5,445
U.S. government and agencies 1,302,732
29,712
56,595
1,286
1,359,327
30,998
State and political subdivisions 53,977
743
62,530
5,156
116,507
5,899
Other foreign government, supranational and foreign government-sponsored enterprises 327,813
2,529
104,333
4,865
432,146
7,394
Total investment grade securities 5,135,297
60,853
1,833,171
69,464
6,968,468
130,317

Below investment grade securities:

Corporate securities 170,023
3,780
95,089
23,785
265,112
27,565
Residential mortgage-backed securities —
—
93
3
93
3
Asset-backed securities —
—
5,611
532
5,611
532
State and political subdivisions 919
88
—
—
919
88
Other foreign government, supranational and foreign government-sponsored enterprises 11,219
77
15,667
222
26,886
299
Total below investment grade securities 182,161
3,945
116,460
24,542
298,621
28,487
Total fixed maturity securities $ 5,317,458
$ 64,798
$ 1,949,631
$ 94,006
$ 7,267,089
$ 158,804
Non-redeemable preferred stock $ 6,712
$ 345
$ 25,983
$ 2,944
$ 32,695
$ 3,289
Other equity securities 6,446
396
58,206
721
64,652
1,117
Total equity securities $ 13,158
$ 741
$ 84,189
$ 3,665
$ 97,347
$ 4,406

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

~~Table of Contents~~

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 September 30, 2017 are primarily related to high-yield corporate securities. Changes in unrealized losses are primarily being driven by changes in credit spreads and 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 September 30, Nine months ended September 30,
2017 2016 2017 2016
Fixed maturity securities available-for-sale $ 359,157
$ 325,089
$ 1,039,392
$ 961,096
Mortgage loans on real estate 50,040
39,802
138,829
121,494
Policy loans 15,404
15,391
45,870
47,897
Funds withheld at interest 102,144
104,609
327,089
273,482
Short-term investments and cash and cash equivalents 1,977
1,752
5,266
6,265
Other invested assets 47,595
21,138
90,488
57,896
Investment income 576,317
507,781
1,646,934
1,468,130
Investment expense (19,399 ) (18,054 ) (57,114 ) (53,471 )
Investment income, net of related expenses $ 556,918
$ 489,727
$ 1,589,820
$ 1,414,659

~~Investment Related Gains (Losses), Net~~

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings $ (390 ) $ —
$ (20,980 ) $ (34,663 )
Impairment losses on equity securities (889 ) —
(889 ) —
Gain on investment activity 19,522
46,346
91,635
127,153
Loss on investment activity (7,678 ) (9,054 ) (30,712 ) (43,397 )
Other impairment losses and change in mortgage loan provision (2,446 ) (262 ) (9,220 ) (2,111 )
Derivatives and other, net 14,534
49,594
109,637
37,020
Total investment related gains (losses), net $ 22,653
$ 86,624
$ 139,471
$ 84,002

The fixed maturity impairments for the three and nine months ended September 30, 2017 and 2016 were largely related to high-yield and emerging market corporate securities. The equity impairments for the three and nine months ended September 30, 2017 were related to an equity position received as part of a debt restructuring. The other impairment losses and change in mortgage loan provision for the three and nine months ended September 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 nine months ended September 30, 2017, compared to the same periods in 2016, are primarily due to changes in the fair value of embedded derivatives and interest rate swaps.

During the three months ended September 30, 2017 and 2016, the Company sold fixed maturity and equity securities with fair values of $484.7 million and $317.3 million at losses of $7.7 million and $9.1 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company sold fixed maturity and equity securities with fair values of $1,771.4 million and $903.1 million at losses of $30.7 million and $43.4 million, respectively. The Company generally does not buy and sell securities on a short-term basis.

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~~Securities Borrowing, Lending and Other~~

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

The Company also participates in a 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 as collateral are not reflected on the Company’s condensed consolidated balance sheets.

The Company also participates in repurchase/reverse repurchase programs in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to third parties. In return, the Company receives securities from the third 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, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands).~~

September 30, 2017 December 31, 2016

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Borrowed securities $ 360,475
$ 379,101
$ 263,820
$ 279,186
Securities lending:
Securities loaned 117,219
121,958
74,389
73,625
Securities received n/a
120,000
n/a
80,000
Repurchase program/reverse repurchase program:
Securities pledged 491,824
512,613
476,531
499,891
Securities received n/a
522,354
n/a
515,200

The Company also held cash collateral for securities lending and the repurchase program/reverse repurchase programs of $38.5 million and $28.8 million at September 30, 2017 and December 31, 2016, respectively.

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The following table presents information on the Company’s securities lending and repurchase transactions as of September 30, 2017 and December 31, 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.

September 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 $ —
$ —
$ —
$ 121,958
$ 121,958
Total —
—
—
121,958
121,958
Repurchase transactions:
Corporate securities —
1,472
5,402
175,258
182,132
Residential mortgage-backed securities —
—
—
87,418
87,418
U.S. government and agencies —
—
23,206
196,040
219,246
Foreign government —
—
—
21,370
21,370
Other 2,447
—
—
—
2,447
Total 2,447
1,472
28,608
480,086
512,613
Total transactions $ 2,447
$ 1,472
$ 28,608
$ 602,044
$ 634,571

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table $ 680,850
Amounts related to agreements not included in offsetting disclosure $ 46,279

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 condensed consolidated balance sheets was a liability of $7.9 million and $5.5 million of September 30, 2017 and December 31, 2016, respectively. As of September 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.

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Mortgage Loans on Real Estate

Mortgage loans ~~represented~~on real estate are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loan based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until it is probable the Company will not receive interest, or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the condensed consolidated statements of income.

Valuation allowances on mortgage loans are computed on an expected loss basis using a model that utilizes probability of default and loss given default methods over the lifetime of the loan. Accrued interest is excluded from the calculation of valuation allowances. Within the reasonable and supportable forecast period (i.e. typically two years), valuation allowances for mortgage loans are established based on several pool-level loan assumptions, defaults and loss severity, loss expectations for loans with similar risk characteristics and industry statistics. These evaluations are revised as conditions change and new information becomes available. The model also includes the impact of expected changes in future macro-economic conditions. The Company reverts to historical loss information for periods beyond which it believes it is able to develop or obtain reasonable and supportable forecasts of future economic conditions.

A mortgage loan is considered to be impaired when, based on the current information and events, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. Although all available and applicable factors are considered in the Company’s analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining impairment. Impairments are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or is otherwise collateral-dependent, or the loan’s market value if the loan is being sold.

Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectability of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed are charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in investment related gains (losses), net on the condensed consolidated statements of income.

The Company evaluates whether a mortgage loan modification represents a troubled debt restructuring. In a troubled debt restructuring, the Company grants concessions related to the borrower’s financial difficulties. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates and/or a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the continuous monitoring process, the Company may have recorded a specific valuation allowance prior to when the mortgage loan is modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation

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allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.


2.	Earnings Per Share

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



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Earnings:
Net income	$	158	$	202	$	70	$	372
Shares:
Weighted average outstanding shares	63		63		63		63
Equivalent shares from outstanding stock options	1		1		1		1
Denominator for diluted calculation	64		64		64		64
Earnings per share:
Basic	$	2.49	$	3.23	$	1.12	$	5.93
Diluted	$	2.48	$	3.18	$	1.11	$	5.83



	Three months ended June 30,		Six months ended June 30,
	2020	2019	2020	2019
Excluded from common equivalent shares:
Stock options	1,638	250	1,200	420
Performance contingent shares	96	242	130	171


3.	Equity

On June 5, 2020, the Company completed a public offering of 6,172,840 shares of common stock, $0.01 par value per share, at a public offering price of $81.00 per share. The Company received net proceeds of approximately ~~8.7%~~$481 million. The Company granted the Underwriters an option to purchase from the Company, within 30 days after the Underwriting Agreement dated June 2, 2020, up to an additional 925,926 shares of common stock at the offering price of $81.00 per share. The Underwriters’ option was not exercised and ~~8.4%~~expired on July 2, 2020. The Company anticipates using the net proceeds of the offering for general corporate purposes.

Common Stock

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



	Issued	Held In Treasury		Outstanding
Balance, December 31, 2019	79,137,758	16,481,656		62,656,102
Issuance of common stock	6,172,840	—		6,172,840
Common stock acquired	—	1,074,413		(1,074,413	)
Stock-based compensation ⁽¹⁾	—	(181,330	)	181,330
Balance, June 30, 2020	85,310,598	17,374,739		67,935,859



	Issued	Held In Treasury		Outstanding
Balance, December 31, 2018	79,137,758	16,323,390		62,814,368
Common stock acquired	—	344,237		(344,237	)
Stock-based compensation ⁽¹⁾	—	(288,360	)	288,360
Balance, June 30, 2019	79,137,758	16,379,267		62,758,491


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

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Common Stock Held in Treasury

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

In January 2019, RGA’s board of directors authorized a repurchase program for up to $400 million of RGA’s outstanding common stock. The authorization was effective immediately and does not have an expiration date. During the first six months of 2020, RGA repurchased 1,074,413 shares of common stock under this program for $153 million. During the first six months of 2019, RGA repurchased 344,237 shares of common stock under this program for $50 million. On May 6, 2020, the Company announced that it has suspended stock repurchases until further notice.

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, 2020 and 2019 are as follows (dollars in millions):



	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2019	$	(92	)	$	3,299		$	(70	)	$	3,137
Other comprehensive income (loss) before reclassifications	(116		)	1,034			(12		)	906
Amounts reclassified to (from) AOCI	—			—			2			2
Deferred income tax benefit (expense)	(2		)	(244		)	2			(244		)
Balance, June 30, 2020	$	(210	)	$	4,089		$	(78	)	$	3,801



	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2018	$	(169	)	$	856		$	(51	)	$	636
Other comprehensive income (loss) before reclassifications	44			2,617			(3		)	2,658
Amounts reclassified to (from) AOCI	—			(98		)	3			(95		)
Deferred income tax benefit (expense)	2			(559		)	—			(557		)
Balance, June 30, 2019	$	(123	)	$	2,816		$	(51	)	$	2,642


(1)	Includes cash flow hedges of $(74) and $(26) as of June 30, 2020 and December 31, 2019, respectively, and $(15) and $9 as of June 30, 2019 and December 31, 2018, respectively. See Note 5 – “Derivative Instruments” for additional information on cash flow hedges.

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The following table presents the amounts of AOCI reclassifications for the three and six months ended June 30, 2020 and 2019 (dollars in millions):



	Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,
Details about AOCI Components	2020			2019			2020			2019			Affected Line Item in Statements of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	11		$	20		$	(28	)	$	20		Investment related gains (losses), net
Cash flow hedges – Interest rate	(1		)	—			(1		)	1			(1)
Cash flow hedges – Currency/Interest rate	—			—			—			—			(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	131			63			29			77			(2)
Total	141			83			—			98
Provision for income taxes	(29		)	(17		)	(2		)	(20		)
Net unrealized gains (losses), net of tax	$	112		$	66		$	(2	)	$	78
Amortization of defined benefit plan items:
Prior service (cost) credit	$	1		$	1		$	1		$	1		(3)
Actuarial gains (losses)	(2		)	(1		)	(3		)	(3		)	(3)
Total	(1		)	—			(2		)	(2		)
Provision for income taxes	—			—			—			1
Amortization of defined benefit plans, net of tax	$	(1	)	$	—		$	(2	)	$	(1	)

Total reclassifications for the period	$	111		$	66		$	(4	)	$	77


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


(2)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2019 Annual Report for additional details.


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

Equity Based Compensation

Equity compensation expense was $(5) million and $21 million in the first six months of 2020 and 2019, respectively. In the first quarter of 2020, the Company granted 456,301 stock appreciation rights at $117.85 weighted average exercise price per share, 175,047 performance contingent units and 30,129 restricted stock units to employees. Additionally, non-employee directors were granted a total of 16,665 shares of common stock. As of June 30, 2020, 1,267,427 share options at a weighted average strike price per share of $87.69 were vested and exercisable, with a remaining weighted average exercise period of 4.4 years. As of June 30, 2020, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $29 million. It is estimated that these costs will vest over a weighted average period of 1.0 years.

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4.	Investments

Fixed Maturity Securities Available-for-Sale

The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”). RMBS, ABS and CMBS are collectively “structured securities.”

The following tables provide information relating to investments in fixed maturity securities by type as of June 30, 2020 and December 31, 2019 (dollars in millions):



June 30, 2020:	Amortized Cost		Allowance for Credit Losses		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Impairments in AOCI
Available-for-sale:
Corporate	$	29,785	$	32	$	3,071	$	254	$	32,570	62.3	%	$	—
Canadian government	2,917		—		1,941		—		4,858		9.3		—
RMBS	1,962		—		104		1		2,065		3.9		—
ABS	2,798		—		20		87		2,731		5.2		—
CMBS	1,850		—		42		41		1,851		3.5		—
U.S. government	1,395		—		244		—		1,639		3.1		—
State and political subdivisions	1,056		—		135		7		1,184		2.3		—
Other foreign government	5,140		1		367		58		5,448		10.4		—
Total fixed maturity securities	$	46,903	$	33	$	5,924	$	448	$	52,346	100.0	%	$	—



December 31, 2019:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Impairments in AOCI
Available-for-sale:
Corporate	$	29,205	$	2,269	$	81	$	31,393	61.4	%	$	—
Canadian government	3,016		1,596		—		4,612		9.0		—
RMBS	2,339		62		3		2,398		4.7		—
ABS	2,973		19		14		2,978		5.8		—
CMBS	1,841		61		3		1,899		3.7		—
U.S. government	2,096		57		1		2,152		4.2		—
State and political subdivisions	1,074		93		3		1,164		2.3		—
Other foreign government	4,209		321		5		4,525		8.9		—
Total fixed maturity securities	$	46,753	$	4,478	$	110	$	51,121	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, 2020 and December 31, 2019, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of June 30, 2020 and December 31, 2019 (dollars in millions):



	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities pledged as collateral	$	136	$	148	$	113	$	116
Fixed maturity securities received as collateral	n/a		1,206		n/a		727
Assets in trust held to satisfy collateral requirements	27,353		29,726		27,290		29,239

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The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio that limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s ~~total investments~~stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~ 2019 (dollars in millions).



	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Government of Japan	$	1,566	$	1,555	$	813	$	852
Canadian province of Quebec	1,187		2,332		1,205		2,163
Canadian province of Ontario	980		1,436		1,014		1,379

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale as of June 30, 2020, are shown by contractual maturity in the table below (dollars in millions). 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. Structured securities are shown separately in the table below, as they are not due at a single maturity date.



	Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in one year or less	$	1,453	$	1,454
Due after one year through five years	8,028		8,412
Due after five years through ten years	10,013		10,979
Due after ten years	20,799		24,854
Structured securities	6,610		6,647
Total	$	46,903	$	52,346

Corporate Fixed Maturity Securities

The tables below show the major sectors of the Company’s corporate fixed maturity holdings as of June 30, 2020 and December 31, 2019 (dollars in millions):



June 30, 2020:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	11,189	$	12,127	37.2	%
Industrial	14,962		16,316		50.1
Utility	3,634		4,127		12.7
Total	$	29,785	$	32,570	100.0	%

December 31, 2019:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	10,896	$	11,653	37.2	%
Industrial	14,692		15,803		50.3
Utility	3,617		3,937		12.5
Total	$	29,205	$	31,393	100.0	%

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Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale

As discussed in Note 1 – “Business and Basis of Presentation,” allowances for credit losses on fixed maturity securities are recognized in investment related gains (losses), net on the condensed consolidated statements of income. For these securities, the net amount recognized 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 fixed maturity security prior to the allowance for credit losses. Any remaining difference between the fair value and amortized cost is recognized in AOCI.

The following table presents the rollforward of the allowance for credit losses in fixed maturity securities by type for the six months ended June 30, 2020 (dollars in millions):



	Corporate			Other Foreign Government			Total
Balance, beginning of period	$	—		$	—		$	—
Credit losses recognized on securities for which credit losses were not previously recorded	40			2			42
Reductions for securities sold during the period	(8		)	(1		)	(9		)
Balance, end of period	$	32		$	1		$	33

Unrealized Losses for Fixed Maturity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 1,477 and 1,072 fixed maturity securities as of June 30, 2020 and December 31, 2019, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in millions):



	June 30, 2020				December 31, 2019
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	348	77.7	%	$	76	69.1	%
20% or more for less than six months	91		20.3		20		18.2
20% or more for six months or greater	9		2.0		14		12.7
Total	$	448	100.0	%	$	110	100.0	%

The Company’s determination of whether a decline in value necessitates the recording of an allowance for credit losses includes an analysis of 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.

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The following tables present the estimated fair values and gross unrealized losses for fixed maturity securities that have estimated fair values below amortized cost as of June 30, 2020 and December 31, 2019 (dollars in millions). 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, 2020:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	2,359	$	125	$	67	$	9	$	2,426	$	134
RMBS	—		—		28		1		28		1
ABS	1,425		53		558		29		1,983		82
CMBS	690		37		13		1		703		38
U.S. government	—		—		—		—		—		—
State and political subdivisions	59		5		12		2		71		7
Other foreign government	1,073		47		—		—		1,073		47
Total investment grade securities	5,606		267		678		42		6,284		309
Below investment grade securities:
Corporate	780		114		53		6		833		120
ABS	20		5		—		—		20		5
CMBS	23		3		—		—		23		3
Other foreign government	103		8		12		3		115		11
Total below investment grade securities	926		130		65		9		991		139
Total fixed maturity securities	$	6,532	$	397	$	743	$	51	$	7,275	$	448



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2019:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	1,936	$	29	$	293	$	7	$	2,229	$	36
RMBS	367		2		84		1		451		3
ABS	773		5		739		9		1,512		14
CMBS	253		3		—		—		253		3
U.S. government	49		1		—		—		49		1
State and political subdivisions	103		2		12		1		115		3
Other foreign government	278		4		—		—		278		4
Total investment grade securities	3,759		46		1,128		18		4,887		64
Below investment grade securities:
Corporate	220		38		100		7		320		45
ABS	—		—		—		—		—		—
CMBS	—		—		—		—		—		—
Other foreign government	—		—		10		1		10		1
Total below investment grade securities	220		38		110		8		330		46
Total fixed maturity securities	$	3,979	$	84	$	1,238	$	26	$	5,217	$	110

The Company ~~makes~~has no intention to sell, nor does it expect to be required to sell, the securities outlined in the table above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines. Changes in unrealized losses are primarily driven by changes in interest rates.

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Investment Income, Net of Related Expenses

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



	Three months ended June 30,							Six months ended June 30,
	2020				2019			2020			2019
Fixed maturity securities available-for-sale	$	474			$	428		$	954		$	843
Equity securities	1				1			3			2
Mortgage loans on real estate	66			��	61			133			120
Policy loans	14				14			29			29
Funds withheld at interest	69				66			122			128
Short-term investments and cash and cash equivalents	2				7			6			14
Other invested assets	41				32			36			74
Investment income	667				609			1,283			1,210
Investment expense	(22		)		(25		)	(44		)	(46		)
Investment income, net of related expenses	$	645			$	584		$	1,239		$	1,164

Investment Related Gains (Losses), Net

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



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Fixed maturity securities available-for-sale:
Impairment losses and change in allowance for credit losses	$	—		$	—		$	(34	)	$	(9	)
Gain on investment activity	46			20			73			48
Loss on investment activity	(46		)	(7		)	(54		)	(26		)
Net gains (losses) on equity securities	8			3			(15		)	7
Other impairment losses and change in mortgage loan provision	(22		)	(6		)	(35		)	(8		)
Derivatives and other, net	95			2			(139		)	8
Total investment related gains (losses), net	$	81		$	12		$	(204	)	$	20

The impairment losses and change in allowance for credit losses on fixed maturity securities for the six months ended June 30, 2020, includes $1 million in impairment losses on securities the Company intended to sell and an increase of $33 million in the allowance for credit losses related to high-yield securities as result of the uncertainty in the global markets due to the novel coronavirus (“COVID-19”) pandemic. The fixed maturity impairment losses for the six months ended June 30, 2019, were primarily related to a U.S. utility company. The other impairment losses and change in mortgage loan provision for the three and six months ended June 30, 2020, were primarily due to an increase in the mortgage loan valuation allowance due to the current market conditions related to the COVID-19 pandemic. The other impairment losses and change in mortgage loan provision for the three months ended June 30, 2020 and 2019, includes impairments on limited partnerships. The other impairment losses and change in mortgage loan provision for the six months ended June 30, 2019, includes impairments on real estate joint ventures and limited partnerships. The fluctuations in investment related gains (losses) for derivatives and other for the three and six months ended June 30, 2020, compared to the same periods in 2019, were primarily due to the changes in fair value of embedded derivatives related to modified coinsurance and funds withheld treaties as a result of changes in interest rates and credit spreads, both of which are a result of COVID-19.

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Securities Borrowing, Lending and Other

The following table includes the amount of borrowed securities, securities loaned and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of June 30, 2020 and December 31, 2019 (dollars in millions).



	June 30, 2020				December 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	270	$	300	$	339	$	369
Securities lending:
Securities loaned	102		105		98		104
Securities received	n/a		107		n/a		107
Repurchase program/reverse repurchase program:
Securities pledged	449		481		356		384
Securities received	n/a		372		n/a		370

The Company held cash collateral for repurchase/reverse repurchase programs of $54 million and $1 million as of June 30, 2020 and December 31, 2019, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of June 30, 2020 and December 31, 2019.

The following tables present information on the Company’s securities lending and repurchase/reverse repurchase transactions as of June 30, 2020 and December 31, 2019, respectively (dollars in millions). Collateral associated with certain borrowed securities is not included within the tables, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.



	June 30, 2020
	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	$	—	$	—	$	—	$	105	$	105
Total	—		—		—		105		105
Repurchase/reverse repurchase transactions:
Corporate	—		—		—		353		353
Other foreign government	—		—		—		128		128
Total	—		—		—		481		481
Total transactions	$	—	$	—	$	—	$	586	$	586

Gross amount of recognized liabilities for securities lending and repurchase/reverse repurchase transactions in preceding table									$	533
Amounts related to agreements not included in offsetting disclosure									$	53

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	December 31, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Securities lending transactions:
Corporate	$	—	$	—	$	—	$	104	$	104
Total	—		—		—		104		104
Repurchase/reverse repurchase transactions:
Corporate	—		—		—		286		286
Other foreign government	—		—		—		98		98
Total	—		—		—		384		384
Total borrowings	$	—	$	—	$	—	$	488	$	488

Gross amount of recognized liabilities for securities lending and repurchase/reverse repurchase transactions in preceding table									$	478
Amounts related to agreements not included in offsetting disclosure									$	10

The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the condensed consolidated balance sheets was a liability of $3 million and $1 million as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Company recognized payables resulting from cash received as collateral associated with a repurchase/reverse repurchase agreements 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

As of June 30, 2020, mortgage loans ~~on income producing properties that~~ are geographically ~~diversified~~dispersed throughout the U.S. with the largest ~~concentration being~~concentrations in California (15.1%), Texas (14.7%) and Washington (8.6%). In addition, the ~~state of California, which represented 21.2% and 22.1% of~~Company held mortgage loans ~~on real estate as of~~ ~~September 30, 2017~~secured by properties in Canada (3.0%) and ~~December 31, 2016, respectively.~~United Kingdom (0.9%). 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 the Company’s recorded investment in mortgage loans by property type as of June 30, 2020 and December 31, 2019 (dollars in millions) is as ~~follows as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands):~~follows:



	June 30, 2020					December 31, 2019
Property type:	Carrying Value			% of Total		Carrying Value			% of Total
Office	$	1,773		29.4	%	$	1,771		31.0	%
Retail	1,705			28.2		1,686			29.4
Industrial	1,253			20.7		1,169			20.4
Apartment	868			14.4		766			13.4
Other commercial	441			7.3		335			5.8
Recorded investment	6,040			100.0	%	5,727			100.0	%
Unamortized balance of loan origination fees and expenses	(10		)			(9		)
Valuation allowances	(56		)			(12		)
Total mortgage loans on real estate	$	5,974				$	5,706

September 30, 2017 December 31, 2016
Property type: Carrying Value % of Total Carrying Value % of Total
Office building $ 1,426,673
32.9 % $ 1,270,113
33.6 %
Retail 1,316,463
30.4
1,179,936
31.2
Industrial 891,051
20.6
713,461
18.8
Apartment 508,367
11.7
447,088
11.8
Other commercial 191,443
4.4
172,609
4.6
Recorded investment 4,333,997
100.0 % $ 3,783,207
100.0 %
Unamortized balance of loan origination fees and expenses (2,531 ) —

Valuation allowances (9,137 ) (7,685 )
Total mortgage loans on real estate $ 4,322,329
$ 3,775,522

The maturities of the Company’s recorded investment in mortgage loans as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows (dollars in ~~thousands)~~millions):


	September 30, 2017				December 31, 2016				June 30, 2020				December 31, 2019
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	1,086,700	25.1	%	$	822,073	21.7	%	$	2,257	37.3	%	$	1,841	32.2	%
Due after five years through ten years	2,334,113		53.8		2,099,559		55.5		2,854		47.3		2,944		51.4
Due after ten years	913,184		21.1		861,575		22.8		929		15.4		942		16.4
Total	$	4,333,997	100.0	%	$	3,783,207	100.0	%	$	6,040	100.0	%	$	5,727	100.0	%

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The following tables set forth certain key credit quality indicators of the Company’s recorded investment in mortgage loans as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):



	Recorded Investment
	Debt Service Ratios						Construction Loans
	>1.20x		1.00x - 1.20x		<1.00x		Construction Loans		Total		% of Total
June 30, 2020:
Loan-to-Value Ratio
0% - 59.99%	$	3,074	$	114	$	9	$	1	$	3,198	53.0	%
60% - 69.99%	1,923		78		30		—		2,031		33.6
70% - 79.99%	559		60		4		—		623		10.3
80% or greater	101		61		26		—		188		3.1
Total	$	5,657	$	313	$	69	$	1	$	6,040	100.0	%

Recorded Investment
Debt Service Ratios
>1.20x 1.00x - 1.20x <1.00x Total % of Total
September 30, 2017:
Loan-to-Value Ratio
0% - 59.99% $ 2,060,277
$ 51,162
$ 4,698
$ 2,116,137
48.8 %
60% - 69.99% 1,515,469
86,613
44,358
1,646,440
38.0
70% - 79.99% 424,195
32,664
19,850
476,709
11.0
Greater than 80% 51,348
19,951
23,412
94,711
2.2
Total $ 4,051,289
$ 190,390
$ 92,318
$ 4,333,997
100.0 %



	Recorded Investment
	Debt Service Ratios						Construction Loans
	>1.20x		1.00x - 1.20x		<1.00x		Construction Loans		Total		% of Total
December 31, 2019:
Loan-to-Value Ratio
0% - 59.99%	$	3,025	$	52	$	7	$	—	$	3,084	53.8	%
60% - 69.99%	1,841		53		11		—		1,905		33.3
70% - 79.99%	492		13		39		—		544		9.5
80% or greater	96		61		37		—		194		3.4
Total	$	5,454	$	179	$	94	$	—	$	5,727	100.0	%

~~Table~~The following table sets forth credit quality grades by year of ~~Contents~~

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 %

~~None~~origination of the ~~payments due to the Company on its~~Company’s recorded investment in mortgage loans ~~were delinquent~~ as of ~~September~~June 30, ~~2017~~2020 (dollars in millions):



	Recorded Investment
	Year of Origination
	2020		2019		2018		2017		2016		Prior		Total
June 30, 2020:
Internal credit quality grade:
High investment grade	$	332	$	674	$	622	$	401	$	601	$	1,115	$	3,745
Investment grade	263		517		317		342		271		409		2,119
Average	—		—		9		25		27		94		155
Watch list	—		—		—		—		—		4		4
In or near default	—		—		—		—		—		17		17
Total	$	595	$	1,191	$	948	$	768	$	899	$	1,639	$	6,040

The following table presents the current and past due composition of the Company’s recorded investment in mortgage loans as of June 30, 2020 and December 31, ~~2016.~~2019 (dollars in millions):



	June 30, 2020		December 31, 2019
31-60 days past due	$	63	$	—
61-90 days past due	9		—
Greater than 90 days	15		—
Total past due	87		—
Current	5,953		5,727
Total	$	6,040	$	5,727

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The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):


	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Mortgage loans:
Individually measured for impairment	$	5,856	$	2,216	$	17	$	17
Collectively measured for impairment	4,328,141		3,780,991		6,023		5,710
Recorded investment	$	4,333,997	$	3,783,207	$	6,040	$	5,727
Valuation allowances:
Individually measured for impairment	$	—	$	—	$	—	$	—
Collectively measured for impairment	9,137		7,685		56		12
Total valuation allowances	$	9,137	$	7,685	$	56	$	12

Information regarding the Company’s loan valuation allowances for mortgage loans for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 is as follows (dollars in ~~thousands)~~millions):



	Six months ended June 30,
	2020		2019
Balance, beginning of period	$	12	$	11
Adoption of new accounting standard, see Note 13	14		—
Provision (release)	30		1
Balance, end of period	$	56	$	12

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Balance, beginning of period $ 8,156
$ 6,499
$ 7,685
$ 6,813
Provision (release) 977
247
1,444
(67 )
Translation adjustment 4
—
8
—
Balance, end of period $ 9,137
$ 6,746
$ 9,137
$ 6,746

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Information regarding the portion of the Company’s mortgage loans that were impaired as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 is as follows (dollars in ~~thousands)~~millions):



	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
June 30, 2020:
Impaired mortgage loans with no valuation allowance recorded	$	17	$	17	$	—	$	17
Impaired mortgage loans with valuation allowance recorded	—		—		—		—
Total impaired mortgage loans	$	17	$	17	$	—	$	17
December 31, 2019:
Impaired mortgage loans with no valuation allowance recorded	$	17	$	17	$	—	$	17
Impaired mortgage loans with valuation allowance recorded	—		—		—		—
Total impaired mortgage loans	$	17	$	17	$	—	$	17

The Company’s average investment balance of impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in millions):
	Three months ended June 30,
	2020				2019
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	17	$	—	$	17	$	—
Impaired mortgage loans with valuation allowance recorded	—		—		—		—
Total impaired mortgage loans	$	17	$	—	$	17	$	—

	Six months ended June 30,
	2020				2019
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	17	$	—	$	22	$	—
Impaired mortgage loans with valuation allowance recorded	—		—		—		—
Total impaired mortgage loans	$	17	$	—	$	22	$	—

Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

Carrying
Value
September 30, 2017:
Impaired mortgage loans with no valuation allowance recorded $ 6,427
$ 5,856
$ —
$ 5,856
Impaired mortgage loans with valuation allowance recorded —
—
—
—
Total impaired mortgage loans $ 6,427
$ 5,856
$ —
$ 5,856
December 31, 2016:
Impaired mortgage loans with no valuation allowance recorded $ 2,758
$ 2,216
$ —
$ 2,216
Impaired mortgage loans with valuation allowance recorded —
—
—
—
Total impaired mortgage loans $ 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 September 30,
2017 2016

Average
Recorded
Investment⁽¹⁾

Interest
Income

Average
Recorded
Investment⁽¹⁾

Interest
Income
Impaired mortgage loans with no valuation allowance recorded $ 3,967
$ 33
$ 6,953
$ 107

Impaired mortgage loans with valuation allowance recorded
—
—
—
—
Total impaired mortgage loans $ 3,967
$ 33
$ 6,953
$ 107

Nine months ended September 30,
2017 2016

Average
Recorded
Investment⁽¹⁾

Interest
Income

Average
Recorded
Investment⁽¹⁾

Interest
Income
Impaired mortgage loans with no valuation allowance recorded $ 3,062
$ 100
$ 4,687
$ 324

Impaired mortgage loans with valuation allowance recorded
—
—
5,459
—
Total impaired mortgage loans $ 3,062
$ 100
$ 10,146
$ 324

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

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The Company did not acquire any impaired mortgage loans during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. The Company had $15 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status as of June 30, 2020. The Company had no mortgage loans that were on a nonaccrual status at ~~September 30, 2017~~ ~~and~~ as of December 31, ~~2016~~2019.

As of June 30, 2020, the Company modified the payment terms of approximately 40 loans, with a carrying value of approximately $540 million in response to COVID-19. These loans met the criteria established in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and were not considered a troubled debt restructuring. In accordance with the CARES Act criteria, these loans were not more than 30 days past due at December 31, 2019, and the modifications included deferral or delayed payments of principal or interest on the loan.

Policy Loans

~~Policy loans comprised approximately 2.7% and~~ ~~3.2%~~ ~~of the Company’s total investments as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively, the~~The majority of ~~which~~policy loans are associated with one client. These policy loans present no credit risk ~~because~~as 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.

Funds Withheld at Interest

~~Funds withheld at interest comprised approximately~~ ~~12.1%~~ ~~and~~ ~~13.1%~~As of ~~the Company’s total investments as~~June 30, 2020, $3.1 billion of ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively. Of~~ the ~~$6.0 billion~~ funds withheld at interest ~~balance, net of embedded derivatives, as of September 30, 2017, $4.0 billion of the~~ balance is associated with one client. For reinsurance agreements written on a modified coinsurance (“modco”) 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.

~~Table of Contents~~

Other Invested Assets

Other invested assets include ~~equity securities,~~ limited partnership interests, joint ventures (other than operating joint ventures), lifetime mortgages, derivative contracts and fair value option (“FVO”) contractholder-directed unit-linked investments. Other invested assets also ~~include Federal Home Loan Bank of Des Moines (“FHLB”)~~includes FHLB common stock, ~~equity release mortgages and structured loans, all of~~ which ~~are~~is included in ~~other~~Other in the table below. The ~~fair value option was elected~~allowance for ~~contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify~~credit losses for ~~presentation and reporting as separate accounts. Other invested assets represented approximately 3.1% and 3.6% of the Company’s total investments~~lifetime mortgages as of ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016, respectively.~~2019, was $2 million. Carrying values of these assets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows (dollars in ~~thousands)~~millions):



	June 30, 2020		December 31, 2019
Limited partnership interests and real estate joint ventures	$	1,204	$	1,134
Lifetime mortgages	787		775
Derivatives	205		117
FVO contractholder-directed unit-linked investments	250		260
Other	101		77
Total other invested assets	$	2,547	$	2,363

September 30, 2017 December 31, 2016
Equity securities $ 112,931
$ 275,361
Limited partnership interests and real estate joint ventures 761,739
687,522
Derivatives 133,405
229,108
FVO contractholder-directed unit-linked investments 210,660
190,120
Other 313,788
209,829
Total other invested assets $ 1,532,523
$ 1,591,940

5. Derivative Instruments

Accounting for Derivative Instruments and Hedging Activities

See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2019 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 6 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.

Types of Derivatives Used by the Company

Commonly used derivative instruments include, but are not necessarily limited to: credit default swaps, financial futures, equity options, foreign currency swaps, foreign currency forwards, interest rate swaps, synthetic guaranteed investment contracts (“GICs”), consumer price index (“CPI”) swaps, longevity swaps, mortality swaps and embedded derivatives.

For detailed information on these derivative instruments and the related strategies, see Note 5 – “Derivative Instruments” of the Company’s 2019 Annual Report.

Table of Contents

Summary of Derivative Positions

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, which have been discontinued or matured in 2019 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~~modco 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):



		June 30, 2020						December 31, 2019
	Primary Underlying Risk	Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value
	Primary Underlying Risk	Amount		Assets		Liabilities		Amount		Assets		Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate	$	1,086	$	105	$	3	$	909	$	70	$	3
Financial futures	Equity	342		—		—		307		—		—
Foreign currency swaps	Foreign currency	150		—		21		150		—		9
Foreign currency forwards	Foreign currency	252		1		—		175		1		—
CPI swaps	CPI	569		9		52		441		—		28
Credit default swaps	Credit	1,327		3		1		1,306		5		—
Equity options	Equity	366		38		—		364		15		—
Synthetic GICs	Interest rate	14,888		—		—		13,823		—		—
Embedded derivatives in:
Modco or funds withheld arrangements		—		—		108		—		121		—
Indexed annuity products		—		—		746		—		—		767
Variable annuity products		—		—		184		—		—		163
Total non-hedging derivatives		18,980		156		1,115		17,475		212		970
Derivatives designated as hedging instruments:
Interest rate swaps	Foreign currency/Interest rate	489		1		41		535		1		29
Foreign currency swaps	Foreign currency	302		23		10		342		17		2
Foreign currency forwards	Foreign currency	1,092		68		—		1,094		28		2
Total hedging derivatives		1,883		92		51		1,971		46		33
Total derivatives		$	20,863	$	248	$	1,166	$	19,446	$	258	$	1,003

September 30, 2017 December 31, 2016
Notional Carrying Value/Fair Value Notional Carrying Value/Fair Value
Amount Assets Liabilities Amount Assets Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps $ 946,726
$ 61,263
$ 1,825
$ 949,556
$ 78,405
$ 5,949
Financial futures 448,600
—
—
475,968
—
—
Foreign currency forwards 6,000
(84 ) —
25,000
—
5,070
Consumer price index swaps 132,081
589
420
20,615
—
262
Credit default swaps 948,000
7,905
490
926,000
12,012
2,871
Equity options 541,532
20,006
—
525,894
33,459
—
Longevity swaps 945,120
37,827
—
841,360
26,958
—
Mortality swaps 50,000
—
1,683
50,000
—
2,462
Synthetic guaranteed investment contracts 9,119,434
—
—
8,834,700
—
—
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements —
84,325
—
—
—
22,529
Indexed annuity products —
—
821,821
—
—
805,672
Variable annuity products —
—
168,119
—
—
184,636
Total non-hedging derivatives 13,137,493
211,831
994,358
12,649,093
150,834
1,029,451
Derivatives designated as hedging instruments:
Interest rate swaps 435,000
—
22,133
435,000
27,901
31,223
Foreign currency swaps 796,489
71,032
13,876
928,505
104,359
734
Foreign currency forwards 331,135
1,418
10,203
—
—
—
Total hedging derivatives 1,562,624
72,450
46,212
1,363,505
132,260
31,957
Total derivatives $ 14,700,117
$ 284,281
$ 1,040,570
$ 14,012,598
$ 283,094
$ 1,061,408

~~Netting Arrangements~~

2023

Table of Contents

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” 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~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands):~~

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
September 30, 2017:
Derivative assets $ 199,956
$ (28,724 ) $ 171,232
$ (17,782 ) $ (174,120 ) $ (20,670 )
Derivative liabilities 50,630
(28,724 ) 21,906
(58,360 ) (30,771 ) (67,225 )
December 31, 2016:
Derivative assets $ 283,094
$ (27,028 ) $ 256,066
$ (16,913 ) $ (254,498 ) $ (15,345 )
Derivative liabilities 48,571
(27,028 ) 21,543
(95,863 ) (1,441 ) (75,761 )


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

~~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. As of ~~September 30, 2017~~ ~~and~~ ~~December 31, 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 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 ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019 were (dollars in ~~thousands)~~millions):



Type of Fair Value Hedge	Hedged Item	Gains (Losses) Recognized for Derivatives			Gains (Losses) Recognized for Hedged Items
		Investment Related Gains (Losses)
For the three months ended June 30, 2020:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	15		$	(13	)
For the three months ended June 30, 2019:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(4	)	$	1
For the six months ended June 30, 2020:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(8	)	$	2
For the six months ended June 30, 2019:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(4	)	$	—

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
For the three months ended September 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 2,100
$ (2,100 ) $ —
For the three months ended September 30, 2016:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 3,205
$ (3,205 ) $ —
For the nine months ended September 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 9,541
$ (9,541 ) $ —
For the nine months ended September 30, 2016:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 5,317
$ (5,317 ) $ —

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 nine months ended September 30, 2017, $0.2 million and $0.8 million, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness. For the three and nine months ended September 30, 2016, $1.6 million and $(5.4) million, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness.

~~Table of Contents~~

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 ~~flows:~~flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; and (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency ~~swaps; and (iii) forward bond purchase commitments.~~swaps.

The following ~~table presents~~tables present 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in ~~thousands)~~millions):



	Three months ended June 30,
	2020			2019
Balance, beginning of period	$	(87	)	$	(2	)
Gains (losses) deferred in other comprehensive income (loss)	12			(13		)
Amounts reclassified to investment income	—			—
Amounts reclassified to interest expense	1			—
Balance, end of period	$	(74	)	$	(15	)

	Six months ended June 30,
	2020			2019
Balance, beginning of period	$	(26	)	$	9
Gains (losses) deferred in other comprehensive income (loss)	(49		)	(23		)
Amounts reclassified to investment income	—			—
Amounts reclassified to interest expense	1			(1		)
Balance, end of period	$	(74	)	$	(15	)

Three months ended September 30,
2017 2016
Balance beginning of period $ 7,690
$ (41,192 )
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges (6,889 ) 932
Amounts reclassified to investment related (gains) losses, net (183 ) (116 )
Amounts reclassified to investment income (271 ) (221 )
Balance end of period $ 347
$ (40,597 )

Nine months ended September 30,
2017 2016
Balance beginning of period $ (2,496 ) $ (29,397 )
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges 3,689
(10,866 )
Amounts reclassified to investment related (gains) losses, net (142 ) 53
Amounts reclassified to investment income (704 ) (387 )
Balance end of period $ 347
$ (40,597 )

As of ~~September~~June 30, ~~2017, the~~2020, an immaterial amount and approximately $(6) million of before-tax deferred net gains (losses) on derivative instruments recorded in AOCI ~~that~~ are expected to be reclassified to ~~earnings~~investment income and interest expense, respectively, during the next twelve months are approximately $(0.4) 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 investment cash flows.months.

2224

Table of Contents

The following table presents the ~~effective portion~~effect 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in ~~thousands)~~millions):



Derivative Type	Gain (Loss) Deferred in AOCI			Gain (Loss) Reclassified into Income from AOCI
				Investment Income		Interest Expense
For the three months ended June 30, 2020:
Interest rate	$	(1	)	$	—	$	(1	)
Currency/Interest rate	13			—		—
Total	$	12		$	—	$	(1	)
For the three months ended June 30, 2019:
Interest rate	$	(10	)	$	—	$	—
Currency/Interest rate	(3		)	—		—
Total	$	(13	)	$	—	$	—

For the six months ended June 30, 2020:
Interest rate	$	(36	)	$	—	$	(1	)
Currency/Interest rate	(13		)	—		—
Total	$	(49	)	$	—	$	(1	)
For the six months ended June 30, 2019:
Interest rate	$	(22	)	$	—	$	1
Currency/Interest rate	(1		)	—		—
Total	$	(23	)	$	—	$	1

Effective Portion
Derivative Type Gain (Loss) Deferred in OCI Gain (Loss) Reclassified into Income from OCI
Investment Related Gains (Losses) Investment Income
For the three months ended September 30, 2017:
Interest rate $ (8,421 ) $ —
$ —
Currency/Interest rate 1,544
—
230
Forward bond purchase commitments (12 ) 183
41
Total $ (6,889 ) $ 183
$ 271
For the three months ended September 30, 2016:
Interest rate $ (3,282 ) $ —
$ —
Currency/Interest rate 4,214
—
200
Forward bond purchase commitments —
116
21
Total $ 932
$ 116
$ 221

For the nine months ended September 30, 2017:
Interest rate $ (6,205 ) $ —
$ —
Currency/Interest rate 9,894
—
560
Forward bond purchase commitments —
142
144
Total $ 3,689
$ 142
$ 704
For the nine months ended September 30, 2016:
Interest rate $ (15,617 ) $ —
$ —
Currency/Interest rate 4,751
—
454
Forward bond purchase commitments —
(53 ) (67 )
Total $ (10,866 ) $ (53 ) $ 387

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For the three and nine months ended September 30, 2017 and 2016, the ineffective portion of derivatives reported as cash flow hedges was not material to the 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.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in ~~thousands)~~millions):



	Derivative Gains (Losses) Deferred in AOCI
	For the three months ended June 30,						For the six months ended June 30,
Type of NIFO Hedge	2020			2019			2020		2019
Foreign currency swaps	$	(6	)	$	(2	)	$	9	$	(10	)
Foreign currency forwards	(34		)	(6		)	46		(24		)
Total	$	(40	)	$	(8	)	$	55	$	(34	)

Derivative Gains (Losses) Deferred in AOCI
For the three months ended September 30, For the nine months ended September 30,
Type of NIFO Hedge ^{(1) (2)}
2017 2016 2017 2016
Foreign currency swaps $ (35,198 ) $ 8,341
$ (60,723 ) $ (23,151 )
Foreign currency forwards 4,627
—
8,785
—
Total $ (30,571 ) $ 8,341
$ (51,938 ) $ (23,151 )


~~(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 ~~$109.7~~$223 million and $~~161.6~~168 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, respectively. If a hedged 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 hedged foreign operation.

~~Table~~ There were no sales or substantial liquidations of ~~Contents~~

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.

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. 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.

Table of Contents

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 is as follows (dollars in ~~thousands)~~millions):



		Gain (Loss) for the three months ended June 30,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2020			2019
Interest rate swaps	Investment related gains (losses), net	$	3		$	34
Financial futures	Investment related gains (losses), net	(48		)	(8		)
Foreign currency swaps	Investment related gains (losses), net	3			(6		)
Foreign currency forwards	Investment related gains (losses), net	1			—
CPI swaps	Investment related gains (losses), net	26			(7		)
Credit default swaps	Investment related gains (losses), net	17			5
Equity options	Investment related gains (losses), net	(25		)	(5		)
Longevity swaps	Other revenues	—			2
Mortality swaps	Other revenues	—			(1		)
Subtotal		(23		)	14
Embedded derivatives in:
Modco or funds withheld arrangements	Investment related gains (losses), net	1			5
Indexed annuity products	Interest credited	(7		)	(8		)
Variable annuity products	Investment related gains (losses), net	107			(18		)
Total non-hedging derivatives		$	78		$	(7	)

		Gain (Loss) for the six months ended June 30,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2020			2019
Interest rate swaps	Investment related gains (losses), net	$	109		$	58
Financial futures	Investment related gains (losses), net	(4		)	(30		)
Foreign currency swaps	Investment related gains (losses), net	(10		)	(5		)
Foreign currency forwards	Investment related gains (losses), net	(2		)	—
CPI swaps	Investment related gains (losses), net	(14		)	(16		)
Credit default swaps	Investment related gains (losses), net	(7		)	20
Equity options	Investment related gains (losses), net	28			(28		)
Longevity swaps	Other revenues	—			4
Mortality swaps	Other revenues	—			—
Subtotal		100			3
Embedded derivatives in:
Modco or funds withheld arrangements	Investment related gains (losses), net	(229		)	3
Indexed annuity products	Interest credited	(1		)	(5		)
Variable annuity products	Investment related gains (losses), net	(21		)	—
Total non-hedging derivatives		$	(151	)	$	1

Gain (Loss) for the three months ended September 30,
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2017 2016
Interest rate swaps Investment related gains (losses), net $ 641
$ 4,122
Financial futures Investment related gains (losses), net (8,890 ) (11,677 )
Foreign currency forwards Investment related gains (losses), net 24
507
CPI swaps Investment related gains (losses), net 220
76
Credit default swaps Investment related gains (losses), net 4,137
6,672
Equity options Investment related gains (losses), net (8,295 ) (13,648 )
Longevity swaps Other revenues 3,334
8,921
Mortality swaps Other revenues (132 ) (400 )
Subtotal (8,961 ) (5,427 )
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net 23,044
49,078
Indexed annuity products Interest credited (13,133 ) (20,104 )
Variable annuity products Investment related gains (losses), net (6,205 ) 7,988
Total non-hedging derivatives $ (5,255 ) $ 31,535

Gain (Loss) for the nine months ended
September 30,
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2017 2016
Interest rate swaps Investment related gains (losses), net $ 12,318
$ 108,149
Financial futures Investment related gains (losses), net (28,107 ) (30,285 )
Foreign currency forwards Investment related gains (losses), net 577
6,584
CPI swaps Investment related gains (losses), net 211
(624 )
Credit default swaps Investment related gains (losses), net 15,374
13,536
Equity options Investment related gains (losses), net (34,757 ) (19,576 )
Longevity swaps Other revenues 7,180
11,402
Mortality swaps Other revenues (921 ) 222
Subtotal (28,125 ) 89,408
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net 106,854
33,795
Indexed annuity products Interest credited (35,490 ) (20,730 )
Variable annuity products Investment related gains (losses), net 16,518
(83,089 )
Total non-hedging derivatives $ 59,757
$ 19,384

2426

Table of Contents

~~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. 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.

~~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 in hedges of net investments in foreign operations and non-qualifying hedge 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.

~~Table of Contents~~

Credit ~~Default Swaps~~Derivatives

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.

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):


	September 30, 2017					December 31, 2016						June 30, 2020					December 31, 2019
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⁾
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps	$	2,975	$	155,500	3.2	$	1,726		$	150,500	3.8	$	1	$	87	1.7	$	2	$	142	1.7
Subtotal	2,975		155,500		3.2	1,726			150,500		3.8	1		87		1.7	2		142		1.7
BBB+/BBB/BBB-
Single name credit default swaps	4,209		368,200		3.2	1,426			347,200		3.7	—		252		1.8	3		291		1.9
Credit default swaps referencing indices	56		416,000		4.2	6,295			416,000		5.0	1		988		4.4	—		873		4.7
Subtotal	4,265		784,200		3.7	7,721			763,200		4.4	1		1,240		3.9	3		1,164		4.0
BB+/BB/BB-
Single name credit default swaps	21		5,000		1.7	(477		)	9,000		3.5
Subtotal	21		5,000		1.7	(477		)	9,000		3.5
Total	$	7,261	$	944,700	3.6	$	8,970		$	922,700	4.3	$	2	$	1,327	3.7	$	5	$	1,306	3.7


(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.

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 ~~also purchases credit default swaps~~nets all derivatives that are subject 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 and recorded at fair value.

~~Embedded Derivatives~~arrangements.

The Company has ~~certain~~elected to include all derivatives, except embedded derivatives, ~~which~~in the table below, irrespective of whether they are ~~required~~subject to ~~be separated from their host contracts~~an enforceable master netting arrangement or a similar agreement. See Note 4 – “Investments” for information regarding the Company’s securities borrowing, lending, and ~~reported~~repurchase/reverse repurchase programs.

The following table provides information relating to the Company’s derivative instruments as ~~derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance (“modco”) or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity~~of June 30, 2020 and ~~variable annuity contracts with benefits that are considered~~

December 31, 2019 (dollars in millions):

~~Table of Contents~~



								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
June 30, 2020:
Derivative assets	$	248	$	(43	)	$	205	$	—		$	(205	)	$	—
Derivative liabilities	128		(43		)	85		(128		)	(89		)	(132		)
December 31, 2019:
Derivative assets	$	137	$	(20	)	$	117	$	—		$	(119	)	$	(2	)
Derivative liabilities	73		(20		)	53		(92		)	(52		)	(91		)


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

Credit Risk

~~embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits,~~The Company had $4 million and ~~guaranteed minimum income benefits.~~no credit exposure related to its derivative contracts, as of June 30, 2020 and December 31, 2019, respectively. The ~~changes~~Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments with a positive fair ~~values~~value. Generally, the credit exposure of ~~embedded derivatives on equity-indexed annuities described below relate~~the Company’s derivative contracts is limited to ~~changes in~~ the fair value ~~associated with capital market~~at the reporting date plus or minus any collateral posted or held by the Company.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and ~~other related assumptions. The Company’s utilization of a credit valuation adjustment~~settled through central clearing counterparties (“~~CVA”) did not have a material effect on the change in fair value of its embedded derivatives for the three and nine months ended September 30, 2017 and 2016.~~

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Embedded derivatives in modco or funds withheld arrangements included in investment related gains $ 23,044
$ 49,078
$ 106,854
$ 33,795
After the associated amortization of DAC and taxes, the related amounts included in net income 7,515
9,653
36,300
1,683
Embedded derivatives in variable annuity contracts included in investment related gains (6,205 ) 7,988
16,518
(83,089 )
After the associated amortization of DAC and taxes, the related amounts included in net income (1,074 ) 2,595
30,785
(63,415 )
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses (13,133 ) (20,104 ) (35,490 ) (20,730 )
After the associated amortization of DAC and taxes, the related amounts included in net income (9,737 ) (13,397 ) (38,059 ) (9,979 )

~~Credit Risk~~

bilateral contracts between two counterparties. 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 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 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~~central clearing counterparties for OTC cleared derivatives, and these 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 transactionspostings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the 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.

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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 ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~are reflected in the following table (dollars in thousands):~~

September 30, 2017 December 31, 2016
Estimated fair value of derivatives in net asset position $ 151,009
$ 236,985
Cash provided as collateral⁽¹⁾
30,771
1,441
Securities pledged to counterparties as collateral⁽²⁾
58,360
95,863
Cash pledged from counterparties as collateral⁽³⁾
(174,120 ) (254,498 )
Securities pledged from counterparties as collateral⁽⁴⁾
(17,782 ) (16,913 )
Initial margin for cleared derivatives⁽²⁾
(58,360 ) (73,571 )
Net amount after application of master netting agreements and collateral $ (10,122 ) $ (10,693 )
Margin account related to exchange-traded futures⁽⁵⁾
$ 7,832
$ 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.~~

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~~that 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 and liabilities 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~~what 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~~For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 – “Fair Value of ~~an asset or liability fall within different levels of~~Assets and Liabilities” in the ~~hierarchy,~~Notes to Consolidated Financial Statements included in 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).Company’s 2019 Annual Report.

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Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized below (dollars in ~~thousands)~~millions):

September 30, 2017: Fair Value Measurements Using:
Total Level 1 Level 2 Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities $ 22,535,830
$ 615,433
$ 20,648,377
$ 1,272,020
Canadian and Canadian provincial governments 3,991,185
—
3,465,820
525,365
Residential mortgage-backed securities 1,679,305
—
1,561,310
117,995
Asset-backed securities 1,694,568
—
1,549,371
145,197
Commercial mortgage-backed securities 1,313,322
—
1,311,375
1,947
U.S. government and agencies 1,603,669
1,480,357
100,061
23,251
State and political subdivisions 661,031
—
619,519
41,512
Other foreign government supranational and foreign government-sponsored enterprises 2,902,832
319,147
2,578,057
5,628
Total fixed maturity securities – available-for-sale 36,381,742
2,414,937
31,833,890
2,132,915
Funds withheld at interest – embedded derivatives 84,325
—
—
84,325
Cash equivalents 332,186
332,186
—
—
Short-term investments 56,454
—
53,095
3,359
Other invested assets:
Non-redeemable preferred stock 38,901
38,901
—
—
Other equity securities 74,030
74,030
—
—
Derivatives:
Interest rate swaps 46,258
—
46,258
—
Foreign currency forwards 1,418
—
1,418
—
CPI swaps 230
—
230
—
Credit default swaps 6,903
—
6,903
—
Equity options 9,700
—
9,700
—
Foreign currency swaps 68,896
—
68,896
—
FVO contractholder-directed unit-linked investments 210,660
209,136
1,524
—
Total other invested assets 456,996
322,067
134,929
—
Other assets - longevity swaps 37,827
—
—
37,827
Total $ 37,349,530
$ 3,069,190
$ 32,021,914
$ 2,258,426
Liabilities:
Interest sensitive contract liabilities – embedded derivatives $ 989,940
$ —
$ —
$ 989,940
Other liabilities:
Derivatives:
Interest rate swaps 8,953
—
8,953
—
Foreign currency forwards 10,287
—
10,287
—
CPI swaps 61
—
61
—
Credit default swaps (512 ) —
(512 ) —
Equity options (10,306 ) —
(10,306 ) —
Foreign currency swaps 11,740
—
11,740
—
Mortality swaps 1,683
—
—
1,683
Total $ 1,011,846
$ —
$ 20,223
$ 991,623



June 30, 2020:				Fair Value Measurements Using:
	Total			Level 1		Level 2		Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate	$	32,570		$	—	$	30,262	$	2,308
Canadian government	4,858			—		4,858		—
RMBS	2,065			—		2,061		4
ABS	2,731			—		2,623		108
CMBS	1,851			—		1,810		41
U.S. government	1,639			1,528		96		15
State and political subdivisions	1,184			—		1,175		9
Other foreign government	5,448			—		5,431		17
Total fixed maturity securities – available-for-sale	52,346			1,528		48,316		2,502
Equity securities	130			68		—		62
Funds withheld at interest – embedded derivatives	(108		)	—		—		(108		)
Cash equivalents	2,945			2,945		—		—
Short-term investments	35			17		13		5
Other invested assets:
Derivatives	205			—		205		—
FVO contractholder-directed unit-linked investments	250			192		58		—
Other	2			—		2		—
Total other invested assets	457			192		265		—
Total	$	55,805		$	4,750	$	48,594	$	2,461
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	930		$	—	$	—	$	930
Other liabilities:
Derivatives	85			—		85		—
Total	$	1,015		$	—	$	85	$	930

Table of Contents



December 31, 2019:			Fair Value Measurements Using:
	Total		Level 1		Level 2		Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate	$	31,393	$	—	$	29,207	$	2,186
Canadian government	4,612		—		3,908		704
RMBS	2,398		—		2,349		49
ABS	2,978		—		2,865		113
CMBS	1,899		—		1,853		46
U.S. government	2,152		2,030		106		16
State and political subdivisions	1,164		—		1,155		9
Other foreign government	4,525		—		4,509		16
Total fixed maturity securities – available-for-sale	51,121		2,030		45,952		3,139
Equity securities	320		243		—		77
Funds withheld at interest – embedded derivatives	121		—		—		121
Cash equivalents	274		274		—		—
Short-term investments	32		4		26		2
Other invested assets:
Derivatives	117		—		117		—
FVO contractholder-directed unit-linked investments	260		207		53		—
Other	—		—		—		—
Total other invested assets	377		207		170		—
Total	$	52,245	$	2,758	$	46,148	$	3,339
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	930	$	—	$	—	$	930
Other liabilities:
Derivatives	53		—		53		—
Total	$	983	$	—	$	53	$	930

December 31, 2016: Fair Value Measurements Using:
Total Level 1 Level 2 Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities $ 19,619,084
$ 310,995
$ 18,035,836
$ 1,272,253
Canadian and Canadian provincial governments 3,644,046
—
3,168,081
475,965
Residential mortgage-backed securities 1,278,576
—
1,118,285
160,291
Asset-backed securities 1,429,344
—
1,210,064
219,280
Commercial mortgage-backed securities 1,363,654
—
1,342,509
21,145
U.S. government and agencies 1,468,302
1,345,755
98,059
24,488
State and political subdivisions 591,796
—
550,130
41,666
Other foreign government, supranational and foreign government-sponsored enterprises 2,698,823
276,729
2,409,225
12,869
Total fixed maturity securities – available-for-sale 32,093,625
1,933,479
27,932,189
2,227,957
Funds withheld at interest – embedded derivatives (22,529 ) —
—
(22,529 )
Cash equivalents 338,601
338,601
—
—
Short-term investments 44,241
8,276
32,619
3,346
Other invested assets:
Non-redeemable preferred stock 51,123
38,317
12,806
—
Other equity securities 224,238
224,238
—
—
Derivatives:
Interest rate swaps 93,508
—
93,508
—
Credit default swaps 9,136
—
9,136
—
Equity options 26,070
—
26,070
—
Foreign currency swaps 100,394
—
100,394
—
FVO contractholder-directed unit-linked investments 190,120
188,891
1,229
—
Other 11,036
11,036
—
—
Total other invested assets 705,625
462,482
243,143
—
Other assets - longevity swaps 26,958
—
—
26,958
Total $ 33,186,521
$ 2,742,838
$ 28,207,951
$ 2,235,732
Liabilities:
Interest sensitive contract liabilities – embedded derivatives $ 990,308
$ —
$ —
$ 990,308
Other liabilities:
Derivatives:
Interest rate swaps 24,374
—
24,374
—
Foreign currency forwards 5,070
—
5,070
—
CPI swaps 262
—
262
—
Credit default swaps (5 ) —
(5 ) —
Equity options (7,389 ) —
(7,389 ) —
Foreign currency swaps (3,231 ) —
(3,231 ) —
Mortality swaps 2,462
—
—
2,462
Total $ 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.

Table of Contents

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.Quantitative Information Regarding 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.

~~Table of Contents~~

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.

~~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.

~~Table of Contents~~

~~Derivative~~- Priced 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, 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 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~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, the Company classified approximately~~ ~~5.9%~~ and 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.

~~Table of Contents~~

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.

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):



	Estimated Fair Value					Valuation Technique	Unobservable Inputs	Range (Weighted Average)
	June 30, 2020			December 31, 2019		Valuation Technique	Unobservable Inputs	June 30, 2020		December 31, 2019
Assets:
Corporate	$	1,155		$	1,070	Market comparable securities	Liquidity premium	0-2% (1%)		0-2% (1%)
							EBITDA Multiple	5.2x-8.0x (6.9x)		5.2x-7.1x (6.5x)
ABS	88			101		Market comparable securities	Liquidity premium	1-18% (3%)		0-4% (1%)
U.S. government	15			16		Market comparable securities	Liquidity premium	0-1% (1%)		0-1% (1%)
Other foreign government	17			16		Market comparable securities	Liquidity premium	0-1% (1%)		0-1% (1%)
Equity securities	32			32		Market comparable securities	Liquidity premium	4	%	4	%
							EBITDA Multiple	6.9x-10.6x (8.0x)		6.9x-9.3x (7.8x)

Funds withheld at interest – embedded derivatives	(108		)	121		Total return swap	Mortality	0-100% (2%)		0-100% (2%)
							Lapse	0-35% (14%)		0-35% (13%)
							Withdrawal	0-5% (3%)		0-5% (3%)
							CVA	0-5% (2%)		0-5% (1%)
							Crediting rate	2-4% (2%)		2-4% (2%)
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives – indexed annuities	746			768		Discounted cash flow	Mortality	0-100% (2%)		0-100% (2%)
							Lapse	0-35% (14%)		0-35% (10%)
							Withdrawal	0-5% (3%)		0-5% (3%)
							Option budget projection	2-4% (2%)		2-4% (2%)
Interest-sensitive contract liabilities – embedded derivatives – variable annuities	184			163		Discounted cash flow	Mortality	0-100% (2%)		0-100% (1%)
							Lapse	0-25% (5%)		0-25% (5%)
							Withdrawal	0-7% (5%)		0-7% (5%)
							CVA	0-5% (2%)		0-5% (1%)
							Long-term volatility	0-27% (12%)		0-27% (12%)

Table of Contents

Estimated Fair Value       Valuation Technique Unobservable Inputs Range (Weighted Average)
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Assets:
Corporate securities $ 150,170
$ 167,815
Market comparable securities Liquidity premium 0-2% (1%)
0-2%  (1%)
U.S. government and agencies 23,251
24,488
Market comparable securities Liquidity premium 0-1% (1%)
0-1%  (1%)
State and political subdivisions 4,544
4,670
Market comparable securities     Liquidity premium 1 % 1 %
Funds withheld at interest- embedded derivatives 84,325
(22,529 ) Total return swap Mortality 0-100%  (3%)
0-100%  (2%)
Lapse 0-35%  (10%)
0-35%  (8%)
Withdrawal 0-5%  (4%)
0-5%  (3%)
CVA 0-5%  (1%)
0-5%  (1%)
Crediting rate 2-4%  (3%)
2-4%  (2%)
Longevity swaps 37,827
26,958
Discounted cash flow Mortality 0-100%  (2%)
0-100%  (2%)
Mortality improvement (10%)-10%  (3%)
(10%)-10%  (3%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities 821,821
805,672
Discounted cash flow Mortality 0-100%  (3%)
0-100% (2%)
Lapse 0-35%  (10%)
0-35% (8%)
Withdrawal 0-5%  (4%)
0-5% (3%)
Option budget projection 2-4%  (3%)
2-4% (2%)

Interest sensitive contract liabilities- embedded derivatives- variable annuities 168,119
184,636

Discounted cash
flow
Mortality 0-100% (1%)
0-100% (2%)
Lapse 0-25% (5%)
0-25% (6%)
Withdrawal 0-7% (3%)
0-7% (3%)
CVA 0-5% (1%)
0-5% (1%)
Long-term volatility 0-27% (9%)
0-27% (14%)
Mortality swaps 1,683
2,462
Discounted cash flow Mortality 0-100%  (1%)
0-100%  (1%)

~~The Company recognizes transfers of assets~~Changes in Level 3 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.~~ Liabilities

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~~are 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~~

For further information on the Company’s valuation processes, see Note 6 – “Fair Value of ~~Level 3 were also due~~Assets and Liabilities” in the Notes to ~~ratings upgrades~~Consolidated Financial Statements included in the Company’s 2019 Annual Report.

The reconciliations for all assets and liabilities measured at fair value on ~~mortgage-backed securities that had previously had below investment-grade ratings.~~a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in millions):



For the three months ended June 30, 2020:	Fixed maturity securities - available-for-sale																Funds withheld at interest – embedded derivatives			Other assets and liabilities, net – longevity and mortality swaps		Interest-sensitive contract liabilities – embedded derivatives
	Corporate			Foreign govt		Structured securities			U.S. and local govt			Equity securities		Short-term investments			Funds withheld at interest – embedded derivatives
Fair value, beginning of period	$	2,197		$	15	$	144		$	25		$	56	$	1		$	(109	)	$	—	$	(1,042	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			—		—			—			—		—			—			—		—
Investment related gains (losses), net	(14		)	—		—			—			3		—			1			—		106
Interest credited	—			—		—			—			—		—			—			—		(7		)
Included in other comprehensive income	112			2		17			—			—		—			—			—		—
Other revenues	—			—		—			—			—		—			—			—		—
Purchases⁽¹⁾	79			—		15			—			3		5			—			—		(8		)
Sales⁽¹⁾	(18		)	—		(3		)	—			—		—			—			—		—
Settlements⁽¹⁾	(44		)	—		(18		)	(1		)	—		(1		)	—			—		21
Transfers into Level 3	—			—		—			—			—		—			—			—		—
Transfers out of Level 3	(4		)	—		(2		)	—			—		—			—			—		—
Fair value, end of period	$	2,308		$	17	$	153		$	24		$	62	$	5		$	(108	)	$	—	$	(930	)
Unrealized gains and losses recorded 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	$	—		$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—
Investment related gains (losses), net	(15		)	—		—			—			3		—			1			—		103
Other revenues	—			—		—			—			—		—			—			—		—
Interest credited	—			—		—			—			—		—			—			—		(27		)
Included in other comprehensive income	111			2		16			—			—		—			—			—		—

Table of Contents



For the six months ended June 30, 2020:	Fixed maturity securities - available-for-sale																		Funds withheld at interest – embedded derivatives			Other assets and liabilities, net – longevity and mortality swaps		Interest-sensitive contract liabilities – embedded derivatives
	Corporate			Foreign govt			Structured securities			U.S. and local govt			Equity securities			Short-term investments			Funds withheld at interest – embedded derivatives
Fair value, beginning of period	$	2,186		$	720		$	208		$	25		$	77		$	2		$	121		$	—	$	(930	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	1			—			—			—			—			—			—			—		—
Investment related gains (losses), net	(25		)	—			—			—			(4		)	—			(229		)	—		(22		)
Interest credited	—			—			—			—			—			—			—			—		(1		)
Included in other comprehensive income	(3		)	1			(10		)	1			—			—			—			—		—
Other revenues	—			—			—			—			—			—			—			—		—
Purchases⁽¹⁾	310			—			24			—			3			5			—			—		(19		)
Sales⁽¹⁾	(62		)	—			(4		)	—			—			—			—			—		—
Settlements⁽¹⁾	(96		)	—			(31		)	(2		)	—			(1		)	—			—		42
Transfers into Level 3	1			—			21			—			—			—			—			—		—
Transfers out of Level 3	(4		)	(704		)	(55		)	—			(14		)	(1		)	—			—		—
Fair value, end of period	$	2,308		$	17		$	153		$	24		$	62		$	5		$	(108	)	$	—	$	(930	)
Unrealized gains and losses recorded 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	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Investment related gains (losses), net	(26		)	—			—			—			(4		)	—			(229		)	—		(27		)
Other revenues	—			—			—			—			—			—			—			—		—
Claims & other policy benefits	—			—			—			—			—			—			—			—		—
Interest credited	—			—			—			—			—			—			—			—		(43		)
Included in other comprehensive income	(29		)	1			(11		)	1			—			—			—			—		—

Table of Contents



For the three months ended June 30, 2019:	Fixed maturity securities - available-for-sale																Funds withheld at interest – embedded derivatives		Other assets and liabilities, net – longevity and mortality swaps		Interest-sensitive contract liabilities – embedded derivatives
	Corporate			Foreign govt		Structured securities			U.S. and local govt			Equity securities		Short-term investments			Funds withheld at interest – embedded derivatives
Fair value, beginning of period	$	1,531		$	613	$	120		$	27		$	40	$	29		$	108	$	49	$	(904	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			3		—			—			—		—			—		—		—
Investment related gains (losses), net	—			—		—			—			2		—			5		—		(18		)
Interest credited	—			—		—			—			—		—			—		—		(8		)
Included in other comprehensive income	17			61		1			1			—		—			—		1		—
Other revenues	—			—		—			—			—		—			—		1		3
Purchases⁽¹⁾	176			10		12			—			3		1			—		—		—
Sales⁽¹⁾	(14		)	—		—			—			—		(1		)	—		—		—
Settlements⁽¹⁾	(81		)	—		(14		)	(1		)	—		(1		)	—		—		19
Transfers into Level 3	16			—		7			—			—		—			—		—		—
Transfers out of Level 3	(1		)	—		—			—			—		—			—		—		—
Fair value, end of period	$	1,644		$	687	$	126		$	27		$	45	$	28		$	113	$	51	$	(908	)
Unrealized gains and losses recorded 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	$	—		$	4	$	—		$	—		$	—	$	—		$	—	$	—	$	—
Investment related gains (losses), net	—			—		—			—			2		—			5		—		(20		)
Other revenues	—			—		—			—			—		—			—		1		—
Interest credited	—			—		—			—			—		—			—		—		(28		)

Table of Contents

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 nine months ended September 30, 2016. The following tables present the transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2017 (dollars in thousands):



For the six months ended June 30, 2019:	Fixed maturity securities - available-for-sale																Funds withheld at interest – embedded derivatives		Other assets and liabilities, net – longevity and mortality swaps		Interest-sensitive contract liabilities – embedded derivatives
	Corporate			Foreign govt		Structured securities			U.S. and local govt			Equity securities		Short-term investments			Funds withheld at interest – embedded derivatives
Fair value, beginning of period	$	1,331		$	533	$	103		$	28		$	33	$	2		$	110	$	47	$	(945	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			7		—			—			—		—			—		—		—
Investment related gains (losses), net	—			—		—			—			6		—			3		—		—
Interest credited	—			—		—			—			—		—			—		—		(5		)
Included in other comprehensive income	36			137		2			1			—		—			—		—		—
Other revenues	—			—		—			—			—		—			—		4		—
Purchases⁽¹⁾	391			10		43			—			6		28			—		—		4
Sales⁽¹⁾	(25		)	—		—			—			—		(1		)	—		—		—
Settlements⁽¹⁾	(104		)	—		(29		)	(2		)	—		(1		)	—		—		38
Transfers into Level 3	16			—		7			—			—		—			—		—		—
Transfers out of Level 3	(1		)	—		—			—			—		—			—		—		—
Fair value, end of period	$	1,644		$	687	$	126		$	27		$	45	$	28		$	113	$	51	$	(908	)
Unrealized gains and losses recorded 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	$	—		$	7	$	—		$	—		$	—	$	—		$	—	$	—	$	—
Investment related gains (losses), net	—			—		—			—			6		—			3		—		(3		)
Other revenues	—			—		—			—			—		—			—		4		—
Interest credited	—			—		—			—			—		—			—		—		(3		)

2017

Transfers from
Level 1 to
Level 2

Transfers from
Level 2 to
Level 1
Three months ended September 30:
Fixed maturity securities - available-for-sale:
Corporate securities $ —
$ —

Nine months ended September 30:
Fixed maturity securities - available-for-sale:
Corporate securities $ —
$ 88,674

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

For the three months ended September 30, 2017: Fixed maturity securities - available-for-sale

Corporate
securities
Canadian and Canadian provincial governments
Residential
mortgage-
backed
securities

Asset-backed
securities
Fair value, beginning of period $ 1,291,054
$ 533,270
$ 148,685
$ 201,589
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (383 ) 3,460
(30 ) 160
Investment related gains (losses), net 396
—
44
—
Included in other comprehensive income (2,700 ) (11,365 ) 104
(101 )
Purchases⁽¹⁾
107,670
—
26,765
—
Sales⁽¹⁾
(26,337 ) —
(3,553 ) —
Settlements⁽¹⁾
(88,551 ) —
(3,645 ) (15,243 )
Transfers into Level 3 3,844
—
15
36,994
Transfers out of Level 3 (12,973 ) —
(50,390 ) (78,202 )
Fair value, end of period $ 1,272,020
$ 525,365
$ 117,995
$ 145,197
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 $ (394 ) $ 3,460
$ (27 ) $ 156

~~Table of Contents~~

For the three months ended September 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 $ 1,943
$ 23,567
$ 34,434
$ 11,994
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses —
(116 ) 26
(1 )
Included in other comprehensive income 5
6
(208 ) (7 )
Purchases⁽¹⁾
—
134
—
495
Settlements⁽¹⁾
(1 ) (340 ) (35 ) —
Transfers into Level 3 —
—
7,295
—
Transfers out of Level 3 —
—
—
(6,853 )
Fair value, end of period $ 1,947
$ 23,251
$ 41,512
$ 5,628
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 $ —
$ (116 ) $ 26
$ (1 )

For the three months ended September 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 $ 3,548
$ 61,281
$ 33,349
$ (974,631 ) $ (1,552 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net —
23,044
—
(10,047 ) —
Interest credited —
—
—
(8,335 ) —
Included in other comprehensive income (3 ) —
1,144
—
1
Other revenues —
—
3,334
—
(132 )
Purchases⁽¹⁾
3,164
—
—
(18,736 ) —
Settlements⁽¹⁾
(114 ) —
—
21,809
—
Transfers out of Level 3 (3,236 ) —

—
—
Fair value, end of period $ 3,359
$ 84,325
$ 37,827
$ (989,940 ) $ (1,683 )
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 —
23,044
—
(11,900 ) —
Other revenues —
—
3,334
—
(132 )
Interest credited —
—
—
(30,145 ) —

~~Table of Contents~~

For the nine months ended September 30, 2017: Fixed maturity securities - available-for-sale

Corporate
securities
Canadian and Canadian provincial governments
Residential
mortgage-
backed
securities

Asset-backed
securities
Fair value, beginning of period $ 1,272,253
$ 475,965
$ 160,291
$ 219,280
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (1,202 ) 9,731
(304 ) 1,689
Investment related gains (losses), net 7,592
—
524
—
Interest credited

Included in other comprehensive income (2,300 ) 39,669
2,716
6,802
Purchases⁽¹⁾
257,671
—
72,582
45,215
Sales⁽¹⁾
(49,511 ) —
(18,624 ) —
Settlements⁽¹⁾
(234,552 ) —
(15,084 ) (60,966 )
Transfers into Level 3 35,042
—
5,515
75,752
Transfers out of Level 3 (12,973 ) —
(89,621 ) (142,575 )
Fair value, end of period $ 1,272,020
$ 525,365
$ 117,995
$ 145,197
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 $ (1,213 ) $ 9,731
$ (155 ) $ 556
Investment related gains (losses), net (2,788 ) —
(346 ) —

For the nine months ended September 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 $ 21,145
$ 24,488
$ 41,666
$ 12,869
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses 709
(348 ) (68 ) (1 )
Investment related gains (losses), net (595 ) —
—
—
Included in other comprehensive income (57 ) 269
(228 ) (210 )
Other revenues —
—
—
—
Purchases⁽¹⁾
—
370
—
495
Sales⁽¹⁾
(3,720 ) —
—
—
Settlements⁽¹⁾
(5,403 ) (1,528 ) (309 ) (672 )
Transfers into Level 3 —
—
7,295
—
Transfers out of Level 3 (10,132 ) —
(6,844 ) (6,853 )
Fair value, end of period $ 1,947
$ 23,251
$ 41,512
$ 5,628
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 $ —
$ (348 ) $ (68 ) $ (1 )

~~Table of Contents~~

For the nine months ended September 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 —
106,854
—
9,005
—
Interest credited —
—
—
(20,408 ) —
Included in other comprehensive income 1
—
3,689
—
1
Other revenues —
—
7,180
—
(922 )
Purchases⁽¹⁾
3,520
—
—
(51,276 ) —
Settlements⁽¹⁾
(272 ) —
—
63,047
1,700
Transfers out of Level 3 (3,236 ) —
—
—
—
Fair value, end of period $ 3,359
$ 84,325
$ 37,827
$ (989,940 ) $ (1,683 )
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 —
106,854
—
2,934
—
Other revenues —
—
7,180
—
(922 )
Interest credited —
—
—
(83,456 ) —


(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.

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

For the three months ended September 30, 2016: 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
Fair value, beginning of period $ 1,297,382
$ 554,192
$ 165,979
$ 298,816
$ 37,935
$ 26,255
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (567 ) 3,085
(40 ) 173
304
(122 )
Investment related gains (losses), net 17,917
—
—
—
—
—
Included in other comprehensive income (19,635 ) 16,342
2,597
3,410
(94 ) (135 )
Purchases⁽¹⁾
54,492
—
27,548
5,013
—
147
Sales⁽¹⁾
(26,320 ) —
—
—
—
—
Settlements⁽¹⁾
(44,110 ) —
(6,935 ) (18,602 ) (1 ) (312 )
Transfers into Level 3 —
—
1,544
28,285
—
—
Transfers out of Level 3 (23,255 ) —
—
(93,444 ) (637 ) —
Fair value, end of period $ 1,255,904
$ 573,619
$ 190,693
$ 223,651
$ 37,507
$ 25,833
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 $ (489 ) $ 3,085
$ (40 ) $ 173
$ 304
$ (122 )

~~Table of Contents~~

For the three months ended September 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
Fair value, beginning of period $ 35,246
$ 13,706
$ (91,981 ) $ 17,781
$ (1,125,380 ) $ (1,997 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses 10
—
—
—
—
—
Investment related gains (losses), net —
—
49,078
—
7,988
—
Interest credited —
—
—
—
(20,104 ) —
Included in other comprehensive income 553
48
—
327
—
—
Other revenues —
—
—
8,921
—
(400 )
Purchases⁽¹⁾
1,986
—
—
—
(11,853 ) —
Sales⁽¹⁾
—
—
—
—
—
—
Settlements⁽¹⁾
(32 ) (328 ) —
—
19,225
329
Transfers into Level 3 —
—
—
—
—
—
Transfers out of Level 3 —
—
—
—
—
—
Fair value, end of period $ 37,763
$ 13,426
$ (42,903 ) $ 27,029
$ (1,130,124 ) $ (2,068 )
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 $ 10
$ —
$ —
$ —
$ —
$ —
Investment related gains (losses), net —
—
49,078
—
3,969
—
Other revenues —
—
—
8,921
—
(400 )
Interest credited —
—
—
—
(39,329 ) —

For the nine months ended September 30, 2016: 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
Fair value, beginning of period $ 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 (1,986 ) 9,136
(411 ) 599
1,437
(367 )
Investment related gains (losses), net (3,939 ) —
(1,922 ) 1,101
(3,289 ) —
Interest credited —
—
—
—
—
—
Included in other comprehensive income 36,438
148,407
2,104
(4,324 ) (2,453 ) 922
Other revenues —
—
—
—
—
—
Purchases⁽¹⁾
195,070
—
99,776
102,063
1,545
404
Sales⁽¹⁾
(36,803 ) —
(167,684 ) (38,681 ) (25,976 ) —
Settlements⁽¹⁾
(141,065 ) —
(31,839 ) (26,523 ) (138 ) (1,391 )
Transfers into Level 3 10,206
—
1,544
53,081
—
—
Transfers out of Level 3 (28,987 ) —
(41,524 ) (167,501 ) (2,182 ) —
Fair value, end of period $ 1,255,904
$ 573,619
$ 190,693
$ 223,651
$ 37,507
$ 25,833
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 $ (1,917 ) $ 9,136
$ 2
$ 523
$ 1,335
$ (367 )

~~Table of Contents~~

For the nine months ended September 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
Fair value, beginning of period $ 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 205
—
—
—
—
—
Investment related gains (losses), net —
—
33,795
—
(83,089 ) —
Interest credited —
—
—
—
(20,730 ) —
Included in other comprehensive income 1,725
336
—
631
—
—
Other revenues —
—
—
11,402
—
222
Purchases⁽¹⁾
1,986
—
—
—
(9,817 ) —
Sales⁽¹⁾
—
—
—
—
—
—
Settlements⁽¹⁾
(290 ) (975 ) —
—
54,096
329
Transfers into Level 3 —
—
—
—
—
—
Transfers out of Level 3 (4,205 ) —
—
—
—
—
Fair value, end of period $ 37,763
$ 13,426
$ (42,903 ) $ 27,029
$ (1,130,124 ) $ (2,068 )
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 $ 205
$ —
$ —
$ —
$ —
$ —
Investment related gains (losses), net —
—
33,795
—
(92,842 ) —
Other revenues —
—
—
11,402
—
222
Interest credited —
—
—
—
(74,826 ) —


~~(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.

~~Table of Contents~~

Nonrecurring Fair Value Measurements

The ~~following table presents information for~~Company has certain assets ~~measured~~subject to measurement at ~~estimated~~ fair value on a nonrecurring basis, ~~during~~in which measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired. During the ~~periods presented~~six months ended June 30, 2020 and ~~still held~~2019, the Company did not have any material assets that were measured 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).~~value due to impairment.

Carrying Value After Measurement Net Investment Gains (Losses)
At September 30, Three months ended September 30, Nine months ended September 30,
(dollars in thousands) 2017 2016 2017 2016 2017 2016
Mortgage loans⁽¹⁾
$ —
$ 6,913
$ —
$ 747
$ —
$ 45
Limited partnership interests⁽²⁾
4,656
4,460
(896 ) —
(7,204 ) (2,039 )
Private equities⁽³⁾
106
—
(531 ) —
(531 ) —


~~(1)~~	Estimated fair values for impaired mortgage loans are based on internal valuation models using unobservable inputs or, if the loans are in foreclosure or are otherwise determined to be collateral dependent, are based on external appraisals of the underlying collateral.


~~(2)~~	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.


~~(3)~~	~~The fair value of the Company’s private equity investments is based on external valuation models.~~

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, as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2019 Annual Report. 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.

Table of Contents


September 30, 2017:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3		NAV
June 30, 2020:													Carrying Value ⁽¹⁾		Estimated Fair Value		Fair Value Measurement Using:
																	Level 1		Level 2		Level 3		NAV
Assets:
Mortgage loans on real estate	$	4,322,329	$	4,494,964	$	—	$	—	$	4,494,964	$	—	$	5,974	$	6,225	$	—	$	—	$	6,225	$	—
Policy loans	1,340,146		1,340,146		—		1,340,146		—		—		1,310		1,310		—		1,310		—		—
Funds withheld at interest⁽¹⁾	5,931,416		6,309,369		—		—		6,309,369		—		5,344		5,605		—		—		5,605		—
Cash and cash equivalents⁽²⁾	872,404		872,404		872,404		—		—		—		1,368		1,368		1,368		—		—		—
Short-term investments⁽²⁾	24,128		24,128		24,128		—		—		—		49		49		49		—		—		—
Other invested assets⁽²⁾	601,905		627,650		28,267		68,342		230,355		300,686		1,300		1,385		4		91		896		394
Accrued investment income	420,111		420,111		—		420,111		—		—		494		494		—		494		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	12,616,104	$	12,960,161	$	—	$	—	$	12,960,161	$	—	$	17,945	$	18,659	$	—	$	—	$	18,659	$	—
Long-term debt	2,778,480		2,997,791		—		—		2,997,791		—		3,573		3,661		—		—		3,661		—
Collateral finance and securitization notes	796,825		708,342		—		—		708,342		—		433		391		—		—		391		—

December 31, 2016:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3		NAV
December 31, 2019:													Carrying Value ⁽¹⁾		Estimated Fair Value		Fair Value Measurement Using:
																	Level 1		Level 2		Level 3		NAV
Assets:
Mortgage loans on real estate	$	3,775,522	$	3,786,987	$	—	$	—	$	3,786,987	$	—	$	5,706	$	5,935	$	—	$	—	$	5,935	$	—
Policy loans	1,427,602		1,427,602		—		1,427,602		—		—		1,319		1,319		—		1,319		—		—
Funds withheld at interest⁽¹⁾	5,893,381		6,193,166		—		—		6,193,166		—		5,526		5,870		—		—		5,870		—
Cash and cash equivalents⁽²⁾	862,117		862,117		862,117		—		—		—		1,175		1,175		1,175		—		—		—
Short-term investments⁽²⁾	32,469		32,469		32,469		—		—		—		32		32		32		—		—		—
Other invested assets⁽²⁾	477,132		510,640		26,294		55,669		131,904		296,773		1,259		1,278		5		68		803		402
Accrued investment income	347,173		347,173		—		347,173		—		—		493		493		—		493		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	10,225,099	$	10,234,544	$	—	$	—	$	10,234,544	$	—	$	19,163	$	21,542	$	—	$	—	$	21,542	$	—
Long-term debt	3,088,635		3,186,173		—		—		3,186,173		—		2,981		3,179		—		—		3,179		—
Collateral finance and securitization notes	840,700		745,805		—		—		745,805		—		598		551		—		—		551		—


(1)	Carrying values presented herein may differ from those ~~presented~~ in the Company’s condensed consolidated balance sheets because certain items within the respective financial statement ~~caption are embedded derivatives and are~~captions may be 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.

~~Table of Contents~~

~~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 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 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 a risk free rate plus an illiquidity premium. The cash flow analysis considers future expenses, changes in property prices, and actuarial 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.

~~Long-term Debt/Collateral Finance and Securitization Notes~~ – The fair value of the Company’s 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 long-term debt, and collateral finance and securitization notes are generally obtained from brokers and is considered Level 3 in the fair value hierarchy.

~~Table of Contents~~


7.	Segment Information

The accounting policies of the segments are the same as those described in the ~~Summary of~~ Significant Accounting Policies and Pronouncements in Note 2 of the consolidated financial statements accompanying the ~~2016~~2019 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.

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.

Table of Contents

The Company has geographic-based and business-based operational segments. Geographic-based operations are 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)~~millions).



	Three months ended June 30,				Six months ended June 30,
Revenues:	2020		2019		2020		2019
U.S. and Latin America:
Traditional	$	1,642	$	1,584	$	3,175	$	3,125
Financial Solutions	323		302		462		556
Total	1,965		1,886		3,637		3,681
Canada:
Traditional	311		318		607		630
Financial Solutions	22		24		46		48
Total	333		342		653		678
Europe, Middle East and Africa:
Traditional	371		370		778		754
Financial Solutions	136		114		214		223
Total	507		484		992		977
Asia Pacific:
Traditional	636		634		1,303		1,307
Financial Solutions	75		59		143		114
Total	711		693		1,446		1,421
Corporate and Other	90		62		82		130
Total	$	3,606	$	3,467	$	6,810	$	6,887

Three months ended September 30, Nine months ended September 30,
Revenues: 2017 2016 2017 2016
U.S. and Latin America:
Traditional $ 1,521,383
$ 1,444,917
$ 4,532,584
$ 4,339,737
Financial Solutions 264,170
276,135
834,992
620,117
Total 1,785,553
1,721,052
5,367,576
4,959,854
Canada:
Traditional 281,095
280,959
814,643
827,871
Financial Solutions 12,430
12,359
36,240
34,897
Total 293,525
293,318
850,883
862,768
Europe, Middle East and Africa:
Traditional 360,972
289,070
1,024,978
880,346
Financial Solutions 77,041
99,752
230,435
248,485
Total 438,013
388,822
1,255,413
1,128,831
Asia Pacific:
Traditional 561,660
427,647
1,628,419
1,299,417
Financial Solutions 16,932
19,037
55,368
56,153
Total 578,592
446,684
1,683,787
1,355,570
Corporate and Other 49,627
50,701
125,667
145,190
Total $ 3,145,310
$ 2,900,577
$ 9,283,326
$ 8,452,213



	Three months ended June 30,						Six months ended June 30,
Income (loss) before income taxes:	2020			2019			2020			2019
U.S. and Latin America:
Traditional	$	(158	)	$	55		$	(220	)	$	67
Financial Solutions	117			92			102			175
Total	(41		)	147			(118		)	242
Canada:
Traditional	44			46			67			97
Financial Solutions	4			4			7			5
Total	48			50			74			102
Europe, Middle East and Africa:
Traditional	16			16			33			32
Financial Solutions	98			52			128			90
Total	114			68			161			122
Asia Pacific:
Traditional	47			34			71			71
Financial Solutions	26			2			1			8
Total	73			36			72			79
Corporate and Other	1			(41		)	(90		)	(68		)
Total	$	195		$	260		$	99		$	477

Three months ended September 30, Nine months ended September 30,
Income (loss) before income taxes: 2017 2016 2017 2016
U.S. and Latin America:
Traditional $ 160,512
$ 77,081
$ 281,066
$ 239,609
Financial Solutions 89,118
102,714
299,689
196,672
Total 249,630
179,795
580,755
436,281
Canada:
Traditional 28,789
34,275
80,953
97,679
Financial Solutions 4,472
1,160
12,489
3,880
Total 33,261
35,435
93,442
101,559
Europe, Middle East and Africa:
Traditional 15,421
8,515
40,751
14,233
Financial Solutions 30,953
43,786
91,776
96,679
Total 46,374
52,301
132,527
110,912
Asia Pacific:
Traditional 26,564
19,822
121,574
95,464
Financial Solutions (229 ) 7,549
11,020
16,029
Total 26,335
27,371
132,594
111,493
Corporate and Other (15,438 ) (7,302 ) (51,997 ) (11,842 )
Total $ 340,162
$ 287,600
$ 887,321
$ 748,403

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Assets:	June 30, 2020		December 31, 2019
U.S. and Latin America:
Traditional	$	19,867	$	19,353
Financial Solutions	24,832		25,117
Total	44,699		44,470
Canada:
Traditional	4,282		4,361
Financial Solutions	19		64
Total	4,301		4,425
Europe, Middle East and Africa:
Traditional	4,087		4,032
Financial Solutions	6,449		6,502
Total	10,536		10,534
Asia Pacific:
Traditional	7,559		6,800
Financial Solutions	3,829		2,557
Total	11,388		9,357
Corporate and Other	9,805		7,945
Total	$	80,729	$	76,731

Assets: September 30, 2017 December 31, 2016
U.S. and Latin America:
Traditional $ 18,707,824
$ 18,140,825
Financial Solutions 16,101,746
13,712,106
Total 34,809,570
31,852,931
Canada:
Traditional 4,177,125
3,846,682
Financial Solutions 88,609
85,405
Total 4,265,734
3,932,087
Europe, Middle East and Africa:
Traditional 2,978,701
2,559,124
Financial Solutions 4,094,518
3,876,131
Total 7,073,219
6,435,255
Asia Pacific:
Traditional 4,750,652
3,968,081
Financial Solutions 1,187,514
676,281
Total 5,938,166
4,644,362
Corporate and Other 6,607,342
6,233,244
Total $ 58,694,031
$ 53,097,879

8. Commitments, Contingencies and Guarantees

Commitments

Funding of Investments

The Company’s commitments to fund investments as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are presented in the following table (dollars in ~~thousands)~~millions):



	June 30, 2020		December 31, 2019
Limited partnership interests and joint ventures	$	656	$	685
Commercial mortgage loans	70		243
Bank loans and private placements	141		181
Lifetime mortgages	69		87

September 30, 2017 December 31, 2016
Limited partnership interests and real estate joint ventures $ 349,157
$ 332,169
Commercial mortgage loans 75,492
126,248
Bank loans and private placements 51,479
58,318
Equity release mortgages 156,777
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 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~~

The Company has a liability for expected credit losses, included in other ~~invested assets.~~liabilities on the Company’s condensed consolidated balance sheets, associated with unfunded commitments of approximately $1 million as of June 30, 2020.

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.

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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~~In addition, RGA ~~should the subsidiary fail~~has also committed to provide capital support to a third-party, in exchange for a fee, by agreeing to assume real estate leases in the ~~required funding,~~

~~Table~~event of ~~Contents~~

~~however, as~~a severe and prolonged decline in the commercial lease market. Upon assumption of ~~September~~a lease, RGA would recognize a right-of-use asset and lease obligation. As of June 30, ~~2017,~~2020, 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. The following table presents the maximum potential obligation for these commitments as of ~~September~~June 30, ~~2017~~2020 (dollars in millions):



Commitment Period:	Maximum Potential Obligation
2035	2,627
2036	3,408
2037	2,850
2038	2,300
2039	11,350

Commitment Period: Maximum Potential Obligation
2023 $ 500.0
2033 450.0
2034 2,000.0
2035 1,314.2
2036 2,932.0
2037 5,750.0

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~~of 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 securities borrowing and repurchase arrangements provide additional security to third parties should a subsidiary fail to provide securities when due. RGA’s guarantees issued as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are reflected in the following table (dollars in ~~thousands)~~millions):



	June 30, 2020		December 31, 2019
Treaty guarantees	$	1,719	$	1,821
Treaty guarantees, net of assets in trust	829		891
Securities borrowing and repurchase arrangements	271		275
Financing arrangements	24		42

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September 30, 2017 December 31, 2016
Treaty guarantees $ 936,032
$ 902,216
Treaty guarantees, net of assets in trust 810,870
780,786
Securities borrowing and repurchase arrangements 295,285
263,820
Financing arrangements 100,602
119,073
Lease obligations 1,895
2,428


9.	Income Tax

~~Provision~~

The provision for income tax expense differed from the amounts computed by applying the U.S. federal income tax statutory rate of ~~35.0%~~21.0% to pre-tax income as a result of the following for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019, respectively (dollars in ~~thousands)~~millions):



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Tax provision at U.S. statutory rate	$	41		$	55		$	21		$	100
Increase (decrease) in income taxes resulting from:
Tax rate differences on income in other jurisdictions	8			1			13			1
Differences in tax bases in foreign jurisdictions	(17		)	(6		)	(13		)	(21		)
Deferred tax valuation allowance	8			5			3			23
Amounts related to uncertain tax positions	1			2			7			3
Corporate rate changes	—			—			—			(2		)
Equity based compensation	1			(4		)	—			(5		)
Return to provision adjustments	(2		)	3			(1		)	4
Accrued Expenses	(4		)	1			(1		)	1
Other, net	1			1			—			1
Total provision for income taxes	$	37		$	58		$	29		$	105
Effective tax rate	18.9		%	22.1		%	28.6		%	21.9		%

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Tax provision at U.S. statutory rate $ 119,057
$ 100,660
$ 310,562
$ 261,941
Increase (decrease) in income taxes resulting from:
Foreign tax rate differing from U.S. tax rate (3,635 ) (2,335 ) (14,049 ) (14,617 )
Differences in tax bases in foreign jurisdictions 2,126
(7,078 ) (14,633 ) (21,567 )
Deferred tax valuation allowance (2,501 ) 4,411
11,627
13,698
Amounts related to tax audit contingencies 299
(3,979 ) (873 ) (175 )
Corporate rate changes (1,139 ) —
(2,332 ) —
Subpart F 64
1,779
1,390
3,212
Foreign tax credits 1,230
(1,934 ) (834 ) (2,655 )
Equity compensation excess benefit (2,762 ) —
(7,226 ) —
Return to provision adjustments 452
(1,996 ) 133
(2,227 )
Other, net (620 ) (647 ) (1,737 ) (501 )
Total provision for income taxes $ 112,571
$ 88,881
$ 282,028
$ 237,109
Effective tax rate 33.1 % 30.9 % 31.8 % 31.7 %

~~Table of Contents~~

The effective tax rate for the ~~third~~second quarter and first six months of ~~2017 was lower~~2020 differed from the U.S. Statutory rate of 21.0% primarily as a result of benefits from differences in bases in foreign jurisdictions, increases to the valuation allowance, return to provision adjustments, and accruals related to uncertain tax positions.

The effective tax rate for the second quarter and first six months of 2019 were higher than the U.S. Statutory rate of ~~35.0%~~21.0% primarily as a result of ~~income generated~~valuation allowances established on losses in ~~non-U.S.~~foreign jurisdictions, ~~with lower~~accrual of uncertain tax ~~rates than the U.S. The first nine months of 2017 also includes a reduction related~~positions, and return to provision adjustments. These expenses were partially offset by benefits from differences in ~~tax~~ bases in foreign jurisdictions and aexcess tax ~~benefit from the filing of amended returns, which was partially offset with a valuation allowance established~~benefits related to amended return filings. The third quarter of 2016 effective tax rate was lower than the U.S. Statutory rate of 35.0% primarily as a result of effectively settling an uncertain tax position during the quarter and adjustments related to the filing of the US Federal Income tax return. The first nine months of 2016 effective tax rate was 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.equity compensation.

10. Employee Benefit Plans

The components of net periodic benefit ~~costs,~~cost, included in other operating expenses on the Company’s condensed consolidated statements of income, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were as follows (dollars in ~~thousands)~~millions):



	Pension Benefits						Other Benefits
	Three months ended June 30,						Three months ended June 30,
	2020			2019			2020			2019
Service cost	$	4		$	3		$	1		$	1
Interest cost	1			2			1			1
Expected return on plan assets	(3		)	(1		)	—			—
Amortization of prior service cost (credit)	—			—			(1		)	(1		)
Amortization of prior actuarial losses	1			1			1			—
Net periodic benefit cost	$	3		$	5		$	2		$	1



	Pension Benefits						Other Benefits
	Six months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Service cost	$	7		$	6		$	1		$	2
Interest cost	3			3			2			1
Expected return on plan assets	(5		)	(3		)	—			—
Amortization of prior service cost (credit)	—			—			(1		)	(1		)
Amortization of prior actuarial losses	2			2			1			1
Net periodic benefit cost	$	7		$	8		$	3		$	3

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Pension Benefits Other Benefits
Three months ended September 30, Three months ended September 30,
2017 2016 2017 2016
Service cost $ 2,699
$ 2,479
$ 465
$ 131
Interest cost 1,314
1,168
459
408
Expected return on plan assets (1,554 ) (1,285 ) —
—
Amortization of prior service cost 85
76
(675 ) (467 )
Amortization of prior actuarial loss 1,081
1,040
580
137
Settlements 256
—
—
—
Net periodic benefit cost $ 3,881
$ 3,478
$ 829
$ 209

Pension Benefits Other Benefits
Nine months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service cost $ 8,098
$ 7,437
$ 1,907
$ 2,162
Interest cost 3,943
3,503
1,589
1,694
Expected return on plan assets (4,662 ) (3,854 ) —
—
Amortization of prior service cost 254
229
(986 ) (467 )
Amortization of prior actuarial loss 3,244
3,121
1,494
1,370
Settlements 769
—
—
—
Net periodic benefit cost $ 11,646
$ 10,436
$ 4,004
$ 4,759

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


11.	Reinsurance

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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.~~

~~Table of Contents~~

The following table presents information for the 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 ~~September~~June 30, ~~2017 and~~2020 or December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):



		June 30, 2020				December 31, 2019
Reinsurer	A.M. Best Rating	Amount		% of Total		Amount		% of Total
Reinsurer A	A+	$	400	42.3	%	$	367	40.6	%
Reinsurer B	A+	201		21.3		208		23.0
Reinsurer C	A	70		7.4		84		9.3
Reinsurer D	A++	49		5.2		53		5.9
Reinsurer E	A+	46		4.9		43		4.8
Other reinsurers		179		18.9		149		16.4
Total		$	945	100.0	%	$	904	100.0	%

September 30, 2017 December 31, 2016
Reinsurer A.M. Best Rating Amount % of Total Amount % of Total
Reinsurer A A+ $ 291,115
37.4
$ 240,894
35.2 %
Reinsurer B A+ 203,584
26.1
183,881
26.9
Reinsurer C A+ 65,528
8.4
68,832
10.1
Reinsurer D A++ 40,860
5.2
36,202
5.3
Reinsurer E A+ 40,387
5.2
35,484
5.2
Other reinsurers 137,644
17.7
118,679
17.3
Total $ 779,118
100.0 % $ 683,972
100.0 %

Included in the total reinsurance ceded receivables balance were ~~$268.1~~$274 million and ~~$242.0~~$223 million of claims recoverable, of which ~~$0.9~~$15 million and ~~$4.0~~$15 million were in excess of 90 days past due, as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.


12.	Policy Claims and Benefits

The liability for unpaid claims is reported in future policy benefits and other policy claims and benefits on the Company’s condensed consolidated balance sheets. Activity associated with unpaid claims is summarized below (dollars in millions):



	Six months ended June 30,
	2020			2019
Balance at beginning of year	$	6,786		$	6,585
Less: reinsurance recoverable	(564		)	(433		)
Net balance at beginning of year	6,222			6,152
Incurred:
Current year	5,740			5,457
Prior years	59			58
Total incurred	5,799			5,515
Payments:
Current year	(1,332		)	(1,063		)
Prior years	(3,903		)	(3,979		)
Total payments	(5,235		)	(5,042		)
Other changes:
Interest accretion	18			13
Foreign exchange adjustments	(142		)	3
Total other changes	(124		)	16

Net balance at end the period	6,662			6,641
Plus: reinsurance recoverable	633			525
Balance at end of the period	$	7,295		$	7,166

Incurred claims associated with prior periods are primarily due to events, related to long-duration business, which were incurred in prior periods but were reported in the current period, and to a lesser extent, the development of short-duration business claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid claims.

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13.	Financing Activities

On June 9, 2020, RGA issued 3.15% Senior Notes due June 15, 2030, with a face amount of $600 million. This security has been registered with the Securities and Exchange Commission. The net proceeds were approximately $593 million and will be used in part to repay the Company’s $400 million 5.000% Senior Notes due in 2021, and the remainder will be used for general corporate purposes. Capitalized issue costs were approximately $5 million.

On May 15, 2019, RGA issued 3.9% Senior Notes due May 15, 2029, with a face amount of $600 million. The net proceeds were approximately $594 million and were used in part to repay upon maturity the Company’s $400 million 6.45% Senior Notes that matured in November 2019. The remainder were used for general corporate purposes. Capitalized issue costs were approximately $5 million.


14.	New Accounting Standards

Changes to the general accounting principles are established by the Financial Accounting Standards Board (“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~~

~~Stock Compensation~~

In March 2016, the FASB updated the general accounting principal for 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 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 forfeitures and statutory tax withholding requirements, as well as the classification in the statement of cash flows. The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective 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 $2.8 million and $7.2 million in the provision for income taxes for the three and nine months ended September 30, 2017, respectively. The number of weighted average diluted shares outstanding were also adjusted to exclude excess tax benefits from the 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 to the Company’s financial statements.

~~Future Adoption of New Accounting Standards~~

~~Financial Instruments~~

In January 2016, the FASB amended the general accounting principle for Financial Instruments, effective for the Company January 1, 2018. 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 adoption of this amendment is not expected to have a material impact on the Company’s financial statements; however, it could result in net income volatility depending on the composition of the Company’s investment portfolio and changes in the fair value of equity securities.

In June 2016, the FASB amended the existing impairment guidance of Financial Instruments. The amendment adds to U.S. GAAP an impairment model, known as current expected credit loss (“CECL”) model that is based on expected losses rather than incurred

4742

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losses. For traditional and other receivables, held-to-maturity debt securities, loans and other instruments entities will be required to use the new forward-looking “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 the Company January 1, 2020, 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 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 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 the Company January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements.

~~Income Taxes~~

In October 2016, the FASB amended the general accounting principal for Income Taxes, effective for the Company January 1, 2018. The amendment requires entities to recognize the tax consequences of intercompany asset transfers, except for inventory, at the transaction date. Current 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 condensed 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 using a modified retrospective transition method with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this amendment will not have a material impact on the Company’s condensed consolidated financial statements.

~~Derivative and Hedging~~

In August 2017, the FASB updated the general accounting principal for Derivatives and Hedging. The updated guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting in current GAAP related to the assessment of hedge effectiveness. The updated guidance is effective for the Company January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of this amending on its condensed consolidated financial statements.



Description	Date of Adoption	Effect on the Consolidated Financial Statements
Standards adopted:
Leases This 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 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 the disclosure requirements of lease arrangements. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying the optional transition method. The adoption of the standard did not have a material impact on the Company’s results of operations or financial position. The adoption of the updated guidance resulted in the Company recognizing a right-to-use asset and lease liability of $55 million included in other assets and other liabilities, respectively, in the condensed consolidated balance sheets.
Derivatives and Hedging This updated guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting in current GAAP related to the assessment of hedge effectiveness. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying a modified retrospective approach to existing hedging relationships as of the date of adoption. The adoption of the new standard did not have a material impact on the Company’s results of operations or financial position. Upon adoption of the guidance, the Company recorded an immaterial adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective and modified some disclosures.
Financial Instruments – Credit Losses This guidance adds to U.S. GAAP an impairment model, known as current expected credit loss (“CECL”) 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 to use the new forward-looking “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 through an allowance for credit losses and adjusted each period for changes in credit risks. Early adoption is permitted.	January 1, 2020	For asset classes within the scope of the CECL model, this guidance was adopted through a cumulative-effect adjustment to retained earnings (that is, a modified-retrospective approach). For available-for-sale debt securities, this guidance was applied prospectively. The allowance for credit losses increased when this guidance was adopted to include expected losses over the lifetime of commercial mortgages and other loans, including reasonable and supportable forecasts and expected changes in future economic conditions. The overall impact was an approximate $15 million increase in the allowance for credit losses. This increase was reflected as a decrease to opening retained earnings, net of income taxes, as of January 1, 2020. See Note 1 – “Business and Basis of Presentation” for more information.
Fair Value Measurement This guidance is part of the FASB’s disclosure framework project and eliminates certain disclosure requirements for fair value measurement, requires entities to disclose new information and modifies existing disclosure requirements. Early adoption is permitted.	January 1, 2020	Certain disclosure changes in the new guidance were applied prospectively in the year of adoption. The remaining changes in the new guidance were applied retrospectively to all periods presented in the year of adoption. As of December 31, 2019, the Company early adopted the guidance that removed the requirements relating to transfers between fair value hierarchy levels and certain disclosures about valuation processes for Level 3 fair value measurements. The Company adopted the remainder of the guidance on January 1, 2020. The adoption of the new guidance was not material to the Company’s financial position.
Reference Rate Reform On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced that it intends to stop persuading or compelling banks to submit London Interbank Offered Rates (“LIBOR”) after December 31, 2021. In addition, separate workstreams are underway in Europe and the U.S. to reform existing reference rates and provide a fall back rate upon discontinuation of LIBOR. During 2019, the Alternative Rates Committee of the Federal Reserve Board proposed the Secured Overnight Financing Rate (“SOFR”) as an alternative rate to replace U.S. Dollar LIBOR, and the European Central Bank recommended the Euro Short-term Rate (“ESTER”) as the new risk-free rate. Other jurisdictions are conducting similar exercises as well. This new guidance eases the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The ASU provides optional expedients and exceptions for applying GAAP modification to contracts and hedge accounting relationships affected by reference rate reform on financial reporting. Under the new guidance, a change in the reference rate for a contract that meets certain criteria will be accounted for as a continuation of that contract rather than the creation of a new contract. The new guidance applies to debt, insurance contracts, leases, derivative contracts and other arrangements.	January 1, 2020	This guidance does not have any accounting consequences. The Company has put together a team that is currently assessing the effects of the discontinuation of LIBOR on existing contracts that extend beyond 2021, by analyzing contractual fallback provisions, evaluating alternative rate ramifications, and assessing the effects on current hedging strategies.

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Description	Anticipated Date of Adoption	Effect on the Consolidated Financial Statements
Standards not yet adopted:
Financial Services – Insurance This guidance significantly changes how insurers account for long-duration insurance contracts. The new guidance also significantly expands the disclosure requirements of long-duration insurance contracts. The new guidance is currently effective for annual and interim reporting periods beginning January 1, 2022. The FASB has tentatively agreed to defer the effective date by one year. Upon issuance of a final standard, the new guidance will be effective for annual and interim periods beginning January 1, 2023. Below are the most significant areas of change:	January 1, 2023	See each significant area of change below for the method of adoption and expected impact to the Company’s results of operations and financial position.
Cash flow assumptions for measuring liability for future policy benefits The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income.		Cash flow assumptions for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Discount rate assumption for measuring liability for future policy benefits The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income.		Discount rate assumption for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Market risk benefits The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income.		Market risk benefits The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Amortization of deferred acquisition costs (“DAC”) and other balances The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.		Amortization of deferred acquisition costs (“DAC”) and other balances The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.

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

Cautionary Note Regarding Forward-Looking 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 future operations, strategies, earnings, revenues, income or loss, ratios, ~~future~~ financial performance and growth potential of the Company. ~~The~~Forward-looking statements often contain words and phrases such as “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” ~~“believe,”~~“believe” and other similar ~~expressions also are intended to identify forward-looking statements.~~expressions. Forward-looking statements are ~~inherently~~based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements are not a guarantee of future performance and are 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~~The effects of the ongoing novel coronavirus (“COVID-19”) pandemic and the response thereto on economic conditions, the financial markets and insurance risks, and the resulting effects on the Company’s financial results, liquidity, capital resources, financial metrics, investment portfolio and stock price, could cause actual results and events to differ materially from those expressed or implied by forward-looking statements. Further, any estimates, projections, illustrative scenarios or frameworks used to plan for potential effects of the pandemic are dependent on numerous underlying assumptions and estimates that may not materialize. Additionally, numerous other important factors (whether related to, resulting from or exacerbated by the COVID-19 pandemic or otherwise) could also cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without ~~limitation,~~limitation: (1) adverse changes in mortality, morbidity, lapsation or claims experience, (2) inadequate risk analysis and underwriting, (3) 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, (5) the availability and cost of collateral necessary for regulatory reserves and capital, (6) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (7) ~~inadequate risk analysis~~action by regulators who have authority over the Company’s reinsurance operations in the jurisdictions in which it operates, (8) the effect of the Company parent’s status as an insurance holding company and ~~underwriting, (8)~~regulatory restrictions on its ability to pay principal of and interest on its debt obligations, (9) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, ~~(9)~~(10) the ~~availability~~impairment of other financial institutions and ~~cost of collateral necessary for regulatory reserves~~its effect on the Company’s business, (11) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and ~~capital, (10)~~real estate markets, (12) 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)~~(13) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, ~~(12)~~(14) 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~~fact that the determination of ~~reserves, resources~~allowances and ~~accurate information relating to settlements, awards and terminated and discontinued lines of business,~~impairments taken on the Company’s investments is highly subjective, (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 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)~~(18) financial performance of the Company’s clients, (19) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, ~~(25)~~(20) competitive factors and competitors’ responses to the Company’s initiatives, (21) development and introduction of new products and distribution opportunities, (22) execution of the Company’s entry into new markets, (23) integration of acquired blocks of business and entities, (24) interruption or failure of the Company’s telecommunication, information technology or other operational systems, or the Company’s failure to maintain adequate security to protect the confidentiality or privacy of personal or sensitive data and intellectual property stored on such systems, (25) adverse litigation or arbitration results, (26) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (27) changes in laws, regulations, and accounting standards applicable to the Company ~~its subsidiaries,~~ or its business, ~~(27)~~(28) the ~~effect~~effects of the ~~Company’s status as an insurance holding company~~Tax Cuts and ~~regulatory restrictions on its ability to pay principal~~Jobs Act of 2017 may be different than expected and ~~interest on its debt obligations, and (28)~~(29) other risks and uncertainties described in this document and in the Company’s other filings with the ~~SEC.~~Securities and Exchange Commission (“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 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~~obligation to update these forward-looking statements, even though the Company’s situation may change in the future. 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 ~~2016~~2019 Annual ~~Report.~~Report, as may be supplemented by Item 1A- “Risk Factors” in the Company’s subsequent Quarterly Reports on Form 10-Q.

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Overview

The Company is ~~one of~~among the leading global providers of life ~~reinsurers in North America based on premiums~~reinsurance and ~~the amount~~financial solutions, with $3.5 trillion of life reinsurance in force ~~providing traditional reinsurance~~ and ~~financial solutions to its clients.~~assets of $80.7 billion as of June 30, 2020. Traditional reinsurance includes individual and group life and health, disability, and critical illness reinsurance. Financial solutions includes longevity reinsurance, asset-intensive reinsurance, capital solutions, including financial reinsurance, and ~~financial reinsurance.~~stable value products. The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, fee income from financial solutions business and income earned on invested assets.

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 financial solutions business, including significant asset-intensive and longevity risk transactions, which allow its clients to take advantage of growth opportunities and manage their capital, longevity and investment risk.

~~The~~For its traditional business, the Company’s long-term profitability largely depends on the volume and amount of ~~death- and~~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. For longevity business, the Company’s profitability depends on the lifespan of the underlying contract holders and the investment performance for certain contracts. Additionally, the Company generates profits on investment spreads associated with the reinsurance of investment type contracts and generates fees from capital solutions transactions, such as 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 COVID-19 Pandemic Impact and Update

The ongoing COVID-19 global pandemic and the response to it has caused, and will continue to cause, increases in mortality, morbidity and other insurance risks, as well as significant disruption in the international and U.S. economies and financial markets. The extent to which the Company’s future results continue to be affected by COVID-19 will largely depend on, among other factors, country-specific circumstances, measures by public and private institutions, COVID-19’s impact on all other causes of death and the timing of effective treatments and/or a vaccine for COVID-19. Given these many variables, the Company cannot reliably predict the future impact of the pandemic on its business, results of operations and financial condition. In addition, clients’ ability to write new business in this environment may result in a slowdown in the Company’s new business temporarily, however, much of the Company’s premiums and other revenues are contractually recurring for many years to come.

One of the Company’s priorities continues to be the safety and well-being of its employees and clients, as such its business continuity plans are still activated and the actions taken to protect both employees and clients, such as working from home, restricting travel, conducting meetings remotely, and reinforcing the importance of face coverings, good hygiene and social distancing, also continue. The Company’s offices worldwide are at a minimum adhering to local government mandates and guidelines regarding occupancy levels, however in certain situations the Company’s guidelines are more restrictive than those of local governments.

The Company has not currently experienced any significant disruptions to its daily operations, despite most of its workforce continuing to work remotely. Expenses incurred to implement its business continuity plans, including work from home arrangements, are not material and have been more than offset by reduced travel and other expenses during the three and six months ended June 30, 2020. However, COVID-19 may create operational risks and related impacts, which may include a reduction in new business volumes from slower sales, impacts to the Company’s workforce productivity due to travel restrictions, temporary office closures and increased remote working situations, and potential client delays in paying premiums and reporting claims. The Company is heavily reliant on timely reporting from its clients and other third parties. While operational risks, including privacy and cybersecurity risks, are heightened during remote working situations the Company has implemented increased communication related to these risks to all its workforce and continues to monitor its programs, processes and procedures designed to manage these risks.

Given the many variables and uncertainties in the amounts and timing of claims, the Company is unable to reliably predict the ultimate claims it will experience as a result of the pandemic, however an infectious pandemic will negatively impact the profitability of the Company’s life and health business due to increased claims. The variables and uncertainties include age, gender, comorbidities, other insured versus general population characteristics, geography-specific institutional and individual mitigating

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actions, medical capacity, and other factors. To date, general population COVID-19 deaths have been heavily concentrated in individuals aged 70 and older and with pre-existing comorbidities. The Company’s insured population has lower exposure to older ages than the general population and covers a generally healthier population due to underwriting and socioeconomic factors of those purchasing insurance.

Following revisions to the Company’s model, based on updated external data and the Company’s claim experience to date, which revised models are subject to the many variables and uncertainties noted above, the financial impact of COVID-19 on the Company is projected to be lower than previous estimates for the same level of general population deaths. The U.S. is expected to continue being the key driver of mortality claim costs, followed by the UK and Canada. Utilizing the Company’s updated model and assuming, beginning in the third quarter, an additional 200,000 U.S future general population deaths, 50,000 future general population deaths in the UK, 10,000 future general population deaths in Canada as well as representative amounts in the Company’s other global markets, the resulting impact on the Company is estimated to be an additional $400 million to $600 million of pre-tax mortality claim costs beginning in the third quarter. These estimates assume that all COVID-19 claims are marginal extra claims and not accelerations of claims. In addition, the Company’s longevity business is expected to act as a modest offset to excess life reinsurance claims and has not been netted from the estimates above. For the three months ended June 30, 2020, the Company estimates it has incurred $300 million of COVID-19 related life and health claim costs, including amounts incurred but not reported, with approximately $240 million of that amount being associated with U.S. Individual Mortality.However, as is normally the case, a more in depth review of claims will occur as clients provide additional information regarding cause of death in subsequent months. In some cases, cause of death may not specifically be identified as COVID-19 related even though such may be the case. The Company did experience a higher incidence of older age death claims in the U.S. during the three and six months ended June 30, 2020, and the highest mortality ratios were in states with the highest general population COVID-19 deaths. Additional analysis and information from clients will allow the Company to refine the impact of COVID-19 on current quarter and year to date results.

The global financial markets continue to be in a state of uncertainty due to COVID-19 mandated economic shutdowns and historically large and rapid central bank and fiscal policies meant to offset the economic impact of the pandemic. The economic weakness and uncertainty caused by these events may also adversely affect the Company’s financial performance. 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. The current market environment may result in certain investments being downgraded which can affect conformance with these limits. The Company expects to incur a higher-than-normal level of investment impairments during the remainder of 2020, however it is unable to predict the amount of such impairments. The level of such impairments will depend on broad economic conditions and the pace at which global economies recover from the effects of COVID-19. The Company recognized $34 million of impairment losses and changes in the credit allowance for its available-for-sale fixed maturities for the six months ended June 30, 2020. The net impact to the credit allowance for available-for-sale fixed maturity securities was immaterial for the second quarter as new allowances were offset by sales and improved fair values on previously impaired securities.The valuation allowance on mortgage loans increased by $17 million and $30 million for the three and six month ended June 30, 2020, respectively. During the second quarter the Company recognized $5 million of impairments on limited partnerships. In addition, the Company may experience a short-term decrease in cash flows from its commercial mortgage loan portfolio as it assists borrowers that are affected by the current economic environment. See “Investments” for more information.

The Company’s liquidity is monitored and managed on a daily basis to ensure all current and future liquidity demands can be met, and that it maintains access to liquidity resources to meet even extreme tail risk liquidity needs. In addition, RGA maintains a number of arm’s length arrangements for mobilizing liquidity throughout the group. Like many companies, liquidity is being enhanced by holding more cash received in the course of its normal operating and investing activities. The Company also suspended common stock repurchases until further notice.

Key liquidity resources available to the group include:

Holdings of cash and cash equivalents of $4.3 billion as of June 30, 2020,

Cash flows from investments, which is approximately $2 billion per year,

Access to $850 million of cash through the Company’s committed syndicated credit facility, and

Access to over $500 million of cash through the membership in the Federal Home Loan Bank of Des Moines.

In order to further enhance its capital and liquidity position, the Company executed two capital market transactions during the quarter. On June 5, 2020, the Company completed an offering of its common stock and received net proceeds of approximately $481 million. On June 9, 2020, the Company completed the offering of $600 million aggregate principal amount of its 3.150% Senior Notes due 2030 (the “Senior Notes”), which will be used to repay the $400 million 5.000% senior notes due 2021 and for general corporate purposes. The public offering price of the Senior Notes was 99.472% of the principal amount, and the Company received net proceeds of approximately $593 million.

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Additional sources of liquidity for RGA’s operating subsidiaries include near-term reinsurance cash flows, sales of invested assets, and potentially other forms of borrowing.

RGA’s operating subsidiaries continue to be well capitalized and the Company continues to monitor its solvency position under multiple capital regimes on a regular basis while considering both its developing experience and economic conditions. In addition, the Company utilizes its internal capital model to assess its ability to meet its long-term obligations under a range of stress scenarios on a consolidated basis. This internal capital model is also used as the capital basis for RGA’s consolidated Own Risk and Solvency Assessment.

The Company’s primary insurance subsidiaries’ financial strength ratings are strong, with all having an S&P rating of AA-, and some of those also having a Moody’s rating of A1, and an A.M. Best rating of A+. In addition, even though the insurance subsidiaries’ various capital ratios and solvency measures may be somewhat weakened due to the COVID-19 pandemic and the economic environment, RGA believes its various subsidiaries would remain financially solvent under such a pandemic scenario. Reinsurance treaties, whether facultative or automatic, generally provide recapture provisions. Most U.S. based reinsurance treaties include a recapture right for ceding companies, generally after 10 years. Outside of the U.S., treaties primarily include a mutually agreed-upon recapture provision. Recapture rights permit the ceding company to reassume all or a portion of the risk formerly ceded to the reinsurer. In some situations, the Company has the right to place assets in trust for the benefit of the ceding company in lieu of recapture. Additionally, certain treaties may grant recapture rights to ceding companies in the event of a significant decrease in RGA Reinsurance Company’s NAIC risk based capital ratio or financial strength rating. The RBC ratio trigger varies by treaty, with the majority between 125% and 225% of the NAIC’s company action level. Financial strength rating triggers vary by reinsurance treaty with the majority of the triggers reached if the specific legal entity’s financial strength rating falls five notches from its current rating of “AA-” to the “BBB” level on the S&P scale. Similar solvency and ratings based on recapture rights exist on treaties with other operating companies. Recapture of business previously ceded does not affect premiums ceded prior to the recapture of such business, but would reduce premiums and insurance liabilities in subsequent periods. Upon recapture, the Company would reflect a net gain or loss on the settlement of the assets and liabilities associated with the reinsurance treaty. In some cases, the ceding company is required to pay the Company a recapture fee.

Globally, regulators are closely monitoring the COVID-19 pandemic and its possible impact on the insurance industry. Various regulators and other authorities have been requiring regulated entities to review their business continuity plans and to address potential pandemic risk in their contingency plans. In addition, some regulators have adopted or are considering adopting measures to provide temporary relief in respect to certain regulatory requirements and also to policyholders. These regulatory initiatives have accompanied a range of measures by governments and central banks, such as interest rate cuts and other measures, in a number of jurisdictions to support and stimulate the economy. The Company expects that regulators and other authorities will continue monitoring the spread and effects of COVID-19 closely over the next few months and adapt their guidance and additional requirements as the situation develops.

Segment Presentation

The Company has geographic-based and business-based operational segments. Geographic-based operations are further segmented into traditional and financial solutions businesses. 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~~revenue 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.

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Critical Accounting Policies

The preparation of financial statements in conformity with 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 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 2019 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.

~~Consolidated~~Critical Accounting Policies

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 impairments to specific investments;

Valuation of embedded derivatives; and

Income taxes.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenues: (Dollars in thousands, except per share data)
Net premiums $ 2,489,797
$ 2,251,758
$ 7,335,944
$ 6,755,708
Investment income, net of related expenses 556,918
489,727
1,589,820
1,414,659
Investment related gains (losses), net 22,653
86,624
139,471
84,002
Other revenues 75,942
72,468
218,091
197,844
Total revenues 3,145,310
2,900,577
9,283,326
8,452,213
Benefits and Expenses:
Claims and other policy benefits 2,100,680
1,993,064
6,371,188
5,877,330
Interest credited 126,099
116,848
349,068
300,602
Policy acquisition costs and other insurance expenses 365,424
300,962
1,064,645
940,406
Other operating expenses 168,417
152,556
481,279
469,875
Interest expense 36,836
43,063
108,590
96,201
Collateral finance and securitization expense 7,692
6,484
21,235
19,396
Total benefits and expenses 2,805,148
2,612,977
8,396,005
7,703,810
Income before income taxes
340,162
287,600
887,321
748,403
Provision for income taxes 112,571
88,881
282,028
237,109
Net income $ 227,591
$ 198,719
$ 605,293
$ 511,294
Earnings per share:
Basic earnings per share $ 3.53
$ 3.10
$ 9.39
$ 7.95
Diluted earnings per share $ 3.47
$ 3.07
$ 9.23
$ 7.87
Dividends declared per share $ 0.50
$ 0.41
$ 1.32
$ 1.15

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Consolidated income before income taxes increased $52.6 million, or 18.3%, and $138.9 million, or 18.6%, for the three and nine months ended September 30, 2017, respectively, as compared to the same periods in 2016. The increase in income for third quarter of 2017 was primarily due to improved mortality experience in the U.S. operations, increased investment income, new business growth in the Europe, Middle East and Africa (“EMEA”) and Asia Pacific operations and lower interest expense. The increase in income for the first nine months of 2017 was primarily due to improved mortality experience in the U.S., EMEA and Asia Pacific operations and increased investment income, partially offset by higher interest expense. The increases in investment income are discussed below and the changes in interest expense for the third quarter and first nine months are discussed within the Corporate and Other section. Foreign currency fluctuations resulted in an increase (decrease) in income before income taxes by $2.0 million and $(7.4) million for the third quarter and first nine months of 2017, as compared to the same periods in 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 a decrease in consolidated income before income taxes of $8.9 million in the third quarter of 2017 and an increase of $218.2 million in the first nine months of 2017, respectively, as compared to the same periods in 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 a decrease in income before income taxes of $3.3 million in the third quarter of 2017 and an increase of $53.3 million in the first nine months of 2017, as compared to the same periods in 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, increased income before income taxes by $0.1 million and $20.0 million in the third quarter and first nine months of 2017, respectively, as compared to the same periods in 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, resulted in a decrease in income before income taxes of $5.7 million in the third quarter of 2017 and an increase of $144.9 million in the first nine months of 2017, as compared to the same periods in 2016. After consideration of the change in fair value of freestanding derivatives used to hedge this liability, income before income taxes decreased by $2.2 million in the third quarter of 2017 and increased by $6.9 million in the first nine months of 2017, as compared to the same periods in 2016.

Consolidated net premiums increased $238.0 million, or 10.6%, and $580.2 million, or 8.6%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016, primarily due to growth in life reinsurance in force. Foreign currency fluctuations resulted in an increase (decrease) in net premiums of $18.3 million and $(17.3) million for the third quarter and first nine months of 2017, as compared to the same periods in 2016. Consolidated assumed life insurance in force increased to $3,297.9 billion as of September 30, 2017 from $3,082.8 billion as of September 30, 2016 due to new business production and in force transactions. The Company added new business production, measured by face amount of insurance in force, of $90.7 billion and $81.3 billion during the third quarter of 2017 and 2016, respectively, and $304.8 billion and $296.4 billion during the first nine months of 2017 and 2016, respectively. Foreign currency fluctuations contributed $43.6 billion to the increase in assumed life insurance in force from September 30, 2016. 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 $67.2 million, or 13.7%, and $175.2 million, or 12.4%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. Market value changes related to the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs increased (decreased) investment income by $(1.3) million and $73.3 million in the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016. The effect on investment 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 business, for the nine months ended September 30, 2017 totaled $25.1 billion, a 9.4% increase over September 30, 2016. The

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average yield earned on investments, excluding spread related business, was 4.81% and 4.43% for the third quarter of 2017 and 2016, respectively, and 4.61% and 4.53% for the first nine months ended September 30, 2017 and 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, and the timing of dividends and distributions on certain investments. The third quarter of 2017, in particular, benefited from a higher level of bond make-whole premiums and distributions from joint ventures and limited partnerships. A continued low interest rate environment is expected to put downward pressure on this yield in future reporting periods.

Total investment related gains (losses), net changed favorably (unfavorably) by $(64.0) million and $55.5 million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. A significant portion of theses variances in the third quarter and first nine months are due to changes in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis, reflecting the impact of changes in interest rates and credit spreads on the calculation of fair value. During the third quarter and first nine months of 2017, the favorable (unfavorable) changes in the value of these embedded derivatives was $(26.0) million and $73.1 million respectively, as compared to the same periods in 2016. Impairments on fixed maturity securities decreased by $13.7 million in the first nine months of 2017, as compared to the same period in 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 33.1% and 30.9% for the third quarter 2017 and 2016, respectively, and 31.8% and 31.7% for the first nine months of 2017 and 2016, respectively. The effective tax rate for the third quarter 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. The first nine months of 2017 also includes a reduction related to differences in tax bases in foreign jurisdictions and a tax benefit from the filing of amended returns, which was partially offset with a valuation allowance established related to amended return filings. The effective tax rate for the third quarter of 2016 was lower than the U.S. Statutory rate of 35.0% primarily as a result of effectively settling an uncertain tax position during the quarter and adjustments related to the filing of the US Federal Income tax return. The first nine months of 2016 effective tax rate was 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.

Critical Accounting Policies

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 ~~2016~~2019 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”

Consolidated Results of Operations

The following table summarizes net income for the periods presented.



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020			2019
Revenues:	(Dollars in millions, except per share data)
Net premiums	$	2,790	$	2,764	$	5,609		$	5,502
Investment income, net of related expenses	645		584		1,239			1,164
Investment related gains (losses), net:
Impairments and change in allowance for credit losses on fixed maturity securities	—		—		(34		)	(9		)
Other investment related gains (losses), net	81		12		(170		)	29
Investment related gains (losses), net	81		12		(204		)	20
Other revenues	90		107		166			201
Total revenues	3,606		3,467		6,810			6,887
Benefits and Expenses:
Claims and other policy benefits	2,700		2,516		5,364			5,024
Interest credited	187		158		333			291
Policy acquisition costs and other insurance expenses	290		260		538			572
Other operating expenses	188		222		383			424
Interest expense	42		43		83			83
Collateral finance and securitization expense	4		8		10			16
Total benefits and expenses	3,411		3,207		6,711			6,410
Income before income taxes	195		260		99			477
Provision for income taxes	37		58		29			105
Net income	$	158	$	202	$	70		$	372
Earnings per share:
Basic earnings per share	$	2.49	$	3.23	$	1.12		$	5.93
Diluted earnings per share	$	2.48	$	3.18	$	1.11		$	5.83

Consolidated income before income taxes decreased $65 million, and $378 million, for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The decrease in income for the second quarter of 2020 was primarily due to increased mortality claims in the U.S. and Latin America Traditional segment, some of which are attributable to the COVID-19 pandemic. The unfavorable mortality claims in the U.S. were partially offset by favorable morbidity results across all segments and an increase in income before taxes in the Company’s Financial Solutions business. In addition to increased mortality claims

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in the U.S. and Latin America Traditional segment, income for the first six months of 2020 reflects unfavorable changes in investment related gain (losses) resulting from changes in the fair value of embedded derivatives on modco or funds withheld treaties within the U.S. segment due to changes in interest rates and credit spreads primarily attributable to the recent disruption in the global financial markets caused by COVID-19. The effect of the change in fair value of these embedded derivatives on income is discussed below. As discussed in “The COVID-19 Impact and Update” above,the Company estimates it has incurred $300 million of COVID-19 related life and health claim costs, including amounts incurred but not reported, with approximately $240 million of that amount being associated with U.S. Individual Mortality. The Company did experience a higher incidence of older age death claims in the U.S. during the three months ended June 30, 2020, while the cause of death information is not yet available for all claims, the Company’s analysis attributes excess claim costs to COVID-19 or COVID-19 related factors and therefore additional analysis and information from clients will allow the Company to refine the impact of COVID-19 on current quarter and year to date results. Foreign currency fluctuations relative to the prior year decreased income before income taxes by $6 million in the second quarter and decreased income by $2 million in the first six months of 2020, as compared to the same periods in 2019.

Consolidated net premiums increased $26 million, or 1%, and 107 million, or 1.9%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019, primarily due to growth in life reinsurance in force. Foreign currency fluctuations decreased net premiums by $45 million and $78 million in the second quarter and the first six months of 2020, as compared to the same periods in 2019. Consolidated assumed life insurance in force increased to $3,457.8 billion as of June 30, 2020, from $3,377.2 billion as of June 30, 2019, due to new business production and in force transactions. The Company added new business production, measured by face amount of insurance in force, of $116.1 billion and $70.4 billion during the second quarter of 2020 and 2019, respectively, and $210.9 billion and $149.7 billion during the first six months of 2020 and 2019, respectively.

Consolidated investment income, net of related expenses, increased $61 million, or 10.4%, and $75 million, or 6.4%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The increases are primarily attributable to an increase in the average invested asset base. Investment income is affected by changes in the fair value of the Company’s funds withheld at interest assets associated with the reinsurance of certain EIA products. The re-measurement of these funds withheld assets decreased investment income by $7 million in the second quarter and decreased investment income by $19 million in the first six months of 2020. The effect on investment 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.

Average invested assets at amortized cost, excluding spread related business, for the six months ended June 30, 2020, were $30 billion, a 6.4% increase over June 30, 2019. The average yield earned on investments, excluding spread related business, was 4.07% and 4.38% for the second quarter of 2020 and 2019, respectively, and 4.07% and 4.43% for the six months ended June 30, 2020 and 2019, 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, make-whole premiums and changes in the mix of the underlying investments and cash balances, 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.

Total investment related gains (losses), net were $81 million and $12 million for the second quarter of 2020 and 2019, respectively, and $(204) million and $20 million for the first six months of 2020 and 2019, respectively. A portion of the increase in investment related gains (losses) was offset by changes in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis, reflecting the impact of changes in interest rates and credit spreads on the calculation of fair value, which fluctuated significantly during the year as a result of the economic uncertainty and market disruptions caused by the COVID-19 pandemic. Changes in the fair value of these embedded derivatives increased (decreased) investment related gains by $1 million and $5 million for the second quarter of 2020 and 2019, respectively, and $(229) million and $3 million for the first six months of 2020 and 2019, respectively. The Company recognized $34 million of impairment losses and changes in the credit allowance for its available-for-sale fixed maturities for the six months ended June 30, 2020, The net impact to the credit allowance for available-for-sale fixed maturity securities was immaterial for the second quarter as new allowances were offset by sales and improved fair values on previously impaired securities. The valuation allowance on mortgage loans increased by $17 million and $30 million for the three and six month ended June 30, 2020, respectively. The increase in both the credit allowance for available-for-sale fixed maturity securities and the valuation allowance on mortgage loans is primarily attributable to the economic uncertainty caused by COVID-19. See the Investment section within Management Discussion and Analysis, 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 18.9% and 22.1% for the second quarter 2020 and 2019, respectively, and 28.6% and 21.9% for the first six months of 2020 and 2019, respectively. See Note 9 – “Income Tax” in the Notes to Condensed Consolidated Financial Statements for additional information on the Company’s consolidated effective tax rates.

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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 annuities with guaranteed minimum benefit riders. The Company utilizes freestanding derivatives to minimize the income statement volatility due to changes in the fair value of embedded derivatives associated with guaranteed minimum benefit riders. The following table presents the effect of embedded derivatives and related freestanding derivatives on income before income taxes for the periods indicated (dollars in millions):



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Modco/Funds withheld:
Unrealized gains (losses)	$	1		$	5		$	(229	)	$	3
Deferred acquisition costs/retrocession	2			(5		)	115			(8		)
Net effect	3			—			(114		)	(5		)
EIAs:
Unrealized gains (losses)	(7		)	(19		)	(19		)	(20		)
Deferred acquisition costs/retrocession	2			10			10			10
Net effect	(5		)	(9		)	(9		)	(10		)
Guaranteed minimum benefit riders:
Unrealized gains (losses)	107			(18		)	(21		)	—
Related freestanding derivatives, net of deferred acquisition costs/retrocession	(70		)	21			94			2
Net effect	37			3			73			2
Total net effect after freestanding derivatives	$	35		$	(6	)	$	(50	)	$	(13	)

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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 Financial Solutions. The Traditional segment primarily specializes in the reinsurance of individual mortality-risk, ~~reinsurance~~health and long-term care and to a lesser extent, group ~~health and long-term care~~ reinsurance. The Financial Solutions segment consists of Asset-Intensive and ~~Financial Reinsurance.~~Capital Solutions. Asset-Intensive within the Financial Solutions segment ~~provides~~includes 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 Financial~~contracts and other longevity type products. Capital 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~~their low-risk nature, ~~of the transactions, so~~as such only the related net fees are reflected in other revenues on the condensed consolidated statements of income.


For the three months ended September 30, 2017:				Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
For the three months ended June 30, 2020:													Financial Solutions
(dollars in millions)													Asset-Intensive		Capital Solutions			Total U.S. and Latin America
	Traditional			Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America		Traditional
Revenues:
Net premiums	$	1,327,181		$	6,423	$	—	$	1,333,604	$	1,454		$	15	$	—		$	1,469
Investment income, net of related expenses	191,904			188,176		2,984		383,064		177			241		2			420
Investment related gains (losses), net	(1,503		)	12,832		—		11,329		7			15		—			22
Other revenues	3,801			26,899		26,856		57,556		4			24		26			54
Total revenues	1,521,383			234,330		29,840		1,785,553		1,642			295		28			1,965
Benefits and expenses:
Claims and other policy benefits	1,118,401			11,959		—		1,130,360		1,558			49		—			1,607
Interest credited	20,673			94,120		—		114,793		18			139		—			157
Policy acquisition costs and other insurance expenses	189,291			54,441		5,674		249,406		195			7		2			204
Other operating expenses	32,506			6,684		2,174		41,364		29			7		2			38
Total benefits and expenses	1,360,871			167,204		7,848		1,535,923		1,800			202		4			2,006
Income before income taxes	$	160,512		$	67,126	$	21,992	$	249,630	$	(158	)	$	93	$	24		$	(41	)

For the three months ended September 30, 2016:				Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
For the three months ended June 30, 2019:													Financial Solutions
(dollars in millions)													Asset-Intensive		Capital Solutions			Total U.S. and Latin America
	Traditional			Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America		Traditional
Revenues:
Net premiums	$	1,277,491		$	5,369	$	—	$	1,282,860	$	1,410		$	9	$	—		$	1,419
Investment income, net of related expenses	167,898			167,683		1,038		336,619		173			204		1			378
Investment related gains (losses), net	(3,394		)	59,661		—		56,267		(4		)	17		—			13
Other revenues	2,922			23,417		18,967		45,306		5			50		21			76
Total revenues	1,444,917			256,130		20,005		1,721,052		1,584			280		22			1,886
Benefits and expenses:
Claims and other policy benefits	1,131,507			18,927		—		1,150,434		1,293			49		—			1,342
Interest credited	20,628			86,742		—		107,370		19			124		—			143
Policy acquisition costs and other insurance expenses	184,766			56,497		3,492		244,755		180			25		(1		)	204
Other operating expenses	30,935			5,232		2,531		38,698		37			10		3			50
Total benefits and expenses	1,367,836			167,398		6,023		1,541,257		1,529			208		2			1,739
Income before income taxes	$	77,081		$	88,732	$	13,982	$	179,795	$	55		$	72	$	20		$	147

5352

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For the nine months ended September 30, 2017:				Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
For the six months ended June 30, 2020:													Financial Solutions
(dollars in millions)													Asset-Intensive			Capital Solutions		Total U.S. and Latin America
	Traditional			Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America		Traditional
Revenues:
Net premiums	$	3,966,842		$	18,186	$	—	$	3,985,028	$	2,827		$	27		$	—	$	2,854
Investment income, net of related expenses	554,612			553,286		6,501		1,114,399		338			474			3		815
Investment related gains (losses), net	(192		)	103,229		—		103,037		—			(145		)	—		(145		)
Other revenues	11,322			76,324		77,466		165,112		10			52			51		113
Total revenues	4,532,584			751,025		83,967		5,367,576		3,175			408			54		3,637
Benefits and expenses:
Claims and other policy benefits	3,538,958			53,998		—		3,592,956		2,925			102			—		3,027
Interest credited	61,800			260,941		—		322,741		37			268			—		305
Policy acquisition costs and other insurance expenses	556,476			176,305		17,234		750,015		370			(31		)	2		341
Other operating expenses	94,284			19,883		6,942		121,109		63			14			5		82
Total benefits and expenses	4,251,518			511,127		24,176		4,786,821		3,395			353			7		3,755
Income before income taxes	$	281,066		$	239,898	$	59,791	$	580,755	$	(220	)	$	55		$	47	$	(118	)

For the nine months ended September 30, 2016:				Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
For the six months ended June 30, 2019:													Financial Solutions
(dollars in millions)													Asset-Intensive			Capital Solutions		Total U.S. and Latin America
	Traditional			Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America		Traditional
Revenues:
Net premiums	$	3,819,280		$	17,250	$	—	$	3,836,530	$	2,767		$	16		$	—	$	2,783
Investment income, net of related expenses	515,159			462,579		6,031		983,769		359			401			2		762
Investment related gains (losses), net	(6,376		)	7,940		—		1,564		(10		)	18			—		8
Other revenues	11,674			70,806		55,511		137,991		9			73			46		128
Total revenues	4,339,737			558,575		61,542		4,959,854		3,125			508			48		3,681
Benefits and expenses:
Claims and other policy benefits	3,400,614			58,267		—		3,458,881		2,593			97			—		2,690
Interest credited	62,873			217,736		—		280,609		39			213			—		252
Policy acquisition costs and other insurance expenses	544,129			113,919		9,145		667,193		356			44			5		405
Other operating expenses	92,512			16,772		7,606		116,890		70			17			5		92
Total benefits and expenses	4,100,128			406,694		16,751		4,523,573		3,058			371			10		3,439
Income before income taxes	$	239,609		$	151,881	$	44,791	$	436,281	$	67		$	137		$	38	$	242

Income before income taxes ~~increased~~decreased by ~~$69.8~~$188 million, ~~or 38.8%,~~ and ~~$144.5~~$360 million, ~~or 33.1%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The ~~increase~~decrease in income before income taxes ~~for the third quarter~~ was primarily ~~due~~related to ~~strong~~a significant increase in claim frequency within the individual mortality business. While the cause of death is not yet available for all claims, the Company believes the excess claim costs are attributable to COVID-19 or COVID-19 related factors as the Company did experience a higher incidence of older age death claims in the ~~Traditional segment as well as higher variable investment income. The increase was offset somewhat by a decrease~~U.S. during the three months ended June 30, 2020, and the highest mortality ratios were in ~~investment related gains in~~states with the ~~Financial Solutions segment. The increase in income before income taxes for~~highest general population COVID-19 deaths. Also, contributing to the ~~first nine months is the result of several factors, including~~six month variance were changes in the value of the embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld ~~an increase~~basis. The volatility in ~~investment related capital gains and additional variable investment income.~~the financial markets as a result of the COVID-19 pandemic, was the primary driver of this change.

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 modco 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 ~~$83.4~~$213 million, ~~or 108.2%,~~ and ~~$41.5~~$287 million, ~~or 17.3%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The ~~increase in the third quarter is~~decreases were primarily ~~due~~related to ~~favorable~~unfavorable individual mortality experience ~~as compared~~from a higher than expected count of claims. While the cause of death is not yet available for all claims, the Company believes the excess claims are attributable to ~~same period in 2016 and higher~~COVID-19 or COVID-19 related factors. In addition, the segment reported lower variable investment ~~income. The favorable mortality experience was driven by both a lower number and average size of large claims. The increase in~~ income ~~for the first nine months was primarily due to higher variable investment.~~year over year.

Net premiums increased ~~$49.7~~$44 million, or ~~3.9%~~3.1%, and ~~$147.6~~$60 million, or ~~3.9%~~2.2%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The increases in net premiums in the second quarter and first six months were ~~primarily~~ due to ~~expected~~ organic ~~premium growth.~~growth as well as new sales. The segment added new individual life business production, measured by face amount of insurance in force of ~~$24.8~~$25.3 billion and ~~$19.7~~$24.7 billion for the ~~third~~second quarter and ~~$75.1~~$59.3 billion and ~~$93.0~~$53.5 billion for the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively.

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Net investment income increased ~~$24.0~~$4 million, or ~~14.3%~~2.3%, and ~~$39.5~~decreased $21 million, or ~~7.7%~~5.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, as compared to the same periods in ~~2016.~~2019. The ~~increases were~~increase in the second quarter was primarily due to a higher asset base offset somewhat by lower variable investment income. The decrease in the first six months was primarily related to less variable investment income. Investment related gains (losses), net increased ~~$1.9~~$11 million and ~~$6.2~~$10 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019 as result of changes in the fair value of embedded derivatives related to modified coinsurance and funds withheld treaties as a result of changes in interest rates and credit spreads.

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Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were ~~84.3%~~107.2% and ~~88.6%~~91.7% for the ~~third~~second quarter and ~~89.2%~~103.5% and ~~89.0%~~93.7%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~decrease~~increase in the loss ratio for the ~~third~~second quarter was primarily due to a high frequency of ~~2017,~~claims in the individual mortality line of business. As explained above, while the cause of death is not yet available for all claims, the Company believes the excess claims are attributable to COVID-19 or COVID-19 related factors.

Interest credited expense decreased $1 million, or 5.3%, and $2 million, or 5.1%, for the three and six months ended June 30, 2020, as compared to the same ~~period~~periods in 2016 was primarily due to favorable mortality experience, specifically the lower number and average size of large claims. For the first nine months of 2017, as compared to the same period in 2016, mortality experience was relatively consistent.

~~Interest credited expense decreased $1.1 million, or 1.7%, for the nine months ended September 30, 2017, as compared to the same period in 2016.~~2019. Interest credited in this segment relates to amounts credited on cash value products which also have a significant mortality component. 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 ~~14.3%~~13.4% and ~~14.5%~~12.8% for the ~~third~~second quarter and ~~14.0%~~13.1% and ~~14.2%~~12.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. 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 decreased $8 million, or 21.6%, and $7 million, or 10%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The decrease in the second quarter and first six months was primarily due to lower salaries and fringe costs related to of incentive-based compensation accruals. Other operating expenses, as a percentage of net premiums ~~remained constant at 2.4%~~were 2.0% and ~~2.4%~~2.6% for the ~~third~~second quarter and ~~2.4%~~2.2% and ~~2.4%~~2.5% first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively. The expense ratio tends to fluctuate only slightly from period to period due to the maturity and scale of this segment.

Financial Solutions -– Asset-Intensive Reinsurance

Asset-Intensive reinsurance within the U.S. and Latin America 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.

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.

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(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,
(dollars in millions)													Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Revenues:
Total revenues	$	234,330		$	256,130		$	751,025		$	558,575		$	295		$	280		$	408		$	508
Less:
Embedded derivatives – modco/funds withheld treaties	24,539			52,540			107,039			40,174			(7		)	9			(230		)	14
Guaranteed minimum benefit riders and related free standing derivatives	(17,058		)	(12,647		)	(20,935		)	(24,710		)	39			4			113			1
Revenues before certain derivatives	226,849			216,237			664,921			543,111			263			267			525			493
Benefits and expenses:
Total benefits and expenses	167,204			167,398			511,127			406,694			202			208			353			371
Less:
Embedded derivatives – modco/funds withheld treaties	11,481			34,226			51,008			31,206			(2		)	6			(115		)	8
Guaranteed minimum benefit riders and related free standing derivatives	(5,379		)	(3,135		)	(6,565		)	(3,439		)	2			1			40			(1		)
Equity-indexed annuities	481			549			(13,603		)	6,449			5			9			9			10
Benefits and expenses before certain derivatives	160,621			135,758			480,287			372,478			197			192			419			354
Income before income taxes:
Income before income taxes	67,126			88,732			239,898			151,881			93			72			55			137
Less:
Embedded derivatives – modco/funds withheld treaties	13,058			18,314			56,031			8,968			(5		)	3			(115		)	6
Guaranteed minimum benefit riders and related free standing derivatives	(11,679		)	(9,512		)	(14,370		)	(21,271		)	37			3			73			2
Equity-indexed annuities	(481		)	(549		)	13,603			(6,449		)	(5		)	(9		)	(9		)	(10		)
Income before income taxes and certain derivatives	$	66,228		$	80,479		$	184,634		$	170,633		$	66		$	75		$	106		$	139

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 utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019.

The change in fair value of the embedded derivatives - modco/funds withheld treaties increased (decreased) income before income taxes by ~~$13.1~~$(5) million and ~~$18.3~~$3 million for the ~~third~~second quarter and ~~$56.0~~$(115) million and ~~$9.0~~$6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The increases in income for the third quarter of 2016 and 2017 were primarily due to tightening credit spreads. The increase in income for the nine months ended September 30, 2017 was primarily due to tightening credit spreads. The decrease in income for the ~~nine months ended September 30, 2016~~second quarter was primarily due to ~~shifts~~updated client reporting, partially offset by tightening credit spread. The decrease in income for the first six months of 2020 was primarily due to widening credit spreads, partially offset by lower interest rates, both of which were primarily attributable to the recent disruption in the ~~yield curve.~~global financial markets caused by the COVID-19 pandemic.

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 utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019.

The change in fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, ~~decreased~~increased income before income taxes by ~~$11.7~~$37 million and ~~$9.5~~$3 million for the ~~third~~second quarter and ~~$14.4~~$73 million and ~~$21.3~~$2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~decrease~~increase in income for ~~all periods~~the three and six months ended June 30, 2020, was ~~primarily~~ due to the ~~annual update of best estimate actuarial assumptions~~change in credit valuation adjustment, which was primarily attributable to ~~account for lower policyholder lapse experience.~~the recent disruption in the global financial markets caused by the COVID-19 pandemic.

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)~~decreased income before income taxes by ~~$(0.5)~~$5 million and ~~$(0.5)~~$9 million for the ~~third~~second quarter and ~~$13.6~~$9 million and ~~$(6.4)~~$10 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The decreases in income for the ~~third~~second quarter and first six months of ~~2017 and 2016~~2020 were primarily due to ~~shifts in the yield curve. The increase in income for the first nine months of 2017 was primarily due to~~ declining ~~long-term~~ interest rates. ~~The decrease in income for the first nine months of 2016 was primarily due to increasing short-term interest rates.~~

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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 decreased by ~~$14.3~~$9 million and ~~increased by $14.0~~$33 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The decrease for the three months ended June 30, 2020, was primarily due to favorable investment spreads in the prior year. The decrease for the six months ended June 30. 2020 was primarily due to the impact from negative equity market performance, favorable investment spreads in the prior year, and lower investment related gains (losses), net in coinsurance and funds withheld portfolios. Funds withheld capital gains (losses) are reported in investment income.

Revenue before certain derivatives decreased by $5 million and increased by $32 million for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The decrease in the ~~third~~second quarter was primarily due to lower investment related gains (losses), net ~~of the corresponding impact~~due to ~~deferred acquisition costs, associated with coinsurance and funds withheld portfolios, which was~~increased allowances for commercial mortgage loans, partially offset by ~~favorable policyholder experience~~asset-intensive transactions executed in ~~payout annuities. Funds withheld capital gains (losses) are reported in investment income.~~the second half of 2019. The increase in the first ~~nine~~six months of 2020 was primarily due to ~~favorable policyholder experience in payout annuities and higher variable investment income.~~

~~Revenue before certain derivatives increased by $10.6 million and $121.8 million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The increase~~asset-intensive transactions executed in the ~~third quarter was primarily due to the impact to investment income from a new coinsurance transaction in 2017 which was~~second half of 2019, partially offset by lower investment related gains (losses) ~~associated with coinsurance and funds withheld portfolios. The increase in the first nine months was primarily~~, net due to the change in fair value of equity options associated with the reinsurance of certain EIAs and higher investment related gains (losses) associated with coinsurance and funds withheld portfolios. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited.increased allowances for commercial mortgage loans.

Benefits and expenses before certain derivatives increased by ~~$24.9~~$5 million and ~~$107.8~~$65 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same period in ~~2016.~~2019. The ~~increase~~increases in the ~~third~~second quarter ~~was~~and first six months were primarily due to ~~the impact to interest credited of a new coinsurance transaction~~asset-intensive transactions executed in 2017 and the corresponding impact to deferred acquisition costs from investment related gains (losses) in coinsurance and funds withheld portfolios. The increase in the first nine months was primarily due to higher interest credited associated with the reinsurance of EIAs and the corresponding impact to deferred acquisition costs from investment related gains (losses) in coinsurance and funds withheld portfolios. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income.2019.

The invested asset base supporting this segment increased to ~~$15.5~~$23.5 billion as of ~~September~~June 30, ~~2017~~2020 from ~~$13.2~~$22.1 billion as of ~~September~~June 30, ~~2016. The increase in the asset base was due primarily to the aforementioned new coinsurance transaction in 2017.~~2019. As of ~~September~~June 30, ~~2017, $4.1~~2020, $3.1 billion of the invested assets were funds withheld at interest, of which greater than 90% is associated with one client.

Financial Solutions ~~- Financial Reinsurance~~– Capital Solutions

~~Financial Reinsurance~~Capital Solutions within the U.S. and Latin America 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 ~~$8.0~~$4 million, or ~~57.3%~~20.0%, and ~~$15.0~~$9 million, or ~~33.5%~~23.7%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The increases were primarily due to the growth infrom new transactions and organic growth on existing ~~transactions which was partially offset by the termination of certain agreements.~~transactions.

At ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was ~~$12.6~~$19.4 billion and ~~$7.9~~$15.8 billion, respectively. The increase was primarily due to a number of new transactions offsetting the termination of certain agreements, 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.~~Canada. The Canada operations are primarily engaged in Traditional reinsurance, which consists mainly of traditional individual life reinsurance, ~~as well as~~and to a lesser extent creditor, group life and health, critical illness and 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 Financial Solutions segment consists of longevity and financial reinsurance.


(dollars in thousands)	Three months ended September 30,
(dollars in millions)													Three months ended June 30,
	2017						2016						2020						2019
Revenues:	Traditional		Financial Solutions		Total Canada		Traditional		Financial Solutions		Total Canada		Traditional		Financial Solutions		Total Canada		Traditional		Financial Solutions			Total Canada
Net premiums	$	225,841	$	9,874	$	235,715	$	231,154	$	9,946	$	241,100	$	254	$	20	$	274	$	264	$	23		$	287
Investment income, net of related expenses	51,593		1,120		52,713		45,239		1,037		46,276		50		—		50		51		—			51
Investment related gains (losses), net	2,380		—		2,380		3,832		—		3,832		6		—		6		3		—			3
Other revenues	1,281		1,436		2,717		734		1,376		2,110		1		2		3		—		1			1
Total revenues	281,095		12,430		293,525		280,959		12,359		293,318		311		22		333		318		24			342
Benefits and expenses:
Claims and other policy benefits	193,978		7,170		201,148		175,618		10,567		186,185		216		17		233		206		20			226
Interest credited	6		—		6		8		—		8		—		—		—		—		—			—
Policy acquisition costs and other insurance expenses	50,023		221		50,244		61,019		285		61,304		42		1		43		57		1			58
Other operating expenses	8,299		567		8,866		10,039		347		10,386		9		—		9		9		(1		)	8
Total benefits and expenses	252,306		7,958		260,264		246,684		11,199		257,883		267		18		285		272		20			292
Income before income taxes	$	28,789	$	4,472	$	33,261	$	34,275	$	1,160	$	35,435	$	44	$	4	$	48	$	46	$	4		$	50


(dollars in thousands)	Nine months ended September 30,
(dollars in millions)														Six months ended June 30,
	2017						2016							2020								2019
Revenues:	Traditional		Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada			Traditional		Financial Solutions		Total Canada
Net premiums	$	662,983	$	28,598	$	691,581	$	686,724		$	29,089	$	715,813	$	514		$	41	$	555		$	519	$	45	$	564
Investment income, net of related expenses	140,929		3,515		144,444		134,121			1,649		135,770		99			1		100			100		1		101
Investment related gains (losses), net	8,821		—		8,821		7,757			—		7,757		(6		)	—		(6		)	10		—		10
Other revenues	1,910		4,127		6,037		(731		)	4,159		3,428		—			4		4			1		2		3
Total revenues	814,643		36,240		850,883		827,871			34,897		862,768		607			46		653			630		48		678
Benefits and expenses:
Claims and other policy benefits	566,227		21,888		588,115		524,497			29,005		553,502		436			37		473			406		41		447
Interest credited	15		—		15		17			—		17		—			—		—			—		—		—
Policy acquisition costs and other insurance expenses	143,302		571		143,873		178,178			1,002		179,180		87			1		88			111		1		112
Other operating expenses	24,146		1,292		25,438		27,500			1,010		28,510		17			1		18			16		1		17
Total benefits and expenses	733,690		23,751		757,441		730,192			31,017		761,209		540			39		579			533		43		576
Income before income taxes	$	80,953	$	12,489	$	93,442	$	97,679		$	3,880	$	101,559	$	67		$	7	$	74		$	97	$	5	$	102

Income before income taxes decreased by ~~$2.2~~$2 million, or ~~6.1%~~4.0%, and ~~$8.1~~$28 million, or ~~8.0%~~27.5%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The decrease in income before income taxes for the ~~third~~second quarter ~~and first nine months is~~was primarily due to ~~unfavorable traditional~~less favorable individual life mortality experience compared to ~~favorable experience in~~ the same ~~periods~~period in ~~2016,~~2019 partially offset by ~~favorable experience on longevity business~~higher investment related gains associated with the changes in the ~~current year.~~fair value of credit default swap derivatives. Foreign currency exchange fluctuations in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$1.7~~$2 million and ~~$1.6~~$1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

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Traditional Reinsurance

Income before income taxes for the Canada Traditional segment decreased by ~~$5.5~~$2 million, or ~~16.0%~~4.3%, and ~~$16.7~~$30 million, or ~~17.1%~~30.9%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The decrease in income before income taxes for the ~~third~~second quarter ~~and first nine months is~~was primarily due to ~~unfavorable traditional~~less favorable individual life mortality experience compared to ~~favorable experience~~the same period in 2019 partially offset by higher investment related gains associated with the changes in the fair value of credit default swap derivatives. The decrease in income for the first six months of 2020 was primarily due to less favorable individual life mortality experience compared to the same ~~periods~~period in ~~2016.~~2019 and investment related losses due to changes in the fair value of credit default swap derivatives. See “The COVID-19 Impact and Update” above for more information regarding the impact of COVID-19. Foreign currency exchange fluctuations in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$1.5~~$1 million and ~~$1.4~~$1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~

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2019.

Net premiums decreased ~~$5.3~~by $10 million, or ~~2.3%~~3.8%, and ~~$23.7~~$5 million, or ~~3.5%~~1.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The decreases in net premiums in 2020 were primarily due to foreign currency losses and an anticipated ~~decrease~~reduction in ~~creditor premiums~~the base of ~~$21.0 million and $60.4 million for~~ the ~~third quarter and first nine months, respectively. These decreases were partially~~offshore creditors business, offset by an increase in ~~traditional individual life~~the inforce business ~~premiums from annually increasing premium rates on yearly renewable term treaties and favorable foreign currency exchange fluctuation.~~as well as new inforce block transaction effective January 1, 2020. Foreign currency exchange fluctuations in the Canadian dollar resulted in ~~an increase~~a decrease in net premiums of ~~approximately $9.0~~$9 million and ~~$7.0~~$12 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Net investment income ~~increased $6.4~~decreased $1 million, or ~~14.0%~~2.0%, and ~~$6.8~~$1 million, or ~~5.1%~~1.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in 2016. The increases in investment income for the third quarter and the first nine months were primarily the result of an increase in the invested asset base due to growth in the underlying business volume and an increase in investment yields from a higher level of variable investment income.2019. Foreign currency exchange fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in net investment income of ~~approximately $2.1~~$2 million and ~~$1.7~~$2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Other revenues increased by ~~$0.5~~$1 million and ~~$2.6~~decreased by $1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016. The increase in other revenues for the third quarter of 2017 is~~2019. These variances were primarily due to gains and losses related to foreign currency exchange fluctuations. The increase in other revenues for the first nine months of 2017 is primarily due to fee income from the recapture of a previously assumed block of individual life business during the second quarter of 2017.transactions.

Loss ratios for this segment were ~~85.9%~~85.0% and ~~76.0%~~78.1% for the ~~third~~second quarter and ~~85.4%~~84.8% and ~~76.4%~~78.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The increases in the loss ~~ratio for the three and nine months of 2017,~~ratios were due to less favorable individual life mortality experience as compared to the same periods in ~~2016, are due to unfavorable traditional life mortality experience compared to favorable experience in the same periods in 2016 and a decrease in creditor business premiums. Loss ratios~~2019. Approximately $8 million of claims for the ~~traditional individual life mortality business were 99.5% and 94.4% for the third quarter and 98.7% and 93.4% for the first nine~~three months ended ~~September~~June 30, ~~2017~~2020, were identified as COVID-19 related and ~~2016, respectively. Historically,~~contributed to the higher loss ~~ratio increased primarily as the result of several large permanent level premium~~ratios 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 77.7% and 73.7% for the third quarter and 77.7% and 73.5% for the nine months ended September 30, 2017 and 2016, respectively.2020.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~22.1%~~16.5% and ~~26.4%~~21.6% for the ~~third~~second quarter and ~~21.6%~~16.9% and ~~25.9%~~21.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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~~decreases in the ~~third quarter~~policy acquisition and ~~first nine months reflects~~other insurance expenses as percentage of net premiums was the result of a ~~lower level of~~reduction in creditor business which ~~typically~~ has a higher ~~level of acquisition costs.~~commission than other businesses. 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 ~~decreased $1.7~~were unchanged and increased $1 million, or ~~17.3%, and $3.4 million, or 12.2%~~6.3%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, as compared to the same periods in ~~2016, primarily due to a decrease in corporate overhead expenses.~~2019. Other operating expenses as a percentage of net premiums were ~~3.7%~~3.5% and ~~4.3%~~3.2% for the ~~third~~second quarter and ~~3.6%~~3.3% and ~~4.0%~~3.2% for the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Financial Solutions Reinsurance

Income before income taxes ~~increased by $3.3 million and $8.6 million~~was unchanged for the three month period ended June 30, 2020, as compared to the same period in 2019 and ~~nine~~increased by $2 million, or 40.0%, for the six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The ~~increases~~increase in income for ~~both~~the first six months was primarily due to a new transaction completed at the end of 2019.

Net premiums decreased $3 million, or 13.0%, and $4 million, or 8.9%, for the three and ~~nine month~~six months ended June 30, 2020, as compared to the same periods ~~are~~in 2019. The decreases were primarily due to ~~favorable experience on~~decreases of in force longevity ~~business in the current-year periods.~~premiums and foreign currency impacts. Foreign currency exchange fluctuations in the Canadian dollar resulted in ~~an increase~~a decrease in ~~income before income taxes~~net premiums of ~~$0.2~~$1 million and $1 million for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Net ~~premiums~~investment income for the three and six months ended June 30, 2020, was consistent with the comparable periods in 2019.

Claims and other policy benefits decreased ~~$0.1~~$3 million, or ~~0.7%~~15.0%, and ~~$0.5~~$4 million, or ~~1.7%~~9.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016. Foreign currency exchange fluctuations~~2019. The decreases for the second quarter and first six months were primarily a result of more favorable claims experience in the ~~Canadian dollar resulted in an increase in net premiums~~longevity block of ~~approximately $0.4 million for both the three and nine months ended September 30, 2017, as~~business compared to the same ~~periods in 2016.~~period last year.

Net investment income increased $0.1 million and $1.9 million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016 primarily due to an increase in the invested asset base.

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~~Claims and other policy benefits decreased $3.4 million, or 32.1%, and $7.1 million, or 24.5%, for the three and nine months ended~~ ~~September 30, 2017~~ ~~as compared to the same periods in 2016. The decreases for the third quarter and first nine months are primarily due to favorable experience on longevity business.~~

Europe, Middle East and Africa Operations

The Europe, Middle East and Africa (“EMEA”) ~~segment includes~~operations include business generated by its offices principally in ~~the United Kingdom (“UK”), South Africa,~~ France, Germany, Ireland, Italy, the Middle East, the Netherlands, Poland, South Africa, Spain and the United ~~Arab Emirates~~Kingdom (“~~UAE”~~UK”). EMEA consists of

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two major segments: Traditional and 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 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 September 30,
(dollars in millions)														Three months ended June 30,
	2017						2016							2020						2019
Revenues:	Traditional		Financial Solutions		Total EMEA		Traditional		Financial Solutions			Total EMEA		Traditional		Financial Solutions		Total EMEA		Traditional		Financial Solutions		Total EMEA
Net premiums	$	344,211	$	39,294	$	383,505	$	275,514	$	47,018		$	322,532	$	352	$	57	$	409	$	351	$	57	$	408
Investment income, net of related expenses	14,727		30,892		45,619		13,067		33,187			46,254		18		61		79		18		47		65
Investment related gains (losses), net	—		1,192		1,192		—		8,159			8,159		—		16		16		—		3		3
Other revenues	2,034		5,663		7,697		489		11,388			11,877		1		2		3		1		7		8
Total revenues	360,972		77,041		438,013		289,070		99,752			388,822		371		136		507		370		114		484
Benefits and expenses:
Claims and other policy benefits	285,071		35,648		320,719		241,763		45,805			287,568		301		13		314		296		47		343
Interest credited	—		2,475		2,475		—		5,540			5,540		—		16		16		—		3		3
Policy acquisition costs and other insurance expenses	35,751		327		36,078		14,133		(304		)	13,829		32		1		33		28		1		29
Other operating expenses	24,729		7,638		32,367		24,659		4,925			29,584		22		8		30		30		11		41
Total benefits and expenses	345,551		46,088		391,639		280,555		55,966			336,521		355		38		393		354		62		416
Income before income taxes	$	15,421	$	30,953	$	46,374	$	8,515	$	43,786		$	52,301	$	16	$	98	$	114	$	16	$	52	$	68


(dollars in thousands)	Nine months ended September 30,
(dollars in millions)													Six months ended June 30,
	2017						2016						2020									2019
Revenues:	Traditional		Financial Solutions		Total EMEA		Traditional		Financial Solutions		Total EMEA		Traditional			Financial Solutions			Total EMEA			Traditional		Financial Solutions		Total EMEA
Net premiums	$	979,733	$	119,809	$	1,099,542	$	838,810	$	126,108	$	964,918	$	742		$	110		$	852		$	715	$	109	$	824
Investment income, net of related expenses	41,032		88,602		129,634		38,556		95,288		133,844		37			89			126			37		95		132
Investment related gains (losses), net	7		8,225		8,232		5		8,623		8,628		—			10			10			—		6		6
Other revenues	4,206		13,799		18,005		2,975		18,466		21,441		(1		)	5			4			2		13		15
Total revenues	1,024,978		230,435		1,255,413		880,346		248,485		1,128,831		778			214			992			754		223		977
Benefits and expenses:
Claims and other policy benefits	846,476		108,381		954,857		745,342		126,252		871,594		635			66			701			608		96		704
Interest credited	—		6,297		6,297		—		8,914		8,914		—			(1		)	(1		)	—		15		15
Policy acquisition costs and other insurance expenses	66,263		1,070		67,333		46,465		226		46,691		62			2			64			57		2		59
Other operating expenses	71,488		22,911		94,399		74,306		16,414		90,720		48			19			67			57		20		77
Total benefits and expenses	984,227		138,659		1,122,886		866,113		151,806		1,017,919		745			86			831			722		133		855
Income before income taxes	$	40,751	$	91,776	$	132,527	$	14,233	$	96,679	$	110,912	$	33		$	128		$	161		$	32	$	90	$	122

Income before income taxes ~~decreased~~increased by ~~$5.9~~$46 million, or ~~11.3%~~67.6%, and ~~increased by $21.6~~$39 million, or ~~19.5%~~32.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The ~~decrease in income for the third quarter was primarily due to lower payout annuity income partially offset by favorable mortality experience. The increase~~increases in income before income taxes ~~for the first nine months was~~were primarily due to favorable ~~individual mortality and~~performance on closed block longevity ~~experience.~~business. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in income before income taxes of ~~$0.8~~$4 million and ~~$(8.5)~~$4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~

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2019.

Traditional Reinsurance

Income before income taxes ~~increased by $6.9 million, or 81.1%, and $26.5 million, or 186.3%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, was consistent with the comparable periods in 2019. Poor mortality experience, primarily due to the impact of COVID-19, was offset by an improvement in morbidity experience and a decrease in general expenses. The increase in income for the first six months was primarily due to an improvement in mortality experience and lower general expenses partly offset by a worsening of morbidity experience. See “The COVID-19 Impact and Update” above for more information regarding the impact of COVID-19. Foreign currency exchange fluctuations resulted in a decrease in income before income taxes of $1 million and $1 million for the three and six months ended June 30, 2020, as compared to the same periods in ~~2016~~. The increase in income for the third quarter was primarily due to favorable mortality experience. The increases in income before income taxes for the first nine months was primarily due to business growth2019.

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Net premiums increased $1 million, or 0.3%, and favorable individual mortality experience partially offset by unfavorable morbidity experience. Foreign currency exchange fluctuations resulted in an increase (decrease) in income before income taxes of $0.7$27 million, ~~and $(0.5) million~~or 3.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~

~~Net~~2019. The increase in net premiums ~~increased $68.7 million, or 24.9%, and $140.9 million, or 16.8%,~~ for the three and ~~nine~~six months were primarily due to an increase in business volume on new and existing treaties. Foreign currency exchange fluctuations decreased net premiums by $20 million and $33 million for the three and six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in 2016. The increase in the three and nine months was primarily due to increased business volumes, most notably in the UAE, Italy and South Africa related to new treaties in 2017 and favorable growth from existing treaties. Foreign currency exchange fluctuations increased (decreased) net premiums by approximately $7.3 million and $(27.8) million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.2019.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage (morbidity risk), 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 ~~$49.0~~$40 million and ~~$49.5~~$43 million for the ~~third~~second quarter and ~~$144.2~~$82 million and ~~$157.0~~$88 million for the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively.

Net investment income ~~increased $1.7 million, or 12.7%, and $2.5 million, or 6.4%,~~was consistent for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016. The increases were primarily due to~~2019, with an increase in the invested asset base ~~related to increased~~from business ~~volumes.~~growth offset by a decrease in investment yields. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in net investment income of ~~approximately $0.4~~$1 million and ~~$(0.8)~~$2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Loss ratios for this segment were ~~82.8%~~85.5% and ~~87.7%~~84.3% for the ~~third~~second quarter and ~~86.4%~~85.6% and ~~88.9%~~85.0% for the first ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~decreases~~increases in loss ratios were ~~primarily~~ due to ~~changes in~~normal claims variability and the ~~mix~~impact of ~~business in~~approximately $19 million of COVID-19 related claims reported during the ~~third~~second quarter of 2017 reflecting increased volumes of new business with lower loss ratios, but with higher commissions. These higher commissions are reflected in the increases of 2017 policy acquisition cost ratios below.2020.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~10.4%~~9.1% and ~~5.1%~~7.9% for the ~~third~~second quarter and ~~6.8%~~8.4% and ~~5.5%~~8.1% for the first ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The increases in ~~policy acquisition cost ratios~~the percentages are due primarily to ~~changes~~variations in the ~~mix~~mixture of ~~business in the third quarter of 2017 reflecting increased volumes of new business with higher commissions.~~business.

Other operating expenses ~~increased $0.1~~decreased $8 million, or ~~0.3%~~26.7%, and ~~decreased $2.8~~$9 million, or ~~3.8%~~15.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The ~~decrease in the first nine months was~~current periods have benefited from reduced incentive-based compensation and travel expenses primarily ~~due~~attributable to ~~lower corporate overhead expense timing and the effect of foreign currency exchange fluctuations.~~COVID-19. Foreign currency ~~exchange~~ fluctuations resulted in ~~an increase (decrease)~~a decrease in operating expenses of ~~approximately $0.8 million and $(0.4)~~$2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. Other operating expenses as a percentage of net premiums totaled ~~7.2%~~6.3% and ~~9.0%~~8.6% for the ~~third~~second quarter and ~~7.3%~~6.5% and ~~8.9%~~7.9% for the first ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Financial Solutions Reinsurance

Income before income taxes ~~decreased~~increased by ~~$12.8~~$46 million, or ~~29.3%~~88.5%, and ~~$4.9~~$38 million, or ~~5.1%~~42.2%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016~~2019. The ~~decreases in income before income taxes~~increases were primarily due to ~~payout annuity~~favorable termination experience ~~normalizing after a particularly positive 2016, partly offset by favorable~~on closed longevity ~~business results.~~blocks. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in income before income taxes ~~totaling $0.1~~of $3 million and ~~$(7.9)~~$3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Net premiums ~~decreased~~were flat and increased by ~~$7.7~~$1 million, or ~~16.4%, and $6.3 million, or 5.0%~~0.9%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The ~~decreases~~increase in net premiums ~~were~~was due to ahigher new ~~retrocession treaty, executed for risk management purposes effective in the first quarter~~business volumes of ~~2017, which cedes~~closed longevity ~~risk to third parties, partially offset by an increase in premiums from new transactions.~~business. Foreign currency exchange fluctuations ~~increased (decreased)~~decreased net premiums by ~~approximately $0.1~~$2 million and ~~$(10.5)~~$3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

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Net investment income ~~decreased $2.3~~increased by $14 million, or ~~6.9%~~29.8%, and ~~$6.7~~decreased by $6 million, or ~~7.0%~~6.3%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The ~~decreases~~increase in investment income for the ~~third quarter~~three months was primarily due to ~~decreases~~an increased invested asset base resulting from business growth and an increase in ~~both~~ investment ~~yields and~~income associated with unit-linked policies which fluctuate with market performance. The decrease in investment income for the six months was primarily due to a decrease in investment income associated with unit-linked policies which fluctuate with market performance partly offset by an increase in the invested asset base ~~while the decrease for the nine-month period was primarily due~~from business growth. The effect on investment income related to ~~foreign currency exchange fluctuations.~~unit-linked products is substantially offset by a corresponding change in interest credited. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in net investment income of ~~approximately $0.1~~$2 million and ~~$(7.3)~~$2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Investment related gains (losses) net, increased by $13 million and $4 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The increases were primarily due to increases in the fair market value of derivative hedging instruments. Foreign currency exchange fluctuations resulted in a decrease in investment related gains (losses) of $1 million for the three months ended June 30, 2020, as compared to the same period in 2019.

Other revenues decreased by ~~$5.7~~$5 million, or ~~50.3%~~71.4%, and ~~$4.7~~$8 million, or ~~25.3%~~61.5%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The decreases relate to a one-time fees received related to a new payout annuity transaction completed in the second quarter of 2019 and fees on a treaty that terminated in the fourth quarter of 2019. Foreign currency exchange fluctuations resulted in a decrease in other revenues ~~were due~~of $1 million for the six months ended June 30, 2020, as compared to ~~experience from a longevity swap normalizing after a particularly positive 2016.~~the same period in 2019.

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Claims and other policy benefits decreased ~~$10.2~~$34 million, or ~~22.2%~~72.3%, and ~~$17.9~~$30 million, or ~~14.2%~~31.3%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The decrease in the ~~third~~second quarter and the first ~~nine~~six months was primarily due to ~~the aforementioned new~~favorable termination experience on closed block longevity ~~retrocession treaty that cedes longevity risk to third parties, net of an increase in claims and other policy benefits from new transactions.~~business. Foreign currency exchange fluctuations resulted in a decrease in claims and other policy benefits of ~~approximately $9.6~~$1 million ~~for the nine months ended September 30, 2017, as compared to the same period in 2016.~~

~~Interest credited expense decreased by $3.1~~and $2 million ~~or 55.3%, and $2.6 million, or 29.4%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Interest credited expense increased by $13 million and decreased by $16 million or the three and six months ended June 30, 2020, as compared to the same periods in 2019. Interest credited in this segment relates to amounts credited to the contractholders of unit-linked products. ~~This amount will fluctuate according to contractholder investment selections, equity returns and interest rates.~~ The effect on interest credited related to unit-linked products is substantially offset by a corresponding change in investment income.

Other operating expenses ~~increased $2.7~~decreased $3 million, or ~~55.1%~~27.3%, and ~~$6.5~~$1 million, or ~~39.6%~~5.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, as compared to the same periods in ~~2016.~~2019. The ~~increases are~~current periods have benefited from reduced incentive-based compensation and travel expenses primarily ~~due~~attributable to ~~increased administration costs related to longevity transactions and are offset partially by the effect of foreign currency exchange fluctuations.~~COVID-19. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in operating expenses of ~~approximately $0.2 million and $(1.0)~~$1 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same ~~periods~~period in ~~2016.~~2019.

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 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 Financial Solutions segment includes financial reinsurance and asset-intensive ~~and~~transactions including certain disability, life and ~~life blocks.~~health blocks with significant investment risk. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.


(dollars in thousands)	Three months ended September 30,
(dollars in millions)														Three months ended June 30,
	2017							2016						2020						2019
Revenues:	Traditional		Financial Solutions			Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific		Traditional			Financial Solutions			Total Asia Pacific
Net premiums	$	536,931	$	19		$	536,950	$	404,451	$	743	$	405,194	$	607	$	31	$	638	$	606		$	44		$	650
Investment income, net of related expenses	23,858		10,556			34,414		21,273		5,827		27,100		27		21		48		24			11			35
Investment related gains (losses), net	—		758			758		—		6,108		6,108		—		15		15		—			(1		)	(1		)
Other revenues	871		5,599			6,470		1,923		6,359		8,282		2		8		10		4			5			9
Total revenues	561,660		16,932			578,592		427,647		19,037		446,684		636		75		711		634			59			693
Benefits and expenses:
Claims and other policy benefits	442,358		6,110			448,468		365,115		3,777		368,892		514		32		546		568			37			605
Interest credited	—		7,026			7,026		—		3,308		3,308		—		11		11		—			6			6
Policy acquisition costs and other insurance expenses	55,891		653			56,544		4,157		1,482		5,639		34		5		39		(12		)	10			(2		)
Other operating expenses	36,847		3,372			40,219		38,553		2,921		41,474		41		1		42		44			4			48
Total benefits and expenses	535,096		17,161			552,257		407,825		11,488		419,313		589		49		638		600			57			657
Income (loss) before income taxes	$	26,564	$	(229	)	$	26,335	$	19,822	$	7,549	$	27,371	$	47	$	26	$	73	$	34		$	2		$	36

6261

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(dollars in thousands)	Nine months ended September 30,
(dollars in millions)													Six months ended June 30,
	2017						2016						2020								2019
Revenues:	Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions			Total Asia Pacific			Traditional		Financial Solutions		Total Asia Pacific
Net premiums	$	1,557,590	$	2,094	$	1,559,684	$	1,233,222	$	4,936	$	1,238,158	$	1,243	$	105		$	1,348		$	1,253	$	78	$	1,331
Investment income, net of related expenses	68,105		24,662		92,767		61,601		18,086		79,687		54		38			92			50		21		71
Investment related gains (losses), net	—		11,525		11,525		14		14,322		14,336		—		(18		)	(18		)	—		3		3
Other revenues	2,724		17,087		19,811		4,580		18,809		23,389		6		18			24			4		12		16
Total revenues	1,628,419		55,368		1,683,787		1,299,417		56,153		1,355,570		1,303		143			1,446			1,307		114		1,421
Benefits and expenses:
Claims and other policy benefits	1,221,091		14,170		1,235,261		977,860		15,487		993,347		1,069		94			1,163			1,114		69		1,183
Interest credited	—		15,595		15,595		—		9,474		9,474		—		24			24			—		13		13
Policy acquisition costs and other insurance expenses	180,007		4,111		184,118		116,432		4,436		120,868		83		19			102			39		15		54
Other operating expenses	105,747		10,472		116,219		109,661		10,727		120,388		80		5			85			83		9		92
Total benefits and expenses	1,506,845		44,348		1,551,193		1,203,953		40,124		1,244,077		1,232		142			1,374			1,236		106		1,342
Income before income taxes	$	121,574	$	11,020	$	132,594	$	95,464	$	16,029	$	111,493	$	71	$	1		$	72		$	71	$	8	$	79

Income before income taxes increased by $37 million, or 102.8%, and decreased by ~~$1.0~~$7 million, or ~~3.8%, and increased by $21.1 million, or 18.9%~~8.9%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The increase in income before income taxes for the three months ended June 30, 2020, was primarily due to continued growth of Financial Solutions Reinsurance in Asia, increases in the market value of derivatives and more favorable experience, mainly in Australia across most product lines. The decrease in income before income taxes for the ~~third quarter was due~~first six months is primarily attributable to declines in the fair value of derivatives hedging inflation risk, foreign exchange and credit risk, and unfavorable claims experience in Asia in the first three months, partially offset by more favorable experience in Australia. Foreign currency exchange fluctuations resulted in an increase in ~~policy lapses on a financial solutions closed block~~income before income taxes of ~~business~~$1 million and $2 million for the three and six months ended June 30, 2020, as compared to the same periods in ~~Japan partially offset~~2019.

Traditional Reinsurance

Income before income taxes increased by ~~favorable results~~$13 million, or 38.2%, and for the three months ended June 30, 2020 as compared to the same period in 2019 and was consistent for the ~~traditional segment.~~six months ended June 30, 2020, as compared to the same period in 2019. The increase in income before income taxes for the first nine months was primarily due to higher income from offices in Asia driven by business growth, most notably in Hong Kong and Southeast Asia. The prior-year period also included poor claims experience in Australia. The third quarter of 2016 also included a higher level of benefit expense associated with the timing of client reporting on one large treaty in Hong Kong. Foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling approximately $0.8 million and $0.3 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2020, was the result of net favorable experience across the segment, mainly in Australia across most product lines, as compared to the same ~~periods~~period in ~~2016.~~

~~Traditional Reinsurance~~

2019. Income before income taxes ~~increased by $6.7 million, or 34.0%, and $26.1 million, or 27.4%,~~ for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~,2020, was flat as compared to the same ~~periods~~period in ~~2016. The increases in income before income taxes are primarily~~2019 due to ~~higher income from offices~~unfavorable claims experience in Asia ~~driven~~in the first three months of 2020, offset by ~~business growth. Foreign currency exchange fluctuations resulted~~favorable experience in ~~a decrease to income before income taxes totaling approximately $1.0 million and $0.4 million~~Australia for the ~~three and nine~~ ~~months ended September 30, 2017, as compared to the same periods in~~ ~~2016~~.

Net premiums increased by $132.5 million, or 32.8%, and $324.4 million, or 26.3%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The increases were driven by both new and existing business written throughout the segment.year across most product lines. Foreign currency exchange fluctuations resulted in an increase in ~~net premiums~~income before income taxes of ~~approximately $1.0~~$2 million and ~~$14.2~~$1 million for the three and ~~nine~~six months ~~of 2017,~~ended June 30, 2020, as compared to the same periods in ~~2016.~~2019.

~~A portion~~Net premiums increased by $1 million, or 0.2%, and decreased by $10 million, or 0.8%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. Premiums for the six months ended June 30, 2020, are reflective of ~~the~~premium reductions in Australia group business as a result of new legislation effective July 2019 and April 2020 as well as unfavorable foreign currency exchange fluctuations, partially offset by new business growth in Asia. Foreign currency exchange fluctuations resulted in a decrease in net premiums of $12 million and $28 million for the ~~segment,~~three and six months of 2020, as compared to the same periods in ~~each period presented, relates to~~2019.

Net premiums earned from the reinsurance of critical illness ~~coverage. This~~(morbidity risk) in the segment, which is offered primarily in South Korea, Australia, China and Hong Kong, totaled $246 million and $243 million for the second quarter and $502 million and $495 million for the first six months ended June 30, 2020 and 2019, respectively. Critical illness 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 $158.6 million and $100.6 million for the third quarter and $474.8 million and $312.3 million for the first nine months ended ~~September 30, 2017~~ ~~and~~ ~~2016, respectively.~~

Net investment income increased ~~$2.6~~by $3 million, or ~~12.2%~~12.5%, and ~~$6.5~~$4 million, or ~~10.6%~~8.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, as compared to the same periods in ~~2016.~~2019. The increases were ~~primarily~~ due to ~~a higher~~an increase in the invested asset ~~base.~~base, partially offset by a lower investment yield and foreign currency exchange fluctuations. Foreign currency exchange fluctuations resulted in ~~an increase~~a decrease in net investment income of ~~approximately $0.5~~$1 million and ~~$1.3~~$2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019.

Other revenues decreased by ~~$1.1~~$2 million, or ~~54.7%~~50.0%, and ~~$1.9~~increased by $2 million, or ~~40.5%~~50.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016. These variances~~2019. Fluctuations in other revenues are ~~primarily due to~~driven by foreign currency gains and losses ~~related~~in each period. Foreign currency exchange fluctuations had a negligible effect in other revenues for the three and six months ended June 30, 2020, as compared to ~~foreign currency transactions.~~the same periods in 2019.

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Loss ratios for this segment were ~~82.4%~~84.7% and ~~90.3%~~93.7% for the ~~third~~second quarter and ~~78.4%~~86.0% and ~~79.3%~~88.9% for the ~~first nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~decreases~~decrease in the loss ~~ratios~~ratio for the ~~third~~second quarter ~~and first nine months of 2017 were~~was primarily due to ~~improved claims~~unfavorable experience adjustments in Asia in the second quarter of 2019 as well as favorable experience in Australia in the current year, as compared to the ~~prior year.~~same period in 2019. Based on client reporting received to date, the impact of COVID-19 claims was not material to the segment during the second quarter of 2020. The decrease in the loss ratio for the six months ended June 30, 2020, as compared to the same period in 2019 was primarily due to unfavorable experience adjustments in Asia in the second quarter of 2019 as well as favorable experience in Australia in the current year, partially offset by unfavorable claims experience on a large treaty in Asia in the first three months of 2020.

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Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~10.4%~~5.6% and ~~1.0%~~(1.9%) for the ~~third~~second quarter and ~~11.6%~~6.7% and ~~9.4%~~3.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~third quarter 2016 included the affect~~ratio of ~~adjustments associated with client reporting on one large treaty in Hong Kong. These percentages fluctuate~~policy acquisition costs and other insurance expenses as a percentage of net premiums fluctuates periodically due to timing of client company reporting ~~premium refunds,~~and 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.~~

Other operating expenses decreased ~~$1.7~~$3 million, or ~~4.4%~~6.8%, and ~~$3.9~~$3 million, or 3.6%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016 mainly due~~2019, with the current periods benefiting from lower travel expenses primarily attributable to ~~the timing of travel and consultant expenditures.~~COVID-19 as well as lower incentive-based compensation expense. Other operating expenses as a percentage of net premiums totaled ~~6.9%~~6.8% and ~~9.5%~~7.0% for the ~~third~~second quarter and ~~6.8%~~6.4% and ~~8.9%~~6.5% for the first ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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.

Financial Solutions Reinsurance

Income before income taxes increased by $24 million and decreased by ~~$7.8 million and $5.0~~$7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016~~2019. The ~~decreases~~increase in income before income taxes ~~are~~for the second quarter was primarily due to ~~lower~~new business growth in the segment and increases in the market value of derivatives. The decrease in the first six months was primarily due to declines in the market value of derivatives, partially offset by higher income from ~~higher lapses on policies of~~business growth in the ~~aforementioned closed block of business in Japan.~~segment. Foreign currency exchange fluctuations resulted in an increase (decrease) in income before income taxes of ~~approximately $0.1~~$(1) million and $1 million for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016~~.2019.

Net premiums decreased ~~$0.7~~$13 million and increased by $27 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The decrease for the second quarter was primarily due to slowed new business. The increase in the first six months of 2020 was attributable to new asset-intensive transactions in Asia. Foreign currency exchange fluctuations increased net premiums by $1 million and $1 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019.

Net investment income increased $10 million, or ~~97.4%~~90.9%, and ~~$2.8~~$17 million, or ~~57.6%~~81.0%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in 2019 primarily due to an increase in invested asset base, partially offset by a lower investment yield. Foreign currency exchange fluctuations had a negligible impact on net investment income for the three and six months ended June 30, 2020, as compared to the same periods in 2019.

Other revenues, which primarily represents fees earned on financial reinsurance transactions, increased by $3 million, or 60.0%, and $6 million, or 50.0%, for the three and six months ended June 30, 2020, as compared to the same periods in ~~2016. The decreases for the third quarter~~2019. At June 30, 2020 and first nine months were due to higher lapses from policies of the aforementioned closed block of business in Japan. Foreign currency exchange fluctuations had a negligible effect on net premiums for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.

~~Net investment income increased $4.7 million, or 81.2%, and $6.6 million, or 36.4%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017~~, as compared to the same periods in 2016 mainly due to growth in the invested asset base. Foreign currency exchange fluctuations resulted in an increase in net investment income of approximately $0.2 million and $0.4 million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.

~~Other revenues decreased by $0.8 million, or 12.0%, and $1.7 million, or 9.2%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017, as compared to the same periods in 2016. At~~ ~~September 30, 2017~~ ~~and 2016,~~2019, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was ~~$2.4~~$3.2 billion and ~~$1.0~~$3.1 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 decreased by $5 million and increased by ~~$2.3~~$25 million ~~or 61.8%, and decreased by $1.3 million, or 8.5%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016.~~2019. The ~~increase~~decrease in the ~~third~~second quarter was primarily due to ~~higher lapses from policies of the aforementioned closed block of business in Japan.~~slowed new business. The ~~decrease~~increase in the first ~~nine~~six months isof 2020 was attributable to ~~lower lapses from policies from a closed block of business~~new asset-intensive transactions in ~~Japan.~~Asia.

Other operating expenses ~~increased~~decreased by ~~$0.5~~$3 million, or ~~15.4%~~75.0%, and ~~decreased by $0.3~~$4 million, or ~~2.4%~~44.4%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, as compared to the same periods in ~~2016, respectively.~~2019, respectively, with the current periods benefiting from lower travel expenses primarily attributable to COVID-19 as well as lower incentive-based compensation expense. The timing of ~~premium flows~~transactions and the level of costs associated with the entrance into and development of new markets and new transactions 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.~~losses and service fees. Corporate and Other 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

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related to debt, and the investment income and expense associated with the Company’s collateral finance and securitization ~~transactions.~~transactions and service business expenses. Additionally, Corporate and Other includes results from certain wholly-owned subsidiaries, such as RGAx, and joint ventures that, among other activities, develop and market technology, and provide consulting and outsourcing solutions for the insurance and reinsurance industries. In the past two years, the Company has increased its investment and expenditures in this area in an effort to both support its clients and accelerate the development of new solutions and services to increase consumer engagement within the life insurance industry.


(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,
(dollars in millions)													Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Revenues:
Net premiums	$	23		$	72		$	109		$	289		$	—		$	—		$	—		$	—
Investment income, net of related expenses	41,108			33,478			108,576			81,589			48			55			106			98
Investment related gains (losses), net	6,994			12,258			7,856			51,717			22			(6		)	(45		)	(7		)
Other revenues	1,502			4,893			9,126			11,595			20			13			21			39
Total revenues	49,627			50,701			125,667			145,190			90			62			82			130
Benefits and expenses:
Claims and other policy benefits	(15		)	(15		)	(1		)	6			—			—			—			—
Interest credited	1,799			622			4,420			1,588			3			6			5			11
Policy acquisition costs and other insurance income	(26,848		)	(24,565		)	(80,694		)	(73,526		)	(29		)	(29		)	(57		)	(58		)
Other operating expenses	45,601			32,414			124,114			113,367			69			75			131			146
Interest expense	36,836			43,063			108,590			96,201			42			43			83			83
Collateral finance and securitization expense	7,692			6,484			21,235			19,396			4			8			10			16
Total benefits and expenses	65,065			58,003			177,664			157,032			89			103			172			198
Income (loss) before income taxes	$	(15,438	)	$	(7,302	)	$	(51,997	)	$	(11,842	)	$	1		$	(41	)	$	(90	)	$	(68	)

~~Loss~~Income (loss) before income taxes increased by ~~$8.1~~$42 million ~~or 111.4%~~ and ~~$40.2~~decreased by $22 million ~~or 339.1%,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, as compared to the same periods in ~~2016.~~2019. The increase in ~~loss~~income (loss) before income taxes for the ~~third~~second quarter ~~and the first nine months is~~was primarily due to ~~decreased net~~increases in investment related gains ~~decreased~~and other revenues, and ~~higher~~a decrease in other operating expenses, partially offset by ~~increased investment income.~~

Total revenues decreased by $1.1 million, or 2.1%, and $19.5 million, or 13.4%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The decrease for the third quarter is primarily due to a $5.3 million decrease in investment related gains (losses), net, largely caused by an increase in other-than-temporary impairments on fixed maturity securities and other impairment charges of $3.2 million. The third quarter decrease was partially offset by a $7.6 million increase in investment income related to an increase in unallocated invested assets and higher investment yields, primarily due to a higher level of variablelower investment income. The decrease in income (loss) before income taxes for the first nine months is primarily due to a decrease of $43.9 million in investment related gains (losses), net, mainly related to an increase in other-than-temporary impairments on fixed maturity securities and other impairment charges of $12.9 million and a reduction in net gains on the sale of investments of $25.2 million. The decrease for the first nine months was partially offset by an increase of $27.0 million in investment income related to an increase in unallocated invested assets and higher investment yields, primarily due to a higher level of variable investment income.

Total benefits and expenses increased by $7.1 million, or 12.2%, and $20.6 million, or 13.1%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The increase of total benefits and expenses in the third quarter is primarily due to a $13.2 million increase in other operating expenses, primarily related to compensation and consulting expenses, partially offset by a reduction in interest expense of $6.2 million. The increase in total benefits and expenses in the first ninesix months was primarily due to an increase in ~~interest expense~~investment related losses and a decrease in other revenue, partially offset by increased investment income and lower other operating expenses.

Net investment income decreased by $7 million, or 12.7%, and increased by $8 million, or 8.2%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The decrease in the second quarter was largely attributable to lower yield on unallocated invested assets. The increase in the first six months was largely attributable to a higher volume of unallocated invested assets.

Net investment related gains (losses) increased by $28 million and decreased by $38 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The increase in the second quarter gains was primarily due to an increase in net gains on the sale of fixed maturity securities available-for-sale and other ~~operating expenses~~investments of $2 million and an increase in the fair value of equity securities and derivatives hedging interest of $28 million, partially offset by an increase in the valuation allowance on mortgage loans of $7 million which is primarily attributed to the economic uncertainty caused by COVID-19. Decrease in the first six months of 2020 was primarily due to an increase in the allowance for credit losses on fixed maturity securities available-for-sale of $23 million, an increase in the valuation allowance on mortgage loans of $12 million, primarily attributable to the economic uncertainty caused by COVID-19, and decreases in the fair value of fixed maturity securities available-for-sale and derivatives hedging interest rate risk of $21 million, which were offset by $14 million in net gains on the sale of fixed maturity securities and other investments.

Other revenues increased by $7 million and decreased by $18 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The increase in the second quarter was primarily due to favorable foreign exchange rate fluctuation and an increase in the cash surrender value of corporate owned life insurance policies of $5 million. The decrease in the first six months of 2020 was mainly due to a $7 million decrease in the cash surrender value of corporate owned life insurance policies. Additionally, prior year results included a recapture of a collateral finance transaction, which resulted in a $13 million fee paid to the Company. The Company’s RGAx operations contributed $9 million and $16 million to other revenues for the three and six months ended June 30, 2020.

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Policy acquisition costs and other insurance ~~income, related~~expense for the three months ended June 30, 2020, was consistent with the same period in 2019. Policy acquisition costs and other insurance expense increased $1 million, or 1.7%, for the six months ended June 30, 2020, as compared to the same period in 2019. Fluctuations period over period were attributable to the offset to capital charges allocated to the operating segments.

Other operating expenses decreased by $6 million, or 8.0%, and $15 million, or 10.3%, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The ~~increase~~decrease in other operating expenses for both periods presented was primarily due to lower incentive-based compensation expense as well as lower travel expenses, consulting fees and contract labor expenses.

Interest expense decreased by $1 million, or 2.3%, and was flat for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The decrease in interest expense ~~in the first nine months is~~was primarily due to the ~~issuance of $800.0 million in long-term debt in June 2016, which was partially offset by the repayment of $300.0 million of long-term debt in 2017, and a lower reduction~~variability in tax-related interest ~~expense primarily resulting from settlement with the taxing authority in 2016.~~expense.

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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~~the Company under various scenarios that include the potential risk of early recapture of reinsurance treaties, market events and higher than expected ~~claims.~~claims associated with the pandemic. Given the uncertainty associated with COVID-19 and the related volatility in the financial markets, the Company increased its cash and cash equivalents to $4.3 billion as of June 30, 2020, compared to $1.4 billion as of December 31, 2019, an increase of $2.9 billion. The Company performs 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.

In order to enhance the Company’s strong capital and liquidity position, the Company executed two capital market transactions during the quarter. On June 5, 2020, the Company completed an offering of its common stock and received net proceeds of $481 million, and on June 9, 2020, completed a senior debt offering and received net proceeds of $593 million.

Current Market Environment

The current low interest rate environment in select markets, primarily the U.S., Canada and ~~Canada,~~Europe, continues to ~~negatively affect~~put downward pressure on the Company’s ~~earnings. However, the~~investment yield. The Company’s average investment yield, excluding spread business, ~~has begun to increase, which~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, was ~~4.61%~~4.07%, 831 basis points ~~above~~below the same period in ~~2016.~~2019 due to lower income from limited partnerships. The Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Gross unrealized gains on fixed maturity ~~and equity~~ securities available-for-sale increased from ~~$2,246.5~~$4.5 billion at December 31, 2019 to $5.9 billion at June 30, 2020. Similarly, gross unrealized losses decreased from $110 million at December 31, ~~2016~~2019 to ~~$2,651.5~~$448 million at ~~September~~June 30, ~~2017. Gross unrealized losses decreased from $374.9 million at December 31, 2016 to $163.2 million at September 30, 2017.~~2020.

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~~fixed maturity securities of ~~$2,651.5 million~~$5.9 billion remain well in excess of gross unrealized losses of ~~$163.2~~$448 million as of ~~September~~June 30, ~~2017.~~2020. 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.

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. Total interest and dividend income increased by $147 million and $342 million for the three and six months ended June 30, 2020, as compared to the same periods in 2019 primarily due to cash dividends received from

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operating subsidiaries. As the Company continues its ~~expansion~~growth efforts, RGA will continue to be dependent upon these sources of liquidity. The following tables provide comparative information for RGA (dollars in ~~thousands)~~millions):


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Interest and dividend income									$	183	$	36	$	408	$	66
Interest expense	$	44,697	$	50,826	$	132,018	$	119,700	50		52		100		100
Capital contributions to subsidiaries	10,000		46,002		28,500		87,002		18		18		33		39
Issuance of unaffiliated debt									598		599		598		599
Dividends to shareholders	32,271		26,288		85,086		74,034		43		38		87		75
Interest and dividend income	23,635		227,819		75,916		283,712
Issuance of unaffiliated debt	—		—		—		799,984
Issuance of common stock, net of expenses									481		—		481		—
Repurchases of treasury stock									—		—		153		50

September 30, 2017 December 31, 2016
Cash and invested assets $ 862,480
$ 1,443,755



	June 30, 2020		December 31, 2019
Cash and invested assets	$	1,513	$	554

See Item 15, Schedule II -– “Condensed Financial Information of the Registrant” in the ~~2016~~2019 Annual Report for additional financial information related to RGA.

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The undistributed earnings of substantially all of the Company’s foreign subsidiaries have been reinvested indefinitely in those non-U.S. operations, as described in Note 9 -– “Income Tax” ofin the Notes to Consolidated Financial Statements in the ~~2016~~2019 Annual Report. ~~Under current tax laws, should~~As U.S. Tax Reform generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, the Company ~~repatriate such earnings, it may be subject~~does not expect to ~~additional U.S.~~incur material income taxes ~~and foreign withholding taxes.~~if these funds are repatriated.

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 capital deployment strategy, isit 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 ~~2017,~~2019, authorizes the repurchase of up to ~~$400.0~~$400 million of common stock. On May 6, 2020, the Company announced that is has suspended stock repurchases until further notice. 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,~~millions, except share data):


	Nine months ended September 30,				Six months ended June 30,
	2017		2016		2020		2019
Dividends to shareholders	$	85,086	$	74,034	$	87	$	75
Repurchases of treasury stock	26,897		116,522		153		50
Total amount paid to shareholders	$	111,983	$	190,556	$	240	$	125

Number of shares repurchased	208,680		1,356,892		1,074,413		344,237
Average price per share	$	128.89	$	85.87	$	142.05	$	145.25

On June 5, 2020, the Company completed a public offering of 6,172,840 shares of common stock, $0.01 par value per share, at a public offering price of $81.00 per share. The Company received net proceeds of approximately $481 million. The Company granted the Underwriters an option to purchase from the Company, within 30 days after the Underwriting Agreement dated June 2, 2020, up to an additional 925,926 shares of common stock at the offering price of $81.00 per share. The Underwriters’ option was not exercised and expired on July 2, 2020. The Company anticipates using the net proceeds of the offering for general corporate purposes.

In ~~October 2017,~~July 2020, RGA’s board of directors declared a quarterly dividend of ~~$0.50~~$0.70 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” in the Notes to Condensed Consolidated Financial Statements for information on the 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~~$5.3 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’ 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~~cross-acceleration 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 certain other indebtedness when ~~due for an amount in excess of $100.0 million, bankruptcy proceedings, or~~demanded, and any other event which results in the acceleration of the maturity of such other indebtedness.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, the Company had ~~$2.8~~$3.6 billion and ~~$3.1~~$3.0 billion, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. As of June 30, 2020 and December 31, 2019, the average net interest rate on long-term debt outstanding was 4.54% and 4.82%, respectively. 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.

On June 9, 2020, RGA issued 3.15% Senior Notes due June 15, 2030, with a face amount of $600 million. This security has been registered with the Securities and Exchange Commission. The net proceeds were approximately $593 million and will be used in part to repay the Company’s $400 million 5.000% senior notes due in 2021, and the remainder will be used for general corporate purposes. Capitalized issue costs were approximately $5 million.

On May 15, 2019, RGA issued 3.9% Senior Notes due May 15, 2029, with a face amount of $600 million. This security has been registered with the Securities and Exchange Commission. The net proceeds were approximately $594 million and were used in part to repay upon maturity the Company’s $400 million 6.45% Senior Notes that mature in November 2019. The remainder will be used for general corporate purposes. Capitalized issue costs were approximately $5 million.

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, at the Company’s option, 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).

The Company may borrow up to ~~$850.0~~$850 million in cash and obtain letters of credit in multiple currencies on aits revolving credit facility that ~~expires~~matures in ~~September 2019.~~August 2023. As of ~~September~~June 30, ~~2017~~2020, the Company had no cash borrowings outstanding and ~~$97.2~~$20 million in issued, but undrawn, letters of credit under this facility. ~~As of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, the average interest rate on short-term and long-term debt outstanding was 5.15% and 5.16%, respectively.~~

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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 ~~September~~June 30, ~~2017,~~2020, the Company maintained an ~~$850.0~~$850 million syndicated revolving credit facility and certain committed letter of credit facilities aggregating ~~$1,349.1~~to $879 million. See Note 13 -– “Debt” in the Notes to Consolidated Financial Statements in the ~~2016~~2019 Annual Report for further information about these facilities.

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 ~~September~~June 30, ~~2017,~~2020, there were approximately ~~$133.4~~$51 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 ~~September~~June 30, ~~2017, $1.5~~2020, $1.4 billion in letters of credit from various banks were outstanding, but undrawn, backing reinsurance between the various subsidiaries of the Company.

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

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assets result from investment income and the maturity and sales of invested assets. The primary liquidity ~~concern~~concerns 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 ~~$752.8~~$830 million as of ~~September~~June 30, ~~2017.~~2020. The Company also has ~~$1.1 billion~~$500 million of funds available through collateralized borrowings from the FHLB as of ~~September~~June 30, ~~2017.~~2020. As of ~~September~~June 30, ~~2017,~~2020, 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~~– “Significant Accounting ~~Policies”~~Policies and Pronouncements” in the Notes to Consolidated Financial Statements in the ~~2016~~2019 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 primary sources and uses of liquidity and capital are summarized as follows:


		For the nine months ended September 30,						For the six months ended June 30,
		2017		2016				2020		2019
		(Dollars in thousands)						(Dollars in millions)
Sources:	Sources:						Sources:
							Net cash provided by operating activities	$	2,579	$	970
	Net cash provided by operating activities	$	1,104,499	$	1,019,872		Proceeds from issuance of common stock, net	481		—
	Proceeds from long-term debt issuance	—		799,984			Proceeds from long-term debt issuance	598		599
	Exercise of stock options, net	4,450		11,752			Exercise of stock options, net	1		2
	Change in cash collateral for derivative positions and other arrangements	—		24,749			Change in cash collateral for derivative positions and other arrangements	93		—
	Cash provided by changes in universal life and other						Cash provided by changes in universal life and other
	investment type policies and contracts	438,774		487,808			investment type policies and contracts	575		—
	Effect of exchange rate changes on cash	43,699		25,436			Effect of exchange rate changes on cash	—		7
	Total sources	1,591,422		2,369,601			Total sources	4,327		1,578

Uses:	Uses:						Uses:
	Net cash used in investing activities	1,056,334		2,247,406			Net cash used in investing activities	1,024		764
	Dividends to stockholders	85,086		74,034			Dividends to stockholders	87		75
	Repayment of collateral finance and securitization notes	56,637		60,971			Repayment of collateral finance and securitization notes	160		53
	Debt issuance costs	—		9,026			Debt issuance costs	5		5
	Principal payments of long-term debt	301,927		1,850			Principal payments of long-term debt	1		1
	Purchases of treasury stock	41,360		121,896			Purchases of treasury stock	162		68
	Change in cash collateral for derivatives and other arrangements	46,206		—			Change in cash collateral for derivatives and other arrangements	—		80
	Total uses	1,587,550		2,515,183			Cash used for changes in universal life and other
							investment type policies and contracts	—		134
							Effect of exchange rate changes on cash	24		—
							Total uses	1,463		1,180
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	3,872	$	(145,582	)	Net change in cash and cash equivalents	$	2,864	$	398

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. 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

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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.~~disruption, which could make it difficult for the Company to sell investments.

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, increased by $522 million since December 31, 2019, primarily related to the June 2020 issuance of senior notes as previously discussed. The Company’s obligation for collateral financing decreased by $193 million since December 31, 2019, as a result of a repayment during 2020. The Company’s obligation for other investment related commitments decreased by $181 million since December 31, 2019, primarily related to a decrease in the Company’s commitment to fund investments of commercial mortgage loans as well as bank loans and private placements. There were no other material changes in the Company’s contractual obligations from those ~~previously reported.~~reported in the 2019 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.

The Company has established target asset portfolios for ~~each major insurance product,~~its operating segments, 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.

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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 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~~equivalents) was $4.3 billion and ~~short-term investments) was $1,285.2 million and $1,277.4 million~~$1.4 billion at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $174.1 million and $254.5 million as of September 30, 2017 and December 31, 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.

The Company is a member of the FHLB and holds ~~$67.9~~$91 million of FHLB common stock, which is included in other invested assets on the Company’s condensed consolidated balance sheets. ~~Membership provides the Company access to borrowing arrangements (“advances”) and funding agreements, discussed below, with the FHLB.~~

The Company did not have any advances from the FHLB at September 30, 2017 and December 31, 2016. The Company’s average outstanding balance of advances was $8.2 million and $17.0 million during the third quarter and the first nine months of 2017, respectively, and was $0.5 million and $29.5 million during the third quarter and the first nine months of 2016, respectively. Interest on advances is reflected in interest expense on the Company’s condensed consolidated statements of income.

~~In addition, the Company~~ has ~~also~~ entered into funding agreements with the FHLB under guaranteed investment contracts whereby the Company has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on the Company’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize the Company’s obligations under the funding agreements. 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 the Company, the FHLB’s recovery is limited to the amount of the Company’s liability under the outstanding funding agreements. The amount of the Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was $1.9 billion and $1.4 billion ~~and $1.1 billion~~ at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~ 2019,

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respectively, which is included in ~~interest sensitive~~interest-sensitive contract liabilities on the Company’s condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities, commercial mortgage 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.

Effects of COVID-19

The Company’s investment portfolios have been, and may continue to be, adversely affected by the recent disruption in the global financial markets caused by COVID-19 and uncertainty regarding its outcome. Changes in interest rates, increased market volatility or a continued slowdown in U.S. or global economic conditions may also adversely affect the values and cash flows of these assets in future periods. The Company’s corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries. The Company has exposure to some of the asset classes and industries most affected by the COVID-19 pandemic such as commercial mortgage loans, emerging market debt, energy, and airlines; however, the Company’s primary exposure in these asset classes is of high quality assets. The Company had $34 million of impairment losses and changes in the credit allowance for its available-for-sale fixed maturities primarily related to high-yield energy, emerging market, and mezzanine debt securities for the six months ended June 30, 2020. For the six months ended June 30, 2020, the Company also increased its valuation allowance on its commercial mortgage loan portfolio by approximately $30 million to $56 million as result of the negative impact the COVID-19 pandemic has had on the Company’s borrowers. The Company continues to monitor and evaluate the impact of the COVID-19 pandemic on its investment portfolio and is working closely with its borrowers to evaluate any short-term cash flow issues.

Portfolio Composition

The Company had total cash and invested assets of ~~$50.9~~$72.0 billion and ~~$46.0~~$68.0 billion ~~at September~~as of June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, as illustrated below (dollars in ~~thousands)~~millions):

September 30, 2017 % of Total December 31, 2016 % of Total
Fixed maturity securities, available-for-sale $ 36,381,742
71.5 % $ 32,093,625
69.6 %
Mortgage loans on real estate 4,322,329
8.5
3,775,522
8.2
Policy loans 1,340,146
2.6
1,427,602
3.1
Funds withheld at interest 6,020,336
11.8
5,875,919
12.8
Short-term investments 80,582
0.2
76,710
0.2
Other invested assets 1,532,523
3.0
1,591,940
3.5
Cash and cash equivalents 1,204,590
2.4
1,200,718
2.6
Total cash and invested assets $ 50,882,248
100.0 % $ 46,042,036
100.0 %



	June 30, 2020		% of Total		December 31, 2019		% of Total
Fixed maturity securities, available-for-sale	$	52,346	72.8	%	$	51,121	75.3	%
Equity securities	130		0.2		320		0.5
Mortgage loans on real estate	5,974		8.3		5,706		8.3
Policy loans	1,310		1.8		1,319		1.9
Funds withheld at interest	5,250		7.3		5,662		8.3
Short-term investments	84		0.1		64		0.1
Other invested assets	2,547		3.5		2,363		3.5
Cash and cash equivalents	4,313		6.0		1,449		2.1
Total cash and invested assets	$	71,954	100.0	%	$	68,004	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)~~millions).


	Three months ended September 30,								Nine months ended September 30,								Three months ended June 30,								Six months ended June 30,
	2017			2016			Increase/ (Decrease)		2017			2016			Increase/ (Decrease)		2020			2019			Increase/ (Decrease)		2020			2019			Increase/ (Decrease)
Average invested assets at amortized cost	$	25,887,338		$	24,128,430		7.3	%	$	25,136,119		$	22,982,245		9.4	%	$	30,420		$	28,487		6.8	%	$	29,923		$	28,138		6.3	%
Net investment income	305,632			263,111			16.2	%	863,724			777,157			11.1	%	305			307			(0.7	)%	604			617			(2.1	)%
Investment yield (ratio of net investment income to average invested assets)	4.81		%	4.43		%	38 bps		4.61		%	4.53		%	8 bps		4.07		%	4.38		%	(31) bps		4.07		%	4.43		%	(36) bps

Investment yield ~~increased~~decreased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, in comparison to the same ~~period~~periods in the prior year primarily due to ~~increased~~the effect of a low interest rate environment combined with decreased income from ~~bond make-whole premiums~~limited partnerships and ~~limited partnership and~~real estate joint ~~venture investments, both of~~ventures, which are included in other invested assets on the condensed consolidated balance sheets.

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, allowance for credit losses (as of June 30, 2020), unrealized gains and losses, estimated fair value of ~~fixed maturity and equity~~these securities, and ~~the other-than-temporary~~ impairments in AOCI by ~~sector~~type as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

The ~~Company’s~~Company holds various types of fixed maturity securities ~~are invested primarily in~~available-for-sale and classifies them as corporate ~~bonds, mortgage-~~securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign ~~government securities.~~government-sponsored enterprises (“Other foreign government”). As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, approximately ~~95.7%~~95.1% and ~~95.0%~~95.5%, 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 Company owns floating rate securities that represent approximately 5.6% and 6.3% of the total fixed maturity securities as of June 30, 2020 and December 31, 2019, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to fluctuations in interest payments. The Company holds floating rate investments to match specific floating rate liabilities primarily reflected in the consolidated balance sheets as collateral finance notes, as well as to enhance asset management strategies.

The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately ~~61.9%~~62.3% and ~~61.1%~~61.4% of total fixed maturity securities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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 September~~as of June 30, ~~2017~~2020 and December 31, ~~2016.~~

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2019.

As of ~~September~~June 30, ~~2017,~~2020, the Company’s investments in Canadian ~~and Canadian provincial~~ government securities represented ~~11.0%~~9.3% of the fair value of total fixed maturity securities compared to ~~11.4%~~9.0% of the fair value of total fixed ~~maturity securities at~~maturities as of December 31, ~~2016.~~2019. 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 September 30, 2017 and December 31, 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~~Moody’s, 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.Fitch. Structured securities ~~(mortgage-backed and asset-backed securities)~~ held by the 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 September~~as of June 30, ~~2017~~2020 and December 31, ~~2016~~2019 was as follows (dollars in ~~thousands)~~millions):


		September 30, 2017						December 31, 2016							June 30, 2020						December 31, 2019
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	$	22,095,642	$	23,989,873	66.0	%	$	19,813,653	$	21,369,081	66.5	%	AAA/AA/A	$	29,018	$	33,246	63.5	%	$	30,100	$	33,284	65.2	%
2	BBB	10,233,331		10,792,989		29.7		8,834,469		9,162,483		28.5		BBB	15,222		16,555		31.6		14,366		15,514		30.3
3	BB	1,107,086		1,143,449		3.1		944,839		955,735		3.0		BB	1,987		1,963		3.8		1,706		1,748		3.4
4	B	360,643		374,478		1.0		414,087		411,138		1.3		B	560		515		1.0		514		518		1.0
5	CCC and lower	86,984		74,093		0.2		187,744		177,481		0.6		CCC and lower	91		46		0.1		36		23		—
6	In or near default	6,282		6,860		—		16,995		17,707		0.1		In or near default	25		21		—		31		34		0.1
	Total	$	33,889,968	$	36,381,742	100.0	%	$	30,211,787	$	32,093,625	100.0	%	Total	$	46,903	$	52,346	100.0	%	$	46,753	$	51,121	100.0	%

The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held ~~at September~~as of June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in ~~thousands)~~millions):

September 30, 2017 December 31, 2016
Amortized Cost
Estimated
Fair Value
Amortized Cost
Estimated
Fair Value
Residential mortgage-backed securities:
Agency $ 891,508
$ 917,589
$ 579,686
$ 602,549
Non-agency 753,871
761,716
678,353
676,027
Total residential mortgage-backed securities 1,645,379
1,679,305
1,258,039
1,278,576
Commercial mortgage-backed securities 1,293,296
1,313,322
1,342,440
1,363,654
Asset-backed securities 1,680,918
1,694,568
1,443,822
1,429,344
Total $ 4,619,593
$ 4,687,195
$ 4,044,301
$ 4,071,574



	June 30, 2020						December 31, 2019
	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total
RMBS:
Agency	$	708	$	776	11.8	%	$	742	$	777	10.6	%
Non-agency	1,254		1,289		19.4		1,597		1,621		22.3
Total RMBS	1,962		2,065		31.2		2,339		2,398		32.9
ABS:
Collateralized loan obligations (“CLOs”)	1,612		1,558		23.4		1,750		1,743		24.0
ABS, excluding CLOs	1,186		1,173		17.6		1,223		1,235		17.0
Total ABS	2,798		2,731		41.0		2,973		2,978		41.0
CMBS	1,850		1,851		27.8		1,841		1,899		26.1
Total	$	6,610	$	6,647	100.0	%	$	7,153	$	7,275	100.0	%

The ~~residential mortgage-backed securities include~~Company’s RMBS portfolio includes 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~~The Company’s ABS portfolio primarily consists of CLOs, single-family rentals, container leasing, railcar leasing, aircraft and ~~automobile receivables,~~ student ~~loans, home equity loans and collateralized debt obligations (primarily collateralized loan obligations).~~loans. The ~~Company owns floating rate securities that represent approximately~~

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14.0% and 12.9% of the total fixed maturity securities at September 30, 2017 and December 31, 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 and interest rate 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~~that 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.

The Company’s CMBS portfolio primarily consists of large pool securitizations that are diverse by property type, borrower and geographic dispersion. The principal risks in holding CMBS are structural and credit 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. The Company focuses on investment grade rated tranches that provide additional credit support beyond the equity protection in the underlying loans. These assets are viewed as an attractive alternative to other fixed income asset classes.

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As of June 30, 2020 and December 31, 2019, the Company had $448 million and $110 million, respectively, of gross unrealized losses related to its fixed maturity securities. 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 judgment, securities determined to have expected credit loss will record an ~~other-than-temporary impairment in value are written down to fair value. See “Investments – Other-than-Temporary Impairment” in Note 2 – “Summary of Significant Accounting Policies”~~allowance for credit loss in the ~~Notes to Consolidated Financial Statements in~~amount that the 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 nine months ended September 30, 2017 and 2016 (dollars in thousands).

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Impairment losses on available-for-sale securities:
Fixed maturity securities $ 390
$ —
$ 20,980
$ 34,663
Equity securities 889
—
889
—
Other impairment losses 1,469
15
7,776
2,178
Change in mortgage loan provision 977
247
1,444
(67 )
Total $ 3,725
$ 262
$ 31,089
$ 36,774

The fixed maturity impairments for the three and nine months ended September 30, 2017 and 2016 were largely related to high-yield corporate securities. The equity impairments for the three and nine months ended September 30, 2017 were related to an equity position received as part of a debt restructuring. In addition, other impairment losses for the three and nine months ended September 30, 2017 and 2016 are primarily due to impairments on limited partnerships.

At September 30, 2017 and December 31, 2016, the Company had $163.2 million and $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.

September 30, 2017 December 31, 2016
Sector:
Corporate securities 59.6 % 61.6 %
Canadian and Canada provincial governments 1.5
0.9
Residential mortgage-backed securities 5.1
3.6
Asset-backed securities 3.1
6.4
Commercial mortgage-backed securities 3.3
2.1
State and political subdivisions 3.7
3.3
U.S. government and agencies 19.0
16.8
Other foreign government, supranational and foreign government-sponsored enterprises 4.7
5.3
Total 100.0 % 100.0 %
Industry:
Finance 15.3 % 20.1 %
Asset-backed 3.1
6.4
Industrial 40.1
32.9
Mortgage-backed 8.4
5.7
Government 28.9
26.3
Utility 4.2
8.6
Total 100.0 % 100.0 %

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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 a table that presents the total gross unrealized losses for fixed maturity and equity securities at September 30, 2017 and December 31, 2016, respectively, where the estimated fair value ~~had declined and remained below amortized cost by~~is less than ~~20% or more than 20%.~~the amortized cost.

The Company’s determination of whether a decline in value ~~is other-than-temporary includes analysis of~~necessitates the ~~underlying credit and the extent and duration of a decline in value. The Company’s credit analysis~~recording of an ~~investment~~allowance for credit losses includes ~~determining~~an analysis of 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. InSee “Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale” in Note 1 – “Business and Basis of Presentation” for additional information. The table below summarizes impairment losses and changes in allowance for credit losses on fixed maturity securities, other impairment losses and changes in the ~~Company’s~~mortgage loan provision for the three and six months ended June 30, 2020 and 2019 (dollars in millions).



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019

Impairment losses and change in allowance for credit losses on fixed maturity securities	$	—	$	—	$	34	$	9
Other impairment losses	5		5		5		7
Change in mortgage loan provision	17		1		30		1
Total	$	22	$	6	$	69	$	17

The impairment ~~review process,~~losses and change in allowance for credit losses on fixed maturity securities for the ~~duration~~six months ended June 30, 2020, includes $1 million in impairment losses on securities the Company intended to sell and ~~severity~~an increase of $33 million in the allowance for credit losses related to high-yield securities as result of the uncertainty in the global markets due to the COVID-19 pandemic. The fixed maturity impairment losses for the six months ended June 30, 2019, were primarily related to a U.S. utility company. The other impairment losses for the three and six months ended June 30, 2020 and three months ended June 30, 2019, were primarily due to impairments on limited partnerships. The other impairment losses for the six months ended June 30, 2019, were primarily due to impairments on real estate joint ventures and limited partnerships. The change in mortgage loan provision for the three and six months ended June 30, 2020, was due to an ~~unrealized loss position for equity securities are given greater weight and consideration given~~increase in the ~~lack of contractual cash flows and~~mortgage loan valuation allowance due to the ~~deferability features of these securities.~~current market conditions related to the COVID-19 pandemic.

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~~estimated fair value has remained below amortized cost as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company classified approximately ~~5.9%~~4.8% and ~~6.9%~~6.1%, 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, and Canadian provincial strips ~~below investment grade mortgage-backed securities and subprime asset-backed securities~~ with inactive trading markets.

Mortgage Loans on Real Estate

~~Mortgage loans represented approximately 8.5% and 8.2% of the Company’s cash and invested assets as of September 30, 2017 and December 31, 2016, respectively.~~ The Company’s mortgage loan portfolio consists of U.S., Canada and ~~Canada~~United Kingdom 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~~as discussed further under “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements. For the six months ended June 30, 2020, the Company increased its valuation allowance on its commercial mortgage loan portfolio by approximately $30 million to $56 million as result of the negative impact the COVID-19 pandemic has had on the Company’s borrowers. The Company continues to monitor and evaluate the impact of COVID-19 pandemic on its investment portfolio and is working closely with its borrowers to evaluate any short-term cash flow issues. As of June 30, 2020, the Company modified the payment terms of approximately 40 loans, with a carrying value of approximately $540 million in response to COVID-19. These loans met the criteria established in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and were not considered a troubled debt restructuring. In accordance with the CARES Act criteria, these loans were not more than 30 days past due at December 31, 2019, and the modifications included deferral or delayed payments of principal or interest on the loan.

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As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company’s recorded investment in mortgage loans, gross of unamortized deferred loan origination fees and expenses and valuation allowances, were distributed geographically as follows (dollars in ~~thousands)~~millions):

September 30, 2017 December 31, 2016

Recorded
Investment
% of Total
Recorded
Investment
% of Total
U.S. Region:
Pacific $ 1,304,056
30.1
$ 1,112,636
29.4 %
South Atlantic 858,474
19.8
782,509
20.7
Mountain 688,609
15.9
615,915
16.3
East North Central 529,007
12.2
422,512
11.2
West North Central 305,894
7.1
318,212
8.4
West South Central 359,680
8.3
317,194
8.4
Middle Atlantic 107,453
2.5
92,683
2.4
East South Central 97,379
2.2
57,216
1.5
New England 9,191
0.2
9,346
0.2
Subtotal - U.S. 4,259,743
98.3
3,728,223
98.5
Canada 74,254
1.7
54,984
1.5
Total $ 4,333,997
100.0 % $ 3,783,207
100.0 %



	June 30, 2020				December 31, 2019
	Recorded Investment		% of Total		Recorded Investment		% of Total
U.S. Region:
West	$	2,349	38.8	%	$	2,302	40.2	%
South	2,111		34.9		1,929		33.6
Midwest	1,074		17.8		996		17.4
Northeast	275		4.6		262		4.6
Subtotal - U.S.	5,809		96.1		5,489		95.8
Canada	179		3.0		182		3.2
United Kingdom	52		0.9		56		1.0
Total	$	6,040	100.0	%	$	5,727	100.0	%

~~Table~~See “Mortgage Loans on Real Estate” in Note 1 – “Business and Basis of ~~Contents~~

~~Valuation~~Presentation” in the Notes to Condensed Consolidated Financial Statements for information regarding the Company’s policy for valuation allowances and impairments 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. loans.

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 2.6% and 3.1% of the Company’s cash and invested assets as of September 30, 2017 and December 31, 2016, respectively, the~~The majority of ~~which~~policy loans 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.

Funds Withheld at Interest

~~Funds withheld at interest comprised approximately 11.8% and 12.8% of the Company’s cash and invested assets as of September 30, 2017 and December 31, 2016, respectively.~~ For reinsurance agreements written on a ~~modified coinsurance~~modco 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~~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 September~~as of June 30, ~~2017~~2020 and December 31, ~~2016.~~2019. 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,~~lifetime mortgages, derivative contracts, FVO contractholder-directed unit-linked investments and FHLB common stock and equity release mortgages. Other invested assets represented approximately 3.0% and 3.5% of the Company’s cash and invested assets as of September 30, 2017 and December 31, 2016, respectively.stock. 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

The Company 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 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 September~~as of June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

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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 $4 million and no ~~net~~ credit exposure ~~related to its derivative contracts, excluding futures and mortality swaps, at September~~as of June 30, ~~2017~~2020 and December 31, ~~2016, as the net amount of collateral pledged to the Company from counterparties exceeded the fair value of the derivative contracts.~~2019, respectively.

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 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-~~

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~~traded~~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~~The Company holds beneficial interests in lifetime mortgages in the UK. Lifetime mortgages represent loans provided to individuals 55 years of age and older secured by the borrower’s residence. Lifetime mortgages are comparable to a ~~dedicated Enterprise Risk Management (“ERM”) function that is responsible for analyzing and reporting~~home equity loan by allowing the ~~Company’s risks on an aggregated basis; facilitating monitoring~~borrower to ~~ensure~~utilize the ~~Company’s risks remain within its appetites and limits; and ensuring, on an ongoing basis, that RGA’s ERM objectives are met. This includes ensuring proper risk controls are~~equity in ~~place; risks are effectively identified, assessed, and managed; and key risks to which the Company is exposed are disclosed to appropriate stakeholders.~~their home as collateral. The ~~ERM function plays an important role in fostering the Company’s risk management culture and practices.~~

~~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”) Committee~~amount 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 Executive Officer (“CEO”) and has direct access to the Board through the FIRM Committee with formal reporting occurring quarterly. The CROloan 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 CEO, the Chief Financial Officer (“CFO”), and the Chief Operating Officer, among others. The RMSC provides oversight for the Insurance, Market and Credit, Capital, and Operational risk committees and retains direct risk oversight responsibilities for the following:

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

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

~~Risk appetite statement, including the ongoing alignment of the risk appetite statement with the Company’s strategy and capital plans.~~

~~Review, revise and approve RGA group-level strategic risk limits consistent with the risk appetite statement~~

The Insurance, Market and Credit, Capital, and Operational risk committees have direct oversight accountability for their respective risks areas including the identification, assessments, and management of known, new and emerging risk exposures and the review and approval of 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 coordination regarding risk issues, risk committee chairs attend RMSC meetings. In addition to the risk committees, their sub-committees and working groups, some RGA operating entities have risk management committees that oversee relevant risks related to segment-level risk limits.

~~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.


2.	Risk Appetite Statement: A general and high level overview of the risk profile RGA aims to achieve to meet its strategic objectives. This statement is then supported by more granular risk limits guiding the businesses to achieve this Risk Appetite Statement.

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3.	Risk Limits: Risk Limits establish the maximum amount of defined risk that the Company is willing to assume to remain within the Company’s overall risk 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 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 and its subcommittees monitor adherence to risk 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 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 groups its risks into the following categories: Insurance risk, Market and Credit risk, Capital risk, Operational risk and Strategic risk. Specific risk assessments and descriptions can be found below and in Item 1A - “Risk Factors” of the 2016 Annual Report.

~~Insurance Risk~~

Insurance risk is the risk of lower or negative earnings and potentially a reduction in enterprise value due to a greater amount of benefits and related expenses paid than expected, or from non-market related adverse policyholder or 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.

~~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.

~~Table of Contents~~

~~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’s policy is to retain a maximum of $20.0 million of catastrophic loss exposure per agreement and to retrocede up to $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. The coverage may vary from year to year based~~dependent on the Company’s perceived value of such 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.

~~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 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 of lower or negative earnings and potentially a reduction in enterprise value due to changes in the market prices of asset and liabilities.~~

~~Interest Rate Risk~~

Interest Rate risk is risk that changes in the level and volatility of nominal interest rates affect the profitability, value or solvency position of the Company. This includes credit spread changes and inflation but excludes credit 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 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 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 fairappraised value of the ~~Company’s financial instruments in~~home at the ~~event~~time of origination, the borrower's age and interest rate. Unlike a ~~hypothetical change in~~home equity loan, no payment of principal or interest ~~rates. Interest rate cash flow risk exposure~~ is ~~measured using interest rate sensitivity analysis to determine~~required until 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~~death of the ~~Company’s operating expenses consists~~borrower or sale of ~~salaries, which~~the home. Lifetime mortgages may also be either fully funded at origination, or the borrower can request periodic funding similar to a line of credit. Lifetime mortgages are subject to ~~wage increases at least partly affected by the~~risks, including market, credit, interest rate, ~~of inflation.~~liquidity, operational, reputational and legal risks.

~~Table of Contents~~

~~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~~

Foreign currency risk is the risk of changes in level and volatility of currency exchange rates affect the profitability, value or solvency position of the Company. The Company manages its exposure to currency principally by currency matchingOther invested assets ~~with the underlying liabilities to the extent possible. The Company has in place~~include $787 million and $775 million, 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.

~~The Company generally does not hedge the foreign currency exposure~~valuation allowances, 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.

~~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, 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 changes in the level and 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 and asset related equity 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 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. Alternative investments generally encompass: hedge funds, 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 and using per-issuer investment limits.

~~Fixed Indexed Annuities~~

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

~~Table of Contents~~

~~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 benefitslifetime mortgages as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~

(dollars in millions) September 30, 2017 December 31, 2016
No guaranteed minimum benefits $ 940
$ 731
GMDB only 180
58
GMIB only 23
5
GMAB only 25
28
GMWB only 1,361
1,334
GMDB / WB 340
335
Other 33
19
Total variable annuity account values $ 2,902
$ 2,510
Fair value of liabilities associated with living benefit riders $ 168
$ 185

~~Credit Risk~~

~~Credit risk, which~~2019, respectively. Investment income includes default risk, is risk of loss due to credit quality deterioration of an individual financial asset, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the credit exposure for an asset is limited to the fair value, net of any collateral received, at the reporting date.

~~Investment Credit Risk~~

Investment credit risk is credit risk related to invested assets. 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$10 million 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$8 million in interest income earned on ~~a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative 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 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.

~~Counterparty Risk~~

~~Counterparty risk is the potential~~lifetime mortgages for the ~~Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk~~three months ended June 30, 2020 and ~~collection risk.~~2019, respectively, and $20 million and $16 million in interest income earned on lifetime mortgages for the six months ended June 30, 2020 and 2019, respectively.

~~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.

~~Table of Contents~~

~~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 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 insurance subsidiaries. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of September 30, 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 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 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.~~

~~Capital Risk~~

Capital risk is the risk of lower or negative earnings and a potential reduction in enterprise value, and/or the ability to conduct business due to insufficient financial capacity. Collateral, financing, liquidity and tax risks are important to the operations of the Company and its ability to meet obligations with its clients, shareholders and regulators.

~~Operational Risk~~

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 related to human capital, fraud, business conduct and 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 ~~12 —~~14 – “New Accounting Standards” in the Notes to Condensed Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

~~There has~~Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, the Company products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and the Company’s strategies for managing this risk, vary by product. As of June 30, 2020, there have been no ~~significant change~~material changes in the Company’s ~~quantitative or qualitative aspects of~~economic exposure to market risk ~~during~~or the ~~quarter~~Company’s Enterprise Risk Management function from December 31, 2019, a description of which may be found in its Annual Report on Form 10-K, for the year ended ~~September 30, 2017 from that disclosed in~~December 31, 2019, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the ~~2016 Annual Report. See “Item 2 – Management’s Discussion~~Securities and ~~Analysis of Financial Condition and Results of Operations – Market and Credit Risk”, which is included herein, for additional information.~~Exchange Commission.

~~Table of Contents~~

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 ~~September~~June 30, ~~2017,~~2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, the majority of our workforce began working remotely in March 2020. These changes to the working environment did not have a material effect on our internal controls over financial reporting during the most recent quarter. The Company continues to monitor and assess the COVID-19 situation on its internal controls to minimize the impact on their design and operating effectiveness.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

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ITEM 1A. Risk Factors

~~There were~~

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 no material changes from the risk factors previously disclosed in the ~~2016~~Company’s 2019 Annual Report.

Our business, results of operations and financial condition have been, and will likely continue to be, adversely affected by the COVID-19 pandemic and the response thereto.

The ongoing novel coronavirus (“COVID-19”) global and national health emergency has caused significant disruption in the international and U.S. economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic and the response thereto has severely impacted, and will likely continue to severely impact, global economic conditions, resulting in substantial volatility in the global financial markets, increased unemployment and operational challenges such as the temporary closures of businesses, sheltering-in-place directives and increased remote work protocols. Governments and central banks around the world have reacted to the economic crisis caused by the pandemic by implementing stimulus and liquidity programs and cutting interest rates, though it is unclear whether these or future actions will be successful in countering the economic disruption. If the pandemic is prolonged or the actions of governments and central banks are unsuccessful, the adverse impact on the global economy will deepen, and our results of operations and financial condition in future quarters will be adversely affected.

As described in more detail below, the COVID-19 pandemic and the response thereto has adversely affected, and/or will likely adversely affect, us in the following areas:

Degradation of general economic conditions;

Investment results;

Capital, liquidity and collateral;

Insurance risks, including mortality and morbidity claims;

Possible ratings downgrade;

Adverse legislative or regulatory action;

Operations; and

Premiums and other income.

Degradation of general economic conditions. While still evolving, the COVID-19 pandemic and the extraordinary measures being put in place to address it have caused significant economic and financial turmoil both in the U.S. and around the world, fueling concerns of a global recession. These conditions are expected to continue and worsen in the near term. Our results of operations, financial condition, cash flows and statutory capital position are materially affected by conditions in the global capital markets and economy generally. If the pandemic is prolonged or the actions of governments and central banks to counter the economic disruption are unsuccessful, the adverse impact on the global economy will deepen, and our business, results of operations and financial condition will continue to be adversely affected.

Investment results. Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome. Moreover, changes in interest rates, reduced liquidity in the financial markets or a continued slowdown in the U.S. or in global economic conditions have and in the future may also adversely affect the values and cash flows of these assets. Our corporate fixed income portfolio has been and in the future may be adversely impacted by delayed principal or interest payments, ratings downgrades, increased bankruptcies and credit spread widening in distressed industries and individual companies. Our investments in mortgage loans and mortgage-backed securities have been and in the future could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages. Further, a continued low interest rate environment, including as a result of market developments from the COVID-19 pandemic and the central banks’ response thereto, would put downward pressure on the average yield earned on our investments, negatively impacting our investment income and results of operations in the future. Market dislocations, decreases in observable market activity or unavailability of information, in each case, arising from the pandemic, may restrict our access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise, including estimates and changes in long term macro-economic assumptions relating to accounting for current expected credit losses, more commonly referred to as “CECL.”

Capital, liquidity and collateral. The severe impact on global economic conditions caused by the COVID-19 pandemic and the response thereto has negatively impacted and in the future could negatively impact our financial condition, including possible constraints on our capital and liquidity, as well as a higher cost of capital and possible changes or downgrades to our credit ratings. The current disruptions, uncertainty and volatility in the capital and credit markets may limit our access to capital required to operate our business, most significantly our reinsurance operations. The availability of collateral and the related cost of such

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collateral affects the type and volume of business we reinsure and could increase our costs. We maintain credit and letter of credit facilities with various financial institutions as a potential source of additional collateral and liquidity. Our failure to comply with the covenants and other requirements contained in these facilities, or the failure of the lenders to meet their commitments to provide funds or issue letters of credit, in each case as a result of the COVID-19 pandemic and the related economic and financial market disruption or otherwise, would impact our ability to access these facilities when needed, adversely affecting our liquidity, financial condition and results of operations.

Insurance risks, including mortality and morbidity claims. At this time, we cannot predict the ultimate number of claims and financial impact resulting from the COVID-19 pandemic and the response thereto. Actual claims and financial impact from these events could vary materially from current estimates due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of the pandemic. Mortality or morbidity experience that is less favorable than the assumptions used in pricing our reinsurance agreements, as a result of the COVID-19 pandemic or otherwise, has negatively impacted and in the future could negatively impact our financial condition and results of operations. In addition, increased economic uncertainty and increased unemployment resulting from the economic impacts of the pandemic may result in policyholders seeking sources of liquidity and withdrawing at rates greater than previously expected. If policyholder lapse and surrender rates significantly exceed expectations, it could have a material adverse effect on our business, results of operations and financial condition.

Possible ratings downgrade. A downgrade in our ratings or in the ratings of our reinsurance subsidiaries, whether caused by company-specific factors or factors related to the COVID-19 pandemic, general economic conditions and/or the insurance industry as a whole, could adversely affect us. A downgrade in the rating of RGA or any of our rated subsidiaries could increase our cost of capital and adversely affect our ability to raise capital to facilitate operations and growth. Upon certain downgrade events, some of our reinsurance contracts would either permit our client ceding insurers to terminate such reinsurance contracts or require us to post collateral to secure our obligations under these reinsurance contracts, either of which could negatively impact our ability to conduct business and our results of operations. Any downgrade in the ratings of our reinsurance subsidiaries could also adversely affect their ability to sell products, retain existing business and compete for attractive acquisition opportunities. We cannot assure you that actions taken by ratings agencies, including as a result of the COVID-19 pandemic, the response thereto and the significant economic and financial turmoil caused thereby, would not result in a material adverse effect on our business, results of operations and financial condition.

Adverse legislative or regulatory action. Government actions, both in the U.S. and internationally, to address and contain the impact of the COVID-19 pandemic may adversely affect us. Such actions could result in additional regulation or restrictions affecting the conduct of our business in the future. For example, our clients may be subject to legislative and regulatory action that impacts their ability to collect premiums or cancel policies, which may affect our clients’ performance under reinsurance agreements with us. It is also possible that changes in economic conditions and steps taken by federal, state and local governments in response to COVID-19 could require an increase in taxes at the federal, state and local levels, which would adversely impact our results of operations.

Operations. We are taking precautions to protect the safety and well-being of our employees, service providers and clients. However, no assurance can be given that the steps being taken will be adequate or appropriate. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce, or the workforce of our service providers or clients, are unable to continue to work because of illness, government directives or otherwise. Having shifted to remote work arrangements, we may experience reductions in our operating effectiveness and face increased operational risk, including but not limited to cybersecurity attacks or data security incidents. In addition, we rely on the performance of others, including our insurance company clients, retrocessionaires and service providers, and their failure to perform in a satisfactory manner as a result of the COVID-19 pandemic and the response thereto could negatively affect our operations.

Premiums and other income. We expect the impact of COVID-19 on general economic activity to negatively impact our premiums, fee income and market-related revenues. The pandemic and government directives around the world responding thereto has and in the future may also negatively impact our ability to generate new business premiums and delay our planned entry into, or expansion of, investments in new and emerging markets. We began to experience these impacts at the end of the first quarter of 2020 and expect them to persist and be more significant during the remainder of 2020 and beyond, but the degree of the impacts will depend on the extent and duration of the economic contraction.

As a result of the above risks, COVID-19 and the response thereto could materially and adversely impact our business, results of operation and financial condition. While COVID-19 negatively impacted our results of operations in the first half of 2020, the extent to which it, and the related global economic crisis, will affect our businesses, results of operations and financial condition, and capital and liquidity over time, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties in response to the pandemic, and the effects on our clients, counterparties, employees and third-party service

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providers. Moreover, the effects of COVID-19 and the response thereto will heighten the other risks described in the section entitled “Risk Factors” in our 2019 Annual Report and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K.

We utilize assumptions, estimates and models to evaluate the potential impact on our business, results of operations and financial condition as a result of the COVID-19 pandemic and the response thereto. If actual events differ materially from those assumptions, estimates or models, our potential exposure to mortality claims and investment portfolio losses could be materially higher than those reflected in our capital plans, and our business, financial condition, and results of operations could be materially adversely affected.

We utilize assumptions, estimates and models to evaluate the potential impact on our business, results of operations and financial condition as a result of COVID-19 and the response thereto, including developing scenarios to evaluate our potential exposure to mortality claims, potential investment portfolio losses and other risks associated with our assets and liabilities. The scenarios and related analyses are subject to various assumptions, professional judgment, uncertainties and the inherent limitations of any statistical analysis, including the use and quality of historical internal and industry data. Consequently, actual losses from loss events may differ materially from what the scenarios may illustrate. This potential difference could be even greater for events with limited or no modeled annual frequency, such as COVID-19 and the response thereto.

More specifically, we evaluate our potential exposure to mortality claims by developing a range of scenarios involving assumptions and estimates relating to a number of variables, such as country-specific circumstances, measures by public and private institutions, impacts of COVID-19 on all other causes of death, the development and timing of effective treatments and/or a vaccine for COVID-19, comorbidities, number of deaths by region or country (and the variability thereof), the duration and pattern of the pandemic, geography-specific institutional and individual mitigation efforts, medical capacity, and other factors. We also estimated adjustments to reflect, among other factors, the favorable age distribution of our insured population and the better health profile and socio-economic status of insured lives as compared to the general population. However, a number of other factors have not been considered, such as smoking status, residential population density, geography-specific testing and interventions and their effectiveness or geography, culture or other country-specific factors. Further, the scenarios do not consider impacts on morbidity claims. Each assumption, estimate or risk not included in the scenarios introduces uncertainty. We also evaluate potential losses from our investment portfolio due to the pandemic based on stress scenarios based on assumptions and estimates relating to a range of factors that are subject to significant uncertainties, including, among others, the magnitude and duration of the economic downturn, ratings downgrades, bankruptcies and credit spread widening. In addition, we may not achieve the earnings generation that we expect, and we may not be able to issue additional debt or access other capital management tools on terms satisfactory to us, or at all. Actual events may differ materially from those assumptions and estimates; consequently, we could incur losses exceeding those reflected in our scenarios and related analyses, and our business, financial condition, and results of operations could be materially adversely affected.

We are operating in an unprecedented period of uncertainty, and while we are attempting to evaluate how the COVID-19 pandemic is impacting general population deaths, whether specifically attributed to COVID-19 or otherwise, and how such deaths will translate into mortality claims for our business over time, we are unable to predict the number of COVID-19 deaths that will ultimately occur worldwide, in any particular geography or in our insured population, or potential losses in our investment portfolio. Further, we do not currently have enough information to ascertain the likelihood of the assumptions or estimates related to our mortality and investment loss scenarios. Accordingly, any of our scenarios do not represent forecasts or projections of actual future events or performance. They should not be construed as financial guidance, and should not be relied on as such.

As a result of the factors, uncertainties and contingencies described above, our reliance on assumptions, estimates and data used to evaluate our potential exposure to mortality claims and potential losses from our investment portfolio related to the COVID-19 pandemic is subject to a high degree of uncertainty that could result in actual losses that are materially different from those reflected in the scenarios used to develop our capital plans, and our business, financial condition, and results of operations could be materially adversely affected.

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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 ~~September~~June 30, ~~2017:~~2020:

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
July 1, 2017 -
July 31, 2017 1,320
$ 131.02
—
$ 400,000,000
August 1, 2017 -
August 31, 2017 25,841
$ 140.23
—
$ 400,000,000
September 1, 2017 -
September 30, 2017 209,344
$ 128.91
208,680
$ 373,103,074



	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, 2020 - April 30, 2020	655	$	106.16	—	$	167,573,148
May 1, 2020 - May 31, 2020	63,935	$	86.57	—	$	167,573,148
June 1, 2020 - June 30, 2020	132	$	103.00	—	$	167,573,148

(1)

RGA ~~repurchased 208,680 shares~~had no repurchases of common stock under its share repurchase program for ~~$26.9 million during September 2017.~~April, May and June 2020. The Company net settled - issuing ~~3,190, 65,078~~2,447, 168,622 and ~~2,648~~420 shares from treasury and ~~repurchasing~~repurchased from recipients ~~1,320, 25,841~~655, 63,935 and ~~664~~132 shares in ~~July, August~~April, May and ~~September,~~June 2020, respectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive ~~award.~~awards.

On January ~~26, 2017,~~24, 2019, RGA’s board of directors authorized a share repurchase program, with no expiration date, for up to ~~$400.0~~$400 million of RGA’s outstanding common stock. ~~In connection with this authorization,~~On May 6, 2020, the ~~board of directors terminated the~~Company announced that it has suspended stock ~~repurchase authority granted in 2016.~~repurchases until further notice.

ITEM 6. Exhibits

See index to exhibits.

8380

Table of Contents

INDEX TO EXHIBITS




Exhibit Number		Description

~~3.1~~3.1(i)		Amended and Restated Articles of Incorporation, effective as of May 21, 2020, incorporated by reference to Exhibit ~~3.1 of~~3.1(i) to 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.~~May 22, 2020.

~~31.1~~3.1(ii)		Certificate of Designation Termination, effective as of May 21, 2020, incorporated by reference to Exhibit 3.1(ii) to Current Report on Form 8-K filed on May 22, 2020.

3.2		Amended and Restated Bylaws, effective as of May 23, 2018, incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on May 24, 2018.

4.1		Sixth Supplemental Indenture, dated as of June 9, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on June 9, 2020.

4.2		Form of 3.150% Senior Note due 2030 (incorporated by reference from Exhibit A to the Supplemental Indenture filed as Exhibit 4.1 hereto), incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed on June 9, 2020.

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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document

~~101.INS~~101.CAL		XBRL ~~Instance~~Taxonomy Extension Calculation Linkbase Document

~~101.SCH~~101.LAB		XBRL Taxonomy Extension ~~Schema~~Label Linkbase Document

~~101.CAL~~101.PRE		XBRL Taxonomy Extension ~~Calculation~~Presentation Linkbase Document

~~101.LAB~~101.DEF		XBRL Taxonomy Extension ~~Label~~Definition Linkbase Document

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~101.DEF~~ 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Definition Linkbase Document~~ and contained in Exhibits 101).

8481

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: ~~November 2, 2017~~August 6, 2020	By:	/s/ Anna Manning
		Anna Manning
		President & Chief Executive Officer
		(Principal Executive Officer)
Date: ~~November 2, 2017~~August 6, 2020	By:	/s/ Todd C. Larson
		Todd C. Larson
		Senior Executive Vice President & Chief Financial Officer
		(Principal Financial and Accounting Officer)

8582



	Effective Portion
Derivative Type	Gain (Loss) Deferred in OCI			Gain (Loss) Reclassified into Income from OCI
				Investment Related Gains (Losses)			Investment Income
For the three months ended September 30, 2017:
Interest rate	$	(8,421	)	$	—		$	—
Currency/Interest rate	1,544			—			230
Forward bond purchase commitments	(12		)	183			41
Total	$	(6,889	)	$	183		$	271
For the three months ended September 30, 2016:
Interest rate	$	(3,282	)	$	—		$	—
Currency/Interest rate	4,214			—			200
Forward bond purchase commitments	—			116			21
Total	$	932		$	116		$	221

For the nine months ended September 30, 2017:
Interest rate	$	(6,205	)	$	—		$	—
Currency/Interest rate	9,894			—			560
Forward bond purchase commitments	—			142			144
Total	$	3,689		$	142		$	704
For the nine months ended September 30, 2016:
Interest rate	$	(15,617	)	$	—		$	—
Currency/Interest rate	4,751			—			454
Forward bond purchase commitments	—			(53		)	(67		)
Total	$	(10,866	)	$	(53	)	$	387



	September 30, 2017			December 31, 2016
Estimated fair value of derivatives in net asset position	$	151,009		$	236,985
Cash provided as collateral⁽¹⁾	30,771			1,441
Securities pledged to counterparties as collateral⁽²⁾	58,360			95,863
Cash pledged from counterparties as collateral⁽³⁾	(174,120		)	(254,498		)
Securities pledged from counterparties as collateral⁽⁴⁾	(17,782		)	(16,913		)
Initial margin for cleared derivatives⁽²⁾	(58,360		)	(73,571		)
Net amount after application of master netting agreements and collateral	$	(10,122	)	$	(10,693	)
Margin account related to exchange-traded futures⁽⁵⁾	$	7,832		$	9,687



	2017
	Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1
Three months ended September 30:
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	—

Nine months ended September 30:
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	88,674



For the three months ended September 30, 2017:	Fixed maturity securities - available-for-sale
	Corporate securities			Canadian and Canadian provincial governments			Residential mortgage- backed securities			Asset-backed securities
Fair value, beginning of period	$	1,291,054		$	533,270		$	148,685		$	201,589
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(383		)	3,460			(30		)	160
Investment related gains (losses), net	396			—			44			—
Included in other comprehensive income	(2,700		)	(11,365		)	104			(101		)
Purchases⁽¹⁾	107,670			—			26,765			—
Sales⁽¹⁾	(26,337		)	—			(3,553		)	—
Settlements⁽¹⁾	(88,551		)	—			(3,645		)	(15,243		)
Transfers into Level 3	3,844			—			15			36,994
Transfers out of Level 3	(12,973		)	—			(50,390		)	(78,202		)
Fair value, end of period	$	1,272,020		$	525,365		$	117,995		$	145,197
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	$	(394	)	$	3,460		$	(27	)	$	156



For the three months ended September 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	$	1,943		$	23,567		$	34,434		$	11,994
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(116		)	26			(1		)
Included in other comprehensive income	5			6			(208		)	(7		)
Purchases⁽¹⁾	—			134			—			495
Settlements⁽¹⁾	(1		)	(340		)	(35		)	—
Transfers into Level 3	—			—			7,295			—
Transfers out of Level 3	—			—			—			(6,853		)
Fair value, end of period	$	1,947		$	23,251		$	41,512		$	5,628
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	$	—		$	(116	)	$	26		$	(1	)



For the three months ended September 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	$	3,548		$	61,281	$	33,349	$	(974,631	)	$	(1,552	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net	—			23,044		—		(10,047		)	—
Interest credited	—			—		—		(8,335		)	—
Included in other comprehensive income	(3		)	—		1,144		—			1
Other revenues	—			—		3,334		—			(132		)
Purchases⁽¹⁾	3,164			—		—		(18,736		)	—
Settlements⁽¹⁾	(114		)	—		—		21,809			—
Transfers out of Level 3	(3,236		)	—				—			—
Fair value, end of period	$	3,359		$	84,325	$	37,827	$	(989,940	)	$	(1,683	)
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	—			23,044		—		(11,900		)	—
Other revenues	—			—		3,334		—			(132		)
Interest credited	—			—		—		(30,145		)	—



For the three months ended September 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
Fair value, beginning of period	$	35,246		$	13,706		$	(91,981	)	$	17,781	$	(1,125,380	)	$	(1,997	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	10			—			—			—		—			—
Investment related gains (losses), net	—			—			49,078			—		7,988			—
Interest credited	—			—			—			—		(20,104		)	—
Included in other comprehensive income	553			48			—			327		—			—
Other revenues	—			—			—			8,921		—			(400		)
Purchases⁽¹⁾	1,986			—			—			—		(11,853		)	—
Sales⁽¹⁾	—			—			—			—		—			—
Settlements⁽¹⁾	(32		)	(328		)	—			—		19,225			329
Transfers into Level 3	—			—			—			—		—			—
Transfers out of Level 3	—			—			—			—		—			—
Fair value, end of period	$	37,763		$	13,426		$	(42,903	)	$	27,029	$	(1,130,124	)	$	(2,068	)
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	$	10		$	—		$	—		$	—	$	—		$	—
Investment related gains (losses), net	—			—			49,078			—		3,969			—
Other revenues	—			—			—			8,921		—			(400		)
Interest credited	—			—			—			—		(39,329		)	—



	Carrying Value After Measurement				Net Investment Gains (Losses)
	At September 30,				Three months ended September 30,					Nine months ended September 30,
(dollars in thousands)	2017		2016		2017			2016		2017			2016
Mortgage loans⁽¹⁾	$	—	$	6,913	$	—		$	747	$	—		$	45
Limited partnership interests⁽²⁾	4,656		4,460		(896		)	—		(7,204		)	(2,039		)
Private equities⁽³⁾	106		—		(531		)	—		(531		)	—



	September 30, 2017		December 31, 2016
Sector:
Corporate securities	59.6	%	61.6	%
Canadian and Canada provincial governments	1.5		0.9
Residential mortgage-backed securities	5.1		3.6
Asset-backed securities	3.1		6.4
Commercial mortgage-backed securities	3.3		2.1
State and political subdivisions	3.7		3.3
U.S. government and agencies	19.0		16.8
Other foreign government, supranational and foreign government-sponsored enterprises	4.7		5.3
Total	100.0	%	100.0	%
Industry:
Finance	15.3	%	20.1	%
Asset-backed	3.1		6.4
Industrial	40.1		32.9
Mortgage-backed	8.4		5.7
Government	28.9		26.3
Utility	4.2		8.6
Total	100.0	%	100.0	%



	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
July 1, 2017 - July 31, 2017	1,320	$	131.02	—	$	400,000,000
August 1, 2017 - August 31, 2017	25,841	$	140.23	—	$	400,000,000
September 1, 2017 - September 30, 2017	209,344	$	128.91	208,680	$	373,103,074