Investment Operations | Investment Operations Fixed Maturity and Equity Securities Available-For-Sale Fixed Maturity and Equity Securities by Investment Category March 31, 2017 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Non-credit losses on other-than-temporary impairments (1) (Dollars in thousands) Fixed maturities: Corporate (2) $ 3,525,273 $ 243,375 $ (37,057 ) $ 3,731,591 $ (845 ) Residential mortgage-backed 402,572 30,983 (2,135 ) 431,420 86 Commercial mortgage-backed 575,533 31,364 (3,788 ) 603,109 — Other asset-backed 758,251 11,169 (7,384 ) 762,036 2,253 United States Government and agencies 29,914 1,535 (87 ) 31,362 — State and political subdivisions 1,398,236 119,743 (5,499 ) 1,512,480 — Total fixed maturities $ 6,689,779 $ 438,169 $ (55,950 ) $ 7,071,998 $ 1,494 Equity securities: Non-redeemable preferred stocks $ 100,042 $ 7,074 $ (867 ) $ 106,249 Common stocks 30,889 178 — 31,067 Total equity securities $ 130,931 $ 7,252 $ (867 ) $ 137,316 Available-For-Sale Fixed Maturity and Equity Securities by Investment Category December 31, 2016 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Non-credit losses on other-than-temporary impairments (1) (Dollars in thousands) Fixed maturities: Corporate (2) $ 3,529,997 $ 228,601 $ (49,943 ) $ 3,708,655 $ (1,082 ) Residential mortgage-backed 396,110 29,121 (2,931 ) 422,300 (983 ) Commercial mortgage-backed 546,446 33,645 (4,137 ) 575,954 — Other asset-backed 771,570 8,846 (9,766 ) 770,650 2,544 United States Government and agencies 30,575 1,629 (132 ) 32,072 — State and political subdivisions 1,387,013 119,298 (7,152 ) 1,499,159 — Total fixed maturities $ 6,661,711 $ 421,140 $ (74,061 ) $ 7,008,790 $ 479 Equity securities: Non-redeemable preferred stocks $ 100,042 $ 4,050 $ (1,675 ) $ 102,417 Common stocks 30,437 114 — 30,551 Total equity securities $ 130,479 $ 4,164 $ (1,675 ) $ 132,968 (1) Non-credit losses, subsequent to the initial impairment measurement date, on other-than-temporary impairment (OTTI) losses are included in the gross unrealized gains and gross unrealized losses columns above. The non-credit loss component of OTTI losses for residential mortgage-backed and other asset-backed securities were in an unrealized gain position at March 31, 2017 and other asset-backed securities at December 31, 2016 due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities. (2) Corporate securities include hybrid preferred securities with a fair value of $23.5 million at March 31, 2017 and $23.3 million at December 31, 2016 . Corporate securities also include redeemable preferred stock with a fair value of $25.4 million at March 31, 2017 and $24.5 million at December 31, 2016 . Available-For-Sale Fixed Maturities by Maturity Date March 31, 2017 Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 119,546 $ 121,968 Due after one year through five years 767,921 824,933 Due after five years through ten years 735,058 770,322 Due after ten years 3,330,898 3,558,210 4,953,423 5,275,433 Mortgage-backed and other asset-backed 1,736,356 1,796,565 Total fixed maturities $ 6,689,779 $ 7,071,998 Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Fixed maturities not due at a single maturity date have been included in the above table in the year of final contractual maturity. Net Unrealized Gains (Losses) on Investments in Accumulated Other Comprehensive Income March 31, December 31, (Dollars in thousands) Net unrealized appreciation on: Fixed maturities - available for sale $ 382,219 $ 347,079 Equity securities - available for sale 6,385 2,489 388,604 349,568 Adjustments for assumed changes in amortization pattern of: Deferred acquisition costs (108,091 ) (95,647 ) Value of insurance in force acquired (12,511 ) (12,382 ) Unearned revenue reserve 7,132 4,215 Adjustments for assumed changes in policyholder liabilities (8,772 ) (3,795 ) Provision for deferred income taxes (93,226 ) (84,684 ) Net unrealized investment gains $ 173,136 $ 157,275 Net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities. Subsequent changes in the fair value of securities for which a previous non-credit OTTI loss was recognized in accumulated other comprehensive income, are reported along with changes in fair value for which no OTTI losses were previously recognized. Fixed Maturity and Equity Securities with Unrealized Losses by Length of Time March 31, 2017 Less than one year One year or more Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Percent of Total (Dollars in thousands) Fixed maturities: Corporate $ 552,242 $ (15,632 ) $ 191,346 $ (21,425 ) $ 743,588 $ (37,057 ) 66.2 % Residential mortgage-backed 64,007 (991 ) 19,958 (1,144 ) 83,965 (2,135 ) 3.8 Commercial mortgage-backed 106,739 (3,165 ) 6,512 (623 ) 113,251 (3,788 ) 6.8 Other asset-backed 287,708 (3,930 ) 75,498 (3,454 ) 363,206 (7,384 ) 13.2 United States Government and agencies 7,377 (87 ) — — 7,377 (87 ) 0.2 State and political subdivisions 112,750 (5,499 ) — — 112,750 (5,499 ) 9.8 Total fixed maturities $ 1,130,823 $ (29,304 ) $ 293,314 $ (26,646 ) $ 1,424,137 $ (55,950 ) 100.0 % Equity securities: Non-redeemable preferred stocks $ 7,869 $ (111 ) $ 9,244 $ (756 ) $ 17,113 $ (867 ) Total equity securities $ 7,869 $ (111 ) $ 9,244 $ (756 ) $ 17,113 $ (867 ) Fixed Maturity and Equity Securities with Unrealized Losses by Length of Time December 31, 2016 Less than one year One year or more Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Percent of Total (Dollars in thousands) Fixed maturities: Corporate $ 742,626 $ (23,142 ) $ 220,939 $ (26,801 ) $ 963,565 $ (49,943 ) 67.3 % Residential mortgage-backed 51,873 (1,014 ) 22,744 (1,917 ) 74,617 (2,931 ) 4.0 Commercial mortgage-backed 95,690 (3,590 ) 6,610 (547 ) 102,300 (4,137 ) 5.6 Other asset-backed 371,829 (5,810 ) 95,740 (3,956 ) 467,569 (9,766 ) 13.2 United States Government and agencies 6,438 (132 ) — — 6,438 (132 ) 0.2 State and political subdivisions 150,052 (7,152 ) — — 150,052 (7,152 ) 9.7 Total fixed maturities $ 1,418,508 $ (40,840 ) $ 346,033 $ (33,221 ) $ 1,764,541 $ (74,061 ) 100.0 % Equity securities: Non-redeemable preferred stocks $ 12,774 $ (150 ) $ 13,438 $ (1,525 ) $ 26,212 $ (1,675 ) Total equity securities $ 12,774 $ (150 ) $ 13,438 $ (1,525 ) $ 26,212 $ (1,675 ) Fixed maturities in the above tables include 428 securities from 332 issuers at March 31, 2017 and 516 securities from 404 issuers at December 31, 2016 . Unrealized losses decreased during the three months ended March 31, 2017 primarily due to a decrease in treasury rates as well as a decrease in credit spreads. We do not consider securities to be OTTI when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell or our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to be OTTI at March 31, 2017 . We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified. Excluding mortgage- and asset-backed securities, our largest unrealized loss was from an oil field service provider and totaled $2.0 million at March 31, 2017 . With respect to mortgage- and asset-backed securities not backed by the United States Government, our largest aggregate unrealized loss from the same issuer at March 31, 2017 was $0.7 million , consisting of a non-investment grade security that is backed by trust preferred securities. As described more fully in Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2016, we perform a regular evaluation of all investment classes for impairment, including fixed maturity securities and equity securities, in order to evaluate whether such investments are OTTI. Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities Three months ended March 31, 2017 2016 (Dollars in thousands) Balance at beginning of period $ (14,500 ) $ (11,498 ) Increases to previously impaired investments — (2,172 ) Reductions due to investments sold 349 310 Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income 587 — Balance at end of period $ (13,564 ) $ (13,360 ) The table above sets forth the amount of credit loss impairments on fixed maturities held by the Company as of the dates indicated for which a portion of the OTTI was recognized in other comprehensive income and corresponding changes in such amounts. Credit loss impairments with no portion of the loss recognized in other comprehensive income, such as securities for which OTTI was measured at fair value, are excluded from the table. Realized Gains (Losses) - Recorded in Income Three months ended March 31, 2017 2016 (Dollars in thousands) Realized gains (losses) on sales of investments Fixed maturities: Gross gains $ 124 $ 1,590 Gross losses (527 ) — (403 ) 1,590 Impairment losses recognized in earnings: Credit-related portion of fixed maturity losses (1) — (2,172 ) Other credit-related (2) (66 ) (25 ) Net realized losses on investments recorded in income $ (469 ) $ (607 ) (1) Amount represents the credit-related losses recognized for fixed maturities that were impaired through income but not written down to fair value. As discussed above, the non-credit portion of the losses have been recognized in other comprehensive income (loss). (2) Amount represents credit-related losses for other investments and fixed maturities written down to fair value through income. Proceeds from sales of fixed maturities totaled $9.4 million during the three months ended March 31, 2017 and $8.9 million during the three months ended March 31, 2016 . Realized gains and losses on sales of investments are determined on the basis of specific identification. Mortgage Loans Our mortgage loan portfolio consists of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. We originate loans with an initial loan-to-value ratio that provides sufficient collateral to absorb losses should we be required to foreclose and take possession of the collateral. In order to identify impairment losses, management maintains and regularly reviews a watch list of mortgage loans that have heightened risk. These loans may include those with borrowers delinquent on contractual payments, borrowers experiencing financial difficulty, increases in rental real estate vacancies and significant declines in collateral value. We evaluate each of our mortgage loans individually and establish an estimated loss, if needed, for each impaired loan identified. An estimated loss is needed for loans for which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements. Any loan delinquent on contractual payments is considered non-performing. At March 31, 2017 and December 31, 2016 , there were no non-performing loans over 90 days past due on contractual payments. Mortgage loans are placed on non-accrual status if we have concerns regarding the collectability of future payments. Interest income on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as nonaccrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At March 31, 2017, we had committed to provide additional funding for mortgage loans totaling $30.5 million . These commitments arose in the normal course of business at terms that are comparable to similar investments. Mortgage Loans by Collateral Type March 31, 2017 December 31, 2016 Collateral Type Carrying Value Percent of Total Carrying Value Percent of Total (Dollars in thousands) Office $ 373,360 43.6 % $ 361,088 44.2 % Retail 271,440 31.7 240,602 29.5 Industrial 151,983 17.8 154,005 18.9 Other 58,714 6.9 60,776 7.4 Total $ 855,497 100.0 % $ 816,471 100.0 % Mortgage Loans by Geographic Location within the United States March 31, 2017 December 31, 2016 Region of the United States Carrying Value Percent of Total Carrying Value Percent of Total (Dollars in thousands) South Atlantic $ 270,544 31.6 % $ 266,019 32.6 % West North Central 129,020 15.1 105,753 12.9 Pacific 111,255 13.0 104,337 12.8 East North Central 88,264 10.3 91,550 11.2 West South Central 83,628 9.8 74,258 9.1 Mountain 78,577 9.2 79,707 9.8 Other 94,209 11.0 94,847 11.6 Total $ 855,497 100.0 % $ 816,471 100.0 % Mortgage Loans by Loan-to-Value Ratio March 31, 2017 December 31, 2016 Loan-to-Value Ratio Carrying Value Percent of Total Carrying Value Percent of Total (Dollars in thousands) 0% - 50% $ 309,244 36.1 % $ 274,953 33.7 % 51% - 60% 204,068 23.9 210,555 25.8 61% - 70% 239,884 28.0 233,216 28.5 71% - 80% 72,247 8.5 67,607 8.3 81% - 90% 30,054 3.5 30,140 3.7 Total $ 855,497 100.0 % $ 816,471 100.0 % The loan-to-value ratio is determined using the most recent appraised value. Appraisals are updated periodically when there is indication of a possible significant collateral decline or there are loan modifications or refinance requests. Mortgage Loans by Year of Origination March 31, 2017 December 31, 2016 Year of Origination Carrying Value Percent of Total Carrying Value Percent of Total (Dollars in thousands) 2017 $ 49,914 5.8 % $ — — % 2016 157,862 18.5 158,817 19.4 2015 148,316 17.3 149,302 18.3 2014 80,057 9.4 80,771 9.9 2013 69,212 8.1 69,887 8.6 2012 and prior 350,136 40.9 357,694 43.8 Total $ 855,497 100.0 % $ 816,471 100.0 % Impaired Mortgage Loans March 31, 2017 December 31, 2016 (Dollars in thousands) Unpaid principal balance $ 19,271 $ 21,459 Less: Related allowance (663 ) (713 ) Carrying value of impaired mortgage loans $ 18,608 $ 20,746 Allowance on Mortgage Loans Three months ended March 31, 2017 2016 (Dollars in thousands) Balance at beginning of period $ 713 $ 851 Charge offs (50 ) — Balance at end of period $ 663 $ 851 Mortgage Loan Modifications Our commercial mortgage loan portfolio includes loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include: reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during the three months ended March 31, 2017 or 2016. Low Income Housing Tax Credit Investments (LIHTC) We invest in non-guaranteed federal LIHTC, which are included in securities and indebtedness of related parties on the balance sheet. The carrying value of these investments totaled $90.2 million at March 31, 2017 and $91.3 million at December 31, 2016. There were no impairment losses recorded on these investments during the first quarter of 2017 or 2016. We use the equity method of accounting for these investments and recorded the following in our consolidated statement of operations. LIHTC Equity Income (Loss), Net of Related Income Taxes Three months ended March 31, 2017 2016 (Dollars in thousands) Equity losses from LIHTC $ (1,805 ) $ (1,539 ) Income tax benefits: Tax benefits from equity losses 632 539 Investment tax credits 3,529 3,450 Equity income from LIHTC, net of related income tax benefits $ 2,356 $ 2,450 At March 31, 2017 , we had committed to provide additional funds for limited partnerships and limited liability companies in which we invest. The amounts of these unfunded commitments totaled $35.9 million , including $3.1 million for LIHTC commitments, which are summarized by year in the following table. LIHTC Commitments by Year March 31, 2017 (Dollars in thousands) 2017 $ 2,164 2018 590 2019-2024 315 Total $ 3,069 Variable Interest Entities We evaluate our variable interest entity (VIE) investees to determine whether the level of our direct ownership interest, our rights to manage operations, or our obligation to provide ongoing financial support are such that we are the primary beneficiary of the entity, and would therefore be required to consolidate it for financial reporting purposes. After determining that VIE status exists, we review our involvement in the VIE to determine whether we have both the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the rights to receive benefits that could be potentially significant to the VIE. This analysis includes a review of the purpose and design of the VIE as well as the role that we played in the formation of the entity and how that role could impact our ability to control the VIE. We also review the activities and decisions considered significant to the economic performance of the VIE and assess what power we have in directing those activities and decisions. Finally, we review the agreements in place to determine if there are any guarantees that would affect our maximum exposure to loss. We have reviewed the circumstances surrounding our investments in VIEs, which are classified as securities and indebtedness of related parties and consist of LIHTC, limited partnerships or limited liability companies accounted for under the equity method. In addition, we have reviewed the ownership interests in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that was not previously contractually required (financial or otherwise) to any of the VIEs as of March 31, 2017 or December 31, 2016. Based on this analysis, none of our VIEs were required to be consolidated for any reporting periods presented in this Form 10-Q. VIE Investments by Category March 31, 2017 December 31, 2016 Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss (Dollars in thousands) LIHTC $ 90,171 $ 93,240 $ 91,255 $ 95,058 Investment companies 19,576 47,474 23,379 45,569 Real estate limited partnerships 10,908 14,214 10,790 14,558 Other 584 2,189 429 2,034 Total $ 121,239 $ 157,117 $ 125,853 $ 157,219 In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturities. Our maximum exposure to loss on these securities is limited to our amortized cost in the investment. We have determined that we are not the primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities' economic performance. Derivative Instruments Our primary derivative exposure relates to purchased call options, which provide an economic hedge to the embedded derivatives in our indexed annuity and universal life insurance products. We also have embedded derivatives within our modified coinsurance agreements as well as an interest-only fixed maturity investment. We do not apply hedge accounting to any of our derivative positions, and they are held at fair value. Derivatives Instruments by Type March 31, 2017 December 31, 2016 (Dollars in thousands) Assets Freestanding derivatives: Call options (reported in other investments) $ 10,660 $ 9,360 Embedded derivatives: Modified coinsurance (reported in reinsurance recoverable) 2,088 3,411 Interest-only security (reported in fixed maturities) 3,058 3,374 Total assets $ 15,806 $ 16,145 Liabilities Embedded derivatives: Indexed annuity and universal life products (reported in liability for future policy benefits) $ 18,587 $ 15,778 Modified coinsurance agreements (reported in other liabilities) 201 114 Total liabilities $ 18,788 $ 15,892 Derivative Income (Loss) Three months ended March 31, 2017 2016 (Dollars in thousands) Change in fair value of free standing derivatives: Call options $ 973 $ 660 Change in fair value of embedded derivatives: Modified coinsurance agreements (1,410 ) 161 Interest-only security (21 ) 245 Indexed annuity and universal life products 409 (1,168 ) Call option amortization (1,660 ) (1,139 ) Call option proceeds 3,052 65 Total income (loss) from derivatives $ 1,343 $ (1,176 ) Derivative income (loss) is reported in net investment income except for the change in fair value of the embedded derivatives on our indexed annuity and universal life products, which is reported in interest sensitive product benefits. We are exposed to credit losses in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A- or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $6.8 million at March 31, 2017 , which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At March 31, 2017 , none of the collateral had been sold or re-pledged. As of March 31, 2017, our net derivative exposure was $3.9 million . |