Fair Value Measurements (excluding Consolidated Investment Entities) | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements (excluding Consolidated Investment Entities) |
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Fair Value Measurement |
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The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique, pursuant to ASU 2011-04, “Fair Value Measurements (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP” (“ASU 2011-04”). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3), as described in the Fair Value Measurements (excluding Consolidated Investment Entities) Note in the Consolidated Financial Statements in Part II, Item 8. of the Company's 2014 Annual Report on Form 10-K. If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. |
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When available, the estimated fair value of financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing or other similar techniques. |
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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2015: |
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| Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturities, including securities pledged: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasuries | $ | 3,112.30 | | | $ | 668.9 | | | $ | — | | | $ | 3,781.20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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U.S. Government agencies and authorities | — | | | 442.1 | | | — | | | 442.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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State, municipalities and political subdivisions | — | | | 798.1 | | | — | | | 798.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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U.S. Corporate securities | — | | | 41,249.70 | | | 1,109.60 | | | 42,359.30 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign(1) | — | | | 16,210.50 | | | 502.5 | | | 16,713.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Residential mortgage-backed securities | — | | | 6,451.20 | | | 109.2 | | | 6,560.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Commercial mortgage-backed securities | — | | | 4,185.90 | | | — | | | 4,185.90 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other asset-backed securities | — | | | 1,453.10 | | | 9.3 | | | 1,462.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total fixed maturities, including securities pledged | 3,112.30 | | | 71,459.50 | | | 1,730.60 | | | 76,302.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity securities, available-for-sale | 225.4 | | | — | | | 58.2 | | | 283.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — | | | 1,631.60 | | | — | | | 1,631.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign exchange contracts | — | | | 96.1 | | | — | | | 96.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity contracts | 48 | | | 228 | | | 83.5 | | | 359.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Credit contracts | — | | | 28.6 | | | 11.2 | | | 39.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements | 4,337.00 | | | 141.6 | | | 6 | | | 4,484.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Assets held in separate accounts | 101,772.70 | | | 5,266.10 | | | 0.6 | | | 107,039.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total assets | $ | 109,495.40 | | | $ | 78,851.50 | | | $ | 1,890.10 | | | $ | 190,237.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Percentage of Level to total | 57.6 | % | | 41.4 | % | | 1 | % | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annuity product guarantees: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIA | $ | — | | | $ | — | | | $ | 2,015.60 | | | $ | 2,015.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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GMAB/GMWB/GMWBL(2) | — | | | — | | | 1,860.00 | | | 1,860.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Stabilizer and MCGs | — | | | — | | | 148.1 | | | 148.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — | | | 751.8 | | | — | | | 751.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign exchange contracts | — | | | 45.4 | | | — | | | 45.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity contracts | 6.3 | | | 130.3 | | | — | | | 136.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Credit contracts | — | | | 18.4 | | | 22.1 | | | 40.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Embedded derivative on reinsurance | — | | | 163.5 | | | — | | | 163.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total liabilities | $ | 6.3 | | | $ | 1,109.40 | | | $ | 4,045.80 | | | $ | 5,161.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) Primarily U.S. dollar denominated. |
(2) Guaranteed minimum accumulation benefits ("GMAB"), Guaranteed minimum withdrawal benefits (“GMWB”) and Guaranteed minimum withdrawal benefits with life payouts (“GMWBL”). |
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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2014: |
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| Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturities, including securities pledged: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasuries | $ | 3,262.00 | | | $ | 642 | | | $ | — | | | $ | 3,904.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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U.S. Government agencies and authorities | — | | | 435.9 | | | — | | | 435.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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State, municipalities and political subdivisions | — | | | 694.4 | | | — | | | 694.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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U.S. corporate securities | — | | | 39,658.20 | | | 1,082.60 | | | 40,740.80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign(1) | — | | | 15,995.50 | | | 448.7 | | | 16,444.20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Residential mortgage-backed securities | — | | | 6,562.60 | | | 94.2 | | | 6,656.80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Commercial mortgage-backed securities | — | | | 4,166.20 | | | 22 | | | 4,188.20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other asset-backed securities | — | | | 1,585.00 | | | 10.1 | | | 1,595.10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total fixed maturities, including securities pledged | 3,262.00 | | | 69,739.80 | | | 1,657.60 | | | 74,659.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity securities, available-for-sale | 215.5 | | | — | | | 56.3 | | | 271.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — | | | 1,225.00 | | | — | | | 1,225.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign exchange contracts | — | | | 70.6 | | | — | | | 70.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity contracts | 104.7 | | | 296.6 | | | 81.8 | | | 483.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Credit contracts | — | | | 30.9 | | | 10 | | | 40.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements | 4,924.80 | | | 138.5 | | | 6 | | | 5,069.30 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Assets held in separate accounts | 100,692.40 | | | 5,313.10 | | | 2.3 | | | 106,007.80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total assets | $ | 109,199.40 | | | $ | 76,814.50 | | | $ | 1,814.00 | | | $ | 187,827.90 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Percentage of Level to total | 58.1 | % | | 40.9 | % | | 1 | % | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annuity product guarantees: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIA | $ | — | | | $ | — | | | $ | 1,970.00 | | | $ | 1,970.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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GMAB/GMWB/GMWBL | — | | | — | | | 1,586.70 | | | 1,586.70 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Stabilizer and MCGs | — | | | — | | | 102.9 | | | 102.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — | | | 576.6 | | | — | | | 576.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign exchange contracts | — | | | 26.8 | | | — | | | 26.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity contracts | 8.2 | | | 201.7 | | | — | | | 209.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Credit contracts | — | | | 16.3 | | | 19.7 | | | 36 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Embedded derivative on reinsurance | — | | | 139.6 | | | — | | | 139.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total liabilities | $ | 8.2 | | | $ | 961 | | | $ | 3,679.30 | | | $ | 4,648.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1)Primarily U.S. dollar denominated. |
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Valuation of Financial Assets and Liabilities at Fair Value |
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Certain assets and liabilities are measured at estimated fair value on the Company’s Condensed Consolidated Balance Sheets. The Company defines fair value as the price that would be received to sell 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. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement that is determined based on a hypothetical transaction at the measurement date, from a market participant’s perspective. The Company considers three broad valuation techniques when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available. |
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The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of “exit price” and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes. |
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Fixed maturities: The fair values for actively traded marketable bonds are determined based upon the quoted market prices and are classified as Level 1 assets. Assets in this category primarily include certain U.S. Treasury securities. |
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For fixed maturities classified as Level 2 assets, fair values are determined using the market approach, based on prices obtained from third-party commercial pricing services and the Company’s matrix pricing models, which in each case incorporate a variety of market observable information as valuation inputs. The market observable inputs used for these fair value measurements, by fixed maturity asset class, are as follows: |
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US Treasuries, Government Agencies and Authorities, States and Municipalities: Fair value is determined principally using third-party commercial pricing services, with the primary inputs being US Treasury yield curves, trades of comparable securities, credit spreads off benchmark yields, and issuer ratings. |
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US/Foreign Public Corporates and Foreign Governments: Fair value is determined principally using third-party commercial pricing services, with the primary inputs being benchmark yields, trades of comparable securities, issuer ratings, bids and credit spreads off benchmark yields. |
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US/Foreign Private Corporates: Fair values are determined principally using a matrix-based pricing model. The model incorporates the current level of risk-free interest rates, current corporate credit spreads, credit quality of the issuer and cash flow characteristics of the security. The model also considers a liquidity spread, the value of any collateral, the capital structure of the issuer, the presence of guarantees and the Company’s evaluation of the issuer’s ability to compete in its relevant market. |
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RMBS, CMBS and ABS: Fair value is determined principally using third-party commercial pricing services, with the primary inputs being credit spreads off benchmark yields, prepayment speed assumptions, current and forecasted loss severity, debt service coverage ratios, collateral type, payment priority within tranche and the vintage of the loans underlying the security. |
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Transfers in and out of Level 1 and 2 |
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There were no securities transferred between Level 1 and Level 2 for the three months ended March 31, 2015 and 2014. The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period. |
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Level 3 Financial Instruments |
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The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third-party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below. |
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The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three months ended March 31, 2015: |
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| Fair Value | | Total | | Purchases | | Issuances | | Sales | | Settlements | | Transfers | | Transfers | | Fair Value as of March 31 | | Change In |
as of | Realized/Unrealized | into | out of | Unrealized |
1-Jan | Gains (Losses) | Level 3(3) | Level 3(3) | Gains |
| Included in: | | | (Losses) |
| | | | Included in |
| | | Net | | OCI | | | | | | | | | | | Earnings(4) |
| Income | | | |
Fixed maturities, including securities pledged: | | | | | | | | | | | | | | | | | | | | | |
U.S. Government agencies and authorities | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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U.S. corporate securities | 1,082.60 | | | 0.1 | | | 2.1 | | | 85.1 | | | — | | | — | | | (109.9 | ) | | 49.6 | | | — | | | 1,109.60 | | | 0.1 | |
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Foreign(1) | 448.7 | | | 0.6 | | | (1.0 | ) | | 12.2 | | | — | | | — | | | (11.7 | ) | | 53.7 | | | — | | | 502.5 | | | — | |
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Residential mortgage-backed securities | 94.2 | | | (2.5 | ) | | (0.2 | ) | | 5.3 | | | — | | | — | | | (0.1 | ) | | 12.5 | | | — | | | 109.2 | | | (2.5 | ) |
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Commercial mortgage-backed securities | 22 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (22.0 | ) | | — | | | — | |
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Other asset-backed securities | 10.1 | | | — | | | — | | | — | | | — | | | — | | | (0.8 | ) | | — | | | — | | | 9.3 | | | — | |
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Total fixed maturities including securities pledged | 1,657.60 | | | (1.8 | ) | | 0.9 | | | 102.6 | | | — | | | — | | | (122.5 | ) | | 115.8 | | | (22.0 | ) | | 1,730.60 | | | (2.4 | ) |
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Equity securities, available-for-sale | 56.3 | | | (0.1 | ) | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 58.2 | | | (0.1 | ) |
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Derivatives: | | | | | | | | | | | | | | | | | | | | | |
Product guarantees: | | | | | | | | | | | | | | | | | | | | | |
FIA(2) | (1,970.0 | ) | | (45.7 | ) | | — | | | — | | | (40.5 | ) | | — | | | 40.6 | | | — | | | — | | | (2,015.6 | ) | | — | |
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GMAB/GMWB/GMWBL(2) | (1,586.7 | ) | | (232.3 | ) | | — | | | — | | | (41.1 | ) | | — | | | 0.1 | | | — | | | — | | | (1,860.0 | ) | | — | |
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Stabilizer and MCGs(2) | (102.9 | ) | | (44.1 | ) | | — | | | — | | | (1.1 | ) | | — | | | — | | | — | | | — | | | (148.1 | ) | | — | |
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Other derivatives, net | 72.1 | | | 0.4 | | | — | | | 8.3 | | | — | | | — | | | (8.2 | ) | | — | | | — | | | 72.6 | | | 0.6 | |
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Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements | 6 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | — | |
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Assets held in separate accounts(5) | 2.3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.7 | ) | | 0.6 | | | — | |
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(1) Primarily U.S. dollar denominated. |
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis. These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. |
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period. |
(4) For financial instruments still held as of March 31, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. |
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company. |
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The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three months ended March 31, 2014: |
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| Fair Value | | Total | | Purchases | | Issuances | | Sales | | Settlements | | Transfers | | Transfers | | Fair Value as of March 31 | | Change In |
as of | Realized/Unrealized | into | out of | Unrealized |
1-Jan | Gains (Losses) | Level 3(3) | Level 3(3) | Gains |
| Included in: | | | (Losses) |
| | | | Included in |
| | | Net | | OCI | | | | | | | | | | | Earnings(4) |
| Income | | | |
Fixed maturities, including securities pledged: | | | | | | | | | | | | | | | | | | | | | |
U.S. Government agencies and authorities | $ | 14.4 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (0.2 | ) | | $ | — | | | $ | (7.0 | ) | | $ | 7.2 | | | $ | — | |
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U.S. corporate securities | 456.5 | | | — | | | 4.5 | | | 108 | | | — | | | — | | | (10.1 | ) | | 12.8 | | | (3.0 | ) | | 568.7 | | | — | |
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Foreign(1) | 154.3 | | | — | | | 1.6 | | | — | | | — | | | — | | | (0.2 | ) | | — | | | (25.0 | ) | | 130.7 | | | — | |
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Residential mortgage-backed securities | 98.6 | | | (2.8 | ) | | 0.8 | | | — | | | — | | | — | | | (0.6 | ) | | 8.8 | | | (0.4 | ) | | 104.4 | | | (2.8 | ) |
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Commercial mortgage-backed securities | — | | | — | | | — | | | 24.9 | | | — | | | — | | | — | | | — | | | — | | | 24.9 | | | — | |
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Other asset-backed securities | 59.2 | | | 3.1 | | | (2.5 | ) | | — | | | — | | | — | | | (17.6 | ) | | — | | | — | | | 42.2 | | | 1 | |
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Total fixed maturities including securities pledged | 783 | | | 0.3 | | | 4.4 | | | 132.9 | | | — | | | — | | | (28.7 | ) | | 21.6 | | | (35.4 | ) | | 878.1 | | | (1.8 | ) |
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Equity securities, available-for-sale | 55.3 | | | (0.9 | ) | | 2.8 | | | — | | | — | | | (0.1 | ) | | — | | | — | | | — | | | 57.1 | | | (0.9 | ) |
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Derivatives: | | | | | | | | | | | | | | | | | | | | | |
Product guarantees: | | | | | | | | | | | | | | | | | | | | | |
FIA(2) | (1,736.7 | ) | | (42.4 | ) | | — | | | — | | | (50.3 | ) | | — | | | 21.4 | | | — | | | — | | | (1,808.0 | ) | | — | |
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GMAB/GMWB/GMWBL(2) | (908.9 | ) | | (195.9 | ) | | — | | | — | | | (38.6 | ) | | — | | | 0.1 | | | — | | | — | | | (1,143.3 | ) | | — | |
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Stabilizer and MCGs(2) | — | | | (16.8 | ) | | — | | | — | | | (1.2 | ) | | — | | | — | | | — | | | — | | | (18.0 | ) | | — | |
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Other derivatives, net | 80.3 | | | 1 | | | — | | | 7.4 | | | — | | | — | | | (21.6 | ) | | — | | | — | | | 67.1 | | | (12.7 | ) |
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Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Assets held in separate accounts(5) | 13.1 | | | — | | | — | | | 5.8 | | | — | | | (1.0 | ) | | — | | | — | | | — | | | 17.9 | | | — | |
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(1) Primarily U.S. dollar denominated. |
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis. These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. |
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period. |
(4) For financial instruments still held as of March 31, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. |
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company. |
For the three months ended March 31, 2015 and 2014, the transfers in and out of Level 3 for fixed maturities and equity securities, as well as separate accounts, were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate. |
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Significant Unobservable Inputs |
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Quantitative information about the significant unobservable inputs used in the Company's Level 3 fair value measurements of its annuity product guarantees is presented in the following sections and table. |
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The Company's Level 3 fair value measurements of its fixed maturities, equity securities available-for-sale and equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a sensitivity analysis. The Company performs a review of broker quotes by performing a monthly price variance comparison and back tests broker quotes to recent trade prices. |
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Significant unobservable inputs used in the fair value measurements of GMABs, GMWBs and GMWBLs include long-term equity and interest rate implied volatility, correlations between the rate of return on policyholder funds and between interest rates and equity returns, nonperformance risk, mortality and policyholder behavior assumptions, such as benefit utilization, lapses and partial withdrawals. Such inputs are monitored quarterly. |
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Significant unobservable inputs used in the fair value measurements of FIAs include nonperformance risk and policyholder behavior assumptions, such as lapses and partial withdrawals. Such inputs are monitored quarterly. |
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The significant unobservable inputs used in the fair value measurement of the Stabilizer embedded derivatives and MCG derivative are interest rate implied volatility, nonperformance risk, lapses and policyholder deposits. Such inputs are monitored quarterly. |
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Following is a description of selected inputs: |
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Equity / Interest Rate Volatility: A term-structure model is used to approximate implied volatility for the equity indices and swap rates for GMAB, GMWB and GMWBL fair value measurements and swap rates for the Stabilizer and MCG fair value measurements. Where no implied volatility is readily available in the market, an alternative approach is applied based on historical volatility. |
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Correlations: Integrated interest rate and equity scenarios are used in GMAB, GMWB and GMWBL fair value measurements to better reflect market interest rates and interest rate volatility correlations between equity and fixed income fund groups and between equity fund groups and interest rates. The correlations are based on historical fund returns and swap rates from external sources. |
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Nonperformance Risk: For the estimate of the fair value of embedded derivatives associated with the Company's product guarantees, the Company uses a blend of observable, similarly rated peer company credit default swap spreads, adjusted to reflect the credit quality of the individual insurance company subsidiary that issued the guarantee and the priority of policyholder claims. |
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Actuarial Assumptions: Management regularly reviews actuarial assumptions, which are based on the Company's experience and periodically reviewed against industry standards. Industry standards and Company experience may be limited on certain products. |
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The following table presents the unobservable inputs for Level 3 fair value measurements as of March 31, 2015: |
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| | Range(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unobservable Input | | GMWB / GMWBL | | GMAB | | FIA | | Stabilizer / MCG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term equity implied volatility | | 15% to 25% | | | 15% to 25% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest rate implied volatility | | 0.2% to 18% | | | 0.2% to 18% | | | — | | | 0.2% to 7.8% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Correlations between: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Funds | | 49% to 98% | | | 49% to 98% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Equity and Fixed Income Funds | | -38% to 62% | | | -38% to 62% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest Rates and Equity Funds | | -32% to -3% | | | -32% to -3% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Nonperformance risk | | 0.14% to 1.10% | | | 0.14% to 1.10% | | | 0.14% to 1.10% | | | 0.14% to 1.10% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Actuarial Assumptions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit Utilization | | 85% to 100% | | (2) | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Partial Withdrawals | | 0% to 10% | | | 0% to 10% | | | 0% to 5 % | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Lapses | | 0.08% to 24% | | (3)(4) | 0.08% to 31% | | (3)(4) | 0% to 60% | | (3) | 0% to 50% | | (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Policyholder Deposits(6) | | — | | | — | | | — | | | 0% to 65% | | (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Mortality | | — | | (7) | — | | (7) | — | | (8) | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | Represents the range of reasonable assumptions that management has used in its fair value calculations. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) Those policyholders who have elected systematic withdrawals are assumed to continue taking withdrawals. As a percent of account value, 35% are taking systematic withdrawals. Of those policyholders who are not taking withdrawals, the Company assumes that 85% will begin systematic withdrawals after a delay period. The utilization function varies by policyholder age and policy duration. Interactions with lapse and mortality also affect utilization. The utilization rate for GMWB and GMWBL tends to be lower for younger contract owners and contracts that have not reached their maximum accumulated GMWB and GMWBL benefit amount. There is also a lower utilization rate, though indirectly, for contracts that are less "in the money" (i.e., where the notional benefit amount is in excess of the account value) due to higher lapses. Conversely, the utilization rate tends to be higher for contract owners near or beyond retirement age and contracts that have accumulated their maximum GMWB or GMWBL benefit amount. There is also a higher utilization rate, though indirectly, for contracts which are highly "in the money." The chart below provides the GMWBL account value by current age group and average expected delay times from the associated attained age group as of March 31, 2015 (account value amounts are in $ billions). |
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| | Account Values | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attained Age Group | | In the Money | | Out of the Money | | Total | | Average Expected Delay (Years)* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
< 60 | | $ | 2.3 | | | $ | 0.5 | | | $ | 2.8 | | | 9.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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60-69 | | 6 | | | 1.1 | | | 7.1 | | | 4.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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70+ | | 5.2 | | | 0.6 | | | 5.8 | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | $ | 13.5 | | | $ | 2.2 | | | $ | 15.7 | | | 5.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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* For population expected to withdraw in future. Excludes policies taking systematic withdraws and 15% of policies the Company assumes will never withdraw. |
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(3) Lapse rates tend to be lower during the contractual surrender charge period and higher after the surrender charge period ends; the highest lapse rates occur in the year immediately after the end of the surrender charge period. |
(4) The Company makes dynamic adjustments to lower the lapse rates for contracts that are more “in the money.” The table below shows an analysis of policy account values according to whether they are in or out of the surrender charge period and to whether they are “in the money” or “out of the money” as of March 31, 2015 (account value amounts are in $ billions). |
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| | | GMAB | | GMWB/GMWBL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Moneyness | | Account Value | | Lapse Range | | Account Value | | Lapse Range | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During Surrender Charge Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In the Money** | | $ | — | | * | 0.08% to 8.2% | | $ | 6.3 | | | 0.08% to 6.3% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Out of the Money | | — | | * | 0.41% to 12% | | 1.4 | | | 0.36% to 7% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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After Surrender Charge Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In the Money** | | $ | — | | * | 2.5% to 21% | | $ | 7.2 | | | 1.7% to 21% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Out of the Money | | 0.1 | | | 12.3% to 31% | | 1.5 | | | 5.6% to 24% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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* Less than $0.1. |
** The low end of the range corresponds to policies that are highly “in the money.” The high end of the range corresponds to the policies that are close to zero in terms of “in the moneyness.” |
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(5) | Stabilizer contracts with recordkeeping agreements have a different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Percentage of Plans | | Overall Range of Lapse Rates | | Range of Lapse Rates for 85% of Plans | | Overall Range of Policyholder Deposits | | Range of Policyholder Deposits for 85% of Plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilizer (Investment Only) and MCG Contracts | 88 | % | | 0-25% | | 0-15% | | 0-35% | | 0-15% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilizer with Recordkeeping Agreements | 12 | % | | 0-50% | | 0-25% | | 0-65% | | 0-30% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate of all plans | 100 | % | | 0-50% | | 0-25% | | 0-65% | | 0-30% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(6) | Measured as a percentage of assets under management or assets under administration. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(7) | The mortality rate is based on the Annuity 2000 Basic table with mortality improvements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(8) | The mortality rate is based on the 2012 Individual Annuity Mortality Basic table with mortality improvements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents the unobservable inputs for Level 3 fair value measurements as of December 31, 2014: |
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| | Range(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unobservable Input | | GMWB / GMWBL | | GMAB | | FIA | | Stabilizer / MCG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term equity implied volatility | | 15% to 25% | | | 15% to 25% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest rate implied volatility | | 0.2% to 16% | | | 0.2% to 16% | | | — | | | 0.2% to 7.6% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Correlations between: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Funds | | 49% to 98% | | | 49% to 98% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity and Fixed Income Funds | | -38% to 62% | | | -38% to 62% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rates and Equity Funds | | -32% to -4% | | | -32% to -4% | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonperformance risk | | 0.13% to 1.10% | | | 0.13% to 1.10% | | | 0.13% to 1.10% | | | 0.13% to 1.10% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Actuarial Assumptions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit Utilization | | 85% to 100% | | (2) | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Partial Withdrawals | | 0% to 10% | | | 0% to 10% | | | 0% to 5 % | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lapses | | 0.08% to 24% | | (3)(4) | 0.08% to 31% | | (3)(4) | 0% to 60% | | (3) | 0% to 50% | | (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Policyholder Deposits(6) | | — | | | — | | | — | | | 0% to 65% | | (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortality | | — | | (7) | — | | (7) | — | | (8) | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | Represents the range of reasonable assumptions that management has used in its fair value calculations. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | Those policyholders who have elected systematic withdrawals are assumed to continue taking withdrawals. As a percent of account value, 33% are taking systematic withdrawals. Of those policyholders who are not taking withdrawals, the Company assumes that 85% will begin systematic withdrawals after a delay period. The utilization function varies by policyholder age and policy duration. Interactions with lapse and mortality also affect utilization. The utilization rate for GMWB and GMWBL tends to be lower for younger contract owners and contracts that have not reached their maximum accumulated GMWB and GMWBL benefit amount. There is also a lower utilization rate, though indirectly, for contracts that are less “in the money” (i.e., where the notional benefit amount is in excess of the account value) due to higher lapses. Conversely, the utilization rate tends to be higher for contract owners near or beyond retirement age and contracts that have accumulated their maximum GMWB or GMWBL benefit amount. There is also a higher utilization rate, though indirectly, for contracts which are highly “in the money.” The chart below provides the GMWBL account value by current age group and average expected delay times from the associated attained age group as of December 31, 2014 (account value amounts are in $ billions). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Account Values | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attained Age Group | | In the Money | | Out of the Money | | Total | | Average Expected Delay (Years)* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
< 60 | | $ | 2.4 | | | $ | 0.5 | | | $ | 2.9 | | | 9.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
60-69 | | 6.2 | | | 1 | | | 7.2 | | | 4.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
70+ | | 5.2 | | | 0.5 | | | 5.7 | | | 3.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 13.8 | | | $ | 2 | | | $ | 15.8 | | | 5.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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* For population expected to withdraw in future. Excludes policies taking systematic withdraws and 15% of policies the Company assumes will never withdraw. |
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-3 | Lapse rates tend to be lower during the contractual surrender charge period and higher after the surrender charge period ends; the highest lapse rates occur in the year immediately after the end of the surrender charge period. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(4) The Company makes dynamic adjustments to lower the lapse rates for contracts that are more “in the money.” The table below shows an analysis of policy account values according to whether they are in or out of the surrender charge period and to whether they are “in the money” or “out of the money” as of December 31, 2014 (account value amounts are in $ billions). |
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| | | GMAB | | GMWB/GMWBL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Moneyness | | Account Value | | Lapse Range | | Account Value | | Lapse Range | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During Surrender Charge Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In the Money** | | $ | — | | * | 0.08% to 8.2% | | $ | 6.7 | | | 0.08% to 6.3% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Out of the Money | | — | | * | 0.41% to 12% | | 1.2 | | | 0.36% to 7% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
After Surrender Charge Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In the Money** | | $ | — | | * | 2.5% to 21% | | $ | 7.2 | | | 1.7% to 21% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Out of the Money | | 0.1 | | | 12.3% to 31% | | 1.4 | | | 5.6% to 24% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Less than $0.1. |
** The low end of the range corresponds to policies that are highly “in the money.” The high end of the range corresponds to the policies that are close to zero in terms of “in the moneyness.” |
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(5) | Stabilizer contracts with recordkeeping agreements have a different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Percentage of Plans | | Overall Range of Lapse Rates | | Range of Lapse Rates for 85% of Plans | | Overall Range of Policyholder Deposits | | Range of Policyholder Deposits for 85% of Plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilizer (Investment Only) and MCG Contracts | 87 | % | | 0-30% | | 0-15% | | 0-45% | | 0-15% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilizer with Recordkeeping Agreements | 13 | % | | 0-50% | | 0-25% | | 0-65% | | 0-25% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate of all plans | 100 | % | | 0-50% | | 0-25% | | 0-65% | | 0-25% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(6) | Measured as a percentage of assets under management or assets under administration. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(7) | The mortality rate is based on the Annuity 2000 Basic table with mortality improvements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(8) | The mortality rate is based on the 2012 Individual Annuity Mortality Basic table with mortality improvements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Generally, the following will cause an increase (decrease) in the GMAB, GMWB and GMWBL embedded derivative fair value liabilities: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | An increase (decrease) in long-term equity implied volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | An increase (decrease) in interest rate implied volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | An increase (decrease) in equity-interest rate correlations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A decrease (increase) in nonperformance risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A decrease (increase) in mortality | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | An increase (decrease) in benefit utilization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A decrease (increase) in lapses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Changes in fund correlations may increase or decrease the fair value depending on the direction of the movement and the mix of funds. Changes in partial withdrawals may increase or decrease the fair value depending on the timing and magnitude of withdrawals. |
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Generally, the following will cause an increase (decrease) in the FIA embedded derivative fair value liability: |
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• | A decrease (increase) in nonperformance risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A decrease (increase) in lapses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Generally, the following will cause an increase (decrease) in the derivative and embedded derivative fair value liabilities related to Stabilizer and MCG contracts: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | An increase (decrease) in interest rate implied volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | A decrease (increase) in nonperformance risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | A decrease (increase) in lapses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | A decrease (increase) in policyholder deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Company notes the following interrelationships: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | Higher long-term equity implied volatility is often correlated with lower equity returns, which will result in higher in-the-moneyness, which in turn, results in lower lapses due to the dynamic lapse component reducing the lapses. This increases the projected number of policies that are available to use the GMWBL benefit and may also increase the fair value of the GMWBL. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Generally, an increase (decrease) in benefit utilization will decrease (increase) lapses for GMWB and GMWBL. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Generally, an increase (decrease) in interest rate volatility will increase (decrease) lapses of Stabilizer and MCG contracts due to dynamic participant behavior. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other Financial Instruments |
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The carrying values and estimated fair values of the Company’s financial instruments as of the dates indicated: |
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| March 31, 2015 | | December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carrying | | Fair | | Carrying | | Fair | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Value | Value | Value | Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturities, including securities pledged | $ | 76,302.40 | | | $ | 76,302.40 | | | $ | 74,659.40 | | | $ | 74,659.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities, available-for-sale | 283.6 | | | 283.6 | | | 271.8 | | | 271.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans on real estate | 10,194.50 | | | 10,644.90 | | | 9,794.10 | | | 10,286.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Policy loans | 2,074.10 | | | 2,074.10 | | | 2,104.00 | | | 2,104.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Limited partnerships/corporations | 375.5 | | | 375.5 | | | 363.2 | | | 363.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents, short-term investments and short-term investments under securities loan agreements | 4,484.60 | | | 4,484.60 | | | 5,069.30 | | | 5,069.30 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives | 2,127.00 | | | 2,127.00 | | | 1,819.60 | | | 1,819.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other investments | 97 | | | 107.1 | | | 110.3 | | | 120.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets held in separate accounts | 107,039.40 | | | 107,039.40 | | | 106,007.80 | | | 106,007.80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment contract liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Funding agreements without fixed maturities and deferred annuities(1) | 50,411.10 | | | 56,725.70 | | | 49,850.90 | | | 55,171.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Funding agreements with fixed maturities and guaranteed investment contracts | 1,564.00 | | | 1,543.00 | | | 1,593.00 | | | 1,564.80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supplementary contracts, immediate annuities and other | 2,612.10 | | | 2,825.30 | | | 2,535.30 | | | 2,706.20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annuity product guarantees: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FIA | 2,015.60 | | | 2,015.60 | | | 1,970.00 | | | 1,970.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
GMAB/GMWB/GMWBL | 1,860.00 | | | 1,860.00 | | | 1,586.70 | | | 1,586.70 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stabilizer and MCGs | 148.1 | | | 148.1 | | | 102.9 | | | 102.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other derivatives | 974.3 | | | 974.3 | | | 849.3 | | | 849.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | 3,516.00 | | | 3,968.50 | | | 3,515.70 | | | 3,875.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Embedded derivatives on reinsurance | 163.5 | | | 163.5 | | | 139.6 | | | 139.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) Certain amounts included in Funding agreements without fixed maturities and deferred annuities are also reflected within the Annuity product guarantees section of the table above. |
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The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Condensed Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument. |
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ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. |
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The following valuation methods and assumptions were used by the Company in estimating the fair value of the following financial instruments, which are not carried at fair value on the Condensed Consolidated Balance Sheets: |
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Mortgage loans on real estate: The fair values for mortgage loans on real estate are estimated on a monthly basis using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Mortgage loans on real estate are classified as Level 3. |
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Policy loans: The fair value of policy loans approximates the carrying value of the loans. Policy loans are collateralized by the cash surrender value of the associated insurance contracts and are classified as Level 2. |
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Limited partnerships/corporations: The fair value for these investments, primarily private equity fund of funds and hedge funds, is based on actual or estimated Net Asset Value (“NAV”) information, as provided by the investee and are classified as Level 3. |
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Other investments: Primarily Federal Home Loan Bank (“FHLB”) stock, which is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value and is classified as Level 1. |
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Investment contract liabilities: |
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Funding agreements without fixed maturities and deferred annuities: Fair value is estimated as the mean present value of stochastically modeled cash flows associated with the contract liabilities taking into account assumptions about contract holder behavior. The stochastic valuation scenario set is consistent with current market parameters and discount is taken using stochastically evolving risk-free rates in the scenarios plus an adjustment for nonperformance risk. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3. |
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Funding agreements with fixed maturities and guaranteed investment contracts: Fair value is estimated by discounting cash flows, including associated expenses for maintaining the contracts, at rates, that are risk-free rates plus an adjustment for nonperformance risk. These liabilities are classified as Level 2. |
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Supplementary contracts and immediate annuities: Fair value is estimated as the mean present value of the single deterministically modeled cash flows associated with the contract liabilities discounted using stochastically evolving short risk-free rates in the scenarios plus an adjustment for nonperformance risk. The valuation is consistent with current market parameters. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3. |
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Long-term debt: Estimated fair value of the Company’s long-term debt is based upon discounted future cash flows using a discount rate approximating the current market rate, incorporating nonperformance risk. Long-term debt is classified as Level 2. |
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Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above. |