Company Quick10K Filing
Quick10K
Protective Life
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-09 Officers
8-K 2019-09-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-31 Enter Agreement, M&A, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-05-28 Officers, Exhibits
8-K 2019-04-30 Officers, Shareholder Vote
8-K 2019-03-05 Accountant, Exhibits
8-K 2019-02-25 Accountant, Amend Bylaw, Exhibits
8-K 2019-01-23 Enter Agreement, Other Events, Exhibits
8-K 2019-01-23 Enter Agreement, Other Events, Exhibits
8-K 2018-12-11 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-11-06 Officers, Exhibits
8-K 2018-08-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-06 Officers, Shareholder Vote, Exhibits
8-K 2018-05-03 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-01 Other Events, Exhibits
8-K 2018-04-30 Officers, Shareholder Vote
8-K 2018-02-14 Earnings, Regulation FD
8-K 2018-01-18 Enter Agreement, Other Events, Exhibits
WEB web.com 1,287
SCPL SciPlay 217
ABVC American Brivision 154
UGHL Union Bridge Holdings 150
VKIN Viking Energy 16
FRFS GIFA 14
ETEK Eco Tek 360 0
HMX Hunt Mining 0
C311 Oncor Electric Delivery 0
ORNC Oranco 0
PL 2019-06-30
Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 plc6301910-qxexhibit311.htm
EX-31.2 plc6301910-qxexhibit312.htm
EX-32.1 plc6301910-qxexhibit321.htm
EX-32.2 plc6301910-qxexhibit322.htm

Protective Life Earnings 2019-06-30

PL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 plc6301910-q.htm 10-Q Document

 

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

For the quarterly period ended June 30, 2019  
or 
o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from              to       
 Commission File Number 001-11339
 
PROTECTIVE LIFE CORPORATION
(Exact name of registrant as specified in its charter) 
DELAWARE
 
95-2492236
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices and zip code)
 Registrant’s telephone number, including area code (205) 268-1000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated Filer o
 
 
 
Non-accelerated filer x
 
Smaller Reporting Company o
 
 
 
 
 
Emerging Growth Company o

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





PROTECTIVE LIFE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTERLY PERIOD ENDED JUNE 30, 2019
 
TABLE OF CONTENTS
 
PART I
 
 
 
 
Page
Item 1.
Financial Statements (unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 
 





PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
 
 
 
 
Revenues
 

 
 
 
 
 
 

Premiums and policy fees
$
945,883

 
$
941,868

 
$
1,876,211

 
$
1,831,034

Reinsurance ceded
(339,996
)
 
(390,941
)
 
(658,373
)
 
(736,364
)
Net of reinsurance ceded
605,887

 
550,927

 
1,217,838

 
1,094,670

Net investment income
725,811

 
616,462

 
1,411,735

 
1,137,325

Realized investment gains (losses)
(48,547
)
 
(37,337
)
 
(38,628
)
 
(46,877
)
Other-than-temporary impairment losses
(198
)
 
(10
)
 
(1,493
)
 
(701
)
Portion recognized in other comprehensive income (before taxes)
(500
)
 
5

 
(2,347
)
 
(2,949
)
Net impairment losses recognized in earnings
(698
)
 
(5
)
 
(3,840
)
 
(3,650
)
Other income
136,322

 
113,861

 
245,700

 
228,272

Total revenues
1,418,775


1,243,908

 
2,832,805

 
2,409,740

Benefits and expenses
 

 
 

 
 

 
 

Benefits and settlement expenses, net of reinsurance ceded: (three and six months 2019 - $260,358 and $515,186; three and six months 2018 - $298,016 and $645,653)
1,003,987

 
861,548

 
1,976,753

 
1,648,350

Amortization of deferred policy acquisition costs and value of business acquired
33,783

 
52,517

 
64,183

 
110,498

Other operating expenses, net of reinsurance ceded: (three and six months 2019 - $55,124 and $106,415; three and six months 2018 - $51,559 and $94,676)
250,931

 
231,071

 
486,880

 
460,322

Total benefits and expenses
1,288,701

 
1,145,136

 
2,527,816

 
2,219,170

Income before income tax
130,074


98,772


304,989


190,570

Income tax expense
21,963

 
17,277

 
58,594

 
34,963

Net income
$
108,111


$
81,495


$
246,395


$
155,607


See Notes to Consolidated Condensed Financial Statements
2


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Net income
$
108,111

 
$
81,495

 
$
246,395

 
$
155,607

Other comprehensive income (loss):
 

 
 
 
 
 
 

Change in net unrealized gains (losses) on investments, net of income tax: (three and six months 2019 - $264,523 and $566,586; three and six months 2018 - $(113,653) and $(267,032))
995,112

 
(427,550
)
 
2,131,443

 
(1,005,262
)
Reclassification adjustment for investment amounts included in net income, net of income tax: (three and six months 2019 - $(84) and $(499); three and six months 2018 - $(1,162) and $(981))
(316
)
 
(4,372
)
 
(1,876
)
 
(3,691
)
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three and six months 2019 - $4,127 and $6,464; three and six months 2018 - $3 and $6)
15,524

 
11

 
24,316

 
22

Change in accumulated (loss) gain - derivatives, net of income tax: (three and six months 2019 - $(742) and $(1,264); three and six months 2018 - $623 and $752)
(2,788
)
 
2,344

 
(4,754
)
 
2,831

Reclassification adjustment for derivative amounts included in net income, net of income tax: (three and six months 2019 - $70 and $128; three and six months 2018 - $43 and $67)
266

 
162

 
486

 
251

Total other comprehensive income (loss)
1,007,798

 
(429,405
)
 
2,149,615

 
(1,005,849
)
Total comprehensive income (loss)
$
1,115,909

 
$
(347,910
)
 
$
2,396,010

 
$
(850,242
)

See Notes to Consolidated Condensed Financial Statements
3


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 
 
As of
 
June 30, 2019
 
December 31, 2018
 
(Dollars In Thousands)
Assets
 

 
 

Fixed maturities, at fair value (amortized cost: 2019 - $63,349,246; 2018 - $54,466,305)
$
64,710,656

 
$
51,904,699

Fixed maturities, at amortized cost (fair value: 2019 - $2,640,827; 2018 - $2,547,210)
2,576,216

 
2,633,474

Equity securities, at fair value (cost: 2019 - $622,178; 2018 - $627,087)
629,965

 
595,884

Mortgage loans (related to securitizations: 2019 - $0; 2018 - $134)
9,053,400

 
7,724,733

Investment real estate, net of accumulated depreciation (2019 - $315; 2018 - $251)
6,777

 
6,816

Policy loans
1,709,110

 
1,695,886

Other long-term investments
934,770

 
759,354

Short-term investments
1,220,840

 
807,283

Total investments
80,841,734


66,128,129

Cash
243,291

 
173,714

Accrued investment income
730,149

 
634,921

Accounts and premiums receivable
262,163

 
113,507

Reinsurance receivables
4,558,158

 
4,764,743

Deferred policy acquisition costs and value of business acquired
3,474,557

 
3,023,154

Goodwill
825,511

 
825,511

Other intangibles, net of accumulated amortization (2019 - $225,912; 2018 - $197,583)
616,931

 
613,431

Property and equipment, net of accumulated depreciation (2019 - $40,620; 2018 - $33,199)
212,905

 
184,957

Other assets
1,972,083

 
250,036

Assets related to separate accounts:
 
 
 

Variable annuity
12,790,474

 
12,288,919

Variable universal life
1,073,020

 
937,732

Reinsurance assumed
9,844,996

 

Total assets
$
117,445,972


$
89,938,754


See Notes to Consolidated Condensed Financial Statements
4


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(continued)
 
 
As of
 
June 30, 2019
 
December 31, 2018
 
(Dollars In Thousands)
Liabilities
 

 
 

Future policy benefits and claims
$
53,470,312

 
$
41,901,552

Unearned premiums
887,691

 
872,594

Total policy liabilities and accruals
54,358,003

 
42,774,146

Stable value product account balances
5,816,503

 
5,234,731

Annuity account balances
14,179,277

 
13,720,081

Other policyholders’ funds
1,542,296

 
1,128,379

Other liabilities
3,246,982

 
2,374,112

Income tax payable
67,837

 
38,547

Deferred income taxes
1,177,197

 
839,316

Non-recourse funding obligations
2,576,538

 
2,632,497

Secured financing liabilities
126,862

 
495,307

Debt
1,677,557

 
1,101,827

Subordinated debt
605,494

 
605,426

Liabilities related to separate accounts:
 

 
 

Variable annuity
12,790,474

 
12,288,919

Variable universal life
1,073,020

 
937,732

Reinsurance assumed
9,844,996

 

Total liabilities
109,083,036


84,171,020

Commitments and contingencies - Note 11


 


Shareowner’s equity
 

 
 

Common Stock: 2019 and 2018 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000

 

Additional paid-in-capital
5,804,059

 
5,554,059

Retained earnings
1,835,028

 
1,639,441

Accumulated other comprehensive income (loss):
 

 
 

Net unrealized (losses) gains on investments, net of income tax: (2019 - $197,257; 2018 - $(368,830))
742,063

 
(1,387,504
)
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2019 - $410; 2018 - $(6,054))
1,543

 
(22,773
)
Accumulated gain (loss) - derivatives, net of income tax: (2019 - $(1,136); 2018 - $(2))
(4,275
)
 
(7
)
Postretirement benefits liability adjustment, net of income tax: (2019 - $(4,112); 2018 - $(4,112))
(15,482
)
 
(15,482
)
Total shareowner’s equity
8,362,936


5,767,734

Total liabilities and shareowner’s equity
$
117,445,972


$
89,938,754


See Notes to Consolidated Condensed Financial Statements
5


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)

 
Common Stock
 
Additional Paid-In- Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareowner’s Equity
 
(Dollars In Thousands)
Balance, December 31, 2018
$

 
$
5,554,059

 
$
1,639,441

 
$
(1,425,766
)
 
$
5,767,734

Net income for the three months ended March 31, 2019
 
 
 
 
138,284

 
 
 
138,284

Other comprehensive income
 
 
 
 
 
 
1,141,817

 
1,141,817

Comprehensive income for the three months ended March 31, 2019
 
 
 
 
 
 
 
 
1,280,101

Cumulative effect adjustments
 
 
 
 
(50,808
)
 
 
 
(50,808
)
Balance, March 31, 2019

 
5,554,059

 
1,726,917

 
(283,949
)
 
6,997,027

Net income for the three months ended June 30, 2019
 

 
 

 
108,111

 
 

 
108,111

Other comprehensive income
 

 
 

 
 

 
1,007,798

 
1,007,798

Comprehensive income for the three months ended June 30, 2019
 

 
 

 
 

 
 

 
1,115,909

Capital contributions from parent
 
 
250,000

 
 
 
 
 
250,000

Balance, June 30, 2019
$

 
$
5,804,059

 
$
1,835,028

 
$
723,849

 
$
8,362,936



 
Common Stock
 
Additional Paid-In- Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareowner’s Equity
 
(Dollars In Thousands)
Balance, December 31, 2017
$

 
$
5,554,059

 
$
1,560,444

 
$
12,696

 
$
7,127,199

Net income for the three months ended March 31, 2018
 
 
 
 
74,112

 
 
 
74,112

Other comprehensive loss
 
 
 
 
 
 
(576,444
)
 
(576,444
)
Comprehensive loss for the three months ended March 31, 2018
 
 
 
 
 
 
 
 
(502,332
)
Cumulative effect adjustments
 
 
 
 
(81,973
)
 
(10,552
)
 
(92,525
)
Dividends to parent
 
 
 
 
(140,000
)
 
 
 
(140,000
)
Balance, March 31, 2018

 
5,554,059

 
1,412,583

 
(574,300
)
 
6,392,342

Net income for the three months ended June 30, 2018
 

 
 

 
81,495

 
 

 
81,495

Other comprehensive loss
 

 
 

 
 

 
(429,405
)
 
(429,405
)
Comprehensive loss for the three months ended June 30, 2018
 

 
 

 
 

 
 

 
(347,910
)
Balance, June 30, 2018
$

 
$
5,554,059

 
$
1,494,078

 
$
(1,003,705
)
 
$
6,044,432



See Notes to Consolidated Condensed Financial Statements
6


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 

 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
(Dollars In Thousands)
Cash flows from operating activities
 
 
 

Net income
$
246,395

 
$
155,607

Adjustments to reconcile net income to net cash used in operating activities:
 

 
 

Realized investment (gains) losses
42,468

 
50,527

Amortization of DAC and VOBA
64,183

 
110,498

Capitalization of DAC
(237,622
)
 
(223,686
)
Depreciation and amortization expense
37,428

 
33,785

Deferred income tax
(219,558
)
 
3,065

Accrued income tax
29,290

 
103,092

Interest credited to universal life and investment products
593,993

 
389,009

Policy fees assessed on universal life and investment products
(829,697
)
 
(748,474
)
Change in reinsurance receivables
206,585

 
111,242

Change in accrued investment income and other receivables
41,677

 
(34,198
)
Change in policy liabilities and other policyholders’ funds of traditional life and health products
(352,132
)
 
(246,397
)
Trading securities:
 

 
 

Maturities and principal reductions of investments
54,501

 
117,994

Sale of investments
254,573

 
118,370

Cost of investments acquired
(204,187
)
 
(206,741
)
Other net change in trading securities
(43,145
)
 
13,791

Amortization of premiums and accretion of discounts on investments and mortgage loans
147,485

 
150,402

Change in other liabilities
241,895

 
37,809

Other, net
(107,562
)
 
8,256

Net cash used in operating activities
$
(33,430
)
 
$
(56,049
)


 

See Notes to Consolidated Condensed Financial Statements
7


PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)


 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
(Dollars In Thousands)
Cash flows from investing activities
 

 
 

Maturities and principal reductions of investments, available-for-sale
$
923,494

 
$
592,514

Sale of investments, available-for-sale
2,033,618

 
1,417,304

Cost of investments acquired, available-for-sale
(3,246,486
)
 
(2,126,627
)
Change in investments, held-to-maturity
55,000

 
39,000

Mortgage loans:
 

 
 

New lendings
(476,310
)
 
(811,103
)
Repayments
518,663

 
494,729

Change in investment real estate, net
178

 
615

Change in policy loans, net
30,778

 
25,361

Change in other long-term investments, net
62,301

 
(225,809
)
Change in short-term investments, net
(362,608
)
 
(101,662
)
Net unsettled security transactions
(263,560
)
 
141,791

Purchase of property, equipment, and intangibles
(17,262
)
 
(6,956
)
Cash received from reinsurance transaction

 
20,669

Payment for business acquisition, net of cash acquired
(731,457
)
 

Net cash used in investing activities
$
(1,473,651
)
 
$
(540,174
)
Cash flows from financing activities
 

 
 

Borrowings under line of credit arrangement, debt, and subordinated debt
$
600,000

 
$
655,000

Principal payments on line of credit arrangement, debt, and subordinated debt
(9,325
)
 
(348,684
)
Issuance (repayment) of non-recourse funding obligations
(55,000
)
 
(77,000
)
Secured financing liabilities
(368,445
)
 
(913,210
)
Dividends to shareowner

 
(140,000
)
Capital contributions from parent
250,000

 

Deposits to universal life and investment contracts
3,309,880

 
2,959,133

Withdrawals from universal life and investment contracts
(2,149,967
)
 
(1,600,400
)
Other financing activities, net
(485
)
 
(194
)
Net cash provided by financing activities
$
1,576,658

 
$
534,645

Change in cash
69,577

 
(61,578
)
Cash at beginning of period
173,714

 
252,310

Cash at end of period
$
243,291

 
$
190,732


See Notes to Consolidated Condensed Financial Statements
8


PROTECTIVE LIFE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.    BASIS OF PRESENTATION
Basis of Presentation
On February 1, 2015, Protective Life Corporation (the “Company”) became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into the Company (the “Merger”). Prior to February 1, 2015, the Company’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, the Company remains as an SEC registrant within the United States. The Company is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. Founded in 1907, Protective Life Insurance Company (“PLICO”) is the Company’s largest operating subsidiary.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the interim periods presented herein. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the results for the interim periods presented. Operating results for the three and six months ended June 30, 2019, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019. The year-end consolidated condensed financial data included herein was derived from audited financial statements but this report does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.
Certain reclassifications have been made in previously reported financial statements and accompanying notes to make prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or shareowner’s equity.
Entities Included
The consolidated condensed financial statements in this report include the accounts of Protective Life Corporation and subsidiaries and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.
During the second quarter of 2019, the Company recorded an adjustment related to prior periods to correct an error pertaining to the deferred policy acquisition costs (“DAC”) tax reimbursements paid under reinsurance agreements the Company entered in previous years. The adjustment resulted in an $8.96 million increase to accounts and premiums receivable on the Company’s consolidated balance sheet, with a corresponding increase to income. The Company concluded that the adjustment was not quantitatively or qualitatively material to previously reported periods or the current interim period. As a result, this adjustment was recorded by the Company within the consolidated financial statements as of and for the period ended June 30, 2019.
2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There were no significant changes to the Company’s accounting policies during the six months ended June 30, 2019.
Accounting Pronouncements Recently Adopted
Accounting Standards Update (“ASU” or “Update”) No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change relates to the accounting model used by lessees. The Update requires all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability are measured at the present value of the minimum lease payments less any upfront payments or fees. The amendments in the Update became effective for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis. The Company recorded a cumulative effect adjustment as of the date of adoption, January 1, 2019, establishing a right of use asset and lease liability of $21.5 million on its consolidated condensed balance sheet reflected in the property and equipment and other liabilities line items, respectively.

ASU No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update require that premiums on callable debt securities be amortized to the first call date. This is a change from previous guidance, under which premiums are amortized to the maturity date

9


of the security. The amendments became effective for annual and interim periods beginning after December 15, 2018. The Company recorded a cumulative effect adjustment as of the adoption date, January 1, 2019, resulting in a $50.8 million reduction to retained earnings, net of income tax.

ASU No. 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this Update are designed to permit hedge accounting to be applied to a broader range of hedging strategies as well as to more closely align hedge accounting and risk management objectives. Specific provisions include requiring changes in the fair value of a hedging instrument be recorded in the same income statement line as the hedged item when it affects earnings. In addition, after a hedge has initially qualified as an effective hedge the Update permits the use of a qualitative hedge effectiveness test in subsequent periods. The amendments in this Update became effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. At adoption, January 1, 2019, this standard did not have an impact on the Company’s operations or financial results.
Accounting Pronouncements Not Yet Adopted
    
ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update, along with related amendments in ASU No. 2018-19 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. The Company has completed its scoping and gap analysis with respect to the implementation of the new standard. Based on the results of this analysis, the Company’s implementation efforts are primarily focused on the application of the CECL model to a) its portfolio of commercial mortgage loans and b) amounts recoverable from reinsurers. The Company is currently engaged in a project to implement new processes with respect to the measurement and recognition of the CECL allowance for these assets, along with the additional disclosures required by the Update. The impact of this standard on the Company’s financial results cannot yet be reasonably estimated.
            
ASU No. 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. The amendments in this Update are designed to make improvements to the existing recognition, measurement, presentation, and disclosure requirements for certain long-duration contracts issued by an insurance company. The new amendments require insurance entities to provide a more current measure of the liability for future policy benefits for traditional and limited-payment contracts by regularly refining the liability for actual past experience and updated future assumptions. This differs from current requirements where assumptions are locked-in at contract issuance for these contract types. In addition, the updated liability will be discounted using an upper-medium grade (low-credit-risk) fixed income instrument yield that reflects the characteristics of the liability which differs from currently used rates based on the invested assets supporting the liability. In addition, the amendments introduce new requirements to assess market-based insurance contract options and guarantees for Market Risk Benefits and measure them at fair value. This Update also requires insurance entities to amortize deferred acquisition costs on a constant-level basis over the expected life of the contract. Finally this Update requires new disclosures including liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in the measurement. The amendments in this Update are currently effective for annual and interim periods beginning after December 31, 2020 with early adoption permitted. However, in July 2019, the Financial Accountings Standards Board (the “FASB”) voted to expose an Accounting Standards Update for public comment which would extend the implementation deadline for public business entities by one year to periods beginning after December 15, 2021. The Company is currently reviewing its policies, processes, and applicable systems to determine the impact this standard will have on its operations and financial results. 
    
3.     SIGNIFICANT TRANSACTIONS
The Lincoln National Life Insurance Company    

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

Pursuant to the Liberty Reinsurance Agreements, Liberty ceded to PLICO and PLAIC the insurance policies related to the Life Business on a 100% coinsurance basis. The aggregate ceding commission for the reinsurance of the Life Business was $422.4 million, which is the purchase price and remains subject to adjustment.


10


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

The terms of the Liberty Reinsurance Agreements resulted in an acquisition of the Life Business by the Company in accordance with ASC Topic 805, Business Combinations.
  
The following table details the purchase consideration and final allocation of assets acquired and liabilities from the Life Business reinsurance transaction as of the transaction date.
 
 
Fair Value
as of
May 1, 2018
 
 
(Dollars In Thousands)
ASSETS
 
 
Fixed maturities
 
$
12,588,512

Mortgage loans
 
435,405

Policy loans
 
131,489

Total investments
 
13,155,406

Cash
 
35,179

Accrued investment income
 
152,030

Reinsurance receivables
 
272

Value of business acquired
 
379,717

Other assets
 
916

Total assets
 
13,723,520

LIABILITIES
 
 
Future policy benefits and claims
 
$
11,751,895

Unearned premiums
 

Total policy liabilities and accruals
 
11,751,895

Annuity account balances
 
1,864,141

Other policyholders’ funds
 
41,936

Other liabilities
 
65,548

Total liabilities
 
13,723,520

NET ASSETS ACQUIRED
 
$

    
The following unaudited pro forma condensed consolidated results of operations assumes that the aforementioned transactions of the Life Business were completed as of January 1, 2017. The unaudited pro forma condensed results of operations are presented solely for information purposes and are not necessarily indicative of the consolidated condensed results of operations that might have been achieved had the transaction been completed as of the date indicated:
 
 
Unaudited
 
 
For The
Three Months Ended
June 30, 2018
 
For The
Six Months Ended
June 30, 2018
 
 
(Dollars In Thousands)
Revenue
 
$
1,317,159

 
$
2,733,479

Net income
 
$
88,883

 
$
201,751

Great-West Life & Annuity Insurance Company

11



On January 23, 2019, PLICO entered into a Master Transaction Agreement (the “GWL&A Master Transaction Agreement”) with Great-West Life & Annuity Insurance Company (“GWL&A”), Great-West Life & Annuity Insurance Company of New York (“GWL&A of NY”), The Canada Life Assurance Company (“CLAC”) and The Great-West Life Assurance Company (“GWL” and, together with GWL&A, GWL&A of NY and CLAC, the “Sellers”), pursuant to which PLICO will acquire via reinsurance (the “Transaction”) substantially all of the Sellers’ individual life insurance and annuity business (the “Individual Life Business”). 
On June 3, 2019, PLICO and PLAIC completed the Transaction (the “Closing”). Pursuant to the GWL&A Master Transaction Agreement, previously reported in our Current Report on Form 8-K filed on January 25, 2019, PLICO and PLAIC entered into reinsurance agreements (the “GWL&A Reinsurance Agreements”) and related ancillary documents at the Closing. On the terms and subject to the conditions of the GWL&A Reinsurance Agreements, the Sellers ceded to PLICO and PLAIC, effective as of the closing of the Transaction, substantially all of the insurance policies related to the Individual Life Business on a 100% indemnity basis net of reinsurance recoveries. The aggregate ceding commission for the reinsurance of the Individual Life Business paid at the Closing was $767.1 million, which amount is subject to adjustment in accordance with the GWL&A Master Transaction Agreement. All policies issued in states other than New York were ceded to PLICO under reinsurance agreements between the applicable Seller and the Company, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between GWL&A of NY and PLAIC. The aggregate statutory reserves of the Sellers ceded to PLICO and PLAIC as of the Closing were approximately $20.4 billion, which amount was based on initial estimates and is subject to adjustment following the Closing. To support its obligations under the GWL&A Reinsurance Agreements, PLICO established trust accounts for the benefit of GWL&A, CLAC and GWL, and PLAIC established a trust account for the benefit of GWL&A of NY. The Sellers retained a block of participating policies, which will be administered by the Company.
As of the purchase date, the Company has recorded an estimate in the amount of $51.9 million related to contingent consideration. The final ceding commission is subject to adjustment based on these amounts. These amounts are accrued within other liabilities in the Company’s consolidated condensed balance sheet.

The contingent consideration is comprised of a holdback provision and a post-closing sales adjustment. The holdback amount is related to the performance of certain blocks of business for a specified period of time after the close of the transaction.  The range of amounts payable to Great West under this provision is $0 - $40 million. The Company’s best estimate as of June 30, 2019 was $40 million.
    
Great West is also entitled to a payment for certain post-closing sales occurring between June 1, 2019 and December 31, 2019. At this time, a range for this payment cannot be estimated and the Company established a liability of $11.9 million on the transaction date, which represents the Company's best estimate of the present value of future payments as of the transaction date.
    
The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of the parties, and certain customary covenants regarding the Sellers and the Individual Life Business, and provide for indemnification, among other things, for breaches of those representations, warranties, and covenants. The terms of the GWL&A Reinsurance Agreements resulted in an acquisition of the Individual Life Business by the Company in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.
    
The following table details the preliminary allocation of assets acquired and liabilities assumed from the Individual Life Business reinsurance transaction as of the transaction date. The Company has not completed the process of determining the fair value of assets acquired and liabilities assumed, but will do so in the twelve month measurement period subsequent to the transaction date. These estimates are provisional subject to adjustment. Any adjustments to these fair value estimates will be reflected, retroactively, as of the date of the acquisition, and may result in adjustments to the value of business acquired.

12


 
 
Fair Value
as of
June 1, 2019
 
 
(Dollars In Thousands)
ASSETS
 
 
Fixed maturities
 
$
8,697,533

Mortgage loans
 
1,386,228

Policy loans
 
44,002

Other long-term investments
 
1,579

Total investments
 
10,129,342

Cash
 
35,607

Accrued investment income
 
101,306

Accounts and premiums receivable
 
62

Premium due and deferred
 
1,657

Value of business acquired
 
491,493

Other intangibles
 
28,600

Other assets
 
1,537,848

Assets related to separate accounts
 
9,583,217

Total assets
 
21,909,132

LIABILITIES
 
 
Future policy benefits and claims
 
$
10,993,716

Annuity account balances
 
253,748

Other policyholders’ funds
 
220,117

Other liabilities
 
39,370

Liabilities related to separate accounts
 
9,583,217

Total liabilities
 
21,090,168

NET ASSETS ACQUIRED
 
$
818,964


Assets related to separate accounts and liabilities related to separate accounts represent amounts receivable and payable for variable annuity and variable universal life products reinsured on a modified co-insurance basis.
    
The following unaudited pro forma condensed consolidated results of operations assumes that the aforementioned transactions of the Individual Life Business were completed as of January 1, 2018. The unaudited pro forma condensed results of operations are presented solely for information purposes and are not necessarily indicative of the consolidated condensed results of operations that might have been achieved had the transaction been completed as of the date indicated:
 
 
Unaudited
 
Unaudited
 
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Dollars In Thousands)
Revenue
 
$
1,548,668

 
$
1,461,832

 
$
3,203,698

 
$
2,828,369

Net income
 
$
124,161

 
$
122,977

 
$
263,490

 
$
182,034

The amount of revenue and income before income tax of the Individual Life Business since the transaction date, June 1, 2019, included in the consolidated statements of income for the six months ended June 30, 2019, amounted to $77.7 million and $7.7 million. The Company incurred approximately $12.2 million of non-recurring transaction costs for the six months ended June 30, 2019.
Intangible assets recognized by the Company included the following (excluding goodwill):

13


 
 
Estimated Fair Value on Acquisition Date
 
Estimated Useful Life
 
 
(Dollars In Thousands)
 
(In Years)
Distribution relationships
 
$
15,000

 
18
Technology
 
13,600

 
10
  Total intangible assets
 
$
28,600

 
 
Amortizable intangible assets will be amortized straight line over their assigned useful lives. The following is a schedule of future estimated aggregate amortization expense:
Year
 
Amount
 
 
(Dollars In Thousands)
Remainder of 2019
 
$
1,279

2020
 
2,193

2021
 
2,193

2022
 
2,193

2023
 
2,193


Based on the balance recorded as of June 1, 2019, the expected amortization of VOBA for the next five years is as follows:

Year
 
Amount
 
 
(Dollars In Thousands)
Remainder of 2019
 
$
(4,966
)
2020
 
(12,292
)
2021
 
(6,807
)
2022
 
(1,010
)
2023
 
3,259


VOBA is calculated at a product level and can either be positive or negative depending on the underlying fair values of the associated product lines. VOBA is amortized in accordance with ASC 944-805-35-1, which requires that the amortization should be on a basis consistent with the related reinsurance liability. As such, the net amortization related to a specific transaction in a given year can be either positive or negative as amortization patterns differ between the product lines.

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

14


If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.

Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.
Summarized financial information for the Closed Block as of June 30, 2019, and December 31, 2018, is as follows:
 
As of
 
June 30, 2019
 
December 31, 2018
 
(Dollars In Thousands)
Closed block liabilities
 

 
 

Future policy benefits, policyholders’ account balances and other policyholder liabilities
$
5,611,917

 
$
5,679,732

Policyholder dividend obligation
173,147

 

Other liabilities
11,043

 
22,505

Total closed block liabilities
5,796,107


5,702,237

Closed block assets
 

 
 

Fixed maturities, available-for-sale, at fair value
$
4,583,161

 
$
4,257,437

Mortgage loans on real estate
74,290

 
75,838

Policy loans
658,971

 
672,213

Cash
55,960

 
116,225

Other assets
107,306

 
136,388

Total closed block assets
5,479,688

 
5,258,101

Excess of reported closed block liabilities over closed block assets
316,419

 
444,136

Portion of above representing accumulated other comprehensive income:
 

 
 

Net unrealized investment gains (losses) net of policyholder dividend obligation: $47,972 and $(141,128); and net of income tax: $(10,074) and $61,676

 
(120,528
)
Future earnings to be recognized from closed block assets and closed block liabilities
$
316,419

 
$
323,608

Reconciliation of the policyholder dividend obligation is as follows:
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
(Dollars In Thousands)
Policyholder dividend obligation, beginning of period
$

 
$
160,712

Applicable to net revenue (losses)
(15,953
)
 
(19,536
)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation
189,100

 
(141,176
)
Policyholder dividend obligation, end of period
$
173,147

 
$


15


Closed Block revenues and expenses were as follows:
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Revenues
 

 
 
 
 
 
 

Premiums and other income
$
40,105

 
$
42,465

 
$
77,549

 
$
82,077

Net investment income
51,663

 
50,872

 
102,791

 
101,415

Net investment gains (losses)
43

 
263

 
(411
)
 
26

Total revenues
91,811

 
93,600

 
179,929

 
183,518

Benefits and other deductions
 

 
 
 
 

 
 

Benefits and settlement expenses
87,213

 
87,940

 
165,879

 
167,892

Other operating expenses
247

 
337

 
606

 
20

Total benefits and other deductions
87,460

 
88,277

 
166,485

 
167,912

Net revenues before income taxes
4,351

 
5,323

 
13,444

 
15,606

Income tax expense
913

 
1,118

 
2,823

 
3,277

Net revenues
$
3,438

 
$
4,205

 
$
10,621

 
$
12,329

5.     INVESTMENT OPERATIONS
Net realized gains (losses) are summarized as follows:
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Fixed maturities
$
1,098

 
$
5,539

 
$
6,215

 
$
8,322

Equity gains and losses
7,696

 
(1,044
)
 
38,413

 
(9,830
)
Modco trading portfolio
89,571

 
(52,817
)
 
184,473

 
(137,525
)
Other investments
1,137

 
(1,280
)
 
(9
)
 
1,832

Realized gains (losses) - all other investments
99,502


(49,602
)

229,092


(137,201
)
Realized gains (losses) - derivatives(1)
(148,049
)
 
12,265

 
(267,720
)
 
90,324

Realized investment gains (losses)
$
(48,547
)
 
$
(37,337
)

$
(38,628
)

$
(46,877
)
 
 
 
 
 
 
 
 
Net impairments losses recognized in earnings
$
(698
)
 
$
(5
)
 
$
(3,840
)
 
$
(3,650
)
 
 
 
 
 
 
 
 
(1) See Note 7, Derivative Financial Instruments
 
 
 
 
 
 
 

16


Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities and short-term investments) are as follows:
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Gross realized gains
$
6,812

 
$
10,137

 
$
14,682

 
$
18,187

Gross realized losses:
 
 
 
 
 
 
 
Impairment losses
$
(698
)
 
$
(5
)
 
$
(3,840
)
 
$
(3,650
)
Other realized losses
$
(5,714
)
 
$
(4,598
)
 
$
(8,467
)
 
$
(9,865
)
The chart below summarizes the fair value (proceeds) and the gains (losses) realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Securities in an unrealized gain position:
 
 
 
 
 
 
 
Fair value (proceeds)
$
491,121

 
$
466,153

 
$
1,140,012

 
$
608,286

Gains realized
$
6,812

 
$
10,137

 
$
14,682

 
$
18,187

 
 
 
 
 
 
 
 
Securities in an unrealized loss position(1):
 
 
 
 
 
 
 
Fair value (proceeds)
$
160,125

 
$
201,191

 
$
338,129

 
$
258,175

Losses realized
$
(5,714
)
 
$
(4,598
)
 
$
(8,467
)
 
$
(9,865
)
 
 
 
 
 
 
 
 
(1) The Company made the decision to exit these holdings in conjunction with its overall asset/liability management process.
The chart below summarizes the realized gains (losses) on equity securities sold during the period and equity securities still held at the reporting date.
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
 
 
 
 
Net gains (losses) recognized during the period on equity securities
$
7,696

 
$
(1,044
)
 
$
38,413

 
$
(9,830
)
Less: net gains (losses) recognized on equity securities sold during the period
$
193

 
$
(680
)
 
$
253

 
$
(2,381
)
Gains (losses) recognized during the period on equity securities still held
$
7,503

 
$
(364
)
 
$
38,160

 
$
(7,449
)
    


17


The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:
As of June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI(1)
 
 
(Dollars In Thousands)
 
 
Fixed maturities:
 
 

 
 

 
 

 
 

 
 

Residential mortgage-backed securities
 
$
4,482,547

 
$
132,602

 
$
(8,901
)
 
$
4,606,248

 


Commercial mortgage-backed securities
 
2,648,121

 
51,634

 
(3,894
)
 
2,695,861

 


Other asset-backed securities
 
1,848,061

 
22,063

 
(8,526
)
 
1,861,598

 
(3
)
U.S. government-related securities
 
1,304,382

 
5,179

 
(9,004
)
 
1,300,557

 


Other government-related securities
 
555,767

 
31,550

 
(4,168
)
 
583,149

 


States, municipals, and political subdivisions
 
4,652,897

 
183,920

 
(5,851
)
 
4,830,966

 
1,193

Corporate securities
 
45,267,764

 
1,549,526

 
(572,173
)
 
46,245,117

 
764

Redeemable preferred stocks
 
87,459

 
1,211

 
(3,758
)
 
84,912

 


 
 
60,846,998

 
1,977,685

 
(616,275
)
 
62,208,408

 
1,954

Short-term investments
 
1,138,931

 

 

 
1,138,931

 

 
 
$
61,985,929

 
$
1,977,685

 
$
(616,275
)
 
$
63,347,339

 
$
1,954

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Total OTTI
Recognized
in OCI(1)
 
 
(Dollars In Thousands)
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
 
$
3,650,539

 
$
23,247

 
$
(62,196
)
 
$
3,611,590

 
$
(18
)
Commercial mortgage-backed securities
 
2,349,274

 
3,911

 
(58,101
)
 
2,295,084

 

Other asset-backed securities
 
1,410,059

 
17,232

 
(35,398
)
 
1,391,893

 

U.S. government-related securities
 
1,683,432

 
1,795

 
(45,722
)
 
1,639,505

 

Other government-related securities
 
545,522

 
4,292

 
(33,850
)
 
515,964

 

States, municipals, and political subdivisions
 
3,682,037

 
25,706

 
(118,902
)
 
3,588,841

 
876

Corporate securities
 
38,634,888

 
112,992

 
(2,385,052
)
 
36,362,828

 
(29,685
)
Redeemable preferred stocks
 
94,362

 

 
(11,560
)
 
82,802

 

 
 
52,050,113

 
189,175

 
(2,750,781
)
 
49,488,507

 
(28,827
)
Short-term investments
 
776,357

 

 

 
776,357

 

 
 
$
52,826,470

 
$
189,175

 
$
(2,750,781
)
 
$
50,264,864

 
$
(28,827
)
 
 
 
 
 
 
 
 
 
 
 
(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.

18


     The Company holds certain investments pursuant to certain modified coinsurance (“Modco”) arrangements. The fixed maturities held as part of these arrangements are classified as trading securities. The fair value of the investments held pursuant to these Modco arrangements are as follows:    
 
 
As of
 
 
June 30, 2019
 
December 31, 2018
 
 
(Dollars In Thousands)
Fixed maturities:
 
 

 
 

Residential mortgage-backed securities
 
$
203,455

 
$
241,836

Commercial mortgage-backed securities
 
204,445

 
188,925

Other asset-backed securities
 
147,997

 
159,907

U.S. government-related securities
 
51,080

 
59,794

Other government-related securities
 
24,342

 
44,207

States, municipals, and political subdivisions
 
293,560

 
286,413

Corporate securities
 
1,565,561

 
1,423,833

Redeemable preferred stocks
 
11,808

 
11,277

 
 
2,502,248

 
2,416,192

Equity securities
 
8,488

 
9,892

Short-term investments
 
81,909

 
30,926

 
 
$
2,592,645

 
$
2,457,010

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of June 30, 2019, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.
 
Available-for-Sale
 
Held-to-Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars In Thousands)
Due in one year or less
$
1,440,860

 
$
1,438,699

 
$

 
$

Due after one year through five years
10,103,874

 
10,229,353

 

 

Due after five years through ten years
13,210,907

 
13,623,029

 

 

Due after ten years
36,091,357

 
36,917,327

 
2,576,216

 
2,640,827

 
$
60,846,998

 
$
62,208,408

 
$
2,576,216

 
$
2,640,827

The chart below summarizes the Company’s other-than-temporary impairments of investments. All of the impairments were related to fixed maturities.
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
Fixed
Maturities
 
Fixed
Maturities
 
Fixed Maturities
 
Fixed Maturities
 
(Dollars In Thousands)
Other-than-temporary impairments
$
(198
)
 
$
(10
)
 
$
(1,493
)
 
$
(701
)
Non-credit impairment losses recorded in other comprehensive income (loss)
(500
)
 
5

 
(2,347
)
 
(2,949
)
Net impairment losses recognized in earnings
$
(698
)
 
$
(5
)
 
$
(3,840
)
 
$
(3,650
)
There were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell for the three and six months ended June 30, 2019 and 2018.
     



19


The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):
 
For The
Three Months Ended
June 30,
 
For The
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars In Thousands)
Beginning balance
$
27,215

 
$
2,235

 
$
24,868

 
$
3,268

Additions for newly impaired securities

 

 
751

 

Additions for previously impaired securities
660

 
2

 
3,007

 
2

Reductions for previously impaired securities due to a change in expected cash flows
(8,202
)
 

 
(8,834
)
 

Reductions for previously impaired securities that were sold in the current period
(7,175
)
 
(2,235
)
 
(7,294
)
 
(3,268
)
Ending balance
$
12,498

 
$
2

 
$
12,498

 
$
2

The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2019:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars In Thousands)
Residential mortgage-backed securities
$
118,932

 
$
(427
)
 
$
576,350

 
$
(8,474
)
 
$
695,282

 
$
(8,901
)
Commercial mortgage-backed securities
3,609

 
(6
)
 
574,967

 
(3,888
)
 
578,576

 
(3,894
)
Other asset-backed securities
409,753

 
(5,931
)
 
134,156

 
(2,595
)
 
543,909

 
(8,526
)
U.S. government-related securities
32,421

 
(314
)
 
902,249

 
(8,690
)
 
934,670

 
(9,004
)
Other government-related securities
5,509

 
(198
)
 
93,790

 
(3,970
)
 
99,299

 
(4,168
)
States, municipals, and political subdivisions
13,242

 
(13
)
 
145,668

 
(5,838
)
 
158,910

 
(5,851
)
Corporate securities
1,244,536

 
(52,639
)
 
10,318,328

 
(519,534
)
 
11,562,864

 
(572,173
)
Redeemable preferred stocks

 

 
17,180

 
(3,758
)
 
17,180

 
(3,758
)
 
$
1,828,002

 
$
(59,528
)
 
$
12,762,688

 
$
(556,747
)
 
$
14,590,690

 
$
(616,275
)
Residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) had gross unrealized losses greater than twelve months of $8.5 million and $3.9 million as of June 30, 2019. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities had a gross unrealized loss greater than twelve months of $2.6 million as of June 30, 2019. This category predominately includes student loan backed auction rate securities (“ARS”) whose underlying collateral is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The U.S. government-related securities and the other government-related securities had gross unrealized losses greater than twelve months of $8.7 million and $4.0 million, respectively, as of June 30, 2019. These declines were related to changes in interest rates.
The states, municipals, and political subdivisions category had gross unrealized losses greater than twelve months of $5.8 million as of June 30, 2019. The aggregate decline in fair value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.
The corporate securities category had gross unrealized losses greater than twelve months of $519.5 million as of June 30, 2019. The aggregate decline in fair value of these securities was deemed temporary due to positive factors supporting the

20


recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, interest rate movement, and other pertinent information.
     As of June 30, 2019, the Company had a total of 1,322 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2018:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(Dollars In Thousands)
Residential mortgage-backed securities
$
1,485,009

 
$
(31,302
)
 
$
804,364

 
$
(30,894
)
 
$
2,289,373

 
$
(62,196
)
Commercial mortgage-backed securities
422,438

 
(7,442
)
 
1,429,384

 
(50,659
)
 
1,851,822

 
(58,101
)
Other asset-backed securities
687,271

 
(30,963
)
 
148,871

 
(4,435
)
 
836,142

 
(35,398
)
U.S. government-related securities
130,290

 
(4,668
)
 
1,085,654

 
(41,054
)
 
1,215,944

 
(45,722
)
Other government-related securities
226,201

 
(15,267
)
 
131,569

 
(18,583
)
 
357,770

 
(33,850
)
States, municipals, and political subdivisions
1,004,262

 
(27,180
)
 
1,129,152

 
(91,722
)
 
2,133,414

 
(118,902
)
Corporate securities
18,326,331

 
(970,553
)
 
12,859,732

 
(1,414,499
)
 
31,186,063

 
(2,385,052
)
Redeemable preferred stocks
41,147

 
(4,467
)
 
41,655

 
(7,093
)
 
82,802

 
(11,560
)
 
$
22,322,949

 
$
(1,091,842
)
 
$
17,630,381

 
$
(1,658,939
)
 
$
39,953,330

 
$
(2,750,781
)
     As of June 30, 2019, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.6 billion and had an amortized cost of $1.7 billion. In addition, included in the Company’s trading portfolio, the Company held $119.9 million of securities which were rated below investment grade. Approximately $275.6 million of the available-for-sale and trading securities that were below investment grade were not publicly traded.
The change in unrealized gains (losses), net of income tax, on fixed maturities, classified as available-for-sale is summarized as follows: