Company Quick10K Filing
Quick10K
Reinsurance Group of America
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$146.40 63 $9,160
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 2019-06-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-13 Officers
8-K 2019-06-06 Regulation FD, Exhibits
8-K 2019-05-22 Shareholder Vote
8-K 2019-05-15 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-05-08 Other Events, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-03-14 Regulation FD, Exhibits
8-K 2019-01-28 Earnings, Officers, Regulation FD, Exhibits
8-K 2019-01-28 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-08-21 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-07 Regulation FD, Exhibits
8-K 2018-05-23 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-17 Regulation FD, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-04-20 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-02-28 Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Exhibits
8-K 2018-01-12 Officers
CJ C&J Energy Services 918
ATNX Athenex 873
GPAQ Gordon Pointe Acquisition 160
NLNK Newlink Genetics 65
XTLB Xtl Biopharmaceuticals 12
IZEA IZEA 8
RGSE Real Goods Solar 0
RITO Rito Group 0
HYAC Haymaker Acquisition 0
LGTG Lightning Gaming 0
RGA 2019-03-31
Part I - Financial Information
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 - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 ex1012019q110-qperformance.htm
EX-10.2 ex1022019q110-qstockapprec.htm
EX-10.3 ex1032019q110-qnonxqualifi.htm
EX-31.1 ex3112019q110-q.htm
EX-31.2 ex3122019q110-q.htm
EX-32.1 ex3212019q110-q.htm
EX-32.2 ex3222019q110-q.htm

Reinsurance Group of America Earnings 2019-03-31

RGA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q110-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
 
 
 
 
(Mark One)
  
 
  
 
 x
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
  
 
  
OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
 
  
For the quarterly period ended March 31, 2019
  
 
 
  
 
OR
 
  
 
 ¨
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
  
 
  
OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
 
  
 
Commission File Number 1-11848
  
 
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of Registrant as specified in its charter)
MISSOURI                        
  
43-1627032
(State or other jurisdiction                  
  
(IRS employer
of incorporation or organization)  
  
identification number)
16600 Swingley Ridge Road
Chesterfield, Missouri 63017
(Address of principal executive offices)
(636) 736-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x     Accelerated filer o     Non-accelerated filer o     
Smaller reporting company o     Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x



Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01
 
RGA
 
New York Stock Exchange
6.20% Fixed-To-Floating Rate Subordinated Debentures due 2042
 
RZA
 
New York Stock Exchange
5.75% Fixed-To-Floating Rate Subordinated Debentures due 2056
 
RZB
 
New York Stock Exchange
As of April 30, 2019, 62,560,064 shares of the registrant’s common stock were outstanding.



REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
 
Item
  
 
  
Page
 
 
 
 
  
PART I – FINANCIAL INFORMATION
  
 
 
 
 
1
  
  
 
 
  
  
 
  
  
 
  
  
 
 
 
 
  
  
 
  
  
 
 
 
 
 
 
 
 
     3. Equity
 
 
 
     4. Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     9. Income Tax
 
 
 
 
 
 
     11. Reinsurance
 
 
 
 
 
 
 
2
  
  
3
  
  
4
  
  
 
 
 
 
  
PART II – OTHER INFORMATION
  
 
 
 
 
1
  
  
1A
  
  
2
  
  
6
  
  
 
  
  
 
  
  

2


PART I - FINANCIAL INFORMATION


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
 
 
March 31,
2019
 
December 31,
2018
 
Assets
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost $39,188,627 and $38,882,168)
 
$
41,738,443

 
$
39,992,346

Equity securities, at fair value (cost $111,785 and $107,721)
 
89,865

 
82,197

Mortgage loans on real estate (net of allowances of $11,218 and $11,286)
 
5,117,545

 
4,966,298

Policy loans
 
1,312,349

 
1,344,980

Funds withheld at interest
 
5,729,838

 
5,761,471

Short-term investments
 
119,215

 
142,598

Other invested assets
 
2,006,870

 
1,915,297

Total investments
 
56,114,125

 
54,205,187

Cash and cash equivalents
 
2,020,396

 
1,889,733

Accrued investment income
 
442,956

 
427,893

Premiums receivable and other reinsurance balances
 
2,857,673

 
3,017,868

Reinsurance ceded receivables
 
814,806

 
757,572

Deferred policy acquisition costs
 
3,404,593

 
3,397,770

Other assets
 
1,037,932

 
839,222

Total assets
 
$
66,692,481

 
$
64,535,245

Liabilities and Stockholders’ Equity
 
 
 
 
Future policy benefits
 
$
25,976,847

 
$
25,285,400

Interest-sensitive contract liabilities
 
17,750,197

 
18,004,526

Other policy claims and benefits
 
5,911,554

 
5,642,755

Other reinsurance balances
 
517,096

 
487,177

Deferred income taxes
 
2,144,680

 
1,798,800

Other liabilities
 
1,278,108

 
1,396,200

Long-term debt
 
2,787,717

 
2,787,873

Collateral finance and securitization notes
 
656,174

 
681,961

Total liabilities
 
57,022,373

 
56,084,692

Commitments and contingent liabilities (See Note 8)
 


 


Stockholders’ Equity:
 
 
 
 
Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding
 

 

Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at March 31, 2019 and December 31, 2018
 
791

 
791

Additional paid-in-capital
 
1,906,291

 
1,898,652

Retained earnings
 
7,412,081

 
7,284,949

Treasury stock, at cost - 16,593,411 and 16,323,390 shares
 
(1,415,020
)
 
(1,370,602
)
Accumulated other comprehensive income
 
1,765,965

 
636,763

Total stockholders’ equity
 
9,670,108

 
8,450,553

Total liabilities and stockholders’ equity
 
$
66,692,481

 
$
64,535,245

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

3


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2019
 
2018
Revenues:
 
 
Net premiums
 
$
2,737,813

 
$
2,582,551

Investment income, net of related expenses
 
579,877

 
516,329

Investment related gains (losses), net:
 
 
 
 
Other-than-temporary impairments on fixed maturity securities
 
(9,453
)
 

Other investment related gains (losses), net
 
17,241

 
(470
)
Total investment related gains (losses), net
 
7,788

 
(470
)
Other revenues
 
94,553

 
75,297

Total revenues
 
3,420,031

 
3,173,707

Benefits and Expenses:
 
 
 
 
Claims and other policy benefits
 
2,508,324

 
2,362,101

Interest credited
 
133,189

 
80,449

Policy acquisition costs and other insurance expenses
 
311,881

 
356,902

Other operating expenses
 
201,483

 
191,274

Interest expense
 
40,173

 
37,454

Collateral finance and securitization expense
 
8,417

 
7,602

Total benefits and expenses
 
3,203,467

 
3,035,782

 Income before income taxes
 
216,564

 
137,925

Provision for income taxes
 
47,057

 
37,695

Net income
 
$
169,507

 
$
100,230

Earnings per share:
 
 
 
 
Basic earnings per share
 
$
2.70

 
$
1.55

Diluted earnings per share
 
$
2.65

 
$
1.52

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

4


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2019
 
2018
Comprehensive income (loss)
 
 
Net income
 
$
169,507

 
$
100,230

Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustments
 
21,386

 
(1,160
)
Net unrealized investment gains (losses)
 
1,108,211

 
(633,604
)
Defined benefit pension and postretirement plan adjustments
 
(395
)
 
(471
)
Total other comprehensive income (loss), net of tax
 
1,129,202

 
(635,235
)
Total comprehensive income (loss)
 
$
1,298,709

 
$
(535,005
)
See accompanying notes to condensed consolidated financial statements (unaudited).

5


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands except per share amounts)
(Unaudited)
 

 
Common
Stock
 
Additional Paid In Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated Other Comprehensive Income
 
Total
Balance, December 31, 2018
$
791

 
$
1,898,652

 
$
7,284,949

 
$
(1,370,602
)
 
$
636,763

 
$
8,450,553

Adoption of new accounting standards
 
 
 
 
(87
)
 
 
 
 
 
(87
)
Net income
 
 
 
 
169,507

 
 
 
 
 
169,507

Total other comprehensive income (loss)
 
 
 
 
 
 
 
 
1,129,202

 
1,129,202

Dividends to stockholders, $0.60 per share
 
 
 
 
(37,707
)
 
 
 
 
 
(37,707
)
Purchase of treasury stock
 
 
 
 
 
 
(49,052
)
 
 
 
(49,052
)
Reissuance of treasury stock
 
 
7,639

 
(4,581
)
 
4,634

 
 
 
7,692

Balance, March 31, 2019
$
791

 
$
1,906,291

 
$
7,412,081

 
$
(1,415,020
)
 
$
1,765,965

 
$
9,670,108


 
Common
Stock
 
Additional Paid In Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated Other Comprehensive Income
 
Total
Balance, December 31, 2017
$
791

 
$
1,870,906

 
$
6,736,265

 
$
(1,102,058
)
 
$
2,063,631

 
$
9,569,535

Adoption of new accounting standards
 
 
 
 
(2,020
)
 
 
 
 
 
(2,020
)
Net income
 
 
 
 
100,230

 
 
 
 
 
100,230

Total other comprehensive income (loss)
 
 
 
 
 
 
 
 
(635,235
)
 
(635,235
)
Dividends to stockholders, $0.50 per share
 
 
 
 
(32,241
)
 
 
 
 
 
(32,241
)
Purchase of treasury stock
 
 
 
 
 
 
(2,616
)
 
 
 
(2,616
)
Reissuance of treasury stock
 
 
9,446

 
(4,689
)
 
5,851

 
 
 
10,608

Balance, March 31, 2018
$
791

 
$
1,880,352

 
$
6,797,545

 
$
(1,098,823
)
 
$
1,428,396

 
$
9,008,261


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



6


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
Three months ended March 31,
 
 
2019
 
2018
 
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
169,507

 
$
100,230

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Change in operating assets and liabilities:
 
 
 
 
Accrued investment income
 
(10,688
)
 
(10,484
)
Premiums receivable and other reinsurance balances
 
163,965

 
(275,354
)
Deferred policy acquisition costs
 
(17,784
)
 
13,007

Reinsurance ceded receivable balances
 
(65,053
)
 
(21,872
)
Future policy benefits, other policy claims and benefits, and other reinsurance balances
 
119,620

 
466,983

Deferred income taxes
 
39,490

 
33,715

Other assets and other liabilities, net
 
(107,266
)
 
(41,385
)
Amortization of net investment premiums, discounts and other
 
(16,659
)
 
(31,032
)
Depreciation and amortization expense
 
11,017

 
10,294

Investment related (gains) losses, net
 
(7,788
)
 
470

Other, net
 
62,260

 
(20,823
)
Net cash provided by operating activities
 
340,621

 
223,749

Cash Flows from Investing Activities:
 
 
 
 
Sales of fixed maturity securities available-for-sale
 
3,139,794

 
1,898,722

Maturities of fixed maturity securities available-for-sale
 
195,625

 
195,549

Sales of equity securities
 
83

 
29,683

Principal payments on mortgage loans on real estate
 
93,393

 
102,002

Principal payments on policy loans
 
33,271

 
10,694

Purchases of fixed maturity securities available-for-sale
 
(3,010,397
)
 
(1,969,899
)
Purchases of equity securities
 
(3,173
)
 
(2,173
)
Cash invested in mortgage loans on real estate
 
(240,411
)
 
(141,131
)
Cash invested in funds withheld at interest, net
 
(36,995
)
 
19,638

Purchase of businesses, net of cash acquired of $27,374 and $1,733
 
3,561

 
(24,864
)
Purchases of property and equipment
 
(10,440
)
 
(5,292
)
Change in short-term investments
 
25,422

 
(13,026
)
Change in other invested assets
 
(97,012
)
 
(23,353
)
Net cash provided by investing activities
 
92,721

 
76,550

Cash Flows from Financing Activities:
 
 
 
 
Dividends to stockholders
 
(37,707
)
 
(32,241
)
Repayment of collateral finance and securitization notes
 
(29,064
)
 
(27,104
)
Principal payments of long-term debt
 
(690
)
 
(662
)
Purchases of treasury stock
 
(49,052
)
 
(2,616
)
Exercise of stock options, net
 
1,755

 
1,163

Change in cash collateral for derivative positions and other arrangements
 
(44,628
)
 
19,537

Deposits on universal life and other investment type policies and contracts
 
44,926

 
83,004

Withdrawals on universal life and other investment type policies and contracts
 
(195,360
)
 
(156,486
)
Net cash used in financing activities
 
(309,820
)
 
(115,405
)
Effect of exchange rate changes on cash
 
7,141

 
21,989

Change in cash and cash equivalents
 
130,663

 
206,883

Cash and cash equivalents, beginning of period
 
1,889,733

 
1,303,524

Cash and cash equivalents, end of period
 
$
2,020,396

 
$
1,510,407

Supplemental disclosures of cash flow information:
 
 
 
 
Interest paid
 
$
40,193

 
$
39,284

Income taxes paid, net of refunds
 
$
3,076

 
$
6,356

Non-cash investing activities:
 
 
 
 
Transfer of invested assets
 
$
720,983

 
$
605,085

Right-of-use assets acquired through operating leases
 
$
1,311

 
$

Purchase of businesses:
 
 
 
 
Assets acquired, excluding cash acquired
 
$
8,303

 
$
59,184

Liabilities assumed
 
(11,864
)
 
(34,320
)
Net cash (received) paid on purchase
 
$
(3,561
)
 
$
24,864

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

7


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.
Business and Basis of Presentation
Business
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) is engaged in providing traditional reinsurance, which includes individual and group life and health, disability, and critical illness reinsurance. The Company also provides financial solutions, which includes longevity reinsurance, financial reinsurance, asset-intensive products, primarily annuities and stable value products.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K filed with the SEC on February 27, 2019 (the “2018 Annual Report”).
In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Consolidation
These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries and all intercompany accounts and transactions have been eliminated. Entities in which the Company has significant influence over the operating and financing decisions but are not required to be consolidated are reported under the equity method of accounting.
2.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):
 
Three months ended March 31,
 
2019
 
2018
Earnings:
 
 
 
Net income (numerator for basic and diluted calculations)
$
169,507

 
$
100,230

Shares:
 
 
 
Weighted average outstanding shares (denominator for basic calculation)
62,758

 
64,490

Equivalent shares from outstanding stock options
1,269

 
1,382

Denominator for diluted calculation
64,027

 
65,872

Earnings per share:
 
 
 
Basic
$
2.70

 
$
1.55

Diluted
$
2.65

 
$
1.52

The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. The following table presents approximate amounts of stock options and performance contingent shares excluded from the calculation of common equivalent shares (in thousands):
 
Three months ended March 31,
 
2019
 
2018
Excluded from common equivalent shares:
 
 
 
Stock options
544

 
276

Performance contingent shares
109

 
212


8


3.
Equity
Common stock
The changes in number of common stock shares, issued, held in treasury and outstanding are as follows for the periods indicated:
 
 
Issued
 
Held In Treasury
 
Outstanding
Balance, December 31, 2018
 
79,137,758

 
16,323,390

 
62,814,368

Common stock acquired
 

 
344,237

 
(344,237
)
Stock-based compensation (1)
 

 
(74,216
)
 
74,216

Balance, March 31, 2019
 
79,137,758

 
16,593,411

 
62,544,347

 
 
Issued
 
Held In Treasury
 
Outstanding
Balance, December 31, 2017
 
79,137,758

 
14,685,663

 
64,452,095

Stock-based compensation (1)
 

 
(60,678
)
 
60,678

Balance, March 31, 2018
 
79,137,758

 
14,624,985

 
64,512,773

(1)
Represents net shares issued from treasury pursuant to the Company’s equity-based compensation programs.
Common Stock Held in Treasury
Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of common stock held in treasury are credited to additional paid-in capital. Losses resulting from the reissuance of common stock held in treasury are charged first to additional paid-in capital to the extent the Company has previously recorded gains on treasury share transactions, then to retained earnings.
On January 24, 2019, RGA’s board of directors authorized a share repurchase program for up to $400.0 million of RGA’s outstanding common stock. The authorization was effective immediately and does not have an expiration date. During the three months ended March 31, 2019, RGA repurchased 0.3 million shares of common stock under this program for $50.0 million.
Accumulated Other Comprehensive Income (Loss)
The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the three months ended March 31, 2019 and 2018 are as follows (dollars in thousands):
 
 
Accumulated Other Comprehensive Income (Loss), Net of Income Tax
 
 
Accumulated
Currency
Translation
Adjustments
 
Unrealized
Appreciation
(Depreciation)
of Investments(1)
 
Pension and
Postretirement
Benefits
 
Total
Balance, December 31, 2018
 
$
(168,698
)
 
$
856,159

 
$
(50,698
)
 
$
636,763

Other comprehensive income (loss) before reclassifications
 
18,462

 
1,437,058

 
(1,787
)
 
1,453,733

Amounts reclassified to (from) AOCI
 


 
(14,694
)
 
1,286

 
(13,408
)
Deferred income tax benefit (expense)
 
2,924

 
(314,153
)
 
106

 
(311,123
)
Balance, March 31, 2019
 
$
(147,312
)
 
$
1,964,370

 
$
(51,093
)
 
$
1,765,965

 
 
Accumulated Other Comprehensive Income (Loss), Net of Income Tax
 
 
Accumulated
Currency
Translation
Adjustments
 
Unrealized
Appreciation
(Depreciation)
of Investments(1)
 
Pension and
Postretirement
Benefits
 
Total
Balance, December 31, 2017
 
$
(86,350
)
 
$
2,200,661

 
$
(50,680
)
 
$
2,063,631

Other comprehensive income (loss) before reclassifications
 
5,696

 
(827,701
)
 
(1,910
)
 
(823,915
)
Amounts reclassified to (from) AOCI
 

 
21,274

 
1,346

 
22,620

Deferred income tax benefit (expense)
 
(6,856
)
 
172,823

 
93

 
166,060

Balance, March 31, 2018
 
$
(87,510
)
 
$
1,567,057

 
$
(51,151
)
 
$
1,428,396

(1)
Includes cash flow hedges of $(1,902) and $8,788 as of March 31, 2019 and December 31, 2018, respectively, and $20,662 and $2,619 as of March 31, 2018 and December 31, 2017, respectively. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.





9


The following table presents the amounts of AOCI reclassifications for the three months ended March 31, 2019 and 2018 (dollars in thousands):
 
 
Amount Reclassified from AOCI
 
 
 
 
Three months ended March 31,
 
 
Details about AOCI Components
 
2019
 
2018
 
Affected Line Item in 
Statement of Income
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
$
(273
)
 
$
(14,456
)
 
Investment related gains (losses), net
Cash flow hedges - Interest rate
 
469

 
(370
)
 
(1)
Cash flow hedges - Currency/Interest rate
 
25

 
144

 
(1)
Deferred policy acquisition costs attributed to unrealized gains and losses
 
14,473

 
(6,592
)
 
(2)
Total
 
14,694

 
(21,274
)
 
 
Provision for income taxes
 
(3,006
)
 
4,678

 
 
Net unrealized gains (losses), net of tax
 
$
11,688

 
$
(16,596
)
 
 
Amortization of defined benefit plan items:
 
 
 
 
 
 
Prior service cost (credit)
 
$
269

 
$
246

 
(3)
Actuarial gains/(losses)
 
(1,555
)
 
(1,592
)
 
(3)
Total
 
(1,286
)
 
(1,346
)
 
 
Provision for income taxes
 
270

 
283

 
 
Amortization of defined benefit plans, net of tax
 
$
(1,016
)
 
$
(1,063
)
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
10,672

 
$
(17,659
)
 
 
(1)
See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.
(2)
This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2018 Annual Report for additional details.
(3)
This AOCI component is included in the computation of the net periodic pension cost. See Note 10 – “Employee Benefit Plans” for additional details.

Equity Based Compensation
Equity compensation expense was $7.6 million and $9.7 million for the three months ended March 31, 2019 and 2018, respectively. In the first quarter of 2019, the Company granted 0.2 million stock appreciation rights at $145.25 weighted average exercise price per share and 0.1 million performance contingent units to employees. As of March 31, 2019, 1.6 million share options at a weighted average strike price per share of $74.36 were vested and exercisable, with a remaining weighted average exercise period of 4.5 years. As of March 31, 2019, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $32.8 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.

10


4.
Investments
Fixed Maturity Securities Available-for-Sale
The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”).
The following tables provide information relating to investments in fixed maturity securities by sector as of March 31, 2019 and December 31, 2018 (dollars in thousands):
March 31, 2019:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
24,216,876

 
$
1,024,557

 
$
164,095

 
$
25,077,338

 
60.1
%
 
$

Canadian government
 
2,870,018

 
1,408,501

 
655

 
4,277,864

 
10.2

 

RMBS
 
1,969,694

 
34,746

 
10,254

 
1,994,186

 
4.8

 

ABS
 
2,243,449

 
14,286

 
15,749

 
2,241,986

 
5.4

 
275

CMBS
 
1,404,852

 
30,009

 
3,115

 
1,431,746

 
3.4

 

U.S. government
 
1,578,975

 
9,826

 
21,238

 
1,567,563

 
3.8

 

State and political subdivisions
 
738,690

 
56,668

 
2,641

 
792,717

 
1.9

 

Other foreign government
 
4,166,073

 
201,446

 
12,476

 
4,355,043

 
10.4

 

Total fixed maturity securities
 
$
39,188,627

 
$
2,780,039

 
$
230,223

 
$
41,738,443

 
100.0
%
 
$
275

 
December 31, 2018:
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated Fair
 
% of
 
Other-than-
temporary impairments
 
 
Cost
 
Gains
 
Losses
 
Value
 
Total
 
in AOCI
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
24,006,407

 
$
530,804

 
$
555,092

 
$
23,982,119

 
59.9
%
 
$

Canadian government
 
2,768,466

 
1,126,227

 
2,308

 
3,892,385

 
9.7

 

RMBS
 
1,872,236

 
22,267

 
25,282

 
1,869,221

 
4.7

 

ABS
 
2,171,254

 
10,779

 
32,829

 
2,149,204

 
5.4

 
275

CMBS
 
1,428,115

 
9,153

 
18,234

 
1,419,034

 
3.5

 

U.S. government
 
2,233,537

 
10,204

 
57,867

 
2,185,874

 
5.5

 

State and political subdivisions
 
721,290

 
39,914

 
9,010

 
752,194

 
1.9

 

Other foreign government
 
3,680,863

 
109,320

 
47,868

 
3,742,315

 
9.4

 

Total fixed maturity securities
 
$
38,882,168

 
$
1,858,668

 
$
748,490

 
$
39,992,346

 
100.0
%
 
$
275

The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of March 31, 2019 and December 31, 2018, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of March 31, 2019 and December 31, 2018 (dollars in thousands):
 
March 31, 2019
 
December 31, 2018
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities pledged as collateral
$
74,647

 
$
77,806

 
$
80,891

 
$
83,950

Fixed maturity securities received as collateral
n/a

 
668,046

 
n/a

 
616,584

Assets in trust held to satisfy collateral requirements
20,635,739

 
21,609,979

 
20,072,735

 
20,366,170


11


The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio that limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies as well as the securities disclosed below as of March 31, 2019 and December 31, 2018 (dollars in thousands).
 
March 31, 2019
 
December 31, 2018
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Fixed maturity securities guaranteed or issued by:
 
 
 
 
 
 
 
Canadian province of Quebec
$
1,128,373

 
$
1,955,925

 
$
1,091,018

 
$
1,757,087

Canadian province of Ontario
946,731

 
1,287,150

 
913,642

 
1,187,526

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale as of March 31, 2019 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.
 
 
Amortized Cost
 
Estimated Fair Value
Available-for-sale:
 
 
 
 
Due in one year or less
 
$
1,409,578

 
$
1,419,110

Due after one year through five years
 
8,141,200

 
8,340,166

Due after five years through ten years
 
8,933,926

 
9,345,621

Due after ten years
 
15,085,928

 
16,965,628

Asset and mortgage-backed securities
 
5,617,995

 
5,667,918

Total
 
$
39,188,627

 
$
41,738,443

Corporate Fixed Maturity Securities
The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of March 31, 2019 and December 31, 2018 (dollars in thousands): 
March 31, 2019:
 
 
 
Estimated
 
 
 
 
Amortized Cost    
 
Fair Value
 
% of Total           
Finance
 
$
8,981,541

 
$
9,249,273

 
36.9
%
Industrial
 
12,316,131

 
12,759,526

 
50.9

Utility
 
2,919,204

 
3,068,539

 
12.2

Total
 
$
24,216,876

 
$
25,077,338

 
100.0
%
 
 
 
 
 
 
 
December 31, 2018:
 
 
 
Estimated
 
 
 
 
Amortized Cost
 
Fair Value
 
% of Total
Finance
 
$
8,793,742

 
$
8,730,568

 
36.3
%
Industrial
 
12,336,857

 
12,342,111

 
51.6

Utility
 
2,875,808

 
2,909,440

 
12.1

Total
 
$
24,006,407

 
$
23,982,119

 
100.0
%

12


Other-Than-Temporary Impairments - Fixed Maturity Securities
As discussed in Note 2 – “Significant Accounting Policies and Pronouncements” of the 2018 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities, the net amount recognized in the condensed consolidated statements of income (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The amount of pre-tax credit loss impairments on fixed maturity securities held by the Company, for which a portion of the OTTI loss was recognized in AOCI, was $3.7 million as of March 31, 2019 and 2018. There were no changes in these amounts from their respective prior-year ending balances.
Unrealized Losses for Fixed Maturity Securities Available-for-Sale
The following table presents the total gross unrealized losses for the 1,585 and 3,109 fixed maturity securities as of March 31, 2019 and December 31, 2018, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
 
 
March 31, 2019
 
December 31, 2018
 
 
Gross
Unrealized
Losses
 
% of Total    
 
Gross
Unrealized
Losses
 
% of Total    
Less than 20%
 
$
208,034

 
90.3
%
 
$
721,015

 
96.3
%
20% or more for less than six months
 
20,845

 
9.1

 
21,336

 
2.9

20% or more for six months or greater
 
1,344

 
0.6

 
6,139

 
0.8

Total
 
$
230,223

 
100.0
%
 
$
748,490

 
100.0
%
The Company’s determination of whether a decline in value is other-than-temporary includes an analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment.
The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,585 and 3,109 fixed maturity securities that have estimated fair values below amortized cost as of March 31, 2019 and December 31, 2018, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.
 
 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
March 31, 2019:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
1,140,753

 
$
23,578

 
$
3,756,371

 
$
108,434

 
$
4,897,124

 
$
132,012

Canadian government
 
2,812

 
19

 
72,244

 
636

 
75,056

 
655

RMBS
 
29,505

 
122

 
672,715

 
10,109

 
702,220

 
10,231

ABS
 
774,538

 
7,246

 
528,169

 
8,472

 
1,302,707

 
15,718

CMBS
 
100,664

 
369

 
227,404

 
2,746

 
328,068

 
3,115

U.S. government
 
1,265

 
1

 
1,125,274

 
21,237

 
1,126,539

 
21,238

State and political subdivisions
 
31,416

 
149

 
113,463

 
2,492

 
144,879

 
2,641

Other foreign government
 
115,581

 
2,813

 
345,928

 
7,213

 
461,509

 
10,026

Total investment grade securities
 
2,196,534

 
34,297

 
6,841,568

 
161,339

 
9,038,102

 
195,636

 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
215,368

 
21,398

 
161,915

 
10,685

 
377,283

 
32,083

RMBS
 

 

 
1,001

 
23

 
1,001

 
23

ABS
 

 

 
1,029

 
31

 
1,029

 
31

Other foreign government
 
27,413

 
838

 
27,301

 
1,612

 
54,714

 
2,450

Total below investment grade securities
 
242,781

 
22,236

 
191,246

 
12,351

 
434,027

 
34,587

Total fixed maturity securities
 
$
2,439,315

 
$
56,533

 
$
7,032,814

 
$
173,690

 
$
9,472,129

 
$
230,223


13


 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
 
Gross
 
 
 
Gross
 
 
 
Gross
December 31, 2018:
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$
8,505,371

 
$
302,604

 
$
3,611,266

 
$
195,082

 
$
12,116,637

 
$
497,686

Canadian government
 
25,169

 
419

 
131,806

 
1,612

 
156,975

 
2,031

RMBS
 
269,558

 
2,488

 
836,741

 
22,760

 
1,106,299

 
25,248

ABS
 
1,102,677

 
24,271

 
381,609

 
8,523

 
1,484,286

 
32,794

CMBS
 
384,259

 
4,304

 
414,719

 
13,930

 
798,978

 
18,234

U.S. government
 
8,616

 
80

 
1,086,694

 
57,787

 
1,095,310

 
57,867

State and political subdivisions
 
103,504

 
1,538

 
157,330

 
7,472

 
260,834

 
9,010

Other foreign government
 
789,859

 
24,509

 
472,934

 
17,446

 
1,262,793

 
41,955

Total investment grade securities
 
11,189,013

 
360,213

 
7,093,099

 
324,612

 
18,282,112

 
684,825

Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
755,679

 
42,760

 
122,559

 
14,646

 
878,238

 
57,406

Canadian government
 
443

 
34

 
1,770

 
243

 
2,213

 
277

RMBS
 

 

 
1,026

 
34

 
1,026

 
34

ABS
 

 

 
1,063

 
35

 
1,063

 
35

Other foreign government
 
128,725

 
5,574

 
7,479

 
339

 
136,204

 
5,913

Total below investment grade securities
 
884,847

 
48,368

 
133,897

 
15,297

 
1,018,744

 
63,665

Total fixed maturity securities
 
$
12,073,860

 
$
408,581

 
$
7,226,996


$
339,909

 
$
19,300,856

 
$
748,490


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

Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):
 
 
Three months ended March 31,
 
2019
 
2018
Fixed maturity securities available-for-sale
$
415,087

 
$
369,203

Equity securities
1,246

 
1,682

Mortgage loans on real estate
59,562

 
50,199

Policy loans
14,109

 
14,780

Funds withheld at interest
61,734

 
75,445

Short-term investments and cash and cash equivalents
6,900

 
3,245

Other invested assets
42,236

 
23,828

Investment income
600,874

 
538,382

Investment expense
(20,997
)
 
(22,053
)
Investment income, net of related expenses
$
579,877

 
$
516,329


14


Investment Related Gains (Losses), Net
Investment related gains (losses), net, consist of the following (dollars in thousands): 
 
Three months ended March 31,
 
2019
 
2018
Fixed maturity securities available-for-sale:
 
 
 
Other-than-temporary impairment losses
$
(9,453
)
 
$

Gain on investment activity
28,045

 
10,966

Loss on investment activity
(18,723
)
 
(20,380
)
Equity securities:
 
 
 
Gain on investment activity
74

 
28

Loss on investment activity
(1
)
 
(950
)
Change in unrealized gains (losses) recognized in earnings
3,744

 
(4,137
)
Other impairment losses and change in mortgage loan provision
(1,859
)
 
(312
)
Derivatives and other, net
5,961

 
14,315

Total investment related gains (losses), net
$
7,788

 
$
(470
)
The fixed maturity impairments for the three months ended March 31, 2019 were largely related to a U.S. utility company. There were no fixed maturity impairments for the three months ended March 31, 2018. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2019 were primarily due to impairments on real estate joint ventures and an increase of the equity release mortgage valuation allowance. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2018 were primarily due to impairments on real estate joint ventures offset by a release of the mortgage loan valuation allowance. The fluctuations in investment related gains (losses) for derivatives and other for the three months ended March 31, 2019, compared to the same period in 2018, are primarily due to changes in the fair value of embedded derivatives, futures and equity options offset by interest rate swaps.
During the three months ended March 31, 2019 and 2018, the Company sold fixed maturity securities with fair values of $1,246.6 million and $1,263.6 million at losses of $18.7 million and $20.4 million, respectively. During the three months ended March 31, 2019, the Company sold equity securities for immaterial losses. During the three months ended March 31, 2018, the Company sold equity securities with fair values of $28.4 million at losses of $1.0 million. The Company generally does not buy and sell securities on a short-term basis.
Securities Borrowing, Lending and Other
The following table includes the amount of borrowed securities, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of March 31, 2019 and December 31, 2018 (dollars in thousands).
 
March 31, 2019
 
December 31, 2018
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Borrowed securities
$
339,593

 
$
371,473

 
$
335,781

 
$
366,663

Securities lending:
 
 
 
 
 
 
 
Securities loaned
97,510

 
100,665

 
101,981

 
102,618

Securities received
n/a

 
107,000

 
n/a

 
112,000

Repurchase program/reverse repurchase program:
 
 
 
 
 
 
 
Securities pledged
548,100

 
558,981

 
554,806

 
554,589

Securities received
n/a

 
558,523

 
n/a

 
530,932

The Company also held cash collateral for repurchase program/reverse repurchase programs of $28.7 million and $28.6 million at March 31, 2019 and December 31, 2018, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of March 31, 2019 and December 31, 2018.
The following tables present information on the Company’s securities lending and repurchase transactions as of March 31, 2019 and December 31, 2018 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the tables, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

15


 
March 31, 2019
 
Remaining Contractual Maturity of the Agreements
 
Overnight and Continuous
 
Up to 30 Days
 
30-90 Days
 
Greater than 90 Days
 
Total
Securities lending transactions:
 
 
 
 
 
 
 
 
 
Corporate
$

 
$

 
$

 
$
100,665

 
$
100,665

Total

 

 

 
100,665

 
100,665

Repurchase transactions:
 
 
 
 
 
 
 
 
 
Corporate

 

 

 
267,846

 
267,846

U.S. government

 

 
43,657

 
165,272

 
208,929

Foreign government

 

 

 
82,206

 
82,206

Total

 

 
43,657

 
515,324

 
558,981

Total borrowings
$

 
$

 
$
43,657

 
$
615,989

 
$
659,646

 
 
 
 
 
 
 
 
 
 
Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table
 
$
694,271

Amounts related to agreements not included in offsetting disclosure
 
$
34,625

 
December 31, 2018
 
Remaining Contractual Maturity of the Agreements
 
Overnight and Continuous
 
Up to 30 Days
 
30-90 Days
 
Greater than 90 Days
 
Total
Securities lending transactions:
 
 
 
 
 
 
 
 
 
Corporate
$

 
$

 
$

 
$
102,618

 
$
102,618

Total

 

 

 
102,618

 
102,618

Repurchase transactions:
 
 
 
 
 
 
 
 
 
Corporate

 

 

 
254,151

 
254,151

U.S. government

 
&#