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)
x		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~September 30, 2017~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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

Large accelerated 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 ~~Exchange~~ Act).

Yes o No x

Table of Contents

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 ~~October 31, 2017, 64,404,061~~April 30, 2019, 62,560,064 shares of the registrant’s common stock were outstanding.

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


Item		Page		Page

	PART I – FINANCIAL INFORMATION		PART I – FINANCIAL INFORMATION

1	Financial Statements		Financial Statements
			Condensed Consolidated Balance Sheets (Unaudited) March 31, 2019 and December 31, 2018	3
			Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 2019 and 2018	4
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2017 and December 31, 2016	3	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three months ended March 31, 2019 and 2018	5
	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2017 and 2016	4	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Three months ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2017 and 2016	5	Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2017 and 2016	6	Notes to Condensed Consolidated Financial Statements (Unaudited):	8
	Notes to Condensed Consolidated Financial Statements (Unaudited):	7	1. Business and Basis of Presentation	8
	1. Business and Basis of Presentation	7	2. Earnings Per Share	8
	2. Earnings Per Share	7	3. Equity	9
	3. Equity	8	4. Investments	11
	4. Investments	10	5. Derivative Instruments	20
	5. Derivative Instruments	20	6. Fair Value of Assets and Liabilities	24
	6. Fair Value of Assets and Liabilities	28	7. Segment Information	31
	7. Segment Information	43	8. Commitments, Contingencies and Guarantees	33
	8. Commitments, Contingencies and Guarantees	44	9. Income Tax	34
	9. Income Tax	45	10. Employee Benefit Plans	35
	10. Employee Benefit Plans	46	11. Reinsurance	35
	11. Reinsurance	46	12. Policy Claims and Benefits	36
	12. New Accounting Standards	47	13. New Accounting Standards	36
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
3	Quantitative and Qualitative Disclosures About Market Risk	81	Quantitative and Qualitative Disclosure About Market Risk	65
4	Controls and Procedures	82	Controls and Procedures	65

	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION

1	Legal Proceedings	83	Legal Proceedings	65
1A	Risk Factors	83	Risk Factors	65
2	Unregistered Sales of Equity Securities and Use of Proceeds	83	Unregistered Sales of Equity Securities and Use of Proceeds	65
6	Exhibits	83	Exhibits	66
	Signatures	85	Index to Exhibits	67
	Index to Exhibits	84	Signatures	68

Table of Contents

PART I - FINANCIAL INFORMATION

~~ITEM 1. Financial Statements~~

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)


	September 30, 2017			December 31, 2016
	(Dollars in thousands, except share data)						March 31, 2019			December 31, 2018
Assets
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $33,889,968 and $30,211,787)	$	36,381,742		$	32,093,625
Mortgage loans on real estate (net of allowances of $9,137 and $7,685)	4,322,329			3,775,522
Fixed maturity securities available-for-sale, at fair value (amortized cost $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	1,340,146			1,427,602			1,312,349			1,344,980
Funds withheld at interest	6,020,336			5,875,919			5,729,838			5,761,471
Short-term investments	80,582			76,710			119,215			142,598
Other invested assets	1,532,523			1,591,940			2,006,870			1,915,297
Total investments	49,677,658			44,841,318			56,114,125			54,205,187
Cash and cash equivalents	1,204,590			1,200,718			2,020,396			1,889,733
Accrued investment income	420,111			347,173			442,956			427,893
Premiums receivable and other reinsurance balances	2,411,777			1,930,755			2,857,673			3,017,868
Reinsurance ceded receivables	779,118			683,972			814,806			757,572
Deferred policy acquisition costs	3,315,237			3,338,605			3,404,593			3,397,770
Other assets	885,540			755,338			1,037,932			839,222
Total assets	$	58,694,031		$	53,097,879		$	66,692,481		$	64,535,245
Liabilities and Stockholders’ Equity
Future policy benefits	$	21,084,562		$	19,581,573		$	25,976,847		$	25,285,400
Interest-sensitive contract liabilities	16,370,090			14,029,354			17,750,197			18,004,526
Other policy claims and benefits	4,899,367			4,263,026			5,911,554			5,642,755
Other reinsurance balances	415,692			388,989			517,096			487,177
Deferred income taxes	3,180,545			2,770,640			2,144,680			1,798,800
Other liabilities	1,061,352			1,041,880			1,278,108			1,396,200
Long-term debt	2,788,480			3,088,635			2,787,717			2,787,873
Collateral finance and securitization notes	796,825			840,700			656,174			681,961
Total liabilities	50,596,913			46,004,797			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 September 30, 2017 and December 31, 2016	791			791
Additional paid-in capital	1,865,699			1,848,611
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	5,712,590			5,199,130			7,412,081			7,284,949
Treasury stock, at cost - 14,769,487 and 14,835,256 shares	(1,107,719		)	(1,094,779		)
Treasury stock, at cost - 16,593,411 and 16,323,390 shares							(1,415,020		)	(1,370,602		)
Accumulated other comprehensive income	1,625,757			1,139,329			1,765,965			636,763
Total stockholders’ equity	8,097,118			7,093,082			9,670,108			8,450,553
Total liabilities and stockholders’ equity	$	58,694,031		$	53,097,879		$	66,692,481		$	64,535,245

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

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
	2017			2016		2017			2016			2019			2018
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,489,797		$	2,251,758	$	7,335,944		$	6,755,708		$	2,737,813		$	2,582,551
Investment income, net of related expenses	556,918			489,727		1,589,820			1,414,659			579,877			516,329
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(390		)	—		(20,980		)	(34,663		)	(9,453		)	—
Other investment related gains (losses), net	23,043			86,624		160,451			118,665			17,241			(470		)
Total investment related gains (losses), net	22,653			86,624		139,471			84,002			7,788			(470		)
Other revenues	75,942			72,468		218,091			197,844			94,553			75,297
Total revenues	3,145,310			2,900,577		9,283,326			8,452,213			3,420,031			3,173,707
Benefits and Expenses:
Claims and other policy benefits	2,100,680			1,993,064		6,371,188			5,877,330			2,508,324			2,362,101
Interest credited	126,099			116,848		349,068			300,602			133,189			80,449
Policy acquisition costs and other insurance expenses	365,424			300,962		1,064,645			940,406			311,881			356,902
Other operating expenses	168,417			152,556		481,279			469,875			201,483			191,274
Interest expense	36,836			43,063		108,590			96,201			40,173			37,454
Collateral finance and securitization expense	7,692			6,484		21,235			19,396			8,417			7,602
Total benefits and expenses	2,805,148			2,612,977		8,396,005			7,703,810			3,203,467			3,035,782
Income before income taxes	340,162			287,600		887,321			748,403			216,564			137,925
Provision for income taxes	112,571			88,881		282,028			237,109			47,057			37,695
Net income	$	227,591		$	198,719	$	605,293		$	511,294		$	169,507		$	100,230
Earnings per share:
Basic earnings per share	$	3.53		$	3.10	$	9.39		$	7.95		$	2.70		$	1.55
Diluted earnings per share	$	3.47		$	3.07	$	9.23		$	7.87		$	2.65		$	1.52
Dividends declared per share	$	0.50		$	0.41	$	1.32		$	1.15

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

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



	Three months ended 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).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(in thousands except per share amounts)

(Unaudited)

Nine months ended September 30,
2017 2016

(Dollars in thousands)
Cash Flows from Operating Activities:
Net income $ 605,293
$ 511,294
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income (63,321 ) (58,863 )
Premiums receivable and other reinsurance balances (421,027 ) (3,619 )
Deferred policy acquisition costs 67,471
(15,059 )
Reinsurance ceded receivable balances (120,013 ) (77,741 )
Future policy benefits, other policy claims and benefits, and other reinsurance balances 982,164
479,606
Deferred income taxes 236,185
165,988
Other assets and other liabilities, net 78,848
29,343
Amortization of net investment premiums, discounts and other (95,227 ) (55,967 )
Depreciation and amortization expense 21,384
19,489
Investment related (gains) losses, net (139,471 ) (84,002 )
Other, net (47,787 ) 109,403
Net cash provided by operating activities 1,104,499
1,019,872
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale 6,364,236
3,649,187
Maturities of fixed maturity securities available-for-sale 385,993
349,836
Sales of equity securities 192,821
331,978
Principal payments on mortgage loans on real estate 208,052
377,671
Principal payments on policy loans 93,286
59,518
Purchases of fixed maturity securities available-for-sale (7,450,749 ) (5,938,302 )
Purchases of equity securities (60,790 ) (523,499 )
Cash invested in mortgage loans on real estate (751,702 ) (857,445 )
Cash invested in policy loans (5,830 ) (5,685 )
Cash invested in funds withheld at interest (12,597 ) (31,222 )
Purchases of property and equipment (33,242 ) —
Change in short-term investments 65,664
418,625
Change in other invested assets (51,476 ) (78,068 )
Net cash used in investing activities (1,056,334 ) (2,247,406 )
Cash Flows from Financing Activities:
Dividends to stockholders (85,086 ) (74,034 )
Repayment of collateral finance and securitization notes (56,637 ) (60,971 )
Proceeds from long-term debt issuance —
799,984
Debt issuance costs —
(9,026 )
Principal payments of long-term debt (301,927 ) (1,850 )
Purchases of treasury stock (41,360 ) (121,896 )
Exercise of stock options, net 4,450
11,752
Change in cash collateral for derivative positions and other arrangements (46,206 ) 24,749
Deposits on universal life and other investment type policies and contracts 1,007,563
874,708
Withdrawals on universal life and other investment type policies and contracts (568,789 ) (386,900 )
Net cash provided by financing activities (87,992 ) 1,056,516
Effect of exchange rate changes on cash 43,699
25,436
Change in cash and cash equivalents 3,872
(145,582 )
Cash and cash equivalents, beginning of period 1,200,718
1,525,275
Cash and cash equivalents, end of period $ 1,204,590
$ 1,379,693
Supplemental disclosures of cash flow information:
Interest paid $ 129,136
$ 114,043
Income taxes paid, net of refunds $ 27,385
$ 47,312
Non-cash transactions:
Transfer of invested assets $ 2,247,136
$ 3,621



	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).

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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).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	Business and Basis of Presentation

Business

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. ~~The accompanying unaudited condensed consolidated financial statements of~~ RGA and its subsidiaries (collectively, the “Company”) is engaged in providing traditional reinsurance, which includes individual and group life and health, disability, and critical illness reinsurance. The Company also provides financial solutions, which includes longevity reinsurance, 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.~~S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial ~~statements.~~ statements and should be read in conjunction with the Company’s 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. ~~Results for the nine months ended September 30, 2017~~Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~ 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. ~~These condensed~~Entities in which the Company has significant influence over the operating and financing decisions but are not required to be consolidated ~~statements should be read in conjunction with~~are reported under the ~~Company’s 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017 (the “2016 Annual Report”).~~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 September 30,				Nine months ended September 30,				Three months ended March 31,
	2017		2016		2017		2016		2019		2018
Earnings:
Net income (numerator for basic and diluted calculations)	$	227,591	$	198,719	$	605,293	$	511,294	$	169,507	$	100,230
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,488		64,146		64,430		64,281		62,758		64,490
Equivalent shares from outstanding stock options	1,165		669		1,174		663		1,269		1,382
Denominator for diluted calculation	65,653		64,815		65,604		64,944		64,027		65,872
Earnings per share:
Basic	$	3.53	$	3.10	$	9.39	$	7.95	$	2.70	$	1.55
Diluted	$	3.47	$	3.07	$	9.23	$	7.87	$	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. ~~For the three months ended~~ ~~September 30, 2017, 0.1 million stock options and approximately 0.3 million performance contingent shares were excluded from the calculation. For the three months ended~~ ~~September 30, 2016, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. Year-to-date~~The following table presents approximate amounts ~~for equivalent shares from outstanding~~of stock options and performance contingent shares ~~are~~excluded from the ~~weighted average~~calculation of ~~the individual quarterly amounts.~~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

Table of Contents


3.	Equity

Common ~~Stock~~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		Issued	Held In Treasury		Outstanding
Balance, December 31, 2016	79,137,758	14,835,256		64,302,502
Balance, December 31, 2018						79,137,758	16,323,390		62,814,368
Common stock acquired	—	208,680		(208,680	)	—	344,237		(344,237	)
Stock-based compensation ⁽¹⁾	—	(274,449	)	274,449		—	(74,216	)	74,216
Balance, September 30, 2017	79,137,758	14,769,487		64,368,271
Balance, March 31, 2019						79,137,758	16,593,411		62,544,347

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



	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 ~~26, 2017,~~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. ~~In connection with this new authorization, the board of directors terminated the stock repurchase authority granted in 2016.~~ During the ~~first nine~~three months ~~of 2017,~~ended March 31, 2019, RGA repurchased ~~0.2~~0.3 million shares of common stock under this program for ~~$26.9~~$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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 are as follows (dollars in thousands):


	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total			Accumulated Other Comprehensive Income (Loss), Net of Income Tax
Balance, December 31, 2016	$	(172,541	)	$	1,355,033		$	(43,163	)	$	1,139,329
													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	23,117			671,564			(191		)	694,490			18,462			1,437,058			(1,787		)	1,453,733
Amounts reclassified to (from) AOCI	—			(51,407		)	4,006			(47,401		)				(14,694		)	1,286			(13,408		)
Deferred income tax benefit (expense)	44,968			(204,287		)	(1,342		)	(160,661		)	2,924			(314,153		)	106			(311,123		)
Balance, September 30, 2017	$	(104,456	)	$	1,770,903		$	(40,690	)	$	1,625,757
Balance, March 31, 2019													$	(147,312	)	$	1,964,370		$	(51,093	)	$	1,765,965


	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total			Accumulated Other Comprehensive Income (Loss), Net of Income Tax
Balance, December 31, 2015	$	(181,151	)	$	935,697		$	(46,262	)	$	708,284
													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	68,271			2,191,823			(6,079		)	2,254,015			5,696			(827,701		)	(1,910		)	(823,915		)
Amounts reclassified to (from) AOCI	—			(109,145		)	4,253			(104,892		)	—			21,274			1,346			22,620
Deferred income tax benefit (expense)	(8,829		)	(636,902		)	650			(645,081		)	(6,856		)	172,823			93			166,060
Balance, September 30, 2016	$	(121,709	)	$	2,381,473		$	(47,438	)	$	2,212,326
Balance, March 31, 2018													$	(87,510	)	$	1,567,057		$	(51,151	)	$	1,428,396


(1)	Includes cash flow hedges of ~~$347~~$(1,902) and ~~$(2,496)~~$8,788 as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, and ~~$(40,597)~~$20,662 and ~~$(29,397)~~$2,619 as of ~~September 30, 2016~~March 31, 2018 and December 31, ~~2015,~~2017, respectively. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.

Table of Contents

The following table presents the amounts of AOCI reclassifications for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (dollars in thousands):


	Amount Reclassified from AOCI													Amount Reclassified from AOCI
	Three months ended September 30,						Nine months ended September 30,							Three months ended March 31,
Details about AOCI Components	2017			2016			2017			2016			Affected Line Item in Statements of Income	2019			2018			Affected Line Item in Statement of Income
Net unrealized investment gains (losses):
Net unrealized gains and losses on available-for-sale securities	$	10,515		$	72,351		$	39,032		$	84,250		Investment related gains (losses), net
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	230			200			560			454			(1)	25			144			(1)
Cash flow hedges - Forward bond purchase commitments	224			137			286			(120		)	(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	1,116			12,090			11,529			24,561			(2)	14,473			(6,592		)	(2)
Total	12,085			84,778			51,407			109,145				14,694			(21,274		)
Provision for income taxes	(3,991		)	(27,680		)	(16,015		)	(32,676		)		(3,006		)	4,678
Net unrealized gains (losses), net of tax	$	8,094		$	57,098		$	35,392		$	76,469			$	11,688		$	(16,596	)
Amortization of defined benefit plan items:
Prior service cost (credit)	$	590		$	391		$	732		$	238		(3)	$	269		$	246		(3)
Actuarial gains/(losses)	(1,661		)	(1,177		)	(4,738		)	(4,491		)	(3)	(1,555		)	(1,592		)	(3)
Total	(1,071		)	(786		)	(4,006		)	(4,253		)		(1,286		)	(1,346		)
Provision for income taxes	375			276			1,402			1,489				270			283
Amortization of defined benefit plans, net of tax	$	(696	)	$	(510	)	$	(2,604	)	$	(2,764	)		$	(1,016	)	$	(1,063	)

Total reclassifications for the period	$	7,398		$	56,588		$	32,788		$	73,705			$	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 ~~2016~~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 ~~$17.1~~$7.6 million and ~~$27.1~~$9.7 million infor the ~~first nine~~three months ~~of 2017~~ended March 31, 2019 and ~~2016,~~2018, respectively. In the first quarter of ~~2017,~~2019, the Company granted 0.2 million stock appreciation rights at ~~$129.72~~$145.25 weighted average exercise price per share and ~~0.2~~0.1 million performance contingent units to employees. ~~Additionally, non-employee directors were granted a total of 7,696 shares of common stock.~~ As of ~~September 30, 2017,~~March 31, 2019, 1.6 million share options at a weighted average strike price per share of ~~$60.77~~$74.36 were vested and exercisable, with a remaining weighted average exercise period of ~~4.6~~4.5 years. As of ~~September 30, 2017,~~March 31, 2019, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was ~~$32.5~~$32.8 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.

910

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4.	Investments

Fixed Maturity ~~and Equity~~ 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 ~~and equity~~ securities by sector as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):

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

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



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, 2016: Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value % of Total Other-than-
temporary impairments in AOCI
Available-for-sale:
Corporate securities $ 18,924,711
$ 911,618
$ 217,245
$ 19,619,084
61.1 % $ —
Canadian and Canadian provincial governments 2,561,605
1,085,982
3,541
3,644,046
11.4
—
Residential mortgage-backed securities 1,258,039
33,917
13,380
1,278,576
4.0
(375 )
Asset-backed securities 1,443,822
9,350
23,828
1,429,344
4.5
275
Commercial mortgage-backed securities 1,342,440
28,973
7,759
1,363,654
4.2
—
U.S. government and agencies 1,518,702
12,644
63,044
1,468,302
4.6
—
State and political subdivisions 566,761
37,499
12,464
591,796
1.8
—
Other foreign government, supranational and foreign government-sponsored enterprises 2,595,707
123,054
19,938
2,698,823
8.4
—
Total fixed maturity securities $ 30,211,787
$ 2,243,037
$ 361,199
$ 32,093,625
100.0 % $ (100 )
Non-redeemable preferred stock $ 55,812
$ 1,648
$ 6,337
$ 51,123
18.6 %
Other equity securities 229,767
1,792
7,321
224,238
81.4

Total equity securities $ 285,579
$ 3,440
$ 13,658
$ 275,361
100.0 %



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 ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~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 ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~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

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September 30, 2017 December 31, 2016

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Fixed maturity securities pledged as collateral $ 68,841
$ 72,365
$ 207,066
$ 210,676
Fixed maturity securities received as collateral n/a
461,237
n/a
300,925
Assets in trust held to satisfy collateral requirements 14,598,404
15,598,457
12,135,258
12,874,370

The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio ~~which~~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 ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands).


	September 30, 2017				December 31, 2016				March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Canadian province of Quebec	$	1,115,505	$	1,766,749	$	1,004,261	$	1,612,957	$	1,128,373	$	1,955,925	$	1,091,018	$	1,757,087
Canadian province of Ontario	932,872		1,231,201		832,764		1,126,433		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 atas of ~~September 30, 2017~~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		Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in one year or less	$	910,821	$	915,586	$	1,409,578	$	1,419,110
Due after one year through five years	7,339,134		7,618,692		8,141,200		8,340,166
Due after five years through ten years	9,581,912		10,090,704		8,933,926		9,345,621
Due after ten years	11,438,508		13,069,565		15,085,928		16,965,628
Asset and mortgage-backed securities	4,619,593		4,687,195		5,617,995		5,667,918
Total	$	33,889,968	$	36,381,742	$	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 ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


September 30, 2017:			Estimated
March 31, 2019:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	7,797,576	$	8,146,891	36.2	%	$	8,981,541	$	9,249,273	36.9	%
Industrial	11,323,024		11,914,845		52.8		12,316,131		12,759,526		50.9
Utility	2,298,141		2,474,094		11.0		2,919,204		3,068,539		12.2
Total	$	21,418,741	$	22,535,830	100.0	%	$	24,216,876	$	25,077,338	100.0	%

December 31, 2016:			Estimated
December 31, 2018:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	6,725,199	$	6,888,968	35.2	%	$	8,793,742	$	8,730,568	36.3	%
Industrial	10,228,813		10,639,613		54.2		12,336,857		12,342,111		51.6
Utility	1,970,699		2,090,503		10.6		2,875,808		2,909,440		12.1
Total	$	18,924,711	$	19,619,084	100.0	%	$	24,006,407	$	23,982,119	100.0	%

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Other-Than-Temporary Impairments - Fixed Maturity ~~and Equity~~ Securities

As discussed in Note 2 – ~~“Summary of Significant~~“Significant Accounting ~~Policies”~~Policies and Pronouncements” of the ~~2016~~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 ~~following table sets forth the~~ amount of pre-tax credit loss impairments on fixed maturity securities held by the Company, ~~as of the dates indicated,~~ for which a portion of the OTTI loss was recognized in AOCI, was $3.7 million as of March 31, 2019 and ~~the corresponding~~2018. There were no changes in ~~such~~these amounts ~~(dollars in thousands):~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Balance, beginning of period $ 3,677
$ 6,974
$ 6,013
$ 7,284
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period —
—
(2,336 ) (310 )
Balance, end of period $ 3,677
$ 6,974
$ 3,677
$ 6,974

from their respective prior-year ending balances.

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

The following table presents the total gross unrealized losses for the ~~1,165~~1,585 and ~~1,535~~3,109 fixed maturity ~~and equity~~ securities as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):


	September 30, 2017				December 31, 2016				March 31, 2019				December 31, 2018
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	140,313	86.0	%	$	337,831	90.1	%	$	208,034	90.3	%	$	721,015	96.3	%
20% or more for less than six months	3,407		2.1		19,438		5.2		20,845		9.1		21,336		2.9
20% or more for six months or greater	19,490		11.9		17,588		4.7		1,344		0.6		6,139		0.8
Total	$	163,210	100.0	%	$	374,857	100.0	%	$	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. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for ~~1,165~~1,585 and ~~1,535~~3,109 fixed maturity ~~and equity~~ securities that have estimated fair values below amortized cost as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~,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

1213

Table of Contents

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

Below investment grade securities:

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

Less than 12 months 12 months or greater Total
Gross Gross Gross
December 31, 2016: Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
Corporate securities $ 4,661,706
$ 124,444
$ 549,273
$ 43,282
$ 5,210,979
$ 167,726
Canadian and Canadian provincial governments 101,578
3,541
—
—
101,578
3,541
Residential mortgage-backed securities 490,473
9,733
112,216
3,635
602,689
13,368
Asset-backed securities 563,259
12,010
257,166
9,653
820,425
21,663
Commercial mortgage-backed securities 368,465
6,858
10,853
166
379,318
7,024
U.S. government and agencies 1,056,101
63,044
—
—
1,056,101
63,044
State and political subdivisions 187,194
9,396
13,635
3,068
200,829
12,464
Other foreign government, supranational and foreign government-sponsored enterprises 524,236
13,372
51,097
2,981
575,333
16,353
Total investment grade securities 7,953,012
242,398
994,240
62,785
8,947,252
305,183
Below investment grade securities:
Corporate securities 330,757
7,914
163,152
41,605
493,909
49,519
Residential mortgage-backed securities —
—
412
12
412
12
Asset-backed securities 5,904
700
12,581
1,465
18,485
2,165
Commercial mortgage-backed securities 5,815
735
—
—
5,815
735
Other foreign government, supranational and foreign government-sponsored enterprises 32,355
1,258
39,763
2,327
72,118
3,585
Total below investment grade securities 374,831
10,607
215,908
45,409
590,739
56,016
Total fixed maturity securities $ 8,327,843
$ 253,005
$ 1,210,148

$ 108,194
$ 9,537,991
$ 361,199
Non-redeemable preferred stock $ 10,831
$ 831
$ 21,879
$ 5,506
$ 32,710
$ 6,337
Other equity securities 202,068
7,020
6,751
301
208,819
7,321
Total equity securities $ 212,899
$ 7,851
$ 28,630

$ 5,807
$ 241,529
$ 13,658

~~Table of Contents~~



	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 ~~and equity~~ securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

~~Unrealized losses on below investment grade securities as of September 30, 2017 are primarily related to high-yield corporate securities.~~ Changes in unrealized losses are primarily ~~being~~ driven by changes in ~~credit spreads and~~ interest rates.

Investment Income, Net of Related Expenses

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018
Fixed maturity securities available-for-sale	$	359,157		$	325,089		$	1,039,392		$	961,096		$	415,087		$	369,203
Equity securities													1,246			1,682
Mortgage loans on real estate	50,040			39,802			138,829			121,494			59,562			50,199
Policy loans	15,404			15,391			45,870			47,897			14,109			14,780
Funds withheld at interest	102,144			104,609			327,089			273,482			61,734			75,445
Short-term investments and cash and cash equivalents	1,977			1,752			5,266			6,265			6,900			3,245
Other invested assets	47,595			21,138			90,488			57,896			42,236			23,828
Investment income	576,317			507,781			1,646,934			1,468,130			600,874			538,382
Investment expense	(19,399		)	(18,054		)	(57,114		)	(53,471		)	(20,997		)	(22,053		)
Investment income, net of related expenses	$	556,918		$	489,727		$	1,589,820		$	1,414,659		$	579,877		$	516,329

Table of Contents

Investment Related Gains (Losses), Net

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturity securities recognized in earnings	$	(390	)	$	—		$	(20,980	)	$	(34,663	)
Impairment losses on equity securities	(889		)	—			(889		)	—
Fixed maturity securities available-for-sale:
Other-than-temporary impairment losses													$	(9,453	)	$	—
Gain on investment activity	19,522			46,346			91,635			127,153			28,045			10,966
Loss on investment activity	(7,678		)	(9,054		)	(30,712		)	(43,397		)	(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	(2,446		)	(262		)	(9,220		)	(2,111		)	(1,859		)	(312		)
Derivatives and other, net	14,534			49,594			109,637			37,020			5,961			14,315
Total investment related gains (losses), net	$	22,653		$	86,624		$	139,471		$	84,002		$	7,788		$	(470	)

The fixed maturity impairments for the three ~~and nine~~ months ended ~~September 30, 2017 and 2016~~March 31, 2019 were largely related to ~~high-yield and emerging market corporate securities. The equity~~a U.S. utility company. There were no fixed maturity impairments for the three ~~and nine~~ months ended ~~September 30, 2017 were related to an equity position received as part of a debt restructuring.~~March 31, 2018. The other impairment losses and change in mortgage loan provision for the three ~~and nine~~ months ended ~~September 30, 2017 and 2016~~March 31, 2019 were primarily due to impairments on ~~limited partnerships.~~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 ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, compared to the same ~~periods~~period in ~~2016,~~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 ~~September 30, 2017~~March 31, 2019 and ~~2016,~~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 ~~$484.7 million and $317.3~~$28.4 million at losses of $7.7 million and $9.1 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company sold fixed maturity and equity securities with fair values of $1,771.4 million and $903.1 million at losses of $30.7 million and $43.4 million, respectively.$1.0 million. The Company generally does not buy and sell securities on a short-term basis.

~~Table of Contents~~

Securities Borrowing, Lending and Other

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

The Company also participates in a securities lending program whereby securities, reflected as investments on the Company’s condensed consolidated balance sheets, are loaned to a third party. The Company receives securities as collateral, in an amount equal to a minimum of 105% of the fair value of the securities lent. The securities received as collateral are not reflected on the Company’s condensed consolidated balance sheets.

The Company also participates in repurchase/reverse repurchase programs in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to third parties. In return, the Company receives securities from the third parties with an estimated fair value equal to a minimum of ~~100%~~ ~~of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets.~~

The Company also participates in a repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives cash from the third party, which is reflected as a payable to the third party and included in other liabilities on the condensed consolidated balance sheets. The Company is required to maintain a minimum collateral balance with a fair value of 102% of the cash received.

The following table includes the amount of borrowed securities, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands).


	September 30, 2017				December 31, 2016				March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Borrowed securities	$	360,475	$	379,101	$	263,820	$	279,186	$	339,593	$	371,473	$	335,781	$	366,663
Securities lending:
Securities loaned	117,219		121,958		74,389		73,625		97,510		100,665		101,981		102,618
Securities received	n/a		120,000		n/a		80,000		n/a		107,000		n/a		112,000
Repurchase program/reverse repurchase program:
Securities pledged	491,824		512,613		476,531		499,891		548,100		558,981		554,806		554,589
Securities received	n/a		522,354		n/a		515,200		n/a		558,523		n/a		530,932

The Company also held cash collateral for ~~securities lending and the~~ repurchase program/reverse repurchase programs of ~~$38.5~~$28.7 million and ~~$28.8~~$28.6 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

~~Table~~ No cash or securities have been pledged by the Company for its securities borrowing program as of ~~Contents~~

March 31, 2019 and December 31, 2018.

The following ~~table presents~~tables present information on the Company’s securities lending and repurchase transactions as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands). Collateral associated with certain borrowed securities is not included within the ~~table,~~tables, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

Table of Contents

September 30, 2017
Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total
Securities lending transactions:
Corporate securities $ —
$ —
$ —
$ 121,958
$ 121,958
Total —
—
—
121,958
121,958
Repurchase transactions:
Corporate securities —
1,472
5,402
175,258
182,132
Residential mortgage-backed securities —
—
—
87,418
87,418
U.S. government and agencies —
—
23,206
196,040
219,246
Foreign government —
—
—
21,370
21,370
Other 2,447
—
—
—
2,447
Total 2,447
1,472
28,608
480,086
512,613
Total transactions $ 2,447
$ 1,472
$ 28,608
$ 602,044
$ 634,571

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


	December 31, 2016										March 31, 2019
	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total		Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
Securities lending transactions:
Corporate securities	$	—	$	—	$	4,017	$	69,608	$	73,625
Corporate											$	—	$	—	$	—	$	100,665	$	100,665
Total	$	—	$	—	$	4,017	$	69,608	$	73,625	—		—		—		100,665		100,665
Repurchase transactions:
Corporate securities	$	—	$	—	$	3,220	$	166,979	$	170,199
Residential mortgage-backed securities	—		—		—		92,546		92,546
U.S. government and agencies	—		—		—		216,000		216,000
Corporate											—		—		—		267,846		267,846
U.S. government											—		—		43,657		165,272		208,929
Foreign government	—		—		—		19,900		19,900		—		—		—		82,206		82,206
Other	1,246		—		—		—		1,246
Total	1,246		—		3,220		495,425		499,891		—		—		43,657		515,324		558,981
Total borrowings	$	1,246	$	—	$	7,237	$	565,033	$	573,516	$	—	$	—	$	43,657	$	615,989	$	659,646

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table	Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table								$	624,032	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	Amounts related to agreements not included in offsetting disclosure								$	50,516	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	—		—		—		221,572		221,572
Foreign government	—		—		—		78,866		78,866
Total	—		—		—		554,589		554,589
Total borrowings	$	—	$	—	$	—	$	657,207	$	657,207

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table									$	671,492
Amounts related to agreements not included in offsetting disclosure									$	14,285

The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the condensed consolidated balance sheets was a liability of ~~$7.9~~$0.4 million ~~and $5.5 million~~as of ~~September 30, 2017~~both March 31, 2019 and December 31, ~~2016, respectively.~~2018. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Company recognized payables resulting from cash received as collateral associated with a repurchase agreement, as discussed above. Amounts owed to and due from the counterparties may be settled in cash or offset, in accordance with the agreements.

Table of Contents

Mortgage Loans on Real Estate

Mortgage loans represented approximately ~~8.7% and 8.4%~~9.1% of the Company’s total investments as of ~~September 30, 2017~~both March 31, 2019 and December 31, ~~2016. The Company makes~~2018. As of March 31, 2019, mortgage loans ~~on income producing properties that are~~were geographically ~~diversified~~dispersed throughout the U.S. with the largest ~~concentration being~~concentrations in ~~the state of California, which represented 21.2% and 22.1% of mortgage loans on real estate as of~~ ~~September 30, 2017~~California (17.7%), Texas (11.8%) and ~~December 31, 2016~~Washington~~, respectively.~~ (7.1%) and include loans secured by properties in Canada (2.9%) and United Kingdom (0.5%). The recorded investment in mortgage loans on real estate presented below is gross of unamortized deferred loan origination fees and expenses, and valuation allowances.

The distribution of mortgage loans by property type is as follows as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


	September 30, 2017					December 31, 2016					March 31, 2019					December 31, 2018
Property type:	Carrying Value			% of Total		Carrying Value			% of Total		Carrying Value			% of Total		Carrying Value			% of Total
Office building	$	1,426,673		32.9	%	$	1,270,113		33.6	%	$	1,707,764		33.3	%	$	1,725,748		34.6	%
Retail	1,316,463			30.4		1,179,936			31.2		1,495,883			29.1		1,432,394			28.7
Industrial	891,051			20.6		713,461			18.8		1,021,871			19.9		961,924			19.3
Apartment	508,367			11.7		447,088			11.8		620,926			12.1		571,291			11.5
Other commercial	191,443			4.4		172,609			4.6		288,454			5.6		291,997			5.9
Recorded investment	4,333,997			100.0	%	$	3,783,207		100.0	%	$	5,134,898		100.0	%	$	4,983,354		100.0	%
Unamortized balance of loan origination fees and expenses	(2,531		)			—					(6,135		)			(5,770		)
Valuation allowances	(9,137		)			(7,685		)			(11,218		)			(11,286		)
Total mortgage loans on real estate	$	4,322,329				$	3,775,522				$	5,117,545				$	4,966,298

The maturities of ~~the~~ mortgage loans as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as follows (dollars in thousands):


	September 30, 2017				December 31, 2016				March 31, 2019				December 31, 2018
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	1,086,700	25.1	%	$	822,073	21.7	%	$	1,449,925	28.2	%	$	1,425,598	28.6	%
Due after five years through ten years	2,334,113		53.8		2,099,559		55.5		2,833,275		55.2		2,686,264		53.9
Due after ten years	913,184		21.1		861,575		22.8		851,698		16.6		871,492		17.5
Total	$	4,333,997	100.0	%	$	3,783,207	100.0	%	$	5,134,898	100.0	%	$	4,983,354	100.0	%

The following tables set forth certain key credit quality indicators of the Company’s recorded investment in mortgage loans as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


	Recorded Investment										Recorded Investment
	Debt Service Ratios										Debt Service Ratios						Construction loans
	>1.20x		1.00x - 1.20x		<1.00x		Total		% of Total		>1.20x		1.00x - 1.20x		<1.00x				Total			% of Total
September 30, 2017:
March 31, 2019:																	Construction loans
Loan-to-Value Ratio
0% - 59.99%	$	2,060,277	$	51,162	$	4,698	$	2,116,137	48.8	%	$	2,477,507	$	87,802	$	36,998	$	16,556		$	2,618,863		51.0	%
60% - 69.99%	1,515,469		86,613		44,358		1,646,440		38.0		1,692,549		78,559		41,680		21,051			1,833,839			35.7
70% - 79.99%	424,195		32,664		19,850		476,709		11.0		403,173		27,591		42,008		—			472,772			9.2
Greater than 80%	51,348		19,951		23,412		94,711		2.2		117,390		49,522		42,512		—			209,424			4.1
Total	$	4,051,289	$	190,390	$	92,318	$	4,333,997	100.0	%	$	4,690,619	$	243,474	$	163,198	$	37,607		$	5,134,898		100.0	%

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	Recorded Investment										Recorded Investment
	Debt Service Ratios										Debt Service Ratios						Construction loans
	>1.20x		1.00x - 1.20x		<1.00x		Total		% of Total		>1.20x		1.00x - 1.20x		<1.00x				Total			% of Total
December 31, 2016:
December 31, 2018:																	Construction loans
Loan-to-Value Ratio
0% - 59.99%	$	1,859,640	$	64,749	$	1,366	$	1,925,755	50.8	%	$	2,410,556	$	61,246	$	38,177	$	13,691		$	2,523,670		50.6	%
60% - 69.99%	1,257,788		34,678		—		1,292,466		34.2		1,618,374		73,908		38,120		18,929			1,749,331			35.1
70% - 79.99%	370,092		20,869		24,369		415,330		11.0		414,269		48,438		54,440		—			517,147			10.4
Greater than 80%	114,297		—		35,359		149,656		4.0		117,978		49,668		25,560		—			193,206			3.9
Total	$	3,601,817	$	120,296	$	61,094	$	3,783,207	100.0	%	$	4,561,177	$	233,260	$	156,297	$	32,620		$	4,983,354		100.0	%

~~None~~The age analysis of the ~~payments~~Company’s past due ~~to the Company on its~~ recorded ~~investment~~investments in mortgage loans ~~were delinquent~~ as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018 is as follows (dollars in thousands):



	March 31, 2019		December 31, 2018
31-60 days past due	$	11,795	$	—
61-90 days past due	17,079		—
Total past due	28,874		—
Current	5,106,024		4,983,354
Total	$	5,134,898	$	4,983,354

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Mortgage loans:
Individually measured for impairment	$	5,856	$	2,216	$	17,079	$	30,635
Collectively measured for impairment	4,328,141		3,780,991		5,117,819		4,952,719
Recorded investment	$	4,333,997	$	3,783,207	$	5,134,898	$	4,983,354
Valuation allowances:
Individually measured for impairment	$	—	$	—	$	—	$	—
Collectively measured for impairment	9,137		7,685		11,218		11,286
Total valuation allowances	$	9,137	$	7,685	$	11,218	$	11,286

Information regarding the Company’s loan valuation allowances for mortgage loans for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 is as follows (dollars in thousands):


	Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
	2017		2016		2017		2016			2019			2018
Balance, beginning of period	$	8,156	$	6,499	$	7,685	$	6,813		$	11,286		$	9,384
Provision (release)	977		247		1,444		(67		)	(73		)	(516		)
Translation adjustment	4		—		8		—			5			(4		)
Balance, end of period	$	9,137	$	6,746	$	9,137	$	6,746		$	11,218		$	8,864

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Information regarding the portion of the Company’s mortgage loans that were impaired as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 is as follows (dollars in thousands):


	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value			Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
September 30, 2017:
March 31, 2019:
Impaired mortgage loans with no valuation allowance recorded	$	6,427	$	5,856	$	—	$	5,856		$	17,084	$	17,079	$	—	$	17,079
Impaired mortgage loans with valuation allowance recorded	—		—		—		—			—		—		—		—
Total impaired mortgage loans	$	6,427	$	5,856	$	—	$	5,856		$	17,084	$	17,079	$	—	$	17,079
December 31, 2016:
December 31, 2018:
Impaired mortgage loans with no valuation allowance recorded	$	2,758	$	2,216	$	—	$	2,216		$	30,660	$	30,635	$	—	$	30,635
Impaired mortgage loans with valuation allowance recorded	—		—		—		—			—		—		—		—
Total impaired mortgage loans	$	2,758	$	2,216	$	—	$	2,216		$	30,660	$	30,635	$	—	$	30,635

The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
The Company’s average investment balance of impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):									The Company’s average investment balance of impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
	Three months ended September 30,									Three months ended March 31,
	2017				2016					2019				2018
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income			Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	3,967	$	33	$	6,953	$	107		$	23,857	$	328	$	14,640	$	56
Impaired mortgage loans with valuation allowance recorded	—		—		—		—			—		—		—		—
Total impaired mortgage loans	$	3,967	$	33	$	6,953	$	107		$	23,857	$	328	$	14,640	$	56

	Nine months ended September 30,
	2017				2016
	Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	3,062	$	100	$	4,687	$	324
Impaired mortgage loans with valuation allowance recorded	—		—		5,459		—
Total impaired mortgage loans	$	3,062	$	100	$	10,146	$	324

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

The Company did not acquire any impaired mortgage loans during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018. The Company had no mortgage loans that were on a nonaccrual status atas of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018.

Policy Loans

Policy loans comprised approximately ~~2.7%~~2.3% and ~~3.2%~~2.5% of the Company’s total investments as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively, the majority of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~12.1%~~10.2% and ~~13.1%~~10.6% of the Company’s total investments as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. Of the ~~$6.0~~$5.7 billion funds withheld at interest balance, net of embedded derivatives, as of ~~September 30, 2017, $4.0~~March 31, 2019, $3.7 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed to the Company from the ceding company.

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Other Invested Assets

Other invested assets include equity securities, limited partnership interests, joint ventures (other than operating joint ventures), derivative contracts and fair value option (“FVO”) contractholder-directed unit-linked investments. Other invested assets also include Federal Home Loan Bank of Des Moines (“FHLB”) common stock, equity release mortgages and structured loans, all of which are included in other in the table below. The fair value option was elected for contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting as separate accounts. Other invested assets represented approximately ~~3.1%~~3.6% and ~~3.6%~~3.5% of the Company’s total investments as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. Carrying values of these assets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are as follows (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Equity securities	$	112,931	$	275,361
Limited partnership interests and real estate joint ventures	761,739		687,522		$	982,592	$	965,094
Equity release mortgages					595,559		475,905
Derivatives	133,405		229,108		132,412		180,699
FVO contractholder-directed unit-linked investments	210,660		190,120		202,848		197,770
Other	313,788		209,829		93,459		95,829
Total other invested assets	$	1,532,523	$	1,591,940	$	2,006,870	$	1,915,297

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5. Derivative Instruments

Accounting for Derivative Instruments and Hedging Activities

See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2018 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 6 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.

Types of Derivatives Used by the Company

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

For detailed information on these derivative instruments and the related strategies, see Note 5 – “Derivative Instruments” of the Company’s 2018 Annual Report.

Summary of Derivative Positions

Derivatives, except for embedded derivatives and longevity and mortality swaps, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Longevity and mortality swaps are included on the condensed consolidated balance sheets in other assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modified coinsurance (“modco”) or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


	September 30, 2017							December 31, 2016								March 31, 2019												December 31, 2018
	Notional		Carrying Value/Fair Value					Notional		Carrying Value/Fair Value				Primary Underlying Risk		Notional				Carrying Value/Fair Value								Notional				Carrying Value/Fair Value
	Amount		Assets			Liabilities		Amount		Assets		Liabilities			Amount				Assets				Liabilities				Amount				Assets				Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps	$	946,726	$	61,263		$	1,825	$	949,556	$	78,405	$	5,949		Interest rate		$	1,018,438			$	57,278			$	2,670			$	1,040,588			$	47,652			$	961
Financial futures	448,600		—			—		475,968		—		—		Equity		360,170				—				—				325,620				—				—
Foreign currency swaps														Foreign currency		149,698				—				4,629				149,698				504				4,659
Foreign currency forwards	6,000		(84		)	—		25,000		—		5,070		Foreign currency		25,000				251				—				25,000				—				234
Consumer price index swaps	132,081		589			420		20,615		—		262
CPI swaps														CPI		388,151				—				20,505				385,580				—				11,384
Credit default swaps	948,000		7,905			490		926,000		12,012		2,871		Credit		1,348,300				6,614				58				1,338,300				6,003				1,166
Equity options	541,532		20,006			—		525,894		33,459		—		Equity		439,158				20,152				—				439,158				42,836				—
Longevity swaps	945,120		37,827			—		841,360		26,958		—		Longevity		897,440				48,869				—				917,360				47,789				—
Mortality swaps	50,000		—			1,683		50,000		—		2,462		Mortality		25,000				489				—				25,000				—				369
Synthetic guaranteed investment contracts	9,119,434		—			—		8,834,700		—		—
Synthetic GICs														Interest rate		13,895,380				—				—				13,397,729				—				—
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	—		84,325			—		—		—		22,529
Modco or funds withheld arrangements																—				107,506				—				—				109,597				—
Indexed annuity products	—		—			821,821		—		—		805,672				—				—				754,171				—				—				776,940
Variable annuity products	—		—			168,119		—		—		184,636				—				—				149,764				—				—				167,925
Total non-hedging derivatives	13,137,493		211,831			994,358		12,649,093		150,834		1,029,451				18,546,735				241,159				931,797				18,044,033				254,381				963,638
Derivatives designated as hedging instruments:
Interest rate swaps	435,000		—			22,133		435,000		27,901		31,223		Foreign currency/Interest rate		435,000				891				24,436				435,000				—				27,257
Foreign currency swaps	796,489		71,032			13,876		928,505		104,359		734		Foreign currency		451,686				38,620				479				494,461				51,311				—
Foreign currency forwards	331,135		1,418			10,203		—		—		—		Foreign currency		949,879				32,862				—				911,197				50,974				—
Total hedging derivatives	1,562,624		72,450			46,212		1,363,505		132,260		31,957				1,836,565				72,373				24,915				1,840,658				102,285				27,257
Total derivatives	$	14,700,117	$	284,281		$	1,040,570	$	14,012,598	$	283,094	$	1,061,408			$	20,383,300			$	313,532			$	956,712			$	19,884,691			$	356,666			$	990,895

~~Netting Arrangements~~

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The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – “Investments” for information regarding the Company’s securities borrowing, lending, repurchase and repurchase/reverse repurchase programs. See “Embedded Derivatives” below for information regarding the Company’s bifurcated embedded derivatives.

~~The following table provides information relating to the Company’s derivative instruments as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands):~~

Gross Amounts Not
Offset in the Balance Sheet

Gross Amounts
Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in the
Balance Sheet

Financial
Instruments ⁽¹⁾

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


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

~~Accounting for Derivative Instruments and Hedging Activities~~

The Company does not enter into derivative instruments for speculative purposes. As discussed below under “Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging,” the Company uses various derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment. As of ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~, the Company held interest rate swaps that were designated and qualified as cash flow hedges of interest rate risk, for variable rate liabilities and foreign currency assets, foreign currency swaps and foreign currency forwards that were designated and qualified as hedges of a portion of its net investment in its foreign operations, foreign currency swaps that were designated and qualified as fair value hedges of foreign currency risk, and derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s 2016 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contracts.

Fair Value Hedges

The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, were (dollars in thousands):

Type of Fair Value Hedge Hedged Item Gains (Losses) Recognized for Derivatives Gains (Losses) Recognized for Hedged Items Ineffectiveness Recognized in Investment Related Gains (Losses), net
For the three months ended September 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 2,100
$ (2,100 ) $ —
For the three months ended September 30, 2016:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 3,205
$ (3,205 ) $ —
For the nine months ended September 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 9,541
$ (9,541 ) $ —
For the nine months ended September 30, 2016:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 5,317
$ (5,317 ) $ —

A regression analysis was used, both at inception of the hedge and on an ongoing basis, to determine whether each derivative used in a hedged transaction is highly effective in offsetting changes in the hedged item. For the foreign currency swaps, the change in fair value related to changes in the benchmark interest rate and credit spreads are excluded from the hedge effectiveness. For the three and nine months ended September 30, 2017, $0.2 million and $0.8 million, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness. For the three and nine months ended September 30, 2016, $1.6 million and $(5.4) million, respectively, of the change in the estimated fair value of derivatives, was excluded from hedge effectiveness.

~~Table of Contents~~



Type of Fair Value Hedge	Hedged Item	Gains (Losses) Recognized for Derivatives			Gains (Losses) Recognized for Hedged Items
		Investment Related Gains (Losses)
For the three months ended March 31, 2019:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(709	)	$	(703	)
For the three months ended March 31, 2018:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(1,891	)	$	1,891

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and ~~Hedging.~~Hedging. The Company designates and accounts for the following as cash flows: (i) certain interest rate swaps, in which the cash flows of liabilities are variable based on a benchmark rate; and (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency ~~swaps; and (iii) forward bond purchase commitments.~~swaps.

The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (dollars in thousands):


	Three months ended September 30,						Three months ended March 31,
	2017			2016			2019			2018
Balance beginning of period	$	7,690		$	(41,192	)	$	8,788		$	2,619
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	(6,889		)	932
Amounts reclassified to investment related (gains) losses, net	(183		)	(116		)
Gains (losses) deferred in other comprehensive income (loss)							(10,196		)	17,817
Amounts reclassified to investment income	(271		)	(221		)	(25		)	(144		)
Amounts reclassified to interest expense							(469		)	370
Balance end of period	$	347		$	(40,597	)	$	(1,902	)	$	20,662

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

As of ~~September 30, 2017,~~March 31, 2019, the before-tax deferred net gains (losses) on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are approximately ~~$(0.4) million. This expectation is based on the anticipated interest payments on hedged investments~~$0.1 million and $1.7 million in ~~fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to~~ investment income ~~over the term of the investment cash flows.~~

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and interest expense, respectively.

The following table presents the ~~effective portion~~effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (dollars in thousands):


	Effective Portion
Derivative Type	Gain (Loss) Deferred in OCI			Gain (Loss) Reclassified into Income from OCI						Gain (Loss) Deferred in OCI			Gain (Loss) Reclassified into Income from OCI
				Investment Related Gains (Losses)			Investment Income						Investment Income		Interest Expense
For the three months ended September 30, 2017:
For the three months ended March 31, 2019:
Interest rate	$	(8,421	)	$	—		$	—		$	(12,101	)	$	—	$	469
Currency/Interest rate	1,544			—			230			1,905			25		—
Forward bond purchase commitments	(12		)	183			41
Total	$	(6,889	)	$	183		$	271		$	(10,196	)	$	25	$	469
For the three months ended September 30, 2016:
For the three months ended March 31, 2018:
Interest rate	$	(3,282	)	$	—		$	—		$	14,986		$	—	$	(370	)
Currency/Interest rate	4,214			—			200			2,831			144		—
Forward bond purchase commitments	—			116			21
Total	$	932		$	116		$	221		$	17,817		$	144	$	(370	)

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

~~All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.~~ For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, the ineffective portion of derivatives reported as cash flow hedges was not material to the Company’s results of operations. Also,~~2018, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

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Hedges of Net Investments in Foreign Operations

The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (dollars in thousands):


	Derivative Gains (Losses) Deferred in AOCI											Derivative Gains (Losses) Deferred in AOCI
	For the three months ended September 30,					For the nine months ended September 30,						For the three months ended March 31,
Type of NIFO Hedge ^{(1) (2)}	2017			2016		2017			2016
Type of NIFO Hedge ⁽¹⁾												2019			2018
Foreign currency swaps	$	(35,198	)	$	8,341	$	(60,723	)	$	(23,151	)	$	(7,007	)	$	8,805
Foreign currency forwards	4,627			—		8,785			—			(18,112		)	12,236
Total	$	(30,571	)	$	8,341	$	(51,938	)	$	(23,151	)


(1)	There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.


~~(2)~~	~~There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations.~~

The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $~~109.7~~175.9 million and $~~161.6~~201.0 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation.

~~Table of Contents~~

Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging

The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net in the condensed consolidated statements of income, except where otherwise noted.

A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 is as follows (dollars in thousands):


		Gain (Loss) for the three months ended September 30,							Gain (Loss) for the three months ended March 31,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2017			2016			Income Statement Location of Gain (Loss)	2019			2018
Interest rate swaps	Investment related gains (losses), net	$	641		$	4,122		Investment related gains (losses), net	$	23,974		$	(26,571	)
Financial futures	Investment related gains (losses), net	(8,890		)	(11,677		)	Investment related gains (losses), net	(22,278		)	129
Foreign currency swaps								Investment related gains (losses), net	723			—
Foreign currency forwards	Investment related gains (losses), net	24			507			Investment related gains (losses), net	492			323
CPI swaps	Investment related gains (losses), net	220			76			Investment related gains (losses), net	(8,851		)	2,186
Credit default swaps	Investment related gains (losses), net	4,137			6,672			Investment related gains (losses), net	14,500			(402		)
Equity options	Investment related gains (losses), net	(8,295		)	(13,648		)	Investment related gains (losses), net	(22,684		)	2,593
Longevity swaps	Other revenues	3,334			8,921			Other revenues	2,143			2,267
Mortality swaps	Other revenues	(132		)	(400		)	Other revenues	858			—
Subtotal		(8,961		)	(5,427		)		(11,123		)	(19,475		)
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	Investment related gains (losses), net	23,044			49,078
Modco or funds withheld arrangements								Investment related gains (losses), net	(2,092		)	13,611
Indexed annuity products	Interest credited	(13,133		)	(20,104		)	Interest credited	3,070			25,351
Variable annuity products	Investment related gains (losses), net	(6,205		)	7,988			Investment related gains (losses), net	18,161			14,785
Total non-hedging derivatives		$	(5,255	)	$	31,535			$	8,016		$	34,272

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

~~Table of Contents~~

~~Types of Derivatives Used by the Company~~

~~Interest Rate Swaps~~

Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates, to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches) and to manage the risk of cash flows of liabilities that are variable based on a benchmark rate. With an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between two rates, which can be either fixed-rate or floating-rate interest amounts, tied to an agreed-upon notional principal amount. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments at each due date. The Company utilizes interest rate swaps in cash flow and non-qualifying hedging relationships.

~~Financial Futures~~

Exchange-traded futures are used primarily to economically hedge liabilities embedded in certain variable annuity products. With exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant indices, and to post variation margin on a daily basis in an amount equal to the difference between the daily estimated fair values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange.

~~Equity Options~~

Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products. To hedge against adverse changes in equity indices volatility, the Company buys put options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price. Equity warrants are also used by the Company to economically hedge the variability in anticipated cash flows for the acquisition of investment securities.

~~Consumer Price Index Swaps~~

Consumer price index (“CPI”) swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products where value is directly affected by changes in a designated benchmark consumer price index. With a CPI swap transaction, the Company agrees with another party to exchange the actual amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.

~~Foreign Currency Swaps~~

Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the termination of the currency swap by each party. The Company uses foreign currency swaps in hedges of net investments in foreign operations and non-qualifying hedge relationships.

~~Foreign Currency Forwards~~

Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date. The Company uses foreign currency forwards in hedges of net investments in foreign operations and non-qualifying hedge relationships.

~~Forward Bond Purchase Commitments~~

Forward bond purchase commitments have been used by the Company to hedge against the variability in the anticipated cash flows required to purchase securities. With forward bond purchase commitments, the forward price is agreed upon at the time of the contract and payment for such contract is made at the future specified settlement date of the securities.

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Credit ~~Default Swaps~~

The Company sells protection under single name credit default swaps and credit default swap index tranches to diversify its credit risk exposure in certain portfolios and, in combination with purchasing securities, to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for indexed reference entities and single name reference entities are defined in the contracts. The Company’s maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default of a referencing entity, the Company is typically required to pay the protection holder the full notional value less a recovery amount determined at auction.Derivatives

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):


	September 30, 2017					December 31, 2016						March 31, 2019					December 31, 2018
Rating Agency Designation of Referenced Credit Obligations⁽¹⁾	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps	$	2,975	$	155,500	3.2	$	1,726		$	150,500	3.8	$	2,082	$	157,000	2.1	$	1,953		$	152,000	2.2
Subtotal	2,975		155,500		3.2	1,726			150,500		3.8	2,082		157,000		2.1	1,953			152,000		2.2
BBB+/BBB/BBB-
Single name credit default swaps	4,209		368,200		3.2	1,426			347,200		3.7	3,672		358,700		2.0	2,930			353,700		2.2
Credit default swaps referencing indices	56		416,000		4.2	6,295			416,000		5.0	769		817,600		5.0	(76		)	817,600		6.4
Subtotal	4,265		784,200		3.7	7,721			763,200		4.4	4,441		1,176,300		4.1	2,854			1,171,300		5.1
BB+/BB/BB-
Single name credit default swaps	21		5,000		1.7	(477		)	9,000		3.5	33		15,000		0.5	30			15,000		0.7
Subtotal	21		5,000		1.7	(477		)	9,000		3.5	33		15,000		0.5	30			15,000		0.7
Total	$	7,261	$	944,700	3.6	$	8,970		$	922,700	4.3	$	6,556	$	1,348,300	3.8	$	4,837		$	1,338,300	4.7


(1)	The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).


(2)	Assumes the value of the referenced credit obligations is zero.


(3)	The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.

Netting Arrangements and Credit Risk

Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company ~~also purchases credit default swaps~~nets all derivatives that are subject to reduce its risk against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, the Company is able to put the bond back to the counterparty at par.

~~Longevity Swaps~~

~~The Company enters into longevity swaps in the form of out-of-the-money options, which provide protection against changes in mortality improvement to retirement plans and insurers of~~ such plans. With a longevity swap transaction, the Company agrees with another party to exchange a proportion of a notional value. The proportion is determined by the difference between a predefined benefit, and the realized benefit plus the future expected benefit, calculated by reference to a population index for a fixed premium.

~~Mortality Swaps~~

Mortality swaps are used by the Company to hedge risk from changes in mortality experience associated with its reinsurance of life insurance risk. The Company agrees with another party to exchange, at specified intervals, a proportion of a notional value determined by the difference between a predefined expected and realized claim amount on a designated index of reinsured lives, for a fixed percentage (premium) each term.

~~Synthetic Guaranteed Investment Contracts~~

The Company sells fee-based synthetic guaranteed investment contracts to retirement plans which include investment-only, stable value contracts. The assets are owned by the trustees of such plans, who invest the assets under the terms of investment guidelines to which the Company agrees. The contracts contain a guarantee of a minimum rate of return on participant balances supported by the underlying assets, and a guarantee of liquidity to meet certain participant-initiated plan cash flow requirements. These contracts are reported as derivatives and recorded at fair value.

~~Embedded Derivatives~~arrangements.

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

The following table provides information relating to the Company’s derivative instruments as ~~derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance (“modco”) or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity~~of March 31, 2019 and ~~variable annuity contracts with benefits that are considered~~

December 31, 2018 (dollars in thousands):

~~Table of Contents~~



								Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments ⁽¹⁾			Cash Collateral Pledged/ Received			Net Amount
March 31, 2019:
Derivative assets	$	206,026	$	(24,745	)	$	181,281	$	—		$	(205,177	)	$	(23,896	)
Derivative liabilities	52,777		(24,745		)	28,032		(63,992		)	(37,980		)	(73,940		)
December 31, 2018:
Derivative assets	$	247,069	$	(18,581	)	$	228,488	$	—		$	(235,611	)	$	(7,123	)
Derivative liabilities	46,030		(18,581		)	27,449		(71,376		)	(24,080		)	(68,007		)


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

~~embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits.~~ The ~~changes~~Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments with a positive fair ~~values~~value. Generally, the credit exposure of ~~embedded derivatives on equity-indexed annuities described below relate~~the Company’s derivative contracts is limited to ~~changes in~~ the fair value ~~associated with capital market~~at the reporting date plus or minus any collateral posted or held by the Company. The Company had no credit exposure related to its derivative contracts, as of March 31, 2019 and ~~other related assumptions. The Company’s utilization~~December 31, 2018, as the net amount of ~~a credit valuation adjustment (“CVA”) did not have a material effect on~~collateral pledged to the ~~change in~~Company from counterparties exceeded the fair value of ~~its embedded~~the derivative contracts.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives ~~for the three~~are cleared and ~~nine months ended September 30, 2017 and 2016.~~

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

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

~~Credit Risk~~

bilateral contracts between two counterparties. The Company manages its credit risk related to ~~over-the-counter (“OTC”)~~OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination.

The ~~credit exposure of the Company’s OTC derivative transactions is represented by the contracts with a positive fair value (market value) at the reporting date. To reduce credit exposures, the~~ Company seeks to (i) enter into OTC derivative transactions pursuant to master netting agreements that provide for a netting of payments and receipts with a single counterparty, and (ii) enter into agreements that allow the use of credit support annexes, which are bilateral rating-sensitive agreements that require collateral postings at established threshold levels. Certain of the Company’s OTC derivatives are cleared derivatives, which are bilateral transactions between the Company and a counterparty where the transactions are cleared through a clearinghouse, such that each derivative counterparty is only exposed to the default of the ~~clearinghouse. These~~central clearing counterparties for OTC cleared

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derivatives, and these transactions require initial and daily variation margin collateral postings and include certain interest rate swaps and credit default swaps entered into on or after June 10, 2013, related to guidelines implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, the Company enters into exchange-traded futures through regulated exchanges and these transactionspostings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the credit risk exposure in the event of non-performance by counterparties to such financial instruments.

The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that may vary depending on the posting party’s ratings. Additionally, a decline in the Company’s or the counterparty’s credit ratings to specified levels could result in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Company also has exchange-traded futures, which require the maintenance of a margin account. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties.

~~Table of Contents~~

The Company’s credit exposure related to derivative contracts is generally limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company’s credit exposure to mortality swaps is minimal, as they are fully collateralized by a counterparty. Information regarding the Company’s credit exposure related to its over-the-counter derivative contracts, centrally cleared derivative contracts and margin account for exchange-traded futures, excluding mortality swaps, at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~are reflected in the following table (dollars in thousands):~~

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


~~(1)~~	~~Consists of receivable from counterparty, included in other assets.~~


~~(2)~~	~~Included in available-for-sale securities, primarily consists of U.S. Treasury and government agency securities.~~


~~(3)~~	~~Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities.~~


~~(4)~~	~~Consists of U.S. Treasury and government securities.~~


~~(5)~~	~~Included in other assets.~~

6. Fair Value of Assets and Liabilities

Fair Value Measurement

General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a fair value hierarchy ~~which~~that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities are traded in active exchange markets.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions that use significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques that require management’s judgment or estimation in developing inputs that are consistent with ~~those~~what other market participants would use when pricing similar assets and liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties and longevity and mortality swaps, are classified in Level 3 since their values include significant unobservable inputs.

~~When inputs used to measure~~For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value ~~of an asset or liability fall within different levels of~~hierarchy, see Note 6 in the ~~hierarchy,~~Notes to Consolidated Financial Statements included in the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety, except for fair value measurements using net asset value. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).Company’s 2018 Annual Report.

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Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are summarized below (dollars in thousands):


September 30, 2017:				Fair Value Measurements Using:
March 31, 2019:														Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities	$	22,535,830		$	615,433	$	20,648,377		$	1,272,020
Canadian and Canadian provincial governments	3,991,185			—		3,465,820			525,365
Residential mortgage-backed securities	1,679,305			—		1,561,310			117,995
Asset-backed securities	1,694,568			—		1,549,371			145,197
Commercial mortgage-backed securities	1,313,322			—		1,311,375			1,947
U.S. government and agencies	1,603,669			1,480,357		100,061			23,251
Corporate											$	25,077,338		$	—	$	23,546,583		$	1,530,755
Canadian government											4,277,864			—		3,670,073			607,791
RMBS											1,994,186			—		1,987,664			6,522
ABS											2,241,986			—		2,128,199			113,787
CMBS											1,431,746			—		1,431,725			21
U.S. government											1,567,563			1,464,139		86,215			17,209
State and political subdivisions	661,031			—		619,519			41,512		792,717			—		782,555			10,162
Other foreign government supranational and foreign government-sponsored enterprises	2,902,832			319,147		2,578,057			5,628
Other foreign government											4,355,043			—		4,349,977			5,066
Total fixed maturity securities – available-for-sale	36,381,742			2,414,937		31,833,890			2,132,915		41,738,443			1,464,139		37,982,991			2,291,313
Equity securities											89,865			49,443		—			40,422
Funds withheld at interest – embedded derivatives	84,325			—		—			84,325		107,506			—		—			107,506
Cash equivalents	332,186			332,186		—			—		855,265			853,927		1,319			19
Short-term investments	56,454			—		53,095			3,359		75,360			4,766		41,392			29,202
Other invested assets:
Non-redeemable preferred stock	38,901			38,901		—			—
Other equity securities	74,030			74,030		—			—
Derivatives:
Interest rate swaps	46,258			—		46,258			—		48,683			—		48,683			—
Foreign currency forwards	1,418			—		1,418			—		33,113			—		33,113			—
CPI swaps	230			—		230			—
Credit default swaps	6,903			—		6,903			—		(6,201		)	—		(6,201		)	—
Equity options	9,700			—		9,700			—		18,676			—		18,676			—
Foreign currency swaps	68,896			—		68,896			—		38,141			—		38,141			—
FVO contractholder-directed unit-linked investments	210,660			209,136		1,524			—		202,848			201,833		1,015			—
Total other invested assets	456,996			322,067		134,929			—		335,260			201,833		133,427			—
Other assets - longevity swaps	37,827			—		—			37,827		48,869			—		—			48,869
Total	$	37,349,530		$	3,069,190	$	32,021,914		$	2,258,426	$	43,250,568		$	2,574,108	$	38,159,129		$	2,517,331
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	989,940		$	—	$	—		$	989,940	$	903,935		$	—	$	—		$	903,935
Other liabilities:
Derivatives:
Interest rate swaps	8,953			—		8,953			—		17,620			—		17,620			—
Foreign currency forwards	10,287			—		10,287			—
Foreign currency swaps - non-hedged											4,629			—		4,629			—
CPI swaps	61			—		61			—		20,505			—		20,505			—
Credit default swaps	(512		)	—		(512		)	—		(12,757		)	—		(12,757		)	—
Equity options	(10,306		)	—		(10,306		)	—		(1,476		)	—		(1,476		)	—
Foreign currency swaps	11,740			—		11,740			—
Mortality swaps	1,683			—		—			1,683		(489		)	—		—			(489		)
Total	$	1,011,846		$	—	$	20,223		$	991,623	$	931,967		$	—	$	28,521		$	903,446

2925

Table of Contents


December 31, 2016:				Fair Value Measurements Using:
December 31, 2018:															Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate securities	$	19,619,084		$	310,995	$	18,035,836		$	1,272,253
Canadian and Canadian provincial governments	3,644,046			—		3,168,081			475,965
Residential mortgage-backed securities	1,278,576			—		1,118,285			160,291
Asset-backed securities	1,429,344			—		1,210,064			219,280
Commercial mortgage-backed securities	1,363,654			—		1,342,509			21,145
U.S. government and agencies	1,468,302			1,345,755		98,059			24,488
Corporate												$	23,982,119		$	—	$	22,651,194		$	1,330,925
Canadian government												3,892,385			—		3,364,261			528,124
RMBS												1,869,221			—		1,862,366			6,855
ABS												2,149,204			—		2,053,632			95,572
CMBS												1,419,034			—		1,419,012			22
U.S. government												2,185,874			2,067,529		100,320			18,025
State and political subdivisions	591,796			—		550,130			41,666			752,194			—		741,992			10,202
Other foreign government, supranational and foreign government-sponsored enterprises	2,698,823			276,729		2,409,225			12,869
Other foreign government												3,742,315			—		3,737,309			5,006
Total fixed maturity securities – available-for-sale	32,093,625			1,933,479		27,932,189			2,227,957			39,992,346			2,067,529		35,930,086			1,994,731
Equity securities												82,197			48,737		—			33,460
Funds withheld at interest – embedded derivatives	(22,529		)	—		—			(22,529		)	109,597			—		—			109,597
Cash equivalents	338,601			338,601		—			—			485,167			473,509		11,658			—
Short-term investments	44,241			8,276		32,619			3,346			105,991			4,989		98,774			2,228
Other invested assets:
Non-redeemable preferred stock	51,123			38,317		12,806			—
Other equity securities	224,238			224,238		—			—
Derivatives:
Interest rate swaps	93,508			—		93,508			—			37,976			—		37,976			—
Foreign currency forwards												50,740			—		50,740			—
Credit default swaps	9,136			—		9,136			—			4,466			—		4,466			—
Equity options	26,070			—		26,070			—			36,206			—		36,206			—
Foreign currency swaps	100,394			—		100,394			—			51,311			—		51,311			—
FVO contractholder-directed unit-linked investments	190,120			188,891		1,229			—			197,770			196,781		989			—
Other	11,036			11,036		—			—
Total other invested assets	705,625			462,482		243,143			—			378,469			196,781		181,688			—
Other assets - longevity swaps	26,958			—		—			26,958			47,789			—		—			47,789
Total	$	33,186,521		$	2,742,838	$	28,207,951		$	2,235,732		$	41,201,556		$	2,791,545	$	36,222,206		$	2,187,805
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	990,308		$	—	$	—		$	990,308		$	944,865		$	—	$	—		$	944,865
Other liabilities:
Derivatives:
Interest rate swaps	24,374			—		24,374			—			18,542			—		18,542			—
Foreign currency forwards	5,070			—		5,070			—
Foreign currency swaps - non-hedged												4,155			—		4,155			—
CPI swaps	262			—		262			—			11,384			—		11,384			—
Credit default swaps	(5		)	—		(5		)	—			(371		)	—		(371		)	—
Equity options	(7,389		)	—		(7,389		)	—			(6,630		)	—		(6,630		)	—
Foreign currency swaps	(3,231		)	—		(3,231		)	—
Mortality swaps	2,462			—		—			2,462			369			—		—			369
Total	$	1,011,851		$	—	$	19,081		$	992,770		$	972,314		$	—	$	27,080		$	945,234

~~The Company may utilize information from third parties, such as pricing services~~Transfers between Levels 1 and ~~brokers,~~2

Transfers between Levels 1 and 2 are made to ~~assist~~reflect changes in determining the fair value for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s condensed consolidated financial statements. This includes responsibility for monitoring the fair value process, ensuring objective and reliable valuation practices and pricingobservability of assets and liabilities, and approving changes to valuation methodologies and pricing sources. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.

~~Table of Contents~~

The Company performs initial and ongoing analysis and review of the various techniques utilized in determining fair value to ensure that they are appropriate and consistently applied, and that the various assumptions are reasonable. The Company analyzes and reviews the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value and to monitor controls around pricing, which includes quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, review of pricing trends, comparison of a sample of executed prices of securities sold to the fair value estimates, comparison of fair value estimates to management’s knowledge of the current market, and ongoing confirmation that third party pricing services use, wherever possible, market-based parameters for valuation. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company also determines if the inputs used in estimated fair values received from pricing services are observable by assessing whether these inputs can be corroborated by observable market data.

For assets and liabilities reported at fair value, the Company utilizes, when available, fair values based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market valuation techniques, market comparable pricing and the income approach. The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings. For the periods presented, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.

~~The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.~~

~~Fixed Maturity Securities~~ – The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately uses the price from the vendor that is highest in the hierarchy for the respective asset type. To validate reasonableness, prices are periodically reviewed as explained above. Consistent with the fair value hierarchy described above, securities with quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service.

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of fair value, non-binding broker quotes are used, if available. If the Company concludes that the values from both pricing services and brokers are not reflective of fair value, an internally developed valuation may be prepared; however, this occurs infrequently. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These valuations may use significant unobservable inputs, which reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset. Observable market data may not be available in certain circumstances, such as market illiquidity and credit events related to the security. Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significant unobservable inputs and ~~are reflected as Level 3 in the valuation hierarchy.~~

The inputs used in the valuation of corporate and government securities include, but are not limited to standard market observable inputs which are derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.

When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.

~~Table of Contents~~

The fair values of private placement securities are primarily determined using a discounted cash flow model. In certain cases these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 3. For certain private fixed maturities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the security. To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.

~~Embedded Derivatives~~ – The fair value of embedded derivative liabilities, including those calculated by third parties, are monitored through the use of attribution reports to quantify the effect of underlying sources of fair value change, including capital market inputs based on policyholder account values, interest rates and short-term and long-term implied volatilities, from period to period. Actuarial assumptions are based on experience studies performed internally in combination with available industry information and are reviewed on a periodic basis, at least annually.

For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a discounted cash flow model, which includes an estimate of future equity option purchases and an adjustment for a CVA. The variable annuity embedded derivative calculations are performed by third parties based on methodology and input assumptions provided by the Company. To validate the reasonableness of the resulting fair value, the Company’s internal actuaries perform reviews and analytical procedures on the results. The capital market inputs to the model, such as equity indexes, short-term equity volatility and interest rates, are generally observable. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset with an adjustment for a CVA. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

~~Credit Valuation Adjustment~~ – The Company uses a structural default risk model to estimate a CVA. The input assumptions are a combination of externally derived and published values (default threshold and uncertainty), market inputs (interest rate, equity price per share, debt per share, equity price volatility) and insurance industry data (Loss Given Default), adjusted for market recoverability.

~~Cash Equivalents and Short-Term Investments~~ – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The fair value of certain other cash equivalents and short-term investments, such as floating rate notes and bonds with original maturities less than twelve months, are based upon other market observable data and are typically classified as Level 2. However, certain short-term investments may incorporate significant unobservable inputs resulting in a Level 3 classification. Various time deposits carried as cash equivalents or short-term investments are not measured at estimated fair value and therefore are excluded from the tables presented.

~~Equity Securities~~ – Equity securities consist principally of exchange-traded funds and preferred stock of publicly and privately traded companies. The fair values of publicly traded equity securities are primarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities, for which quoted market prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair value hierarchy. Non-binding broker quotes for equity securities are generally based on significant unobservable inputs and are reflected as Level 3 in the fair value hierarchy.

~~FVO Contractholder-Directed Unit-Linked Investments~~ – FVO contractholder-directed investments supporting unit-linked variable annuity type liabilities primarily consist of exchange-traded funds and, to a lesser extent, fixed maturity securities and cash and cash equivalents. The fair values of the exchange-traded securities are primarily based on quoted market prices in active markets and are classified within Level 1 of the hierarchy. The fair value of the fixed maturity contractholder-directed securities is determined on a basis consistent with the methodologies described above for fixed maturity securities and are classified within Level 2 of the hierarchy.

~~Table of Contents~~

~~Derivative Assets and Derivative Liabilities –~~ All of the derivative instruments utilized by the Company, except for longevity and mortality swaps, are classified within Level 2 on the fair value hierarchy. These derivatives are principally valued using an income approach. Valuations of interest rate contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, London Interbank Offered Rate (“LIBOR”) basis curves, and repurchase rates. Valuations of foreign currency contracts, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, currency spot rates, and cross currency basis curves. Valuations of credit contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, credit curves, and recovery rates. Valuations of equity market contracts, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, spot equity index levels, and dividend yield curves. Valuations of equity market contracts, option-based, are based on option pricing models, which utilize significant inputs that may include the swap yield curve, spot equity index levels, dividend yield curves, and equity volatility. The Company does not currently have derivatives, except for longevity and mortality swaps, included in Level 3 measurement.

~~Longevity and Mortality Swaps –~~ The Company utilizes a discounted cash flow model to estimate the fair value of longevity and mortality swaps. The fair value of these swaps includes an accrual for premiums payable and receivable. Some inputs to the valuation model are generally observable, such as interest rates and actual population mortality experience. The valuation also requires significant inputs that are generally not observable and, accordingly, the valuation is considered Level 3 in the fair value hierarchy.

~~Level 3 Measurements and Transfers~~

~~As of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, the Company classified approximately~~ ~~5.9%~~ and 6.9%, respectively, of its fixed maturity securities in the Level 3 category. These securities primarily consist of private placement corporate securities and bank loans as well as Canadian provincial strips with inactive trading markets. Additionally, the Company has included asset-backed securities with subprime exposure and mortgage-backed securities with below investment grade ratings in the Level 3 category due to market uncertainty associated with these securities and the Company’s utilization of unobservable information from third parties for the valuation of these securities.

The significant unobservable inputs used in the fair value measurement of the Company’s corporate, sovereign, government-backed, and other political subdivision investments are probability of default, liquidity premium and subordination premium. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumptions used for the liquidity premium and subordination premium. For securities with a fair value derived using the market comparable pricing valuation technique, liquidity premium is the only significant unobservable input.

The significant unobservable inputs used in the fair value measurement of the Company’s asset and mortgage-backed securities are prepayment rates, probability of default, liquidity premium and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the liquidity premium and loss severity and a directionally opposite change in the assumption used for prepayment rates.

The actuarial assumptions used in the fair value of embedded derivatives which include assumptions related to lapses, withdrawals, and mortality, are based on experience studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually. The significant unobservable inputs used in the fair value measurement of embedded derivatives are assumptions associated with policyholder experience and selected capital market assumptions for equity-indexed and variable annuities. The selected capital market assumptions, which include long-term implied volatilities, are projections based on short-term historical information. Changes in interest rates, equity indices, equity volatility, CVA, and actuarial assumptions regarding policyholder experience may result in significant fluctuations in the value of embedded derivatives.

Fair value measurements associated with funds withheld reinsurance treaties are generally not materially sensitive to changes in unobservable inputs associated with policyholder experience. The primary drivers of change in these fair values are related to movements of credit spreads, which are generally observable. Increases (decreases) in market credit spreads tend to decrease (increase) the fair value of embedded derivatives. Increases (decreases) in the CVA assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

Fair value measurements associated with variable annuity treaties are sensitive to both capital markets inputs and policyholder experience inputs. Increases (decreases) in lapse rates tend to decrease (increase) the value of the embedded derivatives associated with variable annuity treaties. Increases (decreases) in the long-term volatility assumption tend to increase (decrease) the fair value of embedded derivatives. Increases (decreases) in the CVA assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

~~Table of Contents~~

The actuarial assumptions used in the fair value of longevity and mortality swaps include assumptions related to the level and volatility of mortality. The assumptions are based on studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually.

~~The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~(dollars in thousands):~~

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

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

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

The Company recognizes transfers of assets and liabilities into and out of levels within the fair value hierarchy at the beginning of the quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2019 or 2018.

Table of Contents

Quantitative Information Regarding Internally - Priced Assets and Liabilities

The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of March 31, 2019 and December 31, 2018 (dollars in thousands):



	Estimated Fair Value			Valuation Technique	Unobservable Inputs	Range (Weighted Average)
	March 31, 2019		December 31, 2018	Valuation Technique	Unobservable Inputs	March 31, 2019		December 31, 2018
Assets:
Corporate	$740,698		$642,647	Market comparable securities	Liquidity premium	0-5% (1%)		0-5% (1%)
					EBITDA Multiple	5.9x		5.9x-7.5x (6.5x)
ABS	81,417		77,842	Market comparable securities	Liquidity premium	0-1% (1%)		0-1% (1%)
U.S. government	17,209		18,025	Market comparable securities	Liquidity premium	0-1% (1%)		0-1% (1%)
Other foreign government	5,066		5,006	Market comparable securities	Liquidity premium	1	%	1	%
Equity securities	30,294		25,007	Market comparable securities	Liquidity premium	4	%	4	%
					EBITDA Multiple	6.9x-12.3x (8.2x)		6.9x-12.3x (7.9x)
Funds withheld at interest- embedded derivatives	107,506		109,597	Total return swap	Mortality	0-100% (2%)		0-100% (2%)
					Lapse	0-35% (11%)		0-35% (10%)
					Withdrawal	0-5% (3%)		0-5% (3%)
					CVA	0-5% (1%)		0-5% (1%)
					Crediting rate	2-4% (2%)		2-4% (2%)
Longevity swaps	48,869		47,789	Discounted cash flow	Mortality	0-100% (2%)		0-100% (2%)
					Mortality improvement	(10%)-10% (3%)		(10%)-10% (3%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	754,171		776,940	Discounted cash flow	Mortality	0-100% (2%)		0-100% (2%)
					Lapse	0-35% (11%)		0-35% (10%)
					Withdrawal	0-5% (3%)		0-5% (3%)
					Option budget projection	2-4% (2%)		2-4% (2%)
Interest sensitive contract liabilities- embedded derivatives- variable annuities	149,764		167,925	Discounted cash flow	Mortality	0-100% (1%)		0-100% (1%)
					Lapse	0-25% (5%)		0-25% (5%)
					Withdrawal	0-7% (4%)		0-7% (5%)
					CVA	0-5% (1%)		0-5% (1%)
					Long-term volatility	0-27% (13%)		0-27% (13%)
Mortality swaps	(489	)	369	Discounted cash flow	Mortality	0-100% (1%)		0-100% (1%)

Table of Contents

Changes in Level 3 Assets and Liabilities

Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Assets and liabilities are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset or liability, a specific event, one or more significant input(s) becoming observable. Transfers out of Level 3 ~~were~~are primarily the result of the Company obtaining observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those assets and liabilities. In ~~addition, certain transfers out~~2018, the Company transferred equity securities with a fair value of approximately $38.9 million into Level 3 ~~were also due to ratings upgrades on mortgage-backed~~as a result of the adoption of the new accounting guidance for the recognition and measurement of equity securities ~~that had previously had below investment-grade ratings.~~

~~Table of Contents~~

~~Transfers from Level 1 to Level~~(see “New Accounting Pronouncements – Financial Instruments – Recognition and Measurement” in Note 2 ~~are due to the lack of observable market data when pricing these securities, while transfers from Level 2 to Level 1 are due to an increase~~– “Significant Accounting Policies and Pronouncements” in the ~~availability of market observable data~~Notes to Consolidated Financial Statements included in ~~an active market. There were no transfers between Level 1~~the Company’s 2018 Annual Report).

For further information on the Company’s valuation processes, see Note 6 in the Notes to Consolidated Financial Statements included in the Company’s 2018 Annual Report.

The reconciliations for all assets and ~~Level 2 during the three and nine months ended September 30, 2016. The following tables present the transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2017~~liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in thousands):

2017

Transfers from
Level 1 to
Level 2

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

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

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



For the three months ended March 31, 2019:	Fixed maturity securities - available-for-sale
	Corporate			Canadian government		RMBS			ABS
Fair value, beginning of period	$	1,330,925		$	528,124	$	6,855		$	95,572
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	133			3,493		2			17
Included in other comprehensive income	19,404			76,174		1			975
Purchases⁽¹⁾	214,441			—		—			31,322
Sales⁽¹⁾	(10,712		)	—		—			—
Settlements⁽¹⁾	(23,436		)	—		(336		)	(14,099		)
Fair value, end of period	$	1,530,755		$	607,791	$	6,522		$	113,787
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	166		$	3,493	$	2		$	17


For the three months ended September 30, 2017:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 2019 (continued):													Fixed maturity securities - available-for-sale
	Corporate securities			Canadian and Canadian provincial governments			Residential mortgage- backed securities			Asset-backed securities			CMBS			U.S. government			State and political subdivisions			Other foreign government		Equity securities
Fair value, beginning of period	$	1,291,054		$	533,270		$	148,685		$	201,589		$	22		$	18,025		$	10,202		$	5,006	33,460
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(383		)	3,460			(30		)	160			—			(89		)	5			—		—
Investment related gains (losses), net	396			—			44			—			—			—			—			—		3,762
Included in other comprehensive income	(2,700		)	(11,365		)	104			(101		)	—			267			(7		)	60		—
Purchases⁽¹⁾	107,670			—			26,765			—			—			84			—			—		3,200
Sales⁽¹⁾	(26,337		)	—			(3,553		)	—
Settlements⁽¹⁾	(88,551		)	—			(3,645		)	(15,243		)	(1		)	(1,078		)	(38		)	—		—
Transfers into Level 3	3,844			—			15			36,994
Transfers out of Level 3	(12,973		)	—			(50,390		)	(78,202		)
Fair value, end of period	$	1,272,020		$	525,365		$	117,995		$	145,197		$	21		$	17,209		$	10,162		$	5,066	$	40,422
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(394	)	$	3,460		$	(27	)	$	156		$	—		$	(89	)	$	5		$	—	$	—
Investment related gains (losses), net													—			—			—			—		3,762

3528

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For the three months ended September 30, 2017 (continued):	Fixed maturity securities available-for-sale
	Commercial mortgage- backed securities			U.S. government and agencies			State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises
For the three months ended March 31, 2019 (continued):													Funds withheld at interest- embedded derivatives			Cash equivalents		Short-term investments		Other assets - longevity swaps			Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	1,943		$	23,567		$	34,434		$	11,994		$	109,597		$	—	$	2,228	$	47,789		$	(944,865	)	$	(369	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(116		)	26			(1		)	—			—		32		—			—			—
Investment related gains (losses), net													(2,091		)	—		—		—			18,161			—
Interest credited													—			—		—		—			3,070			—
Included in other comprehensive income	5			6			(208		)	(7		)	—			—		199		(1,063		)	—			—
Other revenues													—			—		—		2,143			—			858
Purchases⁽¹⁾	—			134			—			495			—			19		26,743		—			1,398			—
Settlements⁽¹⁾	(1		)	(340		)	(35		)	—			—			—		—		—			18,301			—
Transfers into Level 3	—			—			7,295			—
Transfers out of Level 3	—			—			—			(6,853		)
Fair value, end of period	$	1,947		$	23,251		$	41,512		$	5,628		$	107,506		$	19	$	29,202	$	48,869		$	(903,935	)	$	489
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	—		$	(116	)	$	26		$	(1	)	$	—		$	—	$	32	$	—		$	—		$	—
Investment related gains (losses), net													(2,091		)	—		—		—			16,766			—
Other revenues													—			—		—		2,143			—			858
Interest credited													—			—		—		—			(15,231		)	—


For the three months ended September 30, 2017 (continued):	Short-term Investments			Funds withheld at interest- embedded derivatives		Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
For the three months ended March 31, 2018:														Fixed maturity securities - available-for-sale
														Corporate			Canadian government			RMBS			ABS
Fair value, beginning of period	$	3,548		$	61,281	$	33,349	$	(974,631	)	$	(1,552	)	$	1,337,272		$	593,942		$	107,882		$	123,474
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses														(361		)	3,444			(92		)	106
Investment related gains (losses), net	—			23,044		—		(10,047		)	—			—			—			—			2
Interest credited	—			—		—		(8,335		)	—
Included in other comprehensive income	(3		)	—		1,144		—			1			(32,852		)	(24,639		)	(1,110		)	853
Other revenues	—			—		3,334		—			(132		)
Purchases⁽¹⁾	3,164			—		—		(18,736		)	—			100,170			—			20,916			11,000
Sales⁽¹⁾														(6,180		)	—			—			—
Settlements⁽¹⁾	(114		)	—		—		21,809			—			(75,146		)	—			(2,963		)	(2,739		)
Transfers into Level 3														7,166			—			—			—
Transfers out of Level 3	(3,236		)	—				—			—			(30,805		)	—			(4,019		)	(1,990		)
Fair value, end of period	$	3,359		$	84,325	$	37,827	$	(989,940	)	$	(1,683	)	$	1,299,264		$	572,747		$	120,614		$	130,706
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment related gains (losses), net	—			23,044		—		(11,900		)	—
Other revenues	—			—		3,334		—			(132		)
Interest credited	—			—		—		(30,145		)	—
Investment income, net of related expenses														$	(361	)	$	3,444		$	(92	)	$	106

3629

Table of Contents


For the nine months ended September 30, 2017:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 2018 (continued):												Fixed maturity securities - available-for-sale
	Corporate securities			Canadian and Canadian provincial governments		Residential mortgage- backed securities			Asset-backed securities			CMBS			U.S. government			State and political subdivisions			Other foreign government
Fair value, beginning of period	$	1,272,253		$	475,965	$	160,291		$	219,280		$	3,234		$	22,511		$	41,203		$	5,092
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(1,202		)	9,731		(304		)	1,689			—			(110		)	8			—
Investment related gains (losses), net	7,592			—		524			—
Interest credited
Included in other comprehensive income	(2,300		)	39,669		2,716			6,802			(47		)	(340		)	700			(88		)
Purchases⁽¹⁾	257,671			—		72,582			45,215			—			96			—			—
Sales⁽¹⁾	(49,511		)	—		(18,624		)	—
Settlements⁽¹⁾	(234,552		)	—		(15,084		)	(60,966		)	(1		)	(1,104		)	(35		)	—
Transfers into Level 3	35,042			—		5,515			75,752
Transfers out of Level 3	(12,973		)	—		(89,621		)	(142,575		)	(1,302		)	—			—			—
Fair value, end of period	$	1,272,020		$	525,365	$	117,995		$	145,197		$	1,884		$	21,053		$	41,876		$	5,004
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	(1,213	)	$	9,731	$	(155	)	$	556		$	—		$	(110	)	$	8		$	—
Investment related gains (losses), net	(2,788		)	—		(346		)	—

For the nine months ended September 30, 2017 (continued): Fixed maturity securities available-for-sale
Commercial
mortgage-
backed
securities U.S. government
and agencies State
and political
subdivisions Other foreign government, supranational and foreign government-sponsored enterprises
Fair value, beginning of period $ 21,145
$ 24,488
$ 41,666
$ 12,869
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses 709
(348 ) (68 ) (1 )
Investment related gains (losses), net (595 ) —
—
—
Included in other comprehensive income (57 ) 269
(228 ) (210 )
Other revenues —
—
—
—
Purchases⁽¹⁾
—
370
—
495
Sales⁽¹⁾
(3,720 ) —
—
—
Settlements⁽¹⁾
(5,403 ) (1,528 ) (309 ) (672 )
Transfers into Level 3 —
—
7,295
—
Transfers out of Level 3 (10,132 ) —
(6,844 ) (6,853 )
Fair value, end of period $ 1,947
$ 23,251
$ 41,512
$ 5,628
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses $ —
$ (348 ) $ (68 ) $ (1 )

~~Table of Contents~~


For the nine months ended September 30, 2017 (continued):	Short-term Investments			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
For the three months ended March 31, 2018 (continued):															Equity securities			Funds withheld at interest- embedded derivatives		Short-term investments			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	3,346		$	(22,529	)	$	26,958	$	(990,308	)	$	(2,462	)	$	—		$	122,194	$	3,096		$	40,659	$	(1,014,229	)	$	(1,683	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net	—			106,854			—		9,005			—			(2,677		)	13,611		—			—		14,785			—
Interest credited	—			—			—		(20,408		)	—			—			—		—			—		25,351			—
Included in other comprehensive income	1			—			3,689		—			1			—			—		(25		)	1,085		—			—
Other revenues	—			—			7,180		—			(922		)	—			—		—			2,267		—			—
Purchases⁽¹⁾	3,520			—			—		(51,276		)	—			—			—		146			—		(8,508		)	—
Sales⁽¹⁾															(28		)	—		—			—		—			—
Settlements⁽¹⁾	(272		)	—			—		63,047			1,700			(48		)	—		—			—		17,807			—
Transfers out of Level 3	(3,236		)	—			—		—			—
Transfers into Level 3															38,905			—		—			—		—			—
Fair value, end of period	$	3,359		$	84,325		$	37,827	$	(989,940	)	$	(1,683	)	$	36,152		$	135,805	$	3,217		$	44,011	$	(964,794	)	$	(1,683	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment related gains (losses), net	—			106,854			—		2,934			—			$	(2,705	)	$	13,611	$	—		$	—	$	12,901		$	—
Other revenues	—			—			7,180		—			(922		)	—			—		—			2,267		—			—
Interest credited	—			—			—		(83,456		)	—			—			—		—			—		7,544			—


(1)	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.

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

For the three months ended September 30, 2016: Fixed maturity securities - available-for-sale

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

Asset-backed
securities

Commercial
mortgage-
backed
securities

U.S. government
and agencies
Fair value, beginning of period $ 1,297,382
$ 554,192
$ 165,979
$ 298,816
$ 37,935
$ 26,255
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (567 ) 3,085
(40 ) 173
304
(122 )
Investment related gains (losses), net 17,917
—
—
—
—
—
Included in other comprehensive income (19,635 ) 16,342
2,597
3,410
(94 ) (135 )
Purchases⁽¹⁾
54,492
—
27,548
5,013
—
147
Sales⁽¹⁾
(26,320 ) —
—
—
—
—
Settlements⁽¹⁾
(44,110 ) —
(6,935 ) (18,602 ) (1 ) (312 )
Transfers into Level 3 —
—
1,544
28,285
—
—
Transfers out of Level 3 (23,255 ) —
—
(93,444 ) (637 ) —
Fair value, end of period $ 1,255,904
$ 573,619
$ 190,693
$ 223,651
$ 37,507
$ 25,833
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses $ (489 ) $ 3,085
$ (40 ) $ 173
$ 304
$ (122 )

~~Table of Contents~~

For the three months ended September 30, 2016 (continued):
Fixed maturity securities
available-for-sale

State
and political
subdivisions Other foreign government, supranational and foreign government-sponsored enterprises
Funds withheld
at interest-
embedded
derivatives
Other assets - longevity swaps Interest sensitive contract liabilities embedded derivatives Other liabilities - mortality swaps
Fair value, beginning of period $ 35,246
$ 13,706
$ (91,981 ) $ 17,781
$ (1,125,380 ) $ (1,997 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses 10
—
—
—
—
—
Investment related gains (losses), net —
—
49,078
—
7,988
—
Interest credited —
—
—
—
(20,104 ) —
Included in other comprehensive income 553
48
—
327
—
—
Other revenues —
—
—
8,921
—
(400 )
Purchases⁽¹⁾
1,986
—
—
—
(11,853 ) —
Sales⁽¹⁾
—
—
—
—
—
—
Settlements⁽¹⁾
(32 ) (328 ) —
—
19,225
329
Transfers into Level 3 —
—
—
—
—
—
Transfers out of Level 3 —
—
—
—
—
—
Fair value, end of period $ 37,763
$ 13,426
$ (42,903 ) $ 27,029
$ (1,130,124 ) $ (2,068 )
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses $ 10
$ —
$ —
$ —
$ —
$ —
Investment related gains (losses), net —
—
49,078
—
3,969
—
Other revenues —
—
—
8,921
—
(400 )
Interest credited —
—
—
—
(39,329 ) —

For the nine months ended September 30, 2016: Fixed maturity securities - available-for-sale

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

Asset-backed
securities

Commercial
mortgage-
backed
securities

U.S. government
and agencies
Fair value, beginning of period $ 1,226,970
$ 416,076
$ 330,649
$ 303,836
$ 68,563
$ 26,265
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (1,986 ) 9,136
(411 ) 599
1,437
(367 )
Investment related gains (losses), net (3,939 ) —
(1,922 ) 1,101
(3,289 ) —
Interest credited —
—
—
—
—
—
Included in other comprehensive income 36,438
148,407
2,104
(4,324 ) (2,453 ) 922
Other revenues —
—
—
—
—
—
Purchases⁽¹⁾
195,070
—
99,776
102,063
1,545
404
Sales⁽¹⁾
(36,803 ) —
(167,684 ) (38,681 ) (25,976 ) —
Settlements⁽¹⁾
(141,065 ) —
(31,839 ) (26,523 ) (138 ) (1,391 )
Transfers into Level 3 10,206
—
1,544
53,081
—
—
Transfers out of Level 3 (28,987 ) —
(41,524 ) (167,501 ) (2,182 ) —
Fair value, end of period $ 1,255,904
$ 573,619
$ 190,693
$ 223,651
$ 37,507
$ 25,833
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses $ (1,917 ) $ 9,136
$ 2
$ 523
$ 1,335
$ (367 )

~~Table of Contents~~

For the nine months ended September 30, 2016 (continued):
Fixed maturity securities
available-for-sale

State
and political
subdivisions Other foreign government, supranational and foreign government-sponsored enterprises
Funds withheld
at interest-
embedded
derivatives
Other assets - longevity swaps Interest sensitive contract liabilities embedded derivatives Other liabilities - mortality swaps
Fair value, beginning of period $ 38,342
$ 14,065
$ (76,698 ) $ 14,996
$ (1,070,584 ) $ (2,619 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses 205
—
—
—
—
—
Investment related gains (losses), net —
—
33,795
—
(83,089 ) —
Interest credited —
—
—
—
(20,730 ) —
Included in other comprehensive income 1,725
336
—
631
—
—
Other revenues —
—
—
11,402
—
222
Purchases⁽¹⁾
1,986
—
—
—
(9,817 ) —
Sales⁽¹⁾
—
—
—
—
—
—
Settlements⁽¹⁾
(290 ) (975 ) —
—
54,096
329
Transfers into Level 3 —
—
—
—
—
—
Transfers out of Level 3 (4,205 ) —
—
—
—
—
Fair value, end of period $ 37,763
$ 13,426
$ (42,903 ) $ 27,029
$ (1,130,124 ) $ (2,068 )
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses $ 205
$ —
$ —
$ —
$ —
$ —
Investment related gains (losses), net —
—
33,795
—
(92,842 ) —
Other revenues —
—
—
11,402
—
222
Interest credited —
—
—
—
(74,826 ) —


~~(1)~~	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.

~~Table of Contents~~

Nonrecurring Fair Value Measurements

~~The following table presents information for assets~~During the three months ended March 31, 2019 and March 31, 2018, the Company did not have any adjustments to its financial instruments measured at ~~estimated~~ fair value on a nonrecurring basis ~~during the periods presented and~~that are still held at the reporting ~~date (for example, when there is evidence~~date.

Table of ~~impairment). The estimated fair values for these assets were determined using significant unobservable inputs (Level 3).~~Contents

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


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


~~(2)~~	The impaired limited partnership interests presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The market for these investments has limited activity and price transparency.


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

Fair Value of Financial Instruments

The Company is required by general accounting principles for Fair Value Measurements and Disclosures to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 in the Notes to Consolidated Financial Statements included in the Company’s 2018 Annual Report. This table excludes any payables or receivables for collateral under repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.


September 30, 2017:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3		NAV
March 31, 2019:													Carrying Value ⁽¹⁾		Estimated Fair Value		Fair Value Measurement Using:
																	Level 1		Level 2		Level 3		NAV
Assets:
Mortgage loans on real estate	$	4,322,329	$	4,494,964	$	—	$	—	$	4,494,964	$	—	$	5,117,545	$	5,210,513	$	—	$	—	$	5,210,513	$	—
Policy loans	1,340,146		1,340,146		—		1,340,146		—		—		1,312,349		1,312,349		—		1,312,349		—		—
Funds withheld at interest⁽¹⁾	5,931,416		6,309,369		—		—		6,309,369		—
Cash and cash equivalents⁽²⁾	872,404		872,404		872,404		—		—		—
Short-term investments⁽²⁾	24,128		24,128		24,128		—		—		—
Other invested assets⁽²⁾	601,905		627,650		28,267		68,342		230,355		300,686
Funds withheld at interest													5,619,039		5,823,245		—		—		5,823,245		—
Cash and cash equivalents													1,165,131		1,165,131		1,165,131		—		—		—
Short-term investments													43,855		43,855		43,855		—		—		—
Other invested assets													1,061,220		1,060,931		5,176		83,529		603,835		368,391
Accrued investment income	420,111		420,111		—		420,111		—		—		442,956		442,956		—		442,956		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	12,616,104	$	12,960,161	$	—	$	—	$	12,960,161	$	—
Interest-sensitive contract liabilities													$	14,543,332	$	14,790,369	$	—	$	—	$	14,790,369	$	—
Long-term debt	2,778,480		2,997,791		—		—		2,997,791		—		2,787,717		2,915,623		—		—		2,915,623		—
Collateral finance and securitization notes	796,825		708,342		—		—		708,342		—		656,174		601,680		—		—		601,680		—

December 31, 2016:	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3		NAV
December 31, 2018:
Assets:
Mortgage loans on real estate	$	3,775,522	$	3,786,987	$	—	$	—	$	3,786,987	$	—	$	4,966,298	$	4,917,416	$	—	$	—	$	4,917,416	$	—
Policy loans	1,427,602		1,427,602		—		1,427,602		—		—		1,344,980		1,344,980		—		1,344,980		—		—
Funds withheld at interest⁽¹⁾	5,893,381		6,193,166		—		—		6,193,166		—
Cash and cash equivalents⁽²⁾	862,117		862,117		862,117		—		—		—
Short-term investments⁽²⁾	32,469		32,469		32,469		—		—		—
Other invested assets⁽²⁾	477,132		510,640		26,294		55,669		131,904		296,773
Funds withheld at interest													5,655,055		5,802,518		—		—		5,802,518		—
Cash and cash equivalents													1,404,566		1,404,566		1,404,566		—		—		—
Short-term investments													36,607		36,607		36,607		—		—		—
Other invested assets													945,731		941,449		4,640		83,203		477,214		376,392
Accrued investment income	347,173		347,173		—		347,173		—		—		427,893		427,893		—		427,893		—		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	10,225,099	$	10,234,544	$	—	$	—	$	10,234,544	$	—
Interest-sensitive contract liabilities													$	14,547,436	$	14,611,011	$	—	$	—	$	14,611,011	$	—
Long-term debt	3,088,635		3,186,173		—		—		3,186,173		—		2,787,873		2,752,047		—		—		2,752,047		—
Collateral finance and securitization notes	840,700		745,805		—		—		745,805		—		681,961		626,731		—		—		626,731		—


(1)	Carrying values presented herein may differ from those ~~presented~~ in the Company’s condensed consolidated balance sheets because certain items within the respective financial statement ~~caption are embedded derivatives and are measured at fair value on a recurring basis.~~


~~(2)~~	~~Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are~~captions may be measured at fair value on a recurring basis.

~~Table of Contents~~

~~Mortgage Loans on Real Estate~~ – The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates for mortgage loans with similar credit ratings and similar remaining maturities. As such, inputs include current treasury yields and spreads, which are based on the credit rating and average life of the loan, corresponding to the market spreads. The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.

~~Policy Loans~~ – Policy loans typically carry an interest rate that is adjusted annually based on an observable market index and therefore carrying value approximates fair value. The valuation of policy loans is considered Level 2 in the fair value hierarchy.

~~Funds Withheld at Interest~~ – The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. Ceding companies use a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs, to value the securities that are held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.

~~Cash and Cash Equivalents and Short-term Investments~~ – The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments and are considered Level 1 in the fair value hierarchy.

~~Other Invested Assets~~ – This primarily includes limited partnership interests accounted for using the cost method, structured loans, FHLB common stock, cash collateral and equity release mortgages. The fair value of limited partnership interests and other investments accounted for using the cost method is determined using the net asset value (“NAV”) of the Company’s ownership interest as provided in the financial statements of the investees. The fair value of structured loans is estimated based on a discounted cash flow analysis using discount rates applicable to each structured loan, this is considered Level 3 in the fair value hierarchy. The fair value of the Company’s common stock investment in the FHLB is considered to be the carrying value and it is considered Level 2 in the fair value hierarchy. The fair value of the Company’s cash collateral is considered to be the carrying value and considered to be Level 1 in the fair value hierarchy. The fair value of the Company’s equity release mortgage loan portfolio, considered Level 3 in the fair value hierarchy, is estimated by discounting cash flows, both principal and interest, using a risk free rate plus an illiquidity premium. The cash flow analysis considers future expenses, changes in property prices, and actuarial analysis of borrower behavior, mortality and morbidity.

~~Accrued Investment Income~~ ~~– The carrying value for accrued investment income approximates fair value as there are no adjustments made to the carrying value. This is considered Level 2 in the fair value hierarchy.~~

~~Interest-Sensitive Contract Liabilities~~ – The carrying and fair values of interest-sensitive contract liabilities reflected in the table above exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities utilizes a market standard technique with both capital market inputs and policyholder behavior assumptions, as well as cash values adjusted for recapture fees. The capital market inputs to the model, such as interest rates, are generally observable. Policyholder behavior assumptions are generally not observable and may require use of significant management judgment. The valuation of interest-sensitive contract liabilities is considered Level 3 in the fair value hierarchy.

~~Long-term Debt/Collateral Finance and Securitization Notes~~ – The fair value of the Company’s long-term, debt and collateral finance and securitization notes is generally estimated by discounting future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company, including inputs when available, from actively traded debt of the Company or other companies with similar credit quality. The valuation of long-term debt, and collateral finance and securitization notes are generally obtained from brokers and is considered Level 3 in the fair value hierarchy.

~~Table of Contents~~


7.	Segment Information

The accounting policies of the segments are the same as those described in the ~~Summary of~~ Significant Accounting Policies and Pronouncements in Note 2 of the consolidated financial statements accompanying the ~~2016~~2018 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets.

The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income is attributed to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.

Table of Contents

The Company has geographic-based and business-based operational segments. Geographic-based operations are further segmented into traditional and financial solutions businesses. Information related to revenues, income (loss) before income taxes and total assets of the Company for each reportable segment are summarized below (dollars in thousands).:


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
Revenues:	2017		2016		2017		2016		2019		2018
U.S. and Latin America:
Traditional	$	1,521,383	$	1,444,917	$	4,532,584	$	4,339,737	$	1,540,666	$	1,489,694
Financial Solutions	264,170		276,135		834,992		620,117		254,660		213,352
Total	1,785,553		1,721,052		5,367,576		4,959,854		1,795,326		1,703,046
Canada:
Traditional	281,095		280,959		814,643		827,871		312,333		302,319
Financial Solutions	12,430		12,359		36,240		34,897		23,574		12,777
Total	293,525		293,318		850,883		862,768		335,907		315,096
Europe, Middle East and Africa:
Traditional	360,972		289,070		1,024,978		880,346		384,006		393,782
Financial Solutions	77,041		99,752		230,435		248,485		109,421		88,143
Total	438,013		388,822		1,255,413		1,128,831		493,427		481,925
Asia Pacific:
Traditional	561,660		427,647		1,628,419		1,299,417		673,172		614,539
Financial Solutions	16,932		19,037		55,368		56,153		54,528		19,846
Total	578,592		446,684		1,683,787		1,355,570		727,700		634,385
Corporate and Other	49,627		50,701		125,667		145,190		67,671		39,255
Total	$	3,145,310	$	2,900,577	$	9,283,326	$	8,452,213	$	3,420,031	$	3,173,707


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
Income (loss) before income taxes:	2017			2016			2017			2016			2019			2018
U.S. and Latin America:
Traditional	$	160,512		$	77,081		$	281,066		$	239,609		$	11,654		$	2,892
Financial Solutions	89,118			102,714			299,689			196,672			83,277			67,421
Total	249,630			179,795			580,755			436,281			94,931			70,313
Canada:
Traditional	28,789			34,275			80,953			97,679			50,279			23,707
Financial Solutions	4,472			1,160			12,489			3,880			1,348			3,191
Total	33,261			35,435			93,442			101,559			51,627			26,898
Europe, Middle East and Africa:
Traditional	15,421			8,515			40,751			14,233			15,424			15,421
Financial Solutions	30,953			43,786			91,776			96,679			38,390			39,164
Total	46,374			52,301			132,527			110,912			53,814			54,585
Asia Pacific:
Traditional	26,564			19,822			121,574			95,464			36,624			22,887
Financial Solutions	(229		)	7,549			11,020			16,029			6,083			4,021
Total	26,335			27,371			132,594			111,493			42,707			26,908
Corporate and Other	(15,438		)	(7,302		)	(51,997		)	(11,842		)	(26,515		)	(40,779		)
Total	$	340,162		$	287,600		$	887,321		$	748,403		$	216,564		$	137,925



Assets:	March 31, 2019		December 31, 2018
U.S. and Latin America:
Traditional	$	18,820,270	$	19,235,781
Financial Solutions	20,308,486		19,870,388
Total	39,128,756		39,106,169
Canada:
Traditional	3,579,658		4,200,792
Financial Solutions	57,549		154,000
Total	3,637,207		4,354,792
Europe, Middle East and Africa:
Traditional	3,797,482		3,643,174
Financial Solutions	4,968,853		4,737,529
Total	8,766,335		8,380,703
Asia Pacific:
Traditional	6,043,694		5,680,978
Financial Solutions	1,530,360		1,180,745
Total	7,574,054		6,861,723
Corporate and Other	7,586,129		5,831,858
Total	$	66,692,481	$	64,535,245

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

~~8. Commitments, Contingencies and Guarantees~~


8.	Commitments, Contingencies and Guarantees

Commitments

Funding of Investments

The Company’s commitments to fund investments as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are presented in the following table (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Limited partnership interests and real estate joint ventures	$	349,157	$	332,169
Limited partnership interests and joint ventures					$	579,647	$	523,903
Commercial mortgage loans	75,492		126,248		147,898		22,605
Bank loans and private placements	51,479		58,318		77,854		137,076
Equity release mortgages	156,777		130,324		215,305		264,858

The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Investments in limited partnership interests and real estate joint ventures are carried at cost or reported using the equity method and included in other invested assets in the condensed consolidated balance sheets. Bank loans and private placements are ~~carried at fair value and~~ included in fixed maturity securities available-for-sale. ~~Equity release mortgages are carried at unpaid principal balances, net of any amortized premium or discount and valuation allowance and included in other invested assets.~~

Contingencies

Litigation

The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.

Other Contingencies

The Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.

Guarantees

Statutory Reserve Support

RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third parties have recourse to RGA should the subsidiary fail to provide the required funding,

~~Table of Contents~~

however, as of ~~September 30, 2017,~~March 31, 2019, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents the maximum potential obligation for these commitments as of ~~September 30, 2017~~March 31, 2019 (dollars in millions):


Commitment Period:	Maximum Potential Obligation
Commitment Period			Maximum Potential Obligation
2023	$	500.0	$	500.0
2033	450.0		450.0
2034	2,000.0		2,000.0
2035	1,314.2		1,314.2
2036	2,932.0		2,658.0
2037	5,750.0		5,750.0
2038			1,800.0

Table of Contents

Other Guarantees

RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain securities borrowing and repurchase arrangements, financing arrangements and office lease obligations, whereby, if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. Additionally, in limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration ~~for~~of any legally offsetting amounts due from the guaranteed party are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to securities borrowing and repurchase arrangements provide additional security to third parties should a subsidiary fail to provide securities when due. RGA’s guarantees issued as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 are reflected in the following table (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Treaty guarantees	$	936,032	$	902,216	$	1,481,172	$	1,392,352
Treaty guarantees, net of assets in trust	810,870		780,786		1,381,152		1,291,445
Securities borrowing and repurchase arrangements	295,285		263,820		272,365		269,980
Financing arrangements	100,602		119,073		57,801		61,273
Lease obligations	1,895		2,428		401		392


9.	Income Tax

~~Provision~~The provision for income tax expense differed from the amounts computed by applying the U.S. federal income tax statutory rate of ~~35.0%~~21% to pre-tax income as a result of the following for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018, respectively (dollars in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018
Tax provision at U.S. statutory rate	$	119,057		$	100,660		$	310,562		$	261,941		$	45,478		$	28,964
Increase (decrease) in income taxes resulting from:
U.S. Tax Reform													—			775
Foreign tax rate differing from U.S. tax rate	(3,635		)	(2,335		)	(14,049		)	(14,617		)	664			1,432
Differences in tax bases in foreign jurisdictions	2,126			(7,078		)	(14,633		)	(21,567		)	(15,078		)	(5,760		)
Deferred tax valuation allowance	(2,501		)	4,411			11,627			13,698			18,544			7,947
Amounts related to tax audit contingencies	299			(3,979		)	(873		)	(175		)	560			835
Corporate rate changes	(1,139		)	—			(2,332		)	—			(1,764		)	111
Subpart F	64			1,779			1,390			3,212			165			658
Foreign tax credits	1,230			(1,934		)	(834		)	(2,655		)	—			(572		)
Global intangible low-taxed income, net of credit													—			4,409
Equity compensation excess benefit	(2,762		)	—			(7,226		)	—			(1,461		)	(1,114		)
Return to provision adjustments	452			(1,996		)	133			(2,227		)
Other, net	(620		)	(647		)	(1,737		)	(501		)	(51		)	10
Total provision for income taxes	$	112,571		$	88,881		$	282,028		$	237,109		$	47,057		$	37,695
Effective tax rate	33.1		%	30.9		%	31.8		%	31.7		%	21.7		%	27.3		%

The effective tax rate for the three months ended March 31, 2019 and 2018 was higher than the U.S. Statutory tax rate of 21% primarily as a result of income in non-U.S. jurisdictions with tax rates greater than the U.S. and losses in foreign jurisdictions for which the company established a valuation allowance, which was partially offset with tax benefits related to bases differences in non-U.S. jurisdictions. The effective tax for the three months ended March 31, 2018 was further increased due to the inclusion of U.S. tax related to global intangible low-taxed income (“GILTI”).

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The effective tax rate for the third quarter of 2017 was lower than the U.S. Statutory rate of 35.0% primarily as a result of income generated in non-U.S. jurisdictions with lower tax rates than the U.S. The first nine months of 2017 also includes a reduction related to differences in tax bases in foreign jurisdictions and a tax benefit from the filing of amended returns, which was partially offset with a valuation allowance established related to amended return filings. The third quarter of 2016 effective tax rate was lower than the U.S. Statutory rate of 35.0% primarily as a result of effectively settling an uncertain tax position during the quarter and adjustments related to the filing of the US Federal Income tax return. The first nine months of 2016 effective tax rate was lower than the U.S. Statutory rate of 35.0% primarily as a result of tax benefits from income in non-U.S. jurisdictions with lower tax rates than the U.S.

10. Employee Benefit Plans

The components of net periodic benefit ~~costs,~~cost, included in other operating expenses on the condensed consolidated statements of income, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 were as follows (dollars in thousands):


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Three months ended September 30,						Three months ended September 30,						Three months ended March 31,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018			2019			2018
Service cost	$	2,699		$	2,479		$	465		$	131		$	3,138		$	2,654		$	757		$	636
Interest cost	1,314			1,168			459			408			1,386			1,330			580			530
Expected return on plan assets	(1,554		)	(1,285		)	—			—			(1,884		)	(1,554		)	—			—
Amortization of prior service cost	85			76			(675		)	(467		)
Amortization of prior actuarial loss	1,081			1,040			580			137
Settlements	256			—			—			—
Amortization of prior service cost (credit)													60			83			(329		)	(329		)
Amortization of prior actuarial losses													911			1,094			644			498
Net periodic benefit cost	$	3,881		$	3,478		$	829		$	209		$	3,611		$	3,607		$	1,652		$	1,335

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

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


11.	Reinsurance

Retrocession reinsurance treaties do not relieve the Company from its obligations to direct writing companies. Failure of retrocessionaires to honor their obligations could result in losses to the Company. Consequently, allowances would be established for amounts deemed uncollectible. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, no allowances were deemed necessary. The Company regularly evaluates the financial condition of the insurance companies from which it assumes and to which it cedes reinsurance.

Retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of ~~September 30, 2017 and December~~March 31, ~~2016,~~2019, all rated retrocession pool participants followed by the A.M. Best Company were rated “A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets has been posted. In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. In addition to its third party retrocessionaires, various RGA reinsurance subsidiaries retrocede amounts in excess of their retention to affiliated subsidiaries.

~~Table of Contents~~

The following table presents information for the Company’s reinsurance ceded receivable assets, including the respective amount and A.M. Best rating for each reinsurer representing in excess of five percent of the total as of ~~September 30, 2017 and~~March 31, 2019 or December 31, ~~2016~~2018 (dollars in thousands):


		September 30, 2017				December 31, 2016					March 31, 2019				December 31, 2018
Reinsurer	A.M. Best Rating	Amount		% of Total		Amount		% of Total		A.M. Best Rating	Amount		% of Total		Amount		% of Total
Reinsurer A	A+	$	291,115	37.4		$	240,894	35.2	%	A+	$	324,370	39.8	%	$	303,036	40.0	%
Reinsurer B	A+	203,584		26.1		183,881		26.9		A+	199,748		24.5		193,324		25.5
Reinsurer C	A+	65,528		8.4		68,832		10.1		A	71,367		8.8		69,885		9.2
Reinsurer D	A++	40,860		5.2		36,202		5.3		A++	50,244		6.2		36,600		4.8
Reinsurer E	A+	40,387		5.2		35,484		5.2		A+	41,362		5.1		40,004		5.3
Other reinsurers		137,644		17.7		118,679		17.3			127,715		15.6		114,723		15.2
Total		$	779,118	100.0	%	$	683,972	100.0	%		$	814,806	100.0	%	$	757,572	100.0	%

Included in the total reinsurance ceded receivables balance were ~~$268.1~~$232.0 million and ~~$242.0~~$242.8 million of claims recoverable, of which ~~$0.9~~$6.7 million and ~~$4.0~~$17.4 million were in excess of 90 days past due, as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

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12.	Policy Claims and Benefits

Rollforward of Claims and Claim Adjustment Expenses

The liability for unpaid claims is reported in future policy benefits and other policy-related balances within the Company’s consolidated balance sheet. Activity associated with unpaid claims is summarized below (dollars in thousands):



	Three months ended March 31,
	2019			2018
Balance at beginning of year	$	6,584,668		$	5,896,469
Less: reinsurance recoverable	(432,582		)	(455,547		)
Net balance at beginning of year	6,152,086			5,440,922
Incurred:
Current year	2,807,937			2,663,116
Prior years	31,447			6,255
Total incurred	2,839,384			2,669,371
Payments:
Current year	(186,601		)	(180,802		)
Prior years	(2,387,312		)	(2,111,275		)
Total payments	(2,573,913		)	(2,292,077		)
Other changes:
Interest accretion	6,556			6,115
Foreign exchange adjustments	9,630			26,676
Total other changes	16,186			32,791

Net balance at end the period	6,433,743			5,851,007
Plus: reinsurance recoverable	499,562			469,419
Balance at end of the period	$	6,933,305		$	6,320,426

Incurred claims related to prior years reflected in the table above, resulted in part from developed claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid claims.


~~12.~~13.	New Accounting Standards

Changes to the general accounting principles are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates to the FASB Accounting Standards Codification™. Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.

~~Adoption of New Accounting Standards~~

~~Stock Compensation~~

In March 2016, the FASB updated the general accounting principal for Stock Compensation which changed how companies account for certain aspects of share-based payment awards to employees. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity or deferred taxes on the balance sheet depending on the tax situation of the Company. In addition, the updated guidance also changes the accounting for forfeitures and statutory tax withholding requirements, as well as the classification in the statement of cash flows. The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective transition. The Company adopted the new guidance on January 1, 2017. Upon adoption, the Company recognized excess tax benefits of approximately $17.7 million in deferred tax assets that were previously not recognized in a cumulative-effect adjustment increasing retained earnings by $17.7 million. The Company also recorded excess tax benefits of approximately $2.8 million and $7.2 million in the provision for income taxes for the three and nine months ended September 30, 2017, respectively. The number of weighted average diluted shares outstanding were also adjusted to exclude excess tax benefits from the assumed proceeds in the diluted shares calculation resulting in an immaterial increase in the number of dilutive shares outstanding. The Company also elected to continue estimating forfeitures for purposes of recognizing share-based compensation. Other aspects of the adoption of the updated guidance did not have a material impact to the Company’s financial statements.

~~Future Adoption of New Accounting Standards~~

~~Financial Instruments~~

In January 2016, the FASB amended the general accounting principle for Financial Instruments, effective for the Company January 1, 2018. The amendment revises the accounting related to (1) the classification and measurement of investments in equity securities, (2) the presentation of certain fair value changes for financial liabilities measured at fair value, (3) certain disclosure requirements associated with the fair value of financial instruments. The new guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The adoption of this amendment is not expected to have a material impact on the Company’s financial statements; however, it could result in net income volatility depending on the composition of the Company’s investment portfolio and changes in the fair value of equity securities.

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

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losses. For traditional and other receivables, held-to-maturity debt securities, loans and other instruments entities will be required to use the new forward-looking “expected loss” model that generally will result in earlier



Description	Date of Adoption	Effect on the financial statements or other significant matters
Standards adopted:
Financial Instruments - Recognition and Measurement This guidance requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and also updates certain presentation and disclosure requirements.	January 1, 2018	This guidance required a cumulative-effect adjustment for certain items upon adoption. The adoption of the new guidance was not material to the Company's financial position.
Compensation - Retirement Benefits - Defined Benefit Plans - General This guidance is part of the FASB’s disclosure framework project and eliminates certain disclosure requirements for defined benefit pension and other postretirement plans. Early adoption is permitted.	December 31, 2018	This guidance was applied retrospectively to all periods presented in the year of adoption. The adoption of the new standard was not material to the Company’s financial position.
Leases This new standard, based on the principle that entities should recognize assets and liabilities arising from leases, does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standard’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, the new standard expands the disclosure requirements of lease arrangements. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying the optional transition method. The adoption of the standard did not have a material impact on the Company’s results of operations or financial position. The adoption of the updated guidance resulted in the Company recognizing a right-to-use asset and lease liability of $55.2 million included in other assets and other liabilities, respectively, in the condensed consolidated balance sheets.
Derivatives and Hedging This updated guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting in current GAAP related to the assessment of hedge effectiveness. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying a modified retrospective approach to existing hedging relationships as of the date of adoption. The adoption of the new standard did not have a material impact on the Company’s results of operations or financial position. Upon adoption of the standard, the Company recorded an immaterial adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective and modified some disclosures.

Table of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses similar to what they do today, except the losses will be recognized as allowances rather than reduction to the amortized cost of the securities. This guidance is effective for the Company January 1, 2020, with early adoption permitted. The guidance will be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements.Contents

~~Leases~~

In February 2016, the FASB issued guidance which will replace most existing lease accounting guidance. The new standard, based on the principle that entities should recognize assets and liabilities arising from leases, does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standard’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, the new standard expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. This guidance is effective for the Company January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements.

~~Income Taxes~~

In October 2016, the FASB amended the general accounting principal for Income Taxes, effective for the Company January 1, 2018. The amendment requires entities to recognize the tax consequences of intercompany asset transfers, except for inventory, at the transaction date. Current GAAP prohibits entities from recognizing the income tax consequences from intercompany asset transfers. The seller defers any net tax effect, and the buyer is prohibited from recognizing a deferred tax asset on the difference between the newly created tax basis of the asset in its tax jurisdiction and its financial statement carrying amount as reported in the condensed consolidated financial statements. The amendment requires entities to recognize these tax consequences in the period in which the transfer occurred. There will be an immediate effect on earnings if the tax rates in the seller’s and buyer’s tax jurisdictions are different. This amendment will be applied using a modified retrospective transition method with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this amendment will not have a material impact on the Company’s condensed consolidated financial statements.

~~Derivative and Hedging~~

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



Description	Date of Adoption	Effect on the financial statements or other significant matters
Standards not yet adopted:
Financial Services - Insurance This guidance significantly changes how insurers account for long-duration insurance contracts. The new guidance also significantly expands the disclosure requirements of long-duration insurance contracts. Below are the most significant areas of change: Cash flow assumptions for measuring liability for future policy benefits The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income. Discount rate assumption for measuring liability for future policy benefits The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income. Market risk benefits The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income. Amortization of deferred acquisition costs (“DAC”) and other balances The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.	January 1, 2021	See each significant area of change below for the method of adoption and impact to the Company’s results of operations and financial position. Cash flow assumptions for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact. Discount rate assumption for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact. Market risk benefits The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the guidance will likely have a material impact. Amortization of deferred acquisition costs (“DAC”) and other balances The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Financial Instruments - Credit Losses This guidance adds to U.S. GAAP an impairment model, known as current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. For traditional and other receivables, held-to-maturity debt securities, loans and other instruments entities will be required to use the new forward-looking “expected loss” model that generally will result in earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses similar to what they do today, except the losses will be recognized as allowances rather than reduction to the amortized cost of the securities. Early adoption is permitted.	January 1, 2020	This guidance will be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is currently evaluating the impact of this amendment on its results of operations and financial position.
Fair Value Measurement This guidance is part of the FASB’s disclosure framework project and eliminates certain disclosure requirements for fair value measurement, requires entities to disclose new information and modifies existing disclosure requirements. Early adoption is permitted.	January 1, 2020	Certain disclosure changes in the new guidance will be applied prospectively in the year of adoption. The remaining changes in the new guidance will be applied retrospectively to all periods presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position.

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

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.

Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, including ongoing uncertainties regarding the amount of U.S. sovereign debt and the credit ratings thereof, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate acquired blocks of business and entities, (22) action by regulators who have authority over the Company’s reinsurance operations in the jurisdictions in which it operates, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) interruption or failure of the Company’s telecommunication, information technology or other operational systems, or the Company’s failure to maintain adequate security to protect the confidentiality or privacy of personal or sensitive data stored on such systems, (26) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (27) the benefits or burdens associated with the Tax Cuts and Jobs Act of 2017 may be different than expected, (28) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and ~~(28)~~(29) other risks and uncertainties described in this document and in the Company’s other filings with the ~~SEC.~~Securities and Exchange Commission (“SEC”).

Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A – “Risk Factors” in the ~~2016~~2018 Annual Report.

Overview

The Company is ~~one of~~among the leading global providers of life ~~reinsurers in North America based on premiums~~reinsurance and ~~the amount~~financial solutions, with $3.4 trillion of life reinsurance in force ~~providing traditional reinsurance~~ and ~~financial solutions to its clients.~~assets of $66.7 billion as of March 31, 2019. Traditional reinsurance includes individual and group life and health, disability, and critical illness reinsurance. Financial solutions includes longevity reinsurance, asset-intensive reinsurance, financial reinsurance and ~~financial reinsurance.~~stable value products. The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, fee income from financial solutions business and income earned on invested assets.

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Historically, the Company’s primary business has been traditional life reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a

~~Table of Contents~~

period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies. The Company has expanded its financial solutions business, including significant asset-intensive and longevity risk transactions, which allow its clients to take advantage of growth opportunities and manage their capital, longevity and investment risk.

The Company’s long-term profitability largely depends on the volume and amount of death- and health-related claims incurred and the ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. For longevity business, the Company’s profitability depends on the lifespan of the underlying contract holders and the investment performance for certain contracts. Additionally, the Company generates profits on investment spreads associated with the reinsurance of investment type contracts and generates fees from financial reinsurance transactions, which are typically shorter duration than its traditional life reinsurance business. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.

As is customary in the reinsurance business, clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its condensed consolidated financial statements and the financial effects resulting from the incorporation of revised data are reflected in the current period.

Segment Presentation

The Company has geographic-based and business-based operational segments. Geographic-based operations are further segmented into traditional and financial solutions businesses. The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a consistent basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses.

As a result of the economic capital allocation process, a portion of investment income is credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses. Segment investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.

Segment ~~premium~~revenue levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies, and therefore may fluctuate from period to period. Although reasonably predictable over a period of years, segment claims experience can be volatile over shorter periods. See “Results of Operations by Segment” below for further information about the Company’s segments.

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Consolidated Results of Operations

The following table summarizes net income for the periods presented.

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

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	Three months ended March 31,
	2019			2018
Revenues:	(Dollars in thousands, except per share data)
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

Consolidated income before income taxes increased ~~$52.6~~$78.6 million, or ~~18.3%, and $138.9 million, or 18.6%~~57.0%, for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, as compared to the same ~~periods~~period in 2016. The increase in income for third quarter of 2017 was primarily due to improved mortality experience in the U.S. operations, increased investment income, new business growth in the Europe, Middle East and Africa (“EMEA”) and Asia Pacific operations and lower interest expense.2018. The increase in income for the first ~~nine~~three months of ~~2017~~2019 was primarily due to improved ~~mortality experience~~results in the U.S.~~, EMEA~~ and Latin America, Canada and Asia Pacific ~~operations~~segments and increased investment income, partially offset by higher interest expense. The increases in investment income are discussed below and the changes in interest expense for the third quarter and first nine months are discussed within the Corporate and Other section.income. Foreign currency fluctuations resulted in ~~an increase (decrease)~~a decrease in income before income taxes ~~by $2.0 million and $(7.4)~~of $9.4 million for the ~~third quarter and~~ first ~~nine~~three months of ~~2017,~~2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

The Company recognizes in consolidated income, any changes in the fair value of embedded derivatives on modco or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable ~~annuity products.~~annuities with guaranteed minimum benefit riders. The ~~combined~~Company utilizes freestanding derivatives to minimize the income statement volatility due to changes in ~~these three types~~the fair value of embedded derivatives ~~after adjustment for deferred acquisition costs and retrocession, resulted in a decrease in consolidated income before income taxes~~associated with guaranteed minimum benefit riders. The following table presents the effect of $8.9 million in the third quarter of 2017 and an increase of $218.2 million in the first nine months of 2017, respectively, as compared to the same periods in 2016. This fluctuation does not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives ~~net of~~and related hedging activity and deferred acquisition costs, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited. The individual effectfreestanding derivatives on income before income taxes for ~~these three types of embedded derivatives is as follows:~~the periods indicated (dollars in thousands):

~~The change in~~

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	Three months ended March 31,
	2019			2018
Modco/Funds withheld:
Unrealized gains (losses)	$	(2,092	)	$	13,611
Deferred acquisition costs/retrocession	(2,857		)	(3,073		)
Net effect	(4,949		)	10,538
EIAs:
Unrealized gains (losses)	(1,518		)	28,563
Deferred acquisition costs/retrocession	875			(15,295		)
Net effect	(643		)	13,268
Guaranteed minimum benefit riders:
Unrealized gains (losses)	18,161			14,785
Deferred acquisition costs/retrocession	(16,774		)	2,333
Net effect	1,387			17,118
Related freestanding derivatives	(2,578		)	(22,500		)
Net effect after related freestanding derivatives	(1,191		)	(5,382		)

Total net effect of embedded derivatives	(4,205		)	40,924
Related freestanding derivatives	(2,578		)	(22,500		)
Total net effect after freestanding derivatives	$	(6,783	)	$	18,424

Net premiums increased $155.3 million, or 6.0%, for the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis are subject to the general accounting principles for derivatives and hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, resulted in a decrease in income before income taxes of $3.3 million in the third quarter of 2017 and an increase of $53.3 million in the first ninethree months ~~of 2017,~~ended March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~

Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, increased income before income taxes by $0.1 million and $20.0 million in the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016.

The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, resulted in a decrease in income before income taxes of $5.7 million in the third quarter of 2017 and an increase of $144.9 million in the first nine months of 2017, as compared to the same periods in 2016. After consideration of the change in fair value of freestanding derivatives used to hedge this liability, income before income taxes decreased by $2.2 million in the third quarter of 2017 and increased by $6.9 million in the first nine months of 2017, as compared to the same periods in 2016.

Consolidated net premiums increased $238.0 million, or 10.6%, and $580.2 million, or 8.6%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016, primarily due to growth in life reinsurance in force. Foreign currency fluctuations resulted in an increase (decrease) in net premiums of $18.3 million and $(17.3) million for the third quarter and first nine months of 2017, as compared to the same periods in 2016. Consolidated assumed life insurance in force increased to $3,297.9 billion as of September 30, 2017 from $3,082.8 billion as of September 30, 20162018 due to new business ~~production and in force transactions.~~production. The Company added new business production, measured by face amount of insurance in force, of ~~$90.7~~$79.3 billion and ~~$81.3 billion during the third quarter of 2017 and 2016, respectively, and $304.8 billion and $296.4~~$96.7 billion during the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively. Foreign currency fluctuations ~~contributed $43.6 billion~~reduced net premiums by $78.8 million for the first three months of 2019, as compared to the ~~increase~~same period in 2018. Consolidated assumed life insurance in force decreased to $3,364.6 billion as of March 31, 2019 from ~~September 30, 2016. Management believes industry consolidation, regulatory changes and the established practice~~$3,383.8 billion as of ~~reinsuring mortality and morbidity risks should continue~~March 31, 2018 due to ~~provide opportunities for growth, albeit at rates less than historically experienced~~foreign currency exchange fluctuations. Unfavorable foreign currency exchange fluctuations reduced assumed life insurance in ~~some markets.~~force by $102.1 billion from March 31, 2018.

~~Consolidated investment~~Investment income, net of related expenses, increased ~~$67.2~~$63.5 million or ~~13.7%, and $175.2 million, or 12.4%~~12.3%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. Market~~2018. The increase is largely attributable to an increase in the average asset base, and a slightly higher investment yield. Partially offsetting the increase in investment income was a decrease in the fair value ~~changes related~~attributed to the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs, ~~increased (decreased)~~which decreased investment income by ~~$(1.3) million and $73.3~~$6.5 million in the ~~third quarter and~~ first ~~nine~~three months of ~~2017, respectively,~~2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The effect on investment income of the EIA's ~~market~~fair value changes is substantially offset by a corresponding change in interest credited to policyholder account balances resulting in an insignificant effect on net income.

~~Also contributing to the increase in investment income is a larger average invested asset base, excluding spread related business, partially offset by a decrease in the average investment yield.~~ Average invested assets at amortized cost, excluding spread related business, for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 totaled ~~$25.1~~$28.1 billion, a ~~9.4%~~4.1% increase over ~~September 30, 2016.~~March 31, 2018. The

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average yield earned on investments, excluding spread related business, was ~~4.81%~~4.49% and ~~4.43%~~4.46% for the ~~third quarter of 2017 and 2016, respectively, and 4.61% and 4.53% for the first nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, prepayment fees and make-whole premiums, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments. ~~The third quarter of 2017, in particular, benefited from a higher level of bond make-whole premiums and distributions from joint ventures and limited partnerships.~~ A continued low interest rate environment is expected to put downward pressure on this yield in future reporting periods.

~~Total investment~~Investment related gains, ~~(losses),~~ net ~~changed favorably (unfavorably)~~increased by ~~$(64.0) million and $55.5~~$8.3 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. A significant portion~~2018. The increase is primarily due to a decrease in realized losses of ~~theses variances~~$18.4 million compared to the same period in 2018. The reduction in realized loss was partially offset by less favorable changes in the ~~third quarter and first nine months are due to changes in the~~fair value of embedded derivatives ~~related to reinsurance treaties written~~ on a modco or funds withheld ~~basis,~~treaties in the current period compared to 2018 reflecting the impact of changes in interest rates and credit spreads on the calculation of fair value. ~~During the third quarter and first nine months of 2017, the favorable (unfavorable) changes~~Changes in the fair value ofassociated with these embedded derivatives ~~was $(26.0)~~reduced investment related gains by $2.1 million ~~and $73.1 million respectively, as~~for the first three months of 2019 compared to an increase of $13.6 million in the ~~same periods in 2016.~~first three months of 2018. Impairments on fixed maturity securities ~~decreased~~increased by ~~$13.7~~$9.5 million in the first ~~nine~~three months of ~~2017,~~2019, as compared to the same period in ~~2016.~~2018. See Note 4 - “Investments” and Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives.

The effective tax rate on a consolidated basis was ~~33.1%~~21.7% and ~~30.9% for the third quarter 2017 and 2016, respectively, and 31.8% and 31.7%~~27.3% for the first ~~nine months of 2017~~quarter 2019 and ~~2016,~~2018, respectively. ~~The~~See Note 9 - “Income Tax” in the Notes to Condensed Consolidated Financial Statements for additional information on the Company’s consolidated effective tax rate for the third quarter of 2017 was lower than the U.S. Statutory rate of 35% primarily as a result of income generated in non-U.S. jurisdictions with lower tax rates than the U.S. The first nine months of 2017 also includes a reduction related to differences in tax bases in foreign jurisdictions and a tax benefit from the filing of amended returns, which was partially offset with a valuation allowance established related to amended return filings. The effective tax rate for the third quarter of 2016 was lower than the U.S. Statutory rate of 35.0% primarily as a result of effectively settling an uncertain tax position during the quarter and adjustments related to the filing of the US Federal Income tax return. The first nine months of 2016 effective tax rate was lower than the U.S. Statutory rate of 35.0% primarily as a result of tax benefits from income in non-U.S. jurisdictions with lower tax rates than the U.S.rates.

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Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the condensed consolidated financial statements could change significantly.

Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:

Premiums receivable;

Deferred acquisition costs;

Liabilities for future policy benefits and incurred but not reported claims;

Valuation of investments and other-than-temporary impairments to specific investments;

Valuation of embedded derivatives; and

Income taxes.

A discussion of each of the critical accounting policies may be found in the Company’s ~~2016~~2018 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”

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Results of Operations by Segment

U.S. and Latin America Operations

The U.S. and Latin America operations include business generated by its offices in the U.S., Mexico and Brazil. The offices in Mexico and Brazil provide services to clients in other Latin American countries. U.S. and Latin America operations consist of two major segments: Traditional and Financial Solutions. The Traditional segment primarily specializes in the reinsurance of individual mortality-risk, ~~reinsurance~~health and long-term care and to a lesser extent, group ~~health and long-term care~~ reinsurance. The Financial Solutions segment consists of Asset-Intensive and Financial Reinsurance. Asset-Intensive within the Financial Solutions segment ~~provides~~includes coinsurance of annuities and corporate-owned life insurance policies and to a lesser extent ~~also issues~~ fee-based synthetic guaranteed investment contracts, which include investment-only, stable value contracts. Financial Reinsurance within the Financial Solutions segment primarily involves assisting ceding companies in meeting applicable regulatory requirements by enhancing the ceding companies’ financial strength and regulatory surplus position through relatively low risk reinsurance transactions. ~~Typically these~~Due to the low-risk nature of financial reinsurance transactions, they typically do not qualify as reinsurance under GAAP, ~~due to the low-risk nature of the transactions,~~ so only the related net fees are reflected in other revenues on the condensed consolidated statements of income.

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

For the three months ended September 30, 2016: Financial Solutions
(dollars in thousands) Asset-Intensive
Financial
Reinsurance
Total U.S. and Latin America
Traditional
Revenues:
Net premiums $ 1,277,491
$ 5,369
$ —
$ 1,282,860
Investment income, net of related expenses 167,898
167,683
1,038
336,619
Investment related gains (losses), net (3,394 ) 59,661
—
56,267
Other revenues 2,922
23,417
18,967
45,306
Total revenues 1,444,917
256,130
20,005
1,721,052
Benefits and expenses:
Claims and other policy benefits 1,131,507
18,927
—
1,150,434
Interest credited 20,628
86,742
—
107,370
Policy acquisition costs and other insurance expenses 184,766
56,497
3,492
244,755
Other operating expenses 30,935
5,232
2,531
38,698
Total benefits and expenses 1,367,836
167,398
6,023
1,541,257
Income before income taxes $ 77,081
$ 88,732
$ 13,982
$ 179,795

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For the nine months ended September 30, 2017:				Financial Solutions
For the three months ended March 31, 2019:													Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America					Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
	Traditional									Traditional
Revenues:
Net premiums	$	3,966,842		$	18,186	$	—	$	3,985,028	$	1,356,882		$	7,210	$	—	$	1,364,092
Investment income, net of related expenses	554,612			553,286		6,501		1,114,399		185,534			197,221		1,016		383,771
Investment related gains (losses), net	(192		)	103,229		—		103,037		(6,472		)	1,046		—		(5,426		)
Other revenues	11,322			76,324		77,466		165,112		4,722			22,674		25,493		52,889
Total revenues	4,532,584			751,025		83,967		5,367,576		1,540,666			228,151		26,509		1,795,326
Benefits and expenses:
Claims and other policy benefits	3,538,958			53,998		—		3,592,956		1,300,065			48,099		—		1,348,164
Interest credited	61,800			260,941		—		322,741		19,874			88,710		—		108,584
Policy acquisition costs and other insurance expenses	556,476			176,305		17,234		750,015		176,003			19,233		5,376		200,612
Other operating expenses	94,284			19,883		6,942		121,109		33,070			7,151		2,814		43,035
Total benefits and expenses	4,251,518			511,127		24,176		4,786,821		1,529,012			163,193		8,190		1,700,395
Income before income taxes	$	281,066		$	239,898	$	59,791	$	580,755	$	11,654		$	64,958	$	18,319	$	94,931

For the nine months ended September 30, 2016:				Financial Solutions
For the three months ended March 31, 2018:													Financial Solutions
(dollars in thousands)				Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America					Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
	Traditional									Traditional
Revenues:
Net premiums	$	3,819,280		$	17,250	$	—	$	3,836,530	$	1,299,422		$	5,192	$	—	$	1,304,614
Investment income, net of related expenses	515,159			462,579		6,031		983,769		183,060			157,912		1,822		342,794
Investment related gains (losses), net	(6,376		)	7,940		—		1,564		1,683			676		—		2,359
Other revenues	11,674			70,806		55,511		137,991		5,529			22,959		24,791		53,279
Total revenues	4,339,737			558,575		61,542		4,959,854		1,489,694			186,739		26,613		1,703,046
Benefits and expenses:
Claims and other policy benefits	3,400,614			58,267		—		3,458,881		1,254,961			15,945		—		1,270,906
Interest credited	62,873			217,736		—		280,609		20,280			54,212		—		74,492
Policy acquisition costs and other insurance expenses	544,129			113,919		9,145		667,193		177,640			62,035		4,000		243,675
Other operating expenses	92,512			16,772		7,606		116,890		33,921			7,285		2,454		43,660
Total benefits and expenses	4,100,128			406,694		16,751		4,523,573		1,486,802			139,477		6,454		1,632,733
Income before income taxes	$	239,609		$	151,881	$	44,791	$	436,281	$	2,892		$	47,262	$	20,159	$	70,313

Income before income taxes increased by ~~$69.8~~$24.6 million, or ~~38.8%, and $144.5 million, or 33.1%~~35.0%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase in income before income taxes ~~for the third quarter~~ was primarily due to ~~strong mortality experience~~the impact of higher investment related gains (losses) in the ~~Traditional~~Asset-Intensive segment as well as ~~higher variable investment income. The increase~~improved claims experience within the U.S. Traditional segment. Offsetting these somewhat was ~~offset somewhat by a decrease in investment related gains in~~ the ~~Financial Solutions segment. The increase in income before income taxes for the first nine months is the result of several factors, including changes~~change in the value of the embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld ~~an increase in investment related capital gains and additional variable investment income.~~basis, net of the corresponding impact to deferred acquisition costs.

Traditional Reinsurance

The U.S. and Latin America Traditional segment provides life and health reinsurance to clients for a variety of products through yearly renewable term, coinsurance and modco agreements. These reinsurance arrangements may involve either facultative or automatic agreements.

Income before income taxes for the U.S. and Latin America Traditional segment increased by ~~$83.4~~$8.8 million ~~or 108.2%, and $41.5 million, or 17.3%,~~ for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase ~~in the third quarter~~ is primarily due to ~~favorable~~improved claims experience in 2019 from both individual mortality ~~experience as compared to same period in 2016~~ and ~~higher variable investment income. The favorable mortality experience was driven by both a lower number and average size~~group business.

Table of ~~large claims. The increase in income for the first nine months was primarily due to higher variable investment.~~Contents

Net premiums increased ~~$49.7~~$57.5 million, or ~~3.9%, and $147.6 million, or 3.9%~~4.4%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were~~increase was primarily due to ~~expected~~ organic ~~premium growth.~~growth combined with strong new business in the first quarter of 2019. The segment added new individual life business production, measured by face amount of insurance in force of ~~$24.8~~$28.8 billion and ~~$19.7~~$23.3 billion ~~for the third quarter and $75.1 billion and $93.0 billion for~~in the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively.

Net investment income increased ~~$24.0~~$2.5 million, or ~~14.3%, and $39.5 million, or 7.7%~~1.4%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were primarily~~increase was due to ~~higher~~an increase in the invested asset base, partially offset by lower variable investment ~~income.~~income quarter over quarter. Investment related gains (losses), net ~~increased $1.9 million and $6.2~~decreased $8.2 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

~~Table of Contents~~

Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were ~~84.3%~~95.8% and ~~88.6%~~96.6% for the ~~third quarter and 89.2% and 89.0%, for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The decrease in the loss ratio in 2019 was primarily due to unfavorable 2018 claims experience in traditional individual mortality, associated with the influenza season, and the group disability line of business.

Interest credited expense decreased by $0.4 million, or 2.0%, for the ~~third quarter of 2017,~~three months ended March 31, 2019, as compared to the same period in 2016 was primarily due to favorable mortality experience, specifically the lower number and average size of large claims. For the first nine months of 2017, as compared to the same period in 2016, mortality experience was relatively consistent.

~~Interest credited expense decreased $1.1 million, or 1.7%, for the nine months ended September 30, 2017, as compared to the same period in 2016.~~2018. Interest credited in this segment relates to amounts credited on cash value products, which also have a significant mortality component. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~14.3%~~13.0% and ~~14.5%~~13.7% for the ~~third quarter and 14.0% and 14.2% for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. While these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to ~~period~~period.

Other operating expenses decreased $0.9 million, or 2.5%, for the three months ended March 31, 2019, as compared to the same period in 2018 due to decreased variable compensation. Other operating expenses as a percentage of net premiums ~~remained constant at~~were 2.4% and ~~2.4%~~2.6% for the ~~third quarter~~three month periods ended March 31, 2019 and ~~2.4% and 2.4% first nine months of 2017 and 2016,~~2018, respectively. The expense ratio tends to fluctuate only slightly from period to period due to the maturity and scale of this segment.

Financial Solutions - Asset-Intensive Reinsurance

Asset-Intensive reinsurance within the U.S. and Latin America Financial Solutions segment primarily involves assuming investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance with funds withheld or modco. The Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities, income associated with longevity risk, and fees associated with variable annuity account values and guaranteed investment contracts.

Impact of certain derivatives:

Income from the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility, the Company’s own credit risk and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues), and interest credited. These fluctuations are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties.

The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes.

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(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018
Revenues:
Total revenues	$	234,330		$	256,130		$	751,025		$	558,575		$	228,151		$	186,739
Less:
Embedded derivatives – modco/funds withheld treaties	24,539			52,540			107,039			40,174			4,383			11,918
Guaranteed minimum benefit riders and related free standing derivatives	(17,058		)	(12,647		)	(20,935		)	(24,710		)	(2,835		)	(4,588		)
Revenues before certain derivatives	226,849			216,237			664,921			543,111			226,603			179,409
Benefits and expenses:
Total benefits and expenses	167,204			167,398			511,127			406,694			163,193			139,477
Less:
Embedded derivatives – modco/funds withheld treaties	11,481			34,226			51,008			31,206			2,857			3,073
Guaranteed minimum benefit riders and related free standing derivatives	(5,379		)	(3,135		)	(6,565		)	(3,439		)	(1,644		)	794
Equity-indexed annuities	481			549			(13,603		)	6,449			643			(13,268		)
Benefits and expenses before certain derivatives	160,621			135,758			480,287			372,478			161,337			148,878
Income before income taxes:
Income before income taxes	67,126			88,732			239,898			151,881			64,958			47,262
Less:
Embedded derivatives – modco/funds withheld treaties	13,058			18,314			56,031			8,968			1,526			8,845
Guaranteed minimum benefit riders and related free standing derivatives	(11,679		)	(9,512		)	(14,370		)	(21,271		)	(1,191		)	(5,382		)
Equity-indexed annuities	(481		)	(549		)	13,603			(6,449		)	(643		)	13,268
Income before income taxes and certain derivatives	$	66,228		$	80,479		$	184,634		$	170,633		$	65,266		$	30,531

Embedded Derivatives - Modco/Funds Withheld Treaties - Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The fair value changes of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. The Company’s utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

The change in fair value of the embedded derivatives - modco/funds withheld treaties increased income before income taxes by ~~$13.1~~$1.5 million and ~~$18.3~~$8.8 million for the ~~third quarter and $56.0 million and $9.0 million for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. ~~The increases in income for the third quarter of 2016 and 2017 were primarily due to tightening credit spreads.~~ The increase in income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and 2018 was primarily due to tightening credit spreads. ~~The decrease in income for the nine months ended September 30, 2016 was primarily due to shifts in the yield curve.~~

Guaranteed Minimum Benefit Riders - Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives (interest rate swaps, financial futures and equity options), purchased by the Company to substantially hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. The Company’s utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

The change in fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, decreased income before income taxes by ~~$11.7~~$1.2 million and ~~$9.5~~$5.4 million for the ~~third quarter and $14.4 million and $21.3 million for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The decrease in income for ~~all periods~~the three months ended March 31, 2019 and 2018 was primarily due to ~~the annual update of best estimate actuarial assumptions to account for lower policyholder lapse experience.~~interest rate movements.

Equity-Indexed Annuities - Represents changes in the liability for equity-indexed annuities in excess of changes in account value, after adjustments for related deferred acquisition expenses. The change in fair value of embedded derivative liabilities associated with equity-indexed annuities ~~increased (decreased)~~decreased income before income taxes by ~~$(0.5)~~$0.6 million and ~~$(0.5)~~increased by $13.3 million for the ~~third quarter and $13.6 million and $(6.4) million for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The decreases in income for the third quarter of 2017 and 2016 were primarily due to shifts in the yield curve. The increase in income for the first nine months of 2017 was primarily due to declining long-term interest rates. The decrease in income for the ~~first nine~~three months ~~of 2016~~ended March 31, 2019 was due to interest rate movements. The increase for the three months ended March 31, 2018 was primarily due to ~~increasing short-term interest rates.~~lower policyholder lapses and withdrawals.

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The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), credit valuation adjustments, implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues) and interest credited.

Discussion and analysis before certain derivatives:

Income before income taxes and certain derivatives ~~decreased by $14.3 million and~~ increased by ~~$14.0~~$34.7 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decrease in the third quarter~~increase was primarily due to ~~lower~~higher investment related gains (losses), net of the corresponding impact to deferred acquisition costs, associated with coinsurance and funds withheld portfolios ~~which was partially offset by favorable policyholder experience~~and the contribution from transactions executed in ~~payout annuities.~~the second half of 2018. Funds withheld capital gains (losses) are reported in investment income. ~~The increase in the first nine months was primarily due to favorable policyholder experience in payout annuities and higher variable investment income.~~

Revenue before certain derivatives increased by ~~$10.6 million and $121.8~~$47.2 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase in the ~~third~~first quarter was primarily due to the ~~impact to investment income~~contribution from ~~a new coinsurance transaction in 2017 which was partially offset by lower investment related gains (losses) associated with coinsurance and funds withheld portfolios. The increase~~transactions executed in the ~~first nine months was primarily due to the change in fair value~~second half of ~~equity options associated with the reinsurance of certain EIAs~~2018 and higher investment related gains (losses) associated with coinsurance and funds withheld portfolios. ~~The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited.~~

Benefits and expenses before certain derivatives increased by ~~$24.9 million and $107.8~~$12.5 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same period in ~~2016.~~2018. The increase in the ~~third~~first quarter of 2019 was primarily due to the ~~impact to interest credited of a new coinsurance transaction in 2017 and the corresponding impact to deferred acquisition costs~~contribution from ~~investment related gains (losses) in coinsurance and funds withheld portfolios. The increase~~transactions executed in the ~~first nine months was primarily due to higher interest credited associated with the reinsurance~~second half of EIAs and the corresponding impact to deferred acquisition costs from investment related gains (losses) in coinsurance and funds withheld portfolios. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income.2018.

The invested asset base supporting this segment increased to ~~$15.5~~$19.9 billion as of ~~September 30, 2017~~March 31, 2019 from ~~$13.2~~$16.0 billion as of ~~September 30, 2016. The increase~~March 31, 2018 due to transactions executed in the ~~asset base was due primarily to the aforementioned new coinsurance transaction in 2017.~~second half of 2018. As of ~~September 30, 2017, $4.1~~March 31, 2019, $3.8 billion of the invested assets were funds withheld at interest, of which greater than 90% is associated with one client.

Financial Solutions - Financial Reinsurance

Financial Reinsurance within the U.S. and Latin America Financial Solutions segment income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Additionally, a portion of the business is brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.

Income before income taxes ~~increased $8.0~~decreased $1.8 million, or ~~57.3%, and $15.0 million, or 33.5%~~9.1%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were~~decrease was primarily due to ~~growth in new transactions and organic growth on existing transactions which was partially offset by~~ the termination of certain agreements.

~~At September 30, 2017~~As of March 31, 2019 and ~~2016,~~2018, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was ~~$12.6~~$14.6 billion and ~~$7.9~~$13.3 billion, respectively. The increase was primarily due to a number of new transactions offsetting the termination of certain agreements, as well as organic growth on existing transactions. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.

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Canada Operations

The Company conducts reinsurance business in Canada primarily through RGA ~~Canada, which assists clients with capital management activity and mortality and morbidity risk management.~~Canada. The Canada operations are primarily engaged in Traditional reinsurance, which consists mainly of traditional individual life reinsurance, ~~as well as~~and to a lesser extent creditor, group life and health, critical illness and disability reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional individual life insurance. The Canada Financial Solutions segment consists of longevity and financial reinsurance.

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


(dollars in thousands)	Nine months ended September 30,													Three months ended March 31,
	2017						2016							2019							2018
Revenues:	Traditional		Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada		Traditional			Financial Solutions		Total Canada
Net premiums	$	662,983	$	28,598	$	691,581	$	686,724		$	29,089	$	715,813	$	255,257		$	21,989	$	277,246	$	252,723		$	11,305	$	264,028
Investment income, net of related expenses	140,929		3,515		144,444		134,121			1,649		135,770		49,693			718		50,411		50,584			115		50,699
Investment related gains (losses), net	8,821		—		8,821		7,757			—		7,757		7,404			—		7,404		(731		)	—		(731		)
Other revenues	1,910		4,127		6,037		(731		)	4,159		3,428		(21		)	867		846		(257		)	1,357		1,100
Total revenues	814,643		36,240		850,883		827,871			34,897		862,768		312,333			23,574		335,907		302,319			12,777		315,096
Benefits and expenses:
Claims and other policy benefits	566,227		21,888		588,115		524,497			29,005		553,502		199,856			21,153		221,009		212,825			9,115		221,940
Interest credited	15		—		15		17			—		17		55			—		55		5			—		5
Policy acquisition costs and other insurance expenses	143,302		571		143,873		178,178			1,002		179,180		53,908			449		54,357		57,032			96		57,128
Other operating expenses	24,146		1,292		25,438		27,500			1,010		28,510		8,235			624		8,859		8,750			375		9,125
Total benefits and expenses	733,690		23,751		757,441		730,192			31,017		761,209		262,054			22,226		284,280		278,612			9,586		288,198
Income before income taxes	$	80,953	$	12,489	$	93,442	$	97,679		$	3,880	$	101,559	$	50,279		$	1,348	$	51,627	$	23,707		$	3,191	$	26,898

Income before income taxes ~~decreased~~increased by ~~$2.2~~$24.7 million, or ~~6.1%, and $8.1 million, or 8.0%~~91.9%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decrease~~increase in income ~~for~~in the ~~third quarter and~~ first ~~nine~~three months of 2019 is primarily due to ~~unfavorable~~favorable traditional individual life mortality experience as compared to ~~favorable experience in~~ the same ~~periods~~period in ~~2016, partially offset by favorable experience on longevity business in the current year.~~2018. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$1.7 million and $1.6~~$2.6 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Traditional Reinsurance

Income before income taxes for the Canada Traditional segment ~~decreased~~increased by ~~$5.5~~$26.6 million, or ~~16.0%~~112.1%, ~~and $16.7~~for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in income before income taxes in 2019 is primarily due to favorable traditional individual life mortality experience. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in income before income taxes of $2.6 million for the three months ended March 31, 2019, as compared to the same period in 2018.

Net premiums increased $2.5 million, or ~~17.1%~~1.0%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decrease~~increase in ~~income before income taxes for the third quarter and first nine months is~~2019 was primarily due to ~~unfavorable traditional individual life mortality experience compared to favorable experience in~~a new inforce block transaction during the ~~same periods in 2016.~~last quarter of 2018. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in ~~income before income taxes~~net premiums of ~~$1.5 million and $1.4~~$12.7 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

~~Table of Contents~~

Net ~~premiums~~investment income decreased ~~$5.3~~$0.9 million, or ~~2.3%, and $23.7 million, or 3.5%~~1.8%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decreases in net premiums were primarily due to an anticipated~~ decrease in ~~creditor premiums~~2019 is primarily a result of $21.0 million and $60.4 million for the third quarter and first nine months, respectively. These decreases were partially offset by an increase in traditional individual life business premiums from annually increasing premium rates on yearly renewable term treaties and favorable foreign currency exchange ~~fluctuation. Foreign currency exchange fluctuations~~fluctuation in the Canadian dollar ~~resulted in an increase in net premiums of approximately $9.0 million and $7.0 million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.~~

Net investment income increased $6.4 million, or 14.0%, and $6.8 million, or 5.1%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The increases in investment income for the third quarter and the first nine months were primarily the result ofpartially offset by an increase in the invested asset base due to growth in ~~the~~ underlying business ~~volume and an increase in investment yields from a higher level of variable investment income.~~volume. Foreign currency exchange fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in net investment income of ~~approximately $2.1 million and $1.7~~$2.6 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

~~Other revenues~~Investment related gains (losses), net increased by ~~$0.5 million and $2.6~~$8.1 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase in ~~other revenues for the third quarter of 2017 is~~2019 was primarily due to ~~foreign currency exchange fluctuations. The~~an increase in ~~other revenues for~~ the ~~first nine months~~fair market value of ~~2017 is primarily due to fee income from the recapture of a previously assumed block of individual life business during the second quarter of 2017.~~derivatives.

Loss ratios ~~for this segment~~ were ~~85.9%~~78.3% and ~~76.0%~~84.2% for the ~~third quarter and 85.4% and 76.4% for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The ~~increases~~decrease in the loss ratio for the ~~three and nine months~~first quarter of ~~2017,~~2019, as compared to the same ~~periods~~period in ~~2016, are~~2018, is due to ~~unfavorable~~favorable traditional individual life mortality experience ~~compared to favorable experience~~and the aforementioned new inforce block transaction in the ~~same periods in 2016 and a decrease in creditor business premiums.~~last quarter of 2018. Loss ratios for the traditional individual life mortality business were ~~99.5%~~83.5% and ~~94.4% for the third quarter and 98.7% and 93.4%~~91.3% for the first ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 73.2% and 77.0% for the three months ended March 31, 2019 and 2018, respectively. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent

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level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year claims costs to fund claims in later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. As such, investment income becomes a more significant component of profitability of these in force blocks. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were ~~77.7%~~70.1% and ~~73.7%~~75.3% for the ~~third quarter and 77.7% and 73.5% for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~22.1%~~21.1% and ~~26.4%~~22.6% for the ~~third quarter and 21.6% and 25.9% for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. ~~The decrease for the third quarter and first nine months reflects a lower level of creditor business which typically has a higher level of acquisition costs.~~ In addition, the amortization patterns of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.

Other operating expenses decreased ~~$1.7~~by $0.5 million, or ~~17.3%, and $3.4 million, or 12.2%~~5.9%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016, primarily due to a decrease in corporate overhead expenses.~~2018. Other operating expenses as a percentage of net premiums were ~~3.7%~~3.2% and ~~4.3%~~3.5% for the ~~third quarter~~three months ended March 31, 2019 and ~~3.6% and 4.0% for the nine month periods ended September 30, 2017 and 2016,~~2018, respectively.

Financial Solutions Reinsurance

Income before income taxes ~~increased~~decreased by ~~$3.3~~$1.8 million, ~~and $8.6 million~~or 57.8%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases~~decrease in income ~~for both~~in the first three ~~and nine month periods are~~months was primarily due to ~~favorable~~unfavorable experience on longevity ~~business in the current-year periods.~~business. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$0.2~~$0.1 million for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Net premiums ~~decreased $0.1~~increased $10.7 million, or ~~0.7%, and $0.5 million, or 1.7%~~94.5%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase was primarily due to a new financial solutions reinsurance transaction completed in the first three months of 2019. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in net premiums of ~~approximately $0.4~~$1.0 million for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Net investment income increased ~~$0.1 million and $1.9~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~2018 primarily due to an increase in the invested asset base.

~~Table of Contents~~

Claims and other policy benefits ~~decreased $3.4~~increased $12.0 million, or ~~32.1%, and $7.1 million, or 24.5%~~132.1%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decreases for~~increase was primarily a result of the ~~third quarter and~~aforementioned new financial solutions reinsurance transaction completed in the first ~~nine~~three months ~~are primarily due to favorable experience on longevity business.~~of 2019.

Europe, Middle East and Africa Operations

The Europe, Middle East and Africa (“EMEA”) ~~segment includes~~operations include business generated by its offices principally in ~~the United Kingdom (“UK”), South Africa,~~ France, Germany, Ireland, Italy, the Middle East, the Netherlands, Poland, South Africa, Spain and the United ~~Arab Emirates~~Kingdom (“~~UAE”~~UK”). EMEA consists of two major segments: Traditional and Financial Solutions. The Traditional segment primarily provides reinsurance through yearly renewable term and coinsurance agreements on a variety of life, health and critical illness products. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and, in some markets, group risks. The Financial Solutions segment consists of reinsurance and other transactions associated with longevity closed blocks, payout annuities, capital management solutions and financial reinsurance.

(dollars in thousands) Three months ended September 30,
2017 2016
Revenues: Traditional Financial Solutions Total EMEA Traditional Financial Solutions Total EMEA
Net premiums $ 344,211
$ 39,294
$ 383,505
$ 275,514
$ 47,018
$ 322,532
Investment income, net of related expenses 14,727
30,892
45,619
13,067
33,187
46,254
Investment related gains (losses), net —
1,192
1,192
—
8,159
8,159
Other revenues 2,034
5,663
7,697
489
11,388
11,877
Total revenues 360,972
77,041
438,013
289,070
99,752
388,822
Benefits and expenses:
Claims and other policy benefits 285,071
35,648
320,719
241,763
45,805
287,568
Interest credited —
2,475
2,475
—
5,540
5,540
Policy acquisition costs and other insurance expenses 35,751
327
36,078
14,133
(304 ) 13,829
Other operating expenses 24,729
7,638
32,367
24,659
4,925
29,584
Total benefits and expenses 345,551
46,088
391,639
280,555
55,966
336,521
Income before income taxes $ 15,421
$ 30,953
$ 46,374
$ 8,515
$ 43,786
$ 52,301

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

Income before income taxes decreased by $5.9 million, or 11.3%, and increased by $21.6 million, or 19.5%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. The decrease in income for the third quarter was primarily due to lower payout annuity income partially offset by favorable mortality experience. The increase in income before income taxes for the first nine months was primarily due to favorable individual mortality and longevity experience. Foreign currency exchange fluctuations resulted in an increase (decrease) in income before income taxes of $0.8 million and $(8.5) million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.



(dollars in thousands)	Three months ended March 31,
	2019						2018
Revenues:	Traditional		Financial Solutions		Total EMEA		Traditional		Financial Solutions			Total EMEA
Net premiums	$	363,884	$	52,101	$	415,985	$	375,729	$	47,979		$	423,708
Investment income, net of related expenses	18,802		48,665		67,467		15,764		31,932			47,696
Investment related gains (losses), net	—		3,364		3,364		9		3,352			3,361
Other revenues	1,320		5,291		6,611		2,280		4,880			7,160
Total revenues	384,006		109,421		493,427		393,782		88,143			481,925
Benefits and expenses:
Claims and other policy benefits	312,135		48,878		361,013		326,802		42,471			369,273
Interest credited	—		12,342		12,342		—		(2,652		)	(2,652		)
Policy acquisition costs and other insurance expenses	29,953		631		30,584		25,552		1,080			26,632
Other operating expenses	26,494		9,180		35,674		26,007		8,080			34,087
Total benefits and expenses	368,582		71,031		439,613		378,361		48,979			427,340
Income (loss) before income taxes	$	15,424	$	38,390	$	53,814	$	15,421	$	39,164		$	54,585

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~~Traditional Reinsurance~~

Income before income taxes ~~increased~~decreased by ~~$6.9~~$0.8 million, or ~~81.1%, and $26.5 million, or 186.3%~~1.4%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~2018. The ~~increase in income for the third quarter was primarily due to favorable mortality experience. The increases~~decrease in income before income taxes for the first ~~nine~~three months was primarily due to ~~business growth~~foreign exchange fluctuations and the normalization of performance on closed longevity blocks and payout annuities after favorable ~~individual mortality experience partially offset by unfavorable morbidity experience.~~performance in 2018. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in income before income taxes ~~of $0.7 million and $(0.5)~~totaling $4.5 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

~~Net premiums increased $68.7~~Traditional Reinsurance

Income before income taxes for the three months ended March 31, 2019 was consistent with the same period in 2018. Foreign currency exchange fluctuations resulted in a decrease in income before income taxes totaling $1.7 million ~~or 24.9%, and $140.9 million, or 16.8%,~~ for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in 2016. The increase in the three and nine months was primarily due to increased business volumes, most notably in the UAE, Italy and South Africa related to new treaties in 2017 and favorable growth from existing treaties. Foreign currency exchange fluctuations increased (decreased) net2018.

Net premiums ~~by approximately $7.3~~decreased $11.8 million, ~~and $(27.8) million~~or 3.2%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018 with an increase in business volume on existing treaties more than offset by unfavorable foreign currency fluctuations. Foreign currency exchange fluctuations decreased net premiums by $32.6 million for the three months ended March 31, 2019, as compared to the same period in 2018.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled ~~$49.0~~$44.4 million and ~~$49.5 million for the third quarter and $144.2 million and $157.0~~$48.9 million for the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively.

Net investment income increased ~~$1.7~~$3.0 million, or ~~12.7%, and $2.5 million, or 6.4%~~19.3%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were~~increase for the first three months of 2019 was primarily due to an increase in the invested asset base ~~related to increased business volumes.~~and an increase in the investment yield. Foreign currency exchange ~~fluctuations~~fluctuation resulted in ~~an increase (decrease)~~a decrease in net investment income of ~~approximately $0.4 million and $(0.8)~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Loss ratios for this segment were ~~82.8%~~85.8% and ~~87.7%~~87.0% for the ~~third quarter~~three month periods ended March 31, 2019 and ~~86.4% and 88.9%~~2018, respectively. The slight decrease in the loss ratio for the first ~~nine~~three months ~~ended~~ ~~September 30, 2017~~ ~~and 2016, respectively. The decreases in loss ratios were~~of 2019 is primarily due to changes in ~~the~~business mix ~~of business in the third quarter of 2017~~ reflecting increased volumes of ~~new~~ business with lower loss ratios, but with higher ~~commissions.~~allowances. These higher ~~commissions~~allowances are reflected in the ~~increases of 2017~~increase in the policy acquisition cost ~~ratios below.~~ratio.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~10.4%~~8.2% and ~~5.1%~~6.8% for the ~~third quarter and 6.8% and 5.5% for the first nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The ~~increases~~increase in policy acquisition cost ~~ratios are~~ratio is due primarily to changes in the mix of business ~~in the third quarter of 2017~~ reflecting increased volumes of ~~new~~ business with higher ~~commissions.~~allowances.

Other operating expenses increased ~~$0.1~~$0.5 million, or ~~0.3%, and decreased $2.8 million, or 3.8%~~1.9%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~decrease~~increase is in line with expected expense levels needed to support the first nine months was primarily due to lower corporate overhead expense timing and the effect of foreign currency exchange fluctuations. Foreign currency exchange fluctuations resulted in an increase (decrease) in operating expenses of approximately $0.8 million and $(0.4) million for the three and nine months ended September 30, 2017,business as ~~compared to the same periods in 2016.~~well as higher incentive compensation. Other operating expenses as a percentage of net premiums totaled ~~7.2%~~7.3% and ~~9.0%~~6.9% for the ~~third quarter and 7.3% and 8.9% for the first nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively.

Financial Solutions Reinsurance

Income before income taxes decreased by ~~$12.8~~$0.8 million, or ~~29.3%, and $4.9 million, or 5.1%~~2.0%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~2018. The ~~decreases~~decrease in income before income taxes ~~were~~for the first three months was primarily due to foreign exchange fluctuations and the normalization of performance on closed longevity blocks and payout ~~annuity experience normalizing~~annuities after ~~a particularly positive 2016, partly offset by~~ favorable ~~longevity business results.~~performance in 2018. Foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease in income before income taxes totaling ~~$0.1 million and $(7.9)~~$2.8 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Net premiums ~~decreased by $7.7~~increased $4.1 million, or ~~16.4%, and $6.3 million, or 5.0%~~8.6%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. The decreases in net~~2018. Net premiums ~~were~~increased primarily due to ~~a new retrocession treaty, executed for risk management purposes effective in the first quarter~~increased volumes of ~~2017, which cedes~~closed longevity ~~risk to third parties, partially offset by an increase in premiums from new transactions.~~block business. Foreign currency exchange fluctuations ~~increased (decreased)~~decreased net premiums by ~~approximately $0.1 million and $(10.5)~~$3.6 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Net investment income increased $16.7 million, or 52.4%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase was primarily due to an increase in investment income associated with unit-linked policies, which fluctuate with market performance. The effect on investment income related to unit-linked products is substantially offset by a corresponding change in interest credited. Foreign currency exchange fluctuation resulted in a decrease in investment income of $3.6 million for the three months ended March 31, 2019, as compared to the same period in 2018.

Other revenues increased by $0.4 million, or 8.4%, for the three months ended March 31, 2019, as compared to the same period in 2018. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.

6150

Table of Contents

~~Net investment income decreased $2.3~~Claims and other policy benefits increased $6.4 million, or ~~6.9%, and $6.7 million, or 7.0%~~15.1%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The decreases in investment income for the third quarter was due to decreases in both investment yields and the invested asset base, while the decrease for the nine-month period was primarily due to foreign currency exchange fluctuations. Foreign currency exchange fluctuations resulted in an increase (decrease) in net investment income of approximately $0.1 million and $(7.3) million for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.

~~Other revenues decreased by $5.7 million, or 50.3%, and $4.7 million, or 25.3%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017, as compared to the same periods in 2016. The decreases in other revenues were due to experience from a longevity swap normalizing after a particularly positive 2016.~~

~~Claims and other policy benefits decreased $10.2 million, or 22.2%, and $17.9 million, or 14.2%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017~~, as compared to the same periods in 2016. The decrease in the third quarter and first nine months was primarily due to the aforementioned new longevity retrocession treaty that cedes longevity risk to third parties, net of an increase in claims and other policy benefits ~~from new transactions.~~was primarily due to increased volumes of closed longevity block business as well as a normalization of performance compared to favorable performance in 2018. Foreign currency exchange fluctuations ~~resulted in a decrease in~~decreased claims and other policy benefits ~~of approximately $9.6~~by $3.4 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same period in ~~2016.~~2018.

Interest credited expense ~~decreased~~increased by ~~$3.1~~$15.0 million ~~or 55.3%, and $2.6 million, or 29.4%,~~ for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. Interest credited in this segment relates to amounts credited to the contractholders of unit-linked products. ~~This amount will fluctuate according to contractholder investment selections, equity returns and interest rates.~~ The effect on interest credited related to unit-linked products is substantially offset by a corresponding change in investment income.

Other operating expenses increased ~~$2.7~~$1.1 million, or ~~55.1%, and $6.5 million, or 39.6%~~13.6%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. The increases are~~2018, with the increase primarily due to ~~increased administration costs~~business acquisition related ~~to longevity transactions and are offset partially by the effect of foreign currency exchange fluctuations.~~costs. Foreign currency exchange fluctuations ~~resulted in an increase (decrease) in~~decreased other operating expenses ~~of approximately $0.2 million and $(1.0)~~by $0.7 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Asia Pacific Operations

The Asia Pacific operations include business generated by its offices principally in Australia, China, Hong Kong, India, Japan, Malaysia, New Zealand, Singapore, South Korea and Taiwan. The Traditional segment’s principal types of reinsurance include individual and group life and health, critical illness, disability and superannuation. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, typically offer life and disability insurance coverage. The Financial Solutions segment includes financial reinsurance and asset-intensive ~~and~~transactions including certain disability, life and ~~life blocks.~~health blocks with significant investment risk. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

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

~~Table of Contents~~


(dollars in thousands)	Nine months ended September 30,												Three months ended March 31,
	2017						2016						2019						2018
Revenues:	Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific
Net premiums	$	1,557,590	$	2,094	$	1,559,684	$	1,233,222	$	4,936	$	1,238,158	$	646,741	$	33,795	$	680,536	$	589,513	$	678	$	590,191
Investment income, net of related expenses	68,105		24,662		92,767		61,601		18,086		79,687		25,335		10,269		35,604		24,600		10,394		34,994
Investment related gains (losses), net	—		11,525		11,525		14		14,322		14,336		8		4,069		4,077		8		3,467		3,475
Other revenues	2,724		17,087		19,811		4,580		18,809		23,389		1,088		6,395		7,483		418		5,307		5,725
Total revenues	1,628,419		55,368		1,683,787		1,299,417		56,153		1,355,570		673,172		54,528		727,700		614,539		19,846		634,385
Benefits and expenses:
Claims and other policy benefits	1,221,091		14,170		1,235,261		977,860		15,487		993,347		546,454		31,719		578,173		495,194		4,468		499,662
Interest credited	—		15,595		15,595		—		9,474		9,474		—		6,702		6,702		—		6,394		6,394
Policy acquisition costs and other insurance expenses	180,007		4,111		184,118		116,432		4,436		120,868		50,323		5,379		55,702		58,782		1,197		59,979
Other operating expenses	105,747		10,472		116,219		109,661		10,727		120,388		39,771		4,645		44,416		37,676		3,766		41,442
Total benefits and expenses	1,506,845		44,348		1,551,193		1,203,953		40,124		1,244,077		636,548		48,445		684,993		591,652		15,825		607,477
Income before income taxes	$	121,574	$	11,020	$	132,594	$	95,464	$	16,029	$	111,493	$	36,624	$	6,083	$	42,707	$	22,887	$	4,021	$	26,908

Income before income taxes ~~decreased~~increased by ~~$1.0~~$15.8 million, or ~~3.8%, and increased by $21.1 million, or 18.9%~~58.7%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in 2016. The decrease in income before income taxes for the third quarter was due to an increase in policy lapses on a financial solutions closed block of business in Japan partially offset by favorable results in the traditional segment.2018. The increase in income before income taxes for the first ~~nine~~three months ~~was~~is primarily ~~due~~attributable to ~~higher income from offices~~favorable overall experience in Asia, ~~driven~~partially offset by ~~business growth, most notably~~a loss in ~~Hong Kong and Southeast Asia. The prior-year period also included poor claims experience in~~ Australia. ~~The third quarter of 2016 also included a higher level of benefit expense associated with the timing of client reporting on one large treaty in Hong Kong.~~ Foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling ~~approximately $0.8 million and $0.3~~$2.0 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Traditional Reinsurance

Income before income taxes increased by ~~$6.7~~$13.7 million, or ~~34.0%, and $26.1 million, or 27.4%~~60.0%, for the three ~~and nine~~ months ended ~~September 30, 2017~~,March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~.2018. The ~~increases~~increase in income before income taxes ~~are~~in 2019 was primarily due to ~~higher income from offices~~more profitable new business and favorable claims experience in Asia ~~driven by business growth.~~as compared to the prior year same quarter. Foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling ~~approximately $1.0 million and $0.4~~$2.2 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~2019, as compared to the same ~~periods~~period in ~~2016~~2018.

Net premiums increased by ~~$132.5~~$57.2 million, or ~~32.8%, and $324.4 million, or 26.3%~~9.7%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were~~increase for the three month period in 2019 was driven by ~~both~~ new ~~and existing~~ business ~~written throughout the segment.~~growth. Foreign currency exchange fluctuations resulted in ~~an increase~~a decrease in net premiums of ~~approximately $1.0 million and $14.2~~$27.2 million for the three ~~and nine~~ months ~~of 2017,~~ended March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Table of Contents

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the segment is offered primarily in South Korea, Australia, China and Hong Kong. Net premiums earned from this coverage totaled ~~$158.6~~$252.1 million and ~~$100.6~~$235.7 million for the ~~third quarter and $474.8 million and $312.3 million for the first nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018, respectively.

Net investment income increased ~~$2.6~~$0.7 million, or ~~12.2%, and $6.5 million, or 10.6%~~3.0%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increases were~~increase was primarily due to ~~a higher~~an increase in the invested asset base. Foreign currency exchange fluctuations resulted in ~~an increase~~a decrease in net investment income of ~~approximately $0.5 million and $1.3~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

Other revenues decreased by $1.1 million, or 54.7%, and $1.9 million, or 40.5%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016. These variances are primarily due to gains and losses related to foreign currency transactions.

Loss ratios for this segment were ~~82.4%~~84.5% and ~~90.3%~~84.0% for the ~~third quarter~~three months ended March 31, 2019 and ~~78.4% and 79.3%~~2018, respectively. The increase in the loss ratio for the first ~~nine months ended September 30, 2017 and 2016, respectively. The decreases in the loss ratios for the third quarter and first nine~~three months of ~~2017 were~~2019 was primarily due to ~~improved~~unfavorable claims experience in Australia, partially offset by net favorable claims experience across Asia compared to the prior ~~year.~~year same quarter.

~~Table of Contents~~

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~10.4%~~7.8% and ~~1.0%~~10.0% for the ~~third quarter and 11.6% and 9.4% for the nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The ~~third quarter 2016 included the affect~~ratio of ~~adjustments associated with client reporting on one large treaty in Hong Kong. These percentages fluctuate~~policy acquisition costs and other insurance expenses as a percentage of net premiums fluctuates periodically due to timing of client company reporting ~~premium refunds,~~and variations in the mixture of ~~business and~~business. The decrease in the ~~relative maturity of~~current quarter is primarily due to higher allowances based on updated client reporting in the ~~business.In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.~~prior year.

Other operating expenses ~~decreased $1.7~~increased $2.1 million or ~~4.4%, and $3.9 million, or 3.6%~~5.6%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~2018 mainly due to growth in headcount across Asia to manage the ~~timing~~business growth in the region. Foreign currency exchange fluctuations resulted in a decrease in other operating expenses of ~~travel and consultant expenditures.~~$1.8 million for the three months ended March 31, 2019, as compared to the same period in 2018. Other operating expenses as a percentage of net premiums totaled ~~6.9%~~6.1% and ~~9.5%~~6.4% for the ~~third quarter and 6.8% and 8.9% for the first nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The timing of premium flows and the level of costs associated with ~~the entrance into and~~ development of new markets within the segment may cause other operating expenses as a percentage of net premiums to fluctuate ~~over periods of time.~~from period to period.

Financial Solutions Reinsurance

Income before income taxes ~~decreased~~increased by ~~$7.8~~$2.1 million, ~~and $5.0 million~~or 51.3%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016~~2018. The decreases in income before income taxes are primarily due to lower income from higher lapses on policies of the aforementioned closed block of business in Japan. Foreign currency exchange fluctuations resulted in an increase in income before income taxes ~~of approximately $0.1~~is primarily attributable to favorable lapse experience on a closed treaty in Japan and new transactions in Asia. Foreign currency exchange fluctuations increased income before income taxes by $0.2 million for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in 2018.~~2016~~.

Net premiums increased $33.1 million for the three months ended March 31, 2019, as compared to the same period in 2018. The increase was primarily due to new asset-intensive transactions in Asia.

Net ~~premiums~~investment income decreased ~~$0.7~~$0.1 million, or ~~97.4%, and $2.8 million, or 57.6%~~1.2%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. The decreases for the third quarter and first nine months were due to higher lapses from policies of the aforementioned closed block of business in Japan.~~2018. Foreign currency exchange ~~fluctuations had~~fluctuation resulted in a ~~negligible effect on~~decrease in net ~~premiums~~investment income of $0.4 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018.

~~Net investment income~~Other revenues increased ~~$4.7~~by $1.1 million, or ~~81.2%, and $6.6 million, or 36.4%~~20.5%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016 mainly due to growth in the invested asset base. Foreign currency exchange fluctuations resulted in an~~2018. The increase ~~in net investment income of approximately $0.2 million and $0.4 million for the three and nine months ended September 30, 2017, as~~ compared to the same ~~periods~~period in ~~2016.~~

~~Other revenues decreased by $0.8 million, or 12.0%,~~2018 is primarily due to higher income from new financial reinsurance transactions. As of March 31, 2019 and ~~$1.7 million, or 9.2%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017, as compared to the same periods in 2016. At~~ ~~September 30, 2017~~ ~~and 2016,~~2018, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was ~~$2.4~~$3.1 billion and ~~$1.0~~$2.6 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.

Claims and other policy benefits increased by ~~$2.3~~$27.3 million ~~or 61.8%, and decreased by $1.3 million, or 8.5%,~~ for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016. The~~2018. This increase ~~in the third quarter was primarily due to higher lapses from policies of the aforementioned closed block of business in Japan. The decrease in the first nine months~~ is attributable to ~~lower lapses~~new asset-intensive transactions in Asia.

Interest credited expense increased by $0.3 million, or 4.8%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase is primarily driven by growth from ~~policies from a closed block of business in Japan.~~new asset-intensive transactions.

Other operating expenses increased ~~by $0.5~~$0.9 million, or ~~15.4%, and decreased by $0.3 million, or 2.4%~~23.3%, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016, respectively.~~2018. The timing of premium flows and the level of costs associated with new transactions and the entrance into and development of new markets within the segment may cause other operating expenses to fluctuate ~~over periods of time.~~from period to period.

~~Table of Contents~~

Corporate and Other

Corporate and Other revenues primarily include investment income from unallocated invested assets, ~~and~~ investment related gains and ~~losses.~~losses and service fees. Corporate and Other expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance income line item, unallocated overhead and executive costs, interest expense

Table of Contents

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


(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2019			2018
Revenues:
Net premiums	$	23		$	72		$	109		$	289		$	(46	)	$	10
Investment income, net of related expenses	41,108			33,478			108,576			81,589			42,624			40,146
Investment related gains (losses), net	6,994			12,258			7,856			51,717			(1,631		)	(8,934		)
Other revenues	1,502			4,893			9,126			11,595			26,724			8,033
Total revenues	49,627			50,701			125,667			145,190			67,671			39,255
Benefits and expenses:
Claims and other policy benefits	(15		)	(15		)	(1		)	6			(35		)	320
Interest credited	1,799			622			4,420			1,588			5,506			2,210
Policy acquisition costs and other insurance income	(26,848		)	(24,565		)	(80,694		)	(73,526		)	(29,374		)	(30,512		)
Other operating expenses	45,601			32,414			124,114			113,367			69,499			62,960
Interest expense	36,836			43,063			108,590			96,201			40,173			37,454
Collateral finance and securitization expense	7,692			6,484			21,235			19,396			8,417			7,602
Total benefits and expenses	65,065			58,003			177,664			157,032			94,186			80,034
Income (loss) before income taxes	$	(15,438	)	$	(7,302	)	$	(51,997	)	$	(11,842	)
Loss before income taxes													$	(26,515	)	$	(40,779	)

Loss before income taxes ~~increased~~decreased by ~~$8.1~~$14.3 million, or ~~111.4% and $40.2 million, or 339.1%~~35.0%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The ~~increase~~decrease in loss before income taxes ~~for the third quarter and~~in the first ~~nine months is~~quarter was primarily due to ~~decreased~~increases in investment income and other revenues and a decrease in net investment related ~~gains, decreased other revenues and higher other operating expenses~~losses, which are partially offset by an increase in other operating expenses.

Net investment income increased ~~investment income.~~

~~Total revenues decreased~~ by ~~$1.1~~$2.5 million, or ~~2.1%, and $19.5 million, or 13.4%~~6.2%, for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase in the first quarter was largely attributable to an increase in unallocated invested assets and a higher average investment yield.

Net investment related losses decreased by $7.3 million, or 81.7%, for the three months ended March 31, 2019, as compared to the same period in 2018. The decrease ~~for~~in the ~~third~~first quarter iswas primarily due to an increase in net gains on the sale of fixed maturity securities of $5.1 million and an increase in the fair value of equity securities of $8.1 million, which were offset by a ~~$5.3~~$3.7 million ~~decrease in investment related gains (losses), net, largely caused by an~~ increase in other-than-temporary impairments on fixed maturity securities and other impairment charges of $3.2 million. The third quarter decrease was partially offset by a $7.6 million increase in investment income related to an increase in unallocated invested assets and higher investment yields, primarily due to a higher level of variable investment income. The decrease for the first nine months is primarily due to a decrease of $43.9 million in investment related gains (losses), net, mainly related to an increase in other-than-temporary impairments on fixed maturity securities and other impairment charges of $12.9 million and a reduction in net gains on the sale of investments of $25.2 million. The decrease for the first nine months was partially offset by an increase of $27.0 million in investment income related to an increase in unallocated invested assets and higher investment yields, primarily due to a higher level of variable investment income.investments.

~~Total benefits and expenses~~Other revenues increased by ~~$7.1~~$18.7 million ~~or 12.2%, and $20.6 million, or 13.1%,~~ for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2016.~~2018. The increase ~~of total benefits and expenses~~ in the ~~third~~first quarter ~~is primarily~~was mainly due to a ~~$13.2~~recapture of a collateral finance transaction, which resulted in a $12.9 million ~~increase~~gain. In addition, the Company’s RGAx operations contributed $11.1 million to other revenues in ~~other operating expenses, primarily related~~2019 compared to ~~compensation~~$6.5 million in 2018.

Policy acquisition costs and consulting expenses, partially offset by a reduction in interest expense of $6.2 million. The increase in total benefits and expenses in the first nine months was primarily due to an increase in interest expense and other operating expenses offset by an increase in other insurance income ~~related~~increased by $1.1 million, or 3.7%, for the three months ended March 31, 2019, as compared to the same period in 2018. Fluctuations period over period were attributable to the offset to capital charges allocated to the operating segments.

Other operating expenses increased by $6.5 million, or 10.4%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in other operating expenses was primarily due to strategic initiatives such as RGAx, and increased incentive-based compensation.

Interest expense increased by $2.7 million, or 7.3%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in interest expense ~~in the first nine months is primarily~~was due to ~~the issuance of $800.0 million in long-term debt in June 2016, which was partially offset by the repayment of $300.0 million of long-term debt in 2017, and a lower reduction~~variability in tax-related interest ~~expense primarily resulting from settlement with the taxing authority in 2016.~~expense.

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Liquidity and Capital Resources

Overview

The Company believes that cash flows from the source of funds available to it will provide sufficient cash flows for the next twelve months to satisfy the current liquidity requirements of ~~RGA, Inc. and its subsidiaries~~the Company under various scenarios that include the potential risk of early recapture of reinsurance treaties, market events and higher than expected claims. The Company performs periodic liquidity stress

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testing to ensure its asset portfolio includes sufficient high quality liquid assets that could be utilized to bolster its liquidity position under stress scenarios. These assets could be utilized as collateral for secured borrowing transactions with various third parties or by selling the securities in the open market if needed. The Company’s liquidity requirements have been and will continue to be funded through net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity needs, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These alternatives include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions.

Current Market Environment

The current low interest rate environment in select markets, primarily the U.S., Canada and ~~Canada,~~Europe, continues to ~~negatively affect~~put downward pressure on the ~~Company’s earnings. However, the~~Company's investment yield. The Company’s average investment yield, excluding spread business, ~~has begun to increase, which~~ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 was ~~4.61%~~4.49%, 8three basis points above the same period in ~~2016.~~2018. The Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Gross unrealized gains on fixed maturity ~~and equity~~ securities available-for-sale increased from ~~$2,246.5~~$1,858.7 million at December 31, ~~2016~~2018 to ~~$2,651.5~~$2,780.0 million at ~~September 30, 2017. Gross~~March 31, 2019. Similarly, gross unrealized losses decreased from ~~$374.9~~$748.5 million at December 31, ~~2016~~2018 to ~~$163.2~~$230.2 million at ~~September 30, 2017.~~March 31, 2019.

The Company continues to be in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. As indicated above, gross unrealized gains on ~~investment~~fixed maturity securities of ~~$2,651.5~~$2,780.0 million remain well in excess of gross unrealized losses of ~~$163.2~~$230.2 million as of ~~September 30, 2017.~~March 31, 2019. The Company does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future.

The Company projects its reserves to be sufficient, and it would not expect to write down deferred acquisition costs or be required to take any actions to augment capital, even if interest rates remain at current levels for the next five years, assuming all other factors remain constant. While the Company has felt the pressures of sustained low interest rates and volatile equity markets and may continue to do so, its business operations are not overly sensitive to these risks. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.

The Holding Company

RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders, repurchase of common stock and interest payments on its indebtedness. The primary sources of RGA’s liquidity include proceeds from its capital-raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with RGA Reinsurance, RCM and Rockwood Re and dividends from operating subsidiaries. As the Company continues its expansion efforts, RGA will continue to be dependent upon these sources of liquidity. The following tables provide comparative information for RGA (dollars in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2017		2016		2017		2016		2019		2018
Interest expense	$	44,697	$	50,826	$	132,018	$	119,700	$	48,450	$	45,444
Capital contributions to subsidiaries	10,000		46,002		28,500		87,002		20,500		11,000
Dividends to shareholders	32,271		26,288		85,086		74,034		37,707		32,241
Interest and dividend income	23,635		227,819		75,916		283,712		30,112		31,547
Issuance of unaffiliated debt	—		—		—		799,984

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



	March 31, 2019		December 31, 2018
Cash and invested assets	$	492,969	$	658,850

See Item 15, Schedule II - “Condensed Financial Information of the Registrant” in the ~~2016~~2018 Annual Report for additional financial information related to RGA.

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The undistributed earnings of substantially all of the Company’s foreign subsidiaries have been reinvested indefinitely in those non-U.S. operations, as described in Note 9 - “Income Tax” of the Notes to Consolidated Financial Statements in the ~~2016~~2018 Annual Report. ~~Under current tax laws, should~~As U.S. Tax Reform generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, the Company ~~repatriate such earnings, it may be subject~~does not expect to ~~additional U.S.~~incur material income taxes ~~and foreign withholding taxes.~~if these funds are repatriated.

RGA endeavors to maintain a capital structure that provides financial and operational flexibility to its subsidiaries, credit ratings that support its competitive position in the financial services marketplace, and shareholder returns. As part of the Company’s capital deployment strategy, isit has in recent years repurchased shares of RGA common stock and paid dividends to RGA

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shareholders, as authorized by the board of directors. RGA’s current share repurchase program, which was approved by the board of directors in January ~~2017,~~2019, authorizes the repurchase of up to $400.0 million of common stock. The pace of repurchase activity depends on various factors such as the level of available cash, an evaluation of the costs and benefits associated with alternative uses of excess capital, such as acquisitions and in force reinsurance transactions, and RGA’s stock price.

Details underlying dividend and share repurchase program activity were as follows (in thousands, except share data):


	Nine months ended September 30,				Three months ended March 31,
	2017		2016		2019		2018
Dividends to shareholders	$	85,086	$	74,034	$	37,707	$	32,241
Repurchases of treasury stock	26,897		116,522		50,000		—
Total amount paid to shareholders	$	111,983	$	190,556	$	87,707	$	32,241

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

In ~~October 2017,~~April 2019, RGA’s board of directors declared a quarterly dividend of ~~$0.50~~$0.60 per share. All future payments of dividends are at the discretion of RGA’s board of directors and will depend on the Company’s earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. See Note 3 - “Equity” in the Notes to Condensed Consolidated Financial Statements for information on the Company’s share repurchase program.

Debt

Certain of the Company’s debt agreements contain financial covenant restrictions related to, among others, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of consolidated net worth, maximum ratios of debt to capitalization and change of control provisions. The Company is required to maintain a minimum consolidated net worth, as defined in the debt agreements, of ~~$3.5~~$5.3 billion, calculated as of the last day of each fiscal quarter. Also, consolidated indebtedness, calculated as of the last day of each fiscal quarter, cannot exceed 35% of the sum of the Company’s consolidated indebtedness plus adjusted consolidated stockholders’ equity. A material ongoing covenant default could require immediate payment of the amount due, including principal, under the various agreements. Additionally, the Company’s debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material uncured covenant default under any of the agreements, including, but not limited to, non-payment of indebtedness when due for an amount in excess of ~~$100.0 million,~~the amounts set forth in those agreements, bankruptcy proceedings, or any other event ~~which~~that results in the acceleration of the maturity of indebtedness.

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, the Company had $2.8 billion ~~and $3.1 billion, respectively,~~ in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. As of March 31, 2019 and December 31, 2018, the average interest rate on long-term debt outstanding was 5.24%. The ability of the Company to make debt principal and interest payments depends on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, available liquidity at the holding company, and the Company’s ability to raise additional funds.

The Company enters into derivative agreements with counterparties that reference either the Company’s debt rating or its financial strength rating. If either rating is downgraded in the future, it could trigger certain terms in the Company’s derivative agreements, which could negatively affect overall liquidity. For the majority of the Company’s derivative agreements, there is a termination event, at the Company’s option, should the long-term senior debt ratings drop below either BBB+ (S&P) or Baa1 (Moody’s) or the financial strength ratings drop below either A- (S&P) or A3 (Moody’s).

The Company may borrow up to $850.0 million in cash and obtain letters of credit in multiple currencies on aits revolving credit facility that ~~expires~~matures in ~~September 2019.~~August 2023. As of ~~September 30, 2017~~March 31, 2019, the Company had no cash borrowings outstanding and ~~$97.2~~$18.7 million in issued, but undrawn, letters of credit under this facility. ~~As of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, the average interest rate on short-term and long-term debt outstanding was 5.15% and 5.16%, respectively.~~

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Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.

Credit and Committed Facilities

At ~~September 30, 2017,~~March 31, 2019, the Company maintained an $850.0 million syndicated revolving credit facility and certain committed letter of credit facilities aggregating ~~$1,349.1~~$1,258.9 million. See Note 13 - “Debt” in the Notes to Consolidated Financial Statements in the ~~2016~~2018 Annual Report for further information about these facilities.

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The Company has obtained bank letters of credit in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. Certain of these letters of credit contain financial covenant restrictions similar to those described in the “Debt” discussion above. At ~~September 30, 2017,~~March 31, 2019, there were approximately ~~$133.4~~$102.2 million of outstanding bank letters of credit in favor of third parties. Additionally, in accordance with applicable regulations, the Company utilizes letters of credit to secure statutory reserve credits when it retrocedes business to its affiliated subsidiaries. The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions, such as the U.S. and the UK. The Company believes the capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of ~~September 30, 2017,~~March 31, 2019, $1.5 billion in letters of credit from various banks were outstanding, but undrawn, backing reinsurance between the various subsidiaries of the Company.

Cash Flows

The Company’s principal cash inflows from its reinsurance operations include premiums and deposit funds received from ceding companies. The primary liquidity concerns with respect to these cash flows are early recapture of the reinsurance contract by the ceding company and lapses of annuity products reinsured by the Company. The Company’s principal cash inflows from its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity ~~concern~~concerns with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. The Company manages these risks very closely. See “Investments” and “Interest Rate Risk” below.

Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities and drawing funds under a revolving credit facility, under which the Company had availability of ~~$752.8~~$831.4 million as of ~~September 30, 2017.~~March 31, 2019. The Company also has ~~$1.1 billion~~$747.5 million of funds available through collateralized borrowings from the FHLB as of ~~September 30, 2017.~~March 31, 2019. As of ~~September 30, 2017,~~March 31, 2019, the Company could have borrowed these additional amounts without violating any of its existing debt covenants.

The Company’s principal cash outflows relate to the payment of claims liabilities, interest credited, operating expenses, income taxes, dividends to shareholders, purchases of treasury stock, and principal and interest under debt and other financing obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts (See Note 2, ~~“Summary of Significant~~“Significant Accounting ~~Policies”~~Policies and Pronouncements” in the Notes to Consolidated Financial Statements in the ~~2016~~2018 Annual Report). The Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires nor to the recoverability of future claims. The Company’s management believes its current sources of liquidity are adequate to meet its cash requirements for the next 12 months.

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Summary of Primary Sources and Uses of Liquidity and Capital

The Company’s primary sources and uses of liquidity and capital are summarized as follows:


		For the nine months ended September 30,						For the three months ended March 31,
		2017		2016				2019			2018
		(Dollars in thousands)						(Dollars in thousands)
Sources:	Sources:						Sources:
	Net cash provided by operating activities	$	1,104,499	$	1,019,872
	Proceeds from long-term debt issuance	—		799,984
	Exercise of stock options, net	4,450		11,752
	Change in cash collateral for derivative positions and other arrangements	—		24,749			Net cash provided by operating activities	$	340,621		$	223,749
	Cash provided by changes in universal life and other						Exercise of stock options, net	1,755			1,163
	investment type policies and contracts	438,774		487,808			Change in cash collateral for derivative positions and other arrangements	—			19,537
	Effect of exchange rate changes on cash	43,699		25,436			Effect of exchange rate changes on cash	7,141			21,989
	Total sources	1,591,422		2,369,601			Total sources	349,517			266,438

Uses:	Uses:						Uses:
	Net cash used in investing activities	1,056,334		2,247,406			Net cash (provided by) used in investing activities	(92,721		)	(76,550		)
	Dividends to stockholders	85,086		74,034			Dividends to stockholders	37,707			32,241
	Repayment of collateral finance and securitization notes	56,637		60,971			Repayment of collateral finance and securitization notes	29,064			27,104
	Debt issuance costs	—		9,026			Principal payments of long-term debt	690			662
	Principal payments of long-term debt	301,927		1,850			Purchases of treasury stock	49,052			2,616
	Purchases of treasury stock	41,360		121,896			Change in cash collateral for derivative positions and other arrangements	44,628			—
	Change in cash collateral for derivatives and other arrangements	46,206		—			Cash used for changes in universal life and other
	Total uses	1,587,550		2,515,183			investment type policies and contracts	150,434			73,482
							Total uses	218,854			59,555
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	3,872	$	(145,582	)	Net change in cash and cash equivalents	$	130,663		$	206,883

Cash Flows from Operations - The principal cash inflows from the Company’s reinsurance activities come from premiums, investment and fee income, annuity considerations and deposit funds. The principal cash outflows relate to the liabilities associated with various life and health insurance, annuity and disability products, operating expenses, income tax payments and interest on outstanding debt obligations. The primary liquidity concern with respect to these cash flows is the risk of shortfalls in premiums and investment income, particularly in periods with abnormally high claims levels.

Cash Flows from Investments - The principal cash inflows from the Company’s investment activities come from repayments of principal on invested assets, proceeds from maturities of invested assets, sales of invested assets and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. The Company typically has a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with its asset/liability management discipline to fund insurance liabilities. The Company closely monitors and manages these risks through its credit risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market ~~disruption.~~disruption, which could make it difficult for the Company to sell investments.

Financing Cash Flows - The principal cash inflows from the Company’s financing activities come from issuances of RGA debt and equity securities, and deposit funds associated with universal life and other investment type policies and contracts. The principal cash outflows come from repayments of debt, payments of dividends to stockholders, purchases of treasury stock, and withdrawals associated with universal life and other investment type policies and contracts. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal.

Contractual Obligations

There were no material changes in the Company’s contractual obligations from those ~~previously reported.~~reported in the 2018 Annual Report.

Asset / Liability Management

The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.

The Company has established target asset portfolios for ~~each major insurance product,~~its operating segments, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.

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The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company’s balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. and Latin America Financial Solutions operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company.

The Company’s liquidity position (cash and cash equivalents and short-term investments) was ~~$1,285.2~~$2,139.6 million and ~~$1,277.4~~$2,032.3 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $174.1 million and $254.5 million as of September 30, 2017 and December 31, 2016, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the Company’s condensed consolidated balance sheets. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.

See “Securities Borrowing, Lending and Other” in Note 4 - “Investments” in the Notes to Condensed Consolidated Financial Statements for information related to the Company’s securities borrowing, lending and repurchase/reverse repurchase programs. In addition to its security agreements with third parties, certain RGA’s subsidiaries have entered into intercompany securities lending agreements to more efficiently source securities for lending to third parties and to provide for more efficient regulatory capital management.

The Company is a member of the FHLB and holds ~~$67.9~~$83.5 million of FHLB common stock, which is included in other invested assets on the Company’s condensed consolidated balance sheets. ~~Membership provides the Company access to borrowing arrangements (“advances”) and funding agreements, discussed below, with the FHLB.~~ The Company did not have any advances from the FHLB at September 30, 2017 and December 31, 2016. The Company’s average outstanding balance of advances was $8.2 million and $17.0 million during the third quarter and the first nine months of 2017, respectively, and was $0.5 million and $29.5 million during the third quarter and the first nine months of 2016, respectively. Interest on advances is reflected in interest expense on the Company’s condensed consolidated statements of income.

~~In addition, the Company~~ has ~~also~~ entered into funding agreements with the FHLB under guaranteed investment contracts whereby the Company has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on the Company’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize the Company’s obligations under the funding agreements. The Company maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by the Company, the FHLB’s recovery is limited to the amount of the Company’s liability under the outstanding funding agreements. The amount of the Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was ~~$1.4~~$1.8 billion and ~~$1.1~~$1.7 billion at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, which is included in interest sensitive contract liabilities on the Company’s condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities, commercial mortgage loans, and U.S. Treasury and government agency securities. The amount of collateral exceeds the liability and is dependent on the type of assets collateralizing the guaranteed investment contracts.

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Investments

Management of Investments

The Company’s investment and derivative strategies involve matching the characteristics of its reinsurance products and other obligations and to seek to closely approximate the interest rate sensitivity of the assets with estimated interest rate sensitivity of the reinsurance liabilities. The Company achieves its income objectives through strategic and tactical asset allocations, security and derivative strategies within an asset/liability management and disciplined risk management framework. Derivative strategies are employed within the Company’s risk management framework to help manage duration, currency, and other risks in assets and/or liabilities and to replicate the credit characteristics of certain assets. For a discussion of the Company’s risk management process see “Market and Credit Risk” in the “Enterprise Risk Management” section below.

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The Company’s portfolio management groups work with the Enterprise Risk Management function to develop the investment policies for the assets of the Company’s domestic and international investment portfolios. All investments held by the Company, directly or in a funds withheld at interest reinsurance arrangement, are monitored for conformance with the Company’s stated investment policy limits as well as any limits prescribed by the applicable jurisdiction’s insurance laws and regulations. See Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company’s investments.

Portfolio Composition

The Company had total cash and invested assets of ~~$50.9~~$58.1 billion and ~~$46.0~~$56.1 billion ~~at September 30, 2017~~as of March 31, 2019 and December 31, ~~2016,~~2018, respectively, as illustrated below (dollars in thousands):

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



	March 31, 2019		% of Total		December 31, 2018		% of Total
Fixed maturity securities, available-for-sale	$	41,738,443	71.8	%	$	39,992,346	71.3	%
Equity securities	89,865		0.1		82,197		0.1
Mortgage loans on real estate	5,117,545		8.8		4,966,298		8.8
Policy loans	1,312,349		2.3		1,344,980		2.4
Funds withheld at interest	5,729,838		9.9		5,761,471		10.3
Short-term investments	119,215		0.2		142,598		0.3
Other invested assets	2,006,870		3.4		1,915,297		3.4
Cash and cash equivalents	2,020,396		3.5		1,889,733		3.4
Total cash and invested assets	$	58,134,521	100.0	%	$	56,094,920	100.0	%

Investment Yield

The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding spread related business. Spread related business is primarily associated with contracts on which the Company earns an interest rate spread between assets and liabilities. To varying degrees, fluctuations in the yield on other spread related business is generally subject to corresponding adjustments to the interest credited on the liabilities (dollars in thousands).


	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2017			2016			Increase/ (Decrease)		2017			2016			Increase/ (Decrease)		2019			2018			Increase/ (Decrease)
Average invested assets at amortized cost	$	25,887,338		$	24,128,430		7.3	%	$	25,136,119		$	22,982,245		9.4	%	$	28,096,587		$	27,024,934		4.0	%
Net investment income	305,632			263,111			16.2	%	863,724			777,157			11.1	%	310,229			296,473			4.6	%
Investment yield (ratio of net investment income to average invested assets)	4.81		%	4.43		%	38 bps		4.61		%	4.53		%	8 bps		4.49		%	4.46		%	3 bps

Investment yield increased for the three and nine months ended September 30, 2017 in comparison to the same period in the prior year primarily due to increased income from bond make-whole premiums and limited partnership and joint venture investments, both of which are included in other invested assets on the condensed consolidated balance sheets.

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

See “Fixed Maturity ~~and Equity~~ Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that provide the amortized cost, unrealized gains and losses, estimated fair value of ~~fixed maturity and equity~~these securities, and the other-than-temporary impairments in AOCI by sector as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

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The ~~Company’s~~Company holds various types of fixed maturity securities ~~are invested primarily in~~available-for-sale and classifies them as corporate ~~bonds, mortgage-~~securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign ~~government securities. As of September 30, 2017~~government-sponsored enterprises (“Other foreign government”). For both March 31, 2019 and December 31, ~~2016,~~2018, approximately ~~95.7% and 95.0%, respectively,~~95.6% of the Company’s consolidated investment portfolio of fixed maturity securities were investment grade.

Important factors in the selection of investments include diversification, quality, yield, call protection and total rate of return potential. The relative importance of these factors is determined by market conditions and the underlying reinsurance liability and existing portfolio characteristics. The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately ~~61.9%~~60.1% and ~~61.1%~~59.9% of total fixed maturity securities as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. See “Corporate Fixed Maturity Securities” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the major industry types, which comprise the corporate fixed maturity holdings at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~

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2018.

As of ~~September 30, 2017,~~March 31, 2019, the Company’s investments in Canadian ~~and Canadian provincial~~ government securities represented ~~11.0%~~10.2% of the fair value of total fixed maturity securities compared to ~~11.4%~~9.7% of the fair value of total fixed ~~maturity securities~~maturities at December 31, ~~2016.~~2018. These assets are primarily high quality, long duration provincial strips, the valuation of which is closely linked to the interest rate curve. These assets are longer in duration and held primarily for asset/liability management to meet Canadian regulatory requirements. See “Fixed Maturity ~~and Equity~~ Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the various sectors as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

The Company references rating agency designations in some of its investments disclosures. These designations are based on the ratings from nationally recognized statistical rating organizations, primarily ~~those assigned by S&P. In instances where a~~Moody’s, S&P ~~rating is not available the Company references the rating provided by Moody’s~~ and in the absence of both the Company will assign equivalent ratings based on information from the NAIC. The NAIC assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their U.S. statutory filings.Fitch. Structured securities ~~(mortgage-backed and asset-backed securities)~~ held by the Company’s insurance subsidiaries that maintain the NAIC statutory basis of accounting utilize the NAIC rating methodology. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).

The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 was as follows (dollars in thousands):


		September 30, 2017						December 31, 2016							March 31, 2019						December 31, 2018
NAIC Designation	Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total		Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total
1	AAA/AA/A	$	22,095,642	$	23,989,873	66.0	%	$	19,813,653	$	21,369,081	66.5	%	AAA/AA/A	$	25,496,994	$	27,673,531	66.3	%	$	24,904,526	$	26,180,440	65.5	%
2	BBB	10,233,331		10,792,989		29.7		8,834,469		9,162,483		28.5		BBB	11,872,478		12,244,807		29.3		12,141,601		12,023,426		30.1
3	BB	1,107,086		1,143,449		3.1		944,839		955,735		3.0		BB	1,318,883		1,319,201		3.2		1,409,235		1,371,328		3.4
4	B	360,643		374,478		1.0		414,087		411,138		1.3		B	419,764		422,390		1.0		395,694		385,670		1.0
5	CCC and lower	86,984		74,093		0.2		187,744		177,481		0.6		CCC and lower	13,414		14,357		—		13,183		12,860		—
6	In or near default	6,282		6,860		—		16,995		17,707		0.1		In or near default	67,094		64,157		0.2		17,929		18,622		—
	Total	$	33,889,968	$	36,381,742	100.0	%	$	30,211,787	$	32,093,625	100.0	%	Total	$	39,188,627	$	41,738,443	100.0	%	$	38,882,168	$	39,992,346	100.0	%

The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 (dollars in thousands):

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



	March 31, 2019				December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
RMBS:
Agency	$	798,669	$	815,317	$	811,044	$	814,568
Non-agency	1,171,025		1,178,869		1,061,192		1,054,653
Total RMBS	1,969,694		1,994,186		1,872,236		1,869,221
CMBS	1,404,852		1,431,746		1,428,115		1,419,034
ABS	2,243,449		2,241,986		2,171,254		2,149,204
Total	$	5,617,995	$	5,667,918	$	5,471,605	$	5,437,459

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The ~~residential mortgage-backed securities~~Company’s RMBS include agency-issued pass-through securities and collateralized mortgage obligations. A majority of the agency-issued pass-through securities are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments from the expected, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments from the expected. In addition, non-agency mortgage-backed securities face credit risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.

~~Asset-backed securities~~The Company’s ABS include credit card ~~and automobile~~ receivables, railcar leasing, student loans, single-family rentals, home equity loans and collateralized debt obligations (primarily collateralized loan obligations). The Company owns floating rate securities that represent approximately

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~~14.0%~~ 16.4% and ~~12.9%~~16.0% of the total fixed maturity securities at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance notes, as well as to enhance asset management strategies. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ cash flow priority in the capital structure and the inherent prepayment sensitivity of the underlying collateral. Credit risks include the adequacy and ability to realize proceeds from the collateral. Credit risks are mitigated by credit enhancements ~~which~~that include excess spread, over-collateralization and subordination. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.

The Company monitors its fixed maturity ~~and equity~~ securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, current intent and ability to hold securities, and various other subjective factors. Based on management’s judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. See “Investments – Other-than-Temporary Impairment” in Note 2 – ~~“Summary of Significant~~“Significant Accounting ~~Policies”~~Policies and Pronouncements” in the Notes to Consolidated Financial Statements in the ~~2016~~2018 Annual Report for additional information. The table below summarizes other-than-temporary impairments and changes in the mortgage loan provision for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (dollars in thousands).

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



	Three months ended March 31,
	2019			2018
Impairment losses on fixed maturity securities	$	9,453		$	—
Other impairment losses	1,932			828
Change in mortgage loan provision	(73		)	(516		)
Total	$	11,312		$	312

The fixed maturity impairments for the three ~~and nine~~ months ended ~~September 30, 2017 and 2016~~March 31, 2019 were largely related to ~~high-yield corporate securities. The equity~~a U.S. utility company. There were no fixed maturity impairments for the three ~~and nine~~ months ended ~~September 30, 2017 were related to an equity position received as part of a debt restructuring.~~March 31, 2018. In addition, other impairment losses for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016 are~~2018 were primarily due to impairments on ~~limited partnerships.~~real estate joint ventures.

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At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Company had ~~$163.2~~$230.2 million and ~~$374.9~~$748.5 million, respectively, of gross unrealized losses related to its fixed maturity ~~and equity~~ securities. The distribution of the gross unrealized losses related to these securities is shown below.

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

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	March 31, 2019		December 31, 2018
Sector:
Corporate	71.3	%	74.2	%
Canadian government	0.3		0.3
RMBS	4.5		3.4
ABS	6.8		4.4
CMBS	1.4		2.4
U.S. government	9.2		7.7
State and political subdivisions	1.1		1.2
Other foreign government	5.4		6.4
Total	100.0	%	100.0	%
Industry:
Finance	21.5	%	27.5	%
Asset-backed	6.8		4.4
Industrial	43.2		38.2
Mortgage-backed	5.9		5.8
Government	16.0		15.6
Utility	6.6		8.5
Total	100.0	%	100.0	%

See “Unrealized Losses for Fixed Maturity ~~and Equity~~ Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the total gross unrealized losses for ~~fixed maturity and equity~~these securities at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%.

The Company’s determination of whether a decline in value is other-than-temporary includes 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. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows and the deferability features of these securities.

See “Unrealized Losses for Fixed Maturity ~~and Equity~~ Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for ~~fixed maturity and equity~~these securities that have estimated fair values below amortized cost, by class and grade security, as well as the length of time the related market value has remained below amortized cost as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Company classified approximately ~~5.9%~~5.5% and ~~6.9%~~5.0%, respectively, of its fixed maturity securities in the Level 3 category (refer to Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities, bank loans, and Canadian provincial strips ~~below investment grade mortgage-backed securities and subprime asset-backed securities~~ with inactive trading markets.

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Mortgage Loans on Real Estate

Mortgage loans represented approximately ~~8.5% and 8.2%~~8.8% of the Company’s cash and invested assets as of ~~September 30, 2017~~both March 31, 2019 and December 31, ~~2016, respectively.~~2018. The Company’s mortgage loan portfolio consists of U.S., Canada and ~~Canada~~United Kingdom based investments primarily in commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type. ~~Additional information on~~The mortgage loan portfolio was diversified by geographic ~~concentration~~region and property type ~~can be found~~discussed further under “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements.

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Company’s mortgage loans, gross of unamortized deferred loan origination fees and expenses and valuation allowances, were distributed geographically as follows (dollars in thousands):

September 30, 2017 December 31, 2016

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

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	March 31, 2019				December 31, 2018
	Recorded Investment		% of Total		Recorded Investment		% of Total
U.S. Region:
Pacific	$	1,372,810	26.8	%	$	1,396,346	28.0	%
South Atlantic	965,962		18.8		964,174		19.3
Mountain	724,392		14.1		693,281		13.9
East North Central	620,124		12.1		605,608		12.2
West North Central	298,669		5.8		288,949		5.8
West South Central	631,742		12.3		567,541		11.4
Middle Atlantic	201,250		3.9		202,235		4.1
East South Central	139,314		2.7		117,588		2.4
New England	5,582		0.1		5,609		0.1
Subtotal - U.S.	4,959,845		96.6		4,841,331		97.2
Canada	147,701		2.9		135,394		2.7
United Kingdom	27,352		0.5		6,629		0.1
Total	$	5,134,898	100.0	%	$	4,983,354	100.0	%

Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses.

See “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for information regarding valuation allowances and impairments.

Policy Loans

Policy loans comprised approximately ~~2.6%~~2.3% and ~~3.1%~~2.4% of the Company’s cash and invested assets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, the majority of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

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Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~11.8%~~9.9% and ~~12.8%~~10.3% of the Company’s cash and invested assets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed by the ceding company. Interest accrues to the total funds withheld at interest assets at rates defined by the treaty terms. ~~Additionally, under certain treaties the~~The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Ceding companies with funds withheld at interest had an average financial strength rating of “A” at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018. Certain ceding companies maintain segregated portfolios for the benefit of the Company.

Other Invested Assets

Other invested assets include ~~equity securities,~~ limited partnership interests, joint ventures (other than operating joint ventures), ~~structured loans,~~equity release mortgages, derivative contracts, FVO contractholder-directed unit-linked investments, and FHLB common ~~stock and equity release mortgages.~~stock. Other invested assets represented approximately ~~3.0% and 3.5%~~3.4% of the Company’s cash and invested assets ~~as of September 30, 2017~~for both March 31, 2019 and December 31, ~~2016, respectively.~~2018. See “Other Invested Assets” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the carrying value of the Company’s other invested assets by type as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

The Company utilizes derivative financial instruments to protect the Company against possible changes in the fair value of its investment portfolio as a result of interest rate changes, ~~to hedge against risk of changes in the purchase price of securities,~~ to hedge liabilities associated with the reinsurance of variable annuities with guaranteed living benefits and to manage the portfolio’s effective yield, maturity and duration. In addition, the Company utilizes derivative financial instruments to reduce the risk associated with fluctuations in foreign currency exchange rates. The Company uses both exchange-traded, centrally cleared, and customized over-the-counter derivative financial instruments.

See Note 5 -– “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the notional amounts and fair value of investment related derivative instruments held at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company had no ~~net~~ credit exposure related to its derivative contracts, excluding futures and mortality swaps, at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, as the net amount of collateral pledged to the Company from counterparties exceeded the fair value of the derivative contracts.

The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Certain of the Company’s OTC derivatives are cleared derivatives, which are bilateral transactions between the Company and a counterparty where the transactions are cleared through a clearinghouse, such that each derivative counterparty is only exposed to the default of the clearinghouse. As ~~exchange-~~

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~~traded~~exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties. See Note 5 -– “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for more information regarding the Company’s derivative instruments.

~~Enterprise Risk Management~~

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

~~Enterprise Risk Management Structure and Governance~~

~~The Board of Directors (“the Board”) oversees enterprise risk through its standing committees. The Finance, Investments, and Risk Management (“FIRM”) Committee~~amount of the Board oversees the management of the Company’s ERM program and policies. The FIRM receives regular reports and assessments which describe the Company’s key risk exposures and include quantitative and qualitative assessments and information about breaches, exceptions, and waivers.

The Company’s Global Chief Risk Officer (“CRO”) leads the dedicated ERM function. The CRO reports to the Chief Executive Officer (“CEO”) and has direct access to the Board through the FIRM Committee with formal reporting occurring quarterly. The CROloan is supported by a network of Business Unit Chief Risk Officers and Risk Management Officers throughout the business who are responsible for the analysis and management of risks within their scope. A Lead Risk Management Officer is assigned to each risk to take overall responsibility to monitor and assess the risk consistently across all markets.

In addition to leading the ERM function, the CRO also chairs the Company’s Risk Management Steering Committee (“RMSC”), which is made up of senior management executives, including the CEO, the Chief Financial Officer (“CFO”), and the Chief Operating Officer, among others. The RMSC provides oversight for the Insurance, Market and Credit, Capital, and Operational risk committees and retains direct risk oversight responsibilities for the following:

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

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

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

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

The Insurance, Market and Credit, Capital, and Operational risk committees have direct oversight accountability for their respective risks areas including the identification, assessments, and management of known, new and emerging risk exposures and the review and approval of RGA group-level risk limits

To ensure appropriate oversight of enterprise-wide risk management issues without unnecessary duplication, as well as to foster cross-committee communication and coordination regarding risk issues, risk committee chairs attend RMSC meetings. In addition to the risk committees, their sub-committees and working groups, some RGA operating entities have risk management committees that oversee relevant risks related to segment-level risk limits.

~~Enterprise Risk Management Framework~~

RGA’s ERM framework provides a platform to assess the risk / return profiles of risks throughout the organization to enable enhanced decision making by business leaders. The ERM framework also guides the development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels.

~~RGA’s ERM framework includes the following elements:~~


1.	Risk Culture: Risk management is an integral part of the Company’s culture and is embedded in RGA’s business processes in accordance with RGA’s risk philosophy. As the cornerstone of the ERM framework, a culture of prudent risk management reinforced by senior management plays a preeminent role in the effective management of risks assumed by RGA.


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

~~Table of Contents~~


3.	Risk Limits: Risk Limits establish the maximum amount of defined risk that the Company is willing to assume to remain within the Company’s overall risk appetite. These risks have been identified by the management of the Company as relevant to manage the overall risk profile of the Company while allowing achievement of strategic objectives.


4.	~~Risk Assessment Process: RGA uses qualitative and quantitative methods to assess key risks through a portfolio approach, which analyzes established and emerging risks in conjunction with other risks.~~


5.	Business Specific Limits/Controls: These limits/controls provide additional safeguards against undesired risk exposures and are embedded in business processes. Examples include maximum retention limits, pricing and underwriting reviews, per issuer limits, concentration limits, and standard treaty language.

Proactive risk monitoring and reporting enable early detection and mitigation of emerging risks. The RMSC and its subcommittees monitor adherence to risk limits through the ERM function, which reports regularly to the RMSC and FIRM Committee. The frequency of monitoring is tailored to the volatility assessment and relative priority of each risk. Risk escalation channels coupled with open communication lines enhance the mitigants explained above. The Company has devoted significant resources to developing its ERM program and expects to continue to do so in the future. Nonetheless, the Company’s policies and procedures to identify, manage, and monitor risks may not be fully effective. Many of the Company’s methods for managing risk are based on historical information, which may not be a good predictor of future risk exposures, such as the risk of a pandemic causing a large number of deaths. Management of operational, legal, and regulatory risk relies on policies and procedures which may not be fully effective under all scenarios.

~~Risk Categories~~

The Company groups its risks into the following categories: Insurance risk, Market and Credit risk, Capital risk, Operational risk and Strategic risk. Specific risk assessments and descriptions can be found below and in Item 1A - “Risk Factors” of the 2016 Annual Report.

~~Insurance Risk~~

Insurance risk is the risk of lower or negative earnings and potentially a reduction in enterprise value due to a greater amount of benefits and related expenses paid than expected, or from non-market related adverse policyholder or client behavior. The Company uses multiple approaches to managing insurance risk: active insurance risk assessment and pricing appropriately for the risks assumed, transferring undesired risks, and managing the retained exposure prudently. These strategies are explained below.

~~Insurance Risk Assessment and Pricing~~

The Company has developed extensive expertise in assessing insurance risks which ultimately forms an integral part of ensuring that it is compensated commensurately for the risks it assumes and that it does not overpay for the risks it transfers to third parties. This expertise includes a vast array of market and product knowledge supported by a large information database of historical experience which is closely monitored. Analysis and experience studies derived from this database help form the basis for the Company’s pricing assumptions which are used in developing rates for new risks. If actual mortality or morbidity experience is materially adverse, some reinsurance treaties allow for increases to future premium rates.

Misestimation of any key risk can threaten the long term viability of the enterprise. Further, the pricing process is a key operational risk and significant effort is applied to ensuring the appropriateness of pricing assumptions. Some of the safeguards the Company uses to ensure proper pricing are: experience studies, strict underwriting, sensitivity and scenario testing, pricing guidelines and controls, authority limits and internal and external pricing reviews. In addition, the ERM function provides pricing oversight which includes periodic pricing audits.

~~Risk Transfer~~

To minimize volatility in financial results and reduce the impact of large losses, the Company transfers some of its insurance risk to third parties using vehicles such as retrocession and catastrophe coverage.

~~Individual Exposure Retrocession~~

In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises (or retrocessionaires) under excess coverage and coinsurance contracts. In individual life markets, the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations the Company has retained more than $8.0 million per individual life. The Company enters into agreements with other reinsurers to mitigate the residual risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life.

~~Table of Contents~~

~~Catastrophic Excess Loss Retrocession~~

The Company seeks to limit its exposure to loss on its assumed catastrophic excess of loss reinsurance agreements by ceding a portion of its exposure to multiple retrocessionaires through retrocession line slips or directly to retrocession markets. The Company’s policy is to retain a maximum of $20.0 million of catastrophic loss exposure per agreement and to retrocede up to $30.0 million additional loss exposures to the retrocession markets. The Company limits its exposure on a country-by-country (and state-by-state in the U.S.) basis by managing its total exposure to all catastrophic excess of loss agreements bound within a given country to established maximum aggregate exposures. The maximum exposures are established and managed both on gross amounts issued prior to including retrocession and for amounts net of exposures retroceded.

~~Catastrophe Coverage~~

~~The Company accesses the markets each year for annual catastrophic coverages and reviews current coverage and pricing of current and alternate designs. The coverage may vary from year to year based~~dependent on the Company’s perceived value of such protection. The current policy covers events involving 8 or more insured deaths from a single occurrence and covers $100.0 million of claims in excess of the Company’s $25.0 million deductible.

~~Managing Retained Exposure~~

The Company retains most of the inbound insurance risk. The Company manages the retained exposure proactively using various mitigating factors such as diversification and limits. Diversification is the primary mitigating factor of short term volatility risk, but it also mitigates adverse impacts of changes in long term trends and catastrophic events. The Company’s insured populations are dispersed globally, diversifying the insurance exposure because factors that cause actual experience to deviate materially from expectations do not affect all areas uniformly and synchronously or in close sequence. A variety of limits mitigate retained insurance risk. Examples of these limits include geographic exposure limits, which set the maximum amount of business that can be written in a given country, and jumbo limits, which prevent excessive coverage on a given individual.

In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk.

~~RGA has various methods to manage its insurance risks, including access to the capital and reinsurance markets.~~

~~Market and Credit Risk~~

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

~~Interest Rate Risk~~

Interest Rate risk is risk that changes in the level and volatility of nominal interest rates affect the profitability, value or solvency position of the Company. This includes credit spread changes and inflation but excludes credit quality deterioration. This risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets, primarily fixed maturity securities, and also has certain interest-sensitive contract liabilities. A prolonged period where market yields are significantly below the book yields of the Company’s asset portfolio puts downward pressure on portfolio book yields. The Company has been proactive in its investment strategies, reinsurance structures and overall asset-liability management practices to reduce the risk of unfavorable consequences in this type of environment.

The Company manages interest rate risk to optimize the return on the Company’s capital and to preserve the value created by its business operations within certain constraints. For example, certain management and monitoring processes are designed to minimize the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by managing the relative matching of the cash flows of its liabilities and assets.

The Company’s exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fairappraised value of the ~~Company’s financial instruments in~~home at the ~~event~~time of origination, the borrower's age and interest rate. Unlike a ~~hypothetical change in~~home equity loan, no payment of principal or interest ~~rates. Interest rate cash flow risk exposure~~ is ~~measured using interest rate sensitivity analysis to determine~~required until the ~~Company’s variability in cash flows in the event of a hypothetical change in interest rates.~~

In order to reduce the exposure to changes in fair values from interest rate fluctuations, the Company has developed strategies to manage the net interest rate sensitivity of its assets and liabilities. In addition, from time to time, the Company has utilized the swap market to manage the sensitivity of fair values to interest rate fluctuations.

~~Inflation can also have direct effects on the Company’s assets and liabilities. The primary direct effect of inflation is the increase in operating expenses. A large portion~~death of the ~~Company’s operating expenses consists~~borrower or sale of ~~salaries, which~~the home. Equity release mortgages may also be either fully funded at origination, or the borrower can request periodic funding similar to a line of credit. Equity release mortgages are subject to ~~wage increases at least partly affected by the~~risks, including market, credit, interest rate, ~~of inflation.~~liquidity, operational, reputational and legal risks.

~~Table of Contents~~

~~The Company reinsures annuities with benefits indexed to the cost of living. Some of these benefits are hedged with a combination of CPI swaps and indexed bonds when material.~~

Long Term Care products have an inflation component linked to the future cost of such services. If health care costs increase at a much larger rate than what is prevalent in the nominal interest rates available in the markets, the Company may not earn enough investment yield to pay future claims on such products.

~~Foreign Currency Risk~~

Foreign currency risk is the risk of changes in level and volatility of currency exchange rates affect the profitability, value or solvency position of the Company. The Company manages its exposure to currency principally by currency matchingOther invested assets with the underlying liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canadian operations to reduce excess exposure to these currencies. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the condensed consolidated balance sheets.

The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). However, the Company has entered into cross currency swaps to manage exposure to specific currencies. The majority of the Company’s foreign currency transactions are denominated in Australian dollars, British pounds, Canadian dollars, Euros, Japanese yen, Korean won,include $595.6 million and ~~the South African rand. The maximum amount of assets held in a specific currency (with the exception of the U.S. dollar) is measured relative to risk targets and is monitored regularly.~~

~~Real Estate Risk~~

Real Estate risk is the risk that changes in the level and volatility of real estate market valuations may impact the profitability, value or solvency position of the Company. The Company has investments in direct real estate equity and debt instruments collateralized by real estate (“real estate loans”). Real estate equity risks include significant reduction in valuations, which could be caused by downturns in the broad economy or in specific geographic regions or sectors. In addition, real estate loan risks include defaults, borrower or tenant bankruptcy and reduced liquidity. Real estate loan risks are partially mitigated by the excess of the value of the property over the loan principle, which provides a buffer should the value of the real estate decrease. The Company manages its real estate loan risk by diversifying by property type and geography and through exposure limits.

~~Equity Risk~~

~~Equity risk is the risk that changes in the level and volatility~~$475.9 million of equity market valuations affect the profitability, value or solvency position of the company. This risk includes Variable Annuity and other equity linked exposures and asset related equity exposure. The Company assumes equity risk from alternative investments, fixed indexed annuities and variable annuities. The Company uses derivatives to hedge its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products.

~~Alternative Investments~~

Alternative investments are investments in non-traditional asset classes that primarily back the Company’s capital and surplus. The Company generally restricts the alternative investments portfolio to non-liability supporting assets: that is, free surplus. Alternative investments generally encompass: hedge funds, emerging markets debt, distressed debt, commodities, infrastructure, tax credits, and equities, both public and private. The Company mitigates its exposure to alternative investments by limiting the size of the alternative investments holding and using per-issuer investment limits.

~~Fixed Indexed Annuities~~

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

~~Table of Contents~~

~~Variable Annuities~~

The Company reinsures variable annuities including those with guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). Strong equity markets, increases in interest rates and decreases in equity market volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in equity market volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to substantially mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits, ignoring the Company’s own credit risk assessment. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company’s net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefitsrelease mortgages as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~

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

~~Credit Risk~~

~~Credit risk, which~~2018, respectively. Investment income includes default risk, is risk of loss due to credit quality deterioration of an individual financial asset, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the credit exposure for an asset is limited to the fair value, net of any collateral received, at the reporting date.

~~Investment Credit Risk~~

Investment credit risk is credit risk related to invested assets. The Company manages investment credit risk using per-issuer investment limits. In addition to per-issuer limits, the Company also limits the total amounts of investments per rating category. An automated compliance system checks for compliance for all investment positions$7.1 million and sends warning messages when there is a breach. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because futures are transacted through regulated exchanges, and positions are marked to market$3.4 million in interest income earned on ~~a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.~~

The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength ratings. Additionally, a decrease in the Company’s financial strength rating to a specified level results in potential settlement of the derivative positions under the Company’s agreements with its counterparties. A committee is responsible for setting rules and approving and overseeing all transactions requiring collateral. See “Credit Risk” in Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on credit risk related to derivatives.

~~Counterparty Risk~~

~~Counterparty risk is the potential~~equity release mortgages for the ~~Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk~~three months ended March 31, 2019 and ~~collection risk.~~2018, respectively.

~~Run-on-the-Bank~~

The risk that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Substantially higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs.

~~Table of Contents~~

~~Collection Risk~~

For clients and retrocessionaires, this includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to RGA.

The Company manages counterparty risk by limiting the total exposure to a single counterparty and by only initiating contracts with creditworthy counterparties. In addition, some of the counterparties have set up trusts and letters of credit, reducing the Company’s exposure to these counterparties.

Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to certain other RGA insurance subsidiaries. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of September 30, 2017, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated “A-” or better. A rating of “A-” is the fourth highest rating out of sixteen possible ratings. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.

The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.

~~Aggregate Counterparty Limits~~

In addition to investment credit limits and counterparty limits, there are aggregate counterparty risk limits which include counterparty exposures from reinsurance, financing and investment activities at an aggregated level to control total exposure to a single counterparty. Counterparty risk aggregation is important because it enables the Company to capture risk exposures at a comprehensive level and under more extreme circumstances compared to analyzing the components individually.

~~All counterparty exposures are calculated on a quarterly basis, reviewed by management and monitored by the ERM function.~~

~~Capital Risk~~

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

~~Operational Risk~~

Operational risk is the risk of lower or negative earnings and a potential reduction in enterprise value caused by the inadequacy or failure of internal processes, people and systems, or from the adverse impact of external events or actors. The Company regularly monitors the risks related to human capital, fraud, business conduct and governance, disruption of operations, business operations and privacy and security related matters. Operational risks are core to managing the Company’s brand and market confidence as well as maintaining its ability to acquire and retain the appropriate expertise to execute and operate the business.

~~Strategic Risk~~

Strategic risk is the risk of lower or negative earnings and a potential reduction in enterprise value related to the planning, implementation, and management of the Company’s business plans and strategies. This includes the risks associated with the global environment in which it operates; future law and regulation changes; political and sovereign risks; and relationships with key external parties.

New Accounting Standards

See Note 1213 — “New Accounting Standards” in the Notes to Condensed Consolidated Financial Statements.

~~ITEM 3. Quantitative and Qualitative Disclosures About Market Risk~~

There has been no significant change in the Company’s quantitative or qualitative aspects of market risk during the quarter ended September 30, 2017 from that disclosed in the 2016 Annual Report. See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market and Credit Risk”, which is included herein, for additional information.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, the Company products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and the Company’s strategies for managing this risk, vary by product. As of March 31, 2019, there have been no material changes in the Company’s economic exposure to market risk or the Company’s Enterprise Risk Management function from December 31, 2018, a description of which may be found in its Annual Report on Form 10-K, for the year ended December 31, 2018, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission.

ITEM 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

There was no change in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended ~~September 30, 2017,~~March 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table of Contents~~

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 1A. Risk Factors

There were no material changes from the risk factors disclosed in the ~~2016~~2018 Annual Report.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table summarizes RGA’s repurchase activity of its common stock during the quarter ended ~~September 30, 2017:~~March 31, 2019:

Total Number of Shares
Purchased (1)

Average Price Paid per
Share

Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (1)

Maximum Number (or
Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under
the Plan or Program
July 1, 2017 -
July 31, 2017 1,320
$ 131.02
—
$ 400,000,000
August 1, 2017 -
August 31, 2017 25,841
$ 140.23
—
$ 400,000,000
September 1, 2017 -
September 30, 2017 209,344
$ 128.91
208,680
$ 373,103,074



	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program
January 1, 2019 - January 31, 2019	10,001	$	142.53	—	$	89,579,317
February 1, 2019 - February 28, 2019	3,438	$	144.24	—	$	89,579,317
March 1, 2019 - March 31, 2019	795	$	145.25	344,237	$	39,579,388

(1)

RGA ~~repurchased 208,680 shares~~had no repurchases of common stock under its share repurchase program for ~~$26.9~~January and February 2019 and repurchased 344,237 of common stock under its share repurchase program for $50.0 million during ~~September 2017.~~March 2019. The Company net settled - issuing ~~3,190, 65,078~~29,098, 10,973 and ~~2,648~~2,860 shares from treasury and repurchasing from recipients ~~1,320, 25,841~~10,001, 3,438 and ~~664~~795 shares in ~~July, August~~January, February and ~~September,~~March 2019, respectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive ~~award.~~awards.

On January ~~26, 2017,~~24, 2019, RGA’s board of directors authorized a share repurchase program, with no expiration date, for up to $400.0 million of RGA’s outstanding common stock. ~~In connection with this authorization, the board~~

Table of ~~directors terminated the stock repurchase authority granted in 2016.~~Contents

ITEM 6. Exhibits

See index to exhibits.

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INDEX TO EXHIBITS




Exhibit Number		Description

3.1		Amended and Restated Articles of Incorporation, as amended by Amendment of Articles of Incorporation, effective as of May 23, 2018, incorporated by reference to Exhibit 3.1 ~~of Current~~to Quarterly Report on Form ~~8-K~~10-Q for the period ended June 30, 2018, filed ~~November 25, 2008.~~on August 3, 2018 (File No. 1-11848)

3.2		Amended and Restated Bylaws, effective as of May 23, 2018, incorporated by reference to Exhibit ~~3.1 of~~3.2 to Current Report on Form 8-K filed ~~July 18, 2014.~~on May 24, 2018 (File No. 1-11848)

10.1		Form of Performance Contingent Share Agreement under RGA Flexible Stock Plan, as amended and restated effective May 23, 2017*

10.2		Form of Stock Appreciation Right Award Agreement under RGA Flexible Stock Plan, as amended and restated effective May 23, 2017*

10.3		Form of Non-Qualified Stock Option Agreement under RGA Flexible Stock Plan, as amended and restated effective May 23, 2017*

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

* Represents a management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Reinsurance Group of America, Incorporated
Date: ~~November 2, 2017~~May 3, 2019	By:	/s/ Anna Manning
		Anna Manning
		President & Chief Executive Officer
		(Principal Executive Officer)
Date: ~~November 2, 2017~~May 3, 2019	By:	/s/ Todd C. Larson
		Todd C. Larson
		Senior Executive Vice President & Chief Financial Officer
		(Principal Financial and Accounting Officer)

8568



September 30, 2017:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	21,418,741	$	1,209,999	$	92,910	$	22,535,830	61.9	%	$	—
Canadian and Canadian provincial governments	2,850,982		1,142,635		2,432		3,991,185		11.0		—
Residential mortgage-backed securities	1,645,379		42,202		8,276		1,679,305		4.6		—
Asset-backed securities	1,680,918		18,713		5,063		1,694,568		4.7		275
Commercial mortgage-backed securities	1,293,296		25,471		5,445		1,313,322		3.6		—
U.S. government and agencies	1,621,053		13,614		30,998		1,603,669		4.4		—
State and political subdivisions	614,099		52,919		5,987		661,031		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	2,765,500		145,025		7,693		2,902,832		8.0		—
Total fixed maturity securities	$	33,889,968	$	2,650,578	$	158,804	$	36,381,742	100.0	%	$	275
Non-redeemable preferred stock	$	41,878	$	312	$	3,289	$	38,901	34.4	%
Other equity securities	74,514		633		1,117		74,030		65.6
Total equity securities	$	116,392	$	945	$	4,406	$	112,931	100.0	%



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



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

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



For the three months ended September 30, 2016 (continued):	Fixed maturity securities available-for-sale
	State and political subdivisions			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivatives			Other assets - longevity swaps		Interest sensitive contract liabilities embedded derivatives			Other liabilities - mortality swaps
Fair value, beginning of period	$	35,246		$	13,706		$	(91,981	)	$	17,781	$	(1,125,380	)	$	(1,997	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	10			—			—			—		—			—
Investment related gains (losses), net	—			—			49,078			—		7,988			—
Interest credited	—			—			—			—		(20,104		)	—
Included in other comprehensive income	553			48			—			327		—			—
Other revenues	—			—			—			8,921		—			(400		)
Purchases⁽¹⁾	1,986			—			—			—		(11,853		)	—
Sales⁽¹⁾	—			—			—			—		—			—
Settlements⁽¹⁾	(32		)	(328		)	—			—		19,225			329
Transfers into Level 3	—			—			—			—		—			—
Transfers out of Level 3	—			—			—			—		—			—
Fair value, end of period	$	37,763		$	13,426		$	(42,903	)	$	27,029	$	(1,130,124	)	$	(2,068	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses	$	10		$	—		$	—		$	—	$	—		$	—
Investment related gains (losses), net	—			—			49,078			—		3,969			—
Other revenues	—			—			—			8,921		—			(400		)
Interest credited	—			—			—			—		(39,329		)	—



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



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



	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program
July 1, 2017 - July 31, 2017	1,320	$	131.02	—	$	400,000,000
August 1, 2017 - August 31, 2017	25,841	$	140.23	—	$	400,000,000
September 1, 2017 - September 30, 2017	209,344	$	128.91	208,680	$	373,103,074