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 ~~June 30, 2018~~March 31, 2019
		OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
¨		OF THE SECURITIES EXCHANGE ACT OF 1934
		Commission File Number 1-11848

REINSURANCE GROUP OF AMERICA, INCORPORATED

(Exact name of Registrant as specified in its charter)



MISSOURI		43-1627032
(State or other jurisdiction		(IRS employer
of incorporation or organization)		identification number)

16600 Swingley Ridge Road

Chesterfield, Missouri 63017

(Address of principal executive offices)

(636) 736-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o

Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

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 ~~July 31, 2018, 63,656,444~~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) June 30, 2018 and December 31, 2017	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 six months ended June 30, 2018 and 2017	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 six months ended June 30, 2018 and 2017	5	Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2018 and 2017	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	39	8. Commitments, Contingencies and Guarantees	33
	8. Commitments, Contingencies and Guarantees	41	9. Income Tax	34
	9. Income Tax	42	10. Employee Benefit Plans	35
	10. Employee Benefit Plans	43	11. Reinsurance	35
	11. Reinsurance	43	12. Policy Claims and Benefits	36
	12. New Accounting Standards	44	13. New Accounting Standards	36
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
3	Quantitative and Qualitative Disclosures About Market Risk	79	Quantitative and Qualitative Disclosure About Market Risk	65
4	Controls and Procedures	80	Controls and Procedures	65

	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION

1	Legal Proceedings	81	Legal Proceedings	65
1A	Risk Factors	81	Risk Factors	65
2	Unregistered Sales of Equity Securities and Use of Proceeds	81	Unregistered Sales of Equity Securities and Use of Proceeds	65
6	Exhibits	81	Exhibits	66
	Signatures	83	Index to Exhibits	67
	Index to Exhibits	82	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)


	June 30, 2018			December 31, 2017
	(Dollars in thousands, except share data)						March 31, 2019			December 31, 2018
Assets
Fixed maturity securities available-for-sale, at fair value (amortized cost $35,233,970 and $35,281,412)	$	36,784,954		$	38,150,820
Equity securities, at fair value (cost $121,744 and $102,841)	108,070			100,152
Mortgage loans on real estate (net of allowances of $9,706 and $9,384)	4,558,669			4,400,533
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	1,339,252			1,357,624			1,312,349			1,344,980
Funds withheld at interest	5,981,092			6,083,388			5,729,838			5,761,471
Short-term investments	123,028			93,304			119,215			142,598
Other invested assets	1,605,562			1,505,332			2,006,870			1,915,297
Total investments	50,500,627			51,691,153			56,114,125			54,205,187
Cash and cash equivalents	1,397,679			1,303,524			2,020,396			1,889,733
Accrued investment income	400,160			392,721			442,956			427,893
Premiums receivable and other reinsurance balances	2,617,382			2,338,481			2,857,673			3,017,868
Reinsurance ceded receivables	789,429			782,027			814,806			757,572
Deferred policy acquisition costs	3,205,667			3,239,824			3,404,593			3,397,770
Other assets	855,553			767,088			1,037,932			839,222
Total assets	$	59,766,497		$	60,514,818		$	66,692,481		$	64,535,245
Liabilities and Stockholders’ Equity
Future policy benefits	$	22,286,622		$	22,363,241		$	25,976,847		$	25,285,400
Interest-sensitive contract liabilities	16,513,668			16,227,642			17,750,197			18,004,526
Other policy claims and benefits	5,334,210			4,992,074			5,911,554			5,642,755
Other reinsurance balances	412,846			488,739			517,096			487,177
Deferred income taxes	2,009,514			2,198,309			2,144,680			1,798,800
Other liabilities	1,094,826			1,102,975			1,278,108			1,396,200
Long-term debt	2,788,111			2,788,365			2,787,717			2,787,873
Collateral finance and securitization notes	724,998			783,938			656,174			681,961
Total liabilities	51,164,795			50,945,283			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 June 30, 2018 and December 31, 2017	791			791
Additional paid-in capital	1,887,336			1,870,906
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	6,952,170			6,736,265			7,412,081			7,284,949
Treasury stock, at cost - 15,465,272 and 14,685,663 shares	(1,243,566		)	(1,102,058		)
Treasury stock, at cost - 16,593,411 and 16,323,390 shares							(1,415,020		)	(1,370,602		)
Accumulated other comprehensive income	1,004,971			2,063,631			1,765,965			636,763
Total stockholders’ equity	8,601,702			9,569,535			9,670,108			8,450,553
Total liabilities and stockholders’ equity	$	59,766,497		$	60,514,818		$	66,692,481		$	64,535,245

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

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:	(Dollars in thousands, except per share data)
Net premiums	$	2,594,460		$	2,480,451		$	5,177,011		$	4,846,147		$	2,737,813		$	2,582,551
Investment income, net of related expenses	528,061			518,538			1,044,390			1,032,902			579,877			516,329
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(3,350		)	(3,401		)	(3,350		)	(20,590		)	(9,453		)	—
Other investment related gains (losses), net	(7,222		)	59,696			(7,692		)	137,408			17,241			(470		)
Total investment related gains (losses), net	(10,572		)	56,295			(11,042		)	116,818			7,788			(470		)
Other revenues	83,959			73,992			159,256			142,149			94,553			75,297
Total revenues	3,195,908			3,129,276			6,369,615			6,138,016			3,420,031			3,173,707
Benefits and Expenses:
Claims and other policy benefits	2,279,593			2,164,363			4,641,694			4,270,508			2,508,324			2,362,101
Interest credited	109,327			115,285			189,776			222,969			133,189			80,449
Policy acquisition costs and other insurance expenses	320,276			319,832			677,178			699,221			311,881			356,902
Other operating expenses	194,959			154,356			386,233			312,862			201,483			191,274
Interest expense	37,025			29,352			74,479			71,754			40,173			37,454
Collateral finance and securitization expense	7,440			6,773			15,042			13,543			8,417			7,602
Total benefits and expenses	2,948,620			2,789,961			5,984,402			5,590,857			3,203,467			3,035,782
Income before income taxes	247,288			339,315			385,213			547,159			216,564			137,925
Provision for income taxes	42,914			107,125			80,609			169,457			47,057			37,695
Net income	$	204,374		$	232,190		$	304,604		$	377,702		$	169,507		$	100,230
Earnings per share:
Basic earnings per share	$	3.19		$	3.60		$	4.74		$	5.86		$	2.70		$	1.55
Diluted earnings per share	$	3.13		$	3.54		$	4.65		$	5.76		$	2.65		$	1.52
Dividends declared per share	$	0.50		$	0.41		$	1.00		$	0.82

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 June 30,					Six months ended June 30,					Three months ended March 31,
	2018			2017		2018			2017		2019			2018
Comprehensive income (loss)	(Dollars in thousands)
Net income	$	204,374		$	232,190	$	304,604		$	377,702	$	169,507		$	100,230
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(54,677		)	43,565		(55,837		)	21,352		21,386			(1,160		)
Net unrealized investment gains (losses)	(368,719		)	306,329		(1,002,323		)	509,444		1,108,211			(633,604		)
Defined benefit pension and postretirement plan adjustments	(29		)	849		(500		)	1,773		(395		)	(471		)
Total other comprehensive income (loss), net of tax	(423,425		)	350,743		(1,058,660		)	532,569		1,129,202			(635,235		)
Total comprehensive income (loss)	$	(219,051	)	$	582,933	$	(754,056	)	$	910,271	$	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)

Six months ended June 30,
2018 2017

(Dollars in thousands)
Cash Flows from Operating Activities:
Net income $ 304,604
$ 377,702
Adjustments to reconcile net income to net cash provided by operating activities:
Change in operating assets and liabilities:
Accrued investment income 1,834
(34,676 )
Premiums receivable and other reinsurance balances (345,253 ) (230,650 )
Deferred policy acquisition costs 20,528
35,870
Reinsurance ceded receivable balances 18,245
(127,995 )
Future policy benefits, other policy claims and benefits, and other reinsurance balances 598,015
745,799
Deferred income taxes 48,117
142,044
Other assets and other liabilities, net (98,807 ) (63,811 )
Amortization of net investment premiums, discounts and other (25,713 ) (47,563 )
Depreciation and amortization expense 21,554
13,869
Investment related (gains) losses, net 11,042
(116,818 )
Other, net 29,422
(37,797 )
Net cash provided by operating activities 583,588
655,974
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale 3,836,575
4,288,713
Maturities of fixed maturity securities available-for-sale 328,097
313,530
Sales of equity securities 29,099
166,916
Principal payments and sales of mortgage loans on real estate 213,691
135,450
Principal payments on policy loans 24,793
26,658
Purchases of fixed maturity securities available-for-sale (3,880,733 ) (5,311,818 )
Purchases of equity securities (11,930 ) (32,299 )
Cash invested in mortgage loans on real estate (376,470 ) (463,063 )
Cash invested in policy loans (6,421 ) (5,830 )
Cash invested in funds withheld at interest (42,761 ) (6,910 )
Purchase of businesses, net of cash acquired of $4,938 (29,315 ) —
Purchases of property and equipment (14,573 ) 31,686
Change in short-term investments (9,843 ) 22,671
Change in other invested assets (160,824 ) (55,379 )
Net cash used in investing activities (100,615 ) (889,675 )
Cash Flows from Financing Activities:
Dividends to stockholders (64,370 ) (52,815 )
Repayment of collateral finance and securitization notes (53,102 ) (23,761 )
Principal payments of long-term debt (1,331 ) (301,278 )
Purchases of treasury stock (165,069 ) (10,578 )
Exercise of stock options, net 1,252
2,527
Change in cash collateral for derivative positions and other arrangements 17,578
(7,046 )
Deposits on universal life and other investment type policies and contracts 225,876
917,675
Withdrawals on universal life and other investment type policies and contracts (329,899 ) (402,528 )
Net cash (used in) provided by financing activities (369,065 ) 122,196
Effect of exchange rate changes on cash (19,753 ) 34,137
Change in cash and cash equivalents 94,155
(77,368 )
Cash and cash equivalents, beginning of period 1,303,524
1,200,718
Cash and cash equivalents, end of period $ 1,397,679
$ 1,123,350
Supplemental disclosures of cash flow information:
Interest paid $ 84,670
$ 90,425
Income taxes paid, net of refunds $ 59,397
$ 26,447
Non-cash transactions:
Transfer of invested assets $ 604,374
$ 2,243,360
Purchase of businesses:
Assets acquired, excluding cash acquired $ 65,948
$ —
Liabilities assumed (36,633 ) —
Net cash paid on purchase $ 29,315
$ —



	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 six months ended June 30, 2018~~Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018.~~ 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2018 (the “2017 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 June 30,				Six months ended June 30,				Three months ended March 31,
	2018		2017		2018		2017		2019		2018
Earnings:
Net income (numerator for basic and diluted calculations)	$	204,374	$	232,190	$	304,604	$	377,702	$	169,507	$	100,230
Shares:
Weighted average outstanding shares (denominator for basic calculation)	64,071		64,449		64,278		64,401		62,758		64,490
Equivalent shares from outstanding stock options	1,179		1,159		1,277		1,204		1,269		1,382
Denominator for diluted calculation	65,250		65,608		65,555		65,605		64,027		65,872
Earnings per share:
Basic	$	3.19	$	3.60	$	4.74	$	5.86	$	2.70	$	1.55
Diluted	$	3.13	$	3.54	$	4.65	$	5.76	$	2.65	$	1.52

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


	Three months ended June 30,		Six months ended June 30,		Three months ended March 31,
	2018	2017	2018	2017	2019	2018
Excluded from common equivalent shares:
Stock options	0.2	0.2	0.3	0.3	544	276
Performance contingent shares	0.2	0.3	0.2	0.3	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, 2017	79,137,758	14,685,663		64,452,095
Balance, December 31, 2018						79,137,758	16,323,390		62,814,368
Common stock acquired	—	991,477		(991,477	)	—	344,237		(344,237	)
Stock-based compensation ⁽¹⁾	—	(211,868	)	211,868		—	(74,216	)	74,216
Balance, June 30, 2018	79,137,758	15,465,272		63,672,486
Balance, March 31, 2019						79,137,758	16,593,411		62,544,347

Issued Held In Treasury Outstanding
Balance, December 31, 2016 79,137,758
14,835,256
64,302,502
Stock-based compensation ⁽¹⁾
—
(189,355 ) 189,355
Balance, June 30, 2017 79,137,758
14,645,901
64,491,857



	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.

InOn January ~~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. During the ~~first six~~three months ~~of 2018,~~ended March 31, 2019, RGA repurchased ~~1.0~~0.3 million shares of common stock under this program for ~~$150.0~~$50.0 million. ~~During the first six months ended June 30, 2017, no common stock was repurchased by RGA under this program.~~

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ 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, 2017	$	(86,350	)	$	2,200,661		$	(50,680	)	$	2,063,631
													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	(44,227		)	(1,327,195		)	(2,986		)	(1,374,408		)	18,462			1,437,058			(1,787		)	1,453,733
Amounts reclassified to (from) AOCI	—			53,646			2,366			56,012						(14,694		)	1,286			(13,408		)
Deferred income tax benefit (expense)	(11,610		)	271,226			120			259,736			2,924			(314,153		)	106			(311,123		)
Balance, June 30, 2018	$	(142,187	)	$	1,198,338		$	(51,180	)	$	1,004,971
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, 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, 2017													$	(86,350	)	$	2,200,661		$	(50,680	)	$	2,063,631
Other comprehensive income (loss) before reclassifications	(13,936		)	774,688			(196		)	760,556			5,696			(827,701		)	(1,910		)	(823,915		)
Amounts reclassified to (from) AOCI	—			(39,360		)	2,935			(36,425		)	—			21,274			1,346			22,620
Deferred income tax benefit (expense)	35,288			(225,884		)	(966		)	(191,562		)	(6,856		)	172,823			93			166,060
Balance, June 30, 2017	$	(151,189	)	$	1,864,477		$	(41,390	)	$	1,671,898
Balance, March 31, 2018													$	(87,510	)	$	1,567,057		$	(51,151	)	$	1,428,396


(1)	Includes cash flow hedges of ~~$22,656~~$(1,902) and $8,788 as of March 31, 2019 and December 31, 2018, respectively, and $20,662 and $2,619 as of ~~June 30,~~March 31, 2018 and December 31, 2017, ~~respectively, and $1,131 and $(2,496) as of June 30, 2017 and December 31, 2016,~~ 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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (dollars in thousands):


	Amount Reclassified from AOCI													Amount Reclassified from AOCI
	Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
Details about AOCI Components	2018			2017			2018			2017			Affected Line Item in Statements of Income	2019			2018			Affected Line Item in Statement of Income
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities	$	(24,642	)	$	40,374		$	(39,098	)	$	28,517		Investment related gains (losses), net	$	(273	)	$	(14,456	)	Investment related gains (losses), net
Cash flow hedges - Interest rate	29			—			(342		)	—			(1)	469			(370		)	(1)
Cash flow hedges - Currency/Interest rate	76			132			221			329			(1)	25			144			(1)
Cash flow hedges - Forward bond purchase commitments	—			51			—			101			(1)
Deferred policy acquisition costs attributed to unrealized gains and losses	(7,835		)	4,565			(14,427		)	10,413			(2)	14,473			(6,592		)	(2)
Total	(32,372		)	45,122			(53,646		)	39,360				14,694			(21,274		)
Provision for income taxes	6,945			(15,218		)	11,623			(12,024		)		(3,006		)	4,678
Net unrealized gains (losses), net of tax	$	(25,427	)	$	29,904		$	(42,023	)	$	27,336			$	11,688		$	(16,596	)
Amortization of defined benefit plan items:
Prior service cost (credit)	$	247		$	60		$	493		$	142		(3)	$	269		$	246		(3)
Actuarial gains/(losses)	(1,267		)	(1,539		)	(2,859		)	(3,077		)	(3)	(1,555		)	(1,592		)	(3)
Total	(1,020		)	(1,479		)	(2,366		)	(2,935		)		(1,286		)	(1,346		)
Provision for income taxes	214			517			497			1,027				270			283
Amortization of defined benefit plans, net of tax	$	(806	)	$	(962	)	$	(1,869	)	$	(1,908	)		$	(1,016	)	$	(1,063	)

Total reclassifications for the period	$	(26,233	)	$	28,942		$	(43,892	)	$	25,428			$	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 ~~2017~~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 ~~$16.6~~$7.6 million and ~~$11.4~~$9.7 million infor the ~~first six~~three months ofended March 31, 2019 and 2018, ~~and 2017,~~ respectively. In the first quarter of ~~2018,~~2019, the Company granted 0.2 million stock appreciation rights at ~~$150.87~~$145.25 weighted average exercise price per share and 0.1 million performance contingent units to employees. ~~Additionally, non-employee directors were granted a total of 7,623 shares of common stock.~~ As of ~~June 30, 2018, 1.5~~March 31, 2019, 1.6 million share options at a weighted average strike price per share of ~~$65.70~~$74.36 were vested and exercisable, with a remaining weighted average exercise period of ~~4.4~~4.5 years. As of ~~June 30, 2018,~~March 31, 2019, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was ~~$36.9~~$32.8 million. It is estimated that these costs will vest over a weighted average period of ~~1.4~~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 ~~table provides~~tables provide information relating to investments in fixed maturity securities by sector as of ~~June 30,~~March 31, 2019 and December 31, 2018 (dollars in thousands):


June 30, 2018:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
March 31, 2019:													Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
													Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate	$	22,249,964	$	663,087	$	409,544	$	22,503,507	61.2	%	$	—	$	24,216,876	$	1,024,557	$	164,095	$	25,077,338	60.1	%	$	—
Canadian government	2,789,699		1,277,020		3,876		4,062,843		11.0		—		2,870,018		1,408,501		655		4,277,864		10.2		—
RMBS	1,837,316		18,500		34,602		1,821,214		5.0		—		1,969,694		34,746		10,254		1,994,186		4.8		—
ABS	1,711,099		11,596		13,871		1,708,824		4.6		275		2,243,449		14,286		15,749		2,241,986		5.4		275
CMBS	1,249,616		8,591		15,698		1,242,509		3.4		—		1,404,852		30,009		3,115		1,431,746		3.4		—
U.S. government	1,583,622		8,193		66,665		1,525,150		4.1		—		1,578,975		9,826		21,238		1,567,563		3.8		—
State and political subdivisions	703,047		43,318		9,321		737,044		2.0		—		738,690		56,668		2,641		792,717		1.9		—
Other foreign government	3,109,607		112,887		38,631		3,183,863		8.7		—		4,166,073		201,446		12,476		4,355,043		10.4		—
Total fixed maturity securities	$	35,233,970	$	2,143,192	$	592,208	$	36,784,954	100.0	%	$	275	$	39,188,627	$	2,780,039	$	230,223	$	41,738,443	100.0	%	$	275

~~The following table provides information relating to investments in fixed maturity and equity securities by sector as of December 31, 2017 (dollars in thousands):~~


December 31, 2017:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
December 31, 2018:													Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
													Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate	$	21,966,803	$	1,299,594	$	55,429	$	23,210,968	60.9	%	$	—	$	24,006,407	$	530,804	$	555,092	$	23,982,119	59.9	%	$	—
Canadian government	2,843,273		1,378,510		1,707		4,220,076		11.1		—		2,768,466		1,126,227		2,308		3,892,385		9.7		—
RMBS	1,695,126		36,632		11,878		1,719,880		4.5		—		1,872,236		22,267		25,282		1,869,221		4.7		—
ABS	1,634,758		18,798		5,194		1,648,362		4.3		275		2,171,254		10,779		32,829		2,149,204		5.4		275
CMBS	1,285,594		22,627		4,834		1,303,387		3.4		—		1,428,115		9,153		18,234		1,419,034		3.5		—
U.S. government	1,953,436		12,089		21,933		1,943,592		5.1		—		2,233,537		10,204		57,867		2,185,874		5.5		—
State and political subdivisions	647,727		59,997		4,296		703,428		1.8		—		721,290		39,914		9,010		752,194		1.9		—
Other foreign government	3,254,695		154,507		8,075		3,401,127		8.9		—		3,680,863		109,320		47,868		3,742,315		9.4		—
Total fixed maturity securities	$	35,281,412	$	2,982,754	$	113,346	$	38,150,820	100.0	%	$	275	$	38,882,168	$	1,858,668	$	748,490	$	39,992,346	100.0	%	$	275
Non-redeemable preferred stock	$	41,553	$	479	$	2,226	$	39,806	39.7	%
Other equity securities	61,288		479		1,421		60,346		60.3
Total equity securities	$	102,841	$	958	$	3,647	$	100,152	100.0	%

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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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June 30, 2018 December 31, 2017

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Fixed maturity securities pledged as collateral $ 63,640
$ 66,118
$ 72,542
$ 75,622
Fixed maturity securities received as collateral n/a
626,081
n/a
590,417
Assets in trust held to satisfy collateral requirements 16,061,218
16,571,173
15,584,296
16,715,281

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands).


	June 30, 2018				December 31, 2017				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	$	1,101,825	$	1,850,642	$	1,119,337	$	1,917,996	$	1,128,373	$	1,955,925	$	1,091,018	$	1,757,087
Canadian province of Ontario	929,913		1,239,102		939,837		1,282,944		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 ~~June 30, 2018~~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	$	978,683	$	986,160	$	1,409,578	$	1,419,110
Due after one year through five years	7,550,595		7,649,023		8,141,200		8,340,166
Due after five years through ten years	9,208,763		9,323,786		8,933,926		9,345,621
Due after ten years	12,697,898		14,053,438		15,085,928		16,965,628
Asset and mortgage-backed securities	4,798,031		4,772,547		5,617,995		5,667,918
Total	$	35,233,970	$	36,784,954	$	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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


June 30, 2018:			Estimated
March 31, 2019:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	8,097,947	$	8,129,125	36.2	%	$	8,981,541	$	9,249,273	36.9	%
Industrial	11,705,150		11,847,762		52.6		12,316,131		12,759,526		50.9
Utility	2,446,867		2,526,620		11.2		2,919,204		3,068,539		12.2
Total	$	22,249,964	$	22,503,507	100.0	%	$	24,216,876	$	25,077,338	100.0	%

December 31, 2017:			Estimated
December 31, 2018:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	7,977,885	$	8,362,774	36.1	%	$	8,793,742	$	8,730,568	36.3	%
Industrial	11,535,166		12,199,333		52.5		12,336,857		12,342,111		51.6
Utility	2,453,752		2,648,861		11.4		2,875,808		2,909,440		12.1
Total	$	21,966,803	$	23,210,968	100.0	%	$	24,006,407	$	23,982,119	100.0	%

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Other-Than-Temporary Impairments - Fixed Maturity Securities

As discussed in Note 2 – ~~“Summary of Significant~~“Significant Accounting ~~Policies”~~Policies and Pronouncements” of the ~~2017~~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 June 30, Six months ended June 30,
2018 2017 2018 2017
Balance, beginning of period $ 3,677
$ 3,677
$ 3,677
$ 6,013
Credit loss OTTI previously recognized on securities impaired to fair value during the period —
—
—
(2,336 )
Balance, end of period $ 3,677
$ 3,677
$ 3,677
$ 3,677

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 ~~2,580~~1,585 and 3,109 fixed maturity securities as of ~~June 30,~~March 31, 2019 and December 31, 2018, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):

June 30, 2018

Gross
Unrealized
Losses
% of Total
Less than 20% $ 571,151
96.4 %
20% or more for less than six months 21,045
3.6
20% or more for six months or greater 12
—
Total $ 592,208
100.0 %

The following table presents the total gross unrealized losses for the 1,116 fixed maturity and equity securities at December 31, 2017 where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):


	December 31, 2017				March 31, 2019				December 31, 2018
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	113,466	97.0	%	$	208,034	90.3	%	$	721,015	96.3	%
20% or more for less than six months	689		0.6		20,845		9.1		21,336		2.9
20% or more for six months or greater	2,838		2.4		1,344		0.6		6,139		0.8
Total	$	116,993	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.

The following ~~table presents~~tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for ~~2,580~~1,585 and 3,109 fixed maturity securities that have estimated fair values below amortized cost as of ~~June 30,~~March 31, 2019 and December 31, 2018, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.



	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
March 31, 2019:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate	$	1,140,753	$	23,578	$	3,756,371	$	108,434	$	4,897,124	$	132,012
Canadian government	2,812		19		72,244		636		75,056		655
RMBS	29,505		122		672,715		10,109		702,220		10,231
ABS	774,538		7,246		528,169		8,472		1,302,707		15,718
CMBS	100,664		369		227,404		2,746		328,068		3,115
U.S. government	1,265		1		1,125,274		21,237		1,126,539		21,238
State and political subdivisions	31,416		149		113,463		2,492		144,879		2,641
Other foreign government	115,581		2,813		345,928		7,213		461,509		10,026
Total investment grade securities	2,196,534		34,297		6,841,568		161,339		9,038,102		195,636
Below investment grade securities:
Corporate	215,368		21,398		161,915		10,685		377,283		32,083
RMBS	—		—		1,001		23		1,001		23
ABS	—		—		1,029		31		1,029		31
Other foreign government	27,413		838		27,301		1,612		54,714		2,450
Total below investment grade securities	242,781		22,236		191,246		12,351		434,027		34,587
Total fixed maturity securities	$	2,439,315	$	56,533	$	7,032,814	$	173,690	$	9,472,129	$	230,223

1213

Table of Contents

Less than 12 months 12 months or greater Total
Gross Gross Gross
June 30, 2018: Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
Corporate $ 9,135,620
$ 299,909
$ 818,555
$ 51,938
$ 9,954,175
$ 351,847
Canadian government 46,392
668
110,326
3,058
156,718
3,726
RMBS 1,101,941
25,546
241,914
9,032
1,343,855
34,578
ABS 807,714
10,637
139,676
3,187
947,390
13,824
CMBS 612,214
11,097
104,426
4,601
716,640
15,698
U.S. government 584,758
20,707
747,679
45,958
1,332,437
66,665
State and political subdivisions 168,817
5,064
66,122
4,257
234,939
9,321
Other foreign government 919,229
25,758
199,578
5,407
1,118,807
31,165
Total investment grade securities 13,376,685
399,386
2,428,276
127,438
15,804,961
526,824

Below investment grade securities:

Corporate 735,338
47,846
56,042
9,851
791,380
57,697
Canadian government 1,864
150
—
—
1,864
150
RMBS —
—
1,194
24
1,194
24
ABS —
—
1,148
47
1,148
47
Other foreign government 146,374
7,111
7,643
355
154,017
7,466
Total below investment grade securities 883,576
55,107
66,027
10,277
949,603
65,384
Total fixed maturity securities $ 14,260,261
$ 454,493
$ 2,494,303
$ 137,715
$ 16,754,564
$ 592,208

The following table presents the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,116 fixed maturity and equity securities that have estimated fair values below amortized cost as of December 31, 2017 (dollars in thousands):

Less than 12 months 12 months or greater Total
Gross Gross Gross
December 31, 2017: Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
Corporate $ 1,886,212
$ 17,099
$ 1,009,750
$ 28,080
$ 2,895,962
$ 45,179
Canadian government 18,688
91
111,560
1,596
130,248
1,687
RMBS 566,699
5,852
224,439
6,004
791,138
11,856
ABS 434,274
2,707
168,524
2,434
602,798
5,141
CMBS 220,401
1,914
103,269
2,920
323,670
4,834
U.S. government 800,298
6,177
767,197
15,756
1,567,495
21,933
State and political subdivisions 43,510
242
68,666
4,054
112,176
4,296
Other foreign government 369,717
2,707
191,265
4,704
560,982
7,411
Total investment grade securities 4,339,799
36,789
2,644,670
65,548
6,984,469
102,337
Below investment grade securities:
Corporate 194,879
3,317
75,731
6,933
270,610
10,250
Canadian government 1,995
20
—
—
1,995
20
RMBS —
—
1,369
22
1,369
22
ABS —
—
1,489
53
1,489
53
Other foreign government 28,600
113
15,134
551
43,734
664
Total below investment grade securities 225,474
3,450
93,723
7,559
319,197
11,009
Total fixed maturity securities $ 4,565,273
$ 40,239
$ 2,738,393

$ 73,107
$ 7,303,666
$ 113,346
Non-redeemable preferred stock $ 82
$ 1
$ 26,471
$ 2,225
$ 26,553
$ 2,226
Other equity securities 5,820
1,023
47,251
398
53,071
1,421
Total equity securities $ 5,902
$ 1,024
$ 73,722

$ 2,623
$ 79,624
$ 3,647

~~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 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 June 30, 2018 are primarily related to publicly traded and privately placed corporate securities.~~ Changes in unrealized losses are primarily ~~being~~ driven by changes in interest rates.

Investment Income, Net of Related Expenses

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


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Fixed maturity securities available-for-sale	$	373,624		$	355,735		$	742,827		$	680,235		$	415,087		$	369,203
Equity securities	709			995			2,391			2,354			1,246			1,682
Mortgage loans on real estate	50,460			44,442			100,659			88,789			59,562			50,199
Policy loans	14,775			15,194			29,555			30,466			14,109			14,780
Funds withheld at interest	86,417			97,367			161,862			224,945			61,734			75,445
Short-term investments and cash and cash equivalents	2,964			1,779			6,209			3,289			6,900			3,245
Other invested assets	20,785			22,071			44,613			40,539			42,236			23,828
Investment income	549,734			537,583			1,088,116			1,070,617			600,874			538,382
Investment expense	(21,673		)	(19,045		)	(43,726		)	(37,715		)	(20,997		)	(22,053		)
Investment income, net of related expenses	$	528,061		$	518,538		$	1,044,390		$	1,032,902		$	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 June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Fixed maturity securities available for sale:
Fixed maturity securities available-for-sale:
Other-than-temporary impairment losses	$	(3,350	)	$	(3,401	)	$	(3,350	)	$	(20,590	)	$	(9,453	)	$	—
Gain on investment activity	21,140			54,197			32,106			72,090			28,045			10,966
Loss on investment activity	(35,934		)	(10,288		)	(56,314		)	(18,975		)	(18,723		)	(20,380		)
Equity securities:
Gain on investment activity	469			23			497			23			74			28
Loss on investment activity	—			(183		)	(950		)	(4,059		)	(1		)	(950		)
Change in unrealized gains (losses) recognized in earnings	(6,966		)	—			(11,103		)	—			3,744			(4,137		)
Other impairment losses and change in mortgage loan provision	(1,357		)	(6,675		)	(1,669		)	(6,774		)	(1,859		)	(312		)
Derivatives and other, net	15,426			22,622			29,741			95,103			5,961			14,315
Total investment related gains (losses), net	$	(10,572	)	$	56,295		$	(11,042	)	$	116,818		$	7,788		$	(470	)

The fixed maturity impairments for the three ~~and six~~ months ended ~~June 30, 2018 and 2017~~March 31, 2019 were largely related to ~~high-yield corporate securities.~~a U.S. utility company. There were no fixed maturity impairments for the three months ended March 31, 2018. The other impairment losses and change in mortgage loan provision for the three ~~and six~~ months ended ~~June 30, 2018 includes~~March 31, 2019 were primarily due to impairments on real estate joint ~~ventures.~~ventures and an increase of the equity release mortgage valuation allowance. The other impairment losses and change in mortgage loan provision for the three ~~and six~~ months ended ~~June 30, 2017 includes~~March 31, 2018 were primarily due to impairments on ~~limited partnerships.~~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 six~~ months ended ~~June 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017,~~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 ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company sold fixed maturity securities with fair values of ~~$1,174.4~~$1,246.6 million and ~~$696.4~~$1,263.6 million at losses of ~~$35.9~~$18.7 million and ~~$10.3~~$20.4 million, respectively. During the six months ended June 30, 2018 and 2017, the Company sold fixed maturity securities with fair values of $2,438.0 million and $1,125.0 million at losses of $56.3 million and $19.0 million, respectively. The Company did not sell any equity securities at losses during the three months ended June 30, 2018. During the three months ended ~~June 30, 2017,~~March 31, 2019, the Company sold equity securities ~~with fair values of $14.1 million at losses of $0.2 million.~~for immaterial losses. During the ~~six~~three months ended ~~June 30,~~March 31, 2018, ~~and 2017,~~ the Company sold equity securities with fair values of $28.4 million ~~and $161.7 million~~ at losses of $1.0 ~~million and $4.1 million, respectively.~~million. The Company generally does not buy and sell securities on a short-term basis.

~~Table of Contents~~

Securities Borrowing, Lending and Other

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


	June 30, 2018				December 31, 2017				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	$	350,350	$	365,730	$	358,875	$	377,820	$	339,593	$	371,473	$	335,781	$	366,663
Securities lending:
Securities loaned	101,995		102,208		117,246		121,551		97,510		100,665		101,981		102,618
Securities received	n/a		112,000		n/a		128,000		n/a		107,000		n/a		112,000
Repurchase program/reverse repurchase program:
Securities pledged	385,391		394,698		413,819		428,344		548,100		558,981		554,806		554,589
Securities received	n/a		397,712		n/a		417,550		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 ~~$29.6~~$28.7 million and ~~$31.2~~$28.6 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. No cash or securities have been pledged by the Company for its securities borrowing program as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

The following tables present information on the Company’s securities lending and repurchase transactions as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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.

June 30, 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 $ —
$ —
$ —
$ 102,208
$ 102,208
Total —
—
—
102,208
102,208
Repurchase transactions:
Corporate —
—
—
151,519
151,519
U.S. government —
—
—
219,154
219,154
Foreign government —
—
—
22,894
22,894
Other 1,131
—
—
—
1,131
Total 1,131
—
—
393,567
394,698
Total transactions $ 1,131
$ —
$ —
$ 495,775
$ 496,906

Gross amount of recognized liabilities for securities lending and repurchase transactions in preceding table $ 539,332
Amounts related to agreements not included in offsetting disclosure $ 42,426

Table of Contents


	December 31, 2017										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	$	—	$	—	$	—	$	121,551	$	121,551	$	—	$	—	$	—	$	100,665	$	100,665
Total	$	—	$	—	$	—	$	121,551	$	121,551	—		—		—		100,665		100,665
Repurchase transactions:
Corporate	$	—	$	—	$	312	$	184,334	$	184,646	—		—		—		267,846		267,846
U.S. government	—		—		—		220,765		220,765		—		—		43,657		165,272		208,929
Foreign government	—		—		—		21,802		21,802		—		—		—		82,206		82,206
Other	1,131		—		—		—		1,131
Total	1,131		—		312		426,901		428,344		—		—		43,657		515,324		558,981
Total borrowings	$	1,131	$	—	$	312	$	548,452	$	549,895	$	—	$	—	$	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								$	576,786	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								$	26,891	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 $0.4 million ~~and $1.1 million~~as of ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively.~~2018. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~9.0% and 8.5%~~9.1% of the Company’s total investments as of ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017.~~2018. As of ~~June 30, 2018,~~March 31, 2019, mortgage loans were geographically dispersed throughout the U.S. with the largest concentrations in California ~~(19.4%~~ (17.7%), Texas ~~(9.6%~~ (11.8%) and Washington ~~(7.8%~~ (7.1%) and include loans secured by properties in Canada ~~(2.6%~~(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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	June 30, 2018					December 31, 2017					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	$	1,546,148		33.9	%	$	1,487,392		33.6	%	$	1,707,764		33.3	%	$	1,725,748		34.6	%
Retail	1,296,157			28.3		1,270,676			28.8		1,495,883			29.1		1,432,394			28.7
Industrial	962,049			21.0		938,612			21.3		1,021,871			19.9		961,924			19.3
Apartment	530,599			11.6		510,052			11.6		620,926			12.1		571,291			11.5
Other commercial	237,610			5.2		206,439			4.7		288,454			5.6		291,997			5.9
Recorded investment	4,572,563			100.0	%	4,413,171			100.0	%	$	5,134,898		100.0	%	$	4,983,354		100.0	%
Unamortized balance of loan origination fees and expenses	(4,188		)			(3,254		)			(6,135		)			(5,770		)
Valuation allowances	(9,706		)			(9,384		)			(11,218		)			(11,286		)
Total mortgage loans on real estate	$	4,558,669				$	4,400,533				$	5,117,545				$	4,966,298

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

June 30, 2018 December 31, 2017

Recorded
Investment
% of Total
Recorded
Investment
% of Total
Due within five years $ 1,153,623
25.2 % $ 1,091,066
24.8 %
Due after five years through ten years 2,623,105
57.4
2,516,872
57.0
Due after ten years 795,835
17.4
805,233
18.2
Total $ 4,572,563
100.0 % $ 4,413,171
100.0 %

~~Table of Contents~~



	March 31, 2019				December 31, 2018
	Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	1,449,925	28.2	%	$	1,425,598	28.6	%
Due after five years through ten years	2,833,275		55.2		2,686,264		53.9
Due after ten years	851,698		16.6		871,492		17.5
Total	$	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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	Recorded Investment														Recorded Investment
	Debt Service Ratios						Construction loans								Debt Service Ratios								Construction loans
	>1.20x		1.00x - 1.20x		<1.00x				Total			% of Total		>1.20x			1.00x - 1.20x			<1.00x			Construction loans		Total			% of Total
June 30, 2018:							Construction loans
March 31, 2019:
Loan-to-Value Ratio
0% - 59.99%	$	2,125,328	$	102,254	$	19,439	$	17,602		$	2,264,623		49.5	%	$	2,477,507		$	87,802		$	36,998	$	16,556		$	2,618,863		51.0	%
60% - 69.99%	1,552,568		117,751		49,221		—			1,719,540			37.6		1,692,549			78,559			41,680		21,051			1,833,839			35.7
70% - 79.99%	315,274		25,121		101,213		—			441,608			9.7		403,173			27,591			42,008		—			472,772			9.2
Greater than 80%	101,870		12,933		31,989		—			146,792			3.2		117,390			49,522			42,512		—			209,424			4.1
Total	$	4,095,040	$	258,059	$	201,862	$	17,602		$	4,572,563		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						Construction loans								Debt Service Ratios								Construction loans
	>1.20x		1.00x - 1.20x		<1.00x				Total			% of Total		>1.20x			1.00x - 1.20x			<1.00x			Construction loans		Total			% of Total
December 31, 2017:							Construction loans
December 31, 2018:
Loan-to-Value Ratio
0% - 59.99%	$	2,148,428	$	53,979	$	3,801	$	—		$	2,206,208		50.0	%	$	2,410,556		$	61,246		$	38,177	$	13,691		$	2,523,670		50.6	%
60% - 69.99%	1,517,029		47,128		43,921		—			1,608,078			36.4		1,618,374			73,908			38,120		18,929			1,749,331			35.1
70% - 79.99%	396,446		19,461		15,367		—			431,274			9.8		414,269			48,438			54,440		—			517,147			10.4
Greater than 80%	120,850		30,713		6,362		9,686			167,611			3.8		117,978			49,668			25,560		—			193,206			3.9
Total	$	4,182,753	$	151,281	$	69,451	$	9,686		$	4,413,171		100.0	%	$	4,561,177		$	233,260		$	156,297	$	32,620		$	4,983,354		100.0	%

The age analysis of the Company’s past due recorded investments in mortgage loans as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 is as follows (dollars in thousands):


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
31-60 days past due	$	12,027	$	17,100	$	11,795	$	—
61-90 days past due	—		2,056		17,079		—
Total past due	12,027		19,156		28,874		—
Current	4,560,536		4,394,015		5,106,024		4,983,354
Total	$	4,572,563	$	4,413,171	$	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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):

June 30, 2018 December 31, 2017
Mortgage loans:
Individually measured for impairment $ 30,653
$ 5,858
Collectively measured for impairment 4,541,910
4,407,313
Recorded investment $ 4,572,563
$ 4,413,171
Valuation allowances:
Individually measured for impairment $ —
$ —
Collectively measured for impairment 9,706
9,384
Total valuation allowances $ 9,706
$ 9,384

~~Table of Contents~~



	March 31, 2019		December 31, 2018
Mortgage loans:
Individually measured for impairment	$	17,079	$	30,635
Collectively measured for impairment	5,117,819		4,952,719
Recorded investment	$	5,134,898	$	4,983,354
Valuation allowances:
Individually measured for impairment	$	—	$	—
Collectively measured for impairment	11,218		11,286
Total valuation allowances	$	11,218	$	11,286

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


	Three months ended June 30,					Six months ended June 30,					Three months ended March 31,
	2018			2017		2018			2017		2019			2018
Balance, beginning of period	$	8,864		$	7,786	$	9,384		$	7,685	$	11,286		$	9,384
Provision (release)	845			366		329			467		(73		)	(516		)
Translation adjustment	(3		)	4		(7		)	4		5			(4		)
Balance, end of period	$	9,706		$	8,156	$	9,706		$	8,156	$	11,218		$	8,864

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Information regarding the portion of the Company’s mortgage loans that were impaired as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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
June 30, 2018:
March 31, 2019:
Impaired mortgage loans with no valuation allowance recorded		$	30,690	$	30,653	$	—	$	30,653		$	17,084	$	17,079	$	—	$	17,079
Impaired mortgage loans with valuation allowance recorded		—		—		—		—			—		—		—		—
Total impaired mortgage loans		$	30,690	$	30,653	$	—	$	30,653		$	17,084	$	17,079	$	—	$	17,079
December 31, 2017:
December 31, 2018:
Impaired mortgage loans with no valuation allowance recorded		$	6,427	$	5,858	$	—	$	5,858		$	30,660	$	30,635	$	—	$	30,635
Impaired mortgage loans with valuation allowance recorded		—		—		—		—			—		—		—		—
Total impaired mortgage loans		$	6,427	$	5,858	$	—	$	5,858		$	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 June 30,									Three months ended March 31,
		2018				2017					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		$	27,038	$	247	$	2,088	$	33		$	23,857	$	328	$	14,640	$	56
Impaired mortgage loans with valuation allowance recorded		—		—		—		—			—		—		—		—
Total impaired mortgage loans		$	27,038	$	247	$	2,088	$	33		$	23,857	$	328	$	14,640	$	56

	��	Six months ended June 30,
		2018				2017
		Average Recorded Investment⁽¹⁾		Interest Income		Average Recorded Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded		$	19,978	$	304	$	2,131	$	67
Impaired mortgage loans with valuation allowance recorded		—		—		—		—
Total impaired mortgage loans		$	19,978	$	304	$	2,131	$	67

(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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. The Company had no mortgage loans that were on a nonaccrual status atas of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018.

Policy Loans

Policy loans comprised approximately ~~2.7%~~2.3% and ~~2.6%~~2.5% of the Company’s total investments as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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.

~~Table of Contents~~

Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~11.8%~~10.2% and 10.6% of the Company’s total investments as of ~~both~~ ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018., respectively. Of the ~~$6.0~~$5.7 billion funds withheld at interest balance, net of embedded derivatives, as of ~~June 30, 2018, $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.

Other Invested Assets

Other invested assets include limited partnership interests, joint ventures (other than operating joint ventures), equity release mortgages, 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 which is included in other in the table below. Other invested assets represented approximately ~~3.2%~~3.6% and ~~2.9%~~3.5% of the Company’s total investments as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Carrying values of these assets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are as follows (dollars in thousands):


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Limited partnership interests and real estate joint ventures	$	857,599	$	781,124	$	982,592	$	965,094
Equity release mortgages	311,723		219,940		595,559		475,905
Derivatives	137,315		137,613		132,412		180,699
FVO contractholder-directed unit-linked investments	212,202		218,541		202,848		197,770
Other	86,723		148,114		93,459		95,829
Total other invested assets	$	1,605,562	$	1,505,332	$	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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	June 30, 2018						December 31, 2017								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	$	1,084,555	$	43,439	$	2,514	$	996,204	$	59,809	$	2,372		Interest rate		$	1,018,438			$	57,278			$	2,670			$	1,040,588			$	47,652			$	961
Financial futures	348,874		—		—		412,438		—		—		Equity		360,170				—				—				325,620				—				—
Foreign currency swaps													Foreign currency		149,698				—				4,629				149,698				504				4,659
Foreign currency forwards	4,512		—		8		6,030		—		28		Foreign currency		25,000				251				—				25,000				—				234
Consumer price index swaps	328,190		1,126		199		221,932		—		2,160
CPI swaps													CPI		388,151				—				20,505				385,580				—				11,384
Credit default swaps	928,300		6,725		122		961,200		8,319		1,651		Credit		1,348,300				6,614				58				1,338,300				6,003				1,166
Equity options	639,801		25,950		—		632,251		23,271		—		Equity		439,158				20,152				—				439,158				42,836				—
Longevity swaps	934,720		43,971		—		960,400		40,659		—		Longevity		897,440				48,869				—				917,360				47,789				—
Mortality swaps	25,000		—		782		—		—		1,683		Mortality		25,000				489				—				25,000				—				369
Synthetic guaranteed investment contracts	10,634,677		—		—		10,052,576		—		—
Synthetic GICs													Interest rate		13,895,380				—				—				13,397,729				—				—
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	—		144,610		—		—		122,194		—
Modco or funds withheld arrangements															—				107,506				—				—				109,597				—
Indexed annuity products	—		—		806,436		—		—		861,758				—				—				754,171				—				—				776,940
Variable annuity products	—		—		122,361		—		—		152,470				—				—				149,764				—				—				167,925
Total non-hedging derivatives	14,928,629		265,821		932,422		14,243,031		254,252		1,022,122				18,546,735				241,159				931,797				18,044,033				254,381				963,638
Derivatives designated as hedging instruments:
Interest rate swaps	435,000		204		19,699		435,000		—		20,389		Foreign currency/Interest rate		435,000				891				24,436				435,000				—				27,257
Foreign currency swaps	580,036		58,294		2,598		672,921		65,207		8,496		Foreign currency		451,686				38,620				479				494,461				51,311				—
Foreign currency forwards	718,177		18,428		—		553,175		1,265		7,720		Foreign currency		949,879				32,862				—				911,197				50,974				—
Total hedging derivatives	1,733,213		76,926		22,297		1,661,096		66,472		36,605				1,836,565				72,373				24,915				1,840,658				102,285				27,257
Total derivatives	$	16,661,842	$	342,747	$	954,719	$	15,904,127	$	320,724	$	1,058,727			$	20,383,300			$	313,532			$	956,712			$	19,884,691			$	356,666			$	990,895

~~Netting Arrangements~~

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~~ ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~ ~~(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
June 30, 2018:
Derivative assets $ 198,137
$ (16,851 ) $ 181,286
$ —
$ (194,067 ) $ (12,781 )
Derivative liabilities 25,922
(16,851 ) 9,071
(57,302 ) (9,030 ) (57,261 )
December 31, 2017:
Derivative assets $ 198,530
$ (20,258 ) $ 178,272
$ (862 ) $ (185,900 ) $ (8,490 )
Derivative liabilities 44,499
(20,258 ) 24,241
(58,156 ) (22,221 ) (56,136 )


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

Table of Contents

~~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 ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~, 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 2017 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 ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ were (dollars in thousands):

Type of Fair Value Hedge Hedged Item
Gains (Losses) Recognized for Derivatives ⁽¹⁾

Gains (Losses) Recognized for Hedged Items ⁽¹⁾
For the three months ended June 30, 2018:
Foreign currency swaps Foreign-denominated fixed maturity securities $ (1,134 ) $ 4,942
For the three months ended June 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 905
$ (905 )
For the six months ended June 30, 2018:
Foreign currency swaps Foreign-denominated fixed maturity securities $ (3,025 ) $ 6,833
For the six months ended June 30, 2017:
Foreign currency swaps Foreign-denominated fixed maturity securities $ 7,441
$ (7,441 )


~~(1)~~	~~The net amount represents the ineffective portion of the fair value hedges~~



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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (dollars in thousands):

~~Table of Contents~~


	Three months ended June 30,						Three months ended March 31,
	2018			2017			2019			2018
Balance beginning of period	$	20,662		$	7,690		$	8,788		$	2,619
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	2,099			(6,417		)
Amounts reclassified to investment related (gains) losses, net	—			41
Gains (losses) deferred in other comprehensive income (loss)							(10,196		)	17,817
Amounts reclassified to investment income	(76		)	(183		)	(25		)	(144		)
Amounts reclassified to interest expense	(29		)	—			(469		)	370
Balance end of period	$	22,656		$	1,131		$	(1,902	)	$	20,662

	Six months ended June 30,
	2018			2017
Balance beginning of period	$	2,619		$	(2,496	)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	19,916			4,016
Amounts reclassified to investment related (gains) losses, net	—			41
Amounts reclassified to investment income	(221		)	(430		)
Amounts reclassified to interest expense	342			—
Balance end of period	$	22,656		$	1,131

As of ~~June 30, 2018,~~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~~$0.1 million and ~~$1.5~~$1.7 million in investment income 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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (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		Interest Expense						Investment Income		Interest Expense
For the three months ended June 30, 2018:
For the three months ended March 31, 2019:
Interest rate	$	4,742		$	—		$	—	$	29		$	(12,101	)	$	—	$	469
Currency/Interest rate	(2,643		)	—			76		—			1,905			25		—
Total	$	2,099		$	—		$	76	$	29		$	(10,196	)	$	25	$	469
For the three months ended June 30, 2017:
Interest rate	$	(7,643	)	$	—		$	—	$	—
Currency/Interest rate	1,226			—			132		—
Forward bond purchase commitments	—			(41		)	51		—
Total	$	(6,417	)	$	(41	)	$	183	$	—

For the six months ended June 30, 2018:
For the three months ended March 31, 2018:
Interest rate	$	19,727		$	—		$	—	$	(342	)	$	14,986		$	—	$	(370	)
Currency/Interest rate	189			—			221		—			2,831			144		—
Total	$	19,916		$	—		$	221	$	(342	)	$	17,817		$	144	$	(370	)
For the six months ended June 30, 2017:
Interest rate	$	(5,427	)	$	—		$	—	$	—
Currency/Interest rate	9,443			—			329		—
Forward bond purchase commitments	—			(41		)	101		—
Total	$	4,016		$	(41	)	$	430	$	—

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, the ineffective portion of derivatives reported as cash flow hedges was not material to the Company’s results of operations. Also,~~ 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.

2221

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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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (dollars in thousands):


	Derivative Gains (Losses) Deferred in AOCI										Derivative Gains (Losses) Deferred in AOCI
	For the three months ended June 30,					For the six months ended June 30,					For the three months ended March 31,
Type of NIFO Hedge ^{(1) (2)}	2018		2017			2018		2017
Type of NIFO Hedge ⁽¹⁾											2019			2018
Foreign currency swaps	$	8,197	$	(17,919	)	$	17,002	$	(25,525	)	$	(7,007	)	$	8,805
Foreign currency forwards	11,063		4,158			23,299		4,158			(18,112		)	12,236
Total	$	19,260	$	(13,761	)	$	40,301	$	(21,367	)


(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 $~~154.0~~175.9 million and $~~113.7~~201.0 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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.

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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows (dollars in thousands):



		Gain (Loss) for the three months ended March 31,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2019			2018
Interest rate swaps	Investment related gains (losses), net	$	23,974		$	(26,571	)
Financial futures	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	492			323
CPI swaps	Investment related gains (losses), net	(8,851		)	2,186
Credit default swaps	Investment related gains (losses), net	14,500			(402		)
Equity options	Investment related gains (losses), net	(22,684		)	2,593
Longevity swaps	Other revenues	2,143			2,267
Mortality swaps	Other revenues	858			—
Subtotal		(11,123		)	(19,475		)
Embedded derivatives in:
Modco or funds withheld arrangements	Investment related gains (losses), net	(2,092		)	13,611
Indexed annuity products	Interest credited	3,070			25,351
Variable annuity products	Investment related gains (losses), net	18,161			14,785
Total non-hedging derivatives		$	8,016		$	34,272

2322

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Gain (Loss) for the three months ended
June 30,
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2018 2017
Interest rate swaps Investment related gains (losses), net $ (8,600 ) $ 14,289
Financial futures Investment related gains (losses), net (897 ) (6,442 )
Foreign currency forwards Investment related gains (losses), net (262 ) (351 )
CPI swaps Investment related gains (losses), net 1,041
(4 )
Credit default swaps Investment related gains (losses), net 1,084
3,879
Equity options Investment related gains (losses), net (8,007 ) (9,273 )
Longevity swaps Other revenues 2,289
1,981
Mortality swaps Other revenues (799 ) (395 )
Subtotal (14,151 ) 3,684
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net 8,805
15,108
Indexed annuity products Interest credited 6,519
(5,955 )
Variable annuity products Investment related gains (losses), net 15,324
360
Total non-hedging derivatives $ 16,497
$ 13,197

Gain (Loss) for the six months ended
June 30,
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2018 2017
Interest rate swaps Investment related gains (losses), net $ (35,171 ) $ 11,677
Financial futures Investment related gains (losses), net (768 ) (19,217 )
Foreign currency forwards Investment related gains (losses), net 61
553
CPI swaps Investment related gains (losses), net 3,227
(9 )
Credit default swaps Investment related gains (losses), net 682
11,237
Equity options Investment related gains (losses), net (5,414 ) (26,462 )
Longevity swaps Other revenues 4,557
3,847
Mortality swaps Other revenues (799 ) (790 )
Subtotal (33,625 ) (19,164 )
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net 22,416
83,810
Indexed annuity products Interest credited 31,870
(22,357 )
Variable annuity products Investment related gains (losses), net 30,109
22,723
Total non-hedging derivatives $ 50,770
$ 65,012

~~Types of~~Credit 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.

~~Table of Contents~~

~~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.

~~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.

~~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.

~~Table of Contents~~

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	June 30, 2018						December 31, 2017						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	$	2,574		$	152,000	2.7	$	3,128		$	162,000	2.9	$	2,082	$	157,000	2.1	$	1,953		$	152,000	2.2
Subtotal	2,574			152,000		2.7	3,128			162,000		2.9	2,082		157,000		2.1	1,953			152,000		2.2
BBB+/BBB/BBB-
Single name credit default swaps	4,092			338,700		2.6	4,469			361,700		2.9	3,672		358,700		2.0	2,930			353,700		2.2
Credit default swaps referencing indices	(59		)	422,600		3.5	(55		)	422,600		4.0	769		817,600		5.0	(76		)	817,600		6.4
Subtotal	4,033			761,300		3.1	4,414			784,300		3.5	4,441		1,176,300		4.1	2,854			1,171,300		5.1
BB+/BB/BB-
Single name credit default swaps	(4		)	15,000		1.2	30			5,000		1.5	33		15,000		0.5	30			15,000		0.7
Subtotal	(4		)	15,000		1.2	30			5,000		1.5	33		15,000		0.5	30			15,000		0.7
Total	$	6,603		$	928,300	3.0	$	7,572		$	951,300	3.4	$	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 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.

The following table provides information relating to the Company’s derivative instruments as of March 31, 2019 and December 31, 2018 (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
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.

The Company may be ~~separated from their host~~exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments with a positive fair value. Generally, the credit exposure of the Company’s derivative contracts and reported as derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance (“modco”) or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits. The changes in fair values of embedded derivatives on equity-indexed annuities described below relateis 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 ~~six months ended June 30, 2018 and 2017.~~

~~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 six months ended June 30, 2018 and 2017~~others are ~~reflected in the following table (dollars in thousands):~~

~~Table of Contents~~

Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Embedded derivatives in modco or funds withheld arrangements included in investment related gains $ 8,805
$ 15,108
$ 22,416
$ 83,810
After the associated amortization of DAC and taxes, the related amounts included in net income 5,987
2,941
12,836
28,785
Embedded derivatives in variable annuity contracts included in investment related gains 15,324
360
30,109
22,723
After the associated amortization of DAC and taxes, the related amounts included in net income 12,472
3,023
23,598
31,859
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses 6,519
(5,955 ) 31,870
(22,357 )
After the associated amortization of DAC and taxes, the related amounts included in net income 3,966
(6,925 ) 10,503
(28,322 )

~~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

Table of Contents

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. In 2017, the Company followed the Chicago Mercantile Exchange amended rulebook to legally characterize variation margin payments as settlements of the derivative’s mark-to-market exposure and not collateral. 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.

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 ~~June 30, 2018~~ ~~and~~ ~~December 31, 2017~~ ~~are reflected in the following table (dollars in thousands):~~

June 30, 2018 December 31, 2017
Estimated fair value of derivatives in net asset position $ 172,997
$ 155,714
Cash provided as collateral⁽¹⁾
9,030
22,221
Securities pledged to counterparties as collateral⁽²⁾
57,302
58,156
Cash pledged from counterparties as collateral⁽³⁾
(194,067 ) (185,900 )
Securities pledged from counterparties as collateral⁽⁴⁾
—
(862 )
Initial margin for cleared derivatives⁽²⁾
(57,302 ) (58,156 )
Net amount after application of master netting agreements and collateral $ (12,040 ) $ (8,827 )
Margin account related to exchange-traded futures⁽⁵⁾
$ 8,331
$ 6,538


~~(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.~~

~~Table of Contents~~

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.

For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 in the Notes to Consolidated Financial Statements included in the Company’s ~~2017~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are summarized below (dollars in thousands):


June 30, 2018:				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	$	22,503,507		$	—	$	21,136,353		$	1,367,154	$	25,077,338		$	—	$	23,546,583		$	1,530,755
Canadian government	4,062,843			—		3,490,145			572,698		4,277,864			—		3,670,073			607,791
RMBS	1,821,214			—		1,766,375			54,839		1,994,186			—		1,987,664			6,522
ABS	1,708,824			—		1,638,138			70,686		2,241,986			—		2,128,199			113,787
CMBS	1,242,509			—		1,240,642			1,867		1,431,746			—		1,431,725			21
U.S. government	1,525,150			1,405,485		98,930			20,735		1,567,563			1,464,139		86,215			17,209
State and political subdivisions	737,044			—		720,539			16,505		792,717			—		782,555			10,162
Other foreign government	3,183,863			—		3,178,819			5,044		4,355,043			—		4,349,977			5,066
Total fixed maturity securities – available-for-sale	36,784,954			1,405,485		33,269,941			2,109,528		41,738,443			1,464,139		37,982,991			2,291,313
Equity securities	108,070			65,133		—			42,937		89,865			49,443		—			40,422
Funds withheld at interest – embedded derivatives	144,610			—		—			144,610		107,506			—		—			107,506
Cash equivalents	424,601			409,242		15,359			—		855,265			853,927		1,319			19
Short-term investments	82,521			991		78,313			3,217		75,360			4,766		41,392			29,202
Other invested assets:
Derivatives:
Interest rate swaps	36,170			—		36,170			—		48,683			—		48,683			—
Foreign currency forwards	18,428			—		18,428			—		33,113			—		33,113			—
CPI swaps	(42		)	—		(42		)	—
Credit default swaps	5,927			—		5,927			—		(6,201		)	—		(6,201		)	—
Equity options	21,136			—		21,136			—		18,676			—		18,676			—
Foreign currency swaps	55,696			—		55,696			—		38,141			—		38,141			—
FVO contractholder-directed unit-linked investments	212,202			211,141		1,061			—		202,848			201,833		1,015			—
Total other invested assets	349,517			211,141		138,376			—		335,260			201,833		133,427			—
Other assets - longevity swaps	43,971			—		—			43,971		48,869			—		—			48,869
Total	$	37,938,244		$	2,091,992	$	33,501,989		$	2,344,263	$	43,250,568		$	2,574,108	$	38,159,129		$	2,517,331
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	928,797		$	—	$	—		$	928,797	$	903,935		$	—	$	—		$	903,935
Other liabilities:
Derivatives:
Interest rate swaps	14,740			—		14,740			—		17,620			—		17,620			—
Foreign currency forwards	8			—		8			—
Foreign currency swaps - non-hedged											4,629			—		4,629			—
CPI swaps	(969		)	—		(969		)	—		20,505			—		20,505			—
Credit default swaps	(676		)	—		(676		)	—		(12,757		)	—		(12,757		)	—
Equity options	(4,814		)	—		(4,814		)	—		(1,476		)	—		(1,476		)	—
Mortality swaps	782			—		—			782		(489		)	—		—			(489		)
Total	$	937,868		$	—	$	8,289		$	929,579	$	931,967		$	—	$	28,521		$	903,446

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December 31, 2017: Fair Value Measurements Using:
Total Level 1 Level 2 Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate $ 23,210,968
$ —
$ 21,873,696
$ 1,337,272
Canadian government 4,220,076
—
3,626,134
593,942
RMBS 1,719,880
—
1,611,998
107,882
ABS 1,648,362
—
1,524,888
123,474
CMBS 1,303,387
—
1,300,153
3,234
U.S. government 1,943,592
1,818,006
103,075
22,511
State and political subdivisions 703,428
—
662,225
41,203
Other foreign government 3,401,127
—
3,396,035
5,092
Total fixed maturity securities – available-for-sale 38,150,820
1,818,006
34,098,204
2,234,610
Equity securities:
Non-redeemable preferred stock 39,806
39,806
—
—
Other equity securities 60,346
60,346
—
—
Funds withheld at interest – embedded derivatives 122,194
—
—
122,194
Cash equivalents 356,788
354,071
2,717
—
Short-term investments 50,746
—
47,650
3,096
Other invested assets:
Derivatives:
Interest rate swaps 51,359
—
51,359
—
Foreign currency forwards 730
—
730
—
CPI swaps (221 ) —
(221 ) —
Credit default swaps 5,908
—
5,908
—
Equity options 16,932
—
16,932
—
Foreign currency swaps 62,905
—
62,905
—
FVO contractholder-directed unit-linked investments 218,541
217,618
923
—
Total other invested assets 356,154
217,618
138,536
—
Other assets - longevity swaps 40,659
—
—
40,659
Total $ 39,177,513
$ 2,489,847
$ 34,287,107
$ 2,400,559
Liabilities:
Interest sensitive contract liabilities – embedded derivatives $ 1,014,228
$ —
$ —
$ 1,014,228
Other liabilities:
Derivatives:
Interest rate swaps 14,311
—
14,311
—
Foreign currency forwards 7,213
—
7,213
—
CPI swaps 1,939
—
1,939
—
Credit default swaps (760 ) —
(760 ) —
Equity options (6,339 ) —
(6,339 ) —
Foreign currency swaps 6,194
—
6,194
—
Mortality swaps 1,683
—
—
1,683
Total $ 1,038,469
$ —
$ 22,558
$ 1,015,911

~~Table of Contents~~



December 31, 2018:				Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3
Assets:
Fixed maturity securities – available-for-sale:
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	752,194			—		741,992			10,202
Other foreign government	3,742,315			—		3,737,309			5,006
Total fixed maturity securities – available-for-sale	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	109,597			—		—			109,597
Cash equivalents	485,167			473,509		11,658			—
Short-term investments	105,991			4,989		98,774			2,228
Other invested assets:
Derivatives:
Interest rate swaps	37,976			—		37,976			—
Foreign currency forwards	50,740			—		50,740			—
Credit default swaps	4,466			—		4,466			—
Equity options	36,206			—		36,206			—
Foreign currency swaps	51,311			—		51,311			—
FVO contractholder-directed unit-linked investments	197,770			196,781		989			—
Total other invested assets	378,469			196,781		181,688			—
Other assets - longevity swaps	47,789			—		—			47,789
Total	$	41,201,556		$	2,791,545	$	36,222,206		$	2,187,805
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	944,865		$	—	$	—		$	944,865
Other liabilities:
Derivatives:
Interest rate swaps	18,542			—		18,542			—
Foreign currency swaps - non-hedged	4,155			—		4,155			—
CPI swaps	11,384			—		11,384			—
Credit default swaps	(371		)	—		(371		)	—
Equity options	(6,630		)	—		(6,630		)	—
Mortality swaps	369			—		—			369
Total	$	972,314		$	—	$	27,080		$	945,234

Transfers between Levels 1 and 2

Transfers between Levels 1 and 2 are made to reflect changes in observability of inputs and market activity. ~~There were no transfers between Level 1 and Level 2 for the six months ended June 30, 2018.~~ 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. ~~The following tables present the~~There were no transfers between Level 1 and Level 2 during the three ~~and six~~ months ended ~~June 30, 2017 (dollars in thousands):~~

2017

Transfers from
Level 1 to
Level 2

Transfers from
Level 2 to
Level 1
Three months ended June 30:
Fixed maturity securities - available-for-sale:
Corporate securities $ —
$ 49,999

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

March 31, 2019 or 2018.

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Quantitative Information Regarding Internally - Priced ~~Level 3~~ 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	Estimated Fair Value				Valuation Technique		Unobservable Inputs		Range (Weighted Average)					Estimated Fair Value					Valuation Technique		Unobservable Inputs		Range (Weighted Average)
	June 30, 2018		December 31, 2017				Unobservable Inputs	June 30, 2018			December 31, 2017		March 31, 2019			December 31, 2018				March 31, 2019			December 31, 2018
Assets:
Corporate	$	571,750	$	173,579	Valuation Technique	Market comparable securities		Liquidity premium		0-2% (1%)			0-2% (1%)		$740,698			$642,647	Valuation Technique		Unobservable Inputs	Market comparable securities		Liquidity premium	0-5% (1%)		0-5% (1%)
							EBITDA Multiple		5.9x-7.5x (6.9x)			—									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	20,735		22,511		Market comparable securities		Liquidity premium		0-1% (1%)			0-1% (1%)		17,209			18,025		Market comparable securities		Liquidity premium		0-1% (1%)		0-1% (1%)
State and political subdivisions	4,361		4,616		Market comparable securities		Liquidity premium		1	%		1	%
Other foreign government	5,044		—		Market comparable securities		Liquidity premium		1	%		—		5,066			5,006		Market comparable securities		Liquidity premium		1	%	1	%
Equity securities	23,856		—		Market comparable securities		Liquidity premium		1	%		—		30,294			25,007		Market comparable securities		Liquidity premium		4	%	4	%
							EBITDA Multiple		6.9x-13.1x (7.9x)			—									EBITDA Multiple		6.9x-12.3x (8.2x)		6.9x-12.3x (7.9x)
Funds withheld at interest- embedded derivatives	144,610		122,194		Total return swap		Mortality		0-100% (2%)			0-100% (2%)		107,506			109,597		Total return swap		Mortality		0-100% (2%)		0-100% (2%)
							Lapse		0-35% (9%)			0-35% (9%)									Lapse		0-35% (11%)		0-35% (10%)
							Withdrawal		0-5% (3%)			0-5% (3%)									Withdrawal		0-5% (3%)		0-5% (3%)
							CVA		0-5% (1%)			0-5% (1%)									CVA		0-5% (1%)		0-5% (1%)
							Crediting rate		2-4% (2%)			2-4% (2%)									Crediting rate		2-4% (2%)		2-4% (2%)
Longevity swaps	43,971		40,659		Discounted cash flow		Mortality		0-100% (2%)			0-100% (2%)		48,869			47,789		Discounted cash flow		Mortality		0-100% (2%)		0-100% (2%)
							Mortality improvement		(10%)-10% (3%)			(10%)-10% (3%)									Mortality improvement		(10%)-10% (3%)		(10%)-10% (3%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	806,436		861,758		Discounted cash flow		Mortality		0-100% (2%)			0-100% (2%)		754,171			776,940		Discounted cash flow		Mortality		0-100% (2%)		0-100% (2%)
							Lapse		0-35% (9%)			0-35% (9%)									Lapse		0-35% (11%)		0-35% (10%)
							Withdrawal		0-5% (3%)			0-5% (3%)									Withdrawal		0-5% (3%)		0-5% (3%)
							Option budget projection		2-4% (2%)			2-4% (2%)									Option budget projection		2-4% (2%)		2-4% (2%)
Interest sensitive contract liabilities- embedded derivatives- variable annuities	122,361		152,470		Discounted cash flow		Mortality		0-100% (1%)			0-100% (1%)		149,764			167,925		Discounted cash flow		Mortality		0-100% (1%)		0-100% (1%)
							Lapse		0-25% (5%)			0-25% (5%)									Lapse		0-25% (5%)		0-25% (5%)
							Withdrawal		0-7% (4%)			0-7% (3%)									Withdrawal		0-7% (4%)		0-7% (5%)
							CVA		0-5% (1%)			0-5% (1%)									CVA		0-5% (1%)		0-5% (1%)
							Long-term volatility		0-27% (14%)			0-27% (8%)									Long-term volatility		0-27% (13%)		0-27% (13%)
Mortality swaps	782		1,683		Discounted cash flow		Mortality		0-100% (1%)			0-100% (1%)		(489	)		369		Discounted cash flow		Mortality		0-100% (1%)		0-100% (1%)

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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 of Level 3 were also due to ratings upgrades on mortgage-backed securities that had previously had below investment-grade ratings. The~~2018, the Company ~~also~~ transferred equity securities with a fair value of approximately $38.9 million into Level 3 as a result of the adoption of the new accounting guidance for the recognition and measurement of equity ~~securities.~~securities (see “New Accounting Pronouncements – Financial Instruments – Recognition and Measurement” in Note 2 – “Significant Accounting Policies and Pronouncements” in the Notes to Consolidated Financial Statements included in 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 ~~2017~~2018 Annual Report.

The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in thousands):


For the three months ended June 30, 2018:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 2019:													Fixed maturity securities - available-for-sale
	Corporate			Canadian government			RMBS			ABS			Corporate			Canadian government		RMBS			ABS
Fair value, beginning of period	$	1,299,264		$	572,747		$	120,614		$	130,706		$	1,330,925		$	528,124	$	6,855		$	95,572
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(305		)	3,468			(43		)	76			133			3,493		2			17
Investment related gains (losses), net	(3,141		)	—			312			1,282
Included in other comprehensive income	2,178			(3,517		)	(671		)	(1,544		)	19,404			76,174		1			975
Purchases⁽¹⁾	155,498			—			24,412			—			214,441			—		—			31,322
Sales⁽¹⁾	(11,089		)	—			(4,961		)	—			(10,712		)	—		—			—
Settlements⁽¹⁾	(68,328		)	—			(1,572		)	(19,544		)	(23,436		)	—		(336		)	(14,099		)
Transfers into Level 3	—			—			3,031			4,968
Transfers out of Level 3	(6,923		)	—			(86,283		)	(45,258		)
Fair value, end of period	$	1,367,154		$	572,698		$	54,839		$	70,686		$	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	$	(304	)	$	3,468		$	(13	)	$	68		$	166		$	3,493	$	2		$	17
Investment related gains (losses), net	(3,141		)	—			—			—


For the three months ended June 30, 2018 (continued):	Fixed maturity securities available-for-sale
For the three months ended March 31, 2019 (continued):												Fixed maturity securities - available-for-sale
	CMBS			U.S. government			State and political subdivisions			Other foreign government		CMBS			U.S. government			State and political subdivisions			Other foreign government		Equity securities
Fair value, beginning of period	$	1,884		$	21,053		$	41,876		$	5,004	$	22		$	18,025		$	10,202		$	5,006	33,460
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(107		)	(10		)	—		—			(89		)	5			—		—
Investment related gains (losses), net												—			—			—			—		3,762
Included in other comprehensive income	(16		)	(173		)	(110		)	40		—			267			(7		)	60		—
Purchases⁽¹⁾	—			118			—			—		—			84			—			—		3,200
Settlements⁽¹⁾	(2		)	(156		)	(86		)	—		(1		)	(1,078		)	(38		)	—		—
Transfers out of Level 3	1			—			(25,165		)	—
Fair value, end of period	$	1,867		$	20,735		$	16,505		$	5,044	$	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	$	—		$	(108	)	$	(11	)	$	—	$	—		$	(89	)	$	5		$	—	$	—
Investment related gains (losses), net												—			—			—			—		3,762

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Table of Contents


For the three months ended June 30, 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
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	$	36,152		$	135,805	$	3,217		$	44,011		$	(964,794	)	$	(1,683	)	$	109,597		$	—	$	2,228	$	47,789		$	(944,865	)	$	(369	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			—		—			—			—			—			—			—		32		—			—			—
Investment related gains (losses), net	(4,922		)	8,805		—			—			15,324			—			(2,091		)	—		—		—			18,161			—
Claims & other policy benefits	—			—		—			—			—			—
Interest credited	—			—		—			—			6,519			—			—			—		—		—			3,070			—
Policy acquisition costs and other insurance expenses	—			—		—			—			—			—
Included in other comprehensive income	—			—		(21		)	(2,329		)	—			—			—			—		199		(1,063		)	—			—
Other revenues	—			—		—			2,289			—			(799		)	—			—		—		2,143			—			858
Purchases⁽¹⁾	12,248			—		335			—			(4,205		)	—			—			19		26,743		—			1,398			—
Sales⁽¹⁾	(541		)	—		—			—			—			—
Settlements⁽¹⁾	—			—		(314		)	—			18,359			1,700			—			—		—		—			18,301			—
Transfers into Level 3	—			—		—			—			—			—
Transfers out of Level 3	—			—		—			—			—			—
Fair value, end of period	$	42,937		$	144,610	$	3,217		$	43,971		$	(928,797	)	$	(782	)	$	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																		$	—		$	—	$	32	$	—		$	—		$	—
Investment related gains (losses), net	$	(5,000	)	$	8,805	$	—		$	—		$	13,474		$	—		(2,091		)	—		—		—			16,766			—
Other revenues	—			—		—			2,289			—			(799		)	—			—		—		2,143			—			858
Interest credited	—			—		—			—			(11,839		)	—			—			—		—		—			(15,231		)	—


For the six months ended June 30, 2018:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 2018:													Fixed maturity securities - available-for-sale
	Corporate			Canadian government			RMBS			ABS			Corporate			Canadian government			RMBS			ABS
Fair value, beginning of period	$	1,337,272		$	593,942		$	107,882		$	123,474		$	1,337,272		$	593,942		$	107,882		$	123,474
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(666		)	6,912			(135		)	182			(361		)	3,444			(92		)	106
Investment related gains (losses), net	(3,141		)	—			312			1,284			—			—			—			2
Included in other comprehensive income	(30,674		)	(28,156		)	(1,781		)	(691		)	(32,852		)	(24,639		)	(1,110		)	853
Purchases⁽¹⁾	255,668			—			45,328			11,000			100,170			—			20,916			11,000
Sales⁽¹⁾	(17,269		)	—			(4,961		)	—			(6,180		)	—			—			—
Settlements⁽¹⁾	(143,474		)	—			(4,535		)	(22,283		)	(75,146		)	—			(2,963		)	(2,739		)
Transfers into Level 3	7,166			—			3,031			4,968			7,166			—			—			—
Transfers out of Level 3	(37,728		)	—			(90,302		)	(47,248		)	(30,805		)	—			(4,019		)	(1,990		)
Fair value, end of period	$	1,367,154		$	572,698		$	54,839		$	70,686		$	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 income, net of related expenses	$	(665	)	$	6,912		$	(105	)	$	174		$	(361	)	$	3,444		$	(92	)	$	106
Investment related gains (losses), net	(3,141		)	—			—			—

3429

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For the six months ended June 30, 2018 (continued):	Fixed maturity securities available-for-sale
For the three months ended March 31, 2018 (continued):													Fixed maturity securities - available-for-sale
	CMBS			U.S. government			State and political subdivisions			Other foreign government			CMBS			U.S. government			State and political subdivisions			Other foreign government
Fair value, beginning of period	$	3,234		$	22,511		$	41,203		$	5,092		$	3,234		$	22,511		$	41,203		$	5,092
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(217		)	(2		)	—			—			(110		)	8			—
Included in other comprehensive income	(63		)	(513		)	590			(48		)	(47		)	(340		)	700			(88		)
Purchases⁽¹⁾	—			214			—			—			—			96			—			—
Settlements⁽¹⁾	(3		)	(1,260		)	(121		)	—			(1		)	(1,104		)	(35		)	—
Transfers out of Level 3	(1,301		)	—			(25,165		)	—			(1,302		)	—			—			—
Fair value, end of period	$	1,867		$	20,735		$	16,505		$	5,044		$	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	$	—		$	(218	)	$	(3	)	$	—		$	—		$	(110	)	$	8		$	—

For the six months ended June 30, 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 $ —
$ 122,194
$ 3,096
$ 40,659
$ (1,014,228 ) $ (1,683 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net (7,599 ) 22,416
—
—
30,109
—
Interest credited —
—
—
—
31,870
—
Included in other comprehensive income —
—
(46 ) (1,245 ) —
—
Other revenues —
—
—
4,557
—
(799 )
Purchases⁽¹⁾
12,248
—
481
—
(12,713 ) —
Sales⁽¹⁾
(569 ) —
—
—
—
—
Settlements⁽¹⁾
(48 ) —
(314 ) —
36,165
1,700
Transfers into Level 3 38,905
—
—
—
—
—
Fair value, end of period $ 42,937
$ 144,610
$ 3,217
$ 43,971
$ (928,797 ) $ (782 )
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 $ (7,705 ) $ 22,416
$ —
$ —
$ 26,375
$ —
Other revenues —
—
—
4,557
—
(799 )
Interest credited —
—
—
—
(4,295 ) —

~~Table of Contents~~

For the three months ended June 30, 2017: Fixed maturity securities - available-for-sale
Corporate Canadian government RMBS ABS
Fair value, beginning of period $ 1,263,925
$ 483,560
$ 143,430
$ 208,436
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (396 ) 3,201
(29 ) 511
Investment related gains (losses), net 8,427
—
115
—
Included in other comprehensive income (4,548 ) 46,509
1,962
1,136
Purchases⁽¹⁾
104,087
—
29,318
34,366
Sales⁽¹⁾
(23,174 ) —
(4,467 ) —
Settlements⁽¹⁾
(74,531 ) —
(4,655 ) (27,569 )
Transfers into Level 3 17,264
—
5,423
3,500
Transfers out of Level 3 —
—
(22,412 ) (18,791 )
Fair value, end of period $ 1,291,054
$ 533,270
$ 148,685
$ 201,589
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 $ (396 ) $ 3,201
$ (37 ) $ 239
Investment related gains (losses), net (1,495 ) —
—
—

For the three months ended June 30, 2017 (continued): Fixed maturity securities available-for-sale
CMBS U.S. government State
and political
subdivisions Other foreign government
Fair value, beginning of period $ 1,923
$ 23,474
$ 33,858
$ 12,344
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses —
(115 ) (6 ) —
Included in other comprehensive income 21
211
823
(12 )
Purchases⁽¹⁾
—
132
—
—
Settlements⁽¹⁾
(1 ) (135 ) (241 ) (338 )
Fair value, end of period $ 1,943
$ 23,567
$ 34,434
$ 11,994
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 $ —
$ (115 ) $ (6 ) $ —

For the three months ended June 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
Fair value, beginning of period $ 3,276
$ 46,173
$ 29,170
$ (972,930 ) $ (2,857 )
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment related gains (losses), net —
15,108
—
360
—
Interest credited —
—
—
(5,955 ) —
Included in other comprehensive income (29 ) —
2,198
—
—
Other revenues —
—
1,981
—
(395 )
Purchases⁽¹⁾
324
—
—
(19,533 ) —
Settlements⁽¹⁾
(23 ) —
—
23,427
1,700
Fair value, end of period $ 3,548
$ 61,281
$ 33,349
$ (974,631 ) $ (1,552 )
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 $ —
$ 15,108
$ —
$ (1,794 ) $ —
Other revenues —
—
1,981
—
(395 )
Interest credited —
—
—
(29,382 ) —

~~Table of Contents~~

For the six months ended June 30, 2017: Fixed maturity securities - available-for-sale
Corporate Canadian government RMBS ABS
Fair value, beginning of period $ 1,272,253
$ 475,965
$ 160,291
$ 219,280
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses (819 ) 6,271
(274 ) 1,529
Investment related gains (losses), net 7,196
—
480
—
Included in other comprehensive income 400
51,034
2,612
6,903
Purchases⁽¹⁾
150,001
—
45,817
45,215
Sales⁽¹⁾
(23,174 ) —
(15,071 ) —
Settlements⁽¹⁾
(146,001 ) —
(11,439 ) (45,723 )
Transfers into Level 3 31,198
—
5,500
38,758
Transfers out of Level 3 —
—
(39,231 ) (64,373 )
Fair value, end of period $ 1,291,054
$ 533,270
$ 148,685
$ 201,589
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 $ (819 ) $ 6,271
$ (128 ) $ 400
Investment related gains (losses), net (2,788 ) —
(346 ) —

For the six months ended June 30, 2017 (continued): Fixed maturity securities available-for-sale
CMBS U.S. government State
and political
subdivisions Other foreign government
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
(232 ) (94 ) —
Investment related gains (losses), net (595 ) —
—
—
Included in other comprehensive income (62 ) 263
(20 ) (203 )
Purchases⁽¹⁾
—
236
—
—
Sales⁽¹⁾
(3,720 ) —
—
—
Settlements⁽¹⁾
(5,402 ) (1,188 ) (274 ) (672 )
Transfers out of Level 3 (10,132 ) —
(6,844 ) —
Fair value, end of period $ 1,943
$ 23,567
$ 34,434
$ 11,994
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 $ —
$ (232 ) $ (94 ) $ —

~~Table of Contents~~


For the six months ended June 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	—			83,810			—		22,723			—			(2,677		)	13,611		—			—		14,785			—
Interest credited	—			—			—		(22,357		)	—			—			—		—			—		25,351			—
Included in other comprehensive income	4			—			2,545		—			—			—			—		(25		)	1,085		—			—
Other revenues	—			—			3,846		—			(790		)	—			—		—			2,267		—			—
Purchases⁽¹⁾	356			—			—		(25,927		)	—			—			—		146			—		(8,508		)	—
Sales⁽¹⁾															(28		)	—		—			—		—			—
Settlements⁽¹⁾	(158		)	—			—		41,238			1,700			(48		)	—		—			—		17,807			—
Transfers into Level 3															38,905			—		—			—		—			—
Fair value, end of period	$	3,548		$	61,281		$	33,349	$	(974,631	)	$	(1,552	)	$	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	$	—		$	83,810		$	—	$	18,505		$	—		$	(2,705	)	$	13,611	$	—		$	—	$	12,901		$	—
Other revenues	—			—			3,846		—			(790		)	—			—		—			2,267		—			—
Interest credited	—			—			—		(63,596		)	—			—			—		—			—		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.

Nonrecurring Fair Value Measurements

During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and March 31, 2018, the Company did not have any adjustments to its ~~assets or liabilities~~financial instruments measured at fair value on a nonrecurring basis that are still held at the reporting date. The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the 2017 periods presented and still held at the reporting date (for example, when there is evidence

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)
(dollars in thousands) At June 30, 2017 Three months ended June 30, 2017 Six months ended June 30, 2017
Limited partnership interests⁽¹⁾
$ 3,690
$ (6,308 ) $ (6,308 )


~~(1)~~	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.

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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 ~~2017~~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.

~~Table of Contents~~


June 30, 2018:	Carrying Value ⁽¹⁾		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	$	4,558,669	$	4,461,317	$	—	$	—	$	4,461,317	$	—	$	5,117,545	$	5,210,513	$	—	$	—	$	5,210,513	$	—
Policy loans	1,339,252		1,339,252		—		1,339,252		—		—		1,312,349		1,312,349		—		1,312,349		—		—
Funds withheld at interest	5,836,373		6,057,217		—		—		6,057,217		—		5,619,039		5,823,245		—		—		5,823,245		—
Cash and cash equivalents	973,078		973,078		973,078		—		—		—		1,165,131		1,165,131		1,165,131		—		—		—
Short-term investments	40,507		40,507		40,507		—		—		—		43,855		43,855		43,855		—		—		—
Other invested assets	757,264		775,322		5,565		71,797		323,142		374,818		1,061,220		1,060,931		5,176		83,529		603,835		368,391
Accrued investment income	400,160		400,160		—		400,160		—		—		442,956		442,956		—		442,956		—		—
Liabilities:
Interest-sensitive contract liabilities	$	13,072,239	$	12,972,203	$	—	$	—	$	12,972,203	$	—	$	14,543,332	$	14,790,369	$	—	$	—	$	14,790,369	$	—
Long-term debt	2,788,111		2,868,837		—		—		2,868,837		—		2,787,717		2,915,623		—		—		2,915,623		—
Collateral finance and securitization notes	724,998		666,356		—		—		666,356		—		656,174		601,680		—		—		601,680		—

December 31, 2017:	Carrying Value ⁽¹⁾		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3		NAV
December 31, 2018:
Assets:
Mortgage loans on real estate	$	4,400,533	$	4,477,654	$	—	$	—	$	4,477,654	$	—	$	4,966,298	$	4,917,416	$	—	$	—	$	4,917,416	$	—
Policy loans	1,357,624		1,357,624		—		1,357,624		—		—		1,344,980		1,344,980		—		1,344,980		—		—
Funds withheld at interest	5,955,092		6,275,623		—		—		6,275,623		—		5,655,055		5,802,518		—		—		5,802,518		—
Cash and cash equivalents	946,736		946,736		946,736		—		—		—		1,404,566		1,404,566		1,404,566		—		—		—
Short-term investments	42,558		42,558		42,558		—		—		—		36,607		36,607		36,607		—		—		—
Other invested assets	651,792		679,377		28,540		67,778		247,934		335,125		945,731		941,449		4,640		83,203		477,214		376,392
Accrued investment income	392,721		392,721		—		392,721		—		—		427,893		427,893		—		427,893		—		—
Liabilities:
Interest-sensitive contract liabilities	$	12,683,872	$	12,917,243	$	—	$	—	$	12,917,243	$	—	$	14,547,436	$	14,611,011	$	—	$	—	$	14,611,011	$	—
Long-term debt	2,788,365		2,959,912		—		—		2,959,912		—		2,787,873		2,752,047		—		—		2,752,047		—
Collateral finance and securitization notes	783,938		722,145		—		—		722,145		—		681,961		626,731		—		—		626,731		—


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


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 ~~2017~~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 March 31,
Revenues:	2019		2018
U.S. and Latin America:
Traditional	$	1,540,666	$	1,489,694
Financial Solutions	254,660		213,352
Total	1,795,326		1,703,046
Canada:
Traditional	312,333		302,319
Financial Solutions	23,574		12,777
Total	335,907		315,096
Europe, Middle East and Africa:
Traditional	384,006		393,782
Financial Solutions	109,421		88,143
Total	493,427		481,925
Asia Pacific:
Traditional	673,172		614,539
Financial Solutions	54,528		19,846
Total	727,700		634,385
Corporate and Other	67,671		39,255
Total	$	3,420,031	$	3,173,707



	Three months ended March 31,
Income (loss) before income taxes:	2019			2018
U.S. and Latin America:
Traditional	$	11,654		$	2,892
Financial Solutions	83,277			67,421
Total	94,931			70,313
Canada:
Traditional	50,279			23,707
Financial Solutions	1,348			3,191
Total	51,627			26,898
Europe, Middle East and Africa:
Traditional	15,424			15,421
Financial Solutions	38,390			39,164
Total	53,814			54,585
Asia Pacific:
Traditional	36,624			22,887
Financial Solutions	6,083			4,021
Total	42,707			26,908
Corporate and Other	(26,515		)	(40,779		)
Total	$	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

~~Table of Contents~~

Three months ended June 30, Six months ended June 30,
Revenues: 2018 2017 2018 2017
U.S. and Latin America:
Traditional $ 1,564,147
$ 1,522,698
$ 3,053,841
$ 3,011,201
Financial Solutions 229,948
271,976
443,300
570,822
Total 1,794,095
1,794,674
3,497,141
3,582,023
Canada:
Traditional 312,199
269,273
614,518
533,548
Financial Solutions 12,089
12,003
24,866
23,810
Total 324,288
281,276
639,384
557,358
Europe, Middle East and Africa:
Traditional 372,538
345,920
766,320
664,006
Financial Solutions 100,675
73,405
188,818
153,394
Total 473,213
419,325
955,138
817,400
Asia Pacific:
Traditional 570,520
561,529
1,185,059
1,066,759
Financial Solutions 17,992
17,984
37,838
38,436
Total 588,512
579,513
1,222,897
1,105,195
Corporate and Other 15,800
54,488
55,055
76,040
Total $ 3,195,908
$ 3,129,276
$ 6,369,615
$ 6,138,016

Three months ended June 30, Six months ended June 30,
Income (loss) before income taxes: 2018 2017 2018 2017
U.S. and Latin America:
Traditional $ 71,978
$ 90,594
$ 74,870
$ 120,554
Financial Solutions 82,388
106,985
149,809
210,571
Total 154,366
197,579
224,679
331,125
Canada:
Traditional 21,805
32,836
45,512
52,164
Financial Solutions 3,544
4,425
6,735
8,017
Total 25,349
37,261
52,247
60,181
Europe, Middle East and Africa:
Traditional 6,468
11,354
21,889
25,330
Financial Solutions 65,369
28,905
104,533
60,823
Total 71,837
40,259
126,422
86,153
Asia Pacific:
Traditional 58,862
53,322
81,749
95,010
Financial Solutions 4,138
5,377
8,159
11,249
Total 63,000
58,699
89,908
106,259
Corporate and Other (67,264 ) 5,517
(108,043 ) (36,559 )
Total $ 247,288
$ 339,315
$ 385,213
$ 547,159

Assets: June 30, 2018 December 31, 2017
U.S. and Latin America:
Traditional $ 19,038,145
$ 18,603,423
Financial Solutions 16,043,393
15,959,206
Total 35,081,538
34,562,629
Canada:
Traditional 4,203,344
4,161,452
Financial Solutions 141,581
126,372
Total 4,344,925
4,287,824
Europe, Middle East and Africa:
Traditional 3,335,264
3,099,495
Financial Solutions 4,829,194
5,274,993
Total 8,164,458
8,374,488
Asia Pacific:
Traditional 5,159,546
4,915,442
Financial Solutions 1,156,371
1,198,585
Total 6,315,917
6,114,027
Corporate and Other 5,859,659
7,175,850
Total $ 59,766,497
$ 60,514,818

4032

Table of Contents

~~8. Commitments, Contingencies and Guarantees~~


8.	Commitments, Contingencies and Guarantees

Commitments

Funding of Investments

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


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Limited partnership interests and joint ventures	$	490,601	$	485,197	$	579,647	$	523,903
Commercial mortgage loans	113,992		40,815		147,898		22,605
Bank loans and private placements	98,652		60,472		77,854		137,076
Equity release mortgages	157,069		153,937		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. Bank loans and private placements are included in fixed maturity securities available-for-sale.

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, however, as of ~~June 30, 2018,~~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 ~~June 30, 2018~~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	1,932.0		2,658.0
2037	6,750.0		5,750.0
2038	800.0		1,800.0

4133

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are reflected in the following table (dollars in thousands):


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Treaty guarantees	$	913,902	$	1,047,449	$	1,481,172	$	1,392,352
Treaty guarantees, net of assets in trust	802,073		926,393		1,381,152		1,291,445
Securities borrowing and repurchase arrangements	289,210		294,325		272,365		269,980
Financing arrangements	74,864		86,183		57,801		61,273
Lease obligations	1,137		1,662		401		392


9.	Income Tax

The ~~Company's effective~~provision for income tax ~~rates~~expense differed from the ~~applicable~~amounts computed by applying the U.S. federal income tax statutory ~~rates~~rate of 21% ~~and 35%~~to pre-tax income as a result of the following for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Tax provision at U.S. statutory rate	$	51,931		$	118,760		$	80,895		$	191,506		$	45,478		$	28,964
Increase (decrease) in income taxes resulting from:
U.S. Tax Reform provisional adjustments	(4,314		)	—			(3,539		)	—
U.S. Tax Reform													—			775
Foreign tax rate differing from U.S. tax rate	(330		)	(4,261		)	1,103			(10,413		)	664			1,432
Differences in tax bases in foreign jurisdictions	(1,132		)	(13,375		)	(6,892		)	(16,759		)	(15,078		)	(5,760		)
Deferred tax valuation allowance	3,079			13,031			10,501			14,213			18,544			7,947
Amounts related to tax audit contingencies	(2,036		)	(1,783		)	(1,201		)	(1,172		)	560			835
Corporate rate changes	145			44			417			(1,193		)	(1,764		)	111
Subpart F	(348		)	1,140			310			1,326			165			658
Foreign tax credits	113			(1,938		)	(459		)	(2,064		)	—			(572		)
Global intangible low-taxed income, net of credit	(119		)	—			4,291			—			—			4,409
Equity compensation excess benefit	(3,135		)	(2,609		)	(4,250		)	(4,464		)	(1,461		)	(1,114		)
Return to provision adjustments	(503		)	(633		)	(139		)	(403		)
Other, net	(437		)	(1,251		)	(428		)	(1,120		)	(51		)	10
Total provision for income taxes	$	42,914		$	107,125		$	80,609		$	169,457		$	47,057		$	37,695
Effective tax rate	17.4		%	31.6		%	20.9		%	31.0		%	21.7		%	27.3		%

~~On December 22, 2017,~~The effective tax rate for the ~~Tax Cuts~~three months ended March 31, 2019 and ~~Jobs Act~~2018 was higher than the U.S. Statutory tax rate of ~~2017 (“~~21% primarily as a result of income in non-U.S. jurisdictions with tax rates greater than the U.S. ~~Tax Reform”)~~and losses in foreign jurisdictions for which the company established a valuation allowance, which was ~~signed into law. U.S. Tax Reform makes broad and complex changes~~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 ~~code, including but not limited~~related to (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (6) establishing a new provision designed to tax global intangible low-taxed income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); and (7) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has not yet made a policy election to account for GILTI, but included an estimate of the current GILTI impact in the tax provision..

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As of June 30, 2018, the Company has not yet completed its accounting for the tax effects of the enactment of U.S. Tax Reform. The Company continues to gather additional information to account for the effects of U.S. Tax Reform such as information to more precisely compute the pretax deferred tax items upon which the change in rate was applied and refine the necessary valuation allowance. The Company also continues to monitor the issuance of new guidance in the form of Treasury Regulations which could impact the provisional balances recorded as of December 31, 2017.

The Company continues to evaluate the effects of the BEAT and is currently restructuring existing business flows to reduce the risk that the Company will be subject to the BEAT for 2018. The Company has estimated that the annual deductible payments to foreign affiliates as a percentage of annual estimated total deductions to be below the threshold for application of the BEAT; therefore, the Company has not established an additional BEAT liability as of June 30, 2018.

The effective tax rates for the second quarter and first six months of 2018 were lower than the U.S. Statutory rate of 21.0% primarily as a result of U.S. Tax Reform related adjustments, the effective settlement of an uncertain tax position, benefits from differences in bases in foreign jurisdictions and excess tax benefits related to equity compensation. These benefits were partially offset by valuation allowances established on losses in foreign jurisdictions. The effective tax rates for the second quarter and first six months of 2017 were lower than the U.S. Statutory rate of 35% primarily as a result of tax benefits from income in non-U.S. jurisdictions, mostly related to RGA Life Reinsurance Company of Canada and the United Kingdom Branch of RGA International Reinsurance Company dac, with statutory rates of 26.6% and 19.3%, respectively. Further, tax benefits derived from differences in tax bases in foreign jurisdictions and benefits related to the filing of an amended tax return also lowered the effective tax rate. These benefits were partially offset with a valuation allowance established related to the amended return filing.

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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows (dollars in thousands):


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Three months ended June 30,						Three months ended June 30,						Three months ended March 31,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018			2019			2018
Service cost	$	3,570		$	2,819		$	636		$	721		$	3,138		$	2,654		$	757		$	636
Interest cost	1,357			1,431			529			565			1,386			1,330			580			530
Expected return on plan assets	(2,213		)	(1,823		)	—			—			(1,884		)	(1,554		)	—			—
Amortization of prior service cost (credit)	82			95			(329		)	(155		)	60			83			(329		)	(329		)
Amortization of prior actuarial losses	769			1,082			498			457			911			1,094			644			498
Settlements	—			256			—			—
Net periodic benefit cost	$	3,565		$	3,860		$	1,334		$	1,588		$	3,611		$	3,607		$	1,652		$	1,335

Pension Benefits Other Benefits
Six months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Service cost $ 6,224
$ 5,399
$ 1,272
$ 1,442
Interest cost 2,687
2,629
1,059
1,130
Expected return on plan assets (3,767 ) (3,108 ) —
—
Amortization of prior service cost (credit) 165
169
(658 ) (311 )
Amortization of prior actuarial losses 1,863
2,163
996
914
Settlements —
513
—
—
Net periodic benefit cost $ 7,172
$ 7,765
$ 2,669
$ 3,175

~~The Company made $5.0 million in pension contributions during the first six months of 2018 and expects to make total pension contributions between $8.0 million and $10.0 million in 2018.~~��


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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~June 30, 2018 and December~~March 31, ~~2017,~~2019, all rated retrocession pool participants followed by the A.M. Best Company were rated “A- (excellent)” or ~~better, except for one pool member that was rated “B++”.~~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

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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.

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 ~~June 30, 2018~~March 31, 2019 or December 31, ~~2017~~2018 (dollars in thousands):


		June 30, 2018				December 31, 2017					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+	$	312,405	39.6		$	301,478	38.6	%	A+	$	324,370	39.8	%	$	303,036	40.0	%
Reinsurer B	A+	198,782		25.2		203,898		26.1		A+	199,748		24.5		193,324		25.5
Reinsurer C	A	67,699		8.6		67,723		8.7		A	71,367		8.8		69,885		9.2
Reinsurer D	A+	41,807		5.3		40,528		5.2		A++	50,244		6.2		36,600		4.8
Reinsurer E	A++	38,935		4.9		40,592		5.2		A+	41,362		5.1		40,004		5.3
Other reinsurers		129,801		16.4		127,808		16.2			127,715		15.6		114,723		15.2
Total		$	789,429	100.0	%	$	782,027	100.0	%		$	814,806	100.0	%	$	757,572	100.0	%

Included in the total reinsurance ceded receivables balance were ~~$271.2~~$232.0 million and ~~$243.8~~$242.8 million of claims recoverable, of which ~~$3.1~~$6.7 million and ~~$1.9~~$17.4 million were in excess of 90 days past due, as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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.

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Description	Date of Adoption	Effect on the financial statements or other significant matters
Standards adopted:
~~Reporting Comprehensive Income~~ This updated guidance requires reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the newly enacted U.S. federal corporate income tax rate. The amount of the reclassification would be the difference between the historical U.S. federal corporate income tax rate and the newly enacted 21 percent tax rate.	~~December 31, 2017~~	The Company adopted the new guidance by reclassifying certain income tax effects of items within accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act of 2017. The impact of adopting this standard was an increase in accumulated other comprehensive income and a reduction in retained earnings of approximately $156.4 million.
~~Stock Compensation~~ This 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.	~~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 $10.5 million in the provision for income taxes for the year ended December 31, 2017. 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 consolidated financial statements.
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 ~~consolidated~~ financial ~~statements.~~position.

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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
~~Standards~~ This guidance was applied retrospectively to all periods presented in the year of adoption. The adoption of the new standard was not ~~yet adopted:~~		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 ~~new standard will be~~guidance was adopted by applying ~~a modified retrospective~~the optional transition ~~approach, which includes a number of practical expedients.~~method. The ~~Company is currently evaluating the impact of this amendment on its consolidated financial statements; however, it does not expect the~~ adoption of the ~~new~~ standard todid not have a material impact on ~~its~~the Company’s results of operations or ~~balance sheet as a result~~financial position. The adoption of the ~~recognition~~updated guidance resulted in the Company recognizing a right-to-use asset and lease liability of ~~right-to-use~~$55.2 million included in other assets and ~~lease~~other liabilities, ~~related to operating leases. Contractual obligations related to operating leases totaled approximately $38.2 million as of December 31, 2017.~~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 ~~new~~ guidance ~~will be~~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.

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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 ~~consolidated~~results of operations and financial ~~statements.~~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 ~~consolidated~~results of operations and financial ~~statements.~~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 (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 ~~2017~~2018 Annual Report.

Overview

The Company is among the leading global providers of life reinsurance and financial solutions, with ~~$3.3~~$3.4 trillion of life reinsurance in ~~force.~~force and 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 period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other

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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 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 June 30, Six months ended June 30,
2018 2017 2018 2017
Revenues: (Dollars in thousands, except per share data)
Net premiums $ 2,594,460
$ 2,480,451
$ 5,177,011
$ 4,846,147
Investment income, net of related expenses 528,061
518,538
1,044,390
1,032,902
Investment related gains (losses), net (10,572 ) 56,295
(11,042 ) 116,818
Other revenues 83,959
73,992
159,256
142,149
Total revenues 3,195,908
3,129,276
6,369,615
6,138,016
Benefits and Expenses:
Claims and other policy benefits 2,279,593
2,164,363
4,641,694
4,270,508
Interest credited 109,327
115,285
189,776
222,969
Policy acquisition costs and other insurance expenses 320,276
319,832
677,178
699,221
Other operating expenses 194,959
154,356
386,233
312,862
Interest expense 37,025
29,352
74,479
71,754
Collateral finance and securitization expense 7,440
6,773
15,042
13,543
Total benefits and expenses 2,948,620
2,789,961
5,984,402
5,590,857
Income before income taxes
247,288
339,315
385,213
547,159
Provision for income taxes 42,914
107,125
80,609
169,457
Net income $ 204,374
$ 232,190
$ 304,604
$ 377,702
Earnings per share:
Basic earnings per share $ 3.19
$ 3.60
$ 4.74
$ 5.86
Diluted earnings per share $ 3.13
$ 3.54
$ 4.65
$ 5.76
Dividends declared per share $ 0.50
$ 0.41
$ 1.00
$ 0.82

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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 ~~decreased $92.0~~increased $78.6 million, or ~~27.1%, and $161.9 million, or 29.6%~~57.0%, for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decrease in income for the second quarter of 2018 was primarily due to unfavorable claims experience in the U.S. group and individual mortality businesses and an~~ increase ~~in operating expenses related to the Company’s strategic initiatives. In addition, the decrease~~ in income for the first ~~six~~three months of ~~2018 reflects an unfavorable change in investment related gains (losses) largely~~2019 was primarily due to ~~changes~~improved results in the ~~fair value of embedded derivatives on modco or funds withheld treaties within the~~ U.S. ~~segment primarily related to changes in interest rates~~ and ~~credit spreads. The effect of the change in fair value of these embedded derivatives on income is discussed below.~~Latin America, Canada and Asia Pacific segments and increased investment income. Foreign currency fluctuations ~~relative to the prior year~~ resulted in ~~an increase~~a decrease in income before income taxes ~~by approximately $6.0 million and $14.8~~of $9.4 million for the ~~second quarter and~~ first ~~six~~three months of ~~2018,~~2019, as compared to the same ~~periods~~period in ~~2017.~~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 annuities with guaranteed minimum benefit riders. The Company utilizes freestanding derivatives to minimize the income statement volatility due to changes in the fair value of embedded derivatives associated with guaranteed minimum benefit riders. The following table presents the effect of embedded derivatives and related freestanding derivatives on income before income taxes for the periods indicated (dollars in thousands):

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	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Modco/Funds withheld:
Unrealized gains (losses)	$	8,805		$	15,108		$	22,416		$	83,810		$	(2,092	)	$	13,611
Deferred acquisition costs/retrocession	405			(10,585		)	(2,668		)	(39,526		)	(2,857		)	(3,073		)
Net effect	9,210			4,523			19,748			44,284			(4,949		)	10,538
EIAs:
Unrealized gains (losses)	(565		)	7,340			27,998			35,298			(1,518		)	28,563
Deferred acquisition costs/retrocession	(418		)	(4,699		)	(15,711		)	(21,214		)	875			(15,295		)
Net effect	(983		)	2,641			12,287			14,084			(643		)	13,268
Guaranteed minimum benefit riders:
Unrealized gains (losses)	15,324			360			30,109			22,723			18,161			14,785
Deferred acquisition costs/retrocession	3,864			4,291			6,195			26,292			(16,774		)	2,333
Net effect	19,188			4,651			36,304			49,015			1,387			17,118
Related freestanding derivatives	(18,805		)	(2,730		)	(41,304		)	(51,706		)	(2,578		)	(22,500		)
Net effect after related freestanding derivatives	383			1,921			(5,000		)	(2,691		)	(1,191		)	(5,382		)

Total net effect of embedded derivatives	27,415			11,815			68,339			107,383			(4,205		)	40,924
Related freestanding derivatives	(18,805		)	(2,730		)	(41,304		)	(51,706		)	(2,578		)	(22,500		)
Total net effect after freestanding derivatives	$	8,610		$	9,085		$	27,035		$	55,677		$	(6,783	)	$	18,424

~~Consolidated net~~Net premiums increased ~~$114.0~~$155.3 million, or ~~4.6%, and $330.9 million, or 6.8%~~6.0%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in 2017, primarily due to growth in life reinsurance in force. Additionally, foreign currency fluctuations contributed to the increases in net premiums by approximately $40.9 million and $120.2 million for the second quarter and first six months of 2018 ~~as compared to the same periods in 2017. Consolidated assumed life insurance in force increased to $3,340.6 billion as of June 30, 2018 from $3,233.1 billion as of June 30, 2017~~ 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 ~~$99.7~~$79.3 billion and ~~$122.5 billion during the second quarter of 2018 and 2017, respectively, and $196.4 billion and $214.1~~$96.7 billion during the first ~~six~~three months of 2019 and 2018, ~~and 2017,~~ respectively. Foreign currency fluctuations reduced net premiums by $78.8 million for the first three months of 2019, as compared to the same period in 2018. Consolidated assumed life insurance in force decreased to $3,364.6 billion as of March 31, 2019 from $3,383.8 billion as of March 31, 2018 due to foreign currency exchange fluctuations. Unfavorable foreign currency exchange fluctuations reduced assumed life insurance in force by $102.1 billion from March 31, 2018.

~~Consolidated investment~~Investment income, net of related expenses, increased ~~$9.5~~$63.5 million or ~~1.8%, and $11.5 million, or 1.1%~~12.3%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases are primarily~~increase is largely attributable to an increase in the average ~~invested~~ asset base, ~~largely offset by~~and a slightly higher investment yield. Partially offsetting the increase in investment income was a decrease in the ~~average investment yield, lower variable investment income and an unfavorable change in the~~ fair value ofattributed to the Company’s funds withheld at interest ~~assets~~investment associated with the reinsurance of certain ~~EIA products. The re-measurement of these funds withheld assets~~EIAs, which decreased investment income by ~~$19.2 million and $62.5~~$6.5 million in the ~~second quarter and~~ first ~~six~~three months of ~~2018, respectively,~~2019, as compared to the same ~~periods~~period in ~~2017.~~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.

Average invested assets at amortized cost, excluding spread related business, for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 totaled ~~$26.8~~$28.1 billion, a ~~7.0%~~4.1% increase over ~~June 30, 2017.~~March 31, 2018. The average yield earned on investments, excluding spread related business, was ~~4.32%~~4.49% and ~~4.60%~~4.46% for the ~~second quarter of 2018 and 2017, respectively, and 4.39% and 4.50% for the six~~three months ended ~~June 30,~~

~~Table of Contents~~

~~2018~~March 31, 2019 and ~~2017,~~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. 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 ~~were $(10.6) million and $56.3~~increased by $8.3 million for the ~~second quarter of 2018 and 2017, respectively, and $(11.0) million and $116.8 million for~~three months ended March 31, 2019, as compared to the ~~first six months of 2018 and 2017, respectively.~~same period in 2018. The ~~unfavorable changes are largely~~increase is primarily due to ~~asset repositioning related~~a decrease in realized losses of $18.4 million compared to ~~reinsurance transactions occurring~~the same period in ~~late 2017 and early~~ 2018. ~~A portion of the investment related gains (losses) are due to~~The reduction in realized loss was partially offset by less favorable 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. Changes in the fair value ofassociated with these embedded derivatives ~~increased~~reduced investment related gains by ~~$8.8 million and $15.1 million for the second quarter of 2018 and 2017, respectively, and $22.4 million and $83.8~~$2.1 million for the first ~~six~~three months of ~~2018 and 2017, respectively. In addition, impairments~~2019 compared to an increase of $13.6 million in the first three months of 2018. Impairments on fixed maturity securities ~~decreased~~increased by ~~$17.2~~$9.5 million in the first ~~six~~three months of ~~2018,~~2019, as compared to the same period in ~~2017.~~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 ~~17.4%~~21.7% and ~~31.6% for the second quarter 2018 and 2017, respectively, and 20.9% and 31.0%~~27.3% for the first ~~six months of~~quarter 2019 and 2018, ~~and 2017,~~ respectively. ~~The 2018 effective tax rates reflect changes to the U.S. tax code related to the Tax Cuts and Jobs Act of 2017.~~ See Note 9 - “Income Tax” in the Notes to Condensed Consolidated Financial Statements for additional information on the Company’s consolidated effective tax 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 ~~2017~~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. Due to the low-risk nature of financial reinsurance transactions, they typically do not qualify as reinsurance under GAAP, so only the related net fees are reflected in other revenues on the condensed consolidated statements of income.

For the three months ended June 30, 2018: Financial Solutions
(dollars in thousands) Asset-Intensive
Financial
Reinsurance
Total U.S. and Latin America
Traditional
Revenues:
Net premiums $ 1,373,548
$ 6,699
$ —
$ 1,380,247
Investment income, net of related expenses 180,478
171,810
1,504
353,792
Investment related gains (losses), net 3,725
776
—
4,501
Other revenues 6,396
24,065
25,094
55,555
Total revenues 1,564,147
203,350
26,598
1,794,095
Benefits and expenses:
Claims and other policy benefits 1,255,007
22,590
—
1,277,597
Interest credited 20,992
74,810
—
95,802
Policy acquisition costs and other insurance expenses 182,064
37,939
2,609
222,612
Other operating expenses 34,106
7,171
2,441
43,718
Total benefits and expenses 1,492,169
142,510
5,050
1,639,729
Income before income taxes $ 71,978
$ 60,840
$ 21,548
$ 154,366

For the three months ended June 30, 2017: Financial Solutions
(dollars in thousands) Asset-Intensive
Financial
Reinsurance
Total U.S. and Latin America
Traditional
Revenues:
Net premiums $ 1,335,316
$ 7,128
$ —
$ 1,342,444
Investment income, net of related expenses 183,713
177,957
1,853
363,523
Investment related gains (losses), net (654 ) 32,626
—
31,972
Other revenues 4,323
26,211
26,201
56,735
Total revenues 1,522,698
243,922
28,054
1,794,674
Benefits and expenses:
Claims and other policy benefits 1,194,917
24,503
—
1,219,420
Interest credited 20,838
87,664
—
108,502
Policy acquisition costs and other insurance expenses 186,375
38,211
5,619
230,205
Other operating expenses 29,974
6,542
2,452
38,968
Total benefits and expenses 1,432,104
156,920
8,071
1,597,095
Income before income taxes $ 90,594
$ 87,002
$ 19,983
$ 197,579

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For the six months ended June 30, 2018:			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	$	2,672,970	$	11,891	$	—	$	2,684,861	$	1,356,882		$	7,210	$	—	$	1,364,092
Investment income, net of related expenses	363,538		329,722		3,326		696,586		185,534			197,221		1,016		383,771
Investment related gains (losses), net	5,408		1,452		—		6,860		(6,472		)	1,046		—		(5,426		)
Other revenues	11,925		47,024		49,885		108,834		4,722			22,674		25,493		52,889
Total revenues	3,053,841		390,089		53,211		3,497,141		1,540,666			228,151		26,509		1,795,326
Benefits and expenses:
Claims and other policy benefits	2,509,968		38,535		—		2,548,503		1,300,065			48,099		—		1,348,164
Interest credited	41,272		129,022		—		170,294		19,874			88,710		—		108,584
Policy acquisition costs and other insurance expenses	359,704		99,974		6,609		466,287		176,003			19,233		5,376		200,612
Other operating expenses	68,027		14,456		4,895		87,378		33,070			7,151		2,814		43,035
Total benefits and expenses	2,978,971		281,987		11,504		3,272,462		1,529,012			163,193		8,190		1,700,395
Income before income taxes	$	74,870	$	108,102	$	41,707	$	224,679	$	11,654		$	64,958	$	18,319	$	94,931

For the six months ended June 30, 2017:			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	$	2,639,661	$	11,763	$	—	$	2,651,424	$	1,299,422		$	5,192	$	—	$	1,304,614
Investment income, net of related expenses	362,708		365,110		3,517		731,335		183,060			157,912		1,822		342,794
Investment related gains (losses), net	1,311		90,397		—		91,708		1,683			676		—		2,359
Other revenues	7,521		49,425		50,610		107,556		5,529			22,959		24,791		53,279
Total revenues	3,011,201		516,695		54,127		3,582,023		1,489,694			186,739		26,613		1,703,046
Benefits and expenses:
Claims and other policy benefits	2,420,557		42,039		—		2,462,596		1,254,961			15,945		—		1,270,906
Interest credited	41,127		166,821		—		207,948		20,280			54,212		—		74,492
Policy acquisition costs and other insurance expenses	367,185		121,864		11,560		500,609		177,640			62,035		4,000		243,675
Other operating expenses	61,778		13,199		4,768		79,745		33,921			7,285		2,454		43,660
Total benefits and expenses	2,890,647		343,923		16,328		3,250,898		1,486,802			139,477		6,454		1,632,733
Income before income taxes	$	120,554	$	172,772	$	37,799	$	331,125	$	2,892		$	47,262	$	20,159	$	70,313

Income before income taxes ~~decreased~~increased by ~~$43.2~~$24.6 million, or ~~21.9%, and $106.4 million, or 32.1%~~35.0%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decrease~~increase in income before income taxes for the second quarter was primarily due to a decrease in investment related gains and unfavorable claims experience in the group disability and healthcare excess lines of business. The decrease in income before income taxes for the first six months was primarily due to the aforementioned unfavorable claims experience from group business and the individual mortality business due partially to a severe influenza season in 2018. Also contributing to the year over year decline in income were lowerimpact of higher investment related gains ~~and changes~~(losses) in the Asset-Intensive segment as well as improved claims experience within the U.S. Traditional segment. Offsetting these somewhat was the change in the value of the embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld ~~basis.~~basis, net of the corresponding impact to deferred acquisition costs.

Traditional Reinsurance

Income before income taxes for the U.S. and Latin America Traditional segment ~~decreased~~increased by ~~$18.6~~$8.8 million ~~or 20.5%, and $45.7 million, or 37.9%,~~ for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decrease in the second quarter and first six months~~increase is primarily due to ~~unfavorable~~improved claims experience in ~~the group disability and healthcare excess lines of business and higher~~2019 from both individual mortality ~~claims. Mortality claims~~and group business.

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Net premiums increased ~~significantly~~$57.5 million, or 4.4%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase was primarily due to organic growth combined with strong new business in the first quarter of ~~2018 due to a severe influenza season.~~

Net premiums increased $38.2 million, or 2.9%, and $33.3 million, or 1.3%, for the three and six months ended June 30, 2018, as compared to the same periods in 2017. The increases in net premiums in the second quarter and first six months were reduced by $28.8 million and $51.8 million, respectively, due to the restructure of a health treaty. After adjusting for the treaty restructure, net premiums increased 5.1% and 3.3% in the second quarter and first six months of 2018, respectively, compared to the same periods in 2017, due to expected organic growth mainly in the Mortality and Group lines of business.2019. The segment added new individual life business production, measured by face amount of insurance in force of ~~$29.3~~$28.8 billion and ~~$23.5~~$23.3 billion ~~for the second quarter and $52.6 billion and $50.3 billion for~~in the first ~~six~~three months of 2019 and 2018, ~~and 2017,~~ respectively.

~~Table of Contents~~

Net investment income ~~decreased $3.2~~increased $2.5 million, or ~~1.8%, and increased by $0.8 million, or 0.2%~~1.4%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decrease~~increase was due to an increase in the ~~second quarter was primarily due to~~invested asset base, partially offset by lower variable investment ~~income. For the first six months, investment~~ income ~~was relatively flat as the effect of less variable investment income was offset by growth in the asset base.~~quarter over quarter. Investment related gains (losses), net ~~increased $4.4 million and $4.1~~decreased $8.2 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were ~~91.4%~~95.8% and ~~89.5%~~96.6% for the ~~second quarter~~three months ended March 31, 2019 and ~~93.9%~~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 ~~91.7%~~the group disability line of business.

Interest credited expense decreased by $0.4 million, or 2.0%, for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 ~~and 2017, respectively. The increases in the loss ratios for the second quarter and first six months of 2018,~~, as compared to the same ~~periods~~period in 2017 were primarily due to unfavorable claims experience in both the group and mortality lines of business. Management believes a portion of the unfavorable variance is the normal volatility associated with influenza season.

~~Interest credited expense remained flat for the three and six months ended June 30, 2018, as compared to the same periods in 2017.~~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 ~~13.3%~~13.0% and ~~14.0%~~13.7% for the ~~second quarter and 13.5% and 13.9% for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ 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 ~~increased $4.1~~decreased $0.9 million, or ~~13.8%, and $6.2 million, or 10.1%~~2.5%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The increase in operating expenses, for both periods, is primarily related~~2018 due to ~~expense growth associated with key business line initiatives focused on enhancing the services and reinsurance options for clients.~~decreased variable compensation. Other operating expenses as a percentage of net premiums were ~~2.5%~~2.4% and ~~2.2%~~2.6% for the ~~second quarter~~three month periods ended March 31, 2019 and ~~2.5% and 2.3% first six months of~~ 2018, ~~and 2017,~~ 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 June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Total revenues	$	203,350		$	243,922		$	390,089		$	516,695		$	228,151		$	186,739
Less:
Embedded derivatives – modco/funds withheld treaties	5,039			15,762			16,957			82,500			4,383			11,918
Guaranteed minimum benefit riders and related free standing derivatives	2,077			3,017			(2,512		)	(3,877		)	(2,835		)	(4,588		)
Revenues before certain derivatives	196,234			225,143			375,644			438,072			226,603			179,409
Benefits and expenses:
Total benefits and expenses	142,510			156,920			281,987			343,923			163,193			139,477
Less:
Embedded derivatives – modco/funds withheld treaties	(405		)	10,585			2,668			39,526			2,857			3,073
Guaranteed minimum benefit riders and related free standing derivatives	1,694			1,096			2,488			(1,186		)	(1,644		)	794
Equity-indexed annuities	983			(2,641		)	(12,287		)	(14,084		)	643			(13,268		)
Benefits and expenses before certain derivatives	140,238			147,880			289,118			319,667			161,337			148,878
Income before income taxes:
Income before income taxes	60,840			87,002			108,102			172,772			64,958			47,262
Less:
Embedded derivatives – modco/funds withheld treaties	5,444			5,177			14,289			42,974			1,526			8,845
Guaranteed minimum benefit riders and related free standing derivatives	383			1,921			(5,000		)	(2,691		)	(1,191		)	(5,382		)
Equity-indexed annuities	(983		)	2,641			12,287			14,084			(643		)	13,268
Income before income taxes and certain derivatives	$	55,996		$	77,263		$	86,526		$	118,405		$	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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The change in fair value of the embedded derivatives - modco/funds withheld treaties increased income before income taxes by ~~$5.4~~$1.5 million and ~~$5.2~~$8.8 million for the ~~second quarter and $14.3 million and $43.0 million for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The increase in income for the ~~second quarter of~~three months ended March 31, 2019 and 2018 was primarily the result of interest rate movements, partially offset by repositioning in the funds withheld portfolio. The increase in income for the second quarter of 2017 and for the first six months ended June 30, 2018 and 2017 were primarily due to tightening credit spreads.

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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The change in fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, ~~increased~~decreased income before income taxes by ~~$0.4~~$1.2 million and ~~$1.9~~$5.4 million for the ~~second quarter and decreased by $5.0 million and $2.7 million for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. ~~The increases in income for the second quarter of 2018 and 2017 were primarily due to favorable hedging results.~~ The decrease in income for the ~~first six~~three months ended ~~June 30,~~March 31, 2019 and 2018 was primarily ~~the result of~~due to interest rate movements. ~~The decrease in income for the first six months of2017 was primarily the result of lower policyholder lapses.~~

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 ~~$(1.0)~~$0.6 million and ~~$2.6~~increased by $13.3 million for the ~~second quarter and $12.3 million and $14.1 million for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The decrease in income for the ~~second quarter of 2018~~three months ended March 31, 2019 was ~~primarily the result of~~due to interest rate movements. The increase ~~in income~~ for the ~~first six~~three months ofended March 31, 2018 was primarily due to lower policyholder lapses and withdrawals. ~~The increase in income for the second quarter and first six months of 2017 was primarily due to changes in the domestic equity markets.~~

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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~~increased by ~~$21.3 million and $31.9~~$34.7 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases in the second quarter and first six months were~~increase was primarily due to ~~lower~~higher investment related gains (losses), net of the corresponding impact to deferred acquisition costs, associated with coinsurance ~~portfolios.~~and funds withheld portfolios and the contribution from transactions executed in the second half of 2018. Funds withheld capital gains (losses) are reported in investment income.

Revenue before certain derivatives ~~decreased~~increased by ~~$28.9 million and $62.4~~$47.2 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases~~increase in the ~~second~~first quarter ~~and first six months were~~was primarily due to the ~~change~~contribution from transactions executed in ~~fair value~~the second half of ~~equity options associated with the reinsurance of EIAs~~2018 and ~~lower~~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 ~~decreased~~increased by ~~$7.6 million and $30.5~~$12.5 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017.~~2018. The ~~decreases~~increase in the first quarter of 2019 was primarily due to the contribution from transactions executed in the second ~~quarter and first six months were primarily due to lower interest credited associated with the reinsurance~~half of ~~EIAs. 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 ~~$15.8~~$19.9 billion as of ~~June 30, 2018~~March 31, 2019 from ~~$15.7~~$16.0 billion as of ~~June 30, 2017.~~March 31, 2018 due to transactions executed in the second half of 2018. As of ~~June 30, 2018, $4.0~~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 $1.6~~decreased $1.8 million, or ~~7.8%, and $3.9 million, or 10.3%~~9.1%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases were~~decrease was primarily due to ~~growth in new transactions.~~the termination of certain agreements.

~~At June 30,~~As of March 31, 2019 and 2018, ~~and 2017,~~ the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was ~~$13.7~~$14.6 billion and ~~$12.4~~$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 June 30,
2018 2017
Revenues: Traditional Financial Solutions Total Canada Traditional Financial Solutions Total Canada
Net premiums $ 260,750
$ 10,955
$ 271,705
$ 221,380
$ 9,314
$ 230,694
Investment income, net of related expenses 49,535
330
49,865
44,830
1,351
46,181
Investment related gains (losses), net 446
—
446
2,598
—
2,598
Other revenues 1,468
804
2,272
465
1,338
1,803
Total revenues 312,199
12,089
324,288
269,273
12,003
281,276
Benefits and expenses:
Claims and other policy benefits 223,935
7,915
231,850
181,197
7,099
188,296
Interest credited 21
—
21
5
—
5
Policy acquisition costs and other insurance expenses 58,541
292
58,833
47,597
206
47,803
Other operating expenses 7,897
338
8,235
7,638
273
7,911
Total benefits and expenses 290,394
8,545
298,939
236,437
7,578
244,015
Income before income taxes $ 21,805
$ 3,544
$ 25,349
$ 32,836
$ 4,425
$ 37,261


(dollars in thousands)	Six months ended June 30,														Three months ended March 31,
	2018								2017						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	$	513,473		$	22,260	$	535,733		$	437,142	$	18,724	$	455,866	$	255,257		$	21,989	$	277,246	$	252,723		$	11,305	$	264,028
Investment income, net of related expenses	100,119			445		100,564			89,336		2,395		91,731		49,693			718		50,411		50,584			115		50,699
Investment related gains (losses), net	(285		)	—		(285		)	6,441		—		6,441		7,404			—		7,404		(731		)	—		(731		)
Other revenues	1,211			2,161		3,372			629		2,691		3,320		(21		)	867		846		(257		)	1,357		1,100
Total revenues	614,518			24,866		639,384			533,548		23,810		557,358		312,333			23,574		335,907		302,319			12,777		315,096
Benefits and expenses:
Claims and other policy benefits	436,760			17,030		453,790			372,249		14,718		386,967		199,856			21,153		221,009		212,825			9,115		221,940
Interest credited	26			—		26			9		—		9		55			—		55		5			—		5
Policy acquisition costs and other insurance expenses	115,573			388		115,961			93,279		350		93,629		53,908			449		54,357		57,032			96		57,128
Other operating expenses	16,647			713		17,360			15,847		725		16,572		8,235			624		8,859		8,750			375		9,125
Total benefits and expenses	569,006			18,131		587,137			481,384		15,793		497,177		262,054			22,226		284,280		278,612			9,586		288,198
Income before income taxes	$	45,512		$	6,735	$	52,247		$	52,164	$	8,017	$	60,181	$	50,279		$	1,348	$	51,627	$	23,707		$	3,191	$	26,898

Income before income taxes ~~decreased~~increased by ~~$11.9~~$24.7 million, or ~~32.0%, and $7.9 million, or 13.2%~~91.9%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases~~increase in income ~~for~~in the ~~second quarter and~~ first ~~six~~three months ~~are~~of 2019 is primarily due to ~~unfavorable~~favorable traditional individual life mortality experience as compared to the same ~~periods~~period in ~~2017.~~2018. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$0.7 million and $2.3~~$2.6 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Traditional Reinsurance

Income before income taxes for the Canada Traditional segment ~~decreased~~increased by ~~$11.0~~$26.6 million, or ~~33.6%, and $6.7 million, or 12.8%~~112.1%, for the three ~~and six~~ months ended ~~June 30, 2018~~,March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases~~increase in income before income taxes ~~for the second quarter and first six months were~~in 2019 is primarily due to ~~unfavorable~~favorable traditional individual life mortality experience. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of ~~$0.6 million and $2.0~~$2.6 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

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Net premiums increased ~~$39.4~~$2.5 million, or ~~17.8%, and $76.3 million, or 17.5%~~1.0%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases~~increase in ~~net premiums were~~2019 was primarily due to a new ~~in force~~inforce block transaction during the ~~first~~last quarter of 2018. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in net premiums of ~~approximately $10.2 million and $21.1~~$12.7 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net investment income ~~increased $4.7~~decreased $0.9 million, or ~~10.5%, and $10.8 million, or 12.1%~~1.8%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases~~decrease in ~~investment income for~~2019 is primarily a result of foreign currency exchange fluctuation in the ~~second quarter and the first six months were primarily the result of~~Canadian dollar partially 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 in the first quarter. Additionally, foreign~~volume. Foreign currency exchange fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in net investment income of ~~approximately $2.0 million and $4.2~~$2.6 million for the three ~~and six~~ months ended ~~June 30, 2018, as compared to the same periods in 2017.~~

Other revenues increased by $1.0 million and $0.6 million for the three and six months ended June 30, 2018, as compared to the same periods in 2017. These variances are primarily due to gains and losses related to foreign currency transactions.

Loss ratios for this segment were 85.9% and 81.8% for the second quarter and 85.1% and 85.2% for the six months ended June 30, 2018 and 2017, respectively. The increase in the loss ratio for the three months of 2018,March 31, 2019, as compared to the same period in ~~2017,~~2018.

Investment related gains (losses), net increased by $8.1 million for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in 2019 was primarily due to an increase in the fair market value of derivatives.

Loss ratios were 78.3% and 84.2% for the three months ended March 31, 2019 and 2018, respectively. The decrease in the loss ratio for the first quarter of 2019, as compared to the same period in 2018, is due to ~~unfavorable~~favorable traditional individual life mortality ~~experience.~~experience and the aforementioned new inforce block transaction in the last quarter of 2018. Loss ratios for the traditional individual life mortality business were ~~97.8%~~83.5% and ~~94.3% for the second quarter and 94.6% and 98.3%~~91.3% for the first ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 73.2% and ~~2017,~~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

Table of Contents

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 ~~77.5%~~70.1% and ~~74.6%~~75.3% for the ~~second quarter and 76.3% and 77.7% for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~22.5%~~21.1% and ~~21.5%~~22.6% for the ~~second quarter and 22.5% and 21.3% for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ 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. 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 ~~increased $0.3~~decreased by $0.5 million, or ~~3.4%, and $0.8 million, or 5.0%~~5.9%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. Other operating expenses as a percentage of net premiums were ~~3.0%~~3.2% and 3.5% for the ~~second quarter~~three months ended March 31, 2019 and ~~3.2% and 3.6% for the six month periods ended June 30,~~ 2018, ~~and 2017,~~ respectively.

Financial Solutions Reinsurance

Income before income taxes decreased by ~~$0.9~~$1.8 million, or ~~19.9%, and $1.3 million, or 16.0%~~57.8%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases~~decrease in income ~~for both~~in the first three ~~and six month periods are~~months was primarily due to ~~a decrease in net investment income as a result of a decrease in the invested asset base partially offset by favorable~~unfavorable experience on longevity business. Foreign currency exchange ~~fluctuations~~fluctuation in the Canadian dollar resulted in ~~an increase~~a decrease in income before income taxes of $0.1 million ~~and $0.3 million~~ for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net premiums increased ~~$1.6~~$10.7 million, or ~~17.6%, and $3.5 million, or 18.9%~~94.5%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases were~~increase was primarily due to ~~longevity business, where~~a new financial solutions reinsurance transaction completed in the ~~premium structure generally increases over time.~~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 million and $0.9~~$1.0 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net investment income ~~decreased $1.0~~increased $0.6 million ~~or 75.6%, and $2.0 million, or 81.4%,~~ for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~2018 primarily due to ~~a decrease~~an increase in the invested asset base.

Claims and other policy benefits increased ~~$0.8~~$12.0 million, or ~~11.5%, and $2.3 million, or 15.7%~~132.1%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases for the second quarter and first six months were~~increase was primarily a result of ~~normal aging~~the aforementioned new financial solutions reinsurance transaction completed in the first three months of ~~the longevity block of business.~~2019.

~~Table of Contents~~

Europe, Middle East and Africa Operations

The Europe, Middle East and Africa (“EMEA”) 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 ~~Middle East region.~~United Kingdom (“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 June 30,
2018 2017
Revenues: Traditional Financial Solutions Total EMEA Traditional Financial Solutions Total EMEA
Net premiums $ 354,534
$ 49,135
$ 403,669
$ 330,850
$ 38,520
$ 369,370
Investment income, net of related expenses 17,087
40,330
57,417
13,585
28,029
41,614
Investment related gains (losses), net —
5,858
5,858
—
2,458
2,458
Other revenues 917
5,352
6,269
1,485
4,398
5,883
Total revenues 372,538
100,675
473,213
345,920
73,405
419,325
Benefits and expenses:
Claims and other policy benefits 310,187
21,854
332,041
295,004
36,797
331,801
Interest credited —
4,127
4,127
—
(291 ) (291 )
Policy acquisition costs and other insurance expenses 29,961
1,054
31,015
15,349
454
15,803
Other operating expenses 25,922
8,271
34,193
24,213
7,540
31,753
Total benefits and expenses 366,070
35,306
401,376
334,566
44,500
379,066
Income before income taxes $ 6,468
$ 65,369
$ 71,837
$ 11,354
$ 28,905
$ 40,259

(dollars in thousands) Six months ended June 30,
2018 2017
Revenues: Traditional Financial Solutions Total EMEA Traditional Financial Solutions Total EMEA
Net premiums $ 730,263
$ 97,114
$ 827,377
$ 635,522
$ 80,515
$ 716,037
Investment income, net of related expenses 32,851
72,262
105,113
26,305
57,710
84,015
Investment related gains (losses), net 9
9,210
9,219
7
7,033
7,040
Other revenues 3,197
10,232
13,429
2,172
8,136
10,308
Total revenues 766,320
188,818
955,138
664,006
153,394
817,400
Benefits and expenses:
Claims and other policy benefits 636,989
64,325
701,314
561,405
72,733
634,138
Interest credited —
1,475
1,475
—
3,822
3,822
Policy acquisition costs and other insurance expenses 55,513
2,134
57,647
30,512
743
31,255
Other operating expenses 51,929
16,351
68,280
46,759
15,273
62,032
Total benefits and expenses 744,431
84,285
828,716
638,676
92,571
731,247
Income before income taxes $ 21,889
$ 104,533
$ 126,422
$ 25,330
$ 60,823
$ 86,153

Income before income taxes increased by $31.6 million, or 78.4%, and increased by $40.3 million, or 46.7%, for the three and six months ended June 30, 2018, as compared to the same periods in 2017. The increases in income before income taxes were primarily due to favorable performance in the closed block longevity and payout annuity businesses partly offset by unfavorable mortality experience. Foreign currency exchange fluctuations resulted in an increase in income before income taxes of $4.3 million and $10.4 million for the three and six months ended June 30, 2018, as compared to the same periods in 2017.

~~Traditional Reinsurance~~

~~Income before income taxes decreased by $4.9 million, or 43.0%, and $3.4 million, or 13.6%, for the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2018, as compared to the same periods in~~ ~~2017~~. The decrease in income for the second quarter was primarily due to unfavorable individual life mortality experience. The decrease in income for the first six months was primarily due to unfavorable individual life mortality experience. Foreign currency exchange fluctuations resulted in an increase in income before income taxes of $1.0 million and $2.8 million for the three and six months ended June 30, 2018, as compared to the same periods in 2017.



(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

5749

Table of Contents

~~Net premiums increased $23.7~~Income before income taxes decreased by $0.8 million, or ~~7.2%, and $94.7 million, or 14.9%~~1.4%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases~~decrease in ~~net premiums~~income before income taxes for the first three ~~and six~~ months ~~were~~was primarily due to ~~increased individual life~~foreign exchange fluctuations and ~~health business volumes.~~the normalization of performance on closed longevity blocks and payout annuities after favorable performance in 2018. Foreign currency exchange fluctuations ~~increased net premiums by approximately $18.7 million and $59.0~~resulted in a decrease in income before income taxes totaling $4.5 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

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 for the three months ended March 31, 2019, as compared to the same period in 2018.

Net premiums decreased $11.8 million, or 3.2%, for the three months ended March 31, 2019, as compared to the same period in 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 ~~$47.9~~$44.4 million and ~~$49.2 million for the second quarter and $96.7 million and $95.2~~$48.9 million for the first ~~six~~three months of ~~2018~~2019 and ~~2017,~~2018, respectively.

Net investment income increased ~~$3.5~~$3.0 million, or ~~25.8%, and $6.5 million, or 24.9%~~19.3%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases in net investment income were~~increase for the first three months of 2019 was primarily due to an increase in the invested asset base ~~resulting from business growth.~~and an increase in the investment yield. Foreign currency exchange ~~fluctuations~~fluctuation resulted in ~~an increase~~a decrease in net investment income of ~~approximately $1.0 million and $2.7~~$1.7 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Loss ratios for this segment were ~~87.5%~~85.8% and ~~89.2%~~87.0% for the ~~second quarter~~three month periods ended March 31, 2019 and ~~87.2% and 88.3%~~2018, respectively. The slight decrease in the loss ratio for the first ~~six~~three months ~~ended~~ ~~June 30, 2018~~ ~~and 2017, respectively. The decreases in loss ratios were~~of 2019 is primarily due to changes in business mix ~~and normal claims variability.~~reflecting increased volumes of business with lower loss ratios, but with higher allowances. These higher allowances are reflected in the increase in the policy acquisition cost ratio.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~8.5%~~8.2% and ~~4.6%~~6.8% for the ~~second quarter and 7.6% and 4.8% for the first six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The ~~increases~~increase in policy acquisition cost ~~ratios are~~ratio is due primarily to ~~variations~~changes in the ~~mixture~~mix of ~~business. A small number~~business reflecting increased volumes of ~~recent larger new treaties have included~~business with higher ~~than average ceding~~ allowances.

Other operating expenses increased ~~$1.7~~$0.5 million, or ~~7.1%, and $5.2 million, or 11.1%~~1.9%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The increase is in line with expected expense levels needed to support the second quarter and first six months was primarily due to foreign currency fluctuations, which resulted in an increase in operating expenses of approximately $1.4 million and $4.3 million for the three and six months ended June 30, 2018,business as ~~compared to the same periods in 2017.~~well as higher incentive compensation. Other operating expenses as a percentage of net premiums totaled 7.3% and ~~7.3%~~6.9% for the ~~second quarter and 7.1% and 7.4% for the first six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017,~~2018, respectively.

Financial Solutions Reinsurance

Income before income taxes ~~increased~~decreased by ~~$36.5~~$0.8 million, or ~~126.2%, and $43.7 million, or 71.9%~~2.0%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~2018. The ~~increases~~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 annuities after favorable performance in ~~the closed block longevity and payout annuity businesses.~~2018. Foreign currency exchange fluctuations resulted in ~~an increase~~a decrease in income before income taxes totaling ~~$3.3 million and $7.7~~$2.8 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net premiums increased ~~by $10.6~~$4.1 million, or ~~27.6%, and $16.6 million, or 20.6%~~8.6%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The increases in net~~2018. Net premiums ~~were~~increased primarily due to increased volumes of closed longevity block ~~longevity~~ business. Foreign currency exchange fluctuations ~~increased~~decreased net premiums by ~~approximately $3.0 million and $8.4~~$3.6 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net investment income increased ~~$12.3~~$16.7 million, or ~~43.9%, and $14.6 million, or 25.2%~~52.4%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increases~~increase was primarily due to an increase in investment income ~~were due~~associated with unit-linked policies, which fluctuate with market performance. The effect on investment income related to ~~an increased invested asset base resulting from business growth.~~unit-linked products is substantially offset by a corresponding change in interest credited. Foreign currency exchange ~~fluctuations~~fluctuation resulted in ~~an increase~~a decrease in ~~net~~ investment income of ~~approximately $2.3 million and $5.7~~$3.6 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Other revenues increased by ~~$1.0~~$0.4 million, or ~~21.7%, and $2.1 million, or 25.8%~~8.4%, for the three ~~and six~~ months ended ~~June 30, 2018~~,March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The increases in fees~~2018. Fees earned from this business ~~are due to new transactions. Fees earned~~ can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period. Foreign currency exchange fluctuations resulted in an increase in other revenues of approximately $0.3 million and $0.9 million for the three and six months ended June 30, 2018, as compared to the same periods in 2017.

~~Claims and other policy benefits decreased $14.9 million, or 40.6%, and $8.4 million, or 11.6%, for the three and six months ended~~ ~~June 30, 2018~~, as compared to the same periods in 2017. The decreases in the second quarter and first six months were primarily due to the closed block longevity business resulting from higher terminations. Foreign currency exchange fluctuations resulted in an increase in claims and other policy benefits of approximately $1.8 million and $6.5 million for the three and six months ended June 30, 2018, as compared to the same periods in 2017.

5850

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Claims and other policy benefits increased $6.4 million, or 15.1%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in claims and other policy benefits 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 decreased claims and other policy benefits by $3.4 million for the three months ended March 31, 2019, as compared to the same period in 2018.

Interest credited expense increased by ~~$4.4~~$15.0 million ~~and decreased by $2.3 million or~~for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. Interest credited in this segment relates to amounts credited to the contractholders of unit-linked products. The effect on interest credited related to unit-linked products is substantially offset by a corresponding change in investment income.

Other operating expenses increased ~~$0.7 million, or 9.7%, and~~ $1.1 million, or ~~7.1%~~13.6%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The increases are~~2018, with the increase primarily due to ~~foreign~~business acquisition related costs. Foreign currency exchange fluctuations ~~which resulted in an increase in~~decreased other operating expenses ~~of approximately $0.5 million and $1.5~~by $0.7 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~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 June 30,
2018 2017
Revenues: Traditional Financial Solutions Total Asia Pacific Traditional Financial Solutions Total Asia Pacific
Net premiums $ 538,799
$ 30
$ 538,829
$ 537,352
$ 549
$ 537,901
Investment income, net of related expenses 24,076
10,184
34,260
22,345
8,570
30,915
Investment related gains (losses), net —
1,904
1,904
—
3,582
3,582
Other revenues 7,645
5,874
13,519
1,832
5,283
7,115
Total revenues 570,520
17,992
588,512
561,529
17,984
579,513
Benefits and expenses:
Claims and other policy benefits 435,592
2,405
437,997
423,294
1,565
424,859
Interest credited —
6,660
6,660
—
5,572
5,572
Policy acquisition costs and other insurance expenses 37,584
728
38,312
51,259
1,541
52,800
Other operating expenses 38,482
4,061
42,543
33,654
3,929
37,583
Total benefits and expenses 511,658
13,854
525,512
508,207
12,607
520,814
Income (loss) before income taxes $ 58,862
$ 4,138
$ 63,000
$ 53,322
$ 5,377
$ 58,699

(dollars in thousands) Six months ended June 30,
2018 2017
Revenues: Traditional Financial Solutions Total Asia Pacific Traditional Financial Solutions Total Asia Pacific
Net premiums $ 1,128,312
$ 708
$ 1,129,020
$ 1,020,659
$ 2,075
$ 1,022,734
Investment income, net of related expenses 48,676
20,578
69,254
44,247
14,106
58,353
Investment related gains (losses), net 8
5,371
5,379
—
10,767
10,767
Other revenues 8,063
11,181
19,244
1,853
11,488
13,341
Total revenues 1,185,059
37,838
1,222,897
1,066,759
38,436
1,105,195
Benefits and expenses:
Claims and other policy benefits 930,786
6,873
937,659
778,733
8,060
786,793
Interest credited —
13,054
13,054
—
8,569
8,569
Policy acquisition costs and other insurance expenses 96,366
1,925
98,291
124,116
3,458
127,574
Other operating expenses 76,158
7,827
83,985
68,900
7,100
76,000
Total benefits and expenses 1,103,310
29,679
1,132,989
971,749
27,187
998,936
Income before income taxes $ 81,749
$ 8,159
$ 89,908
$ 95,010
$ 11,249
$ 106,259

~~Table of Contents~~



(dollars in thousands)	Three months ended March 31,
	2019						2018
Revenues:	Traditional		Financial Solutions		Total Asia Pacific		Traditional		Financial Solutions		Total Asia Pacific
Net premiums	$	646,741	$	33,795	$	680,536	$	589,513	$	678	$	590,191
Investment income, net of related expenses	25,335		10,269		35,604		24,600		10,394		34,994
Investment related gains (losses), net	8		4,069		4,077		8		3,467		3,475
Other revenues	1,088		6,395		7,483		418		5,307		5,725
Total revenues	673,172		54,528		727,700		614,539		19,846		634,385
Benefits and expenses:
Claims and other policy benefits	546,454		31,719		578,173		495,194		4,468		499,662
Interest credited	—		6,702		6,702		—		6,394		6,394
Policy acquisition costs and other insurance expenses	50,323		5,379		55,702		58,782		1,197		59,979
Other operating expenses	39,771		4,645		44,416		37,676		3,766		41,442
Total benefits and expenses	636,548		48,445		684,993		591,652		15,825		607,477
Income before income taxes	$	36,624	$	6,083	$	42,707	$	22,887	$	4,021	$	26,908

Income before income taxes increased by ~~$4.3~~$15.8 million, or ~~7.3%, and decreased by $16.4 million, or 15.4%~~58.7%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The increase in income before income taxes for the ~~second quarter was due~~first three months is primarily attributable to ~~business growth across the region. The~~favorable overall experience in Asia, partially offset by a loss in Australia. Foreign currency exchange fluctuations resulted in a decrease into income before income taxes for the first six months was primarily due to unfavorable claims experience, notably in Australia and new business mix. Foreign currency exchange fluctuations had a negligible effect on income before income taxestotaling $2.0 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Traditional Reinsurance

Income before income taxes increased by ~~$5.5~~$13.7 million, or ~~10.4%, and decreased by $13.3 million, or 14.0%~~60.0%, for the three ~~and six~~ months ended ~~June 30, 2018~~,March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~.2018. The increase in income before income taxes in ~~the second quarter~~2019 was primarily due to more profitable new business ~~growth across the region. The decrease in income before income taxes for the first six months was primarily due to unfavorable~~and favorable claims experience ~~largely~~ in ~~Australia, and new business mix. Foreign currency exchange fluctuations had a negligible effect on income before income taxes for the three and six months ended June 30, 2018,~~Asia as compared to the prior year same ~~periods in 2017.~~

Net premiums increased by $1.4 million, or 0.3%, and $107.7 million, or 10.5%, for the three and six months ended June 30, 2018, as compared to the same periods in 2017. The increases were driven by new business written in Asian markets and currency fluctuations.quarter. Foreign currency exchange fluctuations resulted in ~~an increase in net premiums of approximately $9.2 million and $30.5~~a decrease to income before income taxes totaling $2.2 million for the three ~~and six~~ months ~~of 2018,~~ended 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Net premiums increased by $57.2 million, or 9.7%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase for the three month period in 2019 was driven by new business growth. Foreign currency exchange fluctuations resulted in a decrease in net premiums of $27.2 million for the three months ended March 31, 2019, as compared to the same period in 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 ~~$180.9~~$252.1 million and ~~$174.3~~$235.7 million for the ~~second quarter and $416.6 million and $316.2 million for the first six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively.

Net investment income increased ~~$1.7~~$0.7 million, or ~~7.7%, and $4.4 million, or 10.0%~~3.0%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~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 $0.2 million and $1.0~~$1.7 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Other revenues increased by $5.8 million, or 317.3%, and $6.2 million, or 335.1%, for the three and six months ended June 30, 2018, as compared to the same periods in 2017. These variances are primarily due to gains and losses related to foreign currency transactions.

Loss ratios for this segment were ~~80.8%~~84.5% and ~~78.8%~~84.0% for the ~~second quarter~~three months ended March 31, 2019 and ~~82.5% and 76.3%~~2018, respectively. The increase in the loss ratio for the first ~~six months ended June 30, 2018 and 2017, respectively. The increases in the loss ratios for the second quarter and first six~~three months of ~~2018 were~~2019 was primarily due to unfavorable claims experience ~~largely~~ in Australia, ~~and new business mix.~~partially offset by net favorable claims experience across Asia compared to the prior year same quarter.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~7.0%~~7.8% and ~~9.5%~~10.0% for the ~~second quarter and 8.5% and 12.2% for the six~~three months ended ~~June 30,~~March 31, 2019 and 2018, respectively. The ratio of policy acquisition costs and ~~2017, respectively. These percentages fluctuate~~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 increased ~~$4.8~~$2.1 million or ~~14.3%, and $7.3 million, or 10.5%~~5.6%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~2018 mainly due to growth in ~~operations~~headcount across Asia to manage the business growth in ~~Asia and consultant expenditures.~~the region. Foreign currency exchange fluctuations resulted in a decrease in other operating expenses of $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 ~~7.1%~~6.1% and ~~6.3%~~6.4% for the ~~second quarter and 6.7% and 6.8% for the first six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ 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 ~~$1.2~~$2.1 million, or ~~23.0%, and $3.1 million, or 27.5%~~51.3%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~2018. The ~~decreases~~increase in income before income taxes ~~were~~is primarily ~~due~~attributable to ~~a decline in investment related gains (losses) associated with~~favorable lapse experience on a closed treaty in ~~Japan.~~Japan and new transactions in Asia. Foreign currency exchange fluctuations ~~had a negligible effect on~~increased income before income taxes by $0.2 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

~~Table of Contents~~

Net premiums ~~decreased $0.5~~increased $33.1 million ~~or 94.5%, and $1.4 million, or 65.9%,~~ for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decreases for the second quarter and first six months were~~increase was primarily due to ~~policy lapses on a closed treaty~~new asset-intensive transactions in ~~Japan. Foreign currency exchange fluctuations had a negligible effect on net premiums for the three and six months ended June 30, 2018, as compared to the same periods in 2017.~~Asia.

Net investment income ~~increased $1.6~~decreased $0.1 million, or ~~18.8%, and $6.5 million, or 45.9%~~1.2%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017 mainly due to growth in the invested asset base.~~2018. Foreign currency exchange ~~fluctuations had~~fluctuation resulted in a ~~negligible effect on~~decrease in net investment income of $0.4 million for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018.

Other revenues increased by ~~$0.6~~$1.1 million, or ~~11.2%, and decreased by $0.3 million, or 2.7%~~20.5%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. At~~ ~~June 30,~~2018. The increase compared to the same period in 2018 is primarily due to higher income from new financial reinsurance transactions. As of March 31, 2019 and ~~2017,~~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 ~~$2.8~~$3.1 billion and ~~$1.4~~$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 ~~$0.8~~$27.3 million ~~or 53.7%, and decreased by $1.2 million, or 14.7%,~~ for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The~~2018. This increase ~~in the second quarter was primarily due to new treaties in Asia entered in the second quarter of 2018. The decrease in the first six months~~ is attributable to ~~lower lapses on~~new asset-intensive transactions in Asia.

Interest credited expense increased by $0.3 million, or 4.8%, for the ~~aforementioned closed treaty~~three months ended March 31, 2019, as compared to the same period in ~~Japan, partially offset~~2018. The increase is primarily driven by ~~higher claims and policy benefits~~growth from new ~~business.~~asset-intensive transactions.

Other operating expenses increased ~~by $0.1~~$0.9 million, or ~~3.4%, and decreased by $0.7 million, or 10.2%~~23.3%, for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017, respectively.~~2018. The timing of ~~transactions~~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.

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 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 June 30,						Six months ended June 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Net premiums	$	10		$	42		$	20		$	86		$	(46	)	$	10
Investment income, net of related expenses	32,727			36,305			72,873			67,468			42,624			40,146
Investment related gains (losses), net	(23,281		)	15,685			(32,215		)	862			(1,631		)	(8,934		)
Other revenues	6,344			2,456			14,377			7,624			26,724			8,033
Total revenues	15,800			54,488			55,055			76,040			67,671			39,255
Benefits and expenses:
Claims and other policy benefits	108			(13		)	428			14			(35		)	320
Interest credited	2,717			1,497			4,927			2,621			5,506			2,210
Policy acquisition costs and other insurance income	(30,496		)	(26,779		)	(61,008		)	(53,846		)	(29,374		)	(30,512		)
Other operating expenses	66,270			38,141			129,230			78,513			69,499			62,960
Interest expense	37,025			29,352			74,479			71,754			40,173			37,454
Collateral finance and securitization expense	7,440			6,773			15,042			13,543			8,417			7,602
Total benefits and expenses	83,064			48,971			163,098			112,599			94,186			80,034
Income (loss) before income taxes	$	(67,264	)	$	5,517		$	(108,043	)	$	(36,559	)
Loss before income taxes													$	(26,515	)	$	(40,779	)

Loss before income taxes ~~increased~~decreased by ~~$72.8~~$14.3 million, ~~and $71.5 million~~or 35.0%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~increase~~decrease in loss before income taxes ~~for the second quarter and~~in the first ~~six months is~~quarter was primarily due to ~~decreased~~increases in investment income and other revenues and a decrease in net investment related ~~gains and higher other operating expenses~~losses, which are partially offset by ~~increased~~an increase in other ~~revenue.~~

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operating expenses.

Net investment income ~~decreased~~increased by ~~$3.6~~$2.5 million, or ~~9.9%, and increased by $5.4 million, or 8.0%~~6.2%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017. The decrease in the second quarter was mainly due to lower investment yields.~~2018. The increase in the first ~~six months~~quarter was ~~related~~largely attributable to an increase in unallocated invested assets and a higher average investment ~~yields.~~yield.

Net investment related ~~gains (losses)~~losses decreased by ~~$39.0~~$7.3 million, ~~and $33.1 million~~or 81.7%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~unfavorable change~~decrease in the ~~second~~first quarter was ~~largely caused by~~primarily due to an increase in net ~~losses~~gains on the sale of fixed maturity securities of ~~$40.0~~$5.1 million and ~~a $6.9 million reduction~~an increase in the fair value of equity securities of $8.1 million, which ~~was partially~~were offset by a ~~$7.2~~$3.7 million ~~decrease in impairments on fixed maturity securities and other investments. The decrease in the first six months was primarily due to a $43.0 million~~ increase ~~in net losses on the sale of securities and an $11.1 million decrease in fair value of equity securities, which was partially offset by a $21.0 million reduction~~ in other-than-temporary impairments on fixed maturity securities and other investments.

Other revenues increased by ~~$3.9~~$18.7 million ~~or 158.3%, and $6.8 million, or 88.6%,~~ for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The increase in the ~~second~~first quarter was mainly due to a recapture of a collateral finance transaction, which resulted in a $12.9 million gain. In addition, the Company’s ~~January 2018 acquisition of LOGiQ3 Inc., a group of companies providing technology, consulting and outsourcing solutions primarily to the North American life insurance and reinsurance industry, which~~RGAx operations contributed ~~$5.2~~$11.1 million to other revenues in ~~the current quarter. The acquisition of LOGiQ3 Inc. contributed $10.0~~2019 compared to $6.5 million ~~to other revenues~~ in ~~the first six months.~~2018.

Policy acquisition costs and other insurance income increased by ~~$3.7~~$1.1 million, or ~~13.9%, and $7.2 million, or 13.3%~~3.7%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. Fluctuations period over period were attributable to the offset to capital charges allocated to the operating segments.

Other operating expenses increased by ~~$28.1~~$6.5 million, or ~~73.8%, and $50.7 million, or 64.6%~~10.4%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The increase in other operating expenses ~~for both periods presented,~~ was primarily ~~related to increased consulting and compensation expenses~~ due to ~~increased compliance costs,~~ strategic initiatives ~~acquisitions~~such as RGAx, and increased incentive-based compensation. ~~The aforementioned acquisition of LOGiQ3 Inc. contributed $7.1 million and $13.9 million of other operating expenses in the current quarter and first six months, respectively.~~

Interest expense increased by ~~$7.7 million, or 26.1%, and~~ $2.7 million, or ~~3.8%~~7.3%, for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. The increase in interest expense ~~for both periods presented~~ was ~~primarily caused by a lower reduction~~due to variability in tax-related interest ~~expense, which, specifically for the six month period, was partially offset by the repayment of $300.0 million of long-term debt in 2017.~~expense.

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 put downward pressure on the ~~Company’s~~Company's investment yield. The Company’s average investment yield, excluding spread business, for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~4.39%~~4.49%, 11three basis points ~~below~~above the same period in ~~2017.~~2018. The Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. ~~Due to recent increases in risk free interest rates, gross~~Gross unrealized gains on fixed maturity securities available-for-sale ~~decreased~~increased from ~~$2,982.8~~$1,858.7 million at December 31, ~~2017~~2018 to ~~$2,143.2~~$2,780.0 million at ~~June 30, 2018. Gross~~March 31, 2019. Similarly, gross unrealized losses ~~increased~~decreased from ~~$113.3~~$748.5 million at December 31, ~~2017~~2018 to ~~$592.2~~$230.2 million at ~~June 30, 2018.~~

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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 fixed maturity securities of ~~$2,143.2~~$2,780.0 million remain well in excess of gross unrealized losses of ~~$592.2~~$230.2 million as of ~~June 30, 2018.~~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 June 30,				Six months ended June 30,				Three months ended March 31,
	2018		2017		2018		2017		2019		2018
Interest expense	$	47,250	$	37,100	$	92,694	$	87,321	$	48,450	$	45,444
Capital contributions to subsidiaries	12,000		11,000		23,000		18,500		20,500		11,000
Dividends to shareholders	32,129		26,434		64,370		52,815		37,707		32,241
Interest and dividend income	232,473		27,748		264,020		52,281		30,112		31,547

June 30, 2018 December 31, 2017
Cash and invested assets $ 644,472
$ 779,996



	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 ~~2017~~2018 Annual Report for additional financial information related to RGA.

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 ~~2017~~2018 Annual Report. As U.S. Tax Reform generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, the Company does not expect to incur material income 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, it 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):

Six months ended June 30,
2018 2017
Dividends to shareholders $ 64,370
$ 52,815
Repurchases of treasury stock 150,000
—
Total amount paid to shareholders $ 214,370
$ 52,815

Number of shares repurchased 991,477
—
Average price per share $ 151.29
$ —

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	Three months ended March 31,
	2019		2018
Dividends to shareholders	$	37,707	$	32,241
Repurchases of treasury stock	50,000		—
Total amount paid to shareholders	$	87,707	$	32,241

Number of shares repurchased	344,237		—
Average price per share	$	145.25	$	—

In ~~July 2018,~~April 2019, RGA’s board of directors declared a quarterly dividend of $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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had $2.8 billion in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the average ~~net~~ 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 its revolving credit facility that matures in ~~September 2019.~~August 2023. As of ~~June 30, 2018~~March 31, 2019, the Company had no cash borrowings outstanding and ~~$80.4~~$18.7 million in issued, but undrawn, letters of credit under this facility.

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 ~~June 30, 2018,~~March 31, 2019, the Company maintained an $850.0 million syndicated revolving credit facility and certain committed letter of credit facilities aggregating ~~$1,263.8~~$1,258.9 million. See Note 13 - “Debt” in the Notes to Consolidated Financial Statements in the ~~2017~~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 ~~June 30, 2018,~~March 31, 2019, there were approximately ~~$103.7~~$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 ~~June 30, 2018, $1.4~~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 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.

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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 ~~$769.6~~$831.4 million as of ~~June 30, 2018.~~March 31, 2019. The Company also has ~~$1.1 billion~~$747.5 million of funds available through collateralized borrowings from the FHLB as of ~~June 30, 2018.~~March 31, 2019. As of ~~June 30, 2018,~~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 ~~2017~~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 six months ended June 30,						For the three months ended March 31,
		2018		2017				2019			2018
		(Dollars in thousands)						(Dollars in thousands)
Sources:	Sources:						Sources:
	Net cash provided by operating activities	$	583,588	$	655,974
	Exercise of stock options, net	1,252		2,527
	Change in cash collateral for derivative positions and other arrangements	17,578		—			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	—		515,147			Change in cash collateral for derivative positions and other arrangements	—			19,537
	Effect of exchange rate changes on cash	—		34,137			Effect of exchange rate changes on cash	7,141			21,989
	Total sources	602,418		1,207,785			Total sources	349,517			266,438

Uses:	Uses:						Uses:
	Net cash used in investing activities	100,615		889,675			Net cash (provided by) used in investing activities	(92,721		)	(76,550		)
	Dividends to stockholders	64,370		52,815			Dividends to stockholders	37,707			32,241
	Repayment of collateral finance and securitization notes	53,102		23,761			Repayment of collateral finance and securitization notes	29,064			27,104
	Principal payments of long-term debt	1,331		301,278			Principal payments of long-term debt	690			662
	Repurchase and repayment of collateral finance facility securities	—		—			Purchases of treasury stock	49,052			2,616
	Purchases of treasury stock	165,069		10,578			Change in cash collateral for derivative positions and other arrangements	44,628			—
	Change in cash collateral for derivatives and other arrangements	—		7,046			Cash used for changes in universal life and other
	Cash used for changes in universal life and other						investment type policies and contracts	150,434			73,482
	investment type policies and contracts	104,023		—			Total uses	218,854			59,555
	Effect of exchange rate changes on cash	19,753		—
	Total uses	508,263		1,285,153
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	94,155	$	(77,368	)	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, 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

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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 in the ~~2017~~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 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 ~~$1,520.7~~$2,139.6 million and ~~$1,396.8~~$2,032.3 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $194.1 million and $185.9 million as of June 30, 2018 and December 31, 2017, 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 ~~$71.8~~$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 June 30, 2018 and December 31, 2017. The Company had no outstanding balance of advances during the second quarter and the first six months of 2018, respectively, and was $39.5 million and $21.4 million during the second quarter and the first six months of 2017, 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 ~~$1.5~~$1.8 billion and ~~$1.4~~$1.7 billion at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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

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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.

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 ~~$51.9~~$58.1 billion and ~~$53.0~~$56.1 billion ~~at June 30, 2018~~as of March 31, 2019 and December 31, ~~2017,~~2018, respectively, as illustrated below (dollars in thousands):


	June 30, 2018		% of Total		December 31, 2017		% of Total		March 31, 2019		% of Total		December 31, 2018		% of Total
Fixed maturity securities, available-for-sale	$	36,784,954	70.9	%	$	38,150,820	71.9	%	$	41,738,443	71.8	%	$	39,992,346	71.3	%
Equity securities	108,070		0.2		100,152		0.2		89,865		0.1		82,197		0.1
Mortgage loans on real estate	4,558,669		8.8		4,400,533		8.3		5,117,545		8.8		4,966,298		8.8
Policy loans	1,339,252		2.6		1,357,624		2.6		1,312,349		2.3		1,344,980		2.4
Funds withheld at interest	5,981,092		11.5		6,083,388		11.5		5,729,838		9.9		5,761,471		10.3
Short-term investments	123,028		0.2		93,304		0.2		119,215		0.2		142,598		0.3
Other invested assets	1,605,562		3.1		1,505,332		2.8		2,006,870		3.4		1,915,297		3.4
Cash and cash equivalents	1,397,679		2.7		1,303,524		2.5		2,020,396		3.5		1,889,733		3.4
Total cash and invested assets	$	51,898,306	100.0	%	$	52,994,677	100.0	%	$	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 June 30, Six months ended June 30,
2018 2017
  Increase/
  (Decrease)
2018 2017
  Increase/
  (Decrease)
Average invested assets at amortized cost $ 26,899,416
$ 25,172,367
6.9 % $ 26,816,599
$ 25,052,849
7.0 %
Net investment income 285,832
284,884
0.3 % 582,305
558,092
4.3 %
Investment yield (ratio of net investment income to average invested assets) 4.32 % 4.60 % (28 bps)
4.39 % 4.50 % (11 bps)

Investment yield decreased for the three months ended June 30, 2018 in comparison to the same period in the prior year primarily due to decreased income from limited partnership and joint venture investments, both of which are included in other invested assets on the condensed consolidated balance sheets, and the effect of the low interest rate environment. Investment yield decreased for the six months ended June 30, 2018 in comparison to the same period in the prior year primarily due to decreased income from make-whole premiums and the effect of the low interest rate environment.

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	Three months ended March 31,
	2019			2018			Increase/ (Decrease)
Average invested assets at amortized cost	$	28,096,587		$	27,024,934		4.0	%
Net investment income	310,229			296,473			4.6	%
Investment yield (ratio of net investment income to average invested assets)	4.49		%	4.46		%	3 bps

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 these securities, and the other-than-temporary impairments in AOCI by sector as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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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 ~~61.2%~~60.1% and ~~60.9%~~59.9% of total fixed maturity securities as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

As of ~~June 30, 2018,~~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 ~~11.1%~~9.7% of the fair value of total fixed ~~maturity securities~~maturities at December 31, ~~2017.~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~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 Moody’s, S&P and 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was as follows (dollars in thousands):

June 30, 2018 December 31, 2017
NAIC
  Designation

Rating Agency
Designation
Amortized Cost
Estimated
Fair Value
% of Total      Amortized Cost
Estimated
     Fair Value
% of Total
1 AAA/AA/A $ 23,206,331
$ 24,697,276
67.2 % $ 23,534,574
$ 25,762,103
67.5 %
2 BBB 10,309,842
10,413,893
28.3
10,115,008
10,709,170
28.1
3 BB 1,165,503
1,136,259
3.1
1,139,200
1,173,639
3.1
4 B 501,101
488,648
1.3
408,990
420,284
1.1
5 CCC and lower 45,696
42,876
0.1
78,143
79,747
0.2
6 In or near default 5,497
6,002
—
5,497
5,877
—
Total $ 35,233,970
$ 36,784,954
100.0 % $ 35,281,412
$ 38,150,820
100.0 %

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		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
1	AAA/AA/A	$	25,496,994	$	27,673,531	66.3	%	$	24,904,526	$	26,180,440	65.5	%
2	BBB	11,872,478		12,244,807		29.3		12,141,601		12,023,426		30.1
3	BB	1,318,883		1,319,201		3.2		1,409,235		1,371,328		3.4
4	B	419,764		422,390		1.0		395,694		385,670		1.0
5	CCC and lower	13,414		14,357		—		13,183		12,860		—
6	In or near default	67,094		64,157		0.2		17,929		18,622		—
	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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (dollars in thousands):


	June 30, 2018				December 31, 2017				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
RMBS:
Agency	$	840,284	$	833,587	$	878,559	$	896,977	$	798,669	$	815,317	$	811,044	$	814,568
Non-agency	997,032		987,627		816,567		822,903		1,171,025		1,178,869		1,061,192		1,054,653
Total RMBS	1,837,316		1,821,214		1,695,126		1,719,880		1,969,694		1,994,186		1,872,236		1,869,221
CMBS	1,249,616		1,242,509		1,285,594		1,303,387		1,404,852		1,431,746		1,428,115		1,419,034
ABS	1,711,099		1,708,824		1,634,758		1,648,362		2,243,449		2,241,986		2,171,254		2,149,204
Total	$	4,798,031	$	4,772,547	$	4,615,478	$	4,671,629	$	5,617,995	$	5,667,918	$	5,471,605	$	5,437,459

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The 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.

The Company’s ABS include credit card 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 ~~15.5%~~16.4% and ~~13.8%~~16.0% of the total fixed maturity securities at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 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 ~~2017~~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 six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (dollars in thousands).


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2018		2017		2018		2017		2019			2018
Impairment losses on fixed maturity securities	$	3,350	$	3,401	$	3,350	$	20,590	$	9,453		$	—
Other impairment losses	512		6,309		1,340		6,307		1,932			828
Change in mortgage loan provision	845		366		329		467		(73		)	(516		)
Total	$	4,707	$	10,076	$	5,019	$	27,364	$	11,312		$	312

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At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had ~~$592.2~~$230.2 million and ~~$113.3~~$748.5 million, respectively, of gross unrealized losses related to its fixed maturity securities. The distribution of the gross unrealized losses related to these securities is shown below.


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Sector:
Corporate	69.2	%	48.8	%	71.3	%	74.2	%
Canadian government	0.7		1.5		0.3		0.3
RMBS	5.8		10.5		4.5		3.4
ABS	2.3		4.6		6.8		4.4
CMBS	2.7		4.3		1.4		2.4
U.S. government	11.2		19.4		9.2		7.7
State and political subdivisions	1.6		3.8		1.1		1.2
Other foreign government	6.5		7.1		5.4		6.4
Total	100.0	%	100.0	%	100.0	%	100.0	%
Industry:
Finance	25.0	%	15.8	%	21.5	%	27.5	%
Asset-backed	2.3		4.6		6.8		4.4
Industrial	37.6		30.0		43.2		38.2
Mortgage-backed	8.5		14.8		5.9		5.8
Government	20.0		31.8		16.0		15.6
Utility	6.6		3.0		6.6		8.5
Total	100.0	%	100.0	%	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 these securities at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company classified approximately ~~5.7%~~5.5% and ~~5.9%~~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 8.8% ~~and 8.3%~~ of the Company’s cash and invested assets as of ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively.~~2018. The Company’s mortgage loan portfolio consists of U.S., Canada and ~~Canadian~~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.

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As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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):


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
U.S. Region:
Pacific	$	1,331,967	29.0	%	$	1,258,753	28.6	%	$	1,372,810	26.8	%	$	1,396,346	28.0	%
South Atlantic	926,086		20.3		896,117		20.3		965,962		18.8		964,174		19.3
Mountain	625,485		13.7		694,324		15.7		724,392		14.1		693,281		13.9
East North Central	530,002		11.6		527,316		11.9		620,124		12.1		605,608		12.2
West North Central	314,855		6.9		309,326		7.0		298,669		5.8		288,949		5.8
West South Central	452,282		9.9		387,151		8.8		631,742		12.3		567,541		11.4
Middle Atlantic	171,788		3.8		137,600		3.1		201,250		3.9		202,235		4.1
East South Central	95,836		2.1		96,887		2.2		139,314		2.7		117,588		2.4
New England	5,664		0.1		5,700		0.1		5,582		0.1		5,609		0.1
Subtotal - U.S.	4,453,965		97.4		4,313,174		97.7		4,959,845		96.6		4,841,331		97.2
Canada	118,598		2.6		99,997		2.3		147,701		2.9		135,394		2.7
United Kingdom									27,352		0.5		6,629		0.1
Total	$	4,572,563	100.0	%	$	4,413,171	100.0	%	$	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 2.4% of the Company’s cash and invested assets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~11.5%~~9.9% and 10.3% of the Company’s cash and invested assets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. Certain ceding companies maintain segregated portfolios for the benefit of the Company.

Other Invested Assets

Other invested assets include limited partnership interests, joint ventures (other than operating joint ventures), equity release mortgages, derivative contracts, FVO contractholder-directed unit-linked investments, and FHLB common stock. Other invested assets represented approximately ~~3.1% and 2.8%~~3.4% of the Company’s cash and invested assets ~~as of June 30, 2018~~for both March 31, 2019 and December 31, ~~2017, 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~

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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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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. 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. 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

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~~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.


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 2017 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.

~~Table of Contents~~

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.

~~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.

~~Table of Contents~~

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.

~~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.

~~Table of Contents~~

~~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.

~~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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~

(dollars in millions) June 30, 2018 December 31, 2017
No guaranteed minimum benefits $ 877
$ 950
GMDB only 177
182
GMIB only 24
24
GMAB only 13
22
GMWB only 1,268
1,366
GMDB / WB 318
343
Other 24
31
Total variable annuity account values $ 2,701
$ 2,918
Fair value of liabilities associated with living benefit riders $ 122
$ 152

~~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.~~

~~Table of Contents~~

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.

~~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 June 30, 2018, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated “A-” or better, except for one pool member that was rated “B++”. 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/negative earnings, potential reduction in enterprise value, and/or the loss of ability to conduct business due to insufficient financial capacity, including not having the appropriate amount of group or entity-level capital to conduct business today or in the future. The Company monitors capital risk exposure using relevant bases of measurement including but not limited to economic, rating agency, and local regulatory methodologies. Additionally, the Company regularly assesses risk related to collateral, financing, liquidity and tax.

~~Collateral Risk~~

Collateral risk is the risk that collateral will not be available at expected costs or in the capacity required to meet current and future needs. The Company monitors risks related to interest rate movement, collateral requirements and position and capital markets environment. Collateral demands and resources continue to be actively managed with available collateral sources being more than sufficient to cover stress level collateral demands.

~~Table of Contents~~

~~Financing Risk~~

Financing risk is the risk that capital will not be available at expected costs or in the capacity required. The Company continues to monitor financing risks related to regulatory financing, contingency financing, and debt capital and sees no immediate issues with its current structures, capacity and plans.

~~Liquidity Risk~~

Liquidity risk is the risk that the Company is unable to meet payment obligations at expected costs or in the capacity required. The Company’s traditional liquidity demands include items such as claims, expenses, debt financing and investment purchases which are largely known or can be reasonably forecasted. The Company regularly performs liquidity risk modeling, including both market and Company specific stresses, to assess the sufficiency of available resources.

~~Tax Risk~~

Tax risk is the risk that current and future tax positions are different than expected. The Company monitors tax risks related to the evolving tax and regulatory environment, business transactions, legal entity reorganizations, tax compliance obligations, and financial reporting.

~~Operational Risk~~

Operational risk is the risk of lower/negative earnings and a potential reduction in enterprise value caused by unexpected losses associated with inadequacy or failure on the part of internal processes, people and systems, or from external events. The Company regularly monitors and assesses the risks related to business conduct and governance, fraud, privacy and security, business disruption, and business operations. Various insurance, market and credit, capital, and strategy risk obligations and concerns often intersect with the Company’s core operational process risk areas. Given the scope of the Company’s business and the number of countries in which it operates, this set of risks has the potential to affect the business locally, regionally, or globally. 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.

~~Business Conduct and Governance~~

Business conduct and governance is the risk related to management oversight, compliance, market conduct, and legal matters. The Company’s Compliance Risk Management Program facilitates a proactive evaluation of present and potential compliance risks associated with both local and enterprise-wide regulatory requirements as well as compliance with Company policies and procedures.

~~Fraud Risk~~

Fraud risk is the risk related to the deliberate abuse of and/or taking of Company assets in order to secure gain for the perpetrator or inflict harm on the Company or other victim. Ongoing monitoring and an annual fraud risk assessment enables the Company to continually evaluate potential fraud risks within the organization.

~~Privacy and Security Risk~~

Privacy and security risk is the risk of theft, loss, or unauthorized disclosure of physical or electronic assets resulting in a loss of asset value, confidentiality, or intellectual property. The Company’s privacy and security programs, processes, and procedures are designed to prevent unauthorized physical and electronic theft and the disclosure of confidential and personal data related to its customers, insured individuals or its employees. The Company employs technology, administrative related processes and procedural controls, security measures and other preventative actions to reduce the risk of such incidents.

~~Business Disruption Risk~~

Business disruption risk is the risk of impairment to operational capabilities due to the unavailability of people, systems, and/or facilities. The Company’s global business continuity process enables associates to identify potential impacts that threaten operations by providing the framework, policies and procedures and required recurring training for how the Company will recover and restore interrupted critical functions, within a predetermined time, after a disaster or extended disruption, until its normal facilities are restored.

~~Business Operations Risk~~

Business operations risk is the risk related to business processes and procedures. Business operations risk includes risk associated with the processing of transactions, data use and management, monitoring and reporting, the integrity and accuracy of models and the use of third party and advisory services.

~~Table of Contents~~

~~Human Capital Risk~~

Human capital risk is related to workforce management, including talent acquisition, development, retention, and employment relations/regulations. The Company actively monitors human capital risks using multiple practices which include but are not limited to human resource and compliance policies and procedures, regularly reviewing key risk indicators, performance evaluations, compensation and benefits benchmarking, succession planning, employee engagement surveys and associate exit interviews.

~~Strategic Risk~~

Strategic risk relates to the planning, implementation, and management of the Company’s business plans and strategies, including the risks associated with: the global environment in which it operates; future law and regulation changes; political risks; and relationships with key external parties.

~~Strategy Risk~~

Strategy risk is the risk related to the design and execution of the Company’s strategic plan, including risks associated with merger and acquisition activity. Strategy risks are addressed by a multi-year planning process, regular business unit level assessments of strategy execution and active benchmarking of key performance and risk indicators across the Company’s portfolios of businesses. The Company’s risk appetites and limits are set consistently with strategic objectives.

~~External Environment Risk~~

External environment risk relates to external competition, macro trends, and client needs. Macro characteristics that drive market opportunities, risk and growth potential, the competitive landscape and client feedback are closely monitored.

~~Key Relationships Risk~~

Key relationships risk relates to areas of important interactions with parties external to the Company. The Company’s reputation is a critical asset in successfully conducting business and therefore relationships with its primary stakeholders (including but not limited to business partners, shareholders, clients, rating agencies, and regulators) are all carefully monitored.

~~Political and Regulatory Risk~~

Political and regulatory risk relates to future law and regulation changes and the impact of political changes or instability on the Company’s ability to achieve its objectives. Regulatory and political developments and related risks that may affect the Company are identified, assessed and monitored as part of regular oversight activities.

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 June 30, 2018 from that disclosed in the 2017 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 ~~June 30, 2018,~~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 ~~2017~~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 ~~June 30, 2018:~~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
April 1, 2018 -
April 30, 2018 5,794
$ 153.58
—
$ 373,103,074
May 1, 2018 -
May 31, 2018 1,039,976
$ 151.22
972,503
$ 225,943,473
June 1, 2018 -
June 30, 2018 29,014
$ 148.26
18,974
$ 223,103,279



	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 972,503 and 18,974 shares~~had no repurchases of common stock under its share repurchase program for ~~$147.2 million~~January and ~~$2.8~~February 2019 and repurchased 344,237 of common stock under its share repurchase program for $50.0 million during ~~May and June 2018, respectively.~~March 2019. The Company net settled - issuing ~~16,084, 189,507~~29,098, 10,973 and ~~25,067~~2,860 shares from treasury and repurchasing from recipients ~~5,794, 67,473~~10,001, 3,438 and ~~10,040~~795 shares in ~~April, May~~January, February and ~~June 2018,~~March 2019, respectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive ~~award.~~awards.

InOn January ~~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.

Table of 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.~~2018, incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the period ended June 30, 2018, filed 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 3.2 ofto Current Report on Form 8-K filed on May 24, ~~2018.~~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.~~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: ~~August~~May 3, ~~2018~~2019	By:	/s/ Anna Manning
		Anna Manning
		President & Chief Executive Officer
		(Principal Executive Officer)
Date: ~~August~~May 3, ~~2018~~2019	By:	/s/ Todd C. Larson
		Todd C. Larson
		Senior Executive Vice President & Chief Financial Officer
		(Principal Financial and Accounting Officer)

8368



	June 30, 2018			December 31, 2017
Estimated fair value of derivatives in net asset position	$	172,997		$	155,714
Cash provided as collateral⁽¹⁾	9,030			22,221
Securities pledged to counterparties as collateral⁽²⁾	57,302			58,156
Cash pledged from counterparties as collateral⁽³⁾	(194,067		)	(185,900		)
Securities pledged from counterparties as collateral⁽⁴⁾	—			(862		)
Initial margin for cleared derivatives⁽²⁾	(57,302		)	(58,156		)
Net amount after application of master netting agreements and collateral	$	(12,040	)	$	(8,827	)
Margin account related to exchange-traded futures⁽⁵⁾	$	8,331		$	6,538



	2017
	Transfers from Level 1 to Level 2		Transfers from Level 2 to Level 1
Three months ended June 30:
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	49,999

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



	Carrying Value After Measurement		Net Investment Gains (Losses)
(dollars in thousands)	At June 30, 2017		Three months ended June 30, 2017			Six months ended June 30, 2017
Limited partnership interests⁽¹⁾	$	3,690	$	(6,308	)	$	(6,308	)



(dollars in millions)	June 30, 2018		December 31, 2017
No guaranteed minimum benefits	$	877	$	950
GMDB only	177		182
GMIB only	24		24
GMAB only	13		22
GMWB only	1,268		1,366
GMDB / WB	318		343
Other	24		31
Total variable annuity account values	$	2,701	$	2,918
Fair value of liabilities associated with living benefit riders	$	122	$	152



	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
April 1, 2018 - April 30, 2018	5,794	$	153.58	—	$	373,103,074
May 1, 2018 - May 31, 2018	1,039,976	$	151.22	972,503	$	225,943,473
June 1, 2018 - June 30, 2018	29,014	$	148.26	18,974	$	223,103,279