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FORM 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
(Mark One)
x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 
o 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
Commission File Number : 001-31911
American Equity Investment Life Holding Company
(Exact name of registrant as specified in its charter)
Iowa
 
42-1447959
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
6000 Westown Parkway
 
 
West Des Moines, Iowa
 
50266
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code
 
(515) 221-0002
 
 
(Telephone)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $1
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1
 
Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x
 
APPLICABLE TO CORPORATE ISSUERS:
Shares of common stock outstanding at April 30, 2010: 58,485,359
 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
March 31, 2010
 
December 31, 2009
 
(Unaudited)
 
 
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities:
 
 
 
Available for sale, at fair value (amortized cost: 2010 - $12,437,208; 2009 - $10,912,680)
$
12,365,666
 
 
$
10,704,131
 
Held for investment, at amortized cost (fair value: 2010 - $1,004,767; 2009 - $1,601,864)
1,030,490
 
 
1,635,083
 
Equity securities, available for sale, at fair value (cost: 2010 - $76,243; 2009 - $82,930)
87,981
 
 
93,086
 
Mortgage loans on real estate
2,461,975
 
 
2,449,778
 
Derivative instruments
497,469
 
 
479,272
 
Other investments
15,565
 
 
12,760
 
Total investments
16,459,146
 
 
15,374,110
 
 
 
 
 
Cash and cash equivalents
704,166
 
 
528,002
 
Coinsurance deposits
2,420,411
 
 
2,237,740
 
Accrued investment income
131,248
 
 
113,658
 
Deferred policy acquisition costs
1,611,704
 
 
1,625,785
 
Deferred sales inducements
1,028,192
 
 
1,011,449
 
Deferred income taxes
86,826
 
 
85,661
 
Income taxes recoverable
—
 
 
103,684
 
Other assets
66,057
 
 
231,915
 
Total assets
$
22,507,750
 
 
$
21,312,004
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Liabilities:
 
 
 
Policy benefit reserves:
 
 
 
Traditional life and accident and health insurance products
$
145,694
 
 
$
140,351
 
Annuity products
20,007,212
 
 
19,195,870
 
Other policy funds and contract claims
132,572
 
 
119,403
 
Notes payable
317,957
 
 
316,468
 
Subordinated debentures
268,383
 
 
268,347
 
Income taxes payable
24,098
 
 
—
 
Other liabilities
803,934
 
 
516,942
 
Total liabilities
21,699,850
 
 
20,557,381
 
 
 
 
 
Stockholders' equity:
 
 
 
Common stock, par value $1 per share, 125,000,000 shares authorized; issued and outstanding: 2010 - 56,428,074 shares (excluding 5,776,031 treasury shares); 2009 - 56,203,159 shares (excluding 5,936,696 treasury shares)
56,428
 
 
56,203
 
Additional pain-in capital
424,525
 
 
422,225
 
Unallocated common stock held by ESOP; 2010 - 527,272 shares; 2009 - 527,272 shares
(5,498
)
 
(5,679
)
Accumulated other comprehensive income (loss)
5,230
 
 
(30,456
)
Retained earnings
327,215
 
 
312,330
 
Total stockholders' equity
807,900
 
 
754,623
 
Total liabilities and stockholders' equity
$
22,507,750
 
 
$
21,312,004
 
 
See accompanying notes to unaudited consolidated financial statements. 

2

 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2010
 
2009
Revenues:
 
 
 
Traditional life and accident and health insurance premiums
$
3,287
 
 
$
3,486
 
Annuity product charges
15,518
 
 
15,051
 
Net investment income
242,910
 
 
220,654
 
Change in fair value of derivatives
82,015
 
 
(43,823
)
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses
9,903
 
 
760
 
OTTI losses on investments:
 
 
 
Total OTTI losses
(12,584
)
 
(55,391
)
Portion of OTTI losses recognized in other comprehensive income
9,361
 
 
41,953
 
Net OTTI losses recognized in operations
(3,223
)
 
(13,438
)
Total revenues
350,410
 
 
182,690
 
 
 
 
 
Benefits and expenses:
 
 
 
Insurance policy benefits and change in future policy benefits
2,332
 
 
2,199
 
Interest sensitive and index product benefits
196,869
 
 
59,763
 
Amortization of deferred sales inducements
13,089
 
 
13,711
 
Change in fair value of embedded derivatives
63,875
 
 
14,183
 
Interest expense on notes payable
4,651
 
 
4,276
 
Interest expense on subordinated debentures
3,685
 
 
4,208
 
Interest expense on amounts due under repurchase agreements
—
 
 
242
 
Amortization of deferred policy acquisition costs
27,268
 
 
34,644
 
Other operating costs and expenses
15,985
 
 
14,464
 
Total benefits and expenses
327,754
 
 
147,690
 
Income before income taxes
22,656
 
 
35,000
 
Income tax expense
7,771
 
 
8,525
 
Net income
$
14,885
 
 
$
26,475
 
 
 
 
 
Earnings per common share
$
0.26
 
 
$
0.50
 
Earnings per common share - assuming dilution
$
0.25
 
 
$
0.48
 
 
See accompanying notes to unaudited consolidated financial statements.
 
 

3

 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Unallocated
Common
Stock Held
by ESOP
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2009
$
56,203
 
 
$
422,225
 
 
$
(5,679
)
 
$
(30,456
)
 
$
312,330
 
 
$
754,623
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income for period
—
 
 
—
 
 
—
 
 
—
 
 
14,885
 
 
14,885
 
Change in net unrealized investment gains/losses
—
 
 
—
 
 
—
 
 
41,770
 
 
—
 
 
41,770
 
Noncredit component of OTTI losses, available for sale securities, net
—
 
 
—
 
 
—
 
 
(6,084
)
 
—
 
 
(6,084
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
50,571
 
Acquisition of 6,300 shares of common stock
(6
)
 
(44
)
 
—
 
 
—
 
 
—
 
 
(50
)
Allocation of 16,813 shares of common stock by ESOP, including excess income tax benefits
—
 
 
(24
)
 
181
 
 
—
 
 
—
 
 
157
 
Share-based compensation, including excess income tax benefits
—
 
 
2,056
 
 
—
 
 
—
 
 
—
 
 
2,056
 
Issuance of 231,215 shares of common stock under compensation plans, including excess income tax benefits
231
 
 
312
 
 
—
 
 
—
 
 
—
 
 
543
 
Balance at March 31, 2010
$
56,428
 
 
$
424,525
 
 
$
(5,498
)
 
$
5,230
 
 
$
327,215
 
 
$
807,900
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2008
$
50,739
 
 
$
376,782
 
 
$
(6,336
)
 
$
(147,376
)
 
$
223,035
 
 
$
496,844
 
Cumulative effect of noncredit OTTI, net
—
 
 
—
 
 
—
 
 
(20,094
)
 
25,240
 
 
5,146
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income for the period
—
 
 
—
 
 
—
 
 
—
 
 
26,475
 
 
26,475
 
Change in net unrealized investment gains/losses
—
 
 
—
 
 
—
 
 
6,422
 
 
—
 
 
6,422
 
Noncredit component of OTTI losses, available for sale securities, net
—
 
 
—
 
 
—
 
 
(27,270
)
 
—
 
 
(27,270
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
5,627
 
Acquisition of 12,362 shares of common stock
(12
)
 
(40
)
 
—
 
 
—
 
 
—
 
 
(52
)
Allocation of 9,994 shares of common stock by ESOP, including excess income tax benefits
—
 
 
(35
)
 
107
 
 
—
 
 
—
 
 
72
 
Share-based compensation, including excess income tax benefits
—
 
 
64
 
 
—
 
 
—
 
 
—
 
 
64
 
Issuance of 339,015 shares of common stock under compensation plans, including excess income tax benefits
339
 
 
(339
)
 
—
 
 
—
 
 
—
 
 
—
 
Balance at March 31, 2009
$
51,066
 
 
$
376,432
 
 
$
(6,229
)
 
$
(188,318
)
 
$
274,750
 
 
$
507,701
 
 
See accompanying notes to unaudited consolidated financial statements.

4

 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2010
 
2009
Operating activities
 
 
 
Net income
$
14,885
 
 
$
26,475
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Interest sensitive and index product benefits
196,869
 
 
59,763
 
Amortization of deferred sales inducements
13,089
 
 
13,711
 
Annuity product charges
(15,518
)
 
(15,051
)
Change in fair value of embedded derivatives
63,875
 
 
14,183
 
Increase in traditional life and accident and health insurance reserves
2,677
 
 
1,708
 
Policy acquisition costs deferred
(64,441
)
 
(73,200
)
Amortization of deferred policy acquisition costs
27,268
 
 
34,644
 
Provision for depreciation and other amortization
2,345
 
 
1,519
 
Amortization of discounts and premiums on investments
(53,692
)
 
(56,721
)
Realized gains on investments and net OTTI losses recognized
(6,680
)
 
12,678
 
Change in fair value of derivatives
(82,653
)
 
43,531
 
Deferred income taxes
(21,440
)
 
(2,854
)
Share-based compensation
1,881
 
 
433
 
Change in accrued investment income
(17,590
)
 
(13,065
)
Change in income taxes recoverable/payable
127,782
 
 
(4,253
)
Change in other assets
4,303
 
 
(778
)
Change in other policy funds and contract claims
13,169
 
 
(1,159
)
Change in collateral held for derivatives
(25,005
)
 
—
 
Change in other liabilities
(1,971
)
 
17,975
 
Other
143
 
 
27
 
Net cash provided by operating activities
179,296
 
 
59,566
 
 
 
 
 
Investing activities
 
 
 
Sales, maturities, or repayments of investments:
 
 
 
Fixed maturity securities - available for sale
1,074,998
 
 
650,765
 
Fixed maturity securities - held for investment
616,334
 
 
588,601
 
Equity securities - available for sale
23,014
 
 
200
 
Mortgage loans on real estate
26,058
 
 
25,353
 
Derivative instruments
135,601
 
 
2,539
 
Acquisition of investments:
 
 
 
Fixed maturity securities - available for sale
(2,068,305
)
 
(1,683,183
)
Equity securities - available for sale
(10,125
)
 
—
 
Mortgage loans on real estate
(45,230
)
 
(46,936
)
Derivative instruments
(60,809
)
 
(50,418
)
Other investments
(26
)
 
(13
)
Purchases of property, furniture and equipment
(604
)
 
(233
)
Net cash used in investing activities
(309,094
)
 
(513,325
)

5

 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2010
 
2009
Financing activities
 
 
 
Receipts credited to annuity policyholder account balances
$
846,855
 
 
$
653,133
 
Coinsurance deposits
(139,240
)
 
44,066
 
Return of annuity policyholder account balances
(382,706
)
 
(342,312
)
Proceeds from notes payable
—
 
 
25,000
 
Repayments of notes payable
—
 
 
(1,028
)
Acquisition of common stock
(50
)
 
(34
)
Excess tax benefits realized from share-based compensation plans
199
 
 
20
 
Proceeds from issuance of common stock
533
 
 
—
 
Change in checks in excess of cash balance
(19,653
)
 
(31,916
)
Other
24
 
 
—
 
Net cash provided by financing activities
305,962
 
 
346,929
 
Increase (decrease) in cash and cash equivalents
176,164
 
 
(106,830
)
 
 
 
 
Cash and cash equivalents at beginning of period
528,002
 
 
214,862
 
Cash and cash equivalents at end of period
$
704,166
 
 
$
108,032
 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Cash paid during period for:
 
 
 
Interest expense
$
3,911
 
 
$
5,868
 
Income taxes
390
 
 
15,800
 
Income tax refunds received
100,000
 
 
—
 
Non-cash operating activity:
 
 
 
Deferral of sales inducements
61,206
 
 
58,788
 
Non-cash investing activity:
 
 
 
Real estate acquired in satisfaction of mortgage loans
2,905
 
 
—
 
 
See accompanying notes to unaudited consolidated financial statements.
 

6

 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
 
1. Significant Accounting Policies
Consolidation and Basis of Presentation
 
The accompanying consolidated financial statements of American Equity Investment Life Holding Company (“we”, “us” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires the use of management estimates. For further information related to a description of areas of judgment and estimates and other information necessary to understand our financial position and results of operations, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.
 
Reclassifications have been made to prior period financial statements to conform to the current period presentation.
 
Adopted Accounting Pronouncements
 
In January 2010, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that expands the disclosure requirements related to fair value measurements. A reporting entity is now required to disclose separately the amounts of significant transfers in to and out of Level 1 and Level 2 fair value measurement categories and describe the reasons for the transfers. Clarification on existing disclosure requirements is also provided in this update relating to the level of disaggregation of information as to determining appropriate classes of assets and liabilities as well as disclosure requirements regarding valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This standard was effective for us on January 1, 2010, and has not had a material impact on our consolidated financial statements.
 
In June 2009, the FASB amended accounting standards for transfers and servicing of financial assets and extinguishments of liabilities. The new standard removes the concept of a qualifying special-purpose entity ("QSPE") from existing standards and removes the exception of QSPE's from consolidation requirements. Additionally, more stringent conditions for reporting a transfer of a portion of a financial asset as a sale were created, derecognition criteria was clarified, the initial measurement of retained interests was revised, the guaranteed mortgage securitization recharacterization provisions were removed and disclosure requirements were added. This standard was effective for us on January 1, 2010 and had no effect on our consolidated financial statements upon adoption.
 
In June 2009, the FASB issued an amendment to the accounting standards for consolidation of variable interest entities. The new standard replaces the quantitative-based risks and rewards calculation of existing standards for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with a primarily qualitative approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity ("VIE") that most significantly impacts the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. This standard was effective for us on January 1, 2010, and had no effect on our consolidated financial statements upon adoption. Through our funds withheld coinsurance agreement with an unauthorized life reinsurer we have been named as beneficiary of the trust that holds the funds withheld. We have determined that this trust is a VIE. We also have determined that the reinsurer is the primary beneficiary of this VIE due to the fact that all earnings of the trust inure to the reinsurer, and the reinsurer directs the operations of the trust subject to an investment policy. Therefore, we have not consolidated the trust prior to or after the adoption of this amendment to the accounting standards for consolidation of VIE's.
 
New Accounting Pronouncements
 
In January 2010, the FASB issued an accounting standards update that expands the disclosure requirements related to fair value measurements. A reporting entity will be required to present on a gross basis rather than as one net number information about the purchases, sales, issuances and settlements of financial instruments that are categorized as Level 3 for fair value measurements. This guidance will be effective on January 1, 2011, and we do not expect the adoption to have a material impact on our consolidated financial statements.
 

7

 
2. Fair Values of Financial Instruments
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The objective of a fair value measurement is to determine that price for each financial instrument at each measurement date. We meet this objective using various methods of valuation that include market, income and cost approaches.
 
We categorize our financial instruments into three levels of fair value hierarchy based on the priority for use of inputs in determining fair value. The hierarchy defines the highest priority inputs (Level 1) as quoted prices in active markets for identical assets. The lowest priority inputs (Level 3) are our own assumptions about what a market participant would use in determining fair value such as estimated future cash flows. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. We categorize financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows:
 
Level 1 -
Quoted prices are available in active markets for identical financial instruments as of the reporting date. We do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.
 
 
Level 2 -
Quoted prices in active markets for similar financial instruments, quoted prices for identical or similar financial instruments in markets that are not active; and models and other valuation methodologies using inputs other than quoted prices that are observable.
 
 
Level 3 -
Models and other valuation methodologies using significant inputs that are unobservable for financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in Level 3 are securities for which no market activity or data exists and for which we used discounted expected future cash flows with our own assumptions about what a market participant would use in determining fair value.
 
Transfers of securities among the levels occur at times and depend on the type of inputs used to determine fair value of each security. Transfers between Level 1 and Level 2 were not material for the three months ended March 31, 2010.
 
We utilize independent pricing services in estimating the fair values of investment securities. The independent pricing services incorporate a variety of observable market data in their valuation techniques, including:
 
  		•
    reported trading prices,
  • benchmark yields
  • broker-dealer quotes,
  • benchmark securities,
  • bids and offers,
  • credit ratings,
  • relative credit information, and
  • other reference data.
     
    The independent pricing services also take into account perceived market movements and sector news, as well as a security's terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. We generally obtain one value from our primary external pricing service. In situations where a price is not available from this service, we may obtain further quotes or prices from additional parties as needed.
     
    The independent pricing services provide quoted market prices when available. Quoted prices are not always available due to market inactivity. The pricing service obtains a broker quote when sufficient information, such as security structure or other market information, is not available to produce a valuation. Valuations and quotes obtained from third party commercial pricing services are non-binding and do not represent quotes on which one may execute the disposition of the assets.
     
    In addition, we obtain prices from a broker for our callable United States Government sponsored agencies. Market indices of similar rated asset class spreads are considered for valuations and broker indications of similar securities are compared. Inputs used by the broker include market information, such as yield data and other factors relating to instruments or securities with similar characteristics.
     
    Fair value of call options are determined by obtaining prices from our counterparties who use market standard valuation methodologies. Market inputs include market volatility and risk free interest rates and are used in income valuation techniques in arriving at a fair value for each option contract.
     

    8

     
    We estimate the fair value of the embedded derivative component at each valuation date by (i) projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and (ii) discounting the excess of the projected contract value amounts at the applicable risk free interest rates adjusted for our nonperformance risk related to those liabilities. The projections of policy contract values are based on our best estimate assumptions for future policy growth and future policy decrements. Our best estimate assumptions for future policy growth include assumptions for the expected index credit on the next policy anniversary date which are derived from the fair values of the underlying call options purchased to fund such index credits and the expected costs of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values.
     
    We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. Additionally, as needed we utilize discounted cash flow models or perform independent valuations on a case-by-case basis of inputs and assumptions similar to those used by the pricing services. Although we do identify differences from time to time as a result of these validation procedures, we did not make any significant adjustments as of March 31, 2010.
     
    The fixed income securities markets in early 2009 experienced a period of extreme volatility and limited market liquidity conditions, which affected a broad range of asset classes and sectors. In addition, there were credit downgrade events and an increased probability of default for many fixed income instruments. These volatile market conditions increased the difficulty of valuing certain instruments as trading was less frequent and/or market data was less observable. There were certain instruments that were in active markets with significant observable data that became illiquid due to the current financial environment or market conditions. As a result, certain valuations require greater estimation and judgment as well as valuation methods which are more complex. These values may not ultimately be realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified.
     
    The following methods and assumptions were used in estimating the fair values of financial instruments during the periods presented in these consolidated financial statements.
     
    Fixed maturity securities: The fair values of fixed maturity securities are obtained from third parties and are based on quoted market prices when available. The third parties use yield data and other factors relating to instruments or securities with similar characteristics to determine fair value for securities that are not actively traded.
     
    Equity securities: The fair values of equity securities are based on quoted market prices.
     
    Mortgage loans on real estate: The fair values of mortgage loans on real estate are calculated using discounted expected cash flows using current competitive market interest rates currently being offered for similar loans which are not fair value exit prices.
     
    Derivative instruments: The fair values of derivative instruments are based upon the amount of cash that we will receive to settle each derivative instrument on the reporting date. These amounts are obtained from each of the counterparties and are adjusted for the nonperformance risk of each counterparty net of any collateral held. The nonperformance risk for each counterparty is based upon its credit default swap rate. We have no performance obligations related to the call options purchased to fund our fixed index annuity policy liabilities.
     
    Other investments: Other investments is comprised of policy loans, rental real estate and real estate held for sale. We have not attempted to determine the fair values associated with our policy loans, as we believe any differences between carrying value and the fair values afforded these instruments are immaterial to our consolidated financial position and, accordingly, the cost to provide such disclosure does not justify the benefit to be derived. The fair value of our real estate owned was determined either by obtaining a third party appraisal of the property or by estimating the potential annual net operating income from each commercial rental property and dividing that by a current market capitalization rate. 
     
    Cash and cash equivalents: Amounts reported in the consolidated balance sheets for these instruments are reported at their historical cost which approximates fair value due to the nature of the assets assigned to this category.
     
    Policy benefit reserves and coinsurance deposits: The fair values of the liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities), are stated at the cost we would incur to extinguish the liability (i.e., the cash surrender value). The coinsurance deposits related to the annuity benefit reserves have fair values determined in a similar fashion. We are not required to and have not estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value.
     
    Notes payable: The fair value of the contingent convertible senior notes is based upon quoted market prices. Fair values for other notes payable with fixed interest rates are estimated by discounting expected cash flows using current market interest rates currently being offered for similar securities.
     

    9

     
    Subordinated debentures: The carrying amount of subordinated debentures with variable interest rates reported in the consolidated balance sheets approximates fair value. Fair values for subordinated debentures with fixed interest rates are estimated by discounting expected cash flows using current market interest rates currently being offered for similar securities.
     
    Interest rate swaps: The fair values of our pay fixed/receive variable interest rate swaps are obtained from third parties and are based on market rates currently being offered for similar instruments.
     
    The following sets forth a comparison of the fair values and carrying amounts of our financial instruments:
     
     
     
    March 31, 2010
     
    December 31, 2009
     
     
    Carrying Amount
     
    Fair Value
     
    Carrying Amount
     
    Fair Value
     
     
    (Dollars in thousands)
    Assets
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
    Available for sale
     
    $
    12,365,666
     
     
    $
    12,365,666
     
     
    $
    10,704,131
     
     
    $
    10,704,131
     
    Held for investment
     
    1,030,490
     
     
    1,004,767
     
     
    1,635,083
     
     
    1,601,864
     
    Equity securities, available for sale
     
    87,981
     
     
    87,981
     
     
    93,086
     
     
    93,086
     
    Mortgage loans on real estate
     
    2,461,975
     
     
    2,458,944
     
     
    2,449,778
     
     
    2,409,197
     
    Derivative instruments
     
    497,469
     
     
    497,469
     
     
    479,272
     
     
    479,272
     
    Other investments
     
    15,565
     
     
    17,438
     
     
    12,760
     
     
    12,760
     
    Cash and cash equivalents
     
    704,166
     
     
    704,166
     
     
    528,002
     
     
    528,002
     
    Coinsurance deposits
     
    2,420,411
     
     
    2,052,538
     
     
    2,237,740
     
     
    1,934,996
     
     
     
     
     
     
     
     
     
     
    Liabilities
     
     
     
     
     
     
     
     
    Policy benefit reserves
     
    20,152,906
     
     
    16,752,355
     
     
    19,336,221
     
     
    16,152,088
     
    Notes payable
     
    317,957
     
     
    381,038
     
     
    316,468
     
     
    340,673
     
    Subordinated debentures
     
    268,383
     
     
    204,082
     
     
    268,347
     
     
    186,215
     
    Interest rate swaps
     
    2,541
     
     
    2,541
     
     
    1,891
     
     
    1,891
     
     

    10

     
    Our assets and liabilities which are measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009 are presented below based on the fair value hierarchy levels:
     
     
     
    Total
    Fair Value
     
    Quoted
    Prices in
    Active
    Markets
    (Level 1)
     
    Significant
    Other
    Observable
    Inputs
    (Level 2)
     
    Significant
    Unobservable
    Inputs
    (Level 3)
     
     
    (Dollars in thousands)
    March 31, 2010
     
     
     
     
     
     
     
     
    Assets
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
    Available for sale:
     
     
     
     
     
     
     
     
    United States Government full faith and credit
     
    $
    3,424
     
     
    $
    3,424
     
     
    $
    —
     
     
    $
    —
     
    United States Government sponsored agencies
     
    5,043,470
     
     
    —
     
     
    5,043,470
     
     
    —
     
    United States municipalities, states and territories
     
    528,379
     
     
    —
     
     
    528,379
     
     
    —
     
    Corporate securities
     
    4,254,772
     
     
    63,493
     
     
    4,177,236
     
     
    14,043
     
    Residential mortgage backed securities
     
    2,535,621
     
     
    —
     
     
    2,532,812
     
     
    2,809
     
    Equity securities, available for sale: finance, insurance and real estate
     
    87,981
     
     
    67,327
     
     
    18,597
     
     
    2,057
     
    Derivative instruments
     
    497,469
     
     
    —
     
     
    497,469
     
     
    —
     
    Cash and cash equivalents
     
    704,166
     
     
    704,166
     
     
    —
     
     
    —
     
     
     
    $
    13,655,282
     
     
    $
    838,410
     
     
    $
    12,797,963
     
     
    $
    18,909
     
    Liabilities
     
     
     
     
     
     
     
     
    Interest rate swaps
     
    $
    2,541
     
     
    $
    —
     
     
    $
    2,541
     
     
    $
    —
     
    Fixed index annuities - embedded derivatives
     
    1,526,117
     
     
    —
     
     
    —
     
     
    1,526,117
     
     
     
    $
    1,528,658
     
     
    $
    —
     
     
    $
    2,541
     
     
    $
    1,526,117
     
     
     
     
     
     
     
     
     
     
    December 31, 2009
     
     
     
     
     
     
     
     
    Assets
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
    Available for sale:
     
     
     
     
     
     
     
     
    United States Government full faith and credit
     
    $
    3,310
     
     
    $
    2,545
     
     
    $
    765
     
     
    $
    —
     
    United States Government sponsored agencies
     
    3,998,537
     
     
    —
     
     
    3,998,537
     
     
    —
     
    United States municipalities, states and territories
     
    355,634
     
     
    —
     
     
    355,634
     
     
    —
     
    Corporate securities
     
    3,857,549
     
     
    70,363
     
     
    3,773,078
     
     
    14,108
     
    Residential mortgage backed securities
     
    2,489,101
     
     
    —
     
     
    2,486,290
     
     
    2,811
     
    Equity securities, available for sale: finance, insurance and real estate
     
    93,086
     
     
    83,672
     
     
    8,415
     
     
    999
     
    Derivative instruments
     
    479,272
     
     
    —
     
     
    479,272
     
     
    —
     
    Cash and cash equivalents
     
    528,002
     
     
    528,002
     
     
    —
     
     
    —
     
     
     
    $
    11,804,491
     
     
    $
    684,582
     
     
    $
    11,101,991
     
     
    $
    17,918
     
    Liabilities
     
     
     
     
     
     
     
     
    Interest rate swaps
     
    $
    1,891
     
     
    $
    —
     
     
    $
    1,891
     
     
    $
    —
     
    Fixed index annuities - embedded derivatives
     
    1,375,866
     
     
    —
     
     
    —
     
     
    1,375,866
     
     
     
    $
    1,377,757
     
     
    $
    —
     
     
    $
    1,891
     
     
    $
    1,375,866
     
     

    11

     
    The following tables provide a reconciliation of the beginning and ending balances for our Level 3 assets and liabilities, which are measured at fair value on a recurring basis using significant unobservable inputs for the three months ended March 31, 2010 and 2009:
     
     
     
    Three Months Ended March 31,
     
     
    2010
     
    2009
     
     
    (Dollars in thousands)
    Available for sale securities
     
     
     
     
    Beginning balance
     
    $
    17,918
     
     
    $
    20,082
     
    Purchases, issuances, and settlements
     
    (136
    )
     
    (37
    )
    Total gains (losses) (realized/unrealized):
     
     
     
     
    Included in other comprehensive income (loss)
     
    1,127
     
     
    81
     
    Included in operations
     
    —
     
     
    (538
    )
    Ending balance
     
    $
    18,909
     
     
    $
    19,588
     
     
    Realized losses of $0.5 million for the three months ended March 31, 2009 are included in net impairment losses recognized in operations in the unaudited consolidated statements of operations.
     
     
     
    Three Months Ended March 31,
     
     
    2010
     
    2009
     
     
    (Dollars in thousands)
    Fixed index annuities - embedded derivatives
     
     
     
     
    Beginning balance
     
    $
    1,375,866
     
     
    $
    998,015
     
    Premiums less benefits
     
    163,148
     
     
    (16,664
    )
    Change in unrealized gains, net
     
    (12,897
    )
     
    (37,965
    )
    Ending balance
     
    $
    1,526,117
     
     
    $
    943,386
     
     
    Change in unrealized gains, net for each period in our embedded derivatives are included in change in fair value of embedded derivatives in the unaudited consolidated statements of operations.
     

    12

     
    3. Investments
     
    At March 31, 2010 and December 31, 2009, the amortized cost and fair value of fixed maturity securities and equity securities were as follows:
     
     
    Amortized
    Cost
     
    Gross
    Unrealized
    Gains
     
    Gross
    Unrealized
    Losses
     
    Fair Value
     
     
    (Dollars in thousands)
    March 31, 2010
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
    Available for sale:
     
     
     
     
     
     
     
     
    United States Government full faith and credit
     
    $
    3,200
     
     
    $
    230
     
     
    $
    (6
    )
     
    $
    3,424
     
    United States Government sponsored agencies
     
    5,140,664
     
     
    4,509
     
     
    (101,703
    )
     
    5,043,470
     
    United States municipalities, states and territories
     
    519,466
     
     
    11,359
     
     
    (2,446
    )
     
    528,379
     
    Corporate securities
     
    4,041,990
     
     
    276,600
     
     
    (63,818
    )
     
    4,254,772
     
    Residential mortgage backed securities
     
    2,731,888
     
     
    67,154
     
     
    (263,421
    )
     
    2,535,621
     
     
     
    $
    12,437,208
     
     
    $
    359,852
     
     
    $
    (431,394
    )
     
    $
    12,365,666
     
     
     
     
     
     
     
     
     
     
    Held for investment:
     
     
     
     
     
     
     
     
    United States Government sponsored agencies
     
    $
    954,808
     
     
    $
    1,254
     
     
    $
    —
     
     
    $
    956,062
     
    Corporate securities
     
    75,682
     
     
    —
     
     
    (26,977
    )
     
    48,705
     
     
     
    $
    1,030,490
     
     
    $
    1,254
     
     
    $
    (26,977
    )
     
    $
    1,004,767
     
     
     
     
     
     
     
     
     
     
    Equity securities, available for sale:
     
     
     
     
     
     
     
     
    Finance, insurance, and real estate
     
    $
    76,243
     
     
    $
    13,096
     
     
    $
    (1,358
    )
     
    $
    87,981
     
     
     
     
     
     
     
     
     
     
    December 31, 2009
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
    Available for sale:
     
     
     
     
     
     
     
     
    United States Government full faith and credit
     
    $
    3,101
     
     
    $
    215
     
     
    $
    (6
    )
     
    $
    3,310
     
    United States Government sponsored agencies
     
    4,113,457
     
     
    3,468
     
     
    (118,388
    )
     
    3,998,537
     
    United States municipalities, states and territories
     
    350,787
     
     
    7,110
     
     
    (2,263
    )
     
    355,634
     
    Corporate securities
     
    3,709,446
     
     
    233,023
     
     
    (84,920
    )
     
    3,857,549
     
    Residential mortgage backed securities
     
    2,735,889
     
     
    59,584
     
     
    (306,372
    )
     
    2,489,101
     
     
     
    $
    10,912,680
     
     
    $
    303,400
     
     
    $
    (511,949
    )
     
    $
    10,704,131
     
     
     
     
     
     
     
     
     
     
    Held for investment:
     
     
     
     
     
     
     
     
    United States Government sponsored agencies
     
    $
    1,559,434
     
     
    $
    1,647
     
     
    $
    (5,900
    )
     
    $
    1,555,181
     
    Corporate securities
     
    75,649
     
     
    —
     
     
    (28,966
    )
     
    46,683
     
     
     
    $
    1,635,083
     
     
    $
    1,647
     
     
    $
    (34,866
    )
     
    $
    1,601,864
     
    Equity securities, available for sale:
     
     
     
     
     
     
     
     
    Finance, insurance, and real estate
     
    $
    82,930
     
     
    $
    13,425
     
     
    $
    (3,269
    )
     
    $
    93,086
     
     
    During the three months ended March 31, 2010 and 2009, we received $1.3 billion and $1.0 billion, respectively, in redemption proceeds related to calls of our callable United States Government sponsored agency securities and public and private corporate bonds, of which $616.3 million and $588.6 million, respectively, were classified as held for investment. We reinvested the 2010 proceeds from these redemptions primarily in United States Government sponsored agencies and corporate securities classified as available for sale. At March 31, 2010, 50% of our fixed income securities have call features and 8% were subject to call redemption. Another 26% will become subject to call redemption during the remainder of December 31, 2010.
     

    13

     
    The amortized cost and fair value of fixed maturity securities at March 31, 2010, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our residential mortgage backed securities provide for periodic payments throughout their lives and are shown below as a separate line.
     
     
    Available-for-sale
     
    Held for investment
     
     
    Amortized
    Cost
     
    Fair Value
     
    Amortized
    Cost
     
    Fair Value
     
     
    (Dollars in thousands)
    Due in one year or less
     
    $
    —
     
     
    $
    —
     
     
    $
    —
     
     
    $
    —
     
    Due after one year through five years
     
    453,158
     
     
    487,804
     
     
    —
     
     
    —
     
    Due after five years through ten years
     
    1,370,177
     
     
    1,504,166
     
     
    —
     
     
    —
     
    Due after ten years through twenty years
     
    1,904,894
     
     
    1,906,244
     
     
    505,000
     
     
    505,669
     
    Due after twenty years
     
    5,977,091
     
     
    5,931,831
     
     
    525,490
     
     
    499,098
     
     
     
    9,705,320
     
     
    9,830,045
     
     
    1,030,490
     
     
    1,004,767
     
    Residential mortgage backed securities
     
    2,731,888
     
     
    2,535,621
     
     
    —
     
     
    —
     
     
     
    $
    12,437,208
     
     
    $
    12,365,666
     
     
    $
    1,030,490
     
     
    $
    1,004,767
     
     
    Net unrealized losses on available for sale fixed maturity securities and equity securities reported as a separate component of stockholders' equity were comprised of the following:
     
     
    March 31,
    2010
     
    December 31,
    2009
     
     
    (Dollars in thousands)
    Net unrealized losses on available for sale fixed maturity securities and equity securities
     
    $
    (59,804
    )
     
    $
    (198,393
    )
    Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements
     
    33,183
     
     
    116,870
     
    Deferred income tax valuation allowance reversal
     
    22,534
     
     
    22,534
     
    Deferred income tax benefit
     
    9,317
     
     
    28,533
     
    Net unrealized losses reported as accumulated other comprehensive income (loss)
     
    $
    5,230
     
     
    $
    (30,456
    )
     
    The National Association of Insurance Commissioners (“NAIC”) assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). In general, securities are assigned a designation based upon the ratings they are given by the Nationally Recognized Statistical Rating Organizations (“NRSRO’s”). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 designations are considered “investment grade” while NAIC Class 3 through 6 designations are considered “non-investment grade”. Based on the NAIC designations, we had 97% of our fixed maturity portfolio rated investment grade at March 31, 2010 and December 31, 2009.
     
    The following table summarizes the credit quality, as determined by NAIC designation, of our fixed maturity portfolio as of the dates indicated:
     
     
     
    March 31, 2010
     
    December 31, 2009
    NAIC Designation
     
    Amortized Cost
     
    Fair Value
     
    Amortized Cost
     
    Fair Value
     
     
    (Dollars in thousands)
    1
     
    $
    10,307,998
     
     
    $
    10,258,514
     
     
    $
    9,495,015
     
     
    $
    9,370,647
     
    2
     
    2,711,821
     
     
    2,743,291
     
     
    2,571,815
     
     
    2,555,826
     
    3
     
    389,552
     
     
    313,802
     
     
    409,860
     
     
    315,948
     
    4
     
    27,026
     
     
    24,236
     
     
    24,375
     
     
    20,799
     
    5
     
    5,993
     
     
    7,650
     
     
    21,013
     
     
    20,749
     
    6
     
    25,308
     
     
    22,940
     
     
    25,685
     
     
    22,026
     
     
     
    $
    13,467,698
     
     
    $
    13,370,433
     
     
    $
    12,547,763
     
     
    $
    12,305,995
     
     

    14

     
    A summary of our RMBS by collateral type and split by NAIC designation, as well as a separate summary of securities for which we have recognized OTTI and those which we have not yet recognized any OTTI is as follows:
     
     
     
     
     
    March 31, 2010
     
    December 31, 2009
    Collateral Type
     
    NAIC Designation
     
    Principal Amount
     
    Amortized Cost
     
    Fair Value
     
    Principal Amount
     
    Amortized Cost
     
    Fair Value
     
     
     
     
    (Dollars in thousands)
    OTTI has not been recognized
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Government agency
     
    1
     
    $
    68,217
     
     
    $
    67,455
     
     
    $
    72,284
     
     
    $
    69,496
     
     
    $
    68,715
     
     
    $
    72,306
     
    Prime
     
    1
     
    1,713,832
     
     
    1,602,181
     
     
    1,619,615
     
     
    1,713,391
     
     
    1,595,502
     
     
    1,585,337
     
     
     
    2
     
    127,337
     
     
    126,596
     
     
    106,156
     
     
    127,951
     
     
    127,210
     
     
    106,395
     
     
     
    3
     
    1,474
     
     
    1,471
     
     
    981
     
     
    1,474
     
     
    1,471
     
     
    977
     
    Alt-A
     
    1
     
    14,253
     
     
    12,912
     
     
    11,324
     
     
    93,963
     
     
    87,071
     
     
    70,749
     
     
     
    2
     
    46,456
     
     
    47,282
     
     
    38,206
     
     
    46,456
     
     
    47,301
     
     
    38,030
     
     
     
     
     
    $
    1,971,569
     
     
    $
    1,857,897
     
     
    $
    1,848,566
     
     
    $
    2,052,731
     
     
    $
    1,927,270
     
     
    $
    1,873,794
     
    OTTI has been recognized
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Prime
     
    1
     
    $
    190,038
     
     
    $
    171,567
     
     
    $
    140,038
     
     
    $
    173,149
     
     
    $
    156,108
     
     
    $
    126,301
     
     
     
    2
     
    221,188
     
     
    210,518
     
     
    159,879
     
     
    223,473
     
     
    212,221
     
     
    156,522
     
     
     
    3
     
    45,001
     
     
    43,207
     
     
    35,903
     
     
    60,965
     
     
    58,965
     
     
    44,853
     
    Alt-A
     
    1
     
    273,389
     
     
    235,361
     
     
    193,767
     
     
    194,682
     
     
    164,402
     
     
    127,341
     
     
     
    2
     
    111,571
     
     
    96,537
     
     
    73,881
     
     
    111,673
     
     
    96,700
     
     
    75,557
     
     
     
    3
     
    130,979
     
     
    112,247
     
     
    80,778
     
     
    134,085
     
     
    115,522
     
     
    81,922
     
     
     
    6
     
    5,237
     
     
    4,554
     
     
    2,809
     
     
    5,394
     
     
    4,701
     
     
    2,811
     
     
     
     
     
    $
    977,403
     
     
    $
    873,991
     
     
    $
    687,055
     
     
    $
    903,421
     
     
    $
    808,619
     
     
    $
    615,307
     
    Total by collateral type
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Government agency
     
     
     
    $
    68,217
     
     
    $
    67,455
     
     
    $
    72,284
     
     
    $
    69,496
     
     
    $
    68,715
     
     
    $
    72,306
     
    Prime
     
     
     
    2,298,870
     
     
    2,155,540
     
     
    2,062,572
     
     
    2,300,403
     
     
    2,151,477
     
     
    2,020,385
     
    Alt-A
     
     
     
    581,885
     
     
    508,893
     
     
    400,765
     
     
    586,253
     
     
    515,697
     
     
    396,410
     
     
     
     
     
    $
    2,948,972
     
     
    $
    2,731,888
     
     
    $
    2,535,621
     
     
    $
    2,956,152
     
     
    $
    2,735,889
     
     
    $
    2,489,101
     
    Total by NAIC designation
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    1
     
    $
    2,259,729
     
     
    $
    2,089,476
     
     
    $
    2,037,028
     
     
    $
    2,244,681
     
     
    $
    2,071,798
     
     
    $
    1,982,034
     
     
     
    2
     
    506,552
     
     
    480,933
     
     
    378,122
     
     
    509,553
     
     
    483,432
     
     
    376,504
     
     
     
    3
     
    177,454
     
     
    156,925
     
     
    117,662
     
     
    196,524
     
     
    175,958
     
     
    127,752
     
     
     
    6
     
    5,237
     
     
    4,554
     
     
    2,809
     
     
    5,394
     
     
    4,701
     
     
    2,811
     
     
     
     
     
    $
    2,948,972
     
     
    $
    2,731,888
     
     
    $
    2,535,621
     
     
    $
    2,956,152
     
     
    $
    2,735,889
     
     
    $
    2,489,101
     
     
     

    15

     
    The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 336 and 355 securities, respectively) have been in a continuous unrealized loss position, at March 31, 2010 and December 31, 2009:
     
     
    Less than 12 months
     
    12 months or more
     
    Total
     
     
    Fair Value
     
    Unrealized
    Losses
     
    Fair Value
     
    Unrealized
    Losses
     
    Fair Value
     
    Unrealized
    Losses
     
     
    (Dollars in thousands)
    March 31, 2010
     
     
     
     
     
     
     
     
     
     
     
     
    Fixed maturity securities:
     
     
     
     
     
     
     
     
     
     
     
     
    Available for sale:
     
     
     
     
     
     
     
     
     
     
     
     
    United States Government full faith and credit
     
    $
    306
     
     
    $
    (6
    )
     
    $
    —
     
     
    $
    —
     
     
    $
    306
     
     
    $
    (6
    )
    United States Government sponsored agencies
     
    3,556,851
     
     
    (81,308
    )
     
    247,646
     
     
    (20,395
    )
     
    3,804,497
     
     
    (101,703
    )
    United States municipalities, states and territories
     
    114,342
     
     
    (2,446
    )
     
    —
     
     
    —
     
     
    114,342
     
     
    (2,446
    )
    Corporate securities:
     
     
     
     
     
     
     
     
     
     
     
     
    Finance, insurance and real estate
     
    131,143
     
     
    (4,410
    )
     
    221,489
     
     
    (32,750
    )
     
    352,632
     
     
    (37,160
    )
    Manufacturing, construction and mining
     
    145,298
     
     
    (2,931
    )
     
    60,413
     
     
    (4,493
    )
     
    205,711
     
     
    (7,424
    )
    Utilities and related sectors
     
    189,227
     
     
    (4,506
    )
     
    66,026
     
     
    (7,485
    )
     
    255,253
     
     
    (11,991
    )
    Wholesale/retail trade
     
    15,771
     
     
    (67
    )
     
    42,202
     
     
    (3,906
    )
     
    57,973
     
     
    (3,973
    )
    Services, media and other
     
    17,188
     
     
    (249
    )
     
    57,433
     
     
    (3,021
    )
     
    74,621
     
     
    (3,270
    )
    Residential mortgage backed securities
     
    170,556
     
     
    (7,842
    )
     
    1,182,962
     
     
    (255,579
    )
     
    1,353,518
     
     
    (263,421
    )
     
     
    $
    4,340,682
     
     
    $
    (103,765
    )
     
    $
    1,878,171
     
     
    $
    (327,629
    )
     
    $
    6,218,853
     
     
    $
    (431,394
    )
    Held for investment:
     
     
     
     
     
     
     
     
     
     
     
     
    Corporate securities:
     
     
     
     
     
     
     
     
     
     
     
     
    Finance, insurance and real estate
     
    —
     
     
    —
     
     
    48,705
     
     
    (26,977
    )
     
    48,705
     
     
    (26,977
    )
     
     
     
     
     
     
     
     
     
     
     
     
     
    Equity securities, available for sale:
     
     
     
     
     
     
     
     
     
     
     
     
    Finance, insurance and real estate
     
    $
    2,595
     
     
    $
    (63
    )
     
    $
    22,704