PRUCO LIFE INSURANCE CO, 10-Q filed on 8/12/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Aug. 12, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q2  
Document Transition Report false  
Entity File Number 033-37587  
Entity Registrant Name PRUCO LIFE INSURANCE CO  
Entity Central Index Key 0000777917  
Entity Incorporation, State or Country Code AZ  
Entity Tax Identification Number 22-1944557  
Entity Address, Address Line One 213 Washington Street  
Entity Address, City or Town Newark  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 07102  
City Area Code 973  
Local Phone Number 802-6000  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   250,000
v3.20.2
Unaudited Interim Consolidated Statements of Financial Position - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Fixed maturities, available for sale, at fair value (amortized cost: 2020 – $5,550,300; 2019 – $5,283,266; 2020-net of $4,572 allowance for credit losses) $ 6,106,322 $ 5,681,970
Fixed maturities, trading, at fair value (amortized cost: 2020 – $59,995; 2019 – $59,995) 56,707 59,964
Equity securities, at fair value (cost: 2020 – $6,212; 2019 – $6,360) 9,559 10,494
Policy loans 1,320,636 1,314,064
Short-term investments 101,967 0
Commercial mortgage and other loans (net of $4,559 and $1,768 allowance for credit losses at June 30, 2020 and December 31, 2019, respectively) 1,198,559 [1] 1,239,885
Other invested assets (includes $106,550 and $87,456 of assets measured at fair value at June 30, 2020 and December 31, 2019, respectively) 468,005 429,558
Total investments 9,261,755 8,735,935
Cash and cash equivalents 713,781 563,199
Deferred policy acquisition costs 2,120,749 [1] 1,855,698
Accrued investment income 89,439 89,448
Reinsurance recoverables 52,917,099 [1] 40,710,159
Receivables from parent and affiliates 297,911 271,981
Income taxes receivable 119,823 [1] 102,652
Other assets 439,055 441,543
Separate account assets 130,903,117 138,387,772
TOTAL ASSETS 196,862,729 191,158,387
LIABILITIES    
Future policy benefits 37,371,656 [1] 25,258,673
Policyholders’ account balances 23,433,178 [1] 22,878,823
Cash collateral for loaned securities 2,700 7,529
Short-term debt to affiliates 0 2,845
Payables to parent and affiliates 88,384 216,842
Other liabilities 1,473,182 [1] 1,390,876
Separate account liabilities 130,903,117 138,387,772
Total liabilities 193,272,217 188,143,360
COMMITMENTS AND CONTINGENT LIABILITIES
EQUITY    
Common stock ($10 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding) 2,500 2,500
Additional paid-in capital 1,476,690 1,153,632
Retained earnings 1,682,845 1,577,453
Accumulated other comprehensive income (loss) 428,477 281,442
Total equity 3,590,512 3,015,027
TOTAL LIABILITIES AND EQUITY $ 196,862,729 $ 191,158,387
[1] June 30, 2020 amounts include the impacts of the January 1, 2020 adoption of ASU 2016-13. See Note 2 for details.
v3.20.2
Unaudited Interim Consolidated Statements of Financial Position (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Fixed maturities, available for sale, amortized cost $ 5,550,300 $ 5,283,266
Fixed Maturities, Available-for-sale, allowance for credit losses 4,572  
Fixed maturities, trading, amortized cost 59,995 59,995
Equity securities, cost 6,212 6,360
Commercial mortgage and other loans, allowance for credit losses 4,559 1,768
Other invested assets, at fair value $ 106,550 $ 87,456
Common stock, par value (in dollars per share) $ 10 $ 10
Common stock, shares authorized 1,000,000 1,000,000
Common stock, shares issued 250,000 250,000
Common stock, shares outstanding 250,000 250,000
v3.20.2
Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
REVENUES        
Premiums $ 22,544 $ 12,417 $ 37,415 $ 26,411
Policy charges and fee income 161,085 148,671 301,004 287,860
Net investment income 83,462 105,562 163,043 198,812
Asset administration fees 4,302 3,961 8,690 7,618
Other income 14,892 14,998 23,728 35,955
Realized investment gains (losses), net (80,231) (52,250) 9,664 (100,885)
TOTAL REVENUES 206,054 233,359 543,544 455,771
BENEFITS AND EXPENSES        
Policyholders’ benefits 86,253 46,291 172,176 85,769
Interest credited to policyholders’ account balances 66,417 50,710 121,463 94,907
Amortization of deferred policy acquisition costs 13,638 41,672 62,947 60,851
General, administrative and other expenses 59,118 80,564 135,032 128,508
TOTAL BENEFITS AND EXPENSES 225,426 219,237 491,618 370,035
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE (19,372) 14,122 51,926 85,736
Income tax expense (benefit) (29,417) (34,585) (56,518) (51,465)
INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE 10,045 48,707 108,444 137,201
Equity in earnings of operating joint venture, net of taxes (513) (272) (1,300) (978)
NET INCOME (LOSS) 9,532 48,435 107,144 136,223
Other comprehensive income (loss), before tax:        
Foreign currency translation adjustments 16,514 958 (3,888) 7,007
Net unrealized investment gains (losses) 325,293 183,514 191,027 343,599
Total 341,807 184,472 187,139 350,606
Less: Income tax expense (benefit) related to other comprehensive income (loss) 68,391 38,512 40,104 72,145
Other comprehensive income (loss), net of taxes 273,416 145,960 147,035 278,461
Comprehensive income (loss) $ 282,948 $ 194,395 $ 254,179 $ 414,684
v3.20.2
Unaudited Interim Consolidated Statements of Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Equity
Cumulative effect of adoption of accounting changes
Retained Earnings
Cumulative effect of adoption of accounting changes
Total Equity
Beginning Balance at Dec. 31, 2018   $ 2,500 $ 1,146,592 $ 1,612,435 $ (28,296) $ 2,733,231 $ (1,114) [1] $ (1,114) [1]
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Contributed (distributed) capital-parent/child asset transfers     (4)     (4)    
Contributed capital     0     0    
Comprehensive income (loss):                
Net income (loss)       87,788   87,788    
Other comprehensive income (loss), net of tax         132,501 132,501    
Total comprehensive income (loss)           220,289    
Ending Balance at Mar. 31, 2019   2,500 1,146,588 1,699,109 104,205 2,952,402    
Beginning Balance at Dec. 31, 2018   2,500 1,146,592 1,612,435 (28,296) 2,733,231 (1,114) [1] (1,114) [1]
Comprehensive income (loss):                
Net income (loss) $ 136,223              
Other comprehensive income (loss), net of tax 278,461              
Ending Balance at Jun. 30, 2019   2,500 1,146,588 1,747,544 250,165 3,146,797    
Beginning Balance at Mar. 31, 2019   2,500 1,146,588 1,699,109 104,205 2,952,402    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Contributed (distributed) capital-parent/child asset transfers     0     0    
Contributed capital     0     0    
Comprehensive income (loss):                
Net income (loss) 48,435     48,435   48,435    
Other comprehensive income (loss), net of tax 145,960       145,960 145,960    
Total comprehensive income (loss)           194,395    
Ending Balance at Jun. 30, 2019   2,500 1,146,588 1,747,544 250,165 3,146,797    
Beginning Balance at Dec. 31, 2019   2,500 1,153,632 1,577,453 281,442 3,015,027 (1,752) [2] (1,752) [2]
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Contributed (distributed) capital-parent/child asset transfers     0     0    
Comprehensive income (loss):                
Net income (loss)       97,612   97,612    
Other comprehensive income (loss), net of tax         (126,381) (126,381)    
Total comprehensive income (loss)           (28,769)    
Ending Balance at Mar. 31, 2020   2,500 1,153,632 1,673,313 155,061 2,984,506    
Beginning Balance at Dec. 31, 2019   2,500 1,153,632 1,577,453 281,442 3,015,027 $ (1,752) [2] $ (1,752) [2]
Comprehensive income (loss):                
Net income (loss) 107,144              
Other comprehensive income (loss), net of tax 147,035              
Ending Balance at Jun. 30, 2020   2,500 1,476,690 1,682,845 428,477 3,590,512    
Beginning Balance at Mar. 31, 2020   2,500 1,153,632 1,673,313 155,061 2,984,506    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Contributed (distributed) capital-parent/child asset transfers     (1,942)     (1,942)    
Contributed capital     325,000     325,000    
Comprehensive income (loss):                
Net income (loss) 9,532     9,532   9,532    
Other comprehensive income (loss), net of tax $ 273,416       273,416 273,416    
Total comprehensive income (loss)           282,948    
Ending Balance at Jun. 30, 2020   $ 2,500 $ 1,476,690 $ 1,682,845 $ 428,477 $ 3,590,512    
[1]
Includes the impact from the adoption of ASU 2017-08 and 2017-12. See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

[2]
Includes the impact from the adoption of ASU 2016-13. See Note 2.
v3.20.2
Unaudited Interim Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ 107,144 $ 136,223
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Policy charges and fee income (39,490) (32,885) [1]
Interest credited to policyholders’ account balances 121,463 94,907
Realized investment (gains) losses, net (9,664) 100,885
Amortization and other non-cash items (18,346) (52,217)
Change in:    
Future policy benefits 1,380,155 1,388,982
Reinsurance recoverables (1,236,738) (1,339,652)
Accrued investment income 9 (4,889)
Net payables to/receivables from parent and affiliates (156,618) (69,192)
Deferred policy acquisition costs (278,479) (133,641)
Income taxes (56,291) (93,244)
Derivatives, net 67,672 98,778
Other, net (59,424) (32,189)
Cash flows from (used in) operating activities (178,607) 61,866
Proceeds from the sale/maturity/prepayment of:    
Fixed maturities, available-for-sale 150,587 179,330
Equity securities 192 21,656
Policy loans 86,793 78,129
Ceded policy loans (6,573) (6,285)
Short-term investments 99,606 369
Commercial mortgage and other loans 74,985 36,892
Other invested assets 4,706 10,206
Payments for the purchase/origination of:    
Fixed maturities, available-for-sale (369,432) (566,299)
Fixed maturities, trading 0 (6,015)
Equity securities (6) (110)
Policy loans (73,633) (81,818)
Ceded policy loans 12,948 8,112
Short-term investments (201,551) (463)
Commercial mortgage and other loans (41,429) (53,190)
Other invested assets (34,816) (34,855)
Notes receivable from parent and affiliates, net (5,254) 9,995
Derivatives, net (9,799) 729
Other, net 1,317 (3,404)
Cash flows from (used in) investing activities (311,359) (407,021)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Policyholders’ account deposits 2,454,899 2,702,683
Ceded policyholders’ account deposits (1,796,974) (1,784,740)
Policyholders’ account withdrawals (1,653,848) (1,777,827) [1]
Ceded policyholders’ account withdrawals 1,341,955 1,241,925
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities (4,829) (3,980)
Contributed capital 325,000 0
Contributed (distributed) capital - parent/child asset transfers (2,458) (5)
Net change in all other financing arrangements (maturities 90 days or less) (2,845) 0
Drafts outstanding (17,252) 3,581
Other, net (3,100) (37,825) [1]
Cash flows from (used in) financing activities 640,548 343,812
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 150,582 (1,343)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 563,199 416,840
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 713,781 $ 415,497
[1] Prior period amounts have been revised to correct an error. See Note 11 for details.
v3.20.2
Business and Basis of Presentation
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Basis of Presentation BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company (“Pruco Life”) is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”), which in turn is a direct wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). Pruco Life is a stock life insurance company organized in 1971 under the laws of the State of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam and in all states except New York, and sells such products primarily through affiliated and unaffiliated distributors.

Pruco Life has one wholly-owned insurance subsidiary, Pruco Life Insurance Company of New Jersey (“PLNJ”). PLNJ is a stock life insurance company organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in New Jersey and New York only. Pruco Life and its subsidiary are together referred to as the "Company", "we" or "our" and all financial information is shown on a consolidated basis.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining deferred policy acquisition costs ("DAC") and related amortization; policyholders' account balances related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life products; valuation of investments including derivatives, measurement of allowance for credit losses, and recognition of other-than-temporary impairments (“OTTI”); future policy benefits including guarantees; reinsurance recoverables; provision for income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.

COVID-19

Beginning in the first quarter of 2020, the outbreak of the novel coronavirus (“COVID-19”) has resulted in extreme stress and disruption in the global economy and financial markets and has adversely impacted, and may continue to adversely impact, our results of operations, financial condition and cash flows. Due to the highly uncertain nature of these conditions, it is not possible to estimate the ultimate impacts at this time. The risks may have manifested, and may continue to manifest, in our financial statements in the areas of, among others, i) investments: increased risk of loss on our investments due to default or deterioration in credit quality or value; and ii) insurance liabilities and related balances: potential changes to assumptions regarding investment returns, mortality, morbidity and policyholder behavior which are reflected in our insurance liabilities and certain related balances (e.g., DAC, etc.). We cannot predict what impact the COVID-19 pandemic will ultimately have on the global economy, markets or our businesses.





Revision to Prior Period Consolidated Financial Statements

The Company identified an error in the presentation of certain cash flow activity related to policyholders' account balances that impacted several line items within previously issued Consolidated Statements of Cash Flows. Prior period amounts have been revised in the financial statements to correct this error. Management evaluated these adjustments and concluded they were not material to any previously reported quarterly or annual financial statements. See Note 11 for a more detailed description of the revision and for comparisons of amounts previously reported to the revised amounts.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.
v3.20.2
Significant Accounting Policies and Pronouncements
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies and Pronouncements SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of June 30, 2020, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

Adoption of ASU 2016-13

The Company adopted ASU 2016-13, and related ASUs, effective January 1, 2020 using the modified retrospective method for certain financial assets carried at amortized cost and certain off-balance sheet exposures. The modified retrospective method results in a cumulative effect adjustment to opening retained earnings. The Company adopted the guidance related to fixed maturities, available-for-sale on a prospective basis.

This ASU requires the use of a new current expected credit loss (“CECL”) model to account for expected credit losses on certain financial assets reported at amortized cost (e.g., loans held for investment, reinsurance receivables, etc.) and certain off-balance sheet credit exposures (e.g., indemnification of serviced mortgage loans and certain loan commitments). The guidance requires an entity to estimate lifetime credit losses related to such financial assets and credit exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that may affect the collectability of the reported amounts. The standard also modifies the OTTI guidance for fixed maturities, available-for-sale requiring the use of an allowance rather than a direct write-down of the investment.

The impacts of this ASU on the Company’s Consolidated Financial Statements primarily include (1) A Cumulative Effect Adjustment Upon Adoption; (2) Changes to the Presentation of the Consolidated Statements of Financial Position and Consolidated Statements of Operations; and (3) Changes to Accounting Policies. Each of these impacts is described below. This section is meant to serve as an update to, and should be read in conjunction with, Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

(1) Cumulative Effect Adjustment Upon Adoption

Adoption of the standard resulted in a cumulative effect adjustment to opening retained earnings in the amount of $1.8 million, primarily related to commercial mortgage and other loans. The impact of adoption is not material to the following financial statement line items: deferred policy acquisition costs; reinsurance recoverables; income taxes receivable; future policy benefits; policyholders' account balances; and other liabilities. The prospective adoption of the portions of the standard related to fixed maturities, available-for-sale resulted in no impact to opening retained earnings.

(2) Changes to the Presentation of the Consolidated Statements of Financial Position and Consolidated Statements of Operations

The allowance for credit losses is presented parenthetically on relevant line items in the Consolidated Statements of Financial Position. In the Consolidated Statements of Operations, realized investment gains (losses), net are presented on one line item and will no longer reflect the breakout of OTTI on fixed maturity securities; OTTI on fixed maturity securities transferred to other comprehensive income (“OCI”); and other realized investment gains (losses), net. The presentation of this detail in prior periods is immaterial.

(3) Changes to Accounting Policies

This section has been updated to include the following changes in our accounting policies resulting from the adoption of ASU 2016-13.

Fixed maturities, available-for-sale

Fixed maturities, available-for-sale (“AFS debt securities”) are reported at fair value in the Statements of Financial Position. Interest income, and amortization of premium and accretion of discount are included in “Net investment income” under the effective yield method. For mortgage-backed and asset-backed securities, the effective yield is based on estimated cash flows, including interest rate and prepayment assumptions based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also vary based on other assumptions relating to the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of impairments recognized in earnings and OCI. For mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively for any changes in the estimated timing and amount of cash flows unless the investment is impaired or purchased with credit deterioration. For impaired mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively only if subsequent favorable or adverse changes in expected cash flows are not reflected in the allowance for credit losses. Prior to the adoption of this standard, the effective yield was adjusted prospectively regardless of whether the investment was impaired or not.

AFS debt securities with unrealized losses are reviewed quarterly to determine whether the amortized cost basis of the security is recoverable. In evaluating whether the amortized cost basis is recoverable, the Company considers several factors including, but not limited to the extent of the decline and the reasons for the decline in value (credit events, currency or interest-rate related, including general credit spread widening), and the financial condition of the issuer.

When an AFS debt security is in an unrealized loss position and (1) the Company has the intent to sell the AFS debt security, or (2) it is more likely than not the Company will be required to sell the AFS debt security before its anticipated recovery, or (3) the Company has deemed the AFS debt security to be uncollectable, the amortized cost basis of the AFS debt security is written down to fair value and any previously recognized allowance is reversed. The impairment is reported in “Realized investment gains (losses), net.” The new cost basis is not adjusted for subsequent increases in estimated fair value.

For an AFS debt security in an unrealized loss position that does not meet these conditions, the Company analyzes its ability to recover the amortized cost by comparing the net present value of projected future cash flows (the “net present value”) with the amortized cost of the security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the AFS debt security at the date of acquisition. The Company may use the estimated fair value of collateral, if any, as a proxy for the net present value if it believes that the security is dependent on the liquidation of collateral for recovery of its investment. If the net present value is less than the amortized cost of the investment, an allowance for losses is recognized in earnings for the difference between amortized cost and the net present value and is limited to the difference between amortized cost and fair value of the AFS debt security. Any difference between the fair value and the net present value of the debt security at the impairment measurement date remains in “Other comprehensive income (loss).” Changes in the allowance for losses are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, any impairments on AFS debt securities were reported as an adjustment to the amortized cost basis of the security. Subsequent to the impairment, the AFS debt security was treated as if it were newly acquired at the date of impairment, and any increases in cash flows expected to be collected were accreted into net investment income over the life of the investment.

Commercial mortgage and other loans

Commercial mortgage and other loans are reported in the Statements of Financial Position at amortized cost net of the CECL allowance. Additionally, certain off-balance sheet credit exposures (e.g., indemnification of serviced mortgage loans, and certain unfunded mortgage loan commitments where the Company cannot unconditionally cancel the commitment) are also subject to a CECL allowance.

The CECL allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets or off-balance sheet credit exposures. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, and other collateralized and uncollateralized loans.

For commercial mortgage and agricultural mortgage loans (and related unfunded commitments where the Company cannot unconditionally cancel the commitment), the allowance is calculated using an internally developed CECL model.

Key inputs to the CECL model include unpaid principal balances, internal credit ratings, annual expected loss factors, average lives of the loans adjusted for prepayment considerations, current and historical interest rate assumptions, and other factors influencing the Company’s view of the current stage of the economic cycle and future economic conditions. Subjective considerations include a review of whether historical loss experience is representative of current market conditions and the Company’s view of the credit cycle. Model assumptions and factors are reviewed and updated as appropriate. Information about certain key inputs is detailed below.

Key factors in determining the internal credit ratings for commercial mortgage and agricultural mortgage loans include loan-to-value and debt-service-coverage ratios. Other factors include amortization, loan term, and estimated market value growth rate and volatility for the property type and region. The loan-to-value ratio compares the carrying amount of the loan to the fair value of the underlying property or properties collateralizing the loan and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the carrying amount of the loan exceeds the collateral value. A loan-to-value ratio less than 100% indicates an excess of collateral value over the carrying amount of the loan. The debt-service-coverage ratio is a property’s net operating income as a percentage of its debt service payments. Debt-service-coverage ratios less than 1.0 times indicate that a property’s operations do not generate enough income to cover the loan’s current debt payments. A debt-service-coverage ratio greater than 1.0 times indicates an excess of net operating income over the debt service payments. The values utilized in calculating these ratios are developed as part of the Company’s periodic review of the commercial mortgage and agricultural mortgage loan portfolios, which includes an internal appraisal of the underlying collateral value. The Company’s periodic review also includes a credit re-rating process, whereby the internal credit rating originally assigned at underwriting is updated based on current loan, property and market information using a proprietary credit quality rating system. See Note 3 for additional information related to the loan-to-value ratios and debt-service-coverage ratios related to the Company’s commercial mortgage and agricultural mortgage loan portfolios. Generally, every loan is re-rated at least annually.

Annual expected loss rates are based on historical default and loss experience factors. Using average lives, the annual expected loss rates are converted into life-of-loan loss expectations.

When individual loans no longer have the credit risk characteristics of the commercial or agricultural mortgage loan pools, they are removed from the pools and are evaluated individually for an allowance. The allowance is determined based on the outstanding loan balance less the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The CECL allowance on commercial mortgage and other loans can increase or decrease from period to period based on the factors noted above. The change in allowance is reported in “Realized investment gains (losses), net.” As it relates to unfunded commitments that are in scope of this guidance, the CECL allowance is reported in “Other liabilities”, and the change in the allowance is reported in “Realized investment gains (losses), net.”

When a commercial mortgage or other loan is deemed to be uncollectible, any allowance is reversed and a direct write-down of the carrying amount of the loan is recorded through "Realized investment gains (losses), net." The carrying amount of the loan is not adjusted for subsequent recoveries in value.

The CECL allowance for other collateralized and uncollateralized loans carried at amortized cost is determined based on probability of default and loss given default assumptions by sector, credit quality and average lives of the loans. Additions to or releases of the allowance are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, the impairments on commercial mortgage and other loans were collectively reviewed at a portfolio level for impairment based on probable incurred but not specifically identified losses with any such losses reflected in an allowance for credit losses. When a loan was individually identified to be impaired, the loan was individually evaluated for an allowance. Changes in these allowances were reported in “Realized investment gains (losses), net.” Additionally, an allowance for credit losses was not required on unfunded loan commitments.

Reinsurance

Reinsurance recoverables are reported on the Statements of Financial Position net of the CECL allowance. The CECL allowance considers the credit quality of the reinsurance counterparty and is generally determined based on the probability of default and loss given default assumptions, after considering any applicable collateral arrangements. The CECL allowance does not apply to reinsurance recoverables with affiliated counterparties under common control. Additions to or releases of the allowance are reported in “Policyholders’ benefits.”

Prior to the adoption of this standard, an allowance for credit losses for reinsurance recoverables was established only when it was deemed probable that a reinsurer may fail to make payments to us in a timely manner.

Other ASUs adopted during the six months ended June 30, 2020.
Standard
 
Description
 
Effective date and method of adoption
 
Effect on the financial statements or other significant matters
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation
of the Effects of Reference Rate Reform on Financial Reporting
 
This ASU provides optional relief for certain contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU also temporarily (until December 31, 2022) allows hedge relationships to continue without de-designation upon changes due to reference rate reform.
 
March 12, 2020 to December 31, 2022 using the prospective method.

 
This ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
The Company made the election under ASU 2020-04 for all applicable contracts as they converted from the current reference rate to the new reference rate.



ASU issued but not yet adopted as of June 30, 2020 — ASU 2018-12

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018 and is expected to have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements. In October 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic, the FASB voted in June 2020 to tentatively defer for an additional one year the current effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. Subsequently in July 2020, the FASB issued a proposed ASU with a comment deadline of August 24, 2020 to obtain additional feedback on the tentative decisions, which are expected to be finalized during the third quarter of 2020. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would also apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. Outlined below are four key areas of change, although there are other changes not noted below. In addition to the impacts to the balance sheet upon adoption, the Company also expects an impact to how earnings emerge thereafter.

ASU 2018-12 Amended Topic
 
Description
 
Method of adoption
 
Effect on the financial statements or other significant matters
Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products
 
Requires an entity to review, and if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Consolidated Statements of Operations.
 
An entity may choose one of two adoption methods for the liability for future policy benefits: (1) a modified retrospective transition method whereby the entity will apply the amendments to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in Accumulated Other Comprehensive Income (loss) ("AOCI") or (2) a full retrospective transition method.
 
The options for method of adoption and the impacts of such methods are under assessment.
Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products
 
Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield and will be required to be updated each quarter with the impact recorded through OCI.
 
As noted above, an entity may choose either a modified retrospective transition method or full retrospective transition method for the liability for future policy benefits. Under either method, for balance sheet remeasurement purposes, the liability for future policy benefits will be remeasured using current discount rates as of the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.
 
Upon adoption, under either transition method, there will be an adjustment to AOCI as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between the discount rate locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.
Amortization of DAC and other balances
 
Requires DAC and other balances, such as unearned revenue reserves and deferred sales inducements ("DSI"), to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.
 
An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity will apply the amendments to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a retrospective transition method for DAC and other balances.
 
The options for method of adoption and the impacts of such methods are under assessment. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.
Market Risk Benefits
 
Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record market risk benefit assets and liabilities separately on the Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change that is attributable to changes in an entity’s non-performance risk ("NPR") which is recognized in OCI.
 
An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative-effect adjustment on the balance sheet as of the earliest period presented. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.
 
Upon adoption, the Company expects an impact to retained earnings for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits on variable annuities) and an impact from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. The magnitude of such adjustments is currently being assessed.

v3.20.2
Investments
6 Months Ended
Jun. 30, 2020
Investments [Abstract]  
Investments
3.    INVESTMENTS

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:
 
June 30, 2020
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Allowance for Credit Losses
 
Fair
Value
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
124,521

 
$
3,921

 
$
0

 
$
0

 
$
128,442

Obligations of U.S. states and their political subdivisions
460,917

 
51,958

 
0

 
0

 
512,875

Foreign government bonds
190,655

 
32,670

 
42

 
0

 
223,283

U.S. public corporate securities
2,060,742

 
342,008

 
7,976

 
0

 
2,394,774

U.S. private corporate securities
898,457

 
70,998

 
4,803

 
1,899

 
962,753

Foreign public corporate securities
225,423

 
28,997

 
2,762

 
0

 
251,658

Foreign private corporate securities
969,193

 
40,731

 
32,418

 
2,673

 
974,833

Asset-backed securities(1)
122,786

 
658

 
2,554

 
0

 
120,890

Commercial mortgage-backed securities
437,874

 
34,650

 
0

 
0

 
472,524

Residential mortgage-backed securities(2)
59,732

 
4,558

 
0

 
0

 
64,290

Total fixed maturities, available-for-sale
$
5,550,300

 
$
611,149

 
$
50,555

 
$
4,572

 
$
6,106,322


(1)
Includes credit-tranched securities collateralized by loan obligations, credit cards, auto loans, education loans and home equity loans.
(2)
Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

 
December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
OTTI
in AOCI(3)
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government authorities and agencies
$
83,622

 
$
2,846

 
$
0

 
$
86,468

 
$
0

Obligations of U.S. states and their political subdivisions
458,152

 
39,675

 
0

 
497,827

 
0

Foreign government bonds
196,034

 
26,793

 
1

 
222,826

 
0

U.S. public corporate securities
1,914,503

 
229,071

 
2,247

 
2,141,327

 
0

U.S. private corporate securities
886,281

 
44,497

 
1,006

 
929,772

 
0

Foreign public corporate securities
256,843

 
22,158

 
385

 
278,616

 
0

Foreign private corporate securities
939,603

 
38,426

 
19,551

 
958,478

 
0

Asset-backed securities(1)
119,602

 
800

 
466

 
119,936

 
(7
)
Commercial mortgage-backed securities
367,848

 
15,231

 
163

 
382,916

 
0

Residential mortgage-backed securities(2)
60,778

 
3,050

 
24

 
63,804

 
(131
)
Total fixed maturities, available-for-sale
$
5,283,266

 
$
422,547

 
$
23,843

 
$
5,681,970

 
$
(138
)

(1)
Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, education loans and other asset types.
(2)
Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(3)
Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $1.7 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The following table sets forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the date indicated:

 
June 30, 2020
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Foreign government bonds
$
2,119

 
$
42

 
$
0

 
$
0

 
$
2,119

 
$
42

U.S. public corporate securities
119,249

 
6,812

 
4,858

 
1,164

 
124,107

 
7,976

U.S. private corporate securities
85,321

 
4,514

 
3,772

 
287

 
89,093

 
4,801

Foreign public corporate securities
10,640

 
819

 
5,312

 
1,943

 
15,952

 
2,762

Foreign private corporate securities
148,434

 
5,474

 
192,258

 
26,330

 
340,692

 
31,804

Asset-backed securities
47,117

 
1,087

 
55,368

 
1,467

 
102,485

 
2,554

Commercial mortgage-backed securities
0

 
0

 
0

 
0

 
0

 
0

Residential mortgage-backed securities
83

 
0

 
0

 
0

 
83

 
0

Total fixed maturities, available-for-sale
$
412,963

 
$
18,748

 
$
261,568

 
$
31,191

 
$
674,531

 
$
49,939


The following table sets forth the fair value and gross unrealized losses on fixed maturity securities aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the date indicated:

 
December 31, 2019
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
Fair Value  
 
Gross
  Unrealized  
Losses
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Foreign government bonds
$
2,152

 
$
1

 
$
400

 
$
0

 
$
2,552

 
$
1

U.S. public corporate securities
81,622

 
984

 
19,206

 
1,263

 
100,828

 
2,247

U.S. private corporate securities
33,264

 
780

 
22,143

 
226

 
55,407

 
1,006

Foreign public corporate securities
3,839

 
23

 
9,379

 
362

 
13,218

 
385

Foreign private corporate securities
32,800

 
921

 
186,693

 
18,630

 
219,493

 
19,551

Asset-backed securities
32,361

 
243

 
55,461

 
223

 
87,822

 
466

Commercial mortgage-backed securities
22,153

 
163

 
0

 
0

 
22,153

 
163

Residential mortgage-backed securities
3,049

 
16

 
692

 
8

 
3,741

 
24

Total fixed maturities, available-for-sale
$
211,240

 
$
3,131

 
$
293,974

 
$
20,712

 
$
505,214

 
$
23,843



As of June 30, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $31.9 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $18.0 million, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2020, the $31.2 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, energy and consumer non-cyclical sectors.

As of December 31, 2019, the gross unrealized losses on fixed maturity securities were composed of $16.0 million related to “1” highest quality or “2” high quality securities based on the NAIC or equivalent rating and $7.8 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2019, the $20.7 million of gross unrealized losses of twelve months or more were concentrated in the Company's corporate securities within the finance, energy and consumer non-cyclical sectors.

In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at June 30, 2020. These conclusions were based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of June 30, 2020, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:

 
June 30, 2020
 
Amortized Cost
 
Fair Value
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
Due in one year or less
$
238,403

 
$
240,471

Due after one year through five years
730,695

 
744,717

Due after five years through ten years
958,937

 
998,183

Due after ten years
3,001,873

 
3,465,247

Asset-backed securities
122,786

 
120,890

Commercial mortgage-backed securities
437,874

 
472,524

Residential mortgage-backed securities
59,732

 
64,290

Total fixed maturities, available-for-sale
$
5,550,300

 
$
6,106,322



Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs, impairments and the allowance for credit losses of fixed maturities, for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
Proceeds from sales(1)
$
5,223

 
$
28,231

 
$
12,941

 
$
53,018

Proceeds from maturities/prepayments
55,968

 
75,554

 
137,754

 
128,429

Gross investment gains from sales and maturities
39

 
(1,384
)
 
592

 
(435
)
Gross investment losses from sales and maturities
(1,663
)
 
(1,105
)
 
(1,736
)
 
(3,075
)
OTTI recognized in earnings(2)
N/A

 
0

 
N/A

 
(3,163
)
Write-downs recognized in earnings(3)
(77
)
 
N/A

 
(1,022
)
 
N/A

(Addition to) release of allowance for credit losses(4)
$
(2,362
)
 
N/A

 
(4,572
)
 
N/A


(1)
Includes $0.1 million and $2.1 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2020 and 2019, respectively.
(2)
For the three and six months ended June 30, 2019, amounts exclude the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.
(3)
For the three and six months ended June 30, 2020, amounts represent write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.
(4)
Effective January 1, 2020, credit losses on available-for-sale fixed maturity securities are recorded within the “allowance for credit losses.”

The following table sets forth the activity in the allowance for credit losses for fixed maturity securities, as of the date indicated:

 
June 30, 2020
 
U.S. Treasury Securities and Obligations of U.S. States
 
Foreign Government Bonds
 
U.S. and Foreign Corporate Securities
 
Asset-Backed Securities
 
Commercial Mortgage-Backed Securities
 
Residential Mortgage-Backed Securities
 
Total
 
(in thousands)
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of year
$
0

 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

Additions to allowance for credit losses not previously recorded
0

 
0

 
4,891

 
0

 
0

 
0

 
4,891

Reductions for securities sold during the period
0

 
0

 
(9
)
 
0

 
0

 
0

 
(9
)
Addition (reductions) on securities with previous allowance
0

 
0

 
(310
)
 
0

 
0

 
0

 
(310
)
Balance, end of period
$
0

 
$
0

 
$
4,572

 
$
0

 
$
0

 
$
0

 
$
4,572



See Note 2 for additional information about the Company’s methodology for developing our allowance and expected losses.

As of June 30, 2020, the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows on private corporate securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of June 30, 2020.
Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was less than $(0.1) million and $(0.5) million during the three months ended June 30, 2020 and 2019, respectively, and $(0.8) million and $0.2 million during the six months ended June 30, 2020 and 2019, respectively.

Commercial Mortgage and Other Loans

The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:
 
June 30, 2020
 
December 31, 2019
 
Amount
(in thousands)
 
% of
Total
 
Amount
(in thousands)
 
% of
Total
Commercial mortgage and agricultural property loans by property type:
 
 
 
 
 
 
 
Apartments/Multi-Family
$
356,713

 
29.7
%
 
$
355,175

 
28.6
%
Hospitality
33,673

 
2.8

 
31,449

 
2.5

Industrial
310,332

 
25.8

 
299,803

 
24.1

Office
189,770

 
15.8

 
205,498

 
16.6

Other
139,624

 
11.6

 
136,841

 
11.0

Retail
151,200

 
12.6

 
190,690

 
15.4

Total commercial mortgage loans
1,181,312

 
98.3

 
1,219,456

 
98.2

Agricultural property loans
20,879

 
1.7

 
22,197

 
1.8

Total commercial mortgage and agricultural property loans by property type
1,202,191

 
100.0
%
 
1,241,653

 
100.0
%
Allowance for credit losses
(4,559
)
 
 
 
(1,768
)
 
 
Total net commercial mortgage and agricultural property loans by property type
1,197,632

 
 
 
1,239,885

 
 
Other loans:
 
 
 
 
 
 
 
Other collateralized loans
927

 
 
 
0

 
 
Total other loans
927

 
 
 
0

 
 
Allowance for credit losses
0

 
 
 
0

 
 
Total net other loans
927

 
 
 
0

 
 
Total commercial mortgage and other loans
$
1,198,559

 
 
 
$
1,239,885

 
 


As of June 30, 2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (22%), Texas (14%) and New York (8%)) and included loans secured by properties in Europe (9%), Mexico (3%) and Australia (2%).

The following table sets forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:

 
Commercial Mortgage Loans
 
Agricultural Property Loans
 
Other Collateralized Loans
 
Total
 
(in thousands)
Balance at December 31, 2018
$
2,026

 
$
39

 
$
0

 
$
2,065

Addition to (release of) allowance for credit losses
(283
)
 
(14
)
 
0

 
(297
)
Balance at December 31, 2019
1,743

 
25

 
0

 
1,768

Cumulative effect of adoption of ASU 2016-13
2,495

 
(8
)
 
0

 
2,487

Addition to (release of) allowance for expected losses
311

 
(7
)
 
0

 
304

Balance at June 30, 2020
$
4,549

 
$
10

 
$
0

 
$
4,559



See Note 2 for additional information about the Company's methodology for developing our allowance and expected losses.

As of June 30, 2020, the increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the date indicated:
 
June 30, 2020
 
Amortized Cost by Origination Year
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving Loans
 
Total
 
(in thousands)
Loan-to-Value Ratio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0%-59.99%
$
0

 
$
57,680

 
$
35,787

 
$
90,979

 
$
164,124

 
$
256,759

 
$
0

 
$
605,329

60%-69.99%
16,864

 
65,000

 
80,324

 
53,111

 
90,127

 
91,606

 
0

 
397,032

70%-79.99%
7,627

 
45,957

 
81,130

 
32,826

 
9,628

 
1,561

 
0

 
178,729

80% or greater
0

 
0

 
0

 
0

 
0

 
222

 
0

 
222

Subtotal
24,491

 
168,637

 
197,241

 
176,916

 
263,879

 
350,148

 
0

 
1,181,312

Agricultural property loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0%-59.99%
0

 
0

 
0

 
6,486

 
0

 
14,393

 
0

 
20,879

60%-69.99%
0

 
0

 
0

 
0

 
0

 
0

 
0

 
0

70%-79.99%
0

 
0

 
0

 
0

 
0

 
0

 
0

 
0

80% or greater
0

 
0

 
0

 
0

 
0

 
0

 
0

 
0

Subtotal
0

 
0

 
0

 
6,486

 
0

 
14,393

 
0

 
20,879

Total commercial mortgage and agricultural property loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0%-59.99%
0

 
57,680

 
35,787

 
97,465

 
164,124

 
271,152

 
0

 
626,208

60%-69.99%
16,864

 
65,000

 
80,324

 
53,111

 
90,127

 
91,606

 
0

 
397,032

70%-79.99%
7,627

 
45,957

 
81,130

 
32,826

 
9,628

 
1,561

 
0

 
178,729

80% or greater
0

 
0

 
0

 
0

 
0

 
222

 
0

 
222

Total commercial mortgage and agricultural property loans
$
24,491

 
$
168,637

 
$
197,241

 
$
183,402

 
$
263,879

 
$
364,541

 
$
0

 
$
1,202,191



 
June 30, 2020
 
December 31, 2019
 
Commercial Mortgage Loans
 
Agricultural Property Loans
 
Commercial Mortgage Loans
 
Agricultural Property Loans
 
(in thousands)
Debt Service Coverage Ratio:
 
 
 
 
 
 
 
Greater or equal to 1.2x
$
1,117,808

 
$
20,064

 
$
1,159,411

 
$
21,382

1.0 - 1.2x
62,866

 
0

 
58,948

 
0

Less than 1.0x
638

 
815

 
1,097

 
815

Total
$
1,181,312

 
$
20,879

 
$
1,219,456

 
$
22,197



See Note 2 for additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.


The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:
 
June 30, 2020
 
Current
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due(1)
 
Total Loans
 
Non-Accrual Status(2)
 
(in thousands)
Commercial mortgage loans
$
1,181,312

 
$
0

 
$
0

 
$
0

 
$
1,181,312

 
$
0

Agricultural property loans
20,879

 
0

 
0

 
0

 
20,879

 
0

Other collateralized loans
927

 
0

 
0

 
0

 
927

 
0

Total
$
1,203,118

 
$
0

 
$
0

 
$
0

 
$
1,203,118

 
$
0


(1)
As of June 30, 2020, there were no loans in this category accruing interest.
(2)
For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
 
December 31, 2019
 
Current
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due(1)
 
Total Loans
 
Non-Accrual Status(2)
 
(in thousands)
Commercial mortgage loans
$
1,219,456

 
$
0

 
$