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1.	Business and Basis of Presentation

Business

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) is engaged in providing traditional reinsurance, which includes individual and group life and health, disability, and critical illness reinsurance. The Company also provides financial solutions, which includes longevity reinsurance, asset-intensive products, primarily annuities, financial reinsurance, capital solutions and stable value products.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 (the “2019 Annual Report”).

In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Consolidation

These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries and all intercompany accounts and transactions have been eliminated. Entities in which the Company has significant influence over the operating and financing decisions but are not required to be consolidated are reported under the equity method of accounting.

Significant Accounting Policies – Update

The Company’s significant accounting policies are discussed in Note 2 – “Significant Accounting Policies and Pronouncements” of the 2019 Annual Report. The significant accounting policies discussed below reflect the impact of the adoption of Financial Instruments - Credit Losses on January 1, 2020.

Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale

Beginning on January 1, 2020, credit losses are recognized through an allowance account. The Company identifies fixed maturity securities that could potentially have an allowance for credit losses by monitoring market events that could impact issuers’ credit ratings, business climates, management changes, litigation, government actions and other similar factors. The Company also monitors late payments, pricing levels, rating agency actions, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.

The Company reviews all securities on a case-by-case basis to determine whether a decline in value exists and whether an allowance for credit losses or impairment for non-credit losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a security is impaired due to credit or non-credit components. Relevant facts and circumstances considered include: (1) the reasons for the decline in fair value; (2) the issuer’s financial position and access to capital; and (3) the Company’s intent to sell a security or whether it is more likely than not it will be required to sell the security before the recovery of its amortized cost that, in some cases, may extend to maturity. To the extent the Company determines a security is deemed to be impaired, an allowance is recorded for credit losses and an impairment loss is recognized in accumulated other comprehensive income (“AOCI”) for non-credit losses.

Impairment losses on fixed maturity securities recognized in the financial statements are dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that it would be required to sell a security before the recovery of its amortized cost, less any recorded credit loss, it recognizes an impairment loss in investment related gains (losses), net on the condensed consolidated statements of income for the difference between amortized cost and fair value.

The Company estimates the amount of the credit loss component of a fixed maturity security impairment as the difference between amortized cost and the present value of the expected cash flows of the security. The Company excludes accrued interest from the amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to

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accrete an asset-backed or floating rate security. The techniques and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities’ cash flow estimates are based on security-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate fixed maturity security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security specific facts and circumstances including timing, security interests and loss severity.

The Company writes off uncollectible fixed maturity securities when (1) it has sufficient information to determine that the issuer of the security is insolvent or (2) it has received notice that the issuer of the security has filed for bankruptcy, and the collectability of the asset is expected to be adversely impacted by the bankruptcy.

In periods after an impairment loss is recognized for non-credit loss components on a fixed maturity security, the Company will report the impaired security as if it had been purchased on the date it was impaired and will continue to estimate the present value of the estimated cash flows of the security. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income over the remaining term of the fixed maturity security in a prospective manner based on the amount and timing of estimated future cash flows.

Impairments – Other Invested Assets

The Company considers its cost method investments for impairment when the carrying value of these investments exceeds the net asset value. The Company takes into consideration the severity and duration of this excess when deciding if the cost method investment is impaired. For equity method investments (including real estate joint ventures), the Company considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an impairment has occurred.

Mortgage Loans on Real Estate

Mortgage loans on real estate are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loan based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until it is probable the Company will not receive interest, or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the condensed consolidated statements of income.

Valuation allowances on mortgage loans are computed on an expected loss basis using a model that utilizes probability of default and loss given default methods over the lifetime of the loan. Accrued interest is excluded from the calculation of valuation allowances. Within the reasonable and supportable forecast period (i.e. typically two years), valuation allowances for mortgage loans are established based on several pool-level loan assumptions, defaults and loss severity, loss expectations for loans with similar risk characteristics and industry statistics. These evaluations are revised as conditions change and new information becomes available. The model also includes the impact of expected changes in future macro-economic conditions. The Company reverts to historical loss information for periods beyond which it believes it is able to develop or obtain reasonable and supportable forecasts of future economic conditions.

A mortgage loan is considered to be impaired when, based on the current information and events, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. Although all available and applicable factors are considered in the Company’s analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining impairment. Impairments are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or is otherwise collateral-dependent, or the loan’s market value if the loan is being sold.

Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectability of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed are charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in investment related gains (losses), net on the condensed consolidated statements of income.

The Company evaluates whether a mortgage loan modification represents a troubled debt restructuring. In a troubled debt restructuring, the Company grants concessions related to the borrower’s financial difficulties. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates and/or a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the continuous monitoring process, the Company may have recorded a specific valuation allowance prior to when the mortgage loan is modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation

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allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

2.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share on net income (in millions, except per share information):

	Three months ended March 31,
	2020				2019
Earnings:
Net income (loss)	$	(88	)		$	170
Shares:
Weighted average outstanding shares	62				63
Equivalent shares from outstanding stock options	1				1
Denominator for diluted calculation	63				64
Earnings per share:
Basic	$	(1.41	)		$	2.70
Diluted	$	(1.41	)		$	2.65

As a result of the net loss for the three months ended March 31, 2020, the Company is required to use basic weighted average common shares outstanding of 62 million in the calculation of diluted loss per share, since the inclusion of shares for outstanding stock options of 1 million would have been anti-dilutive to the loss per share calculations. In the absence of the losses, weighted average common shares outstanding and dilutive potential common shares would have totaled 63 million.

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

	Three months ended March 31,
	2020			2019
Excluded from common equivalent shares:
Stock options	1,060			544
Performance contingent shares	150			109

3.	Equity

Common stock

The changes in number of common stock shares issued, held in treasury and outstanding are as follows for the periods indicated:

		Issued			Held In Treasury			Outstanding
Balance, December 31, 2019		79,137,758			16,481,656			62,656,102
Common stock acquired		—			1,074,413			(1,074,413	)
Stock-based compensation (1)		—			(64,654	)		64,654
Balance, March 31, 2020		79,137,758			17,491,415			61,646,343

		Issued			Held In Treasury			Outstanding
Balance, December 31, 2018		79,137,758			16,323,390			62,814,368
Common Stock issued		—			344,237			(344,237	)
Stock-based compensation (1)		—			(74,216	)		74,216
Balance, March 31, 2019		79,137,758			16,593,411			62,544,347

(1)	Represents net shares issued from treasury pursuant to the Company’s equity-based compensation programs.

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Common Stock Held in Treasury

Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of common stock held in treasury are credited to additional paid-in capital. Losses resulting from the reissuance of common stock held in treasury are charged first to additional paid-in capital to the extent the Company has previously recorded gains on treasury share transactions, then to retained earnings.

On January 24, 2019, RGA’s board of directors authorized a share repurchase program for up to $400 million of RGA’s outstanding common stock. The authorization was effective immediately and does not have an expiration date. During the three months ended March 31, 2020, RGA repurchased 1 million shares of common stock under this program for $153 million.

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the three months ended March 31, 2020 and 2019 are as follows (dollars in millions):

		Accumulated Other Comprehensive Income (Loss), Net of Income Tax
		Accumulated Currency Translation Adjustments				Unrealized Appreciation (Depreciation) of Investments(1)				Pension and Postretirement Benefits				Total
Balance, December 31, 2019		$	(92	)		$	3,299			$	(70	)		$	3,137
Other comprehensive income (loss) before reclassifications		(112		)		(2,496		)		(5		)		(2,613		)
Amounts reclassified to (from) AOCI		—				141				1				142
Deferred income tax benefit (expense)		(19		)		482				1				464
Balance, March 31, 2020		$	(223	)		$	1,426			$	(73	)		$	1,130

		Accumulated Other Comprehensive Income (Loss), Net of Income Tax
		Accumulated Currency Translation Adjustments				Unrealized Appreciation (Depreciation) of Investments(1)				Pension and Postretirement Benefits				Total
Balance, December 31, 2018		$	(169	)		$	856			$	(51	)		$	636
Other comprehensive income (loss) before reclassifications		19				1,437				(2		)		1,454
Amounts reclassified to (from) AOCI		—				(15		)		1				(14		)
Deferred income tax benefit (expense)		3				(314		)		—				(311		)
Balance, March 31, 2019		$	(147	)		$	1,964			$	(52	)		$	1,765

(1)	Includes cash flow hedges of $(87) and $(26) as of March 31, 2020 and December 31, 2019, respectively, and $(1) and $9 as of March 31, 2019 and December 31, 2018, respectively. See Note 5 – “Derivative Instruments” for additional information on cash flow hedges.

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The following table presents the amounts of AOCI reclassifications for the three months ended March 31, 2020 and 2019 (dollars in millions):

		Amount Reclassified from AOCI
		Three months ended March 31,								Affected Line Item in  Statement of Income
Details about AOCI Components		2020				2019
Net unrealized investment gains (losses):
Net unrealized gains (losses) on available-for-sale securities		$	(39	)		$	—			Investment related gains (losses), net
Cash flow hedges - Interest rate		—				—				(1)
Cash flow hedges - Currency/Interest rate		—				—				(1)
Deferred policy acquisition costs attributed to unrealized gains and losses		(102		)		15				(2)
Total		(141		)		15
Provision for income taxes		27				(3		)
Net unrealized gains (losses), net of tax		$	(114	)		$	12
Amortization of defined benefit plan items:
Prior service cost (credit)		$	—			$	—			(3)
Actuarial gains/(losses)		(1		)		(1		)		(3)
Total		(1		)		(1		)
Provision for income taxes		—				—
Amortization of defined benefit plans, net of tax		$	(1	)		$	(1	)
Total reclassifications for the period		$	(115	)		$	11

(1)	See Note 5 – “Derivative Instruments” for additional information on cash flow hedges.

(2)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2019 Annual Report for additional details.

(3)	This AOCI component is included in the computation of the net periodic pension cost. See Note 10 – “Employee Benefit Plans” for additional details.

Equity Based Compensation

Equity compensation expense was $5 million and $8 million for the three months ended March 31, 2020 and 2019, respectively. In the first quarter of 2020, the Company granted 456,301 stock appreciation rights at $117.85 weighted average exercise price per share, 175,047 performance contingent units and 30,129 restricted stock units to employees. As of March 31, 2020, 1,386,800 share options at a weighted average strike price per share of $85.96 were vested and exercisable, with a remaining weighted average exercise period of 4.5 years. As of March 31, 2020, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $43 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.

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4.	Investments

Fixed Maturity Securities Available-for-Sale

The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”). RMBS, ABS and CMBS are collectively “structured securities.”

The following tables provide information relating to investments in fixed maturity securities by type as of March 31, 2020 and December 31, 2019 (dollars in millions):

March 31, 2020:		Amortized				Allowance for				Unrealized				Unrealized				Estimated Fair				% of
		Cost				Credit Losses				Gains				Losses				Value				Total
Available-for-sale:
Corporate		$	29,203			$	26			$	1,294			$	977			$	29,494			60.8	%
Canadian government		2,793				—				1,445				1				4,237				8.7
RMBS		2,241				—				77				27				2,291				4.7
ABS		2,940				—				4				277				2,667				5.5
CMBS		1,841				—				24				56				1,809				3.7
U.S. government		1,398				—				244				—				1,642				3.4
State and political subdivisions		1,071				—				108				10				1,169				2.4
Other foreign government		5,133				7				233				113				5,246				10.8
Total fixed maturity securities		$	46,620			$	33			$	3,429			$	1,461			$	48,555			100.0	%

 

December 31, 2019:		Amortized				Unrealized				Unrealized				Estimated Fair				% of			Impairments
		Cost				Gains				Losses				Value				Total			in AOCI
Available-for-sale:
Corporate		$	29,205			$	2,269			$	81			$	31,393			61.4	%		$	—
Canadian government		3,016				1,596				—				4,612				9.0			—
RMBS		2,339				62				3				2,398				4.7			—
ABS		2,973				19				14				2,978				5.8			—
CMBS		1,841				61				3				1,899				3.7			—
U.S. government		2,096				57				1				2,152				4.2			—
State and political subdivisions		1,074				93				3				1,164				2.3			—
Other foreign government		4,209				321				5				4,525				8.9			—
Total fixed maturity securities		$	46,753			$	4,478			$	110			$	51,121			100.0	%		$	—

The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of March 31, 2020 and December 31, 2019, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of March 31, 2020 and December 31, 2019 (dollars in millions):

	March 31, 2020								December 31, 2019
	Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Fixed maturity securities pledged as collateral	$	142			$	154			$	113			$	116
Fixed maturity securities received as collateral	n/a				1,172				n/a				727
Assets in trust held to satisfy collateral requirements	27,080				27,441				27,290				29,239

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The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio that limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and its agencies, as well as the securities disclosed below, as of March 31, 2020 and December 31, 2019 (dollars in millions).

	March 31, 2020								December 31, 2019
	Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Fixed maturity securities guaranteed or issued by:
Government of Japan	$	1,660			$	1,672			$	813			$	852
Canadian province of Quebec	1,132				1,986				1,205				2,163
Canadian province of Ontario	941				1,289				1,014				1,379

The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale as of March 31, 2020, are shown by contractual maturity in the table below (dollars in millions). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Structured securities are shown separately in the table below, as they are not due at a single maturity date.

		Amortized Cost				Estimated Fair Value
Available-for-sale:
Due in one year or less		$	1,176			$	1,172
Due after one year through five years		8,125				8,184
Due after five years through ten years		9,629				9,880
Due after ten years		20,668				22,552
Structured securities		7,022				6,767
Total		$	46,620			$	48,555

Corporate Fixed Maturity Securities

The tables below show the major sectors of the Company’s corporate fixed maturity holdings as of March 31, 2020 and December 31, 2019 (dollars in millions): 

March 31, 2020:						Estimated
		Amortized Cost				Fair Value				% of Total
Finance		$	10,979			$	11,056			37.5	%
Industrial		14,703				14,756				50.0
Utility		3,521				3,682				12.5
Total		$	29,203			$	29,494			100.0	%
December 31, 2019:						Estimated
		Amortized Cost				Fair Value				% of Total
Finance		$	10,896			$	11,653			37.2	%
Industrial		14,692				15,803				50.3
Utility		3,617				3,937				12.5
Total		$	29,205			$	31,393			100.0	%

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Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale

As discussed in Note 1 – “Business and Basis of Presentation,” allowances for credit losses on fixed maturity securities are recognized in investment related gains (losses), net on the condensed consolidated statements of income. For these securities, the net amount recognized represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the fixed maturity security prior to the allowance for credit losses. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The amount of pre-tax credit loss impairments on fixed maturity securities held by the Company, for which a portion of the impairment loss was recognized in AOCI, was $2 million and $4 million as of March 31, 2020 and March 31, 2019, respectively. There were no changes in these amounts from their respective prior-year ending balances.

The following table presents the rollforward of the allowance for credit losses in fixed maturity securities by type as of March 31, 2020 (dollars in millions):

	March 31, 2020
	Corporate				Other Foreign Government				Total
Balance, beginning of period	$	—			$	—			$	—
Credit losses recognized on securities for which credit losses were not previously recorded	26				7				33
Balance, end of period	$	26			$	7			$	33

Unrealized Losses for Fixed Maturity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 3,102 and 1,072 fixed maturity securities as of March 31, 2020 and December 31, 2019, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in millions):

		March 31, 2020							December 31, 2019
		Gross Unrealized Losses				% of Total			Gross Unrealized Losses				% of Total
Less than 20%		$	1,052			72.0	%		$	76			69.1	%
20% or more for less than six months		409				28.0			20				18.2
20% or more for six months or greater		—				—			14				12.7
Total		$	1,461			100.0	%		$	110			100.0	%

The Company’s determination of whether a decline in value necessitates the recording of an allowance for credit losses includes an analysis of whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment.

The following tables present the estimated fair values and gross unrealized losses for fixed maturity securities that have estimated fair values below amortized cost as of March 31, 2020 and December 31, 2019 (dollars in millions). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.

 

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		Less than 12 months								12 months or greater								Total
						Gross								Gross								Gross
March 31, 2020:		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
Investment grade securities:
Corporate		$	9,666			$	729			$	93			$	18			$	9,759			$	747
Canadian government		—				—				6				1				6				1
RMBS		1,047				25				41				2				1,088				27
ABS		1,936				203				552				65				2,488				268
CMBS		913				52				21				1				934				53
U.S. government		—				—				—				—				—				—
State and political subdivisions		158				9				12				1				170				10
Other foreign government		1,813				94				7				4				1,820				98
Total investment grade securities		15,533				1,112				732				92				16,265				1,204
Below investment grade securities:
Corporate		1,106				219				66				11				$	1,172			$	230
ABS		15				9				—				—				15				9
CMBS		23				3				—				—				23				3
Other foreign government		150				13				7				2				157				15
Total below investment grade securities		1,294				244				73				13				1,367				257
Total fixed maturity securities		$	16,827			$	1,356			$	805			$	105			$	17,632			$	1,461

		Less than 12 months								12 months or greater								Total
						Gross								Gross								Gross
December 31, 2019:		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
Investment grade securities:
Corporate		$	1,936			$	29			$	293			$	7			$	2,229			$	36
Canadian government		—				—				—				—				—				—
RMBS		367				2				84				1				451				3
ABS		773				5				739				9				1,512				14
CMBS		253				3				—				—				253				3
U.S. government		49				1				—				—				49				1
State and political subdivisions		103				2				12				1				115				3
Other foreign government		278				4				—				—				278				4
Total investment grade securities		3,759				46				1,128				18				4,887				64
Below investment grade securities:
Corporate		220				38				100				7				320				45
ABS		—				—				—				—				—				—
CMBS		—				—				—				—				—				—
Other foreign government		—				—				10				1				10				1
Total below investment grade securities		220				38				110				8				330				46
Total fixed maturity securities		$	3,979			$	84			$	1,238			$	26			$	5,217			$	110

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

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Investment Income, Net of Related Expenses

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

 

	Three months ended March 31,
	2020				2019
Fixed maturity securities available-for-sale	$	480			$	415
Equity securities	2				1
Mortgage loans on real estate	67				60
Policy loans	15				14
Funds withheld at interest	53				62
Short-term investments and cash and cash equivalents	4				7
Other invested assets	(5		)		42
Investment income	616				601
Investment expense	(22		)		(21		)
Investment income, net of related expenses	$	594			$	580

Investment Related Gains (Losses), Net

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

	Three months ended March 31,
	2020				2019
Fixed maturity securities available-for-sale:
Impairment losses and change in allowance for credit losses	$	(34	)		$	(9	)
Gain on investment activity	27				28
Loss on investment activity	(8		)		(19		)
Net gains (losses) on equity securities	(23		)		4
Other impairment losses and change in mortgage loan provision	(13		)		(2		)
Derivatives and other, net	(234		)		6
Total investment related gains (losses), net	$	(285	)		$	8

The impairment losses and change in allowance for credit losses on fixed maturity securities for the three months ended March 31, 2020, includes $1 million in impairment losses on securities the Company intends to sell and an increase of $33 million in the allowance for credit losses related to high-yield securities as result of the uncertainty in the global markets due to the novel coronavirus (“COVID-19”) pandemic. The fixed maturity impairment losses for the three months ended March 31, 2019, were primarily related to a U.S. utility company. The fluctuations in investment related gains (losses) for equity securities for the three months ended March 31, 2020, was primarily driven by the change in unrealized gains/losses of these securities recognized in earnings due to the broad market weakness related to the COVID-19 pandemic. The other impairment losses and change in mortgage loan provision for the three months ended March 31, 2020, were primarily due to an increase in the mortgage loan valuation allowance to reflect the estimated impact from the COVID-19 pandemic. The fluctuations in investment related gains (losses) for derivatives and other for the three months ended March 31, 2020, compared to the same period in 2019, are primarily due to changes in the fair value of embedded derivatives related to modified coinsurance and funds withheld treaties, as a result of changes in interest rates, and widening credit spreads, both of which were a result of the COVID-19 pandemic uncertainty.

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Securities Borrowing, Lending and Other

The following table includes the amount of borrowed securities, securities lent and securities collateral received as part of the securities lending program and repurchased/reverse repurchased securities pledged and received as of March 31, 2020 and December 31, 2019 (dollars in millions).

	March 31, 2020								December 31, 2019
	Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Borrowed securities	$	325			$	334			$	339			$	369
Securities lending:
Securities loaned	98				99				98				104
Securities received	n/a				107				n/a				107
Repurchase program/reverse repurchase program:
Securities pledged	398				408				356				384
Securities received	n/a				344				n/a				370

The Company held cash collateral for repurchase/reverse repurchase programs of $5 million and $1 million as of March 31, 2020 and December 31, 2019, respectively. No cash or securities were pledged by the Company for its securities borrowing program as of March 31, 2020 and December 31, 2019.

The following tables present information on the Company’s securities lending and repurchase/reverse repurchase transactions as of March 31, 2020 and December 31, 2019 (dollars in millions). Collateral associated with certain borrowed securities is not included within the tables, as the collateral pledged to each counterparty is the right to reinsurance treaty cash flows.

	March 31, 2020
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous				Up to 30 Days				30-90 Days				Greater than 90 Days				Total
Securities lending transactions:
Corporate	$	—			$	—			$	—			$	99			$	99
Total	—				—				—				99				99
Repurchase/reverse repurchase transactions:
Corporate	—				—				—				303				303
Other foreign government	—				—				—				105				105
Total	—				—				—				408				408
Total borrowings	$	—			$	—			$	—			$	507			$	507
Gross amount of recognized liabilities for securities lending and repurchase/reverse repurchase transactions in preceding table																	$	451
Amounts related to agreements not included in offsetting disclosure																	$	56

	December 31, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous				Up to 30 Days				30-90 Days				Greater than 90 Days				Total
Securities lending transactions:
Corporate	$	—			$	—			$	—			$	104			$	104
Total	—				—				—				104				104
Repurchase/reverse repurchase transactions:
Corporate	—				—				—				286				286
Other foreign government	—				—				—				98				98
Total	—				—				—				384				384
Total borrowings	$	—			$	—			$	—			$	488			$	488
Gross amount of recognized liabilities for securities lending and repurchase/reverse repurchase transactions in preceding table																	$	478
Amounts related to agreements not included in offsetting disclosure																	$	10

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The Company has elected to offset amounts recognized as receivables and payables resulting from the repurchase/reverse repurchase programs. After the effect of offsetting, the net amount presented on the condensed consolidated balance sheets was a liability of $5 million and $1 million as of March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020 and December 31, 2019, the Company recognized payables resulting from cash received as collateral associated with a repurchase/reverse repurchase agreement, as discussed above. Amounts owed to and due from the counterparties may be settled in cash or offset, in accordance with the agreements.

Mortgage Loans on Real Estate

As of March 31, 2020, mortgage loans are geographically dispersed throughout the U.S. with the largest concentrations in California (15.2%), Texas (14.7%) and Washington (8.7%) and include loans secured by properties in Canada (2.9%) and United Kingdom (0.9%). The recorded investment in mortgage loans on real estate presented below is gross of unamortized deferred loan origination fees and expenses, and valuation allowances.

The distribution of mortgage loans by property type is as follows as of March 31, 2020 and December 31, 2019 (dollars in millions):

 

		March 31, 2020							December 31, 2019
Property type:		Carrying Value				% of Total			Carrying Value				% of Total
Office building		$	1,783			29.4	%		$	1,771			31.0	%
Retail		1,712				28.2			1,686				29.4
Industrial		1,253				20.7			1,169				20.4
Apartment		872				14.4			766				13.4
Other commercial		443				7.3			335				5.8
Recorded investment		$	6,063			100.0	%		$	5,727			100.0	%
Unamortized balance of loan origination fees and expenses		(10		)					(9		)
Valuation allowances		(39		)					(12		)
Total mortgage loans on real estate		$	6,014						$	5,706

The maturities of mortgage loans as of March 31, 2020 and December 31, 2019 are as follows (dollars in millions):

 

		March 31, 2020							December 31, 2019
		Recorded Investment				% of Total			Recorded Investment				% of Total
Due within five years		$	2,011			33.2	%		$	1,841			32.2	%
Due after five years through ten years		3,107				51.2			2,944				51.4
Due after ten years		945				15.6			942				16.4
Total		$	6,063			100.0	%		$	5,727			100.0	%

The following tables set forth certain key credit quality indicators of the Company’s recorded investment in mortgage loans as of March 31, 2020 and December 31, 2019 (dollars in millions):

	Recorded Investment
	Debt Service Ratios
	>1.20x				1.00x - 1.20x				<1.00x				Total				% of Total
March 31, 2020:
Loan-to-Value Ratio
0% - 59.99%	$	3,119			$	80			$	5			$	3,204			52.8	%
60% - 69.99%	2,015				40				—				2,055				33.9
70% - 79.99%	565				12				39				616				10.2
Greater than 80%	101				61				26				188				3.1
Total	$	5,800			$	193			$	70			$	6,063			100.0	%

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	Recorded Investment
	Debt Service Ratios
	>1.20x				1.00x - 1.20x				<1.00x				Total				% of Total
December 31, 2019:
Loan-to-Value Ratio
0% - 59.99%	$	3,025			$	52			$	7			$	3,084			53.8	%
60% - 69.99%	1,841				53				11				1,905				33.3
70% - 79.99%	492				13				39				544				9.5
Greater than 80%	96				61				37				194				3.4
Total	$	5,454			$	179			$	94			$	5,727			100.0	%

The following table sets forth credit quality grades by year of origination of the Company’s recorded investment in mortgage loans as of March 31, 2020 (dollars in millions):

	Recorded Investment
	Year of Origination
	2020				2019				2018				2017				2016				Prior				Total
March 31, 2020:
Internal credit quality grade:
High investment grade	$	302			$	675			$	623			$	403			$	603			$	1,177			$	3,783
Investment grade	236				516				317				342				269				422				2,102
Average	—				—				10				25				27				95				157
Watch list	—				—				—				—				—				4				4
In or near default	—				—				—				—				—				17				17
Total	$	538			$	1,191			$	950			$	770			$	899			$	1,715			$	6,063

None of the payments due to the Company on its recorded investment in mortgage loans were delinquent as of March 31, 2020 and December 31, 2019.

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of March 31, 2020 and December 31, 2019 (dollars in millions):

		March 31, 2020				December 31, 2019
Mortgage loans:
Individually measured for impairment		$	17			$	17
Collectively measured for impairment		6,046				5,710
Recorded investment		$	6,063			$	5,727
Valuation allowances:
Individually measured for impairment		$	—			$	—
Collectively measured for impairment		39				12
Total valuation allowances		$	39			$	12

Information regarding the Company’s loan valuation allowances for mortgage loans for the three months ended March 31, 2020 and 2019 is as follows (dollars in millions):

	Three months ended March 31,
	2020				2019
Balance, beginning of period	$	12			$	11
Adoption of new accounting standard, see Note 13	14				—
Provision (release)	13				—
Balance, end of period	$	39			$	11

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Information regarding the portion of the Company’s mortgage loans that were impaired as of March 31, 2020 and December 31, 2019 is as follows (dollars in millions):

		Unpaid Principal Balance				Recorded Investment				Related Allowance				Carrying Value
March 31, 2020:
Impaired mortgage loans with no valuation allowance recorded		$	17			$	17			$	—			$	17
Impaired mortgage loans with valuation allowance recorded		—				—				—				—
Total impaired mortgage loans		$	17			$	17			$	—			$	17
December 31, 2019:
Impaired mortgage loans with no valuation allowance recorded		$	17			$	17			$	—			$	17
Impaired mortgage loans with valuation allowance recorded		—				—				—				—
Total impaired mortgage loans		$	17			$	17			$	—			$	17
The Company’s average investment balance of impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in millions):
		Three months ended March 31,
		2020								2019
		Average Recorded Investment(1)				Interest Income				Average Recorded Investment(1)				Interest Income
Impaired mortgage loans with no valuation allowance recorded		$	17			$	—			$	24			$	—
Impaired mortgage loans with valuation allowance recorded		—				—				—				—
Total impaired mortgage loans		$	17			$	—			$	24			$	—

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

The Company did not acquire any impaired mortgage loans during the three months ended March 31, 2020 and 2019. The Company had no mortgage loans that were on a nonaccrual status as of March 31, 2020 and December 31, 2019.

Policy Loans

The majority of policy loans are associated with one client. These policy loans present no credit risk as the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

Funds Withheld at Interest

As of March 31, 2020, $3.2 billion of the funds withheld at interest balance is associated with one client. For reinsurance agreements written on a modco basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed to the Company from the ceding company.

Other Invested Assets

Other invested assets include limited partnership interests, joint ventures (other than operating joint ventures), lifetime mortgages, derivative contracts and fair value option (“FVO”) contractholder-directed unit-linked investments. Other invested assets also includes FHLB common stock, which is included in Other in the table below. The allowance for credit losses for lifetime mortgages as of both March 31, 2020 and December 31, 2019, was $2 million. Carrying values of these assets as of March 31, 2020 and December 31, 2019 are as follows (dollars in millions):

		March 31, 2020				December 31, 2019
Limited partnership interests and real estate joint ventures		$	1,183			$	1,134
Lifetime mortgages		763				775
Derivatives		252				117
FVO contractholder-directed unit-linked investments		235				260
Other		109				77
Total other invested assets		$	2,542			$	2,363

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Accounting for Derivative Instruments and Hedging Activities

See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2019 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 6 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.

Types of Derivatives Used by the Company

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

For detailed information on these derivative instruments and the related strategies, see Note 5 – “Derivative Instruments” of the Company’s 2019 Annual Report.

Summary of Derivative Positions

Derivatives, except for embedded derivatives and longevity and mortality swaps, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Longevity and mortality swaps are included on the condensed consolidated balance sheets in other assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modified coinsurance (“modco”) or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of March 31, 2020 and December 31, 2019 (dollars in millions):

				March 31, 2020												December 31, 2019
		Primary Underlying Risk		Notional				Carrying Value/Fair Value								Notional				Carrying Value/Fair Value
				Amount				Assets				Liabilities				Amount				Assets				Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps		Interest rate		$	1,057			$	104			$	8			$	909			$	70			$	3
Financial futures		Equity		323				—				—				307				—				—
Foreign currency swaps		Foreign currency		150				—				23				150				—				9
Foreign currency forwards		Foreign currency		175				3				—				175				1				—
CPI swaps		CPI		527				1				65				441				—				28
Credit default swaps		Credit		1,641				3				6				1,306				5				—
Equity options		Equity		320				58				—				364				15				—
Synthetic GICs		Interest rate		14,240				—				—				13,823				—				—
Embedded derivatives in:
Modco or funds withheld arrangements				—				—				109				—				121				—
Indexed annuity products				—				—				751				—				—				767
Variable annuity products				—				—				291				—				—				163
Total non-hedging derivatives				18,433				169				1,253				17,475				212				970
Derivatives designated as hedging instruments:
Interest rate swaps		Foreign currency/Interest rate		435				5				53				535				1				29
Foreign currency swaps		Foreign currency		322				31				23				342				17				2
Foreign currency forwards		Foreign currency		1,112				102				1				1,094				28				2
Total hedging derivatives				1,869				138				77				1,971				46				33
Total derivatives				$	20,302			$	307			$	1,330			$	19,446			$	258			$	1,003

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Fair Value Hedges

The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of March 31, 2020 and 2019 were (dollars in millions):

Type of Fair Value Hedge		Hedged Item		Gains (Losses) Recognized for Derivatives				Gains (Losses) Recognized for Hedged Items
				Investment Related Gains (Losses)
For the three months ended March 31, 2020:
Foreign currency swaps		Foreign-denominated fixed maturity securities		$	(22	)		$	14
For the three months ended March 31, 2019:
Foreign currency swaps		Foreign-denominated fixed maturity securities		$	(1	)		$	(1	)

Cash Flow Hedges

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

The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three months ended March 31, 2020 and 2019 (dollars in millions):

		Three months ended March 31,
		2020				2019
Balance beginning of period		$	(26	)		$	9
Gains (losses) deferred in other comprehensive income (loss)		(61		)		(10		)
Amounts reclassified to investment income		—				—
Amounts reclassified to interest expense		—				—
Balance end of period		$	(87	)		$	(1	)

As of March 31, 2020, the before-tax deferred net gains (losses) on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are approximately $(1) million and $(5) million in investment income and interest expense, respectively.

The following table presents the effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2019 (dollars in millions):

Derivative Type		Gain (Loss) Deferred in OCI				Gain (Loss) Reclassified into Income from OCI
						Investment Income				Interest Expense
For the three months ended March 31, 2020:
Interest rate		$	(36	)		$	—			$	—
Currency		(25		)		—				—
Total		$	(61	)		$	—			$	—
For the three months ended March 31, 2019:
Interest rate		$	(12	)		$	—			$	—
Currency/Interest rate		2				—				—
Total		$	(10	)		$	—			$	—

For the three months ended March 31, 2020 and 2019, there were no amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

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Hedges of Net Investments in Foreign Operations

The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three months ended March 31, 2020 and 2019 (dollars in millions):

		Derivative Gains (Losses) Deferred in AOCI
		For the three months ended March 31,
Type of NIFO Hedge (1)		2020				2019
Foreign currency swaps		$	15			$	(7	)
Foreign currency forwards		80				(18		)

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

The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $263 million and $168 million at March 31, 2020 and December 31, 2019, respectively. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation.

Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging

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

A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three months ended March 31, 2020 and 2019 is as follows (dollars in millions):

				Gain (Loss) for the three months ended         March 31,
Type of Non-hedging Derivative		Income Statement Location of Gain (Loss)		2020				2019
Interest rate swaps		Investment related gains (losses), net		$	106			$	24
Financial futures		Investment related gains (losses), net		44				(22		)
Foreign currency swaps		Investment related gains (losses), net		(13		)		1
Foreign currency forwards		Investment related gains (losses), net		(3		)		—
CPI swaps		Investment related gains (losses), net		(40		)		(9		)
Credit default swaps		Investment related gains (losses), net		(24		)		15
Equity options		Investment related gains (losses), net		53				(23		)
Longevity swaps		Other revenues		—				2
Mortality swaps		Other revenues		—				1
Subtotal				123				(11		)
Embedded derivatives in:
Modco or funds withheld arrangements		Investment related gains (losses), net		(230		)		(2		)
Indexed annuity products		Interest credited		6				3
Variable annuity products		Investment related gains (losses), net		(128		)		18
Total non-hedging derivatives				$	(229	)		$	8

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Credit Derivatives

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at March 31, 2020 and December 31, 2019 (dollars in millions):

		March 31, 2020										December 31, 2019
Rating Agency Designation of Referenced Credit Obligations(1)		Estimated Fair Value of Credit   Default Swaps				Maximum Amount of Future Payments under Credit Default Swaps(2)				Weighted Average Years to Maturity(3)		Estimated Fair Value of Credit   Default Swaps				Maximum Amount of Future Payments under Credit Default Swaps(2)				Weighted Average Years to Maturity(3)
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps		$	1			$	127			1.4		$	2			$	142			1.7
Subtotal		1				127				1.4		2				142				1.7
BBB+/BBB/BBB-
Single name credit default swaps		—				281				1.8		3				291				1.9
Credit default swaps referencing indices		(4		)		1,228				4.7		—				873				4.7
Subtotal		(4		)		1,509				4.1		3				1,164				4.0
BB+/BB/BB-
Single name credit default swaps		—				5				0.2		—				—				0.0
Subtotal		—				5				0.2		—				—				0.0
Total		$	(3	)		$	1,641			3.9		$	5			$	1,306			3.7

 

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

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

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

Netting Arrangements

Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.

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

The following table provides information relating to the Company’s derivative instruments as of March 31, 2020 and December 31, 2019 (dollars in millions):

														Gross Amounts Not Offset in the Balance Sheet
		Gross Amounts    Recognized				Gross Amounts Offset in the Balance Sheet				Net Amounts Presented in the Balance Sheet				Financial Instruments (1)				Cash Collateral    Pledged/ Received				Net Amount
March 31, 2020:
Derivative assets		$	307			$	(55	)		$	252			$	—			$	(247	)		$	5
Derivative liabilities		179				(55		)		124				(127		)		(115		)		(118		)
December 31, 2019:
Derivative assets		$	137			$	(20	)		$	117			$	—			$	(119	)		$	(2	)
Derivative liabilities		73				(20		)		53				(92		)		(52		)		(91		)

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

Credit Risk

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments with a positive fair value. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company had no credit exposure related to its derivative contracts as of March 31, 2020 and December 31, 2019, as the net amount of collateral pledged to the Company from counterparties exceeded the fair value of the derivative contracts.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”) and others are bilateral contracts between two counterparties. The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due

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date and upon termination. The Company is only exposed to the default of the central clearing counterparties for OTC cleared derivatives, and these transactions require initial and daily variation margin collateral postings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the credit risk exposure in the event of non-performance by counterparties to such financial instruments.

Fair Value Measurement

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

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

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

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

For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2019 Annual Report.

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Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 are summarized below (dollars in millions):

March 31, 2020:						Fair Value Measurements Using:
		Total				Level 1				Level 2				Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate		$	29,494			$	—			$	27,297			$	2,197
Canadian government		4,237				—				4,237				—
RMBS		2,291				—				2,285				6
ABS		2,667				—				2,569				98
CMBS		1,809				—				1,769				40
U.S. government		1,642				1,518				109				15
State and political subdivisions		1,169				—				1,159				10
Other foreign government		5,246				—				5,231				15
Total fixed maturity securities – available-for-sale		48,555				1,518				44,656				2,381
Equity securities		112				56				—				56
Funds withheld at interest – embedded derivatives		(109		)		—				—				(109		)
Cash equivalents		1,118				1,118				—				—
Short-term investments		85				55				29				1
Other invested assets:
Derivatives		252				—				252				—
FVO contractholder-directed unit-linked investments		235				179				56				—
Other		10				—				10				—
Total other invested assets		497				179				318				—
Total		$	50,258			$	2,926			$	45,003			$	2,329
Liabilities:
Interest sensitive contract liabilities – embedded derivatives		$	1,042			$	—			$	—			$	1,042
Other liabilities:
Derivatives		124				—				124				—
Total		$	1,166			$	—			$	124			$	1,042

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December 31, 2019:						Fair Value Measurements Using:
		Total				Level 1				Level 2				Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate		$	31,393			$	—			$	29,207			$	2,186
Canadian government		4,612				—				3,908				704
RMBS		2,398				—				2,349				49
ABS		2,978				—				2,865				113
CMBS		1,899				—				1,853				46
U.S. government		2,152				2,030				106				16
State and political subdivisions		1,164				—				1,155				9
Other foreign government		4,525				—				4,509				16
Total fixed maturity securities – available-for-sale		51,121				2,030				45,952				3,139
Equity securities		320				243				—				77
Funds withheld at interest – embedded derivatives		121				—				—				121
Cash equivalents		274				274				—				—
Short-term investments		32				4				26				2
Other invested assets:
Derivatives		117				—				117				—
FVO contractholder-directed unit-linked investments		260				207				53				—
Other		—				—				—				—
Total other invested assets		377				207				170				—
Total		$	52,245			$	2,758			$	46,148			$	3,339
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives		$	930			$	—			$	—			$	930
Other liabilities:
Derivatives		53				—				53				—
Total		$	983			$	—			$	53			$	930

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Quantitative Information Regarding Internally - Priced Assets and Liabilities

The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of March 31, 2020 and December 31, 2019 (dollars in millions):

 

	Estimated Fair Value						Valuation Technique		Unobservable Inputs		Range (Weighted Average)
	March 31, 2020			December 31, 2019							March 31, 2020			December 31, 2019
Assets:
Corporate	$1,030			$1,070			Market comparable securities		Liquidity premium		0-2% (1%)			0-2% (1%)
									EBITDA Multiple		5.2x-7.0x (6.3x)			5.2x-7.1x (6.7x)
ABS	92			101			Market comparable securities		Liquidity premium		1-18% (3%)			0-4% (1%)
U.S. government	15			16			Market comparable securities		Liquidity premium		0-1% (1%)			0-1% (1%)
Other foreign government	15			16			Market comparable securities		Liquidity premium		0-1% (1%)			0-1% (1%)
Equity securities	29			32			Market comparable securities		Liquidity premium		4	%		4	%
									EBITDA Multiple		6.9x-10.6x (8.0x)			6.9x-9.3x (7.8x)
Funds withheld at interest- embedded derivatives	(109	)		121			Total return swap		Mortality		0-100%  (2%)			0-100%  (2%)
									Lapse		0-35%  (14%)			0-35%  (13%)
									Withdrawal		0-5%  (3%)			0-5%  (3%)
									CVA		0-5%  (1%)			0-5%  (1%)
									Crediting rate		2-4%  (2%)			2-4%  (2%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	751			768			Discounted cash flow		Mortality		0-100%  (2%)			0-100% (2%)
									Lapse		0-35%  (14%)			0-35% (13%)
									Withdrawal		0-5%  (3%)			0-5% (3%)
									Option budget projection		2-4%  (2%)			2-4% (2%)
Interest sensitive contract liabilities- embedded derivatives- variable annuities	291			163			Discounted cash  flow		Mortality		0-100% (2%)			0-100% (1%)
									Lapse		0-25% (4%)			0-25% (5%)
									Withdrawal		0-7% (6%)			0-7% (5%)
									CVA		0-5% (1%)			0-5% (1%)
									Long-term volatility		0-27% (12%)			0-27% (12%)

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Changes in Level 3 Assets and Liabilities

Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Transfers out of Level 3 are primarily the result of the Company obtaining observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those assets and liabilities.

For further information on the Company’s valuation processes, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2019 Annual Report.

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

For the three months ended March 31, 2020:		Fixed maturity securities - available-for-sale																								Funds  withheld at interest-embedded derivatives				Other assets and liabilities, net - longevity and mortality swaps				Interest-sensitive contract  liabilities embedded derivatives
		Corporate				Foreign govt				Structured securities				U.S. and local govt				Equity securities				Short-term investments
Fair value, beginning of period		$	2,186			$	720			$	208			$	25			$	77			$	2			$	121			$	—			$	(930	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses		1				—				—				—				—				—				—				—				—
Investment related gains (losses), net		(11		)		—				—				—				(7		)		—				(230		)		—				(128		)
Interest credited		—				—				—				—				—				—				—				—				6
Included in other comprehensive income		(115		)		(1		)		(27		)		1				—				—				—				—				—
Other revenues		—				—				—				—				—				—				—				—				—
Purchases(1)		231				—				9				—				—				—				—				—				(11		)
Sales(1)		(44		)		—				(1		)		—				—				—				—				—				—
Settlements(1)		(52		)		—				(13		)		(1		)		—				—				—				—				21
Transfers into Level 3		1				—				21				—				—				—				—				—				—
Transfers out of Level 3		—				(704		)		(53		)		—				(14		)		(1		)		—				—				—
Fair value, end of period		$	2,197			$	15			$	144			$	25			$	56			$	1			$	(109	)		$	—			$	(1,042	)
Unrealized gains and losses recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Investment related gains (losses), net		(11		)		—				—				—				(7		)		—				(230		)		—				(131		)
Claims and other policy benefits		—				—				—				—				—				—				—				—				(15		)
Included in other comprehensive income		(140		)		(1		)		(27		)		1				—				—				—				—				—

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For the three months ended March 31, 2019:		Fixed maturity securities - available-for-sale																								Funds  withheld at interest-embedded derivatives				Other assets and liabilities, net - longevity and mortality swaps				Interest-sensitive contract  liabilities embedded derivatives
		Corporate				Foreign govt				Structured securities				U.S. and local govt				Equity securities				Short-term investments
Fair value, beginning of period		$	1,331			$	533			$	103			$	28			$	33			$	2			$	110			$	47			$	(945	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses		—				4				—				—				—				—				—				—				—
Investment related gains (losses), net		—				—				—				—				4				—				(2		)		—				18
Interest credited		—				—				—				—				—				—				—				—				3
Included in other comprehensive income		19				76				1				—				—				—				—				(1		)		—
Other revenues		—				—				—				—				—				—				—				3				—
Purchases(1)		215				—				31				—				3				27				—				—				2
Sales(1)		(11		)		—				—				—				—				—				—				—				—
Settlements(1)		(23		)		—				(15		)		(1		)		—				—				—				—				18
Transfers into Level 3		—				—				—				—				—				—				—				—				—
Transfers out of Level 3		—				—				—				—				—				—				—				—				—
Fair value, end of period		$	1,531			$	613			$	120			$	27			$	40			$	29			$	108			$	49			$	(904	)
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Investment income, net of related expenses		$	—			$	4			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Investment related gains (losses), net		—				—				—				—				4				—				(2		)		—				17
Other revenues		—				—				—				—				—				—				—				3				—
Interest credited		—				—				—				—				—				—				—				—				(15		)

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

Nonrecurring Fair Value Measurements

During the three months ended March 31, 2020 and December 31, 2019, adjustments to the Company’s assets measured at an estimated fair value on a nonrecurring basis that are still held at the reporting date were immaterial.

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, as of March 31, 2020 and December 31, 2019 (dollars in millions). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2019 Annual Report. This table excludes any payables or receivables for collateral under repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.

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March 31, 2020:		Carrying Value (1)				Estimated  Fair Value				Fair Value Measurement Using:
										Level 1				Level 2				Level 3				NAV
Assets:
Mortgage loans on real estate		$	6,014			$	6,123			$	—			$	—			$	6,123			$	—
Policy loans		1,314				1,314				—				1,314				—				—
Funds withheld at interest		5,345				5,603				—				—				5,603				—
Cash and cash equivalents		1,702				1,702				1,702				—				—				—
Short-term investments		32				32				32				—				—				—
Other invested assets		1,282				1,363				5				91				837				430
Accrued investment income		510				510				—				510				—				—
Liabilities:
Interest-sensitive contract liabilities		$	19,634			$	20,503			$	—			$	20,503			$	—			$	—
Long-term debt		2,981				2,932				—				2,932				—				—
Collateral finance and securitization notes		569				524				—				524				—				—
December 31, 2019:
Assets:
Mortgage loans on real estate		$	5,706			$	5,935			$	—			$	—			$	5,935			$	—
Policy loans		1,319				1,319				—				1,319				—				—
Funds withheld at interest		5,526				5,870				—				—				5,870				—
Cash and cash equivalents		1,175				1,175				1,175				—				—				—
Short-term investments		32				32				32				—				—				—
Other invested assets		1,259				1,278				5				68				803				402
Accrued investment income		493				493				—				493				—				—
Liabilities:
Interest-sensitive contract liabilities		$	19,163			$	21,542			$	—			$	—			$	21,542			$	—
Long-term debt		2,981				3,179				—				—				3,179				—
Collateral finance and securitization notes		598				551				—				—				551				—

 

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

7.	Segment Information

The accounting policies of the segments are the same as those described in the Significant Accounting Policies and Pronouncements in Note 2 of the consolidated financial statements accompanying the 2019 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets.

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

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

	Three months ended March 31,
Revenues:	2020				2019
U.S. and Latin America:
Traditional	$	1,533			$	1,541
Financial Solutions	139				254
Total	1,672				1,795
Canada:
Traditional	296				312
Financial Solutions	24				24
Total	320				336
Europe, Middle East and Africa:
Traditional	407				384
Financial Solutions	78				109
Total	485				493
Asia Pacific:
Traditional	667				673
Financial Solutions	68				55
Total	735				728
Corporate and Other	(8		)		68
Total	$	3,204			$	3,420

		Three months ended March 31,
Income (loss) before income taxes:		2020				2019
U.S. and Latin America:
Traditional		$	(62	)		$	12
Financial Solutions		(15		)		83
Total		(77		)		95
Canada:
Traditional		23				51
Financial Solutions		3				1
Total		26				52
Europe, Middle East and Africa:
Traditional		17				16
Financial Solutions		30				38
Total		47				54
Asia Pacific:
Traditional		24				37
Financial Solutions		(25		)		6
Total		(1		)		43
Corporate and Other		(91		)		(27		)
Total		$	(96	)		$	217

Assets:		March 31, 2020				December 31, 2019
U.S. and Latin America:
Traditional		$	19,418			$	19,353
Financial Solutions		21,268				25,117
Total		40,686				44,470
Canada:
Traditional		4,366				4,361
Financial Solutions		44				64
Total		4,410				4,425
Europe, Middle East and Africa:
Traditional		3,924				4,032
Financial Solutions		6,051				6,502
Total		9,975				10,534
Asia Pacific:
Traditional		7,118				6,800
Financial Solutions		3,471				2,557
Total		10,589				9,357
Corporate and Other		9,994				7,945
Total		$	75,654			$	76,731

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8.	Commitments, Contingencies and Guarantees

Commitments

Funding of Investments

The Company’s commitments to fund investments as of March 31, 2020 and December 31, 2019 are presented in the following table (dollars in millions):

	March 31, 2020				December 31, 2019
Limited partnership interests and joint ventures	$	693			$	685
Commercial mortgage loans	62				243
Bank loans and private placements	106				181
Lifetime mortgages	47				87

The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Bank loans and private placements are included in fixed maturity securities available-for-sale.

The Company has a liability for expected credit losses, included in other liabilities on the Company’s condensed consolidated balance sheets, associated with unfunded commitments of approximately $1 million as of March 31, 2020.

Contingencies

Litigation

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

Other Contingencies

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

Guarantees

Statutory Reserve Support

RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). In addition, RGA has also committed to provide capital support to a third-party, in exchange for a fee, by agreeing to assume real estate leases in the event of a severe and prolonged decline in the commercial lease market. Upon assumption of a lease, RGA would recognize a right to use asset and lease obligation. As of March 31, 2020, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents the maximum potential obligation for these commitments as of March 31, 2020 (dollars in millions):

Commitment Period	Maximum Potential Obligation
2035	$	2,607
2036	3,408
2037	5,750
2038	2,300
2039	5,750

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Other Guarantees

RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain securities borrowing and repurchase arrangements, financing arrangements and office lease obligations, whereby, if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. Additionally, in limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration of any legally offsetting amounts due from the guaranteed party are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to securities borrowing and repurchase arrangements provide additional security to third parties should a subsidiary fail to provide securities when due. RGA’s guarantees issued as of March 31, 2020 and December 31, 2019, are reflected in the following table (dollars in millions):

	March 31, 2020				December 31, 2019
Treaty guarantees	$	1,684			$	1,821
Treaty guarantees, net of assets in trust	812				891
Securities borrowing and repurchase arrangements	267				275
Financing arrangements	35				42

9.	Income Tax

The provision for income tax differed from the amounts computed by applying the U.S. federal income tax statutory rate of 21% to pre-tax income as a result of the following for the three months ended March 31, 2020 and 2019, respectively (dollars in millions):

		Three months ended March 31,
		2020				2019
Tax provision at U.S. statutory rate		$	(20	)		$	45
Increase (decrease) in income taxes resulting from:
Tax rate differences on income in other jurisdictions		4				1
Differences in tax bases in foreign jurisdictions		3				(15		)
Deferred tax valuation allowance		(4		)		19
Amounts related to uncertain tax positions		6				1
Corporate rate changes		—				(2		)
Equity compensation excess benefit		(1		)		(2		)
Non-Deductible Expenses		4				—
Total provision for income taxes		$	(8	)		$	47
Effective tax rate		8.9		%		21.7		%

The effective tax rate on the pre-tax loss for the three months ended March 31, 2020, was lower than the U.S. Statutory rate of 21% primarily as a result of income earned in jurisdictions with tax rates higher than the U.S. and tax expense related to uncertain tax positions, which was partially offset by valuation allowance releases in various jurisdictions. The effective tax rate for the three months ended March 31, 2019, was higher than the U.S. Statutory tax rate of 21% primarily as a result of income in non-U.S. jurisdictions with tax rates greater than the U.S. and losses in foreign jurisdictions for which the company established a valuation allowance, which was partially offset with tax benefits related to bases differences in non-U.S. jurisdictions.

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The components of net periodic benefit cost, included in other operating expenses on the Company’s condensed consolidated statements of income, for the three months ended March 31, 2020 and 2019 were as follows (dollars in millions):

		Pension Benefits								Other Benefits
		Three months ended March 31,								Three months ended March 31,
		2020				2019				2020				2019
Service cost		$	3			$	3			$	—			$	1
Interest cost		2				1				1				—
Expected return on plan assets		(2		)		(2		)		—				—
Amortization of prior service cost (credit)		—				—				—				—
Amortization of prior actuarial losses		1				1				—				1
Net periodic benefit cost		$	4			$	3			$	1			$	2

11.	Reinsurance

Retrocession reinsurance treaties do not relieve the Company from its obligations to direct writing companies. Failure of retrocessionaires to honor their obligations could result in losses to the Company. Consequently, allowances would be established for amounts deemed uncollectible. At March 31, 2020 and December 31, 2019, no allowances were deemed necessary. The Company regularly evaluates the financial condition of the insurance companies from which it assumes and to which it cedes reinsurance.

Retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of March 31, 2020, all rated retrocession pool participants followed by the A.M. Best Company were rated “A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets has been posted. In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance.

The following table presents information for the Company’s reinsurance ceded receivable assets, including the respective amount and A.M. Best rating for each reinsurer representing in excess of five percent of the total as of March 31, 2020 or December 31, 2019 (dollars in millions):

				March 31, 2020							December 31, 2019
Reinsurer		A.M. Best Rating		Amount				% of Total			Amount				% of Total
Reinsurer A		A+		$	383			43.1	%		$	367			40.6	%
Reinsurer B		A+		193				21.7			208				23.0
Reinsurer C		A		65				7.3			84				9.3
Reinsurer D		A++		49				5.5			53				5.9
Reinsurer E		A+		42				4.7			43				4.8
Other reinsurers				157				17.7			149				16.4
Total				$	889			100.0	%		$	904			100.0	%

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12.	Policy Claims and Benefits

Rollforward of Claims and Claim Adjustment Expenses

The liability for unpaid claims is reported in future policy benefits and other policy claims and benefits on the Company’s condensed consolidated balance sheets. Activity associated with unpaid claims is summarized below (dollars in millions):

		Three months ended March 31,
		2020				2019
Balance at beginning of year		$	6,786			$	6,585
Less: reinsurance recoverable		(564		)		(433		)
Net balance at beginning of year		6,222				6,152
Incurred:
Current year		2,838				2,808
Prior years		11				31
Total incurred		2,849				2,839
Payments:
Current year		(131		)		(187		)
Prior years		(2,342		)		(2,387		)
Total payments		(2,473		)		(2,574		)
Other changes:
Interest accretion		9				7
Foreign exchange adjustments		(283		)		10
Total other changes		(274		)		17
Net balance at end of period		6,324				6,434
Plus: reinsurance recoverable		580				500
Balance at end of period		$	6,904			$	6,934

Incurred claims associated with prior periods are primarily due to events, related to long-duration business, which were incurred in prior periods but were reported in the current period, and to a lesser extent, the development of short-duration business claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated.  These trends have been considered in establishing the current year liability for unpaid claims.

13.	New Accounting Standards

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

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Description	Date of Adoption	Effect on the Consolidated Financial Statements
Standards adopted:
Leases This new standard, based on the principle that entities should recognize assets and liabilities arising from leases, does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standard’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, the new standard expands the disclosure requirements of lease arrangements. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying the optional transition method. The adoption of the standard did not have a material impact on the Company’s results of operations or financial position. The adoption of the updated guidance resulted in the Company recognizing a right-to-use asset and lease liability of $55 million included in other assets and other liabilities, respectively, in the condensed consolidated balance sheets.
Derivatives and Hedging This updated guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting in current GAAP related to the assessment of hedge effectiveness. Early adoption is permitted.	January 1, 2019	This guidance was adopted by applying a modified retrospective approach to existing hedging relationships as of the date of adoption. The adoption of the new standard did not have a material impact on the Company’s results of operations or financial position. Upon adoption of the guidance, the Company recorded an immaterial adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective and modified some disclosures.
Financial Instruments - Credit Losses This guidance adds to U.S. GAAP an impairment model, known as current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. For traditional and other receivables, held-to-maturity debt securities, loans and other instruments entities will be required to use the new forward-looking “expected loss” model that generally will result in earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses similar to what they do today, except the losses will be recognized through an allowance for credit losses and adjusted each period for changes in credit risks. Early adoption is permitted.	January 1, 2020	For asset classes within the scope of the CECL model, this guidance was adopted through a cumulative-effect adjustment to retained earnings (that is, a modified-retrospective approach). For available-for-sale debt securities, this guidance was applied prospectively. The allowance for credit losses increased when this guidance was adopted to include expected losses over the lifetime of commercial mortgages and other loans, including reasonable and supportable forecasts and expected changes in future economic conditions. The overall impact was an approximate $15 million increase in the allowance for credit losses. This increase was reflected as a decrease to opening retained earnings, net of income taxes, as of January 1, 2020. See Note 1 – “Business and Basis of Presentation” for more information.
Fair Value Measurement This guidance is part of the FASB’s disclosure framework project and eliminates certain disclosure requirements for fair value measurement, requires entities to disclose new information and modifies existing disclosure requirements. Early adoption is permitted.	January 1, 2020	Certain disclosure changes in the new guidance were applied prospectively in the year of adoption. The remaining changes in the new guidance were applied retrospectively to all periods presented in the year of adoption. As of December 31, 2019, the Company early adopted the guidance that removed the requirements relating to transfers between fair value hierarchy levels and certain disclosures about valuation processes for Level 3 fair value measurements. The Company adopted the remainder of the guidance on January 1, 2020. The adoption of the new guidance was not material to the Company’s financial position.
Reference Rate Reform On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced that it intends to stop persuading or compelling banks to submit London Interbank Offered Rates (“LIBOR”) after December 31, 2021. In addition, separate workstreams are underway in Europe and the U.S. to reform existing reference rates and provide a fall back rate upon discontinuation of LIBOR. During 2019, the Alternative Rates Committee of the Federal Reserve Board proposed the Secured Overnight Financing Rate (“SOFR”) as an alternative rate to replace U.S. Dollar LIBOR, and the European Central Bank recommended the Euro Short-term Rate (“ESTER”) as the new risk-free rate. Other jurisdictions are conducting similar exercises as well. This new guidance eases the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The ASU provides optional expedients and exceptions for applying GAAP modification to contracts and hedge accounting relationships affected by reference rate reform on financial reporting. Under the new guidance, a change in the reference rate for a contract that meets certain criteria will be accounted for as a continuation of that contract rather than the creation of a new contract. The new guidance applies to debt, insurance contracts, leases, derivative contracts and other arrangements.	January 1, 2020	This guidance does not have any accounting consequences. The Company has put together a team that is currently assessing the effects of the discontinuation of LIBOR on existing contracts that extend beyond 2021, by analyzing contractual fallback provisions, evaluating alternative rate ramifications, and assessing the effects on current hedging strategies.

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Description	Anticipated Date of Adoption	Effect on the Consolidated Financial Statements
Standards not yet adopted:
Financial Services - Insurance This guidance significantly changes how insurers account for long-duration insurance contracts. The new guidance also significantly expands the disclosure requirements of long-duration insurance contracts. The new guidance will be effective for annual and interim reporting periods beginning January 1, 2022. Below are the most significant areas of change:	January 1, 2022	See each significant area of change below for the method of adoption and expected impact to the Company’s results of operations and financial position.
Cash flow assumptions for measuring liability for future policy benefits The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income.		Cash flow assumptions for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Discount rate assumption for measuring liability for future policy benefits The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income.		Discount rate assumption for measuring liability for future policy benefits The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Market risk benefits The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income.		Market risk benefits The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.
Amortization of deferred acquisition costs (“DAC”) and other balances The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.		Amortization of deferred acquisition costs (“DAC”) and other balances The Company will likely adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. The Company is currently evaluating the impact of this amendment on its results of operations and financial position but anticipates the updated guidance will likely have a material impact.

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•	Holdings of cash and cash equivalents of $2.8 billion as of March 31, 2020,

•	Cash flows from investments, which is approximately $2 billion per year,

•	Access to $850 million of cash through the Company’s committed syndicated credit facility, and

•	Access to over $500 million of cash through the membership in the Federal Home Loan Bank of Des Moines.

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•	Degradation of general economic conditions;

•	Investment results;

•	Liquidity and collateral;

•	Insurance risks, including mortality and morbidity claims;

•	Possible ratings downgrade;

•	Adverse legislative or regulatory action;

•	Operations; and

•	Premiums and other income.

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(1)

RGA repurchased 100,732, 736,808 and 236,873 of common stock under its share repurchase program for $15 million, $108 million and $30 million during January, February and March 2020, respectively. The Company net settled - issuing 42,282, 5,805 and 18,803 shares from treasury and repurchasing from recipients 15,708, 1,877 and 8,415 shares in January, February and March 2020, respectively, in settlement of income tax withholding requirements incurred by the recipients of equity incentive awards.

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