Indiana                

35-1140070

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)



150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania

19087

(Address of principal executive offices)

(Zip Code)



Item

Page

PART I

1.

Financial Statements



2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements – Cautionary Language

Introduction

    Executive Summary



    Critical Accounting Policies and Estimates

Results of Consolidated Operations

Results of Annuities



Results of Retirement Plan Services

Results of Life Insurance

Results of Group Protection



Results of Other Operations 



Realized Gain (Loss) and Benefit Ratio Unlocking



Consolidated Investments 

Review of Consolidated Financial Condition

   Liquidity and Capital Resources



Other Matters



   Other Factors Affecting Our Business



   Recent Accounting Pronouncements



3.

Quantitative and Qualitative Disclosures About Market Risk



4.

Controls and Procedures



PART II



1.

Legal Proceedings



2.

Unregistered Sales of Equity Securities and Use of Proceeds



6.

Exhibits





Signatures



Exhibit Index for the Report on Form 10-Q

E-1







As of

As of

June 30,

December 31,



2016

2015



(Unaudited)

ASSETS

Investments:

Available-for-sale securities, at fair value:

Fixed maturity securities (amortized cost:  2016 – $83,033; 2015 – $81,993)

$

$

Variable interest entities’ fixed maturity securities (amortized cost:  2016 – $598; 2015 – $596)

Equity securities (cost:  2016 – $259; 2015 – $226)

Trading securities

Mortgage loans on real estate

Real estate

Policy loans

Derivative investments

Other investments

Total investments

Cash and invested cash

Deferred acquisition costs and value of business acquired

Premiums and fees receivable

Accrued investment income

Reinsurance recoverables

Funds withheld reinsurance assets

Goodwill

Other assets

Separate account assets

Total assets

$

$



LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities

Future contract benefits

$

$

Other contract holder funds

Short-term debt

 -

Long-term debt

Reinsurance related embedded derivatives

Funds withheld reinsurance liabilities

Deferred gain on business sold through reinsurance

Payables for collateral on investments

Variable interest entities’ liabilities

 -

Other liabilities

Separate account liabilities

Total liabilities



Contingencies and Commitments (See Note 8)



Stockholders’ Equity

Preferred stock – 10,000,000 shares authorized

 -

 -

Common stock – 800,000,000 shares authorized; 232,784,691 and 243,835,893 shares

issued and outstanding as of June 30, 2016, and December 31, 2015, respectively

Retained earnings

Accumulated other comprehensive income (loss)

Total stockholders’ equity

Total liabilities and stockholders’ equity

$

$







For the Three

For the Six



Months Ended

Months Ended



June 30,

June 30,

2016

2015

2016

2015

Revenues

Insurance premiums

$

$

$

$

Fee income

Net investment income

Realized gain (loss):

Total other-than-temporary impairment losses on securities

)

)

)

)

Portion of loss recognized in other comprehensive income

Net other-than-temporary impairment losses on securities

recognized in earnings

)

)

)

)

Realized gain (loss), excluding other-than-temporary

impairment losses on securities

)

)

)

Total realized gain (loss)

)

)

)

Amortization of deferred gain on business sold through reinsurance

Other revenues

Total revenues

Expenses

Interest credited

Benefits

Commissions and other expenses

Interest and debt expense

Total expenses

Income (loss) before taxes

Federal income tax expense (benefit)

Net income (loss)

Other comprehensive income (loss), net of tax

)

)

Comprehensive income (loss)

$

$

)

$

$

)



Net Income (Loss) Per Common Share

Basic

$

$

$

$

Diluted



Cash Dividends Declared Per Common Share

$

$

$

$







For the Six



Months Ended



June 30,



2016

2015



Common Stock

Balance as of beginning-of-year

$

$

Stock compensation/issued for benefit plans

Retirement of common stock/cancellation of shares

)

)

Balance as of end-of-period



Retained Earnings

Balance as of beginning-of-year

Net income (loss)

Retirement of common stock

)

)

Common stock dividends declared

)

)

Balance as of end-of-period



Accumulated Other Comprehensive Income (Loss)

Balance as of beginning-of-year

Other comprehensive income (loss), net of tax

)

Balance as of end-of-period

Total stockholders’ equity as of end-of-period

$

$





For the Six



Months Ended



June 30,



2016

2015

Cash Flows from Operating Activities

Net income (loss)

$

$

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Deferred acquisition costs, value of business acquired, deferred sales inducements

and deferred front-end loads deferrals and interest, net of amortization

)

)

Trading securities purchases, sales and maturities, net

Change in premiums and fees receivable

Change in accrued investment income

 -

)

Change in future contract benefits and other contract holder funds

Change in reinsurance related assets and liabilities

)

)

Change in accrued expenses

)

)

Change in federal income tax accruals

)

)

Realized (gain) loss

Amortization of deferred gain on business sold through reinsurance

)

)

Other

Net cash provided by (used in) operating activities



Cash Flows from Investing Activities

Purchases of available-for-sale securities

)

)

Sales of available-for-sale securities

Maturities of available-for-sale securities

Purchases of other investments

)

)

Sales or maturities of other investments

Increase (decrease) in payables for collateral on investments

Other

)

)

Net cash provided by (used in) investing activities

)

)



Cash Flows from Financing Activities

Payment of long-term debt, including current maturities

 -

)

Issuance of long-term debt, net of issuance costs

 -

Deposits of fixed account values, including the fixed portion of variable

Withdrawals of fixed account values, including the fixed portion of variable

)

)

Transfers to and from separate accounts, net

)

)

Common stock issued for benefit plans and excess tax benefits

)

Repurchase of common stock

)

)

Dividends paid to common stockholders

)

)

Net cash provided by (used in) financing activities

)



Net increase (decrease) in cash and invested cash

)

Cash and invested cash as of beginning-of-year

Cash and invested cash as of end-of-period

$

$



Standard

Description

Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity

This standard clarifies that when considering the nature of the host contract in a hybrid financial instrument issued in the form of a share; an entity must consider all of the stated and implied substantive terms of the hybrid instrument, including the embedded derivative feature that is being considered for separate accounting from the host contract. 

January 1, 2016

The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations. 

ASU 2015-02, Amendments to the Consolidation Analysis

This standard addresses consolidation accounting guidance related to limited partnerships, limited liability companies and securitization structures.  The new standard includes changes to existing consolidation models that eliminates the presumption that a general partner should consolidate a limited partnership, clarifies when fees paid to a decision maker should be a factor in the variable interest entities (“VIEs”) consolidation evaluation and reduces the VIE consolidation models from two to one by eliminating the indefinite deferral for certain investment funds. 

January 1, 2016

The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations.  We have provided additional financial statement disclosures related to our limited partnerships in Note 3.  

ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs

   

Debt issuance costs were previously recognized as a deferred charge in the balance sheet.  This amendment requires the presentation of debt issuance costs in the balance sheet as a direct deduction from the carrying amount of that debt.  This standard does not change the recognition and measurement requirements related to debt issuance costs.  Retrospective application of the amendments in this ASU is required. 

January 1, 2016

We have retrospectively reclassified approximately $29 million of our debt issuance costs from other assets to long-term debt on the Consolidated Balance Sheets as of December 31, 2015.  See ASU 2015-15 for debt issuance costs associated with line-of-credit arrangements.

ASU 2015-05,
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement


   

This standard clarifies the accounting requirements for recognizing cloud computing arrangements.  Software licenses purchased through cloud computing arrangements should be accounted for in a manner consistent with the acquisition of other software licenses.  If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract.

January 1, 2016

The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations. 

ASU 2015-07, Disclosures for Certain Investments That Calculate Net Asset Value per Share (or its Equivalent)

This standard removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.  In addition, the standard removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient, and limits those disclosures only to those investments for which the practical expedient has been elected. 

January 1, 2016

The adoption of this ASU did not result in a change to our financial statement disclosures.

Standard

Description

Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

Given the absence of authoritative accounting guidance in ASU 2015-03 related to debt issuance costs for line-of-credit arrangements, this standard clarifies that the SEC Staff would not object to an entity deferring and presenting these debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement.

January 1, 2016

The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations.



Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2014-09, Revenue from Contracts with Customers & ASU 2015-14, Revenue from Contracts with Customers; Deferral of the Effective Date

This standard establishes the core principle of recognizing revenue to depict the transfer of promised goods and services.  The amendments define a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation.  Retrospective application is required.  After performing extensive outreach, the FASB decided to delay the effective date of ASU 2014-09 for one year.  Early application is permitted but only for annual reporting periods beginning after December 15, 2016. 

January 1, 2018

We will adopt the accounting guidance in this standard for non-insurance related products and services, and are currently evaluating the impact of adoption on our consolidated financial condition and results of operations.

ASU 2015-09, Disclosures about Short-Duration Contracts

This standard enhances the disclosure requirements related to short-duration insurance contracts.  The new disclosure requirements focus on providing users of financial statements with more transparent information about an insurance entity’s (1) initial claims estimates and subsequent adjustments to those estimates, (2) methodologies and judgments in estimating claims, and (3) timing, frequency and severity of claims.  Early application of this standard is permitted, and retrospective application is required for each comparative period presented, except for those requirements that apply only to the current period.

Annual periods beginning January 1, 2016; interim periods within annual periods beginning January 1, 2017

We are currently evaluating these disclosure changes and will provide the additional required disclosures if we determine the disclosures are material to our financial statements.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities

These amendments require, among other things, the fair value measurement of investments in equity securities and certain other ownership interests that do not result in consolidation and are not accounted for under the equity method of accounting.  The change in fair value of the impacted investments in equity securities must be recognized in net income.  In addition, the amendments include certain enhancements to the presentation and disclosure requirements for financial assets and financial liabilities.  Early adoption of the ASU is generally not permitted, except as defined in the ASU.  The amendments should be adopted in the financial statements through a cumulative-effect adjustment to the beginning balance of retained earnings.

January 1, 2018

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2016-02, Leases

This standard establishes a new accounting model for leases.  Lessees will recognize most leases on the balance as a right-of-use asset and a related lease liability.  The lease liability is measured as the present value of the lease payments over the lease term with the right-of-use asset measured at the lease liability amount and including adjustments for certain lease incentives and initial direct costs.  Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP.  This ASU permits a modified retrospective adoption approach which includes a number of optional practical expedients that entities may elect upon adoption.  Early adoption is permitted.

January 1, 2019

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.

ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships 

The amendments clarify that a change in the counterparty to a derivative instrument identified in a hedging relationship in and of itself does not require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The ASU may be adopted prospectively or through a modified retrospective approach.  Early adoption is permitted.

January 1, 2017

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.

ASU 2016-06, Contingent Put and Call Options in Debt Instruments

The amendments clarify the requirements for assessing whether contingent call and put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Upon adoption of this ASU, entities will be required to assess embedded call and put options solely in accordance with the four-step decision sequence that was developed by the FASB Derivatives Implementation Group.  The ASU should be adopted based on a modified retrospective basis for existing debt instruments.  Early adoption is permitted. 

January 1, 2017

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.

ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

These amendments clarify the implementation guidance on principal versus agent considerations in ASU 2014-09, including how an entity should identify the unit of accounting for the principal versus agent evaluation.  In addition, the amendments clarify how to apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the good or service is transferred to the customer.  Transition requirements are consistent with ASU 2014-09.  

January 1, 2018

We are currently evaluating the impact of adopting this ASU, in coordination with ASU 2014-09, on our consolidated financial condition and results of operations.

ASU 2016-09, Improvements to Employee Share-based Payment Accounting

These amendments to current accounting guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled rather than through additional paid in capital in the equity section of the balance sheet. The amendments also permit an employer to repurchase an employee’s shares at the maximum statutory tax rate in the employee’s applicable jurisdiction for tax withholding purposes without triggering liability accounting.  Finally, the amendments permit entities to make a one-time accounting policy election to account for forfeitures as they occur.  Specific adoption methods depend on the issue being adopted and range from prospective to retrospective adoption.  Early adoption is permitted, however all amendments must be adopted in the same period.     

January 1, 2017

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2016-10, Identifying Performance Obligations and Licensing

These amendments clarify, among other things, the accounting guidance in ASU 2014-09 regarding how an entity will determine whether promised goods or services are separately identifiable, which is an important consideration in determining whether to account for goods or services as a separate performance obligation.   Transition requirements are consistent with ASU 2014-09.

January 1, 2018

We are currently evaluating the impact of adopting this ASU, in coordination with ASU 2014-09, on our consolidated financial condition and results of operations.

ASU 2016-12, Narrow Scope Improvements and Practical Expedients

The standard update amends the revenue recognition guidance in ASU 2014-09 related to transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The amendments clarify that, for a contract to be considered completed at transition, substantially all of the revenue must have been recognized under current GAAP. The amendments also clarify how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria.  Transition requirements are consistent with ASU 2014-09.

January 1, 2018

We are currently evaluating the impact of adopting this ASU, in coordination with ASU 2014-09, on our consolidated financial condition and results of operations.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments

These amendments adopt a new model to measure and recognize credit losses for most financial assets.  The method used to measure estimated credit losses for available-for-sale (“AFS”) debt securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the amortized cost of those debt securities.  The amendments will permit entities to recognize improvements in credit loss estimates on AFS debt securities by reducing the allowance account immediately through earnings.  The amendments will be adopted through a cumulative effect adjustment to the beginning balance of retained earnings as of the first reporting period in which the amendments are effective. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein.        

January 1, 2020

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.







Amount and



Date of Issuance



$400

$200



December

April



2006

2007

Original attachment point (subordination)

Current attachment point (subordination)

Maturity

12/20/2016

3/20/2017

Current rating of tranche 

A-

BB

Current rating of underlying reference obligations 

AA - B

AAA - CCC

Number of defaults in underlying reference obligations

Number of entities

Number of countries







AAA

AA

A

BBB

BB

B

CCC

Total

Industry

Financial intermediaries

Telecommunications

Oil and gas

Utilities

Chemicals and plastics

Drugs

Retailers (except food

and drug)

Industrial equipment

Sovereign

Conglomerates

Forest products

Other

Total







As of June 30, 2016

As of December 31, 2015



Number

Number



of

Notional

Carrying

of

Notional

Carrying



Instruments

Amounts

Value

Instruments

Amounts

Value

Assets

Fixed maturity securities:

Asset-backed credit card loans (1)

N/A

$

 -

$

N/A

$

 -

$

Total return swap

 -

 -

Credit default swaps (2)

 -

 -

 -

Total assets

$

$

$

$



Liabilities

Non-qualifying hedges:

Credit default swaps

 -

$

 -

$

 -

$

$

Contingent forwards

 -

 -

 -

 -

Total liabilities (3)

$

 -

$

 -

$

$

⁽¹⁾

Reported in variable interest entities’ fixed maturity securities on our Consolidated Balance Sheets.

⁽²⁾

Reported in other investments on our Consolidated Balance Sheets.

⁽³⁾

Reported in variable interest entities’ liabilities on our Consolidated Balance Sheets.





For the Three

For the Six



Months Ended

Months Ended



June 30,

June 30,



2016

2015

2016

2015

Non-Qualifying Hedges

Credit default swaps

$

)

$

$

$

Contingent forwards

 -

 -

 -

 -

Total non-qualifying hedges (1)

$

)

$

$

$

⁽¹⁾

Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).







As of June 30, 2016



Amortized

Gross Unrealized

Fair



Cost

Gains

Losses

OTTI (1)

Value

Fixed maturity securities:

Corporate bonds

$

$

$

$

$

Asset-backed securities ("ABS")

)

U.S. government bonds

 -

 -

Foreign government bonds

 -

 -

Residential mortgage-backed securities ("RMBS")

 -

Commercial mortgage-backed securities ("CMBS")

 -

)

Collateralized loan obligations ("CLOs")

)

State and municipal bonds

Hybrid and redeemable preferred securities

 -

VIEs’ fixed maturity securities