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



3.

Quantitative and Qualitative Disclosures About Market Risk



4.

Controls and Procedures



PART II



1.

Legal Proceedings



1A.

Risk Factors



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,



2017

2016



(Unaudited)

ASSETS

Investments:

Available-for-sale securities, at fair value:

Fixed maturity securities (amortized cost:  2017 – $86,194; 2016 – $84,287)

$

$

Variable interest entities’ fixed maturity securities (amortized cost:  2017 – $0; 2016 – $200)

 -

Equity securities (cost:  2017 – $262; 2016 – $260)

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

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; 222,237,262 and 226,335,105 shares

issued and outstanding as of June 30, 2017, and December 31, 2016, 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,

2017

2016

2017

2016

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

Strategic digitization 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,



2017

2016



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,



2017

2016

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 alternative investments

)

)

Sales and repayments of alternative investments

Issuance of mortgage loans on real estate

)

)

Repayment and maturities of mortgage loans on real estate

Issuance and repayment of policy loans, net

Net change in collateral on investments and derivatives

)

Other

)

)

Net cash provided by (used in) investing activities

)

)



Cash Flows from Financing Activities

Proceeds from sales leaseback transaction

 -

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

)

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 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.  We adopted the guidance in this ASU prospectively. 

January 1, 2017

The adoption of this ASU did not have an effect on our consolidated financial condition or 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.  We adopted this ASU using a modified retrospective basis applied to existing debt instruments. 

January 1, 2017

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. 

January 1, 2018

Our primary revenue sources will continue to be recognized in accordance with ASC Topic 944, Financial Services – Insurance.  Our analysis indicates that approximately $1 billion of our revenue reported in fee income and other revenue in our Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2016, is within the scope of this ASU.  We continue to evaluate 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 2016-01, 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 hold equity securities and hybrid preferred securities classified as available-for-sale (“AFS”) securities that are currently measured at fair value with changes in fair value recognized through other comprehensive income (loss) (“OCI”).  We are currently evaluating these two classifications of securities to determine those securities that meet the definition of an equity security as defined in this ASU.  See Note 4 for details regarding our equity and hybrid preferred securities currently classified as AFS. 

ASU 2016-02, Leases

This standard establishes a new accounting model for leases.  Lessees will recognize most leases on the balance sheet 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 that includes a number of optional practical expedients that entities may elect upon adoption.  Early adoption is permitted.

January 1, 2019

We are currently identifying all of our leases that will be within the scope of this standard; as such, we continue to evaluate the quantitative impact of adopting this ASU on our Consolidated Balance Sheets.  Based on our initial assessment, we do not expect there to be a significant difference in our pattern of lease expense recognition under this ASU.

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 on our consolidated financial condition and results of operations.  See comments under ASU 2014-09 for more information.

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 on our consolidated financial condition and results of operations.  See comments under ASU 2014-09 for more information.

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

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 on our consolidated financial condition and results of operations.  See comments under ASU 2014-09 for more information.

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 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, with a primary focus on our fixed maturity securities (see Note 4).  We currently reduce the amortized cost of the individual security when recognizing other-than-temporary impairment (“OTTI”) on these securities.  Upon adoption of ASU 2016-13, we will no longer reduce the amortized cost of each individual security; rather we will establish a valuation allowance, and any declines or improvements in credit quality will be recognized through the valuation allowance. 

ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments

These amendments clarify the classification of eight specific cash flow issues in an entity’s statement of cash flows where it was determined by the FASB that there is diversity in practice.  Early adoption of the amendments is permitted, and retrospective transition is required for each period presented in the statement of cash flows. 

January 1, 2018

We are currently evaluating these disclosure requirements and will amend classifications in our Consolidated Statements of Cash Flows upon adoption as applicable.

ASU 2016-16, Intra-Entity Asset Transfers Other Than Inventory

This amendment requires an entity to recognize current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs, thereby eliminating the current GAAP exception that prohibits the recognition of income taxes until the asset has been sold to an outside party.  Early adoption is permitted as of the beginning of the annual reporting period for which financial statements have not been issued.   

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 2016-18, Restricted Cash

This amendment requires that amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  Early adoption is permitted using a retrospective transition method applied to each period presented.

January 1, 2018

We will provide these additional disclosures in our Consolidated Statements of Cash Flows upon the adoption date as applicable.

ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

These amendments clarify 13 issues related to the adoption of ASU 2014-09.  The most significant issue of these amendments for us is the clarification that all contracts within the scope of Topic 944 are excluded from the scope of ASU 2014-09, rather than just insurance contracts as described in ASU 2014-09.  Transition requirements are consistent with ASU 2014-09.

January 1, 2018

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.  See comments under ASU 2014-09 for more information.

ASU 2017-04, Simplifying the Test for Goodwill Impairment

These amendments eliminate the requirement in current GAAP to perform Step 2 of the goodwill impairment test in favor of only applying Step 1.  Under Step 1, the fair value of the reporting unit is compared with its carrying value, and an impairment charge is recognized when the carrying value exceeds the reporting unit’s fair value.  An entity still has the option to first perform a qualitative assessment of an individual reporting unit to determine if the quantitative assessment in Step 1 is necessary.  ASU 2017-04 should be adopted prospectively, and early adoption is permitted on impairment testing dates after January 1, 2017.      

Impairment tests performed after January 1, 2020

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

ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

These amendments require that an entity report the service cost component of employee pension and postretirement benefit plans in the same line item as other compensation costs from services rendered by the applicable employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.  ASU 2017-07 requires retrospective adoption related to the presentation of net periodic pension cost and postretirement benefit cost.

January 1, 2018

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

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities

These amendments require an entity to shorten the amortization period for certain callable debt securities held at a premium so that the premium is amortized to the earliest call date.  Early adoption is permitted, and the ASU requires adoption under a modified retrospective basis through a cumulative-effect adjustment to the beginning balance of retained earnings. 

January 1, 2019

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

ASU 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting

These amendments provide guidance when changes to the terms or conditions of a share-based payment award would require modification accounting.  An entity should account for the effects of a modification unless the following are the same immediately before and after the modification:  (a) the fair value of the award, (b) the vesting conditions of the award and (c) the classification of the award as an equity instrument or a liability instrument.  These amendments are to be applied prospectively to awards modified on or after the effective date.  Early adoption is permitted.

January 1, 2018

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







As of June 30, 2017

As of December 31, 2016



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

 -

 -

 -

 -

Total assets

$

$

 -

$

$



⁽¹⁾

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







For the Three

For the Six



Months Ended

Months Ended



June 30,

June 30,



2017

2016

2017

2016

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, 2017



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

 -

Total fixed maturity securities

)

Equity securities

 -

Total AFS securities

$

$

$

$

)

$







As of December 31, 2016



Amortized

Gross Unrealized

Fair



Cost

Gains

Losses

OTTI (1)

Value

Fixed maturity securities:

Corporate bonds

$

$

$

$

)

$

ABS

)

U.S. government bonds

 -

Foreign government bonds

 -

RMBS

)

CMBS

)

CLOs

)

State and municipal bonds

 -

Hybrid and redeemable preferred securities

 -

VIEs’ fixed maturity securities

 -

 -

 -

Total fixed maturity securities

)

Equity securities

 -

Total AFS securities

$

$

$

$

)

$

⁽¹⁾

Includes unrealized (gains) and losses on impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date.







Amortized

Fair



Cost

Value

Due in one year or less

$

$

Due after one year through five years

Due after five years through ten years

Due after ten years

Subtotal

Structured securities (ABS, MBS, CLOs)

Total fixed maturity AFS securities

$

$







As of June 30, 2017

Less Than or Equal

Greater Than



to Twelve Months

Twelve Months