4. Investments

a) The following tables summarize the Company's available-for-sale investments.


	September 30, 2011
(dollars in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other-Than- Temporary Impairment Losses			Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	284,438	$	23,733	$	(12	)	$	0		$	308,159
Obligations of states, municipalities and political subdivisions		2,743,359		176,163		(1,359	)		0			2,918,163
Foreign governments		683,747		56,616		0			0			740,363
Residential mortgage-backed securities		392,534		31,355		(13	)		(5,922	)		417,954
Asset-backed securities		16,723		837		(8	)		0			17,552
Public utilities		70,482		5,625		0			0			76,107
All other corporate bonds		1,032,696		74,636		(2,328	)		(6,718	)		1,098,286

Total fixed maturities		5,223,979		368,965		(3,720	)		(12,640	)		5,576,584
Equity securities:
Insurance companies, banks and trusts		371,004		250,441		(9,050	)		0			612,395
Industrial, consumer and all other		721,658		284,859		(9,713	)		0			996,804

Total equity securities		1,092,662		535,300		(18,763	)		0			1,609,199
Short-term investments		491,730		27		(1	)		0			491,756

Investments, available-for-sale	$	6,808,371	$	904,292	$	(22,484	)	$	(12,640	)	$	7,677,539


	December 31, 2010
(dollars in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other-Than- Temporary Impairment Losses			Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	300,555	$	20,832	$	(49	)	$	0		$	321,338
Obligations of states, municipalities and political subdivisions		2,767,169		61,620		(29,450	)		0			2,799,339
Foreign governments		550,755		24,662		(2,599	)		0			572,818
Residential mortgage-backed securities		409,415		29,664		(1,738	)		(11,778	)		425,563
Asset-backed securities		21,704		1,052		0			0			22,756
Public utilities		95,770		6,674		0			0			102,444
Convertible bonds		16,725		0		0			0			16,725
All other corporate bonds		1,094,887		83,752		(603	)		(7,793	)		1,170,243

Total fixed maturities		5,256,980		228,256		(34,439	)		(19,571	)		5,431,226
Equity securities:
Insurance companies, banks and trusts		388,848		323,634		(1,496	)		0			710,986
Industrial, consumer and all other		607,240		404,444		(699	)		0			1,010,985

Total equity securities		996,088		728,078		(2,195	)		0			1,721,971
Short-term investments		325,336		4		0			0			325,340

Investments, available-for-sale	$	6,578,404	$	956,338	$	(36,634	)	$	(19,571	)	$	7,478,537

b)	The following tables summarize gross unrealized investment losses by the length of time that securities have continuously been in an unrealized loss position.


	September 30, 2011
	Less than 12 months					12 months or longer					Total
(dollars in thousands)	Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	6,747	$	(12	)	$	0	$	0		$	6,747	$	(12	)
Obligations of states, municipalities and political subdivisions		2,736		(1	)		43,021		(1,358	)		45,757		(1,359	)
Residential mortgage-backed securities		3,893		(5,925	)		2,241		(10	)		6,134		(5,935	)
Asset-backed securities		121		(1)			35		(7	)		156		(8	)
All other corporate bonds		47,893		(7,554	)		8,141		(1,492	)		56,034		(9,046	)

Total fixed maturities		61,390		(13,493	)		53,438		(2,867	)		114,828		(16,360	)
Equity securities:
Insurance companies, banks and trusts		56,755		(9,050	)		0		0			56,755		(9,050	)
Industrial, consumer and all other		117,382		(8,591	)		12,283		(1,122	)		129,665		(9,713	)

Total equity securities		174,137		(17,641	)		12,283		(1,122	)		186,420		(18,763	)
Short-term investments		89,999		(1	)		0		0			89,999		(1	)

Total	$	325,526	$	(31,135	)	$	65,721	$	(3,989	)	$	391,247	$	(35,124	)

At September 30, 2011, the Company held 105 securities with a total estimated fair value of $391.2 million and gross unrealized losses of $35.1 million. Of these 105 securities, 31 securities had been in a continuous unrealized loss position for greater than one year and had a total estimated fair value of $65.7 million and gross unrealized losses of $4.0 million. Of these securities, 30 were fixed maturities and one was an equity security. The Company does not intend to sell or believe it will be required to sell these fixed maturities before recovery of their amortized cost.


	December 31, 2010
	Less than 12 months					12 months or longer					Total
(dollars in thousands)	Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	23,574	$	(49	)	$	0	$	0		$	23,574	$	(49	)
Obligations of states, municipalities and political subdivisions		942,935		(27,463	)		22,468		(1,987	)		965,403		(29,450	)
Foreign governments		119,211		(2,440	)		4,955		(159	)		124,166		(2,599	)
Residential mortgage-backed securities		20,972		(10,822	)		10,534		(2,694	)		31,506		(13,516	)
All other corporate bonds		15,294		(7,921	)		15,966		(475	)		31,260		(8,396	)

Total fixed maturities		1,121,986		(48,695	)		53,923		(5,315	)		1,175,909		(54,010	)
Equity securities:
Insurance companies, banks and trusts		22,750		(1,496	)		0		0			22,750		(1,496	)
Industrial, consumer and all other		16,712		(699	)		0		0			16,712		(699	)

Total equity securities		39,462		(2,195	)		0		0			39,462		(2,195	)

Total	$	1,161,448	$	(50,890	)	$	53,923	$	(5,315	)	$	1,215,371	$	(56,205	)

At December 31, 2010, the Company held 363 securities with a total estimated fair value of $1.2 billion and gross unrealized losses of $56.2 million. Of these 363 securities, 19 securities had been in a continuous unrealized loss position for greater than one year and had a total estimated fair value of $53.9 million and gross unrealized losses of $5.3 million. All 19 securities were fixed maturities.

The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery is considered. For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due.

For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income. The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.

When assessing whether it intends to sell a fixed maturity or if it is likely to be required to sell a fixed maturity before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing. Additional information on the methodology and significant inputs, by security type, that the Company used to determine the amount of credit loss recognized on fixed maturities with declines in fair value below amortized cost that were considered to be other-than-temporary is provided below.

Residential mortgage-backed securities. For mortgage-backed securities, credit impairment is assessed by estimating future cash flows from the underlying mortgage loans and interest payments. The cash flow estimate incorporates actual cash flows from the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment rates, default rates, recovery rates on foreclosed properties and loss severity assumptions. Management develops specific assumptions using market data and internal estimates, as well as estimates from rating agencies and other third party sources. Default rates are estimated by considering current underlying mortgage loan performance and expectations of future performance. Estimates of future cash flows are discounted to present value. If the present value of expected cash flows is less than the amortized cost, the Company recognizes the estimated credit loss in net income.

Corporate bonds. For corporate bonds, credit impairment is assessed by evaluating the underlying issuer. As part of this assessment, the Company analyzes various factors, including the following:

•

fundamentals of the issuer, including current and projected earnings, current liquidity position and ability to raise capital;

•

fundamentals of the industry in which the issuer operates;

•

expectations of defaults and recovery rates;

•

changes in ratings by rating agencies;

•

other relevant market considerations; and

•

receipt of interest payments

Default probabilities and recovery rates from rating agencies are key factors used in calculating the credit loss. Additional research of the industry and issuer is completed to determine if there is any current information that may affect the fixed maturity or its issuer in a negative manner and require an adjustment to the cash flow assumptions.

c) The amortized cost and estimated fair value of fixed maturities at September 30, 2011 are shown below by contractual maturity.


(dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	213,328	$	216,747
Due after one year through five years		1,179,686		1,254,046
Due after five years through ten years		1,835,956		1,979,274
Due after ten years		1,585,752		1,691,011

		4,814,722		5,141,078

Residential mortgage-backed securities		392,534		417,954
Asset-backed securities		16,723		17,552

Total fixed maturities	$	5,223,979	$	5,576,584

d) The following tables summarize the activity for credit losses recognized in net income on fixed maturities where other-than-temporary impairment was identified and a portion of the other-than-temporary impairment was included in other comprehensive income (loss).


	Quarter Ended September 30,
(dollars in thousands)	2011		2010
Cumulative credit loss, beginning balance	$	15,167	$	10,307

Additions:
Other-than-temporary impairment losses not previously recognized		875		0
Increases related to other-than-temporary impairment losses previously recognized		598		0

Total additions		1,473		0

Reductions:
Sales of fixed maturities on which credit losses were recognized		0		0

Cumulative credit loss, ending balance	$	16,640	$	10,307


	Nine Months Ended September 30,
(dollars in thousands)	2011			2010
Cumulative credit loss, beginning balance	$	10,307		$	9,141

Additions:
Other-than-temporary impairment losses not previously recognized		875			0
Increases related to other-than-temporary impairment losses previously recognized		5,473			1,185

Total additions		6,348			1,185

Reductions:
Sales of fixed maturities on which credit losses were recognized		(15	)		(19	)

Cumulative credit loss, ending balance	$	16,640		$	10,307

e) The following tables present net realized investment gains and the change in net unrealized gains on investments.


	Quarter Ended September 30,
(dollars in thousands)	2011			2010
Realized gains:
Sales of fixed maturities	$	1,858		$	2,083
Sales of equity securities		20,078			6,952
Other		940			0

Total realized gains		22,876			9,035

Realized losses:
Sales of fixed maturities		(53	)		(103	)
Other-than-temporary impairments		(9,984	)		0
Other		0			(150	)

Total realized losses		(10,037	)		(253	)

Net realized investment gains	$	12,839		$	8,782

Change in net unrealized gains on investments:
Fixed maturities	$	113,936		$	107,060
Equity securities		(262,264	)		159,385
Short-term investments		1			(20	)

Net increase (decrease)	$	(148,327	)	$	266,425


	Nine Months Ended September 30,
(dollars in thousands)	2011			2010
Realized gains:
Sales of fixed maturities	$	12,560		$	15,469
Sales of equity securities		25,896			19,215
Other		2,459			1,966

Total realized gains		40,915			36,650

Realized losses:
Sales of fixed maturities		(633	)		(678	)
Other-than-temporary impairments		(14,859	)		(6,264	)
Other		0			(7,612	)

Total realized losses		(15,492	)		(14,554	)

Net realized investment gains	$	25,423		$	22,096

Change in net unrealized gains on investments:
Fixed maturities	$	178,359		$	209,203
Equity securities		(209,346	)		118,122
Short-term investments		22			(17	)

Net increase (decrease)	$	(30,965	)	$	327,308

f) The following tables present other-than-temporary impairment losses recognized in net income and included in net realized investment gains by investment type.


	Quarter Ended September 30,
(dollars in thousands)	2011			2010
Fixed maturities:
Residential mortgage-backed securities	$	(1,473	)	$	0

Total fixed maturities		(1,473	)		0
Equity securities:
Insurance companies, banks and trusts		(4,048	)		0
Industrial, consumer and all other		(4,463	)		0

Total equity securities		(8,511	)		0

Total	$	(9,984	)	$	0


	Nine Months Ended September 30,
(dollars in thousands)	2011			2010
Fixed maturities:
Residential mortgage-backed securities	$	(6,348	)	$	(1,185	)

Total fixed maturities		(6,348	)		(1,185	)
Equity securities:
Insurance companies, banks and trusts		(4,048	)		(2,872	)
Industrial, consumer and all other		(4,463	)		(965	)

Total equity securities		(8,511	)		(3,837	)

Other		0			(1,242	)

Total	$	(14,859	)	$	(6,264	)