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Investments | 6 Months Ended
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Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments a)The following tables summarize the Company's available-for-sale investments. Commercial and residential mortgage-backed securities include securities issued by U.S. government-sponsored enterprises and U.S. government agencies. The net unrealized holding gains in the tables below are presented before taxes and any reserve deficiency adjustments for life and annuity benefit reserves. See note 11.
| June 30, 2020 |  |  |  |  |  |  |  |
(dollars in thousands) | Amortized Cost |  | Gross Unrealized Holding Gains |  | Gross Unrealized Holding Losses |  | Allowance for Credit Losses (1) |  | Estimated Fair Value
Fixed maturity securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 343,467 |  |  | $ | 11,447 |  |  | $ | (19) |  |  | $ | — |  |  | $ | 354,895 |
U.S. government-sponsored enterprises | 323,864 |  |  | 50,944 |  |  | — |  |  | — |  |  | 374,808 |
Obligations of states, municipalities and political subdivisions | 3,852,301 |  |  | 354,186 |  |  | (1,032) |  |  | — |  |  | 4,205,455 |
Foreign governments | 1,352,962 |  |  | 172,377 |  |  | (9,943) |  |  | — |  |  | 1,515,396 |
Commercial mortgage-backed securities | 1,730,795 |  |  | 148,218 |  |  | (35) |  |  | — |  |  | 1,878,978 |
Residential mortgage-backed securities | 836,066 |  |  | 71,299 |  |  | (35) |  |  | — |  |  | 907,330 |
Asset-backed securities | 8,122 |  |  | 159 |  |  | — |  |  | — |  |  | 8,281 |
Corporate bonds | 755,940 |  |  | 62,551 |  |  | (2,960) |  |  | (202) |  |  | 815,329 |
Total fixed maturity securities | 9,203,517 |  |  | 871,181 |  |  | (14,024) |  |  | (202) |  |  | 10,060,472 |
Short-term investments | 931,555 |  |  | 489 |  |  | (2,772) |  |  | — |  |  | 929,272 |
Investments, available-for-sale | $ | 10,135,072 |  |  | $ | 871,670 |  |  | $ | (16,796) |  |  | $ | (202) |  |  | $ | 10,989,744 |
(1)Effective January 1, 2020, the Company adopted ASC 326 and as a result any impairment losses on the Company's available-for-sale investments are recorded as an allowance, subject to reversal. Prior periods have not been restated to conform with the current year presentation. See note 1.
| December 31, 2019 |  |  |  |  |  |
(dollars in thousands) | Amortized Cost |  | Gross Unrealized Holding Gains |  | Gross Unrealized Holding Losses |  | Estimated Fair Value
Fixed maturity securities: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 282,305 |  |  | $ | 2,883 |  |  | $ | (402) |  |  | $ | 284,786 |
U.S. government-sponsored enterprises | 318,831 |  |  | 23,949 |  |  | (200) |  |  | 342,580 |
Obligations of states, municipalities and political subdivisions | 3,954,779 |  |  | 235,915 |  |  | (812) |  |  | 4,189,882 |
Foreign governments | 1,415,639 |  |  | 135,763 |  |  | (9,398) |  |  | 1,542,004 |
Commercial mortgage-backed securities | 1,761,777 |  |  | 57,450 |  |  | (1,382) |  |  | 1,817,845 |
Residential mortgage-backed securities | 855,641 |  |  | 32,949 |  |  | (517) |  |  | 888,073 |
Asset-backed securities | 11,042 |  |  | 28 |  |  | (22) |  |  | 11,048 |
Corporate bonds | 848,826 |  |  | 47,551 |  |  | (1,686) |  |  | 894,691 |
Total fixed maturity securities | 9,448,840 |  |  | 536,488 |  |  | (14,419) |  |  | 9,970,909 |
Short-term investments | 1,194,953 |  |  | 1,355 |  |  | (60) |  |  | 1,196,248 |
Investments, available-for-sale | $ | 10,643,793 |  |  | $ | 537,843 |  |  | $ | (14,479) |  |  | $ | 11,167,157 |
b)The following tables summarize gross unrealized investment losses on available-for-sale investments by the length of time that securities have continuously been in an unrealized loss position.
| June 30, 2020 |  |  |  |  |  |  |  |  |  |
| Less than 12 months |  |  |  | 12 months or longer |  |  |  | Total |  |
(dollars in thousands) | Estimated Fair Value |  | Gross Unrealized Holding Losses |  | Estimated Fair Value |  | Gross Unrealized Holding Losses |  | Estimated Fair Value |  | Gross Unrealized Holding Losses
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 7,675 |  |  | $ | (19) |  |  | $ | — |  |  | $ | — |  |  | $ | 7,675 |  |  | $ | (19) |
Obligations of states, municipalities and political subdivisions | 46,271 |  |  | (1,009) |  |  | 3,025 |  |  | (23) |  |  | 49,296 |  |  | (1,032) |
Foreign governments | 173,200 |  |  | (4,295) |  |  | 160,104 |  |  | (5,648) |  |  | 333,304 |  |  | (9,943) |
Commercial mortgage-backed securities | 2,033 |  |  | (14) |  |  | 7,425 |  |  | (21) |  |  | 9,458 |  |  | (35) |
Residential mortgage-backed securities | 3,756 |  |  | (35) |  |  | — |  |  | — |  |  | 3,756 |  |  | (35) |
Asset-backed securities | 359 |  |  | — |  |  | — |  |  | — |  |  | 359 |  |  | — |
Corporate bonds | 85,245 |  |  | (1,671) |  |  | 17,362 |  |  | (1,289) |  |  | 102,607 |  |  | (2,960) |
Total fixed maturity securities | 318,539 |  |  | (7,043) |  |  | 187,916 |  |  | (6,981) |  |  | 506,455 |  |  | (14,024) |
Short-term investments | 566,873 |  |  | (2,772) |  |  | — |  |  | — |  |  | 566,873 |  |  | (2,772) |
Total | $ | 885,412 |  |  | $ | (9,815) |  |  | $ | 187,916 |  |  | $ | (6,981) |  |  | $ | 1,073,328 |  |  | $ | (16,796) |
At June 30, 2020, the Company held 83 available-for-sale securities with a total estimated fair value of $1.1 billion and gross unrealized losses of $16.8 million. Of these 83 securities, 35 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $187.9 million and gross unrealized losses of $7.0 million. The Company does not intend to sell or believe it will be required to sell these available-for-sale securities before recovery of their amortized cost.
| December 31, 2019 |  |  |  |  |  |  |  |  |  |
| Less than 12 months |  |  |  | 12 months or longer |  |  |  | Total |  |
(dollars in thousands) | Estimated Fair Value |  | Gross Unrealized Holding Losses |  | Estimated Fair Value |  | Gross Unrealized Holding Losses |  | Estimated Fair Value |  | Gross Unrealized Holding Losses
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 36,862 |  |  | $ | (361) |  |  | $ | 46,518 |  |  | $ | (41) |  |  | $ | 83,380 |  |  | $ | (402) |
U.S. government-sponsored enterprises | 24,148 |  |  | (197) |  |  | 2,868 |  |  | (3) |  |  | 27,016 |  |  | (200) |
Obligations of states, municipalities and political subdivisions | 127,836 |  |  | (702) |  |  | 6,830 |  |  | (110) |  |  | 134,666 |  |  | (812) |
Foreign governments | 162,907 |  |  | (3,393) |  |  | 159,888 |  |  | (6,005) |  |  | 322,795 |  |  | (9,398) |
Commercial mortgage-backed securities | 202,530 |  |  | (1,126) |  |  | 33,853 |  |  | (256) |  |  | 236,383 |  |  | (1,382) |
Residential mortgage-backed securities | 11,706 |  |  | (66) |  |  | 58,162 |  |  | (451) |  |  | 69,868 |  |  | (517) |
Asset-backed securities | — |  |  | — |  |  | 3,632 |  |  | (22) |  |  | 3,632 |  |  | (22) |
Corporate bonds | 41,847 |  |  | (1,287) |  |  | 40,274 |  |  | (399) |  |  | 82,121 |  |  | (1,686) |
Total fixed maturity securities | 607,836 |  |  | (7,132) |  |  | 352,025 |  |  | (7,287) |  |  | 959,861 |  |  | (14,419) |
Short-term investments | 3,316 |  |  | (60) |  |  | — |  |  | — |  |  | 3,316 |  |  | (60) |
Total | $ | 611,152 |  |  | $ | (7,192) |  |  | $ | 352,025 |  |  | $ | (7,287) |  |  | $ | 963,177 |  |  | $ | (14,479) |
At December 31, 2019, the Company held 201 securities with a total estimated fair value of $963.2 million and gross unrealized losses of $14.5 million. Of these 201 securities, 122 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $352.0 million and gross unrealized losses of $7.3 million. Following the adoption of ASC 326, as described in note 1, beginning January 1, 2020 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 the result of a credit loss. All available-for-sale securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for credit-related impairment to determine whether a credit loss exists, including the extent to which fair value is below cost, the implied yield to maturity, rating downgrades of the security and whether or not the issuer has failed to make scheduled principal or interest payments. The Company also takes into consideration information about the financial condition of the issuer and industry factors that could negatively impact the capital markets. If the decline in fair value of an available-for-sale security below its amortized cost is considered to be the result of a credit loss, 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 loss, which is recorded as an allowance and recognized in net income. The allowance is limited to the difference between the fair value and the amortized cost of the security. Any remaining decline in fair value represents the non-credit portion of the impairment, which is recognized in other comprehensive income. The Company also considers whether it intends to sell an available-for-sale security or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost. In these instances, a decline in fair value 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. c)The amortized cost and estimated fair value of fixed maturity securities at June 30, 2020 are shown below by contractual maturity.
(dollars in thousands) | Amortized Cost |  | Estimated Fair Value
Due in one year or less | $ | 338,005 |  |  | $ | 336,972 |
Due after one year through five years | 1,464,733 |  |  | 1,537,573 |
Due after five years through ten years | 2,122,737 |  |  | 2,306,166 |
Due after ten years | 2,703,059 |  |  | 3,085,172 |
| 6,628,534 |  |  | 7,265,883 |
Commercial mortgage-backed securities | 1,730,795 |  |  | 1,878,978 |
Residential mortgage-backed securities | 836,066 |  |  | 907,330 |
Asset-backed securities | 8,122 |  |  | 8,281 |
Total fixed maturity securities | $ | 9,203,517 |  |  | $ | 10,060,472 |
d)The following table presents the components of net investment income.
| Quarter Ended June 30, |  |  |  | Six Months Ended June 30, |  |
(dollars in thousands) | 2020 |  | 2019 |  | 2020 |  | 2019
Interest: |  |  |  |  |  |  |
Municipal bonds (tax-exempt) | $ | 16,157 |  |  | $ | 17,885 |  |  | $ | 32,758 |  |  | $ | 36,711 |
Municipal bonds (taxable) | 16,834 |  |  | 18,613 |  |  | 33,729 |  |  | 37,192 |
Other taxable bonds | 39,616 |  |  | 41,242 |  |  | 79,588 |  |  | 82,023 |
Short-term investments, including overnight deposits | 2,379 |  |  | 13,753 |  |  | 12,622 |  |  | 23,965 |
Dividends on equity securities | 18,020 |  |  | 22,207 |  |  | 46,634 |  |  | 47,993 |
Income (loss) from equity method investments | 5,647 |  |  | 1,174 |  |  | (14,332) |  |  | 3,070 |
Other | 46 |  |  | 873 |  |  | 803 |  |  | 3,174 |
| 98,699 |  |  | 115,747 |  |  | 191,802 |  |  | 234,128 |
Investment expenses | (3,084) |  |  | (3,916) |  |  | (7,944) |  |  | (8,115) |
Net investment income | $ | 95,615 |  |  | $ | 111,831 |  |  | $ | 183,858 |  |  | $ | 226,013 |
e)The following table presents the components of net investment gains (losses) and the change in net unrealized gains included in other comprehensive income.
| Quarter Ended June 30, |  |  |  | Six Months Ended June 30, |  |
(dollars in thousands) | 2020 |  | 2019 |  | 2020 |  | 2019
Fixed maturity securities: |  |  |  |  |  |  |
Realized gains | $ | 5,348 |  |  | $ | 1,661 |  |  | $ | 6,733 |  |  | $ | 1,804 |
Realized losses | (5,126) |  |  | (630) |  |  | (6,271) |  |  | (911) |
Change in allowance for expected credit losses | 1,537 |  |  | — |  |  | (202) |  |  | — |
Short-term investments: |  |  |  |  |  |  |
Realized gains | 1,002 |  |  | 499 |  |  | 1,100 |  |  | 1,334 |
Realized losses | (184) |  |  | (2,049) |  |  | (356) |  |  | (2,073) |
Cost-method investments: |  |  |  |  |  |  |
Realized gains | — |  |  | — |  |  | 11,167 |  |  | — |
Other investment gains (losses): | (5,389) |  |  | 452 |  |  | (5,245) |  |  | 460 |
Net realized investment gains (losses) | (2,812) |  |  | (67) |  |  | 6,926 |  |  | 614 |
Equity securities: |  |  |  |  |  |  |
Change in fair value of securities sold during the period | 82,523 |  |  | 202 |  |  | 43,458 |  |  | 26,616 |
Change in fair value of securities held during the period | 831,532 |  |  | 425,518 |  |  | (820,582) |  |  | 1,010,614 |
Total change in fair value | 914,055 |  |  | 425,720 |  |  | (777,124) |  |  | 1,037,230 |
Net investment gains (losses) | $ | 911,243 |  |  | $ | 425,653 |  |  | $ | (770,198) |  |  | $ | 1,037,844 |
Change in net unrealized gains on available-for-sale investments included in other comprehensive income: |  |  |  |  |  |  |
Fixed maturity securities | $ | 236,521 |  |  | $ | 197,248 |  |  | $ | 335,088 |  |  | $ | 414,542 |
Short-term investments | 3,128 |  |  | 2,506 |  |  | (3,578) |  |  | 3,861 |
Reserve deficiency adjustment for life and annuity benefit reserves (see note 11) | (22,740) |  |  | (35,938) |  |  | (35,612) |  |  | (61,751) |
Net increase | $ | 216,909 |  |  | $ | 163,816 |  |  | $ | 295,898 |  |  | $ | 356,652 |

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