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Investments

12 Months Ended

Dec. 31, 2020

Investments [Abstract]

2. INVESTMENTS

Effective January 1, 2020, the Company adopted ASU 2016-13 which modified the previous other than temporary impairment model for available for sale fixed maturity securities. The guidance requires the Company to record allowances for credit losses for securities that are deemed to have valuation deterioration due to credit related factors. The initial table below presents the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) and market value of fixed maturity securities as of December 31, 2020 in accordance with ASU 2016-13 guidance. The second table presents the amortized cost, gross unrealized appreciation/(depreciation), market value and other-than-temporary impairments (“OTTI”) in AOCI as of December 31, 2019, in accordance with previously applicable guidance.

		At December 31, 2020
		Amortized			Allowance for			Unrealized			Unrealized			Market
(Dollars in thousands)		Cost			Credit Losses			Appreciation			Depreciation			Value
Fixed maturity securities
	U.S. Treasury securities and obligations of
	U.S. government agencies and corporations	$	1,325,156		$	-		$	49,084		$	(7,134)		$	1,367,106
	Obligations of U.S. states and political subdivisions		543,895			-			34,654			(1,254)			577,295
	Corporate securities		6,824,800			(1,220)			380,677			(55,231)			7,149,026
	Asset-backed securities		2,540,809			-			30,691			(5,698)			2,565,802
	Mortgage-backed securities
	Commercial		915,923			-			75,275			(895)			990,303
	Agency residential		2,206,139			-			64,663			(3,063)			2,267,739
	Non-agency residential		5,187			-			9			(2)			5,194
	Foreign government securities		1,565,260			(22)			102,587			(22,450)			1,645,375
	Foreign corporate securities		3,297,898			(503)			204,023			(29,085)			3,472,333
Total fixed maturity securities		$	19,225,067		$	(1,745)		$	941,663		$	(124,812)		$	20,040,173

		At December 31, 2019
		Amortized			Unrealized			Unrealized			Market			OTTI in AOCI
(Dollars in thousands)		Cost			Appreciation			Depreciation			Value			(a)
Fixed maturity securities
	U.S. Treasury securities and obligations of
	U.S. government agencies and corporations	$	1,489,660		$	28,357		$	(2,214)		$	1,515,803		$	-
	Obligations of U.S. states and political subdivisions		507,353			29,651			(89)			536,915			-
	Corporate securities		6,227,661			185,052			(37,767)			6,374,946			469
	Asset-backed securities		892,373			6,818			(1,858)			897,333			-
	Mortgage-backed securities
	Commercial		814,570			31,236			(1,249)			844,557			-
	Agency residential		2,173,099			36,361			(10,879)			2,198,581			-
	Non-agency residential		5,723			-			(20)			5,703			-
	Foreign government securities		1,492,315			47,148			(33,513)			1,505,950			71
	Foreign corporate securities		2,870,737			107,999			(33,580)			2,945,156			447
Total fixed maturity securities		$	16,473,491		$	472,622		$	(121,169)		$	16,824,944		$	987

(a) Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.

	At December 31, 2020						At December 31, 2019
	Amortized			Market			Amortized			Market
(Dollars in thousands)	Cost			Value			Cost			Value
Fixed maturity securities – available for sale:
Due in one year or less	$	1,365,793		$	1,374,674		$	1,456,960		$	1,457,919
Due after one year through five years		6,529,189			6,774,785			6,757,107			6,869,359
Due after five years through ten years		4,414,211			4,751,903			3,471,370			3,609,816
Due after ten years		1,247,816			1,309,773			902,289			941,676
Asset-backed securities		2,540,809			2,565,802			892,373			897,333
Mortgage-backed securities:
Commercial		915,923			990,303			814,570			844,557
Agency residential		2,206,139			2,267,739			2,173,099			2,198,581
Non-agency residential		5,187			5,194			5,723			5,703
Total fixed maturity securities	$	19,225,067		$	20,040,173		$	16,473,491		$	16,824,944

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods indicated:


	Years Ended December 31,
(Dollars in thousands)	2020			2019
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	465,192		$	534,410
Fixed maturity securities, other-than-temporary impairment		-			(1,559)
Change in unrealized appreciation (depreciation), pre-tax		465,192			532,851
Deferred tax benefit (expense)		(45,458)			(49,149)
Deferred tax benefit (expense), other-than-temporary impairment		-			115
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity	$	419,734		$	483,817

The Company reviews all of its fixed maturity, available for sale securities whose fair value has fallen below their amortized cost at the time of review. The Company then assesses whether the decline in value is due to non-credit related or credit related factors. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute a credit impairment, but rather a non-credit related decline in market value. Non-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to sell the security or is more likely than not to sell the security, the Company records the entire fair value adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). If the Company determines that the decline is credit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The amount of the allowance for a given security will generally be the difference between a discounted cash flow model and the Company’s carrying value. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).

The Company does not create an allowance for uncollectible interest. If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.

Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as adjustments to the carrying value of the security and any subsequent improvement in market value were recorded through other comprehensive income.

The Company’s assessments are based on the issuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

		Duration of Unrealized Loss at December 31, 2020 By Security Type
	Less than 12 months						Greater than 12 months						Total
				Gross						Gross						Gross
				Unrealized						Unrealized						Unrealized
(Dollars in thousands)	Market Value			Depreciation			Market Value			Depreciation			Market Value			Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	135,190		$	(7,134)		$	-		$	-		$	135,190		$	(7,134)
Obligations of U.S. states and political subdivisions		19,524			(999)			4,059			(255)			23,583			(1,254)
Corporate securities		669,755			(26,159)			247,962			(29,072)			917,717			(55,231)
Asset-backed securities		235,566			(4,768)			85,595			(930)			321,161			(5,698)
Mortgage-backed securities
Commercial		53,511			(578)			6,592			(317)			60,103			(895)
Agency residential		434,447			(2,016)			50,353			(1,047)			484,800			(3,063)
Non-agency residential		185			(2)			-			-			185			(2)
Foreign government securities		114,755			(8,813)			150,812			(13,637)			265,567			(22,450)
Foreign corporate securities		354,548			(17,489)			115,595			(11,596)			470,143			(29,085)
Total fixed maturity securities	$	2,017,481		$	(67,958)		$	660,968		$	(56,854)		$	2,678,449		$	(124,812)

		Duration of Unrealized Loss at December 31, 2020 By Maturity
	Less than 12 months						Greater than 12 months						Total
				Gross						Gross						Gross
				Unrealized						Unrealized						Unrealized
(Dollars in thousands)	Market Value			Depreciation			Market Value			Depreciation			Market Value			Depreciation
Fixed maturity securities
Due in one year or less	$	96,144		$	(4,942)		$	112,419		$	(12,071)		$	208,563		$	(17,013)
Due in one year through five years		653,816			(32,469)			283,866			(21,319)			937,682			(53,788)
Due in five years through ten years		422,517			(19,392)			49,749			(2,034)			472,266			(21,426)
Due after ten years		121,295			(3,791)			72,394			(19,136)			193,689			(22,927)
Asset-backed securities		235,566			(4,768)			85,595			(930)			321,161			(5,698)
Mortgage-backed securities		488,143			(2,596)			56,945			(1,364)			545,088			(3,960)
Total fixed maturity securities	$	2,017,481		$	(67,958)		$	660,968		$	(56,854)		$	2,678,449		$	(124,812)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2020 were $2,678,449 thousand and $124,812 thousand, respectively. The market value of securities for the single issuer (the United States government) whose securities comprised the largest unrealized loss position at December 31, 2020, did not exceed 0.7% of the overall market value of the Company’s fixed maturity securities. The market value of the securities for the issuer with the second largest unrealized loss comprised less than 0.1% of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $67,958 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, foreign government securities and agency residential asset-backed securities. Of these unrealized losses, $63,424 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $56,854 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $33,533 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

		Duration of Unrealized Loss at December 31, 2019 By Security Type
	Less than 12 months						Greater than 12 months						Total
				Gross						Gross						Gross
				Unrealized						Unrealized						Unrealized
(Dollars in thousands)	Market Value			Depreciation			Market Value			Depreciation			Market Value			Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	85,527		$	(1,005)		$	249,371		$	(1,209)		$	334,898		$	(2,214)
Obligations of U.S. states and political subdivisions		4,600			(38)			5,522			(51)			10,122			(89)
Corporate securities		547,120			(9,877)			395,369			(27,890)			942,489			(37,767)
Asset-backed securities		176,222			(1,027)			94,190			(831)			270,412			(1,858)
Mortgage-backed securities
Commercial		83,127			(689)			23,063			(560)			106,190			(1,249)
Agency residential		344,267			(1,834)			488,680			(9,045)			832,947			(10,879)
Non-agency residential		332			-			3,976			(20)			4,308			(20)
Foreign government securities		210,766			(4,770)			283,648			(28,743)			494,414			(33,513)
Foreign corporate securities		278,403			(7,553)			365,808			(26,027)			644,211			(33,580)
Total fixed maturity securities	$	1,730,364		$	(26,793)		$	1,909,627		$	(94,376)		$	3,639,991		$	(121,169)

		Duration of Unrealized Loss at December 31, 2019 By Maturity
	Less than 12 months						Greater than 12 months						Total
				Gross						Gross						Gross
				Unrealized						Unrealized						Unrealized
(Dollars in thousands)	Market Value			Depreciation			Market Value			Depreciation			Market Value			Depreciation
Fixed maturity securities
Due in one year or less	$	67,879		$	(1,237)		$	416,583		$	(23,004)		$	484,462		$	(24,241)
Due in one year through five years		464,753			(7,960)			689,195			(38,138)			1,153,948			(46,098)
Due in five years through ten years		495,741			(12,388)			103,612			(11,100)			599,353			(23,488)
Due after ten years		98,043			(1,658)			90,328			(11,678)			188,371			(13,336)
Asset-backed securities		176,222			(1,027)			94,190			(831)			270,412			(1,858)
Mortgage-backed securities		427,726			(2,523)			515,719			(9,625)			943,445			(12,148)
Total fixed maturity securities	$	1,730,364		$	(26,793)		$	1,909,627		$	(94,376)		$	3,639,991		$	(121,169)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2019 were $3,639,991 thousand and $121,169 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2019, did not exceed 0.8% of the overall market value of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $26,793 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities and foreign government securities. Of these unrealized losses, $23,104 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $94,376 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to foreign and domestic corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $73,144 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The components of net investment income are presented in the table below for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2020			2019				2018
Fixed maturities	$	542,363		$	520,291		$	465,793
Equity securities		18,776			19,505			25,327
Short-term investments and cash		5,012			17,619			14,395
Other invested assets
Limited partnerships		112,853			105,815			93,327
Other		1,699			14,117			16,960
Gross investment income before adjustments		680,703			677,347			615,802
Funds held interest income (expense)		12,754			13,271			6,300
Future policy benefit reserve income (expense)		(1,237)			(1,380)			(1,419)
Gross investment income		692,220			689,238			620,683
Investment expenses		(49,755)			(42,099)			(39,500)
Net investment income	$	642,465		$	647,139		$	581,183

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.

The Company had contractual commitments to invest up to an additional $1,594,446 thousand in limited partnerships and private placement loans at December 31, 2020. These commitments will be funded when

called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2026.

Beginning in 2016, the Company participated in a private placement liquidity sweep facility (“the facility”). The primary purpose of the facility is to enhance the Company’s return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity. Through the second quarter of 2018, the Company’s participation in the facility was classified within other invested assets on the Company’s Balance Sheets.

Starting in the third quarter of 2018, the Company consolidated its participation in the facility. As a result of the consolidation of the underlying investments of the facility, effective July 1, 2018, the Company reclassified $143,656 thousand from other invested assets to fixed maturity securities, available for sale, at market value and reclassified $243,864 thousand from other invested assets to short-term investments. As of December 31, 2020, the market value of investments in the facility consolidated within the Company’s balance sheets was $627,958 thousand.

The components of net realized capital gains (losses) are presented in the table below for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2020				2019		2018
Fixed maturity securities, market value:
Allowance for credit losses	$	(1,745)		$	-		$	-
Other-than-temporary impairments		-			(20,899)			(8,110)
Gains (losses) from sales		(2,214)			28,025			(21,719)
Fixed maturity securities, fair value:
Gains (losses) from sales		(2,863)			355			(1,799)
Gains (losses) from fair value adjustments		1,944			1,808			1,506
Equity securities, fair value:
Gains (losses) from sales		(8,963)			4,148			(29,941)
Gains (losses) from fair value adjustments		278,461			165,200			(68,832)
Other invested assets		1,705			6,003			1,815
Short-term investments gain (loss)		1,324			364			(56)
Total net realized capital gains (losses)	$	267,649		$	185,004		$	(127,136)

		Roll Forward of Allowance for Credit Losses
		Twelve Months Ended December 31, 2020
					Foreign			Foreign
		Corporate			Government			Corporate
		Securities			Securities			Securities			Total
(Dollars in thousands)
Beginning Balance		$	-		$	-		$	-		$	-
Credit losses on securities where credit
losses were not previously recorded			(27,666)			(518)			(4,700)			(32,884)
Increases in allowance on previously
impaired securities			(6,136)			(28)			(481)			(6,645)
Decreases in allowance on previously
impaired securities			4,333			309			883			5,525
Reduction in allowance due to disposals			28,249			215			3,795			32,259

Balance as of December 31, 2020		$	(1,220)		$	(22)		$	(503)		$	(1,745)

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) fair value re-measurements, allowances for credit losses per ASU 2016-13 and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis in prior years as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2020			2019			2018
Proceeds from sales of fixed maturity securities	$	1,950,774		$	3,283,154		$	3,150,179
Gross gains from sales		79,609			63,721			33,996
Gross losses from sales		(84,686)			(35,341)			(57,514)

Proceeds from sales of equity securities	$	376,347		$	283,965		$	1,199,409
Gross gains from sales		37,415			14,274			31,718
Gross losses from sales		(46,378)			(10,126)			(61,659)

Securities with a carrying value amount of $1,617,928 thousand at December 31, 2020 were on deposit with various state or governmental insurance departments in compliance with insurance laws.