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Investments | 6 Months Ended
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Jun. 30, 2012
Investments Abstract |
Investments | 4. Investments The Company had total ca sh and invested assets of $32.5 billion and $25.9 billion at June 30, 2012 and December 31, 2011, respectively, as illustrated below (dollars in thousands):
|  | June 30, 2012 |  | December 31, 2011 |
Fixed maturity securities, available-for-sale | $ | 17,244,192 |  | $ | 16,200,950 |
Mortgage loans on real estate |  | 1,157,049 |  |  | 991,731 |
Policy loans |  | 1,250,238 |  |  | 1,260,400 |
Funds withheld at interest |  | 5,457,888 |  |  | 5,410,424 |
Short-term investments |  | 49,981 |  |  | 88,566 |
Investment receivable |  | 5,406,898 |  |  | -- |
Other invested assets |  | 940,605 |  |  | 1,012,541 |
Cash and cash equivalents |  | 957,341 |  |  | 962,870 |
| Total cash and invested assets | $ | 32,464,192 |  | $ | 25,927,482 |
All investments held by the Company are monitored for conformance to the qualitative and quantitative limits prescribed by the applicable jurisdiction's insurance laws and regulations. In addition, the operating companies' boards of directors periodically review their respective investment portfolios. The Company's investment strategy is to maintain a predominantly investment-grade, fixed maturity securities portfolio, which will provide adequate liquidity for e xpected reinsurance obligations and maximize total return through prudent asset management. The Company's asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all portfolios, when consolidated, ranges between eight and ten years. The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company's condensed consolidated balance sheets, are borrowed from a third party. The Company is required to maintain a minimum of 100% of the market value of the borrowed securities as collateral. The Company had borrowed securities with an amortized cost and an estimated fair value of $237.5 million and $150.0 million as of June 30, 2012 and December 31, 2011, respectively. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.
Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses consist of the following (dollars in thousands):
| Three months ended |  |  | Six months ended
| June 30, |  |  | June 30,
| 2012 |  | 2011 |  |  | 2012 |  | 2011
Fixed maturity securities available-for-sale | $ | 193,388 |  | $ | 191,030 |  |  | $ | 384,806 |  | $ | 375,591
Mortgage loans on real estate |  | 16,000 |  |  | 13,593 |  |  |  | 30,966 |  |  | 27,328
Policy loans |  | 16,334 |  |  | 16,724 |  |  |  | 33,117 |  |  | 33,095
Funds withheld at interest |  | 62,992 |  |  | 111,700 |  |  |  | 178,006 |  |  | 264,760
Short-term investments |  | 781 |  |  | 883 |  |  |  | 1,769 |  |  | 1,808
Investment receivable |  | 36,752 |  |  | - |  |  |  | 36,752 |  |  | -
Other invested assets |  | 11,356 |  |  | 10,512 |  |  |  | 22,679 |  |  | 20,210
Investment revenue |  | 337,603 |  |  | 344,442 |  |  |  | 688,095 |  |  | 722,792
Investment expense |  | (9,269) |  |  | (7,006) |  |  |  | (18,821) |  |  | (14,316)
Investment income, net of related expenses | $ | 328,334 |  | $ | 337,436 |  |  | $ | 669,274 |  | $ | 708,476
Investment Related Gains (Losses), Net |  |  |  |  |  |  |  |  |  |
Investment related gains (losses), net consist of the following (dollars in thousands): |  |  |  |  |  |  |
|  |  | Three months ended |  |  | Six months ended
|  |  | June 30, |  |  | June 30,
|  |  | 2012 |  | 2011 |  |  | 2012 |  | 2011
Fixed maturity and equity securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
| Other-than-temporary impairment losses on fixed maturities | $ | (1,959) |  | $ | (5,582) |  |  | $ | (9,566) |  | $ | (7,138)
| Portion of loss recognized in accumulated other |  |  |  |  |  |  |  |  |  |  |  |
|  | comprehensive income (before taxes) |  | 162 |  |  | 292 |  |  |  | (7,059) |  |  | 292
| Net other-than-temporary impairment losses on fixed |  |  |  |  |  |  |  |  |  |  |  |
|  | maturities recognized in earnings |  | (1,797) |  |  | (5,290) |  |  |  | (16,625) |  |  | (6,846)
| Impairment losses on equity securities |  | (2,186) |  |  | (3,680) |  |  |  | (3,025) |  |  | (3,680)
| Gain on investment activity |  | 26,593 |  |  | 28,208 |  |  |  | 48,905 |  |  | 57,584
| Loss on investment activity |  | (8,918) |  |  | (6,653) |  |  |  | (16,422) |  |  | (13,567)
Other impairment losses and change in mortgage loan provision |  | 1,762 |  |  | (3,186) |  |  |  | (4,081) |  |  | (2,610)
Derivatives and other, net |  | 8,347 |  |  | 17,989 |  |  |  | 58,569 |  |  | 120,127
Total investment related gains (losses), net | $ | 23,801 |  | $ | 27,388 |  |  | $ | 67,321 |  | $ | 151,008
The net other-than-temporary impairment losses on fixed maturi ty securities recognized in earnings of $16.6 million and $6.8 million in the first six months of 2012 and 2011, respectively, are primarily due to a decline in value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. The decrease s in derivatives and other for the three and six months ended June 30, 2012 is primarily due to changes in the fair value of embedded derivative liabilities associated with modified coinsurance and funds withheld treaties and guaranteed minimum benefit riders. During the three months ended June 30, 2012 and 2011, the Company sold fixed maturity and equity secu rities with fair values of $153.5 million and $135.0 million at losses of $8.9 million and $6.7 mi llion, respectively. During the six months ended June 30, 2012 and 2011, the Company sold fixed maturity and equity secu rities with fair values of $401.6 million and $331.6 million at losses of $16.4 million and $13.6 mi llion, respectively. The Company generally does not engage in short-term buying and selling of securities. Other-Than-Temporary Impairments As discussed in Note 2 – “Summary of Significant Accounting Policies” of the DAC Current Report, a portion of certain other-than-temporary impairment ("OTTI") losses on fixed maturity securities are recognized in AOCI. For these securities the net amount recognized in earnings ("credit loss impairments") represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):
| Three months ended June 30,
| 2012 |  | 2011
Balance, beginning of period | $ | 62,236 |  | $ | 47,949
Initial impairments - credit loss OTTI recognized on securities not previously impaired |  | 60 |  |  | 1,473
Additional impairments - credit loss OTTI recognized on securities previously impaired |  | 161 |  |  | 3,780
Credit loss OTTI previously recognized on securities impaired to fair value during the period |  | (8,288) |  |  | --
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period |  | (8,266) |  |  | (718)
Balance, end of period | $ | 45,903 |  | $ | 52,484
| Six months ended June 30,
| 2012 |  | 2011
Balance, beginning of period | $ | 63,947 |  | $ | 47,291
Initial impairments - credit loss OTTI recognized on securities not previously impaired |  | 1,962 |  |  | 1,473
Additional impairments - credit loss OTTI recognized on securities previously impaired |  | 8,881 |  |  | 4,438
Credit loss OTTI previously recognized on securities impaired to fair value during the period |  | (19,669) |  |  | --
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period |  | (9,218) |  |  | (718)
Balance, end of period | $ | 45,903 |  | $ | 52,484
Fixed Maturity and Equity Securities Available-for-Sale The following tables provide information relating to investments in fixed maturity and equity securities by sector as of June 30, 2012 and December 31, 2011 (dollars in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other-than-
|  |  |  |  |  |  |  |  |  |  |  | Estimated |  |  |  |  | temporary
June 30, 2012: | Amortized |  | Unrealized |  | Unrealized |  | Fair |  | % of |  | impairments
|  |  | Cost |  | Gains |  | Losses |  | Value |  | Total |  | in AOCI
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 7,675,473 |  | $ | 792,051 |  | $ | 65,615 |  | $ | 8,401,909 |  | 48.7 | % |  | $ | --
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 2,579,161 |  |  | 1,350,301 |  |  | 88 |  |  | 3,929,374 |  | 22.8 |  |  |  | --
| Residential mortgage-backed securities |  | 1,007,793 |  |  | 78,727 |  |  | 7,958 |  |  | 1,078,562 |  | 6.3 |  |  |  | (520)
| Asset-backed securities |  | 469,616 |  |  | 12,746 |  |  | 41,311 |  |  | 441,051 |  | 2.6 |  |  |  | (3,521)
| Commercial mortgage-backed securities |  | 1,308,668 |  |  | 107,284 |  |  | 67,905 |  |  | 1,348,047 |  | 7.8 |  |  |  | (6,119)
| U.S. government and agencies |  | 218,164 |  |  | 31,761 |  |  | 11 |  |  | 249,914 |  | 1.4 |  |  |  | --
| State and political subdivisions |  | 204,108 |  |  | 34,066 |  |  | 8,398 |  |  | 229,776 |  | 1.3 |  |  |  | --
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 1,494,182 |  |  | 73,916 |  |  | 2,539 |  |  | 1,565,559 |  | 9.1 |  |  |  | --
|  | Total fixed maturity securities | $ | 14,957,165 |  | $ | 2,480,852 |  | $ | 193,825 |  | $ | 17,244,192 |  | 100.0 | % |  | $ | (10,160)
Non-redeemable preferred stock | $ | 73,265 |  | $ | 5,170 |  | $ | 2,465 |  | $ | 75,970 |  | 95.9 | % |  |  |
Other equity securities |  | 2,235 |  |  | 1,001 |  |  | 9 |  |  | 3,227 |  | 4.1 |  |  |  |
|  | Total equity securities | $ | 75,500 |  | $ | 6,171 |  | $ | 2,474 |  | $ | 79,197 |  | 100.0 | % |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other-than-
|  |  |  |  |  |  |  |  |  |  |  | Estimated |  |  |  |  | temporary
December 31, 2011: | Amortized |  | Unrealized |  | Unrealized |  | Fair |  | % of |  | impairments
|  |  | Cost |  | Gains |  | Losses |  | Value |  | Total |  | in AOCI
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 6,931,958 |  | $ | 654,519 |  | $ | 125,371 |  | $ | 7,461,106 |  | 46.0 | % |  | $ | --
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 2,507,802 |  |  | 1,362,160 |  |  | 29 |  |  | 3,869,933 |  | 23.9 |  |  |  | --
| Residential mortgage-backed securities |  | 1,167,265 |  |  | 76,393 |  |  | 16,424 |  |  | 1,227,234 |  | 7.6 |  |  |  | (1,042)
| Asset-backed securities |  | 443,974 |  |  | 11,692 |  |  | 53,675 |  |  | 401,991 |  | 2.5 |  |  |  | (5,256)
| Commercial mortgage-backed securities |  | 1,233,958 |  |  | 87,750 |  |  | 79,489 |  |  | 1,242,219 |  | 7.7 |  |  |  | (12,225)
| U.S. government and agencies |  | 341,087 |  |  | 32,976 |  |  | 61 |  |  | 374,002 |  | 2.3 |  |  |  | --
| State and political subdivisions |  | 184,308 |  |  | 24,419 |  |  | 3,341 |  |  | 205,386 |  | 1.3 |  |  |  | --
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 1,372,528 |  |  | 50,127 |  |  | 3,576 |  |  | 1,419,079 |  | 8.7 |  |  |  | --
|  | Total fixed maturity securities | $ | 14,182,880 |  | $ | 2,300,036 |  | $ | 281,966 |  | $ | 16,200,950 |  | 100.0 | % |  | $ | (18,523)
Non-redeemable preferred stock | $ | 82,488 |  | $ | 4,677 |  | $ | 8,982 |  | $ | 78,183 |  | 68.6 | % |  |  |
Other equity securities |  | 35,352 |  |  | 1,903 |  |  | 1,538 |  |  | 35,717 |  | 31.4 |  |  |  |
|  | Total equity securities | $ | 117,840 |  | $ | 6,580 |  | $ | 10,520 |  | $ | 113,900 |  | 100.0 | % |  |  |
The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral, which are excluded from the tables above. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $23.3 million and $29.0 million, and an estimated fair value of $26.4 million and $32.6 million, as of June 30, 2012 and December 31, 2011 respectively, which are included in other invested assets in the condensed consolidated balance sheets. The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $31.4 million and $1.0 million, as of June 30, 2012 and December 31, 2011, respectively. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of June 30, 2012 and December 31, 2011, none of the collateral had been sold or re-pledged. As of June 30, 2012, the Company held securities with a fair value of $1,185.1 million that were issued by the Canadian province of Ontario and $1,129.0 million that were issued by an entity that is guaranteed by the Canadian province of Quebec, both of which exceeded 10% of total stockholders' equity. As of December 31, 2011, the Company held securities with a fair value of $1,171.2 million that were issued by the Canadian province of Ontario and $1,107.7 million that were issued by an entity that is guaranteed by the Canadian province of Quebec, both of which exceeded 10% of total stockholders' equity. The amortized cost and estimated fair value of fixed maturity securities available-for-sale at June 30, 2012 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At June 30, 2012, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands):
|  |  | Amortized |  | Fair |
|  |  | Cost |  | Value |
Available-for-sale: |  |  |  |  |  |
| Due in one year or less | $ | 153,228 |  | $ | 155,606 |
| Due after one year through five years |  | 2,734,890 |  |  | 2,866,290 |
| Due after five year through ten years |  | 4,269,704 |  |  | 4,695,994 |
| Due after ten years |  | 5,013,266 |  |  | 6,658,641 |
| Asset and mortgage-backed securities |  | 2,786,077 |  |  | 2,867,661 |
|  | Total | $ | 14,957,165 |  | $ | 17,244,192 |
The table s below s how the major industry types of the Company's corporate fixed maturity holdings as of June 30, 2012 and December 31, 2011 (dollars in thousands):
June 30, 2012: |  |  |  |  | Estimated |  |  |  |  |  |
|  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |  |  |
Finance | $ | 2,618,913 |  | $ | 2,762,847 |  | 32.9 | % |  |  |
Industrial |  | 3,834,519 |  |  | 4,257,907 |  | 50.7 |  |  |  |
Utility |  | 1,213,333 |  |  | 1,372,024 |  | 16.3 |  |  |  |
Other |  | 8,708 |  |  | 9,131 |  | 0.1 |  |  |  |
| Total | $ | 7,675,473 |  | $ | 8,401,909 |  | 100.0 | % |  |  |
December 31, 2011: |  |  |  |  | Estimated |  |  |  |  |  |
|  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |  |  |
Finance | $ | 2,411,175 |  | $ | 2,442,149 |  | 32.7 | % |  |  |
Industrial |  | 3,402,099 |  |  | 3,760,187 |  | 50.4 |  |  |  |
Utility |  | 1,115,384 |  |  | 1,255,090 |  | 16.9 |  |  |  |
Other |  | 3,300 |  |  | 3,680 |  | - |  |  |  |
| Total | $ | 6,931,958 |  | $ | 7,461,106 |  | 100.0 | % |  |  |
The creditworthiness of Greece, Ireland, Italy, Portugal and Spain, commonly referred to as “Europe's peripheral region,” is under ongoing stress and uncertainty due to high debt levels and economic weakness. The Company did not have exposure to sovereign fixed maturity securities, which includes global government agencies, from Europe's peripheral region as of June 30, 2012 and December 31, 2011. In addition, the Company did not purchase or sell credit protection, through credit default swaps, referenced to sovereign entities of Europe's peripheral region. The tables below show the Company's exposure to sovereign fixed maturity securities originated in countries other than Europe's peripheral region, included in “Other foreign government, supranational and foreign government-sponsored enterprises,” as of June 30, 2012 and December 31, 2011 (dollars in thousands):
June 30, 2012: |  |  |  |  | Estimated |  |  |  |
|  |  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |
Australia | $ | 475,097 |  | $ | 490,913 |  | 37.2 | % |
Japan |  | 214,420 |  |  | 220,390 |  | 16.7 |  |
United Kingdom |  | 124,547 |  |  | 136,672 |  | 10.3 |  |
South Africa |  | 66,353 |  |  | 68,691 |  | 5.2 |  |
New Zealand |  | 52,684 |  |  | 53,231 |  | 4.0 |  |
Cayman Islands |  | 48,133 |  |  | 53,013 |  | 4.0 |  |
Germany |  | 40,406 |  |  | 42,863 |  | 3.2 |  |
Other |  | 236,277 |  |  | 256,300 |  | 19.4 |  |
|  | Total | $ | 1,257,917 |  | $ | 1,322,073 |  | 100.0 | % |
December 31, 2011: |  |  |  |  | Estimated |  |  |  |
|  |  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |
Australia | $ | 437,713 |  | $ | 446,694 |  | 39.1 | % |
Japan |  | 214,994 |  |  | 219,276 |  | 19.2 |  |
United Kingdom |  | 118,618 |  |  | 130,106 |  | 11.4 |  |
Germany |  | 72,926 |  |  | 75,741 |  | 6.6 |  |
New Zealand |  | 51,547 |  |  | 51,544 |  | 4.5 |  |
South Africa |  | 37,624 |  |  | 38,528 |  | 3.4 |  |
South Korea |  | 30,592 |  |  | 32,025 |  | 2.8 |  |
Other |  | 139,927 |  |  | 148,792 |  | 13.0 |  |
|  | Total | $ | 1,103,941 |  | $ | 1,142,706 |  | 100.0 | % |
The tables below show the Company's exposure to non-sovereign fixed maturity and equity securities, based on the security's country of issuance, from Europe's peripheral region as of June 30, 2012 and December 31, 2011 (dollars in thousands):
June 30, 2012: |  |  |  |  | Estimated |  |  |  |
|  |  |  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |
Financial institutions: |  |  |  |  |  |  |  |  |
| Ireland | $ | 3,477 |  | $ | 3,864 |  | 6.1 | % |
| Spain |  | 23,486 |  |  | 20,865 |  | 32.9 |  |
|  | Total financial institutions |  | 26,963 |  |  | 24,729 |  | 39.0 |  |
Other: |  |  |  |  |  |  |  |  |
| Ireland |  | 12,476 |  |  | 13,042 |  | 20.6 |  |
| Italy |  | 3,544 |  |  | 3,438 |  | 5.4 |  |
| Spain |  | 24,420 |  |  | 22,148 |  | 35.0 |  |
|  | Total other |  | 40,440 |  |  | 38,628 |  | 61.0 |  |
|  |  | Total | $ | 67,403 |  | $ | 63,357 |  | 100.0 | % |
December 31, 2011: |  |  |  |  | Estimated |  |  |  |
|  |  |  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |
Financial institutions: |  |  |  |  |  |  |  |  |
| Ireland | $ | 4,084 |  | $ | 4,397 |  | 5.9 | % |
| Spain |  | 25,565 |  |  | 20,378 |  | 27.6 |  |
|  | Total financial institutions |  | 29,649 |  |  | 24,775 |  | 33.5 |  |
Other: |  |  |  |  |  |  |  |  |
| Ireland |  | 12,474 |  |  | 13,149 |  | 17.8 |  |
| Italy |  | 2,898 |  |  | 2,808 |  | 3.8 |  |
| Spain |  | 34,459 |  |  | 33,137 |  | 44.9 |  |
|  | Total other |  | 49,831 |  |  | 49,094 |  | 66.5 |  |
|  |  | Total | $ | 79,480 |  | $ | 73,869 |  | 100.0 | % |
Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale The following table presents the total gross unrealized losses for the 7 52 and 940 fixed maturity and equity securities as of June 30, 2012 and December 31, 2011, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
|  | June 30, 2012 |  | December 31, 2011
|  | Gross |  |  |  |  | Gross |  |  |
|  | Unrealized |  |  |  |  | Unrealized |  |  |
|  | Losses |  | % of Total |  | Losses |  | % of Total
Less than 20% | $ | 77,198 |  | 39.3 | % |  | $ | 131,155 |  | 44.8 | %
20% or more for less than six months |  | 6,739 |  | 3.4 |  |  |  | 51,503 |  | 17.6 |
20% or more for six months or greater |  | 112,362 |  | 57.3 |  |  |  | 109,828 |  | 37.6 |
| Total | $ | 196,299 |  | 100.0 | % |  | $ | 292,486 |  | 100.0 | %
As of June 30, 2012 and December 31, 2011, respectively, 58.4% and 65.3% of these gross unrealized losses were associated with investment grade securities. The unrealized losses on these securities decreased primarily due to a decline in interest rates since December 31, 2011. The Company's determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company's credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration. The Company believes that due to fluctuating market conditions and an extended period of economic uncertainty, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to a fixed maturity security since it may not have an impact on the ability of the issuer to service all scheduled payments and the Company's evaluation of the recoverability of all contractual cash flows or the ability to recover an amount at least equal to amortized cost. In the Company's impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features. The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 752 and 940 fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, 2012 and December 31, 2011, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related market value has remained below amortized cost.
|  |  | Less than 12 months |  | 12 months or greater |  | Total
|  |  |  |  |  | Gross |  |  |  |  | Gross |  |  |  |  | Gross
June 30, 2012: | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized
|  |  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
Investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 397,287 |  | $ | 12,765 |  | $ | 299,074 |  | $ | 41,570 |  | $ | 696,361 |  | $ | 54,335
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 10,573 |  |  | 88 |  |  | -- |  |  | -- |  |  | 10,573 |  |  | 88
| Residential mortgage-backed securities |  | 36,106 |  |  | 425 |  |  | 54,545 |  |  | 6,573 |  |  | 90,651 |  |  | 6,998
| Asset-backed securities |  | 59,722 |  |  | 938 |  |  | 101,011 |  |  | 24,734 |  |  | 160,733 |  |  | 25,672
| Commercial mortgage-backed securities |  | 129,450 |  |  | 2,590 |  |  | 73,130 |  |  | 12,757 |  |  | 202,580 |  |  | 15,347
| U.S. government and agencies |  | 4,004 |  |  | 11 |  |  | -- |  |  | -- |  |  | 4,004 |  |  | 11
| State and political subdivisions |  | 24,191 |  |  | 2,532 |  |  | 18,688 |  |  | 5,866 |  |  | 42,879 |  |  | 8,398
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 79,976 |  |  | 465 |  |  | 33,620 |  |  | 1,449 |  |  | 113,596 |  |  | 1,914
|  | Total investment grade securities |  | 741,309 |  |  | 19,814 |  |  | 580,068 |  |  | 92,949 |  |  | 1,321,377 |  |  | 112,763
Non-investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities |  | 135,253 |  |  | 4,001 |  |  | 49,063 |  |  | 7,279 |  |  | 184,316 |  |  | 11,280
| Residential mortgage-backed securities |  | 2,025 |  |  | 178 |  |  | 9,858 |  |  | 782 |  |  | 11,883 |  |  | 960
| Asset-backed securities |  | 7 |  |  | 18 |  |  | 19,374 |  |  | 15,621 |  |  | 19,381 |  |  | 15,639
| Commercial mortgage-backed securities |  | 12,483 |  |  | 1,218 |  |  | 73,062 |  |  | 51,340 |  |  | 85,545 |  |  | 52,558
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 11,779 |  |  | 625 |  |  | -- |  |  | -- |  |  | 11,779 |  |  | 625
|  | Total non-investment grade securities |  | 161,547 |  |  | 6,040 |  |  | 151,357 |  |  | 75,022 |  |  | 312,904 |  |  | 81,062
|  | Total fixed maturity securities | $ | 902,856 |  | $ | 25,854 |  | $ | 731,425 |  | $ | 167,971 |  | $ | 1,634,281 |  | $ | 193,825
| Non-redeemable preferred stock | $ | 1,743 |  | $ | 245 |  | $ | 17,280 |  | $ | 2,220 |  | $ | 19,023 |  | $ | 2,465
| Other equity securities |  | -- |  |  | -- |  |  | 309 |  |  | 9 |  |  | 309 |  |  | 9
|  | Total equity securities | $ | 1,743 |  | $ | 245 |  | $ | 17,589 |  | $ | 2,229 |  | $ | 19,332 |  | $ | 2,474
|  |  | Less than 12 months |  | 12 months or greater |  | Total
|  |  |  |  |  | Gross |  |  |  |  | Gross |  |  |  |  | Gross
December 31, 2011: | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized
|  |  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
Investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 790,758 |  | $ | 40,180 |  | $ | 286,244 |  | $ | 63,117 |  | $ | 1,077,002 |  | $ | 103,297
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 3,094 |  |  | 29 |  |  | -- |  |  | -- |  |  | 3,094 |  |  | 29
| Residential mortgage-backed securities |  | 128,622 |  |  | 3,549 |  |  | 58,388 |  |  | 10,382 |  |  | 187,010 |  |  | 13,931
| Asset-backed securities |  | 101,263 |  |  | 3,592 |  |  | 93,910 |  |  | 29,036 |  |  | 195,173 |  |  | 32,628
| Commercial mortgage-backed securities |  | 109,455 |  |  | 3,538 |  |  | 58,979 |  |  | 22,001 |  |  | 168,434 |  |  | 25,539
| U.S. government and agencies |  | 1,764 |  |  | 61 |  |  | -- |  |  | -- |  |  | 1,764 |  |  | 61
| State and political subdivisions |  | 21,045 |  |  | 1,845 |  |  | 12,273 |  |  | 1,268 |  |  | 33,318 |  |  | 3,113
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 148,416 |  |  | 1,085 |  |  | 16,588 |  |  | 2,491 |  |  | 165,004 |  |  | 3,576
|  | Total investment grade securities |  | 1,304,417 |  |  | 53,879 |  |  | 526,382 |  |  | 128,295 |  |  | 1,830,799 |  |  | 182,174
Non-investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities |  | 212,795 |  |  | 10,852 |  |  | 47,310 |  |  | 11,222 |  |  | 260,105 |  |  | 22,074
| Residential mortgage-backed securities |  | 23,199 |  |  | 712 |  |  | 10,459 |  |  | 1,781 |  |  | 33,658 |  |  | 2,493
| Asset-backed securities |  | 2,363 |  |  | 940 |  |  | 21,275 |  |  | 20,107 |  |  | 23,638 |  |  | 21,047
| Commercial mortgage-backed securities |  | 34,918 |  |  | 7,220 |  |  | 62,357 |  |  | 46,730 |  |  | 97,275 |  |  | 53,950
| State and political subdivisions |  | 4,000 |  |  | 228 |  |  | -- |  |  | -- |  |  | 4,000 |  |  | 228
|  | Total non-investment grade securities |  | 277,275 |  |  | 19,952 |  |  | 141,401 |  |  | 79,840 |  |  | 418,676 |  |  | 99,792
|  | Total fixed maturity securities | $ | 1,581,692 |  | $ | 73,831 |  | $ | 667,783 |  | $ | 208,135 |  | $ | 2,249,475 |  | $ | 281,966
| Non-redeemable preferred stock | $ | 19,516 |  | $ | 4,478 |  | $ | 15,694 |  | $ | 4,504 |  | $ | 35,210 |  | $ | 8,982
| Other equity securities |  | 1,662 |  |  | 602 |  |  | 5,905 |  |  | 936 |  |  | 7,567 |  |  | 1,538
|  | Total equity securities | $ | 21,178 |  | $ | 5,080 |  | $ | 21,599 |  | $ | 5,440 |  | $ | 42,777 |  | $ | 10,520
As of June 30, 2012, the Company does not intend to sell the se fixed maturity securities and does not believe it is more likely than not that it will be required to sell the se fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines. As of June 30, 2012, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, unforeseen facts and circumstances may cause the Company to sell equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines. Unrealized losses on non-investment grade securities are principally related to asset-backed securities, residential mortgage-backed securities and commercial mortgage-backed securities and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations. As of June 30, 2012 and December 31, 2011, appro ximately $67.7 million and $68.6 million, respectively, of gross unrealized losses greater than 12 months was associated with non-investment grade asset and mortgage-backed securities. This class of securities was evaluated based on actual and projected collateral losses relative to the securities' positions in the respective securitization trusts and security specific expectations of cash flows. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Mortgage Loan s on Real Estate Mortgage loans represented approximately 3.6% and 3.8% of the Company's cash and invested assets as of June 30, 2012 and December 31, 2011, respectively. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, light warehouses and lig ht industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. Information regarding the Company's credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of June 30, 2012 and December 31, 2011 is as follows (dollars in thousands):
Internal credit risk grade: | June 30, 2012 |  | December 31, 2011 |  |  |
| High investment grade | $ | 306,845 |  | $ | 252,333 |  |  |
| Investment grade |  | 656,968 |  |  | 526,608 |  |  |
| Average |  | 92,668 |  |  | 105,177 |  |  |
| Watch list |  | 95,727 |  |  | 91,037 |  |  |
| In or near default |  | 15,852 |  |  | 28,369 |  |  |
|  | Total | $ | 1,168,060 |  | $ | 1,003,524 |  |  |
The age analysis of the Company's past due recorded investment in mortgage loans, gross of valuation allowances, as of June 30, 2012 and December 31, 2011 is as follows (dollars in thousands):
|  |  | June 30, 2012 |  | December 31, 2011 |  |  |
31-60 days past due | $ | 18,211 |  | $ | 21,800 |  |  |
61-90 days past due |  | 3,610 |  |  | -- |  |  |
Greater than 90 days |  | 14,367 |  |  | 20,316 |  |  |
| Total past due |  | 36,188 |  |  | 42,116 |  |  |
Current |  | 1,131,872 |  |  | 961,408 |  |  |
|  | Total | $ | 1,168,060 |  | $ | 1,003,524 |  |  |
The following table presents the recorded investment in mortgage loans, by method of evaluation of credit loss, and the related valuation allowances, by type of credit loss, at (dollars in thousands):
|  |  | June 30, 2012 |  | December 31, 2011 |  |  |
Mortgage loans: |  |  |  |  |  |  |  |
| Evaluated individually for credit losses | $ | 47,808 |  | $ | 60,904 |  |  |
| Evaluated collectively for credit losses |  | 1,120,252 |  |  | 942,620 |  |  |
|  | Mortgage loans, gross of valuation allowances |  | 1,168,060 |  |  | 1,003,524 |  |  |
Valuation allowances: |  |  |  |  |  |  |  |
| Specific for credit losses |  | 6,959 |  |  | 8,188 |  |  |
| Non-specifically identified credit losses |  | 4,052 |  |  | 3,605 |  |  |
|  | Total valuation allowances |  | 11,011 |  |  | 11,793 |  |  |
|  | Mortgage loans, net of valuation allowances | $ | 1,157,049 |  | $ | 991,731 |  |  |
Information regarding the Company's loan valuation allowances for mortgage loans for the three months ended June 30, 2012 and 2011 is as follows (dollars in thousands):
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  | 2012 |  | 2011 |  | 2012 |  | 2011
Balance, beginning of period | $ | 14,650 |  | $ | 5,664 |  | $ | 11,793 |  | $ | 6,239
Charge-offs |  | (1,876) |  |  | (1,157) |  |  | (4,069) |  |  | (1,157)
Provision (release) |  | (1,763) |  |  | 3,185 |  |  | 3,287 |  |  | 2,610
Balance, end of period | $ | 11,011 |  | $ | 7,692 |  | $ | 11,011 |  | $ | 7,692
Information regarding the portion of the Company's mortgage loans that were impaired as of June 30, 2012 and December 31, 2011 is as follows (dollars in thousands):
|  | Unpaid Principal Balance |  | Recorded Investment |  | Related Allowance |  | Carrying Value
June 30, 2012: |  |  |  |  |  |  |  |  |  |  |
Impaired mortgage loans with no valuation allowance recorded | $ | 10,066 |  | $ | 9,523 |  | $ | -- |  | $ | 9,523
Impaired mortgage loans with valuation allowance recorded |  | 38,424 |  |  | 38,285 |  |  | 6,959 |  |  | 31,326
| Total impaired mortgage loans | $ | 48,490 |  | $ | 47,808 |  | $ | 6,959 |  | $ | 40,849
December 31, 2011: |  |  |  |  |  |  |  |  |  |  |
Impaired mortgage loans with no valuation allowance recorded | $ | 32,088 |  | $ | 31,496 |  | $ | -- |  | $ | 31,496
Impaired mortgage loans with valuation allowance recorded |  | 29,724 |  |  | 29,408 |  |  | 8,188 |  |  | 21,220
| Total impaired mortgage loans | $ | 61,812 |  | $ | 60,904 |  | $ | 8,188 |  | $ | 52,716
The Company's average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
|  | Three Months Ended
|  | June 30, 2012 |  | June 30, 2011
|  | Average Investment(1) |  | Interest Income |  | Average Investment(1) |  | Interest Income
Impaired mortgage loans with no valuation allowance recorded | $ | 10,585 |  | $ | 28 |  | $ | 12,720 |  | $ | 51
Impaired mortgage loans with valuation allowance recorded |  | 41,747 |  |  | 410 |  |  | 23,908 |  |  | 209
| Total | $ | 52,332 |  | $ | 438 |  | $ | 36,628 |  | $ | 260
|  | Six Months Ended
|  | June 30, 2012 |  | June 30, 2011
| Average Investment(1) |  | Interest Income |  | Average Investment(1) |  | Interest Income
Impaired mortgage loans with no valuation allowance recorded | $ | 17,555 |  | $ | 197 |  | $ | 14,114 |  | $ | 93
Impaired mortgage loans with valuation allowance recorded |  | 37,634 |  |  | 718 |  |  | 22,187 |  |  | 453
| Total | $ | 55,189 |  | $ | 915 |  | $ | 36,301 |  | $ | 546
(1) | Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.
The Company did not acquire any impaired mortgage loans during the six months ended June 30, 2012 and 2011. The Com pany had $14.4 million and $20.3 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at June 30, 2012 and December 31, 2011, respectively. Investment Receivable During the second quarte r of 2012, the Company added a large fixed deferred annuity reinsurance transaction in its U.S. Asset Intensive sub-segment. This transaction increased the Company's invested asset base by approximately $5.4 billion which is reflected on the condensed consolidated balance sheet as an investment receivable. The transaction is considered a non-cash transaction in the condensed consolidated statement of cash flows. Investment receivable represented approximately 16.7% of the Company's cash and invested a ssets as of June 30, 2012 which represents cash, cash equivalents and invested assets, valued as of the effective date of the transaction, and the related accrued investment income expected to be received. The Compa ny recorded these assets as a receivable since they were not received until July 31, 2012 and August 3, 2012, see Note 13 – “Subsequent Event” for more information. Other Invested Assets Other invested assets include equity securities, limited partnership interests, structured loans and derivative contracts. Other invested assets represented approximately 2.9% and 3.9% of the Company's cash and invested assets as of June 30, 2012 and December 31, 2011, respectively. Carrying values of these assets as of June 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
|  |  | June 30, 2012 |  | December 31, 2011 |  |  |
Equity securities | $ | 79,197 |  | $ | 113,900 |  |  |
Limited partnerships and joint ventures |  | 300,385 |  |  | 251,315 |  |  |
Structured loans |  | 238,367 |  |  | 281,022 |  |  |
Derivatives |  | 250,460 |  |  | 257,050 |  |  |
Other |  | 72,196 |  |  | 109,254 |  |  |
| Total other invested assets | $ | 940,605 |  | $ | 1,012,541 |  |  |

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- Definition Tabular disclosure of investments in certain debt and equity securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27405-111563 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6379141&loc=d3e15032-111544 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Equity Security -URI http://asc.fasb.org/extlink&oid=6511694 -Topic 320 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27161-111563 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Debt Security -URI http://asc.fasb.org/extlink&oid=6509901 -Topic 320 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 115 -Paragraph 3, 19, 20, 21, 22, 137 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27232-111563 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27357-111563 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62557-112803 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27290-111563 + Details
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