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Investments
 9 Months Ended
Sep. 30, 2012
Investments Abstract  
Investments

4. Investments

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 expected reinsurance obligations and maximize total return through prudent asset management. The Company's asset/liability duration matching differs between operating companies. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years, however, the average duration for all portfolios, when consolidated, ranges between eight and ten years.

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  Nine months ended
 September 30,  September 30,
 2012 2011  2012 2011
Fixed maturity securities available-for-sale$ 221,212 $ 190,990  $ 633,110 $ 566,581
Mortgage loans on real estate  26,938   14,474    67,258   41,801
Policy loans  16,519   16,454    49,637   49,549
Funds withheld at interest  127,855   41,267    305,861   306,028
Short-term investments  960   393    3,027   2,201
Other invested assets  13,117   11,470    35,803   31,680
Investment revenue  406,601   275,048    1,094,696   997,840
Investment expense  (9,820)   (6,838)    (28,641)   (21,154)
Investment income, net of related expenses$ 396,781 $ 268,210  $ 1,066,055 $ 976,686

Investment Related Gains (Losses), Net          
               
Investment related gains (losses), net, consist of the following (dollars in thousands):       
               
   Three months ended  Nine months ended
   September 30,  September 30,
   2012 2011  2012 2011
Fixed maturity and equity securities available for sale:            
 Other-than-temporary impairment losses on fixed maturities$ (1,996) $ (11,911)  $ (11,562) $ (19,049)
 Portion of loss recognized in accumulated other            
  comprehensive income (before taxes)  (559)   3,089    (7,618)   3,381
 Net other-than-temporary impairment losses on fixed            
  maturities recognized in earnings  (2,555)   (8,822)    (19,180)   (15,668)
 Impairment losses on equity securities   --   --    (3,025)   (3,680)
 Gain on investment activity  53,173   34,840    102,078   92,423
 Loss on investment activity   (6,668)   (7,182)    (23,090)   (20,749)
Other impairment losses and change in mortgage loan provision  (10,301)   (2,370)    (14,382)   (4,980)
Derivatives and other, net  42,404   (156,066)    100,973   (35,938)
Total investment related gains (losses), net$ 76,053 $ (139,600)  $ 143,374 $ 11,408

The net other-than-temporary impairment losses on fixed maturity securities recognized in earnings of $19.2 million and $15.7 million in the first nine 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 gain on investment activity increased primarily due to repositioning of securities for duration matching during the third quarter of 2012. The increase in other impairment losses was primarily due to $7.5 million of impairments in the limited partnership asset class in the third quarter of 2012. The volatility in derivatives and other for the three and nine months ended September 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 September 30, 2012 and 2011, the Company sold fixed maturity and equity securities with fair values of $220.5 million and $57.2 million at losses of $6.7 million and $7.2 million, respectively. During the nine months ended September 30, 2012 and 2011, the Company sold fixed maturity and equity securities with fair values of $622.1 million and $388.9 million at losses of $23.1 million and $20.7 million, 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 September 30,
 2012 2011
Balance, beginning of period$ 45,903 $ 52,484
Initial impairments - credit loss OTTI recognized on securities not previously impaired  --   5,259
Additional impairments - credit loss OTTI recognized on securities previously impaired  1,306   2,432
Credit loss OTTI previously recognized on securities impaired to fair value during the period  (2,622)   --
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period  (20,725)   (752)
Balance, end of period$ 23,862 $ 59,423
      
 Nine months ended September 30,
 2012 2011
Balance, beginning of period$ 63,947 $ 47,291
Initial impairments - credit loss OTTI recognized on securities not previously impaired  1,962   6,731
Additional impairments - credit loss OTTI recognized on securities previously impaired  10,187   6,871
Credit loss OTTI previously recognized on securities impaired to fair value during the period  (22,291)   --
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period  (29,943)   (1,470)
Balance, end of period$ 23,862 $ 59,423

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 September 30, 2012 and December 31, 2011 (dollars in thousands):

                  Other-than-
            Estimated    temporary
September 30, 2012:Amortized Unrealized Unrealized Fair % of  impairments
   Cost Gains Losses Value Total in AOCI
Available-for-sale:                 
 Corporate securities$ 10,885,071 $ 1,059,275 $ 44,624 $ 11,899,722 55.0% $ --
 Canadian and Canadian provincial                 
  governments  2,653,761   1,438,124   2   4,091,883 18.9    --
 Residential mortgage-backed securities  980,655   80,614   5,461   1,055,808 4.9    (477)
 Asset-backed securities  588,851   18,050   34,201   572,700 2.6    (2,295)
 Commercial mortgage-backed securities  1,663,493   137,153   60,255   1,740,391 8.0    (6,111)
 U.S. government and agencies  251,417   33,458   18   284,857 1.3    --
 State and political subdivisions  254,845   38,784   6,212   287,417 1.3    --
 Other foreign government, supranational and                 
  foreign government-sponsored enterprises  1,627,190   100,539   2,093   1,725,636 8.0    --
  Total fixed maturity securities$ 18,905,283 $ 2,905,997 $ 152,866 $ 21,658,414 100.0% $ (8,883)
                    
Non-redeemable preferred stock$ 69,182 $ 6,332 $ 834 $ 74,680 35.7%   
Other equity securities  133,037   1,555   -   134,592 64.3    
  Total equity securities$ 202,219 $ 7,887 $ 834 $ 209,272 100.0%   

                  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 $32.0 million and $29.0 million, and an estimated fair value of $37.2 million and $32.6 million, as of September 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 $95.3 million and $1.0 million, as of September 30, 2012 and December 31, 2011, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company's condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of September 30, 2012 and December 31, 2011, none of the collateral had been sold or re-pledged.

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 September 30, 2012 and December 31, 2011, respectively. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.

As of September 30, 2012, the Company held securities with a fair value of $1,261.0 million that were issued by the Canadian province of Ontario and $1,187.2 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 September 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 September 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$247,507 $251,672 
 Due after one year through five years 3,767,244  3,950,306 
 Due after five year through ten years 6,172,841  6,757,674 
 Due after ten years 5,484,692  7,329,863 
 Asset and mortgage-backed securities 3,232,999  3,368,899 
  Total $18,905,283 $21,658,414 

The tables below show the major industry types of the Company's corporate fixed maturity holdings as of September 30, 2012 and December 31, 2011 (dollars in thousands):

September 30, 2012:    Estimated      
   Amortized Cost  Fair Value % of Total    
Finance$ 3,551,382 $ 3,802,951  32.0%   
Industrial  5,583,541   6,146,069  51.6    
Utility  1,715,512   1,914,809  16.1    
Other  34,636   35,893  0.3    
  Total$ 10,885,071 $ 11,899,722  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 September 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 September 30, 2012 and December 31, 2011 (dollars in thousands):

September 30, 2012:    Estimated    
    Amortized Cost  Fair Value % of Total  
Australia$ 454,131 $ 470,628  33.3% 
Japan  221,977   228,478  16.2  
United Kingdom  129,960   140,478  10.0  
Cayman Islands  69,333   76,661  5.4  
South Africa  63,037   67,240  4.8  
New Zealand  54,077   54,716  3.9  
Germany  42,360   45,229  3.2  
South Korea  41,396   44,619  3.2  
France  38,694   41,945  3.0  
Other  215,586   240,896  17.0  
   Total$ 1,330,551 $ 1,410,890  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 September 30, 2012 and December 31, 2011 (dollars in thousands):

September 30, 2012:    Estimated    
     Amortized Cost  Fair Value % of Total  
Financial institutions:         
 Ireland$ 3,592 $ 4,057  4.4% 
 Spain  23,347   23,215  25.0  
  Total financial institutions  26,939   27,272  29.4  
             
Other:         
 Ireland  26,346   27,528  29.7  
 Italy  6,393   6,394  6.9  
 Spain  31,694   31,525  34.0  
  Total other  64,433   65,447  70.6  
   Total$ 91,372 $ 92,719  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 618 and 940 fixed maturity and equity securities as of September 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):

  September 30, 2012 December 31, 2011
  Gross     Gross   
  Unrealized    Unrealized   
  Losses % of Total Losses % of Total
Less than 20%$55,930 36.4% $131,155 44.8%
20% or more for less than six months 509 0.3   51,503 17.6 
20% or more for six months or greater 97,261 63.3   109,828 37.6 
 Total$153,700 100.0% $292,486 100.0%

As of September 30, 2012 and December 31, 2011, respectively, 52.8% 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 618 and 940 fixed maturity and equity securities that have estimated fair values below amortized cost as of September 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
September 30, 2012:Estimated Unrealized Estimated Unrealized Estimated Unrealized
   Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:                 
 Corporate securities$ 436,908 $ 7,947 $ 168,366 $ 26,006 $ 605,274 $ 33,953
 Canadian and Canadian provincial                 
  governments   589   2   --   --   589   2
 Residential mortgage-backed securities  21,365   113   21,236   4,763   42,601   4,876
 Asset-backed securities  55,260   1,286   101,691   20,960   156,951   22,246
 Commercial mortgage-backed securities  117,736   1,350   40,110   9,546   157,846   10,896
 U.S. government and agencies  6,715   18   --   --   6,715   18
 State and political subdivisions  2,885   1,272   18,409   4,940   21,294   6,212
 Other foreign government, supranational and                 
  foreign government-sponsored enterprises  53,671   1,068   16,589   1,025   70,260   2,093
  Total investment grade securities  695,129   13,056   366,401   67,240   1,061,530   80,296
                    
Non-investment grade securities:                 
 Corporate securities  133,893   4,330   63,817   6,341   197,710   10,671
 Residential mortgage-backed securities  7,774   55   4,304   530   12,078   585
 Asset-backed securities  --   --   18,244   11,955   18,244   11,955
 Commercial mortgage-backed securities  12,157   492   60,373   48,867   72,530   49,359
  Total non-investment grade securities  153,824   4,877   146,738   67,693   300,562   72,570
  Total fixed maturity securities$ 848,953 $ 17,933 $ 513,139 $ 134,933 $ 1,362,092 $ 152,866
                    
 Non-redeemable preferred stock$ 734 $ 6 $ 6,744 $ 828 $ 7,478 $ 834
  Total equity securities$ 734 $ 6 $ 6,744 $ 828 $ 7,478 $ 834

   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 September 30, 2012, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these 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 September 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 September 30, 2012 and December 31, 2011, approximately $61.4 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.

Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale

In the third quarter of 2012, the Company began purchasing certain residential mortgage-backed securities that had experienced deterioration in credit quality since their issuance. Securities acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired securities. For each security, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. At the date of acquisition, the timing and amount of the cash flows expected to be collected was determined based on a best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.

The following tables present information on the Company's purchased credit impaired securities, which are included in fixed maturity securities available-for-sale (dollars in thousands):

  September 30, 2012   
Outstanding principal and interest balance(1)$ 36,090   
Carrying value, including accrued interest(2)$ 31,196   
       
(1)Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest. 
(2)Estimated fair value plus accrued interest. 

The following table presents information about purchased credit impaired investments acquired during the nine months ended September 30, 2012 (dollars in thousands).

  At Date of
  Acquisition
Contractually required payments (including interest)$ 50,268
Cash flows expected to be collected(1)$ 42,316
Fair value of investments acquired$ 30,853
    
(1)Represents undiscounted principal and interest cash flow expectations at the date of acquisition.

The following table presents activity for the accretable yield on purchased credit impaired securities for the nine months ended September 30, 2012 (dollars in thousands):

 Nine months ended
 September 30, 2012
Balance, beginning of period$ --
Investments purchased  11,463
Accretion  (6)
Balance, end of period$ 11,457

Mortgage Loans on Real Estate

Mortgage loans represented approximately 6.7% and 3.8% of the Company's cash and invested assets as of September 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 light industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of September 30, 2012 and December 31, 2011 (dollars in thousands):

   September 30, 2012 December 31, 2011
   Recorded  Percentage  Recorded  Percentage
Property type:Investment of Total Investment of Total
 Apartment$ 238,365  10.5% $ 124,674  12.4%
 Retail  618,896  27.3    335,745  33.5 
 Office building  803,889  35.4    264,584  26.4 
 Industrial  454,215  20.0    200,762  20.0 
 Other commercial  154,849  6.8    77,759  7.7 
Total$ 2,270,214  100.0% $ 1,003,524  100.0%

As of September 30, 2012 and December 31, 2011, the Company's mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):

   September 30, 2012 December 31, 2011
   Recorded Percentage  Recorded Percentage
 Investment of Total Investment of Total
Pacific$ 613,425  27.0% $ 269,922  26.9%
South Atlantic  470,722  20.7    233,534  23.3 
Mountain  198,443  8.7    116,224  11.6 
Middle Atlantic  311,192  13.7    86,590  8.6 
West North Central  155,745  6.9    69,789  7.0 
East North Central  221,085  9.7    92,861  9.2 
West South Central  147,177  6.5    58,506  5.8 
East South Central  60,121  2.7    40,767  4.1 
New England  92,304  4.1    35,331  3.5 
 Total$ 2,270,214  100.0% $ 1,003,524  100.0%

The maturities of the mortgage loans, gross of valuation allowances, as of September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
          
           
   September 30, 2012 December 31, 2011   
Due one year through five years$ 1,234,191 $ 493,027   
Due after five years  731,618   299,252   
Due after ten years  304,405   211,245   
  Total$ 2,270,214 $ 1,003,524   

Information regarding the Company's credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of September 30, 2012 and December 31, 2011 is as follows (dollars in thousands):

Internal credit risk grade:September 30, 2012 December 31, 2011   
 High investment grade$ 1,153,162 $ 252,333   
 Investment grade  871,508   526,608   
 Average  134,205   105,177   
 Watch list  73,977   91,037   
 In or near default  37,362   28,369   
  Total$ 2,270,214 $ 1,003,524   

The age analysis of the Company's past due recorded investment in mortgage loans, gross of valuation allowances, as of September 30, 2012 and December 31, 2011 is as follows (dollars in thousands):

   September 30, 2012 December 31, 2011   
31-60 days past due$ 16,627 $ 21,800   
61-90 days past due  --   --   
Greater than 90 days  16,298   20,316   
 Total past due  32,925   42,116   
Current  2,237,289   961,408   
  Total$ 2,270,214 $ 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):
           
   September 30, 2012 December 31, 2011   
Mortgage loans:        
 Evaluated individually for credit losses$ 44,394 $ 60,904   
 Evaluated collectively for credit losses  2,225,820   942,620   
  Mortgage loans, gross of valuation allowances  2,270,214   1,003,524   
           
Valuation allowances:        
 Specific for credit losses  8,343   8,188   
 Non-specifically identified credit losses  4,990   3,605   
  Total valuation allowances  13,333   11,793   
           
  Mortgage loans, net of valuation allowances$ 2,256,881 $ 991,731   

Information regarding the Company's loan valuation allowances for mortgage loans for the three months ended September 30, 2012 and 2011 is as follows (dollars in thousands):

   Three Months Ended September 30, Nine Months Ended September 30,
   2012 2011 2012 2011
Balance, beginning of period$ 11,011 $ 7,692 $ 11,793 $ 6,239
Charge-offs  (526)   --   (4,595)   (1,157)
Provision  2,848   2,370   6,135   4,980
Balance, end of period$ 13,333 $ 10,062 $ 13,333 $ 10,062

Information regarding the portion of the Company's mortgage loans that were impaired as of September 30, 2012 and December 31, 2011 is as follows (dollars in thousands):

  Unpaid Principal Balance Recorded Investment Related Allowance Carrying Value
September 30, 2012:           
Impaired mortgage loans with no valuation allowance recorded$ 13,127 $ 12,585 $ -- $ 12,585
Impaired mortgage loans with valuation allowance recorded  31,939   31,809   8,343   23,466
 Total impaired mortgage loans$ 45,066 $ 44,394 $ 8,343 $ 36,051
             
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
  September 30, 2012 September 30, 2011
  Average Investment(1) Interest Income Average Investment(1) Interest Income
Impaired mortgage loans with no valuation allowance recorded$ 11,054 $ 109 $ 4,706 $ 32
Impaired mortgage loans with valuation allowance recorded  35,047   461   31,351   202
 Total$ 46,101 $ 570 $ 36,057 $ 234
             
             
             
             
  Nine Months Ended
  September 30, 2012 September 30, 2011
 Average Investment(1) Interest Income Average Investment(1) Interest Income
Impaired mortgage loans with no valuation allowance recorded$ 16,312 $ 305 $ 11,228 $ 102
Impaired mortgage loans with valuation allowance recorded  36,178   1,180   25,046   678
 Total$ 52,490 $ 1,485 $ 36,274 $ 780
             
(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 nine months ended September 30, 2012 and 2011. The Company had $16.3 million and $20.3 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at September 30, 2012 and December 31, 2011, respectively.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, structured loans and derivative contracts. Other invested assets represented approximately 3.7% and 3.9% of the Company's cash and invested assets as of September 30, 2012 and December 31, 2011, respectively. Carrying values of these assets as of September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):

   September 30, 2012 December 31, 2011   
Equity securities$ 209,272 $ 113,900   
Limited partnerships and joint ventures  350,643   251,315   
Structured loans  341,795   281,022   
Derivatives  212,322   257,050   
Other  122,584   109,254   
 Total other invested assets$ 1,236,616 $ 1,012,541   

Investments Transferred to the Company

During the second quarter 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 was reflected on the condensed consolidated balance sheet as of June 30, 2012 as an investment receivable. In satisfaction of this investment receivable, the Company received the following on July 31, 2012 and August 3, 2012 (dollars in thousands):

    Amortized Cost/ Estimated 
    Recorded Investment Fair Value 
Fixed maturity securities – available for sale:      
 Corporate securities$ 2,585,095 $2,606,816 
 Asset-backed securities  137,251  138,918 
 Commercial mortgage-backed securities  703,313  704,065 
 U.S. Government and agencies securities  240,952  256,168 
 State and political subdivision securities  27,297  27,555 
 Other foreign government, supranational, and      
  foreign government-sponsored enterprises  56,776  55,437 
   Total fixed maturity securities – available for sale  3,750,684   3,788,959 
Mortgage loans on real estate  1,009,454  1,021,661 
Short-term investments  101,428  101,338 
Cash and cash equivalents  501,593  501,593 
Accrued interest  43,739   43,739 
   Total $ 5,406,898 $ 5,457,290 

The securities transferred to the Company related to the transaction are considered a non-cash transaction in the condensed consolidated statement of cash flows.