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Investments | 12 Months Ended
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Dec. 31, 2012
Investments [Abstract] |
Investments | Note 4 INVESTMENTS 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 December 31, 2012 and 2011 (dollars in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other-than-
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | temporary
December 31, 2012: | Amortized |  | Unrealized |  | Unrealized |  | Estimated |  | % of |  | impairments
|  |  | Cost |  | Gains |  | Losses |  | Fair Value |  | Total |  | in AOCI
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 11,333,431 |  | $ | 1,085,973 |  | $ | 39,333 |  | $ | 12,380,071 |  | 55.5 | % |  | $ | --
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 2,676,777 |  |  | 1,372,731 |  |  | 174 |  |  | 4,049,334 |  | 18.2 |  |  |  | --
| Residential mortgage-backed securities |  | 969,267 |  |  | 76,520 |  |  | 3,723 |  |  | 1,042,064 |  | 4.7 |  |  |  | (241)
| Asset-backed securities |  | 700,455 |  |  | 19,898 |  |  | 28,798 |  |  | 691,555 |  | 3.1 |  |  |  | (2,259)
| Commercial mortgage-backed securities |  | 1,608,376 |  |  | 142,369 |  |  | 51,842 |  |  | 1,698,903 |  | 7.6 |  |  |  | (6,125)
| U.S. government and agencies |  | 231,256 |  |  | 33,958 |  |  | 24 |  |  | 265,190 |  | 1.2 |  |  |  | --
| State and political subdivisions |  | 270,086 |  |  | 38,058 |  |  | 5,646 |  |  | 302,498 |  | 1.4 |  |  |  | --
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 1,769,784 |  |  | 94,929 |  |  | 2,714 |  |  | 1,861,999 |  | 8.3 |  |  |  | --
|  | Total fixed maturity securities | $ | 19,559,432 |  | $ | 2,864,436 |  | $ | 132,254 |  | $ | 22,291,614 |  | 100.0 | % |  | $ | (8,625)
Non-redeemable preferred stock | $ | 68,469 |  | $ | 6,542 |  | $ | 170 |  | $ | 74,841 |  | 33.6 | % |  |  |
Other equity securities |  | 148,577 |  |  | 416 |  |  | 1,134 |  |  | 147,859 |  | 66.4 |  |  |  |
|  | Total equity securities | $ | 217,046 |  | $ | 6,958 |  | $ | 1,304 |  | $ | 222,700 |  | 100.0 | % |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other-than-
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | temporary
December 31, 2011: | Amortized |  | Unrealized |  | Unrealized |  | Estimated |  | % of |  | impairments
|  |  | Cost |  | Gains |  | Losses |  | Fair 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 counterpartie s with an amortized cost of $16.9 million and $29.0 million, and an estimated fair value of $17.0 million and $32.6 million, as of December 31, 2012 and 2011 respectively, which are included in other invested assets in the consolidated balance sheets. The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $95.6 million and $1.0 million, as of December 31, 2012 and 2011, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company's consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of December 31, 2012 and 2011, none of the collateral had been sold or re-pledged. As of December 31, 2012, the Company held securities with a fair value of $1,400.0 million that were guaranteed or issued by the Canadian province of Ontario and $1,785.0 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of consolidated stockholders' equity. As of December 31, 2011, the Company held securities with a fair value of $1,323.1 million that were guaranteed or issued by the Canadian province of Ontario and $1,681.9 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of consolidated stockholders' equity. The amortized cost and estimated fair value of fixed maturity securities available-for-sale at December 31, 2012 are shown by contractual maturity in the table below (dollars in thousands). 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.
|  |  | Amortized |  | Fair |
|  |  | Cost |  | Value |
Available-for-sale: |  |  |  |  |  |
| Due in one year or less | $ | 294,720 |  | $ | 299,389 |
| Due after one year through five years |  | 3,785,992 |  |  | 3,983,272 |
| Due after five year through ten years |  | 6,592,768 |  |  | 7,198,997 |
| Due after ten years |  | 5,607,854 |  |  | 7,377,434 |
| Asset and mortgage-backed securities |  | 3,278,098 |  |  | 3,432,522 |
|  | Total | $ | 19,559,432 |  | $ | 22,291,614 |
Corporate Fixed Maturity Securities The tables below show the major industry types of the Company's corp orate fixed maturity holdings as of December 31, 2012 and 2011 (dollars in thousands):
December 31, 2012: |  |  |  |  | Estimated |  |  |  |  |  |
|  |  | Amortized Cost |  |  | Fair Value |  | % of Total |  |  |  |
Finance | $ | 3,619,455 |  | $ | 3,900,152 |  | 31.5 | % |  |  |
Industrial |  | 5,881,967 |  |  | 6,443,846 |  | 52.0 |  |  |  |
Utility |  | 1,799,658 |  |  | 2,002,611 |  | 16.2 |  |  |  |
Other |  | 32,351 |  |  | 33,462 |  | 0.3 |  |  |  |
| Total | $ | 11,333,431 |  | $ | 12,380,071 |  | 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 | % |  |  |
Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities As discussed in Note 2 – “Summary of Significant Accounting Policies,” a portion of certain other-than-temporary impairment ("OTTI") losses on fixed maturity securities is 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):
| 2012 |  | 2011 |  | 2010
Balance, beginning of period | $ | 63,947 |  | $ | 47,291 |  | $ | 47,905
Initial impairments - credit loss OTTI recognized on securities not previously impaired |  | 1,962 |  |  | 8,349 |  |  | 7,359
Additional impairments - credit loss OTTI recognized on securities previously impaired |  | 10,186 |  |  | 9,059 |  |  | 9,346
Credit loss OTTI previously recognized on securities impaired to fair value during the period |  | (22,290) |  |  | -- |  |  | --
Credit loss previously recognized on securities which matured, paid down, prepaid or were sold during the period |  | (37,130) |  |  | (752) |  |  | (17,319)
Balance, end of period | $ | 16,675 |  | $ | 63,947 |  | $ | 47,291
Purchased Credit Impaired Fixed Maturit y Securities During 2012, the Company began purchasing certain asset-backed and residential mortgage-backed securities, classified as a vailable-for-s ale, 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):
|  | December 31, 2012 |  |  |
Outstanding principal and interest balance(1) | $ | 108,831 |  |  |
Carrying value, including accrued interest(2) | $ | 84,765 |  |  |
(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 year ended December 31, 2012 (dollars in thousands).
|  | At Date of
|  | Acquisition
Contractually required payments (including interest) | $ | 152,988
Cash flows expected to be collected(1) | $ | 125,449
Fair value of investments acquired | $ | 85,298
(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 year ended December 31, 2012 (dollars in thousands): Unrea lized Losses for Fixed Maturity and Equity Securities Available-for-Sale The following table presents the total gross unr ealized losses for the 567 and 940 fixed maturity and equity securities at December 31, 2012 and 2011, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
|  | December 31, 2012 |  | December 31, 2011
|  | Gross |  |  |  |  | Gross |  |  |
|  | Unrealized |  |  |  |  | Unrealized |  |  |
|  | Losses |  | % of Total |  | Losses |  | % of Total
Less than 20% | $ | 54,951 |  | 41.2 | % |  | $ | 131,155 |  | 44.8 | %
20% or more for less than six months |  | 734 |  | 0.5 |  |  |  | 51,503 |  | 17.6 |
20% or more for six months or greater |  | 77,873 |  | 58.3 |  |  |  | 109,828 |  | 37.6 |
| Total | $ | 133,558 |  | 100.0 | % |  | $ | 292,486 |  | 100.0 | %
The overall decline in gross unrealized losses during the year was primarily due to the continued decline in inter est rates and a reduction in credit spreads throughout 2012. 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 declines in value as a potential indicator of credit deterioration. However, 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 fl ows 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 567 and 940 fixed maturity and equity securities that have estimated fair values below amortized cost as of December 31, 2012 and 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
December 31, 2012: | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized
|  |  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
Investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities | $ | 786,203 |  | $ | 13,276 |  | $ | 108,187 |  | $ | 17,386 |  | $ | 894,390 |  | $ | 30,662
| Canadian and Canadian provincial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | governments |  | 12,349 |  |  | 174 |  |  | -- |  |  | -- |  |  | 12,349 |  |  | 174
| Residential mortgage-backed securities |  | 22,288 |  |  | 97 |  |  | 19,394 |  |  | 3,199 |  |  | 41,682 |  |  | 3,296
| Asset-backed securities |  | 59,119 |  |  | 449 |  |  | 96,179 |  |  | 9,508 |  |  | 155,298 |  |  | 9,957
| Commercial mortgage-backed securities |  | 89,507 |  |  | 797 |  |  | 29,181 |  |  | 7,974 |  |  | 118,688 |  |  | 8,771
| U.S. government and agencies |  | 7,272 |  |  | 24 |  |  | -- |  |  | -- |  |  | 7,272 |  |  | 24
| State and political subdivisions |  | 20,602 |  |  | 1,514 |  |  | 11,736 |  |  | 4,132 |  |  | 32,338 |  |  | 5,646
| Other foreign government, supranational and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | foreign government-sponsored enterprises |  | 244,817 |  |  | 1,953 |  |  | 7,435 |  |  | 761 |  |  | 252,252 |  |  | 2,714
|  | Total investment grade securities |  | 1,242,157 |  |  | 18,284 |  |  | 272,112 |  |  | 42,960 |  |  | 1,514,269 |  |  | 61,244
Non-investment grade securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate securities |  | 181,168 |  |  | 3,170 |  |  | 39,123 |  |  | 5,501 |  |  | 220,291 |  |  | 8,671
| Residential mortgage-backed securities |  | 15,199 |  |  | 80 |  |  | 2,633 |  |  | 347 |  |  | 17,832 |  |  | 427
| Asset-backed securities |  | 3,421 |  |  | 26 |  |  | 31,938 |  |  | 18,815 |  |  | 35,359 |  |  | 18,841
| Commercial mortgage-backed securities |  | 3,317 |  |  | 764 |  |  | 68,405 |  |  | 42,307 |  |  | 71,722 |  |  | 43,071
|  | Total non-investment grade securities |  | 203,105 |  |  | 4,040 |  |  | 142,099 |  |  | 66,970 |  |  | 345,204 |  |  | 71,010
|  | Total fixed maturity securities | $ | 1,445,262 |  | $ | 22,324 |  | $ | 414,211 |  | $ | 109,930 |  | $ | 1,859,473 |  | $ | 132,254
| Non-redeemable preferred stock | $ | 5,577 |  | $ | 52 |  | $ | 5,679 |  | $ | 118 |  | $ | 11,256 |  | $ | 170
| Other equity securities |  | 85,374 |  |  | 1,134 |  |  | -- |  |  | -- |  |  | 85,374 |  |  | 1,134
|  | Total equity securities | $ | 90,951 |  | $ | 1,186 |  | $ | 5,679 |  | $ | 118 |  | $ | 96,630 |  | $ | 1,304
|  |  | 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 December 31, 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 December 31, 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 val uations. As of December 31, 2012 and 2011, appro ximately $61.5 million and $68.6 million, respectively, of gross unrealized losses greater than 12 months w ere 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.
Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses consist of the following (dollars in thousands):
| 2012 |  | 2011 |  | 2010 |  |
Fixed maturity securities available-for-sale | $ | 868,682 |  | $ | 757,726 |  | $ | 715,817 |  |  |
Mortgage loans on real estate |  | 96,901 |  |  | 55,931 |  |  | 51,186 |  |  |
Policy loans |  | 62,855 |  |  | 66,621 |  |  | 72,743 |  |  |
Funds withheld at interest |  | 393,586 |  |  | 388,694 |  |  | 385,762 |  |  |
Short-term investments |  | 4,173 |  |  | 2,378 |  |  | 4,968 |  |  |
Other invested assets |  | 49,199 |  |  | 39,939 |  |  | 33,187 |  |  |
Investment income |  | 1,475,396 |  |  | 1,311,289 |  |  | 1,263,663 |  |  |
Investment expense |  | (39,190) |  |  | (30,092) |  |  | (25,003) |  |  |
Investment income, net of related expenses | $ | 1,436,206 |  | $ | 1,281,197 |  | $ | 1,238,660 |  |  |
Investment Related Gains (Losses), Net |  |  |  |  |  |  |  |  |
Investment related gains (losses), net, consist of the following (dollars in thousands): |  |  |  |  |  |
|  |  |  | 2012 |  | 2011 |  | 2010 |  |
Fixed maturity and equity securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
| Other-than-temporary impairment losses on fixed maturities |  | $ | (15,908) |  | $ | (30,873) |  | $ | (31,920) |  |  |
| Portion of loss recognized in accumulated other |  |  |  |  |  |  |  |  |  |  |  |
|  | comprehensive income (before taxes) |  |  | (7,618) |  |  | 3,924 |  |  | 2,045 |  |  |
| Net other-than-temporary impairment losses on fixed |  |  |  |  |  |  |  |  |  |  |  |
|  | maturity securities recognized in earnings |  |  | (23,526) |  |  | (26,949) |  |  | (29,875) |  |  |
| Impairment losses on equity securities |  |  | (3,025) |  |  | (4,116) |  |  | (32) |  |  |
| Gain on investment activity |  |  | 145,268 |  |  | 132,045 |  |  | 100,957 |  |  |
| Loss on investment activity |  |  | (27,474) |  |  | (26,996) |  |  | (28,730) |  |  |
Other impairment losses (primarily mortgage loans and limited partnerships) |  |  | (16,602) |  |  | (10,238) |  |  | (5,976) |  |  |
Derivatives and other, net |  |  | 179,495 |  |  | (99,802) |  |  | 175,686 |  |  |
Total investment related gains (losses), net |  | $ | 254,136 |  | $ | (36,056) |  | $ | 212,030 |  |  |
The net other-than-temporary impairment losses on fixed maturity securities recognized in 2012 and 2011 were primarily due to a decline in the value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. The increase in other impairment losses was primarily due to $8.2 million of impairments in the limited partnership asset class and $2.1 million on a real estate property held for investment in 2012. The impairment losses on equity securities of $3.0 million in 2012 and $4.1 million in 2011 are primarily due to the decline in fair value of securities issued by European financial institutions. The volatility in derivatives and other 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. At December 31, 2012 and 2011 the Company held non-income producing securities with amortized costs of $54.2 million and $86.2 million, and estimated fair v alues of $58.5 million and $79.7 million, respectively. Generally, securities are non-income producing when principal or interest is not paid primarily as a result of bankruptcies or credit defaults, but also include securities where amortization has been discontinued. During 2012, 2011 and 2010 the Company sold fixed maturity and equity securities with fair values of $828.0 million, $476.6 million, and $622.4 million, which were below amortized cost, at gross realized losses of $27.5 million, $27.0 million and $28.7 million, respectively. The Company generally does not engage in short-term buying and selling of securities. Securities Borrowing and Other The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company's 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 of $87.5 million and $150.0 million as of December 31, 2012 and 2011, respectively, which was equal to the market value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction. T he Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company's consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company's consolidated balance sheets. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, in return the Company received securities with an estimated fair value of $342.0 million. There were no securities pledged or received under this program as of December 31, 2011. Mortgage Loans on Real Estate Mortgage loans repres ented approximately 7.0% and 4.0% of the Company's invested assets as of December 31, 2012 and 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. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of December 31, 2012 and 2011 (dollars in thousands):
|  |  | 2012 |  | 2011
|  |  | Recorded Investment |  | Percentage of Total |  | Recorded Investment |  | Percentage of Total
Property type: |  |  |  |  |  |  |
| Apartment | $ | 229,266 |  | 9.9 | % |  | $ | 124,674 |  | 12.4 | %
| Retail |  | 669,958 |  | 29.0 |  |  |  | 335,745 |  | 33.5 |
| Office building |  | 825,406 |  | 35.7 |  |  |  | 264,584 |  | 26.4 |
| Industrial |  | 455,682 |  | 19.7 |  |  |  | 200,762 |  | 20.0 |
| Other commercial |  | 131,855 |  | 5.7 |  |  |  | 77,759 |  | 7.7 |
Total | $ | 2,312,167 |  | 100.0 | % |  | $ | 1,003,524 |  | 100.0 | %
As of December 31, 2012 and 2011, the Company's mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):
|  |  | 2012 |  | 2011
|  |  | Recorded Investment |  | Percentage of Total |  | Recorded Investment |  | Percentage of Total
Pacific | $ | 593,589 |  | 25.7 | % |  | $ | 269,922 |  | 26.9 | %
South Atlantic |  | 477,068 |  | 20.5 |  |  |  | 233,534 |  | 23.3 |
Mountain |  | 233,174 |  | 10.1 |  |  |  | 116,224 |  | 11.6 |
Middle Atlantic |  | 300,475 |  | 13.0 |  |  |  | 86,590 |  | 8.6 |
West North Central |  | 168,063 |  | 7.3 |  |  |  | 69,789 |  | 7.0 |
East North Central |  | 224,122 |  | 9.7 |  |  |  | 92,861 |  | 9.2 |
West South Central |  | 161,451 |  | 7.0 |  |  |  | 58,506 |  | 5.8 |
East South Central |  | 62,789 |  | 2.7 |  |  |  | 40,767 |  | 4.1 |
New England |  | 91,436 |  | 4.0 |  |  |  | 35,331 |  | 3.5 |
| Total | $ | 2,312,167 |  | 100.0 | % |  | $ | 1,003,524 |  | 100.0 | %
The maturities of the mortgage loans, gross of valuation allowances, as of December 31, 2012 and 2011 are as follows (dollars in thousands):
|  |  | 2012 |  | 2011 |  |  |
Due one year through five years | $ | 1,187,387 |  | $ | 493,027 |  |  |
Due after five years |  | 776,655 |  |  | 299,252 |  |  |
Due after ten years |  | 348,125 |  |  | 211,245 |  |  |
|  | Total | $ | 2,312,167 |  | $ | 1,003,524 |  |  |
Information regarding the Company's credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of December 31, 2012 and 2011 are as follows (dollars in thousands):
Internal credit quality grade: | 2012 |  | 2011 |  |  |
| High investment grade | $ | 1,235,605 |  | $ | 252,333 |  |  |
| Investment grade |  | 834,494 |  |  | 526,608 |  |  |
| Average |  | 132,607 |  |  | 105,177 |  |  |
| Watch list |  | 76,463 |  |  | 91,037 |  |  |
| In or near default |  | 32,998 |  |  | 28,369 |  |  |
|  | Total | $ | 2,312,167 |  | $ | 1,003,524 |  |  |
The age analysis of the Company's past due recorded investment in mortgage loans, gross of valuation allowances, as of December 31, 2012 and 2011 are as follows (dollars in thousands):
|  |  | 2012 |  | 2011 |  |  |
31-60 days past due | $ | 7,504 |  | $ | 21,800 |  |  |
61-90 days past due |  | -- |  |  | -- |  |  |
Greater than 90 days |  | 16,886 |  |  | 20,316 |  |  |
| Total past due |  | 24,390 |  |  | 42,116 |  |  |
Current |  | 2,287,777 |  |  | 961,408 |  |  |
|  | Total | $ | 2,312,167 |  | $ | 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):
|  |  | December 31, |  |  |  |
|  |  | 2012 |  | 2011 |  |  |
Mortgage loans: |  |  |  |  |  |  |  |  |
| Evaluated individually for credit losses | $ | 39,956 |  | $ | 60,904 |  |  |  |
| Evaluated collectively for credit losses |  | 2,272,211 |  |  | 942,620 |  |  |  |
|  | Mortgage loans, gross of valuation allowances |  | 2,312,167 |  |  | 1,003,524 |  |  |  |
Valuation allowances: |  |  |  |  |  |  |  |  |
| Specific for credit losses |  | 6,980 |  |  | 8,188 |  |  |  |
| Non-specifically identified credit losses |  | 4,600 |  |  | 3,605 |  |  |  |
|  | Total valuation allowances |  | 11,580 |  |  | 11,793 |  |  |  |
|  | Mortgage loans, net of valuation allowances | $ | 2,300,587 |  | $ | 991,731 |  |  |  |
Information regarding the Company's loan valuation allowances for mortgage loans as of December 31, 2012, 2011 and 2010 are as follows (dollars in thousands):
|  |  | 2012 |  | 2011 |  | 2010 |
Balance, beginning of period | $ | 11,793 |  | $ | 6,239 |  | $ | 5,784 |
Charge-offs |  | (6,474) |  |  | (3,947) |  |  | -- |
Provision |  | 6,261 |  |  | 9,501 |  |  | 455 |
Balance, end of period | $ | 11,580 |  | $ | 11,793 |  | $ | 6,239 |
Information regarding the portion of the Company's mortgage loans that were impaired as of December 31, 2012 and 2011 is as follows (dollars in thousands):
|  | Unpaid Principal Balance |  | Recorded Investment |  | Related Allowance |  | Carrying Value
December 31, 2012: |  |  |  |  |  |  |  |  |  |  |
Impaired mortgage loans with no valuation allowance recorded | $ | 13,039 |  | $ | 12,496 |  | $ | -- |  | $ | 12,496
Impaired mortgage loans with valuation allowance recorded |  | 27,527 |  |  | 27,460 |  |  | 6,980 |  |  | 20,480
| Total impaired mortgage loans | $ | 40,566 |  | $ | 39,956 |  | $ | 6,980 |  | $ | 32,976
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 balance of impaired mortgage loans and the related interest income are reflected in the table below for the years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
|  | 2012 |  | 2011 |  | 2010
| Average Investment(1) |  | Interest Income |  | Average Investment(1) |  | Interest Income |  | Average Investment(1) |  | Interest Income
Impaired mortgage loans with no valuation allowance recorded | $ | 15,549 |  | $ | 1,244 |  | $ | 14,877 |  | $ | 630 |  | $ | 19,253 |  | $ | 525
Impaired mortgage loans with valuation allowance recorded |  | 34,434 |  |  | 425 |  |  | 27,712 |  |  | 418 |  |  | 21,925 |  |  | 295
| Total | $ | 49,983 |  | $ | 1,669 |  | $ | 42,589 |  | $ | 1,048 |  | $ | 41,178 |  | $ | 820
(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 years ended December 31, 2012 and 2011. The Company had $16.9 million and $20.3 million of mortgage loans, gross of valuation allowances, that were on a nonaccrual status at December 31, 2012 and 2011, respectively. Policy Loans Policy loans comprised approximately 3.9% and 5.0% of the Company's invested assets as of December 31, 2012 and 2011, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. As policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities. Funds Withheld at Interest Funds withheld at interest comprised approximately 17.0% and 21.7% of the Company's invested assets as of December 31, 2012 and 2011, respectively. Of the $5.6 billion funds withheld at interest balance, net of embedded derivatives, as of December 31, 2012, $3.9 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company's consolidated balance sheets. In the event of a ceding company's insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. Interest accrues to these assets at rates defined by the treaty terms and the Company estimates the yield was approximately 6.97%, 6.87% and 7.20% for the years ended December 31, 2012, 2011 and 2010, respectively. Changes in these estimated yields are affected by equity options held in the funds withheld portfolio associated with equity-indexed annuity treaties. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Other Invested Assets Other invested assets primarily include equity securities, collateral (included in other), limited partnership interests, real estate joint ventures, real estate-held-for-investment (included in other), structured loans and derivative contracts. Other invested assets represented approximately 3.5% and 4.1% of the Company's invested assets as of December 31, 2012 and 2011, respectively. Carrying values of these assets as of December 31, 2012 and 2011 are as follows (dollars in thousands):
|  |  | December 31, |  |  |
|  |  | 2012 |  | 2011 |  |  |
Equity securities | $ | 222,700 |  | $ | 113,900 |  |  |
Limited partnerships and real estate joint ventures |  | 356,419 |  |  | 251,315 |  |  |
Structured loans |  | 306,497 |  |  | 281,022 |  |  |
Derivatives |  | 168,208 |  |  | 257,050 |  |  |
Other |  | 105,719 |  |  | 109,254 |  |  |
| Total other invested assets | $ | 1,159,543 |  | $ | 1,012,541 |  |  |
Cash and Investments Transferred to the Company During the second quarter of 2012, the Company added a large fixed deferred annuity reinsuranc e 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 Fair Value |
|  |  |  | Recorded Investment |  | at Date of Transfer |
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 consolidated statement of cash flows.

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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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