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Investments
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Investments Abstract    
Investments

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 March 31, 2013 and December 31, 2012 (dollars in thousands):

                  Other-than-
            Estimated    temporary
March 31, 2013:Amortized Unrealized Unrealized Fair % of  impairments
   Cost Gains Losses Value Total in AOCI
Available-for-sale:                 
 Corporate securities$ 11,464,082 $ 1,022,512 $ 45,093 $ 12,441,501 55.5% $ --
 Canadian and Canadian provincial                 
  governments  2,681,603   1,261,728   1,133   3,942,198 17.6    --
 Residential mortgage-backed securities  1,005,232   75,579   4,041   1,076,770 4.8    (241)
 Asset-backed securities  752,280   23,333   19,069   756,544 3.4    (2,259)
 Commercial mortgage-backed securities  1,596,659   143,381   41,896   1,698,144 7.6    (5,431)
 U.S. government and agencies  299,395   31,938   132   331,201 1.5    --
 State and political subdivisions  281,215   37,628   5,746   313,097 1.4    --
 Other foreign government, supranational and                 
  foreign government-sponsored enterprises  1,758,483   87,306   3,585   1,842,204 8.2    --
  Total fixed maturity securities$ 19,838,949 $ 2,683,405 $ 120,695 $ 22,401,659 100.0% $ (7,931)
                    
Non-redeemable preferred stock$ 76,179 $ 7,940 $ 8 $ 84,111 38.1%   
Other equity securities  138,088   295   1,829   136,554 61.9    
  Total equity securities$ 214,267 $ 8,235 $ 1,837 $ 220,665 100.0%   

                  Other-than-
            Estimated    temporary
December 31, 2012:Amortized Unrealized Unrealized Fair % of  impairments
   Cost Gains Losses 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%   

The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $25.4 million and $16.9 million, and an estimated fair value of $25.8 million and $17.0 million, as of March 31, 2013 and December 31, 2012 respectively, which are included in other invested assets in the condensed consolidated balance sheets. Securities with an amortized cost of $8,216.3 million and $7,549.0 million, and an estimated fair value of $8,889.9 million and $7,913.8 million, as of March 31, 2013 and December 31, 2012, respectively, were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties.

The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $85.4 million and $95.6 million, as of March 31, 2013 and December 31, 2012, 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 March 31, 2013 and December 31, 2012, none of the collateral had been sold or re-pledged.

As of March 31, 2013, the Company held securities with a fair value of $1,357.9 million that were guaranteed or issued by the Canadian province of Ontario and $1,723.9 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders' equity. 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 total stockholders' equity.

The amortized cost and estimated fair value of fixed maturity securities available-for-sale at March 31, 2013 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. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date. At March 31, 2013, 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$348,130 $352,916 
 Due after one year through five years 3,716,625  3,917,468 
 Due after five years through ten years 6,922,683  7,521,433 
 Due after ten years 5,497,340  7,078,384 
 Asset and mortgage-backed securities 3,354,171  3,531,458 
  Total $19,838,949 $22,401,659 

The tables below show the major industry types of the Company's corporate fixed maturity holdings as of March 31, 2013 and December 31, 2012 (dollars in thousands):

March 31, 2013:    Estimated      
   Amortized Cost  Fair Value % of Total    
Finance$ 3,693,500 $ 3,978,979  32.0%   
Industrial  5,977,146   6,480,028  52.1    
Utility  1,763,573   1,951,839  15.7    
Other  29,863   30,655  0.2    
  Total$ 11,464,082 $ 12,441,501  100.0%   
             
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%   

Other-Than-Temporary Impairments

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2012 Annual 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 March 31,
 2013 2012
Balance, beginning of period$ 16,675 $ 63,947
Initial impairments - credit loss OTTI recognized on securities not previously impaired  --   1,902
Additional impairments - credit loss OTTI recognized on securities previously impaired  --   8,720
Credit loss OTTI previously recognized on securities impaired to fair value during the period  --   (11,381)
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period  (1,902)   (952)
Balance, end of period$ 14,773 $ 62,236

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):

  March 31, 2013 December 31, 2012
Outstanding principal and interest balance(1)$ 172,800 $ 108,831
Carrying value, including accrued interest(2)$ 134,564 $ 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 three months ended March 31, 2013 (dollars in thousands).

  At Date of
  Acquisition
Contractually required payments (including interest)$ 91,863
Cash flows expected to be collected(1)$ 72,940
Fair value of investments acquired$ 50,874
    
(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 three months ended March 31, 2013 (dollars in thousands):

 Three months ended
 March 31, 2013
Balance, beginning of period$ 39,239
Investments purchased  22,066
Accretion  (1,943)
Reclassification to nonaccretable difference  553
Balance, end of period$ 59,915

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 667 and 567 fixed maturity and equity securities as of March 31, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):

  March 31, 2013 December 31, 2012
  Gross     Gross   
  Unrealized    Unrealized   
  Losses % of Total Losses % of Total
Less than 20%$66,235 54.1% $54,951 41.2%
20% or more for less than six months  --  --   734 0.5 
20% or more for six months or greater 56,297 45.9   77,873 58.3 
 Total$122,532 100.0% $133,558 100.0%

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 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 667 and 567 fixed maturity and equity securities that have estimated fair values below amortized cost as of March 31, 2013 and December 31, 2012, 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
March 31, 2013:Estimated Unrealized Estimated Unrealized Estimated Unrealized
   Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:                 
 Corporate securities$ 1,187,238 $ 25,066 $ 89,284 $ 11,614 $ 1,276,522 $ 36,680
 Canadian and Canadian provincial                 
  governments   59,042   1,133   --   --   59,042   1,133
 Residential mortgage-backed securities  54,738   469   17,664   2,920   72,402   3,389
 Asset-backed securities  91,530   672   86,661   7,216   178,191   7,888
 Commercial mortgage-backed securities  79,509   471   21,920   6,521   101,429   6,992
 U.S. government and agencies  56,975   132   --   --   56,975   132
 State and political subdivisions  30,734   266   11,463   5,480   42,197   5,746
 Other foreign government, supranational and                 
  foreign government-sponsored enterprises  335,216   2,809   7,375   744   342,591   3,553
  Total investment grade securities  1,894,982   31,018   234,367   34,495   2,129,349   65,513
                    
Non-investment grade securities:                 
 Corporate securities  155,261   2,961   30,763   5,452   186,024   8,413
 Residential mortgage-backed securities  18,215   298   4,681   354   22,896   652
 Asset-backed securities  10,138   171   29,370   11,010   39,508   11,181
 Commercial mortgage-backed securities  --   --   66,674   34,904   66,674   34,904
 Other foreign government, supranational and                 
  foreign government-sponsored enterprises  1,034   32   --   --   1,034   32
  Total non-investment grade securities  184,648   3,462   131,488   51,720   316,136   55,182
  Total fixed maturity securities$ 2,079,630 $ 34,480 $ 365,855 $ 86,215 $ 2,445,485 $ 120,695
                    
 Non-redeemable preferred stock$ 7,885 $ 7 $ 1 $ 1 $ 7,886 $ 8
 Other equity securities  110,187   1,829   --   --   110,187   1,829
  Total equity securities$ 118,072 $ 1,836 $ 1 $ 1 $ 118,073 $ 1,837

   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

As of March 31, 2013, 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. As of March 31, 2013, 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 fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines.

Unrealized losses on non-investment grade securities are principally related to asset and 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 March 31, 2013 and December 31, 2012, approximately $46.3 million and $61.5 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.

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 
 March 31, 
 2013 2012 
Fixed maturity securities available-for-sale$ 239,244 $ 191,418 
Mortgage loans on real estate  28,243   14,965 
Policy loans  17,910   16,783 
Funds withheld at interest  137,259   115,014 
Short-term investments  813   988 
Other invested assets  13,922   11,322 
Investment revenue  437,391   350,490 
Investment expense  12,260   9,550 
Investment income, net of related expenses$ 425,131 $ 340,940 

Investment Related Gains (Losses), Net   
         
Investment related gains (losses), net consist of the following (dollars in thousands):
         
    Three months ended
    March 31,
    2013 2012
Fixed maturities and equity securities available for sale:      
 Other-than-temporary impairment losses on fixed maturities $ (202) $ (7,607)
 Portion of loss recognized in accumulated other comprehensive income (before taxes)   --   (7,221)
 Net other-than-temporary impairment losses on fixed maturities recognized in earnings   (202)   (14,828)
 Impairment losses on equity securities    --   (839)
 Gain on investment activity   21,680   22,312
 Loss on investment activity    (11,212)   (7,504)
Other impairment losses and change in mortgage loan provision   (1,626)   (5,843)
Derivatives and other, net   85,731   50,222
Total investment related gains (losses), net $ 94,371 $ 43,520

The net other-than-temporary impairment losses on fixed maturity securities recognized in earnings were $0.2 million and $14.8 million in the first three months of 2013 and 2012, respectively. The other-than-temporary impairments in the first three months of 2012 were 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 increase in derivatives and other is primarily due to an increase in the fair value of free-standing derivatives.

During the three months ended March 31, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $204.3 million and $248.1 million at losses of $11.2 million and $7.5 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 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, which consists of rights to reinsurance treaty cash flows. The Company had borrowed securities with an amortized cost of $87.5 million as of March 31, 2013 and December 31, 2012, which was equal to the market value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.

The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company's condensed 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 condensed consolidated balance sheets. As of March 31, 2013 the Company had pledged securities with an amortized cost of $284.5 million and an estimated fair value of $309.7 million, and in return the Company received securities with an estimated fair value of $343.2 million. 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, and in return the Company received securities with an estimated fair value of $342.0 million.

Mortgage Loans on Real Estate

Mortgage loans represented approximately 7.0% of the Company's total investments as of March 31, 2013 and December 31, 2012. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, 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 March 31, 2013 and December 31, 2012 (dollars in thousands):

   March 31, 2013 December 31, 2012
   Recorded  Percentage  Recorded  Percentage
Property type:Investment of Total Investment of Total
 Apartment$ 230,762  9.9% $ 229,266  9.9%
 Retail  715,036  30.6    669,958  29.0 
 Office building  836,332  35.8    825,406  35.7 
 Industrial  426,011  18.2    455,682  19.7 
 Other commercial  126,974  5.5    131,855  5.7 
Total$ 2,335,115  100.0% $ 2,312,167  100.0%

As of March 31, 2013 and December 31, 2012, the Company's mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):

   March 31, 2013 December 31, 2012
   Recorded Percentage  Recorded Percentage
 Investment of Total Investment of Total
Pacific$ 597,540  25.6% $ 593,589  25.7%
South Atlantic  483,398  20.7    477,068  20.5 
Mountain  251,406  10.8    233,174  10.1 
Middle Atlantic  286,314  12.3    300,475  13.0 
West North Central  160,203  6.8    168,063  7.3 
East North Central  243,202  10.4    224,122  9.7 
West South Central  160,117  6.9    161,451  7.0 
East South Central  62,323  2.7    62,789  2.7 
New England  90,612  3.8    91,436  4.0 
 Total$ 2,335,115  100.0% $ 2,312,167  100.0%

The maturities of the mortgage loans, gross of valuation allowances, as of March 31, 2013 and December 31, 2012 are as follows (dollars in thousands):
          
           
   March 31, 2013 December 31, 2012   
Due within five years$ 1,157,373 $ 1,187,387   
Due after five years through ten years  832,292   776,655   
Due after ten years  345,450   348,125   
  Total$ 2,335,115 $ 2,312,167   

Information regarding the Company's credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of March 31, 2013 and December 31, 2012 is as follows (dollars in thousands):

Internal credit risk grade:March 31, 2013 December 31, 2012   
 High investment grade$ 1,473,018 $ 1,235,605   
 Investment grade  622,794   834,494   
 Average  147,650   132,607   
 Watch list  62,679   76,463   
 In or near default  28,974   32,998   
  Total$ 2,335,115 $ 2,312,167   

The age analysis of the Company's past due recorded investment in mortgage loans, gross of valuation allowances, as of March 31, 2013 and December 31, 2012 is as follows (dollars in thousands):

   March 31, 2013 December 31, 2012   
31-60 days past due$ 6,594 $ 7,504   
61-90 days past due  --   --   
Greater than 90 days  8,342   16,886   
 Total past due  14,936   24,390   
Current  2,320,179   2,287,777   
  Total$ 2,335,115 $ 2,312,167   
           

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):
           
   March 31, 2013 December 31, 2012   
Mortgage loans:        
 Evaluated individually for credit losses$ 41,167 $ 39,956   
 Evaluated collectively for credit losses  2,293,948   2,272,211   
  Mortgage loans, gross of valuation allowances  2,335,115   2,312,167   
           
Valuation allowances:        
 Specific for credit losses  6,008   6,980   
 Non-specifically identified credit losses  3,916   4,600   
  Total valuation allowances  9,924   11,580   
           
  Mortgage loans, net of valuation allowances$ 2,325,191 $ 2,300,587   

Information regarding the Company's loan valuation allowances for mortgage loans for the three months ended March 31, 2013 and 2012 is as follows (dollars in thousands):

   Three Months Ended March 31,
   2013 2012
Balance, beginning of period$ 11,580 $ 11,793
Charge-offs  (852)   (2,193)
Provision (release)  (804)   5,050
Balance, end of period$ 9,924 $ 14,650

Information regarding the portion of the Company's mortgage loans that were impaired as of March 31, 2013 and December 31, 2012 is as follows (dollars in thousands):

  Unpaid Principal Balance Recorded Investment Related Allowance Carrying Value
March 31, 2013:           
Impaired mortgage loans with no valuation allowance recorded$ 14,802 $ 14,259 $ -- $ 14,259
Impaired mortgage loans with valuation allowance recorded  26,975   26,908   6,008   20,900
 Total impaired mortgage loans$ 41,777 $ 41,167 $ 6,008 $ 35,159
             
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

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
  March 31, 2013 March 31, 2012
 Average Investment(1) Interest Income Average Investment(1) Interest Income
Impaired mortgage loans with no valuation allowance recorded$ 13,378 $ 135 $ 21,571 $ 169
Impaired mortgage loans with valuation allowance recorded  27,184   240   37,308   308
 Total$ 40,562 $ 375 $ 58,879 $ 477
             
(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 three months ended March 31, 2013 and 2012. The Company had $8.3 million and $16.9 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at March 31, 2013 and December 31, 2012, respectively.

Policy Loans

Policy loans comprised approximately 3.8% and 3.9% of the Company's total investments as of March 31, 2013 and December 31, 2012, 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 17.3% and 17.0% of the Company's total investments as of March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013 and December 31, 2012, approximately 70.2% and 69.7%, respectively, of the Company's funds withheld at interest balance, net of embedded derivatives, was 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 condensed 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. 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 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 3.4% and 3.5% of the Company's total investments as of March 31, 2013 and December 31, 2012, respectively. Carrying values of these assets as of March 31, 2013 and December 31, 2012 are as follows (dollars in thousands):

   March 31, 2013 December 31, 2012   
Equity securities$ 220,665 $ 222,700   
Limited partnerships and real estate joint ventures  375,451   356,419   
Structured loans  272,592   306,497   
Derivatives  151,761   168,208   
Other  109,182   105,719   
 Total other invested assets$ 1,129,651 $ 1,159,543   

Netting Arrangements

Certain of the Company's derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.

The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See “Securities Borrowing and Other” above for information regarding the Company's securities borrowing and repurchase/reverse repurchase programs. See Note 5 – “Derivative Instruments” for information regarding the Company's bifurcated embedded derivatives.

The following table provides information relating to the Company's derivative instruments as of March 31, 2013 and December 31, 2012 (dollars in thousands):

          Gross Amounts Not Offset in the Balance Sheet   
    Gross Amounts Net Amounts   Cash Collateral   
  Gross Amounts Offset in the Presented in the Financial Pledged/   
  Recognized Balance Sheet Balance Sheet Instruments Received Net Amount
March 31, 2013:                 
 Derivative assets$ 175,236 $ (23,475) $ 151,761 $ (17,664) $ (126,329) $ 7,768
 Derivative liabilities  42,079   (23,475)   18,604   (14,118)   (6,250)   (1,764)
                   
December 31, 2012:                 
 Derivative assets$ 190,634 $ (22,426) $ 168,208 $ (22,458) $ (136,414) $ 9,336
 Derivative liabilities  54,078   (22,426)   31,652   (1,565)   (27,867)   2,220