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Investments
 3 Months Ended
Mar. 31, 2013
Investments [Abstract]  
Investments

Note 2 - Investments

Fixed Maturities and Equity Securities

The following table presents the fair value and gross unrealized losses of fixed maturity securities (“fixed maturities”) and equity securities in an unrealized loss position at March 31, 2013 and December 31, 2012, respectively. The Company views the decrease in value of all of the securities with unrealized losses at March 31, 2013 — which was driven largely by spread widening, financial market illiquidity, market volatility and/or changes in interest rates from the date of acquisition — as temporary. For fixed maturity securities, management does not have the intent to sell the securities and it is not more likely than not the Company will be required to sell the securities before the anticipated recovery of the amortized cost bases, and the present value of future cash flows exceeds the amortized cost bases. In addition, management expects to recover the entire cost bases of the fixed maturity securities. For equity securities, the Company has the ability and intent to hold the securities for the recovery of cost and recovery of cost is expected within a reasonable period of time. Therefore, no impairment of these securities was recorded at March 31, 2013.

 

                                                 
    12 Months or Less     More than 12 Months     Total  
    Fair Value     Gross
Unrealized
Losses		     Fair Value     Gross
Unrealized
Losses		     Fair Value     Gross
Unrealized
Losses		  

March 31, 2013

                                                

Fixed maturity securities

                                                

U.S. government and federally sponsored agency obligations:

                                                

Mortgage-backed securities

   $ 11,913     $ 438     $ 48     $ 1     $ 11,961     $ 439  

Other

     33,825       658       -       -       33,825       658  

Municipal bonds

     134,086       3,555       14,908       507       148,994       4,062  

Foreign government bonds

     1,966       17       -       -       1,966       17  

Corporate bonds

     100,923       678       22,637       3,526       123,560       4,204  

Other mortgage-backed securities

     118,824       1,113       29,298       1,402       148,122       2,515  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed maturity securities

     401,537       6,459       66,891       5,436       468,428       11,895  

Equity securities (1)

     4,564       283       1,033       424       5,597       707  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Combined totals

   $ 406,101     $ 6,742     $ 67,924     $ 5,860     $ 474,025     $ 12,602  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Number of positions with a gross unrealized loss

     138               41               179          

Fair value as a percentage of total fixed maturities and equity securities fair value

     6.5 %              1.1 %              7.6 %         
             

December 31, 2012

                                                

Fixed maturity securities

                                                

U.S. government and federally sponsored agency obligations:

                                                

Mortgage-backed securities

   $ 11,006     $ 124     $ 50     $ 1     $ 11,056     $ 125  

Other

     9,944       135       -       -       9,944       135  

Municipal bonds

     108,578       2,605       3,990       43       112,568       2,648  

Foreign government bonds

     -       -       -       -       -       -  

Corporate bonds

     56,481       875       26,725       4,075       83,206       4,950  

Other mortgage-backed securities

     58,218       621       25,014       1,411       83,232       2,032  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed maturity securities

     244,227       4,360       55,779       5,530       300,006       9,890  

Equity securities (1)

     19,344       1,288       9       2       19,353       1,290  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Combined totals

   $ 263,571     $ 5,648     $ 55,788     $ 5,532     $ 319,359     $ 11,180  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Number of positions with a gross unrealized loss

     156               43               199          

Fair value as a percentage of total fixed maturities and equity securities fair value

     4.4 %              0.9 %              5.3 %         

 

 

(1)

Includes nonredeemable (perpetual) preferred stocks and common stocks.

 

Compared to December 31, 2012, the slight reduction in net unrealized gains at March 31, 2013 was due to slightly higher yields on U.S. Treasury securities and virtually unchanged credit spreads across most asset classes except for lower rated corporate, municipal and mortgage-backed securities where the spreads tightened in 2013, the combination of which resulted in a decrease in net unrealized gains for the Company’s holdings of corporate, government, municipal, residential and commercial mortgage-backed securities, partially offset by an increase in net unrealized gains for the Company’s holdings in common equities due to equity market performance. The amortized cost or cost, unrealized investment gains and losses, fair values and other-than-temporary impairment (“OTTI”) included in accumulated other comprehensive income (loss) (“AOCI”) of all fixed maturities and equity securities in the portfolio as of March 31, 2013 and December 31, 2012 were as follows:

 

                                         
    Amortized
Cost/Cost		     Unrealized
Gains		     Unrealized
Losses		     Fair
Value		     OTTI in
AOCI (2)		  

March 31, 2013

                                        

Fixed maturity securities

                                        

U.S. government and federally sponsored agency obligations (1):

                                        

Mortgage-backed securities

   $ 562,657     $ 69,206     $ 439     $ 631,424     $ -  

Other, including U.S. Treasury securities

     415,050       34,127       658       448,519       -  

Municipal bonds

     1,422,405       185,899       4,062       1,604,242       -  

Foreign government bonds

     50,445       8,915       17       59,343       -  

Corporate bonds

     2,347,748       305,976       4,204       2,649,520       -  

Other mortgage-backed securities

     711,554       41,586       2,515       750,625       2,880  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Totals

   $ 5,509,859     $ 645,709     $ 11,895     $ 6,143,673     $ 2,880  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
           

Equity securities

   $ 53,117     $ 6,251     $ 707     $ 58,661     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
           

December 31, 2012

                                        

Fixed maturity securities

                                        

U.S. government and federally sponsored agency obligations (1):

                                        

Mortgage-backed securities

   $ 547,040     $ 72,644     $ 125     $ 619,559     $ -  

Other, including U.S. Treasury securities

     371,706       37,857       135       409,428       -  

Municipal bonds

     1,402,424       186,261       2,648       1,586,037       -  

Foreign government bonds

     48,476       9,393       -       57,869       -  

Corporate bonds

     2,258,554       313,430       4,950       2,567,034       -  

Other mortgage-backed securities

     683,257       41,080       2,032       722,305       3,214  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Totals

   $ 5,311,457     $ 660,665     $ 9,890     $ 5,962,232     $ 3,214  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
           

Equity securities

   $ 52,396     $ 2,397     $ 1,290     $ 53,503     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

 

(1)

Fair value includes securities issued by Federal National Mortgage Association (“FNMA”) of $402,512 and $375,111; Federal Home Loan Mortgage Corporation (“FHLMC”) of $432,559 and $418,174; and Government National Mortgage Association (“GNMA”) of $133,930 and $136,998 as of March 31, 2013 and December 31, 2012, respectively.

(2)

Represents the amount of other-than-temporary impairment losses in AOCI which, beginning April 1, 2009, was not included in earnings under current accounting guidance. Amounts also include unrealized gains/losses on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.

The Company’s investment portfolio includes no free-standing derivative financial instruments (futures, forwards, swaps, option contracts or other financial instruments with similar characteristics), and there are no embedded derivative features related to the Company’s insurance products.

 

Credit Losses

The following table summarizes the cumulative amounts related to the Company’s credit loss component of the other-than-temporary impairment losses on fixed maturity securities held as of March 31, 2013 and 2012 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of the amortized cost bases, for which the non-credit portions of the other-than-temporary impairment losses were recognized in other comprehensive income:

 

                 
    Three Months Ended
March 31,		  
    2013     2012  

Cumulative credit loss (1)

                

Beginning of period

   $ 2,877     $ 3,957  

New credit losses

     -       -  

Losses related to securities sold or paid down during the period

     -       -  
   

 

 

    

 

 

  

End of period

   $ 2,877     $ 3,957  
   

 

 

    

 

 

  

 

 

(1)

The cumulative credit loss amounts exclude other-than-temporary impairment losses on securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before the recovery of the amortized cost basis.

Maturities/Sales of Fixed Maturities and Equity Securities

The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers’ utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.

 

                                 
    Percent of Total Fair Value     March 31, 2013  
    March 31,
2013		     December 31,
2012		     Fair
Value		     Amortized
Cost		  

Estimated expected maturity:

                                

Due in 1 year or less

     4.2 %      4.3 %    $ 259,774     $ 232,974  

Due after 1 year through 5 years

     20.3       20.8       1,246,044       1,117,496  

Due after 5 years through 10 years

     38.4       38.4       2,362,252       2,118,549  

Due after 10 years through 20 years

     19.4       18.7       1,189,199       1,066,515  

Due after 20 years

     17.7       17.8       1,086,404       974,325  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

     100.0 %      100.0 %    $ 6,143,673     $ 5,509,859  
   

 

 

    

 

 

    

 

 

    

 

 

  
         

Average option-adjusted duration, in years

     6.2       6.3                  

 

Proceeds received from sales of fixed maturities and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each period were:

 

                 
    Three Months Ended
March 31,		  
    2013     2012  

Fixed maturity securities

                

Proceeds received

   $ 99,182     $ 158,292  

Gross gains realized

     4,512       8,892  

Gross losses realized

     (10 )      (9,145 ) 
     

Equity securities

                

Proceeds received

   $ 4,834     $ 9  

Gross gains realized

     568       9  

Gross losses realized

     (215 )      -  

Unrealized Gains and Losses on Fixed Maturities and Equity Securities

Net unrealized gains and losses are computed as the difference between fair value and amortized cost for fixed maturities or cost for equity securities. The following table reconciles the net unrealized investment gains and losses, net of tax, included in accumulated other comprehensive income (loss), before the impact on deferred policy acquisition costs:

 

                 
    Three Months Ended
March 31,		  
    2013     2012  

Net unrealized investment gains (losses) on fixed maturity securities, net of tax

        

Beginning of period

   $ 423,004     $ 284,338  

Change in unrealized investment gains and losses

     (6,909 )      13,998  

Reclassification of net realized investment (gains) losses to net income

     (4,116 )      (240 ) 
   

 

 

    

 

 

  

End of period

   $ 411,979     $ 298,096  
   

 

 

    

 

 

  
   

Net unrealized investment gains (losses) on equity securities, net of tax

        

Beginning of period

   $ 720     $ 2,408  

Change in unrealized investment gains and losses

     3,228       (155 ) 

Reclassification of net realized investment (gains) losses to net income

     (344 )      (15 ) 
   

 

 

    

 

 

  

End of period

   $ 3,604     $ 2,238  
   

 

 

    

 

 

  

 

Repurchase Agreements

Beginning in 2013, the Company enters into repurchase agreements to earn incremental spread income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.

As part of repurchase agreements, the Company transfers U.S. government and government agency securities and receives cash. For the repurchase agreements, the Company receives cash in an amount equal to at least 95% of the fair value of the securities transferred, and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received from the repurchase program is typically invested in high quality floating rate fixed maturity securities. The Company accounts for the repurchase agreements as collateralized borrowings. The securities transferred under repurchase agreements are included in fixed maturity, available-for-sale securities with the obligation to repurchase those securities recorded in Other Liabilities on the Company’s Consolidated Balance Sheets. The fair value of the securities transferred was $88,823 as of March 31, 2013. The obligation for securities sold under agreement to repurchase was $87,846, including accrued interest, as of March 31, 2013.