| Investments |
Investments
(a) Fixed Maturities and Other Investments
The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of September 30, 2013 and December 31, 2012 are as follows: | | | | | | | | | | | | | | | | | | September 30, 2013 | | Original or
amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value | Available-for-sale fixed maturities: | | | | | | | | | U.S. treasury bonds | | $ | 16,629 |
| | $ | 745 |
| | $ | — |
| | $ | 17,374 |
| U.S. agency bonds – mortgage-backed | | 1,138,860 |
| | 16,083 |
| | (24,230 | ) | | 1,130,713 |
| U.S. agency bonds – other | | 7,205 |
| | 1,093 |
| | — |
| | 8,298 |
| Non-U.S. government bonds | | 64,992 |
| | 2,734 |
| | (444 | ) | | 67,282 |
| Other mortgage-backed bonds | | 22,624 |
| | 97 |
| | (59 | ) | | 22,662 |
| Corporate bonds | | 1,324,209 |
| | 81,247 |
| | (23,810 | ) | | 1,381,646 |
| Municipal bonds | | 45,588 |
| | 743 |
| | (1 | ) | | 46,330 |
| Total available-for-sale fixed maturities | | 2,620,107 |
| | 102,742 |
| | (48,544 | ) | | 2,674,305 |
| Other investments | | 4,500 |
| | 506 |
| | — |
| | 5,006 |
| Total investments | | $ | 2,624,607 |
| | $ | 103,248 |
| | $ | (48,544 | ) | | $ | 2,679,311 |
|
| | | | | | | | | | | | | | | | | | December 31, 2012 | | Original or
amortized cost | | Gross
unrealized gains | | Gross
unrealized losses | | Fair value | Available-for-sale fixed maturities: | | | | | | | | | U.S. treasury bonds | | $ | 42,671 |
| | $ | 1,260 |
| | $ | — |
| | $ | 43,931 |
| U.S. agency bonds – mortgage-backed | | 962,649 |
| | 30,998 |
| | (1,473 | ) | | 992,174 |
| U.S. agency bonds – other | | 11,682 |
| | 1,407 |
| | — |
| | 13,089 |
| Non-U.S. government bonds | | 55,169 |
| | 2,264 |
| | — |
| | 57,433 |
| Other mortgage-backed bonds | | 23,167 |
| | 901 |
| | — |
| | 24,068 |
| Corporate bonds | | 1,247,260 |
| | 113,386 |
| | (6,492 | ) | | 1,354,154 |
| Municipal bonds | | 132,604 |
| | 1,244 |
| | — |
| | 133,848 |
| Total available-for-sale fixed maturities | | 2,475,202 |
| | 151,460 |
| | (7,965 | ) | | 2,618,697 |
| Other investments | | 2,599 |
| | 353 |
| | (51 | ) | | 2,901 |
| Total investments | | $ | 2,477,801 |
| | $ | 151,813 |
| | $ | (8,016 | ) | | $ | 2,621,598 |
|
The contractual maturities of our fixed maturities, available-for-sale as of September 30, 2013 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations prior to contractual maturity.
4. Investments (continued)
| | | | | | | | | | | | | September 30, 2013 | | Amortized cost | | Fair
value | | % of Total fair value | Maturity | | | | | | | Due in one year or less | | $ | 95,601 |
| | $ | 97,385 |
| | 3.7 | % | Due after one year through five years | | 398,953 |
| | 428,246 |
| | 16.0 | % | Due after five years through ten years | | 888,970 |
| | 917,690 |
| | 34.3 | % | Due after ten years | | 75,099 |
| | 77,609 |
| | 2.9 | % | | | 1,458,623 |
| | 1,520,930 |
| | 56.9 | % | U.S. agency bonds – mortgage-backed | | 1,138,860 |
| | 1,130,713 |
| | 42.3 | % | Other mortgage-backed bonds | | 22,624 |
| | 22,662 |
| | 0.8 | % | Total | | $ | 2,620,107 |
| | $ | 2,674,305 |
| | 100.0 | % |
The following tables summarize our available-for-sale fixed maturities and other investments in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or more | | Total | September 30, 2013 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Available-for-sale fixed maturities | | | | | | | | | | | | | U.S. agency bonds – mortgage-backed | | $ | 601,779 |
| | $ | (23,199 | ) | | $ | 39,548 |
| | $ | (1,031 | ) | | $ | 641,327 |
| | $ | (24,230 | ) | Non–U.S. government bonds | | 10,234 |
| | (444 | ) | | — |
| | — |
| | 10,234 |
| | (444 | ) | Other mortgage-backed bonds | | 13,152 |
| | (59 | ) | | — |
| | — |
| | 13,152 |
| | (59 | ) | Corporate bonds | | 354,698 |
| | (21,689 | ) | | 123,226 |
| | (2,121 | ) | | 477,924 |
| | (23,810 | ) | Municipal bonds | | 2,500 |
| | (1 | ) | | — |
| | — |
| | 2,500 |
| | (1 | ) | Total temporarily impaired available-for-sale fixed maturities | | $ | 982,363 |
| | $ | (45,392 | ) | | $ | 162,774 |
| | $ | (3,152 | ) | | $ | 1,145,137 |
| | $ | (48,544 | ) |
As of September 30, 2013, there were approximately 109 securities in an unrealized loss position with a fair value of $1,145,137 and unrealized losses of $48,544. Of these securities, there are 11 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $162,774 and unrealized losses of $3,152.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or more | | Total | December 31, 2012 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Available-for-sale fixed maturities | | | | | | | | | | | | | U.S. agency bonds – mortgage-backed | | $ | 158,591 |
| | $ | (1,473 | ) | | $ | — |
| | $ | — |
| | $ | 158,591 |
| | $ | (1,473 | ) | Corporate bonds | | 94,742 |
| | (1,098 | ) | | 141,842 |
| | (5,394 | ) | | 236,584 |
| | (6,492 | ) | | | 253,333 |
| | (2,571 | ) | | 141,842 |
| | (5,394 | ) | | 395,175 |
| | (7,965 | ) | Other investments | | — |
| | — |
| | 2,011 |
| | (51 | ) | | 2,011 |
| | (51 | ) | Total temporarily impaired available-for-sale fixed maturities and other investments | | $ | 253,333 |
| | $ | (2,571 | ) | | $ | 143,853 |
| | $ | (5,445 | ) | | $ | 397,186 |
| | $ | (8,016 | ) |
4. Investments (continued)
As of December 31, 2012, there were approximately 32 securities in an unrealized loss position with a fair value of $397,186 and unrealized losses of $8,016. Of these securities, there are 9 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $143,853 and unrealized losses of $5,445.
Other-Than-Temporary Impairments ("OTTI")
We review our investment portfolio for impairment on a quarterly basis. Impairment of investments results in a charge to operations when a fair value decline below cost is deemed to be other-than-temporary. As of September 30, 2013, we reviewed our portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. During the three and nine months ended September 30, 2013 and 2012, the Company recognized no OTTI. Based on our qualitative and quantitative OTTI review of each asset class within our fixed maturity portfolio, the unrealized losses on fixed maturities at September 30, 2013 were primarily due to widening of credit spreads since their date of purchase. Because we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore, we do not consider these fixed maturities to be other-than-temporarily impaired at September 30, 2013.
The following summarizes the credit ratings of our fixed maturities: | | | | | | | | | | | | | Rating* as of September 30, 2013 | | Amortized
cost | | Fair
value | | % of Total
fair value | U.S. treasury bonds | | $ | 16,629 |
| | $ | 17,374 |
| | 0.7 | % | U.S. agency bonds | | 1,146,065 |
| | 1,139,011 |
| | 42.6 | % | AAA | | 153,544 |
| | 165,945 |
| | 6.2 | % | AA+, AA, AA- | | 114,209 |
| | 121,167 |
| | 4.5 | % | A+, A, A- | | 487,189 |
| | 517,408 |
| | 19.3 | % | BBB+, BBB, BBB- | | 646,396 |
| | 658,567 |
| | 24.6 | % | BB+ or lower | | 56,075 |
| | 54,833 |
| | 2.1 | % | Total | | $ | 2,620,107 |
| | $ | 2,674,305 |
| | 100.0 | % |
| | | | | | | | | | | | | Rating* as of December 31, 2012 | | Amortized
cost | | Fair
value | | % of Total
fair value | U.S. treasury bonds | | $ | 42,671 |
| | $ | 43,931 |
| | 1.7 | % | U.S. agency bonds | | 974,331 |
| | 1,005,263 |
| | 38.4 | % | AAA | | 171,136 |
| | 183,950 |
| | 7.0 | % | AA+, AA, AA- | | 186,495 |
| | 196,797 |
| | 7.5 | % | A+, A, A- | | 477,236 |
| | 515,383 |
| | 19.7 | % | BBB+, BBB, BBB- | | 587,858 |
| | 637,089 |
| | 24.3 | % | BB+ or lower | | 35,475 |
| | 36,284 |
| | 1.4 | % | Total | | $ | 2,475,202 |
| | $ | 2,618,697 |
| | 100.0 | % |
*Ratings as assigned by Standard & Poor’s ("S&P")
4. Investments (continued)
(b) Other Investments
The table below shows our portfolio of other investments: | | | | | | | | | | | | | | | | | | September 30, 2013 | | December 31, 2012 | Investments in limited partnerships | | $ | 4,006 |
| | 80.0 | % | | $ | 2,901 |
| | 100.0 | % | Other | | 1,000 |
| | 20.0 | % | | — |
| | — | % | Total other investments | | $ | 5,006 |
| | 100.0 | % | | $ | 2,901 |
| | 100.0 | % |
The Company has an unfunded commitment on its investments in limited partnerships of approximately $1,994 as of September 30, 2013.
(c) Realized Gains (Losses) on Investment
Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. The following provides an analysis of realized gains (losses) on investment for the three and nine months ended September 30, 2013 and 2012: | | | | | | | | | | | | | | For the Three Months Ended September 30, 2013 | | Gross gains | | Gross losses | | Net | Available-for-sale fixed maturities | | $ | 448 |
| | $ | — |
| | $ | 448 |
| Other investments | | 29 |
| | — |
| | 29 |
| Net realized gains on investment | | $ | 477 |
| | $ | — |
| | $ | 477 |
|
| | | | | | | | | | | | | | For the Three Months Ended September 30, 2012 | | Gross gains | | Gross losses | | Net | Available-for-sale fixed maturities | | $ | 2,374 |
| | $ | — |
| | $ | 2,374 |
| Other investments | | 36 |
| | — |
| | 36 |
| Net realized gains on investment | | $ | 2,410 |
| | $ | — |
| | $ | 2,410 |
|
| | | | | | | | | | | | | | For the Nine Months Ended September 30, 2013 | | Gross gains | | Gross losses | | Net | Available-for-sale fixed maturities | | $ | 3,560 |
| | $ | — |
| | $ | 3,560 |
| Other investments | | 200 |
| | (53 | ) | | 147 |
| Net realized gains on investment | | $ | 3,760 |
| | $ | (53 | ) | | $ | 3,707 |
|
| | | | | | | | | | | | | | For the Nine Months Ended September 30, 2012 | | Gross gains | | Gross losses | | Net | Available-for-sale fixed maturities | | $ | 2,374 |
| | $ | — |
| | $ | 2,374 |
| Trading securities and short sales | | — |
| | (1,593 | ) | | (1,593 | ) | Other investments | | 56 |
| | (1 | ) | | 55 |
| Net realized gains on investment | | $ | 2,430 |
| | $ | (1,594 | ) | | $ | 836 |
|
Proceeds from sales of fixed maturities classified as available-for-sale were $186,957 and $120,865 for the nine months ended September 30, 2013 and 2012, respectively.
4. Investments (continued)
Net unrealized gains on available-for-sale fixed maturities and other investments was as follows: | | | | | | | | | | | | September 30, 2013 | | December 31, 2012 | Available-for-sale fixed maturities | | $ | 54,198 |
| | $ | 143,495 |
| Other investments | | 506 |
| | 302 |
| Total net unrealized gains | | 54,704 |
| | 143,797 |
| Deferred income tax expense | | (111 | ) | | (132 | ) | Net unrealized gains, net of deferred income tax | | $ | 54,593 |
| | $ | 143,665 |
| Change in net unrealized gains, net of deferred income tax | | $ | (89,072 | ) | | $ | 79,928 |
|
(d) Restricted Cash and Cash Equivalents and Investments
We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. The assets on deposit are available to settle reinsurance liabilities. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows: | | | | | | | | | | | | September 30, 2013 |
| December 31, 2012 | Restricted cash and cash equivalents – third party agreements | | $ | 92,783 |
| | $ | 97,695 |
| Restricted cash and cash equivalents – related party agreements | | 176,596 |
| | 33,882 |
| Restricted cash and cash equivalents – U.S. state regulatory authorities | | 565 |
| | 750 |
| Total restricted cash and cash equivalents | | 269,944 |
| | 132,327 |
| Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2013 – $977,880; 2012 – $1,048,827) | | 997,105 |
| | 1,101,971 |
| Restricted investments – in trust for related party agreements at fair value (Amortized cost: 2013 – $996,096; 2012 – $851,873) | | 1,024,446 |
| | 919,557 |
| Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2013 – $12,733; 2012 – $12,744) | | 13,174 |
| | 13,463 |
| Total restricted investments | | 2,034,725 |
| | 2,034,991 |
| Total restricted cash and cash equivalents and investments | | $ | 2,304,669 |
| | $ | 2,167,318 |
|
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