Investments (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Fixed Maturity and Equity Securities

At September 30, 2013 and December 31, 2012, the amortized cost and fair value of fixed maturity securities and equity securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
September 30, 2013
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	4,608	$	342	$	(43	)	$	4,907
United States Government sponsored agencies	1,314,449		4,069		(78,915		)	1,239,603
United States municipalities, states and territories	3,278,749		212,975		(30,593		)	3,461,131
Foreign government obligations	86,109		9,365		(2,792		)	92,682
Corporate securities	16,420,869		720,010		(399,298		)	16,741,581
Residential mortgage backed securities	1,999,201		145,605		(25,979		)	2,118,827
Commercial mortgage backed securities	1,664,541		5,194		(79,425		)	1,590,310
Other asset backed securities	1,014,590		23,544		(24,297		)	1,013,837
	$	25,783,116	$	1,121,104	$	(641,342	)	$	26,262,878
Held for investment:
Corporate security	$	76,212	$	—	$	(15,369	)	$	60,843

Equity securities, available for sale:
Finance, insurance, and real estate	$	8,917	$	791	$	—		$	9,708

December 31, 2012
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	4,590	$	564	$	—		$	5,154
United States Government sponsored agencies	1,763,789		11,704		(3,468		)	1,772,025
United States municipalities, states and territories	3,116,678		461,770		(125		)	3,578,323
Foreign government obligations	86,099		19,160		—			105,259
Corporate securities	12,930,173		1,568,223		(31,624		)	14,466,772
Residential mortgage backed securities	2,743,537		172,304		(27,728		)	2,888,113
Commercial mortgage backed securities	354,870		5,095		(1,983		)	357,982
Other asset backed securities	957,291		44,190		(2,973		)	998,508
	$	21,957,027	$	2,283,010	$	(67,901	)	$	24,172,136
Held for investment:
Corporate security	$	76,088	$	—	$	(14,567	)	$	61,521

Equity securities, available for sale:
Finance, insurance, and real estate	$	44,598	$	10,227	$	(1,403	)	$	53,422

Schedule of Fixed Maturity Securities by Contractual Maturity Date

The amortized cost and fair value of fixed maturity securities at September 30, 2013, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our mortgage and other asset backed securities provide for periodic payments throughout their lives and are shown below as separate lines.



	Available for sale				Held for investment
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	123,756	$	126,880	$	—	$	—
Due after one year through five years	853,588		958,053		—		—
Due after five years through ten years	7,379,238		7,364,750		—		—
Due after ten years through twenty years	6,226,753		6,341,286		—		—
Due after twenty years	6,521,449		6,748,935		76,212		60,843
	21,104,784		21,539,904		76,212		60,843
Residential mortgage backed securities	1,999,201		2,118,827		—		—
Commercial mortgage backed securities	1,664,541		1,590,310		—		—
Other asset backed securities	1,014,590		1,013,837		—		—
	$	25,783,116	$	26,262,878	$	76,212	$	60,843

Schedule of Components of Net Unrealized Gains on Available for Sale Fixed Maturity and Equity Securities Reported as Separate Component of Stockholders' Equity

Net unrealized gains on available for sale fixed maturity securities and equity securities reported as a separate component of stockholders' equity were comprised of the following:



	September 30, 2013			December 31, 2012
	(Dollars in thousands)
Net unrealized gains on available for sale fixed maturity securities and equity securities	$	480,553		$	2,223,933
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements	(263,337		)	(1,201,974		)
Deferred income tax valuation allowance reversal	22,534			22,534
Deferred income tax benefit	(76,025		)	(357,686		)
Net unrealized gains reported as accumulated other comprehensive income	$	163,725		$	686,807

Schedule of Credit Quality of Fixed Maturity Security Portfolio by NAIC Designation

The following table summarizes the credit quality, as determined by NAIC designation, of our fixed maturity portfolio as of the dates indicated:



	September 30, 2013				December 31, 2012
NAIC Designation	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	15,945,089	$	16,367,238	$	13,737,381	$	15,250,560
2	9,277,558		9,352,577		7,838,186		8,533,121
3	533,890		509,433		398,294		387,222
4	100,907		93,126		53,879		56,151
5	—		—		—		—
6	1,884		1,347		5,375		6,603
	$	25,859,328	$	26,323,721	$	22,033,115	$	24,233,657

Summary of Gross Unrealized Investment Losses by Length of Time Securities Have Continuously Been in an Unrealized Loss Position

The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 885 and 198 securities, respectively) have been in a continuous unrealized loss position, at September 30, 2013 and December 31, 2012:



	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2013
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	977	$	(43	)	$	—	$	—		$	977	$	(43	)
United States Government sponsored agencies	1,130,979		(78,915		)	—		—			1,130,979		(78,915		)
United States municipalities, states and territories	488,260		(30,593		)	—		—			488,260		(30,593		)
Foreign government obligations	26,985		(2,792		)	—		—			26,985		(2,792		)
Corporate securities:
Finance, insurance and real estate	1,291,001		(71,692		)	119,734		(11,273		)	1,410,735		(82,965		)
Manufacturing, construction and mining	2,925,074		(161,188		)	16,494		(2,608		)	2,941,568		(163,796		)
Utilities and related sectors	1,568,088		(83,013		)	30,766		(2,673		)	1,598,854		(85,686		)
Wholesale/retail trade	336,683		(20,153		)	—		—			336,683		(20,153		)
Services, media and other	843,825		(44,173		)	30,939		(2,525		)	874,764		(46,698		)
Residential mortgage backed securities	296,361		(23,605		)	34,068		(2,374		)	330,429		(25,979		)
Commercial mortgage backed securities	1,268,293		(79,425		)	—		—			1,268,293		(79,425		)
Other asset backed securities	402,461		(17,914		)	44,726		(6,383		)	447,187		(24,297		)
	$	10,578,987	$	(613,506	)	$	276,727	$	(27,836	)	$	10,855,714	$	(641,342	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	60,843	$	(15,369	)	$	60,843	$	(15,369	)

December 31, 2012
Fixed maturity securities:
Available for sale:
United States Government sponsored agencies	$	973,728	$	(3,468	)	$	—	$	—		$	973,728	$	(3,468	)
United States municipalities, states and territories	24,393		(125		)	—		—			24,393		(125		)
Corporate securities:
Finance, insurance and real estate	177,962		(4,126		)	85,709		(8,438		)	263,671		(12,564		)
Manufacturing, construction and mining	426,120		(4,303		)	21,975		(1,281		)	448,095		(5,584		)
Utilities and related sectors	221,044		(5,187		)	39,224		(4,212		)	260,268		(9,399		)
Wholesale/retail trade	101,790		(784		)	10,250		(208		)	112,040		(992		)
Services, media and other	264,421		(3,085		)	—		—			264,421		(3,085		)
Residential mortgage backed securities	220,622		(8,679		)	260,226		(19,049		)	480,848		(27,728		)
Commercial mortgage backed securities	161,582		(1,983		)	—		—			161,582		(1,983		)
Other asset backed securities	145,238		(2,242		)	26,131		(731		)	171,369		(2,973		)
	$	2,716,900	$	(33,982	)	$	443,515	$	(33,919	)	$	3,160,415	$	(67,901	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	61,521	$	(14,567	)	$	61,521	$	(14,567	)

Equity security, available for sale:
Services	$	—	$	—		$	8,722	$	(1,403	)	$	8,722	$	(1,403	)

Schedule of Changes in Net Unrealized Gains on Investments

Changes in net unrealized gains on investments for the three and nine months ended September 30, 2013 and 2012 are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Fixed maturity securities held for investment carried at amortized cost	$	(449	)	$	(626	)	$	(802	)	$	(12,505	)
Investments carried at fair value:
Fixed maturity securities, available for sale	$	(276,793	)	$	402,274		$	(1,735,347	)	$	790,648
Equity securities, available for sale	(84		)	2,963			(8,033		)	6,600
	(276,877		)	405,237			(1,743,380		)	797,248
Adjustment for effect on other balance sheet accounts:
Deferred policy acquisition costs and deferred sales inducements	152,944			(201,676		)	938,637			(405,006		)
Deferred income tax asset/liability	43,378			(71,247		)	281,661			(137,285		)
	196,322			(272,923		)	1,220,298			(542,291		)
Change in net unrealized gains on investments carried at fair value	$	(80,555	)	$	132,314		$	(523,082	)	$	254,957

Net Realized Gains (Losses) on Investments

Net realized gains (losses) on investments, excluding net OTTI losses for the three and nine months ended September 30, 2013 and 2012 are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	3,965		$	3,028		$	24,608		$	8,076
Gross realized losses	(2,096		)	(180		)	(5,106		)	(535		)
	1,869			2,848			19,502			7,541
Equity securities:
Gross realized gains	—			—			9,571			562

Other investments:
Gain on sale of real estate	201			53			1,505			2,948
Loss on sale of real estate	(278		)	—			(744		)	—
Impairment losses on real estate	(678		)	(830		)	(823		)	(3,473		)
	(755		)	(777		)	(62		)	(525		)
Mortgage loans on real estate:
Increase in allowance for credit losses	(3,191		)	(3,309		)	(4,814		)	(15,503		)
	$	(2,077	)	$	(1,238	)	$	24,197		$	(7,925	)

Losses in 2013 were realized primarily due to strategies in place to reposition the fixed maturity security portfolio that result in improved net investment income, risk or duration profiles as they pertain to our asset liability management. One corporate issue was sold at a loss in 2013 due to the our fundamental, long-term concern with the issuer's ability to meet its future financial obligations.

Significant Assumptions Used to Determine the Credit Loss Component of Other Than Temporary Impairments on Residential Mortgage Backed Securities

The following table presents the range of significant assumptions used to determine the credit loss component of other than temporary impairments we have recognized on residential mortgage backed securities for the nine months ended September 30, 2013 and 2012, which are all senior level tranches within the structure of the securities:



		Discount Rate				Default Rate				Loss Severity
Sector	Vintage	Min		Max		Min		Max		Min		Max
Nine months ended September 30, 2013
Prime	2003	5.1	%	5.1	%	2	%	2	%	30	%	30	%
	2005	6.5	%	7.7	%	8	%	18	%	50	%	65	%
	2006	6.0	%	6.9	%	9	%	16	%	50	%	50	%
	2007	6.2	%	6.7	%	11	%	25	%	40	%	60	%
	2008	6.6	%	6.6	%	16	%	16	%	45	%	45	%
	2009	6.8	%	6.8	%	17	%	17	%	60	%	60	%
Alt-A	2005	5.6	%	8.7	%	15	%	81	%	2	%	65	%
	2007	6.2	%	6.9	%	38	%	52	%	60	%	65	%

Nine months ended September 30, 2012
Prime	2005	6.5	%	7.7	%	9	%	18	%	50	%	50	%
	2006	5.8	%	7.4	%	9	%	19	%	40	%	55	%
	2007	6.2	%	7.3	%	11	%	38	%	40	%	60	%
Alt-A	2005	5.6	%	8.7	%	12	%	27	%	5	%	55	%
	2006	6.0	%	6.0	%	32	%	46	%	55	%	60	%
	2007	6.2	%	7.0	%	31	%	55	%	55	%	60	%

Other Than Temporary Impairment by Asset Type

The following table summarizes other than temporary impairments for the three and nine months ended September 30, 2013 and 2012, by asset type:



	Number of Securities	Total OTTI Losses			Portion of OTTI Losses Recognized from Other Comprehensive Income			Net OTTI Losses Recognized in Operations
		(Dollars in thousands)
Three months ended September 30, 2013
Fixed maturity securities, available for sale:
Residential mortgage backed securities	2	$	—		$	(222	)	$	(222	)

Three months ended September 30, 2012
Fixed maturity securities, available for sale:
Residential mortgage backed securities	4	$	—		$	(1,686	)	$	(1,686	)

Nine months ended September 30, 2013
Fixed maturity securities, available for sale:
United States Government sponsored agencies	2	$	(2,775	)	$	—		$	(2,775	)
Corporate securities:
Industrial	1	(1,761		)	—			(1,761		)
Residential mortgage backed securities	6	—			(1,270		)	(1,270		)
Equity security, available for sale:
Industrial	1	(428		)	—			(428		)
	10	$	(4,964	)	$	(1,270	)	$	(6,234	)
Nine months ended September 30, 2012
Fixed maturity securities, available for sale:
Residential mortgage backed securities	24	$	(2,156	)	$	(3,389	)	$	(5,545	)

Other Than Temporary Impairment, Credit Losses Recognized in Earnings

The cumulative portion of other than temporary impairments determined to be credit losses which have been recognized in operations for debt securities are summarized as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Dollars in thousands)
Cumulative credit loss at beginning of period	$	(128,513	)	$	(122,954	)	$	(134,027	)	$	(119,095	)
Credit losses on securities for which OTTI has not previously been recognized	—			—			(4,536		)	(47		)
Additional credit losses on securities for which OTTI has previously been recognized	(222		)	(1,686		)	(1,270		)	(5,498		)
Accumulated losses on securities that were disposed of during the period	2,775			—			13,873			—
Cumulative credit loss at end of period	$	(125,960	)	$	(124,640	)	$	(125,960	)	$	(124,640	)

Schedule of Other Than Temporary Impairment Losses, Investments

The following table summarizes the cumulative noncredit portion of OTTI and the change in fair value since recognition of OTTI, both of which were recognized in other comprehensive income, by major type of security, for securities that are part of our investment portfolio at September 30, 2013 and December 31, 2012:



	Amortized Cost		OTTI Recognized in Other Comprehensive Income			Change in Fair Value Since OTTI was Recognized		Fair Value
	(Dollars in thousands)
September 30, 2013
Fixed maturity securities, available for sale:
Corporate securities	$	—	$	—		$	32	$	32
Residential mortgage backed securities	715,871		(176,334		)	222,943		762,480
Equity securities, available for sale:
Finance, insurance and real estate and services	1,416		—			493		1,909
	$	717,287	$	(176,334	)	$	223,468	$	764,421
December 31, 2012
Fixed maturity securities, available for sale:
Corporate securities	$	10,599	$	(2,151	)	$	5,676	$	14,124
Residential mortgage backed securities	855,915		(177,604		)	171,514		849,825
Equity securities, available for sale:
Finance, insurance and real estate	9,976		—			9,668		19,644
	$	876,490	$	(179,755	)	$	186,858	$	883,593