Investments (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of Fixed Maturity and Equity Securities

At June 30, 2014 and December 31, 2013, 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)
June 30, 2014
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	38,590	$	310	$	(417	)	$	38,483
United States Government sponsored agencies	1,199,787		21,181		(35,627		)	1,185,341
United States municipalities, states and territories	3,188,026		324,759		(6,587		)	3,506,198
Foreign government obligations	181,120		13,335		(1,492		)	192,963
Corporate securities	17,916,567		1,371,622		(100,814		)	19,187,375
Residential mortgage backed securities	1,747,233		137,213		(13,881		)	1,870,565
Commercial mortgage backed securities	2,249,396		56,897		(10,197		)	2,296,096
Other asset backed securities	1,020,226		34,045		(13,720		)	1,040,551
	$	27,540,945	$	1,959,362	$	(182,735	)	$	29,317,572
Held for investment:
Corporate security	$	76,342	$	—	$	(9,771	)	$	66,571

Equity securities, available for sale:
Finance, insurance, and real estate	$	7,506	$	256	$	—		$	7,762

December 31, 2013
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	44,852	$	367	$	(2,294	)	$	42,925
United States Government sponsored agencies	1,313,776		1,875		(121,362		)	1,194,289
United States municipalities, states and territories	3,181,032		164,785		(39,074		)	3,306,743
Foreign government obligations	86,112		8,907		(3,462		)	91,557
Corporate securities	17,142,118		606,948		(516,029		)	17,233,037
Residential mortgage backed securities	1,895,913		119,230		(43,183		)	1,971,960
Commercial mortgage backed securities	1,821,988		3,287		(89,815		)	1,735,460
Other asset backed securities	1,041,939		23,300		(30,763		)	1,034,476
	$	26,527,730	$	928,699	$	(845,982	)	$	26,610,447
Held for investment:
Corporate security	$	76,255	$	—	$	(15,415	)	$	60,840

Equity securities, available for sale:
Finance, insurance, and real estate	$	7,503	$	275	$	—		$	7,778

Schedule of Fixed Maturity Securities by Contractual Maturity Date

The amortized cost and fair value of fixed maturity securities at June 30, 2014, 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	$	54,110	$	55,291	$	—	$	—
Due after one year through five years	1,126,677		1,283,155		—		—
Due after five years through ten years	8,235,605		8,498,193		—		—
Due after ten years through twenty years	6,561,087		6,996,599		—		—
Due after twenty years	6,546,611		7,277,122		76,342		66,571
	22,524,090		24,110,360		76,342		66,571
Residential mortgage backed securities	1,747,233		1,870,565		—		—
Commercial mortgage backed securities	2,249,396		2,296,096		—		—
Other asset backed securities	1,020,226		1,040,551		—		—
	$	27,540,945	$	29,317,572	$	76,342	$	66,571

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:



	June 30, 2014			December 31, 2013
	(Dollars in thousands)
Net unrealized gains on available for sale fixed maturity securities and equity securities	$	1,776,883		$	82,992
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements	(956,057		)	(46,588		)
Deferred income tax valuation allowance reversal	22,534			22,534
Deferred income tax expense	(287,289		)	(12,742		)
Net unrealized gains reported as accumulated other comprehensive income	$	556,071		$	46,196

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:



	June 30, 2014				December 31, 2013
NAIC Designation	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	17,311,646	$	18,519,001	$	16,394,654	$	16,531,250
2	9,739,539		10,305,239		9,630,251		9,598,399
3	497,545		493,350		502,822		474,165
4	67,353		65,857		74,493		66,078
5	—		—		—		—
6	1,204		696		1,765		1,395
	$	27,617,287	$	29,384,143	$	26,603,985	$	26,671,287

Schedule of Gross Unrealized Losses on Investments, By Category and Length of Time

The following table shows our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 450 and 1,047 securities, respectively) have been in a continuous unrealized loss position, at June 30, 2014 and December 31, 2013:



	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
June 30, 2014
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	—	$	—		$	33,569	$	(417	)	$	33,569	$	(417	)
United States Government sponsored agencies	1,441		(1		)	601,569		(35,626		)	603,010		(35,627		)
United States municipalities, states and territories	32,649		(147		)	185,877		(6,440		)	218,526		(6,587		)
Foreign government obligations	4,943		(32		)	12,984		(1,460		)	17,927		(1,492		)
Corporate securities:
Finance, insurance and real estate	46,685		(1,022		)	711,819		(25,301		)	758,504		(26,323		)
Manufacturing, construction and mining	100,820		(2,063		)	1,404,064		(33,103		)	1,504,884		(35,166		)
Utilities and related sectors	103,620		(1,397		)	602,031		(21,280		)	705,651		(22,677		)
Wholesale/retail trade	32,148		(633		)	102,446		(4,671		)	134,594		(5,304		)
Services, media and other	118,443		(1,623		)	338,878		(9,721		)	457,321		(11,344		)
Residential mortgage backed securities	89,639		(2,094		)	261,664		(11,787		)	351,303		(13,881		)
Commercial mortgage backed securities	47,869		(325		)	497,112		(9,872		)	544,981		(10,197		)
Other asset backed securities	61,023		(1,922		)	269,435		(11,798		)	330,458		(13,720		)
	$	639,280	$	(11,259	)	$	5,021,448	$	(171,476	)	$	5,660,728	$	(182,735	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	66,571	$	(9,771	)	$	66,571	$	(9,771	)

December 31, 2013
Fixed maturity securities:
Available for sale:
United States Government full faith and credit	$	32,969	$	(2,294	)	$	—	$	—		$	32,969	$	(2,294	)
United States Government sponsored agencies	692,320		(88,671		)	467,309		(32,691		)	1,159,629		(121,362		)
United States municipalities, states and territories	614,056		(39,074		)	—		—			614,056		(39,074		)
Foreign government obligations	26,298		(3,462		)	—		—			26,298		(3,462		)
Corporate securities:
Finance, insurance and real estate	1,690,846		(92,426		)	153,037		(12,873		)	1,843,883		(105,299		)
Manufacturing, construction and mining	3,370,775		(191,245		)	93,608		(16,088		)	3,464,383		(207,333		)
Utilities and related sectors	1,829,868		(102,758		)	83,550		(11,547		)	1,913,418		(114,305		)
Wholesale/retail trade	428,407		(25,189		)	17,687		(1,992		)	446,094		(27,181		)
Services, media and other	834,699		(51,508		)	107,242		(10,403		)	941,941		(61,911		)
Residential mortgage backed securities	309,599		(41,080		)	31,739		(2,103		)	341,338		(43,183		)
Commercial mortgage backed securities	1,450,143		(83,814		)	51,099		(6,001		)	1,501,242		(89,815		)
Other asset backed securities	356,018		(20,426		)	92,372		(10,337		)	448,390		(30,763		)
	$	11,635,998	$	(741,947	)	$	1,097,643	$	(104,035	)	$	12,733,641	$	(845,982	)
Held for investment:
Corporate security:
Insurance	$	—	$	—		$	60,840	$	(15,415	)	$	60,840	$	(15,415	)

Schedule of Changes in Net Unrealized Gains/Losses on Investments

Changes in net unrealized gains on investments for the three and six months ended June 30, 2014 and 2013 are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Fixed maturity securities held for investment carried at amortized cost	$	1,607		$	(964	)	$	5,644		$	(353	)
Investments carried at fair value:
Fixed maturity securities, available for sale	$	716,779		$	(1,339,484	)	$	1,693,910		$	(1,458,554	)
Equity securities, available for sale	(6		)	(10,168		)	(19		)	(7,949		)
	716,773			(1,349,652		)	1,693,891			(1,466,503		)
Adjustment for effect on other balance sheet accounts:
Deferred policy acquisition costs and deferred sales inducements	(372,717		)	707,525			(909,469		)	785,693
Deferred income tax asset/liability	(120,420		)	224,744			(274,547		)	238,283
	(493,137		)	932,269			(1,184,016		)	1,023,976
Change in net unrealized gains on investments carried at fair value	$	223,636		$	(417,383	)	$	509,875		$	(442,527	)

Net Realized Gains (Losses) on Investments

Net realized gains (losses) on investments, excluding net OTTI losses for the three and six months ended June 30, 2014 and 2013, are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	1,173		$	7,628		$	1,357		$	20,643
Gross realized losses	(71		)	(823		)	(762		)	(3,010		)
	1,102			6,805			595			17,633
Available for sale equity securities:
Gross realized gains	—			9,571			—			9,571

Other investments:
Gain on sale of real estate	282			715			1,038			1,304
Loss on sale of real estate	(231		)	—			(231		)	(466		)
Impairment losses on real estate	—			(145		)	(799		)	(145		)
	51			570			8			693
Mortgage loans on real estate:
Increase in allowance for credit losses	(3,383		)	(1,257		)	(3,547		)	(1,623		)
	$	(2,230	)	$	15,689		$	(2,944	)	$	26,274

Significant Assumptions Used to Determine the Credit Loss Component of Other Than Temporary Impairment 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 six months ended June 30, 2014 and 2013, 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
Six months ended June 30, 2014
Prime	2005	7.5	%	7.5	%	15	%	15	%	50	%	50	%
	2006	6.5	%	7.4	%	11	%	12	%	50	%	50	%
Alt-A	2005	5.6	%	6.4	%	87	%	87	%	2	%	2	%

Six months ended June 30, 2013
Prime	2003	5.1	%	5.1	%	2	%	2	%	30	%	30	%
	2005	6.5	%	7.7	%	8	%	17	%	50	%	50	%
	2006	6.0	%	6.9	%	9	%	16	%	50	%	50	%
	2007	6.5	%	6.7	%	12	%	25	%	40	%	60	%
	2008	6.6	%	6.6	%	16	%	16	%	45	%	45	%
Alt-A	2005	5.6	%	8.7	%	15	%	25	%	5	%	65	%
	2007	6.2	%	6.9	%	38	%	52	%	60	%	65	%

Other Than Temporary Impairment by Asset Type

The following table summarizes other than temporary impairments for the three and six months ended June 30, 2014 and 2013, 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 June 30, 2014
Fixed maturity securities, available for sale:
Residential mortgage backed securities	3	$	—		$	(594	)	$	(594	)

Three months ended June 30, 2013
Fixed maturity securities, available for sale:
United States Government sponsored agencies	2	$	(2,775	)	$	—		$	(2,775	)

Six months ended June 30, 2014
Fixed maturity securities, available for sale:
Residential mortgage backed securities	5	$	—		$	(1,499	)	$	(1,499	)

Six months ended June 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	5	—			(1,048		)	(1,048		)
Equity security, available for sale:
Industrial	1	(428		)	—			(428		)
	9	$	(4,964	)	$	(1,048	)	$	(6,012	)

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 June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Cumulative credit loss at beginning of period	$	(126,865	)	$	(129,813	)	$	(125,960	)	$	(134,027	)
Credit losses on securities for which OTTI has not previously been recognized	—			(2,775		)	—			(4,536		)
Additional credit losses on securities for which OTTI has previously been recognized	(594		)	—			(1,499		)	(1,048		)
Accumulated losses on securities that were disposed of during the period	—			4,075			—			11,098
Cumulative credit loss at end of period	$	(127,459	)	$	(128,513	)	$	(127,459	)	$	(128,513	)

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 (loss), by major type of security, for securities that are part of our investment portfolio at June 30, 2014 and December 31, 2013:



	Amortized Cost		OTTI Recognized in Other Comprehensive Income			Change in Fair Value Since OTTI was Recognized		Fair Value
	(Dollars in thousands)
June 30, 2014
Fixed maturity securities, available for sale:
Corporate securities	$	—	$	—		$	27	$	27
Residential mortgage backed securities	625,765		(174,835		)	222,567		673,497
	$	625,765	$	(174,835	)	$	222,594	$	673,524
December 31, 2013
Fixed maturity securities, available for sale:
Corporate securities	$	—	$	—		$	20	$	20
Residential mortgage backed securities	679,265		(176,334		)	216,061		718,992
	$	679,265	$	(176,334	)	$	216,081	$	719,012