|
Fair Value of Financial Instruments (Tables)
|
6 Months Ended |
|
Jun. 30, 2012
|
| Fair Value Measurement of Financial Assets and Financial Liabilities on Recurring Basis |
The following table presents the level within the fair value
hierarchy at which the Company’s financial assets and
financial liabilities are measured on a recurring basis as of June
30, 2012:
| (Amounts in Thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S.
treasury securities |
|
$ |
46,863 |
|
|
$ |
46,863 |
|
|
$ |
— |
|
|
$ |
— |
|
| U.S. government
agencies |
|
|
54,381 |
|
|
|
— |
|
|
|
54,381 |
|
|
|
— |
|
| Municipal
bonds |
|
|
273,052 |
|
|
|
— |
|
|
|
273,052 |
|
|
|
— |
|
| Corporate bonds and
other bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance |
|
|
754,629 |
|
|
|
— |
|
|
|
754,629 |
|
|
|
— |
|
| Industrial |
|
|
272,761 |
|
|
|
— |
|
|
|
272,761 |
|
|
|
— |
|
| Utilities |
|
|
39,301 |
|
|
|
— |
|
|
|
39,301 |
|
|
|
— |
|
| Commercial mortgage
backed securities |
|
|
10,118 |
|
|
|
— |
|
|
|
10,118 |
|
|
|
— |
|
| Residential
mortgage backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Agency
backed |
|
|
367,430 |
|
|
|
— |
|
|
|
367,430 |
|
|
|
— |
|
| Non-agency backed |
|
|
7,224 |
|
|
|
— |
|
|
|
7,224 |
|
|
|
— |
|
| Equity
securities |
|
|
25,830 |
|
|
|
25,830 |
|
|
|
— |
|
|
|
— |
|
| Short term
investments |
|
|
33,134 |
|
|
|
33,134 |
|
|
|
— |
|
|
|
— |
|
| Other
investments |
|
|
15,103 |
|
|
|
— |
|
|
|
— |
|
|
|
15,103 |
|
| Life
settlement contracts |
|
|
151,092 |
|
|
|
— |
|
|
|
— |
|
|
|
151,092 |
|
| |
|
$ |
2,050,918 |
|
|
$ |
105,827 |
|
|
$ |
1,778,896 |
|
|
$ |
166,195 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity securities
sold but not yet purchased, market |
|
$ |
58 |
|
|
$ |
58 |
|
|
$ |
— |
|
|
$ |
— |
|
| Fixed maturity
securities sold but not yet purchased, market |
|
|
56,920 |
|
|
|
— |
|
|
|
56,920 |
|
|
|
— |
|
| Securities sold
under agreements to repurchase, at contract value |
|
|
231,919 |
|
|
|
— |
|
|
|
231,919 |
|
|
|
— |
|
| Life settlement
contract profit commission |
|
|
11,465 |
|
|
|
— |
|
|
|
— |
|
|
|
11,465 |
|
| Derivatives |
|
|
4,472 |
|
|
|
— |
|
|
|
— |
|
|
|
4,472 |
|
| |
|
$ |
304,834 |
|
|
$ |
58 |
|
|
$ |
288,839 |
|
|
$ |
15,937 |
|
|
| Changes in Fair Value of Level 3 Financial Assets And Liabilities |
The following table provides a summary of changes in fair value of
the Company’s Level 3 financial assets and liabilities for
the three and six months ended June 30, 2012 and 2011:
|
(Amounts
in Thousands)
|
|
Balance as of
March 31,
2012
|
|
|
Net income
|
|
|
Other
comprehensive
income
|
|
|
Purchases
and
issuances
|
|
|
Sales and
settlements
|
|
|
Net
transfers
into (out of)
Level 3 |
|
|
Balance as
of June 30,
2012
|
|
| Other investments |
|
$ |
14,865 |
|
|
$ |
(403 |
) |
|
$ |
— |
|
|
$ |
677 |
|
|
$ |
(36 |
) |
|
$ |
— |
|
|
$ |
15,103 |
|
| Life
settlement contracts |
|
|
142,575 |
|
|
|
7,456 |
|
|
|
— |
|
|
|
11,135 |
|
|
|
(10,074 |
) |
|
|
— |
|
|
|
151,092 |
|
|
Life settlement contract profit
commission |
|
|
(12,050 |
) |
|
|
585 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,465 |
) |
| Derivatives |
|
|
(3,595 |
) |
|
|
— |
|
|
|
(877 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,472 |
) |
| Total |
|
$ |
141,795 |
|
|
$ |
7,638 |
|
|
$ |
(877 |
) |
|
$ |
11,812 |
|
|
$ |
(10,110 |
) |
|
$ |
— |
|
|
$ |
150,258 |
|
|
(Amounts in Thousands)
|
|
Balance as of
December 31,
2011
|
|
|
Net income
|
|
|
Other
comprehensive
income
|
|
|
Purchases
and
issuances
|
|
|
Sales and
settlements
|
|
|
Net
transfers
into (out of)
Level 3 |
|
|
Balance
as
of
June 30,
2012 |
|
| Other investments |
|
$ |
14,588 |
|
|
$ |
(4,352 |
) |
|
$ |
4,535 |
|
|
$ |
747 |
|
|
$ |
(415 |
) |
|
$ |
— |
|
|
$ |
15,103 |
|
| Life
settlement contracts |
|
|
131,387 |
|
|
|
15,416 |
|
|
|
— |
|
|
|
14,363 |
|
|
|
(10,074 |
) |
|
|
— |
|
|
|
151,092 |
|
|
Life settlement contract profit
commission |
|
|
(12,022 |
) |
|
|
557 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,465 |
) |
| Derivatives |
|
|
(3,508 |
) |
|
|
— |
|
|
|
(964 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,472 |
) |
| Total |
|
$ |
130,445 |
|
|
$ |
11,621 |
|
|
$ |
3,571 |
|
|
$ |
15,110 |
|
|
$ |
(10,489 |
) |
|
$ |
— |
|
|
$ |
150,258 |
|
|
(Amounts in Thousands)
|
|
Balance as of
March 31,
2011
|
|
|
Net income
|
|
|
Other
comprehensive
income
|
|
|
Purchases
and
issuances
|
|
|
Sales and
settlements
|
|
|
Net
transfers
into (out of)
Level 3 |
|
|
Balance
as
of
June 30,
2011 |
|
| Other investments |
|
$ |
22,512 |
|
|
$ |
— |
|
|
$ |
(875 |
) |
|
$ |
786 |
|
|
$ |
(415 |
) |
|
$ |
— |
|
|
$ |
22,008 |
|
| Life
settlement contracts |
|
|
63,686 |
|
|
|
33,842 |
|
|
|
— |
|
|
|
11,182 |
|
|
|
— |
|
|
|
— |
|
|
|
108,710 |
|
|
Life settlement contract profit
commission |
|
|
(5,589 |
) |
|
|
(3,678 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,267 |
) |
| Total |
|
$ |
80,609 |
|
|
$ |
30,164 |
|
|
$ |
(875 |
) |
|
$ |
11,968 |
|
|
$ |
(415 |
) |
|
$ |
— |
|
|
$ |
121,451 |
|
|
(Amounts in Thousands)
|
|
Balance as of
December 31,
2010
|
|
|
Net income
|
|
|
Other
comprehensive
income
|
|
|
Purchases
and
issuances
|
|
|
Sales and
settlements
|
|
|
Net
transfers
into (out of)
Level 3 |
|
|
Balance
as
of
June 30,
2011 |
|
| Other investments |
|
$ |
21,514 |
|
|
$ |
661 |
|
|
$ |
(377 |
) |
|
$ |
866 |
|
|
$ |
(656 |
) |
|
$ |
— |
|
|
$ |
22,008 |
|
| Life
settlement contracts |
|
|
22,155 |
|
|
|
57,962 |
|
|
|
— |
|
|
|
28,593 |
|
|
|
— |
|
|
|
— |
|
|
|
108,710 |
|
|
Life settlement contract profit
commission |
|
|
(4,711 |
) |
|
|
(4,556 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,267 |
) |
| Total |
|
$ |
38,958 |
|
|
$ |
54,067 |
|
|
$ |
(377 |
) |
|
$ |
29,459 |
|
|
$ |
(656 |
) |
|
$ |
— |
|
|
$ |
121,451 |
|
|
| Fair Value of Portfolio of Life Insurance Policies |
The following summarizes data utilized in estimating the fair value
of the portfolio of life insurance policies for the six months
ended June 30, 2012 and December 31, 2011 and, as described in Note
5, only includes data for policies to which the Company assigned
value at those dates:
| |
|
June 30,
2012 |
|
|
December 31,
2011 |
|
| Average age of insured |
|
|
78 |
|
|
|
77 |
|
| Average life expectancy, months (1) |
|
|
148 |
|
|
|
155 |
|
| Average face amount per policy (Amounts in Thousands) |
|
$ |
6,703 |
|
|
$ |
6,703 |
|
| Fair value discount rate |
|
|
7.5 |
% |
|
|
7.5 |
% |
| Internal rate of return
(2) |
|
|
15.6 |
% |
|
|
14.1 |
% |
| |
(1) |
Mortality rates:
standard life expectancy as adjusted for insured’s specific
circumstances. |
| |
(2) |
Internal rate of return includes a risk premium which represents
risk adjustments applied to the estimated present value of cash
flows based on the following factors: (i) the volatility in life
expectancy of insureds and the associated level of future premium
payments and (ii) the projected risk of non-payment, including the
financial health of the insurance carrier, the possibility of legal
challenges from the insurance carrier or others and the possibility
of regulatory changes that may affect payment.
|
|
| Increase or (Decrease) in Carrying Value of Investment in Life Insurance Policies |
If the life expectancies were increased or decreased by 4 months
and the discount factors were increased or decreased by 1% while
all other variables are held constant, the carrying value of the
investment in life insurance policies would increase or (decrease)
by the unaudited amounts summarized below for the six months ended
June 30, 2012 and December 31, 2011:
| |
|
Change in life expectancy |
|
| (Amounts in
Thousands) |
|
Plus 4
Months |
|
|
Minus 4
Months |
|
| Investment in life policies: |
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
$ |
(23,579 |
) |
|
$ |
26,574 |
|
| December 31,
2011 |
|
$ |
(18,778 |
) |
|
$ |
20,785 |
|
| |
|
Change in discount rate |
|
| (Amounts in
Thousands) |
|
Plus 1% |
|
|
Minus 1% |
|
| Investment in life policies: |
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
$ |
(16,653 |
) |
|
$ |
19,040 |
|
| December 31,
2011 |
|
$ |
(13,802 |
) |
|
$ |
15,804 |
|
|