3. INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:


	At March 31, 2014
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	161,235	$	2,755	$	(1,711	)	$	162,279
Obligations of U.S. states and political subdivisions		927,315		43,571		(4,562	)		966,324
Corporate securities		4,311,095		162,455		(19,196	)		4,454,354
Asset-backed securities		181,005		3,273		(214	)		184,064
Mortgage-backed securities
Commercial		234,356		16,000		(1,022	)		249,334
Agency residential		2,209,374		35,761		(30,791	)		2,214,344
Non-agency residential		4,302		287		(184	)		4,405
Foreign government securities		1,700,019		72,058		(23,806	)		1,748,271
Foreign corporate securities		2,980,190		91,586		(35,975	)		3,035,801
Total fixed maturity securities	$	12,708,891	$	427,746	$	(117,461	)	$	13,019,176
Equity securities	$	156,000	$	4,828	$	(7,006	)	$	153,822


	At December 31, 2013
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	160,013	$	2,690	$	(1,678	)	$	161,025
Obligations of U.S. states and political subdivisions		970,735		40,815		(9,022	)		1,002,528
Corporate securities		3,950,887		155,619		(27,090	)		4,079,416
Asset-backed securities		169,980		3,485		(422	)		173,043
Mortgage-backed securities
Commercial		254,765		16,683		(1,007	)		270,441
Agency residential		2,294,719		34,509		(50,175	)		2,279,053
Non-agency residential		4,816		229		(226	)		4,819
Foreign government securities		1,740,337		69,779		(29,347	)		1,780,769
Foreign corporate securities		2,844,912		86,529		(45,628	)		2,885,813
Total fixed maturity securities	$	12,391,164	$	410,338	$	(164,595	)	$	12,636,907
Equity securities	$	148,342	$	4,336	$	(8,597	)	$	144,081

The $1,748,271 thousand of foreign government securities at March 31, 2014 included $796,804 thousand of European sovereign securities. Approximately 52.5%, 21.9%, 6.7% and 5.6% of European sovereign securities represented securities held in the governments of the United Kingdom, France, Austria and the Netherlands, respectively. No other countries represented more than 5% of the European sovereign securities. The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at March 31, 2014.

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009. The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the periods indicated:


(Dollars in thousands)	At March 31, 2014		At December 31, 2013
Pre-tax cumulative unrealized appreciation (depreciation)	$	3,245	$	3,169

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.


	At March 31, 2014				At December 31, 2013
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale:
Due in one year or less	$	1,305,956	$	1,316,967	$	1,059,052	$	1,067,799
Due after one year through five years		5,567,088		5,728,265		5,565,112		5,740,662
Due after five years through ten years		2,237,873		2,278,200		2,081,908		2,101,234
Due after ten years		968,937		1,043,597		960,812		999,856
Asset-backed securities		181,005		184,064		169,980		173,043
Mortgage-backed securities:
Commercial		234,356		249,334		254,765		270,441
Agency residential		2,209,374		2,214,344		2,294,719		2,279,053
Non-agency residential		4,302		4,405		4,816		4,819
Total fixed maturity securities	$	12,708,891	$	13,019,176	$	12,391,164	$	12,636,907

The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods indicated:


	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	64,466		$	(47,947	)
Fixed maturity securities, other-than-temporary impairment		76			(228	)
Equity securities		2,083			(2,017	)
Other invested assets		-			-
Change in unrealized appreciation (depreciation), pre-tax		66,625			(50,192	)
Deferred tax benefit (expense)		(11,280	)		(735	)
Deferred tax benefit (expense), other-than-temporary impairment		-			34
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders' equity	$	55,345		$	(50,893	)

The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review. The Company then assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security's value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value. The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is

non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company's consolidated balance sheets. The Company's assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

The majority of the Company's equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities. When a fund's value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers. If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss). If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss).

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company's asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:


	Duration of Unrealized Loss at March 31, 2014 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	54,900	$	(988	)	$	8,689	$	(723	)	$	63,589	$	(1,711	)
Obligations of U.S. states and political subdivisions		35,182		(1,091	)		68,552		(3,471	)		103,734		(4,562	)
Corporate securities		1,055,875		(14,522	)		106,380		(4,674	)		1,162,255		(19,196	)
Asset-backed securities		22,658		(128	)		119		(86	)		22,777		(214	)
Mortgage-backed securities
Commercial		-		-			11,287		(1,022	)		11,287		(1,022	)
Agency residential		597,387		(10,129	)		608,422		(20,662	)		1,205,809		(30,791	)
Non-agency residential		1,559		(11	)		392		(173	)		1,951		(184	)
Foreign government securities		371,847		(12,538	)		159,214		(11,268	)		531,061		(23,806	)
Foreign corporate securities		828,567		(21,720	)		239,057		(14,255	)		1,067,624		(35,975	)
Total fixed maturity securities	$	2,967,975	$	(61,127	)	$	1,202,112	$	(56,334	)	$	4,170,087	$	(117,461	)
Equity securities		136,145		(7,006	)		-		-			136,145		(7,006	)
Total	$	3,104,120	$	(68,133	)	$	1,202,112	$	(56,334	)	$	4,306,232	$	(124,467	)


	Duration of Unrealized Loss at March 31, 2014 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	182,786	$	(5,312	)	$	46,643	$	(5,320	)	$	229,429	$	(10,632	)
Due in one year through five years		1,331,340		(23,562	)		288,624		(12,169	)		1,619,964		(35,731	)
Due in five years through ten years		740,585		(18,467	)		124,208		(7,167	)		864,793		(25,634	)
Due after ten years		91,660		(3,518	)		122,417		(9,735	)		214,077		(13,253	)
Asset-backed securities		22,658		(128	)		119		(86	)		22,777		(214	)
Mortgage-backed securities		598,946		(10,140	)		620,101		(21,857	)		1,219,047		(31,997	)
Total fixed maturity securities	$	2,967,975	$	(61,127	)	$	1,202,112	$	(56,334	)	$	4,170,087	$	(117,461	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2014 were $4,306,232 thousand and $124,467 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31, 2014, did not exceed 0.5% of the overall market value of the Company's fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $61,127 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of foreign and domestic corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $55,242 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $56,334 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, domestic and foreign corporate securities, foreign government securities and municipal securities. Of these unrealized losses, $54,566 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The gross unrealized depreciation for mortgage-backed securities included $230 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.


	Duration of Unrealized Loss at December 31, 2013 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	74,847	$	(1,033	)	$	8,751	$	(645	)	$	83,598	$	(1,678	)
Obligations of U.S. states and political subdivisions		92,760		(4,852	)		39,689		(4,170	)		132,449		(9,022	)
Corporate securities		959,396		(22,331	)		75,946		(4,759	)		1,035,342		(27,090	)
Asset-backed securities		5,494		(6	)		1,128		(416	)		6,622		(422	)
Mortgage-backed securities
Commercial		51		-			11,353		(1,007	)		11,404		(1,007	)
Agency residential		1,220,845		(40,420	)		264,640		(9,755	)		1,485,485		(50,175	)
Non-agency residential		1,758		(22	)		1,541		(204	)		3,299		(226	)
Foreign government securities		409,252		(20,350	)		85,029		(8,997	)		494,281		(29,347	)
Foreign corporate securities		872,907		(34,819	)		151,748		(10,809	)		1,024,655		(45,628	)
Total fixed maturity securities	$	3,637,310	$	(123,833	)	$	639,825	$	(40,762	)	$	4,277,135	$	(164,595	)
Equity securities		127,030		(8,597	)		-		-			127,030		(8,597	)
Total	$	3,764,340	$	(132,430	)	$	639,825	$	(40,762	)	$	4,404,165	$	(173,192	)


	Duration of Unrealized Loss at December 31, 2013 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	143,098	$	(3,503	)	$	46,691	$	(5,330	)	$	189,789	$	(8,833	)
Due in one year through five years		1,125,680		(25,365	)		204,779		(11,279	)		1,330,459		(36,644	)
Due in five years through ten years		810,969		(35,169	)		48,064		(3,844	)		859,033		(39,013	)
Due after ten years		329,415		(19,348	)		61,629		(8,927	)		391,044		(28,275	)
Asset-backed securities		5,494		(6	)		1,128		(416	)		6,622		(422	)
Mortgage-backed securities		1,222,654		(40,442	)		277,534		(10,966	)		1,500,188		(51,408	)
Total fixed maturity securities	$	3,637,310	$	(123,833	)	$	639,825	$	(40,762	)	$	4,277,135	$	(164,595	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2013 were $4,404,165 thousand and $173,192 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2013, did not exceed 0.4% of the overall market value of the Company's fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $123,833 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $112,658 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $40,762 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities, municipal securities and agency residential mortgage-backed securities. Of these unrealized losses, $38,964 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The gross unrealized depreciation for mortgage-backed securities included $273 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The components of net investment income are presented in the table below for the periods indicated:


	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Fixed maturities	$	116,253		$	120,757
Equity securities		11,459			9,741
Short-term investments and cash		330			304
Other invested assets
Limited partnerships		(2,258	)		17,483
Other		2,021			2,321
Gross investment income before adjustments		127,805			150,606
Funds held interest income (expense)		3,017			4,429
Future policy benefit reserve income (expense)		(303	)		(531	)
Gross investment income		130,519			154,504
Investment expenses		(7,362	)		(8,723	)
Net investment income	$	123,157		$	145,781

(Some amounts may not reconcile due to rounding.)

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.

The Company had contractual commitments to invest up to an additional $121,387 thousand in limited partnerships at March 31, 2014. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2018.

The components of net realized capital gains (losses) are presented in the table below for the periods indicated:


	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-		$	(191	)
Gains (losses) from sales		(1,948	)		4,877
Fixed maturity securities, fair value:
Gains (losses) from sales		940			(58	)
Gains (losses) from fair value adjustments		-			84
Equity securities, market value:
Gains (losses) from sales		(488	)		233
Equity securities, fair value:
Gains (losses) from sales		(1,415	)		8,019
Gains (losses) from fair value adjustments		24,035			113,757
Short-term investments gain (loss)		2			14
Total net realized capital gains (losses)	$	21,126		$	126,735

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:


	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Proceeds from sales of fixed maturity securities	$	349,472		$	258,160
Gross gains from sales		7,936			7,713
Gross losses from sales		(8,944	)		(2,894	)

Proceeds from sales of equity securities	$	179,132		$	107,404
Gross gains from sales		6,620			9,102
Gross losses from sales		(8,523	)		(850	)