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Investments
 3 Months Ended
Mar. 31, 2012
Investments [Abstract]  
Investments
Investments
a)
The following tables summarize the Company’s available-for-sale investments.
 
March 31, 2012
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Unrealized
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
325,998

 
$
20,302

 
$
(222
)
 
$
—

 
$
346,078

Obligations of states, municipalities and political subdivisions
2,709,251

 
208,549

 
(924
)
 
—

 
2,916,876

Foreign governments
576,187

 
44,863

 
(331
)
 
—

 
620,719

Residential mortgage-backed securities
331,526

 
23,990

 
(5
)
 
(2,258
)
 
353,253

Asset-backed securities
15,779

 
688

 
—

 
—

 
16,467

Public utilities
65,294

 
5,536

 
—

 
—

 
70,830

All other corporate bonds
1,101,738

 
88,804

 
(303
)
 
(6,798
)
 
1,183,441

Total fixed maturities
5,125,773

 
392,732

 
(1,785
)
 
(9,056
)
 
5,507,664

Equity securities:
 
 
 
 
 
 
 
 
 
Insurance companies, banks and trusts
417,044

 
351,298

 
—

 
—

 
768,342

Industrial, consumer and all other
835,170

 
563,930

 
(601
)
 
—

 
1,398,499

Total equity securities
1,252,214

 
915,228

 
(601
)
 
—

 
2,166,841

Short-term investments
463,697

 
4

 
(7
)
 
—

 
463,694

Investments, available-for-sale
$
6,841,684

 
$
1,307,964

 
$
(2,393
)
 
$
(9,056
)
 
$
8,138,199

 
December 31, 2011
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Unrealized
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
299,413

 
$
22,789

 
$
(9
)
 
$
—

 
$
322,193

Obligations of states, municipalities and political subdivisions
2,729,838

 
201,477

 
(794
)
 
—

 
2,930,521

Foreign governments
572,253

 
45,629

 
(1,068
)
 
—

 
616,814

Residential mortgage-backed securities
366,859

 
24,601

 
(18
)
 
(2,258
)
 
389,184

Asset-backed securities
16,096

 
731

 
(9
)
 
—

 
16,818

Public utilities
63,965

 
5,462

 
—

 
—

 
69,427

All other corporate bonds
1,124,528

 
78,053

 
(2,750
)
 
(6,614
)
 
1,193,217

Total fixed maturities
5,172,952

 
378,742

 
(4,648
)
 
(8,872
)
 
5,538,174

Equity securities:
 
 
 
 
 
 
 
 
 
Insurance companies, banks and trusts
389,421

 
296,648

 
(1,366
)
 
—

 
684,703

Industrial, consumer and all other
766,873

 
425,131

 
(2,780
)
 
—

 
1,189,224

Total equity securities
1,156,294

 
721,779

 
(4,146
)
 
—

 
1,873,927

Short-term investments
541,014

 
4

 
(4
)
 
—

 
541,014

Investments, available-for-sale
$
6,870,260

 
$
1,100,525

 
$
(8,798
)
 
$
(8,872
)
 
$
7,953,115


b)
The following tables summarize gross unrealized investment losses by the length of time that securities have continuously been in an unrealized loss position.
 
March 31, 2012
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
78,023

 
$
(222
)
 
$
—

 
$
—

 
$
78,023

 
$
(222
)
Obligations of states, municipalities and political subdivisions
12,592

 
(240
)
 
16,189

 
(684
)
 
28,781

 
(924
)
Foreign governments
35,520

 
(331
)
 
—

 
—

 
35,520

 
(331
)
Residential mortgage-backed securities
551

 
(2,263
)
 
—

 
—

 
551

 
(2,263
)
Asset-backed securities
—

 
—

 
—

 
—

 
—

 
—

All other corporate bonds
15,137

 
(6,954
)
 
5,908

 
(147
)
 
21,045

 
(7,101
)
Total fixed maturities
141,823

 
(10,010
)
 
22,097

 
(831
)
 
163,920

 
(10,841
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Insurance companies, banks and trusts
—

 
—

 
—

 
—

 
—

 
—

Industrial, consumer and all other
32,272

 
(590
)
 
99

 
(11
)
 
32,371

 
(601
)
Total equity securities
32,272

 
(590
)
 
99

 
(11
)
 
32,371

 
(601
)
Short-term investments
46,995

 
(7
)
 
—

 
—

 
46,995

 
(7
)
Total
$
221,090

 
$
(10,607
)
 
$
22,196

 
$
(842
)
 
$
243,286

 
$
(11,449
)

At March 31, 2012, the Company held 57 securities with a total estimated fair value of $243.3 million and gross unrealized losses of $11.4 million. Of these 57 securities, 12 securities had been in a continuous unrealized loss position for greater than one year and had a total estimated fair value of $22.2 million and gross unrealized losses of $0.8 million. Of these securities, 11 were fixed maturities and one was an equity security. The Company does not intend to sell or believe it will be required to sell these fixed maturities before recovery of their amortized cost.
 
December 31, 2011
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
32,384

 
$
(9
)
 
$
—

 
$
—

 
$
32,384

 
$
(9
)
Obligations of states, municipalities and political subdivisions
1,016

 
(2
)
 
17,261

 
(792
)
 
18,277

 
(794
)
Foreign governments
40,340

 
(1,068
)
 
—

 
—

 
40,340

 
(1,068
)
Residential mortgage-backed securities
489

 
(2,263
)
 
2,045

 
(13
)
 
2,534

 
(2,276
)
Asset-backed securities
—

 
—

 
32

 
(9
)
 
32

 
(9
)
All other corporate bonds
74,812

 
(7,829
)
 
7,923

 
(1,535
)
 
82,735

 
(9,364
)
Total fixed maturities
149,041

 
(11,171
)
 
27,261

 
(2,349
)
 
176,302

 
(13,520
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Insurance companies, banks and trusts
26,514

 
(1,366
)
 
—

 
—

 
26,514

 
(1,366
)
Industrial, consumer and all other
70,555

 
(2,774
)
 
18,525

 
(6
)
 
89,080

 
(2,780
)
Total equity securities
97,069

 
(4,140
)
 
18,525

 
(6
)
 
115,594

 
(4,146
)
Short-term investments
295,991

 
(4
)
 
—

 
—

 
295,991

 
(4
)
Total
$
542,101

 
$
(15,315
)
 
$
45,786

 
$
(2,355
)
 
$
587,887

 
$
(17,670
)


At December 31, 2011, the Company held 76 securities with a total estimated fair value of $587.9 million and gross unrealized losses of $17.7 million. Of these 76 securities, 17 securities had been in a continuous unrealized loss position for greater than one year and had a total estimated fair value of $45.8 million and gross unrealized losses of $2.4 million. Of these securities, 16 securities were fixed maturities and one was an equity security.
The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery is considered. For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due.
For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income. The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.
When assessing whether it intends to sell a fixed maturity or if it is likely to be required to sell a fixed maturity before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing. Additional information on the methodology and significant inputs, by security type, that the Company used to determine the amount of credit loss recognized on fixed maturities with declines in fair value below amortized cost that were considered to be other-than-temporary is provided below.
Residential mortgage-backed securities. For mortgage-backed securities, credit impairment is assessed by estimating future cash flows from the underlying mortgage loans and interest payments. The cash flow estimate incorporates actual cash flows from the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including prepayment rates, default rates, recovery rates on foreclosed properties and loss severity assumptions. Management develops specific assumptions using market data and internal estimates, as well as estimates from rating agencies and other third party sources. Default rates are estimated by considering current underlying mortgage loan performance and expectations of future performance. Estimates of future cash flows are discounted to present value. If the present value of expected cash flows is less than the amortized cost, the Company recognizes the estimated credit loss in net income.
Corporate bonds. For corporate bonds, credit impairment is assessed by evaluating the underlying issuer. As part of this assessment, the Company analyzes various factors, including the following:
•
fundamentals of the issuer, including current and projected earnings, current liquidity position and ability to raise capital;
•
fundamentals of the industry in which the issuer operates;
•
expectations of defaults and recovery rates;
•
changes in ratings by rating agencies;
•
other relevant market considerations; and
•
receipt of interest payments
Default probabilities and recovery rates from rating agencies are key factors used in calculating the credit loss. Additional research of the industry and issuer is completed to determine if there is any current information that may affect the fixed maturity or its issuer in a negative manner and require an adjustment to the cash flow assumptions.
c)
The amortized cost and estimated fair value of fixed maturities at March 31, 2012 are shown below by contractual maturity.
(dollars in thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
296,224

 
$
301,089

Due after one year through five years
1,356,224

 
1,460,975

Due after five years through ten years
1,601,045

 
1,730,807

Due after ten years
1,524,975

 
1,645,073

 
4,778,468

 
5,137,944

Residential mortgage-backed securities
331,526

 
353,253

Asset-backed securities
15,779

 
16,467

Total fixed maturities
$
5,125,773

 
$
5,507,664


d)
At March 31, 2012 and 2011, cumulative credit losses recognized in net income on fixed maturities where other-than-temporary impairment was identified and a portion of the other-than-temporary impairment was included in other comprehensive income were $21,370 and $10,307, respectively. There were no changes in cumulative credit losses for the three months ended March 31, 2012 or 2011.
 
 
 
 
 
 
 
 
e)
The following table presents net realized investment gains and the change in net unrealized gains on investments. 
 
Three Months Ended March 31,
(dollars in thousands)
2012
 
2011
Realized gains:
 
 
 
Sales of fixed maturities
$
1,859

 
$
7,988

Sales of equity securities
9,694

 
2,071

Other
521

 
1,425

Total realized gains
12,074

 
11,484

Realized losses:
 
 
 
Sales of fixed maturities
(165
)
 
(244
)
Other-than-temporary impairments
—

 
—

Other
—

 
—

Total realized losses
(165
)
 
(244
)
Net realized investment gains
$
11,909

 
$
11,240

Change in net unrealized gains on investments:
 
 
 
Fixed maturities
$
16,669

 
$
(16,396
)
Equity securities
196,994

 
36,857

Short-term investments
(3
)
 
3

Net increase
$
213,660

 
$
20,464

 
 
 
 
f)
There were no writedowns for other-than-temporary declines in the estimated fair value of investments for the three months ended March 31, 2012 and 2011.