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Debt and Equity Securities (Tables)
 3 Months Ended
Mar. 31, 2014
Amortized Cost and Estimated Fair Value of Investments in Debt Securities, Classified as Available-For-Sale

The amortized cost and estimated fair value of investments in debt securities, all of which are classified as available-for-sale, are as follows:

 

(in thousands)

 

Amortized
cost

 

 

Gross unrealized

 

 

Estimated
fair value

 

 

Other-than-
temporary
impairments
in AOCI

 

Gains

 

 

Losses

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

66,542

 

 

$

708

 

 

$

(446

)

 

$

66,804

 

 

$

—

 

Municipal bonds

 

504,680

 

 

 

6,630

 

 

 

(5,271

)

 

 

506,039

 

 

 

—

 

Foreign bonds

 

189,005

 

 

 

1,527

 

 

 

(186

)

 

 

190,346

 

 

 

—

 

Governmental agency bonds

 

262,431

 

 

 

558

 

 

 

(3,875

)

 

 

259,114

 

 

 

—

 

Governmental agency mortgage-backed securities

 

1,457,000

 

 

 

2,797

 

 

 

(18,818

)

 

 

1,440,979

 

 

 

—

 

Non-agency mortgage-backed securities (1)

 

18,816

 

 

 

1,179

 

 

 

(1,349

)

 

 

18,646

 

 

 

21,292

 

Corporate debt securities

 

336,974

 

 

 

7,992

 

 

 

(1,417

)

 

 

343,549

 

 

 

—

 

 

$

2,835,448

 

 

$

21,391

 

 

$

(31,362

)

 

$

2,825,477

 

 

$

21,292

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

66,400

 

 

$

669

 

 

$

(685

)

 

$

66,384

 

 

$

—

 

Municipal bonds

 

491,143

 

 

 

5,113

 

 

 

(10,291

)

 

 

485,965

 

 

 

—

 

Foreign bonds

 

221,298

 

 

 

1,836

 

 

 

(626

)

 

 

222,508

 

 

 

—

 

Governmental agency bonds

 

267,713

 

 

 

233

 

 

 

(5,401

)

 

 

262,545

 

 

 

—

 

Governmental agency mortgage-backed securities

 

1,426,489

 

 

 

2,074

 

 

 

(25,254

)

 

 

1,403,309

 

 

 

—

 

Non-agency mortgage-backed securities (1)

 

19,658

 

 

 

1,167

 

 

 

(1,803

)

 

 

19,022

 

 

 

20,743

 

Corporate debt securities

 

355,893

 

 

 

7,279

 

 

 

(3,088

)

 

 

360,084

 

 

 

—

 

 

$

2,848,594

 

 

$

18,371

 

 

$

(47,148

)

 

$

2,819,817

 

 

$

20,743

 

 

 

 

 

(1)

At March 31, 2014, the $18.8 million amortized cost is net of $0.5 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the three months ended March 31, 2014. At March 31, 2014, the $1.3 million gross unrealized losses related to securities determined to be other-than-temporarily impaired. At December 31, 2013, the $1.8 million gross unrealized losses related to securities determined to be other-than-temporarily impaired. The $21.3 million and $20.7 million other-than-temporary impairments recorded in accumulated other comprehensive income (loss) (“AOCI”) at March 31, 2014 and December 31, 2013, respectively, represent the amount of other-than-temporary impairment losses recognized in AOCI which were not included in earnings due to the fact that the losses were not considered to be credit related. Other-than-temporary impairments were recognized in AOCI for non-agency mortgage-backed securities only.
Cost and Estimated Fair Value of Investments in Equity Securities, Classified as Available-For-Sale

The cost and estimated fair value of investments in equity securities, all of which are classified as available-for-sale, are as follows:

 

 

Cost

 

 

Gross unrealized

 

 

Estimated
fair value

 

(in thousands)

 

 

 

Gains

 

 

Losses

 

 

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

$

8,727

 

 

$

1,806

 

 

$

(308

)

 

$

10,225

 

Common stocks

 

312,966

 

 

 

23,947

 

 

 

(341

)

 

 

336,572

 

 

$

321,693

 

 

$

25,753

 

 

$

(649

)

 

$

346,797

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

$

9,915

 

 

$

1,567

 

 

$

(397

)

 

$

11,085

 

Common stocks

 

324,184

 

 

 

25,137

 

 

 

(2,363

)

 

 

346,958

 

 

$

334,099

 

 

$

26,704

 

 

$

(2,760

)

 

$

358,043

 

 
Net Unrealized Gains (Losses)

The Company had the following net unrealized gains (losses) as of March 31, 2014 and December 31, 2013:

 

(in thousands)

 

As of
March 31,

2014

 

 

As of
December 31,
2013

 

Debt securities for which an OTTI has been recognized

$

(137

)

 

$

(625

)

Debt securities—all other

 

(9,834

)

 

 

(28,152

)

Equity securities

 

25,104

 

 

 

23,944

 

 

$

15,133

 

 

$

(4,833

)

 
Gross Unrealized Losses

The Company had the following gross unrealized losses as of March 31, 2014 and December 31, 2013:

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

(in thousands)

 

Estimated
fair value

 

  

Unrealized
losses

 

 

Estimated
fair value

 

  

Unrealized
losses

 

 

Estimated
fair value

 

  

Unrealized
losses

 

March 31, 2014

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Debt securities:

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

U.S. Treasury bonds

$

31,282

  

  

$

(446

) 

 

$

—  

  

  

$

—  

 

 

$

31,282

  

  

$

(446

) 

Municipal bonds

 

212,086

  

  

 

(4,081

) 

 

 

28,305

  

  

 

(1,190

) 

 

 

240,391

  

  

 

(5,271

) 

Foreign bonds

 

21,049

  

  

 

(186

) 

 

 

—  

  

  

 

—  

 

 

 

21,049

  

  

 

(186

) 

Governmental agency bonds

 

165,253

  

  

 

(3,855

) 

 

 

136

  

  

 

(20

) 

 

 

165,389

  

  

 

(3,875

) 

Governmental agency mortgage-backed securities

 

832,856

  

  

 

(12,852

) 

 

 

156,905

  

  

 

(5,966

) 

 

 

989,761

  

  

 

(18,818

) 

Non-agency mortgage-backed securities

 

—  

  

  

 

—  

 

 

 

11,805

  

  

 

(1,349

) 

 

 

11,805

  

  

 

(1,349

) 

Corporate debt securities

 

81,406

  

  

 

(926

) 

 

 

17,610

  

  

 

(491

) 

 

 

99,016

  

  

 

(1,417

) 

Total debt securities

 

1,343,932

  

  

 

(22,346

) 

 

 

214,761

  

  

 

(9,016

) 

 

 

1,558,693

  

  

 

(31,362

) 

Equity securities

 

33,207

  

  

 

(563

) 

 

 

1,554

  

  

 

(86

) 

 

 

34,761

  

  

 

(649

) 

Total

$

1,377,139

  

  

$

(22,909

) 

 

$

216,315

  

  

$

(9,102

) 

 

$

1,593,454

  

  

$

(32,011

) 

December 31, 2013

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Debt securities:

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

U.S. Treasury bonds

$

37,492

 

 

$

(685

)

 

$

—

 

 

$

—

 

 

$

37,492

 

 

$

(685

)

Municipal bonds

 

230,180

 

 

 

(8,938

)

 

 

27,687

 

 

 

(1,353

)

 

 

257,867

 

 

 

(10,291

)

Foreign bonds

 

56,579

 

 

 

(626

)

 

 

—

 

 

 

—

 

 

 

56,579

 

 

 

(626

)

Governmental agency bonds

 

203,011

 

 

 

(5,375

)

 

 

131

 

 

 

(26

)

 

 

203,142

 

 

 

(5,401

)

Governmental agency mortgage-backed securities

 

838,411

 

 

 

(20,970

)

 

 

124,425

 

 

 

(4,284

)

 

 

962,836

 

 

 

(25,254

)

Non-agency mortgage-backed securities

 

—

 

 

 

—

 

 

 

12,086

 

 

 

(1,803

)

 

 

12,086

 

 

 

(1,803

)

Corporate debt securities

 

129,394

 

 

 

(2,422

)

 

 

12,500

 

 

 

(666

)

 

 

141,894

 

 

 

(3,088

)

Total debt securities

 

1,495,067

 

 

 

(39,016

)

 

 

176,829

 

 

 

(8,132

)

 

 

1,671,896

 

 

 

(47,148

)

Equity securities

 

85,112

 

 

 

(2,718

)

 

 

1,046

 

 

 

(42

)

 

 

86,158

 

 

 

(2,760

)

Total

$

1,580,179

 

 

$

(41,734

)

 

$

177,875

 

 

$

(8,174

)

 

$

1,758,054

 

 

$

(49,908

)

 
Composition of Company's Non-Agency Mortgage-Backed Securities

Substantially all securities in the Company’s non-agency mortgage-backed portfolio are senior tranches and all were investment grade at the time of purchase, however, all have been downgraded to below investment grade since initial purchase. The table below summarizes the composition of the Company’s non-agency mortgage-backed securities by collateral type and year of issuance. All amounts are as of March 31, 2014.

 

(in thousands, except number of securities)

 

Number
of
Securities

 

 

Amortized
Cost

 

 

Estimated
Fair
Value

 

 

Non-agency mortgage-backed securities:

 

 

 

  

 

 

 

  

 

 

 

  

Prime single family residential:

 

 

 

  

 

 

 

  

 

 

 

  

2007

 

1

  

  

$

3,387

  

  

$

2,844

  

  

2006

 

3

  

  

 

8,915

  

  

 

8,143

  

  

2005

 

1

  

  

 

853

  

  

 

819

  

  

Alt-A single family residential:

 

 

 

  

 

 

 

  

 

 

 

  

2007

 

1

  

  

 

5,661

  

  

 

6,840

  

  

 

 

6

  

  

$

18,816

  

  

$

18,646

  

  

 
Amortized Cost and Estimated Fair Value of Debt Securities

The amortized cost and estimated fair value of debt securities at March 31, 2014, by contractual maturities, are as follows:

 

(in thousands)

 

Due in one
year or less

 

  

Due after
one
through
five
years

 

  

Due after
five
through
ten
years

 

  

Due after
ten years

 

  

Total

 

U.S. Treasury bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

13,138

  

  

$

42,970

  

  

$

6,499

  

  

$

3,935

  

  

$

66,542

  

Estimated fair value

$

13,265

  

  

$

43,014

  

  

$

6,455

  

  

$

4,070

  

  

$

66,804

  

Municipal bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

12,508

  

  

$

205,407

  

  

$

164,577

  

  

$

122,188

  

  

$

504,680

  

Estimated fair value

$

12,554

  

  

$

207,254

  

  

$

165,724

  

  

$

120,507

  

  

$

506,039

  

Foreign bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

30,497

  

  

$

144,461

  

  

$

12,821

  

  

$

1,226

  

  

$

189,005

  

Estimated fair value

$

30,638

  

  

$

145,736

  

  

$

12,729

  

  

$

1,243

  

  

$

190,346

  

Governmental agency bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

10,591

  

  

$

164,673

  

  

$

78,261

  

  

$

8,906

  

  

$

262,431

  

Estimated fair value

$

10,619

  

  

$

163,292

  

  

$

76,121

  

  

$

9,082

  

  

$

259,114

  

Corporate debt securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

24,348

  

  

$

233,512

  

  

$

73,272

  

  

$

5,842

  

  

$

336,974

  

Estimated fair value

$

24,650

  

  

$

238,333

  

  

$

74,220

  

  

$

6,346

  

  

$

343,549

  

Total debt securities excluding mortgage-backed securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

91,082

  

  

$

791,023

  

  

$

335,430

  

  

$

142,097

  

  

$

1,359,632

  

Estimated fair value

$

91,726

  

  

$

797,629

  

  

$

335,249

  

  

$

141,248

  

  

$

1,365,852

  

Total mortgage-backed securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

1,475,816

  

Estimated fair value

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

1,459,625

  

Total debt securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

2,835,448

  

Estimated fair value

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

2,825,477

  

 
Summary of Primary Assumptions used in Estimating Cash Flows Expected to be Collected for Securities

The table below summarizes the primary assumptions used at March 31, 2014 in estimating the cash flows expected to be collected for these securities.

 

 

Weighted average

  

 

Range

 

Prepayment speeds

 

7.8

%

 

6.4

%

–

10.0

%

Default rates

 

2.5

%

 

1.2

%

–

4.2

%

Loss severity

 

18.1

%

 

3.1

%

–

25.9

%

 
Change in Credit Portion of Other-Than-Temporary Impairments Recognized in Earnings on Debt Securities

The following table presents the change in the credit portion of the other-than-temporary impairments recognized in earnings on debt securities for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive income (loss) for the three months ended March 31, 2014 and 2013.

 

 

For the Three
Months Ended  March 31,

 

(in thousands)

 

2014

 

  

2013

 

Cumulative credit loss on debt securities held at beginning of period

$

16,478

  

  

$

16,478

  

Addition to credit loss for which an other-than-temporary impairment was previously recognized

 

518

  

  

 

––

  

Cumulative credit loss on debt securities held at end of period

$

16,996

  

  

$

16,478

  

 
Available-For-Sale Investments Measured at Fair Value on Recurring Basis

The following table presents the Company’s available-for-sale investments measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, classified using the three-level hierarchy for fair value measurements:

 

(in thousands)

 

Estimated 

fair value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

66,804

 

 

$

––

 

 

$

66,804

 

 

$

––

 

Municipal bonds

 

506,039

 

 

 

––

 

 

 

506,039

 

 

 

––

 

Foreign bonds

 

190,346

 

 

 

––

 

 

 

190,346

 

 

 

––

 

Governmental agency bonds

 

259,114

 

 

 

––

 

 

 

259,114

 

 

 

––

 

Governmental agency mortgage-backed securities

 

1,440,979

 

 

 

––

 

 

 

1,440,979

 

 

 

––

 

Non-agency mortgage-backed securities

 

18,646

 

 

 

––

 

 

 

––

 

 

 

18,646

 

Corporate debt securities

 

343,549

 

 

 

––

 

 

 

343,549

 

 

 

––

 

 

 

2,825,477

 

 

 

––

 

 

 

2,806,831

 

 

 

18,646

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

10,225

 

 

 

10,225

 

 

 

––

 

 

 

––

 

Common stocks

 

336,572

 

 

 

336,572

 

 

 

––

 

 

 

––

 

 

 

346,797

 

 

 

346,797

 

 

 

––

 

 

 

––

 

 

$

3,172,274

 

 

$

346,797

 

 

$

2,806,831

 

 

$

18,646

 

 

(in thousands)

 

Estimated 

fair value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

66,384

 

 

$

––

 

 

$

66,384

 

 

$

––

 

Municipal bonds

 

485,965

 

 

 

––

 

 

 

485,965

 

 

 

––

 

Foreign bonds

 

222,508

 

 

 

––

 

 

 

222,508

 

 

 

––

 

Governmental agency bonds

 

262,545

 

 

 

––

 

 

 

262,545

 

 

 

––

 

Governmental agency mortgage-backed securities

 

1,403,309

 

 

 

––

 

 

 

1,403,309

 

 

 

––

 

Non-agency mortgage-backed securities

 

19,022

 

 

 

––

 

 

 

—

 

 

 

19,022

 

Corporate debt securities

 

360,084

 

 

 

––

 

 

 

360,084

 

 

 

—

 

 

 

2,819,817

 

 

 

––

 

 

 

2,800,795

 

 

 

19,022

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

11,085

 

 

 

11,085

 

 

 

––

 

 

 

––

 

Common stocks

 

346,958

 

 

 

346,958

 

 

 

––

 

 

 

––

 

 

 

358,043

 

 

 

358,043

 

 

 

––

 

 

 

––

 

 

$

3,177,860

 

 

$

358,043

 

 

$

2,800,795

 

 

$

19,022

 

 
Summary of Changes in Fair Value of Level 3 Available-For-Sale Investments

The following table presents a summary of the changes in fair value of Level 3 available-for-sale investments for the three months ended March 31, 2014 and 2013:

 

 

For the Three
Months Ended March 31,

 

 

(in thousands)

 

2014

 

 

2013

 

 

Fair value at beginning of period

$

19,022

  

 

$

21,846

  

 

Total gains/(losses) (realized and unrealized):

 

 

 

 

 

 

 

 

Included in earnings:

 

 

 

 

 

 

 

 

Net other-than-temporary impairment losses recognized in earnings

 

(518

)

 

 

—

 

 

Included in other comprehensive income

 

466

 

 

 

1,111

  

 

Settlements

 

(324

)

 

 

(337

) 

 

Fair value as of March 31

$

18,646

  

 

$

22,620

  

 

Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:

 

 

 

 

 

 

 

 

Net other-than-temporary impairment losses recognized in earnings

$

(518

)

 

$

—