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Debt and Equity Securities (Tables)
 6 Months Ended
Jun. 30, 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

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

82,510

 

 

$

874

 

 

$

(221

)

 

$

83,163

 

 

$

—

 

Municipal bonds

 

516,201

 

 

 

9,362

 

 

 

(2,028

)

 

 

523,535

 

 

 

—

 

Foreign bonds

 

190,195

 

 

 

1,621

 

 

 

(135

)

 

 

191,681

 

 

 

—

 

Governmental agency bonds

 

225,555

 

 

 

1,046

 

 

 

(2,709

)

 

 

223,892

 

 

 

—

 

Governmental agency mortgage-backed securities

 

1,460,102

 

 

 

5,956

 

 

 

(12,001

)

 

 

1,454,057

 

 

 

—

 

Non-agency mortgage-backed securities (1)

 

17,941

 

 

 

1,346

 

 

 

(1,293

)

 

 

17,994

 

 

 

19,877

 

Corporate debt securities

 

444,205

 

 

 

9,434

 

 

 

(757

)

 

 

452,882

 

 

 

—

 

 

$

2,936,709

 

 

$

29,639

 

 

$

(19,144

)

 

$

2,947,204

 

 

$

19,877

 

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 June 30, 2014, the $17.9 million amortized cost is net of $1.0 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the six months ended June 30, 2014. At June 30, 2014 and December 31, 2013, the $1.3 million and $1.8 million, respectively, of gross unrealized losses related to securities determined to be other-than-temporarily impaired. The $19.9 million and $20.7 million other-than-temporary impairments recorded in accumulated other comprehensive income (loss) (“AOCI”) at June 30, 2014 and December 31, 2013, respectively, which relate to non-agency mortgage-backed securities, represent the amount of other-than-temporary impairment losses recognized in AOCI which were not included in earnings as the losses were not considered to be credit related.
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

 

 

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

$

9,653

 

 

$

1,936

 

 

$

(232

)

 

$

11,357

 

Common stocks

 

276,020

 

 

 

26,341

 

 

 

(429

)

 

 

301,932

 

 

$

285,673

 

 

$

28,277

 

 

$

(661

)

 

$

313,289

 

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 June 30, 2014 and December 31, 2013:

 

(in thousands)

 

As of
June 30, 2014

 

 

As of
December 31, 2013

 

Debt securities for which an OTTI has been recognized

$

87

 

 

$

(625

)

Debt securities—all other

 

10,408

 

 

 

(28,152

)

Equity securities

 

27,616

 

 

 

23,944

 

 

$

38,111

 

 

$

(4,833

)

 
Gross Unrealized Losses

The Company had the following gross unrealized losses as of June 30, 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

 

June 30, 2014

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Debt securities:

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

U.S. Treasury bonds

$

4,073

  

  

$

(11

) 

 

$

17,246

  

  

$

(210

)

 

$

21,319

  

  

$

(221

) 

Municipal bonds

 

48,817

  

  

 

(167

) 

 

 

105,820

  

  

 

(1,861

) 

 

 

154,637

  

  

 

(2,028

) 

Foreign bonds

 

11,473

  

  

 

(63

) 

 

 

6,630

  

  

 

(72

) 

 

 

18,103

  

  

 

(135

) 

Governmental agency bonds

 

8,259

  

  

 

(25

) 

 

 

133,676

  

  

 

(2,684

) 

 

 

141,935

  

  

 

(2,709

) 

Governmental agency mortgage-backed securities

 

424,099

  

  

 

(1,769

) 

 

 

402,830

  

  

 

(10,232

) 

 

 

826,929

  

  

 

(12,001

) 

Non-agency mortgage-backed securities

 

1,871

  

  

 

(213

)

 

 

6,566

  

  

 

(1,080

) 

 

 

8,437

  

  

 

(1,293

) 

Corporate debt securities

 

86,760

  

  

 

(482

) 

 

 

26,921

  

  

 

(275

) 

 

 

113,681

  

  

 

(757

) 

Total debt securities

 

585,352

  

  

 

(2,730

) 

 

 

699,689

  

  

 

(16,414

) 

 

 

1,285,041

  

  

 

(19,144

) 

Equity securities

 

8,749

  

  

 

(414

) 

 

 

4,805

  

  

 

(247

) 

 

 

13,554

  

  

 

(661

) 

Total

$

594,101

  

  

$

(3,144

) 

 

$

704,494

  

  

$

(16,661

) 

 

$

1,298,595

  

  

$

(19,805

) 

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 subsequently been downgraded to below investment grade. The table below summarizes the composition of the Company’s non-agency mortgage-backed securities as of June 30, 2014, by collateral type and year of issuance.

 

(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

  

  

$

3,235

  

  

$

2,759

  

  

2006

 

3

  

  

 

8,346

  

  

 

7,794

  

  

2005

 

1

  

  

 

851

  

  

 

817

  

  

Alt-A single family residential:

 

 

 

  

 

 

 

  

 

 

 

  

2007

 

1

  

  

 

5,509

  

  

 

6,624

  

  

 

 

6

  

  

$

17,941

  

  

$

17,994

  

  

 
Amortized Cost and Estimated Fair Value of Debt Securities

The amortized cost and estimated fair value of debt securities at June 30, 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

$

10,754

  

  

$

43,020

  

  

$

26,304

  

  

$

2,432

  

  

$

82,510

  

Estimated fair value

$

10,850

  

  

$

43,199

  

  

$

26,491

  

  

$

2,623

  

  

$

83,163

  

Municipal bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

10,130

  

  

$

218,468

  

  

$

171,734

  

  

$

115,869

  

  

$

516,201

  

Estimated fair value

$

10,222

  

  

$

221,151

  

  

$

175,474

  

  

$

116,688

  

  

$

523,535

  

Foreign bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

45,372

  

  

$

127,876

  

  

$

15,984

  

  

$

963

  

  

$

190,195

  

Estimated fair value

$

45,639

  

  

$

129,076

  

  

$

15,988

  

  

$

978

  

  

$

191,681

  

Governmental agency bonds

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

6,450

  

  

$

131,967

  

  

$

78,254

  

  

$

8,884

  

  

$

225,555

  

Estimated fair value

$

6,470

  

  

$

131,174

  

  

$

76,848

  

  

$

9,400

  

  

$

223,892

  

Corporate debt securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

22,851

  

  

$

242,589

  

  

$

150,941

  

  

$

27,824

  

  

$

444,205

  

Estimated fair value

$

23,123

  

  

$

248,490

  

  

$

152,788

  

  

$

28,481

  

  

$

452,882

  

Total debt securities excluding mortgage-backed securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

$

95,557

  

  

$

763,920

  

  

$

443,217

  

  

$

155,972

  

  

$

1,458,666

  

Estimated fair value

$

96,304

  

  

$

773,090

  

  

$

447,589

  

  

$

158,170

  

  

$

1,475,153

  

Total mortgage-backed securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

1,478,043

  

Estimated fair value

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

1,472,051

  

Total debt securities

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Amortized cost

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

2,936,709

  

Estimated fair value

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

$

2,947,204

  

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

The table below summarizes the primary assumptions used at June 30, 2014 in estimating the cash flows expected to be collected for these securities.

 

 

Weighted average

  

 

Range

 

Prepayment speeds

 

9.0

%

 

8.3

%

–

10.5

%

Default rates

 

1.4

%

 

0.3

%

–

2.4

%

Loss severity

 

39.2

%

 

14.4

%

–

52.3

%

 
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 and six months ended June 30, 2014 and 2013.

 

 

For the Three
Months Ended June 30,

 

  

For the Six
Months Ended June 30,

 

(in thousands)

 

2014

 

  

2013

 

  

2014

 

  

2013

 

Cumulative credit loss on debt securities held at beginning of period

$

16,996

  

  

$

16,478

  

  

$

16,478

  

  

$

16,478

  

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

 

515

  

  

 

—  

  

  

 

1,033

  

  

 

—  

  

Cumulative credit loss on debt securities held at end of period

$

17,511

  

  

$

16,478

  

  

$

17,511

  

  

$

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 June 30, 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

 

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

$

83,163

 

 

$

––

 

 

$

83,163

 

 

$

––

 

Municipal bonds

 

523,535

 

 

 

––

 

 

 

523,535

 

 

 

––

 

Foreign bonds

 

191,681

 

 

 

––

 

 

 

191,681

 

 

 

––

 

Governmental agency bonds

 

223,892

 

 

 

––

 

 

 

223,892

 

 

 

––

 

Governmental agency mortgage-backed securities

 

1,454,057

 

 

 

––

 

 

 

1,454,057

 

 

 

––

 

Non-agency mortgage-backed securities

 

17,994

 

 

 

––

 

 

 

––

 

 

 

17,994

 

Corporate debt securities

 

452,882

 

 

 

––

 

 

 

452,882

 

 

 

––

 

 

 

2,947,204

 

 

 

––

 

 

 

2,929,210

 

 

 

17,994

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

11,357

 

 

 

11,357

 

 

 

––

 

 

 

––

 

Common stocks

 

301,932

 

 

 

301,932

 

 

 

––

 

 

 

––

 

 

 

313,289

 

 

 

313,289

 

 

 

––

 

 

 

––

 

 

$

3,260,493

 

 

$

313,289

 

 

$

2,929,210

 

 

$

17,994

 

 

(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 and six months ended June 30, 2014 and 2013:

 

 

For the Three
Months Ended June 30,

 

 

For the Six
Months Ended June 30,

 

(in thousands)

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Fair value at beginning of period

$

18,646

  

 

$

22,620

  

 

$

19,022

  

 

$

21,846

  

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net other-than-temporary impairment losses recognized in earnings

 

(515

)

 

 

—  

 

 

 

(1,033

)

 

 

—  

 

Included in other comprehensive income

 

223

  

 

 

(990

)  

 

 

689

  

 

 

121

  

Settlements

 

(360

) 

 

 

(1,019

) 

 

 

(684

) 

 

 

(1,356

) 

Fair value at end of period

$

17,994

  

 

$

20,611

  

 

$

17,994

  

 

$

20,611

  

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

$

(515

)

 

$

—  

 

 

$

(1,033

)

 

$

—