INVESTMENTS


(A)	Investment Gains and Losses

The table below presents realized investment gains and losses, excluding impairment losses, for the periods indicated.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
	(In thousands)

Available for sale debt securities:
Realized gains on disposal	$	415		1,847		3,739		6,054
Realized losses on disposal	(3		)	—		(3	)	—
Held to maturity debt securities:
Realized gains on disposal	2,831			1,102		3,221		1,262
Realized losses on disposal	—			(267	)	(72	)	(680	)
Equity securities realized gains (losses)	—			113		511		109
Real estate gains (losses)	55			2,644		55		2,485
Mortgage loans write-downs	—			—		—		—
Other	—			12		—		12

Totals	$	3,298		5,451		7,451		9,242

The Company uses the specific identification method in computing realized gains and losses. Approximately 67.7% of the gains on bonds are due to calls of securities rather than sales. This includes calls out of the Company's available for sale portfolio of debt securities.

The table below presents net impairment losses recognized in earnings for the periods indicated.



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013		2012
	(In thousands)

Total other-than-temporary impairment gains (losses) on debt securities	$	214		1,267		538		858
Portion of loss (gain) recognized in comprehensive income	(227		)	(1,761	)	(776	)	(1,918	)

Net impairment losses on debt securities recognized in earnings	(13		)	(494	)	(238	)	(1,060	)
Equity securities impairments	—			(17	)	(14	)	(70	)

Totals	$	(13	)	(511	)	(252	)	(1,130	)

The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments in other comprehensive loss.



	Three months ended September 30, 2013			Nine months ended September 30, 2013		Twelve Months Ended December 31, 2012
				(In thousands)

Beginning balance, cumulative credit losses related to other-than-temporary impairments	$	2,472		2,247		1,122
Reductions for securities sold during current period	(17		)	(17	)	(118	)
Additions for credit losses not previously recognized in other-than-temporary impairments	13			238		1,243

Ending balance, cumulative credit losses related to other-than-temporary impairments	$	2,468		2,468		2,247


(B)	Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at September 30, 2013.



	Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
U.S. agencies	$	23,095	1,955	—		25,050
U.S. Treasury	1,912		492	—		2,404
States and political subdivisions	420,618		19,007	(9,433	)	430,192
Foreign governments	9,994		279	—		10,273
Public utilities	800,954		60,551	(6,995	)	854,510
Corporate	3,345,778		166,137	(65,345	)	3,446,570
Mortgage-backed	1,714,586		72,554	(15,482	)	1,771,658
Home equity	20,400		4,858	(35	)	25,223
Manufactured housing	7,779		527	—		8,306

Totals	$	6,345,116	326,360	(97,290	)	6,574,186

The table below presents amortized costs and fair values of securities available for sale at September 30, 2013.



	Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
States and political subdivisions	$	595	—	(121	)	474
Foreign governments	9,929		—	(29	)	9,900
Public utilities	243,796		17,774	(1,374	)	260,196
Corporate	2,260,308		133,809	(24,833	)	2,369,284
Mortgage-backed	76,779		6,006	—		82,785
Home equity	12,137		259	(271	)	12,125
Manufactured housing	4,063		150	—		4,213
	2,607,607		157,998	(26,628	)	2,738,977

Equity public	10,643		3,667	(757	)	13,553

Totals	$	2,618,250	161,665	(27,385	)	2,752,530

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2012.



	Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
U.S. agencies	$	23,114	2,748	—		25,862
U.S. Treasury	1,907		648	—		2,555
States and political subdivisions	391,062		41,150	(431	)	431,781
Foreign governments	9,988		616	—		10,604
Public utilities	781,239		89,162	(103	)	870,298
Corporate	2,887,572		273,431	(3,753	)	3,157,250
Mortgage-backed	1,835,051		133,684	(261	)	1,968,474
Home equity	21,545		4,443	(549	)	25,439
Manufactured housing	10,642		722	—		11,364

Totals	$	5,962,120	546,604	(5,097	)	6,503,627

The table below presents amortized costs and fair values of securities available for sale at December 31, 2012.



	Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
States and political subdivisions	$	599	—	(28	)	571
Foreign governments	15,134		932	—		16,066
Public utilities	254,853		26,621	(47	)	281,427
Corporate	2,157,706		222,587	(2,981	)	2,377,312
Mortgage-backed	113,488		8,905	(64	)	122,329
Home equity	12,242		—	(1,483	)	10,759
Manufactured housing	5,030		240	—		5,270
	2,559,052		259,285	(4,603	)	2,813,734

Equity public	9,460		2,865	(58	)	12,267

Totals	$	2,568,512	262,150	(4,661	)	2,826,001

The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2013.



	Securities Held to Maturity
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)

Debt securities:
U.S. agencies	$	—	—		—	—		—	—
U.S. Treasury	—		—		—	—		—	—
States and political subdivisions	96,058		(9,303	)	1,419	(130	)	97,477	(9,433	)
Foreign governments	—		—		—	—		—	—
Public utilities	167,547		(6,995	)	—	—		167,547	(6,995	)
Corporate	1,263,953		(63,154	)	27,796	(2,191	)	1,291,749	(65,345	)
Mortgage-backed	428,837		(15,482	)	—	—		428,837	(15,482	)
Home equity	—		—		2,644	(35	)	2,644	(35	)
Manufactured housing	—		—		—	—		—	—

Total temporarily impaired securities	$	1,956,395	(94,934	)	31,859	(2,356	)	1,988,254	(97,290	)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2013.



	Securities Available for Sale
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)

Debt securities:
U.S. agencies	$	—	—		—	—		—	—
U.S. Treasury	—		—		—	—		—	—
States and political subdivisions	474		(121	)	—	—		474	(121	)
Foreign governments	9,900		(29	)	—	—		9,900	(29	)
Public utilities	21,074		(1,374	)	—	—		21,074	(1,374	)
Corporate	490,037		(24,833	)	—	—		490,037	(24,833	)
Mortgage-backed	—		—		—	—		—	—
Home equity	4,812		(32	)	4,127	(239	)	8,939	(271	)
Manufactured housing	—		—		—	—		—	—
	526,297		(26,389	)	4,127	(239	)	530,424	(26,628	)

Equity public	3,640		(740	)	33	(17	)	3,673	(757	)

Total temporarily impaired securities	$	529,937	(27,129	)	4,160	(256	)	534,097	(27,385	)

Although unrealized losses have increased during the first three quarters of 2013, the increase is due primarily to the increases in market interest rates rather than credit issues. The Company does not consider these investments to be other-than-temporarily impaired as the Company does not intend to sell these securities nor does it think it will be forced to sell until recovery in fair value or maturity, and expects to receive all amounts due relative to principal and interest.

The Company does not consider securities to be other-than-temporarily impaired when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality and when recovery of all amounts due under the contractual terms of the security is anticipated. Based on the review and the Company's ability and intent not to sell these securities until maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2013. The Company will monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

During the third quarter of 2013, the Company recorded an other-than-temporary impairment on one asset-backed security. The security had a $13 thousand credit impairment which is reported in the Condensed Consolidated Statements of Earnings and there were $0.2 million of liquidity gains which did not affect current earnings. The Company intends to hold the securities until recovery of fair market value or maturity.

Debt securities. The gross unrealized losses for debt securities are made up of 351 individual issues, or 27.4% of the total debt securities held by the Company. The market value of these bonds as a percent of amortized cost averages 95.3%. Of the 351 securities, 7, or approximately 2.0%, fall in the 12 months or greater aging category; and 346 were rated investment grade at September 30, 2013.

Equity securities. The gross unrealized losses for equity securities are made up of 16 individual issues. These holdings are reviewed quarterly for impairment. One equity security was other-than-temporarily impaired during the nine months ended September 30, 2013, in accordance with Company policy.



	Securities Held to Maturity
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)

Debt securities:
U.S. agencies	$	—	—		—	—		—	—
U.S. Treasury	—		—		—	—		—	—
States and political subdivisions	19,745		(401	)	1,470	(30	)	21,215	(431	)
Foreign governments	—		—		—	—		—	—
Public utilities	24,271		(80	)	1,982	(23	)	26,253	(103	)
Corporate	303,645		(1,776	)	38,078	(1,977	)	341,723	(3,753	)
Mortgage-backed	15,010		(261	)	—	—		15,010	(261	)
Home equity	—		—		6,435	(549	)	6,435	(549	)
Manufactured housing	—		—		—	—		—	—

Total temporarily impaired securities	$	362,671	(2,518	)	47,965	(2,579	)	410,636	(5,097	)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2012.



	Securities Available for Sale
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)

Debt securities:
U.S. agencies	$	—	—		—	—		—	—
U.S. Treasury	—		—		—	—		—	—
States and political subdivisions	571		(28	)	—	—		571	(28	)
Foreign governments	—		—		—	—		—	—
Public utilities	10,949		(47	)	—	—		10,949	(47	)
Corporate	64,383		(713	)	14,713	(2,268	)	79,096	(2,981	)
Mortgage-backed	3,839		(64	)	—	—		3,839	(64	)
Home equity	4,698		(216	)	6,062	(1,267	)	10,760	(1,483	)
Manufactured housing	—		—		—	—		—	—
	84,440		(1,068	)	20,775	(3,535	)	105,215	(4,603	)

Equity public	756		(8	)	295	(50	)	1,051	(58	)

Total temporarily impaired securities	$	85,196	(1,076	)	21,070	(3,585	)	106,266	(4,661	)


(C)	Transfer of Securities

During the nine months ended September 30, 2013 and 2012, the Company made no transfers to the held to maturity category from securities available for sale. Lower holdings of securities available for sale reduces the Company's exposure to market price volatility while still providing securities available for liquidity and asset/liability management purposes.

(D) Mortgage Loans and Real Estate

A financing receivable is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in a company's statement of financial position. Mortgage, equity, participation and mezzanine loans on real estate are considered financing receivables reported by the Company.

Credit and default risk is minimized through strict underwriting guidelines and diversification of underlying property types and geographic locations. In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lease payments and also by the borrower. This approach has proven to result in quality mortgage loans with few defaults. Mortgage loan interest income is recognized on an accrual basis with any premium or discount amortized over the life of the loan. Prepayment and late fees are recorded on the date of collection.

Loans in foreclosure, loans considered impaired or loans past due 90 days or more are placed on a non-accrual status. If a mortgage loan is determined to be on non-accrual status, the mortgage loan does not accrue any revenue into the Condensed Consolidated Statements of Earnings. The loan is independently monitored and evaluated as to potential impairment or foreclosure. If delinquent payments are made and the loan is brought current, then the Company returns the loan to active status and accrues income accordingly. The Company has no loans past due 90 days which are accruing interest.

The following table represents the loan-to-value ratio using the most recent appraised value.



	September 30, 2013					December 31, 2012
	Amount			%		Amount			%
	(In thousands)					(In thousands)

Mortgage Loans by Loan-to-Value Ratio (1):
Less than 50%	$	47,155		40.0	%	$	58,754		41.1	%
50% to 60%	16,841			14.3	%	27,832			19.5	%
60% to 70%	21,063			17.9	%	23,518			16.5	%
70% to 80%	9,766			8.3	%	9,431			6.6	%
80% to 90%	—			—	%	—			—	%
Greater than 90%	22,916			19.5	%	23,285			16.3	%
Gross balance	117,741			100.0	%	142,820			100.0	%

Allowance for possible losses	(650		)	(0.6	)%	(650		)	(0.5	)%

Totals	$	117,091		99.4	%	$	142,170		99.5	%

(1) Loan-to-Value Ratio using the most recent appraised value.

The mortgage loans in the greater than 90% category relate to loans made with a long standing borrower. The loans are backed by the investment property, contracted leases, as well as a separate and additional guarantee of the long standing borrower.

The Company does not consider its mortgage loans to be a separate portfolio segment. The Company considers its primary class to be property type and primarily uses loan-to-value as its credit risk quality indicator. All loans within the portfolio are analyzed quarterly in order to monitor the financial quality of these assets. Based on ongoing monitoring, mortgage loans with a likelihood of becoming delinquent are identified and placed on an internal “watch list”. Among the criteria that would indicate a potential problem are: major tenant vacancies or bankruptcies, late payments, and loan relief/restructuring requests. The mortgage loan portfolio is analyzed for the need for a valuation allowance on any loan that is on the internal watch list, in the process of foreclosure or that currently has a valuation allowance.

Mortgage loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When it is determined that a loan is impaired, a loss is recognized for the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell. Estimated value is typically based on the loan's observable market price or the fair value of the collateral less cost to sell. Impairments and changes in the valuation allowance are reported in net realized capital gains (losses) in the Condensed Consolidated Statements of Earnings.

The following table represents the mortgage loan allowance at September 30, 2013 and December 31, 2012:



	September 30, 2013		December 31, 2012
	(In thousands)

Balance, beginning of period	$	650	4,571
Provision	—		650
Releases	—		(4,571	)

Balance, end of period	$	650	650

The mortgage loan allowance released in the second quarter of 2012 pertained to one loan in which the borrower filed for bankruptcy protection. The property securing said loan was subsequently acquired by the company in a bankruptcy auction. The mortgage loan was closed and the property reclassified as a real estate investment included in other long-term investments on the Company's balance sheet. The property was subsequently sold in the third quarter of 2012 for a net gain of $2.7 million.