Investments

9 Months Ended

Sep. 30, 2011

6. INVESTMENTS

The Company’s investments consist of the following at September 30, 2011 and December 31, 2010:


	September 30,		December 31,
	2011		2010
	(In thousands)
Securities available for sale
Fixed maturities	$	442,975	$	679,405
Short-term and other investments		613,513		373,023

Total investments	$	1,056,488	$	1,052,428

Available for sale fixed maturities are reported at fair value which was derived as follows:


	September 30, 2011
			Gross		Gross			Non-credit Loss
	Amortized		Unrealized		Unrealized			Recognized
	Cost		Gains		Losses			in OCI			Fair Value
	(In thousands)
U.S. and U.S. Government agencies	$	23,910	$	774	$	—		$	—		$	24,684
Corporate bonds and municipals		240,501		19,548		(870	)		—			259,179
Residential-backed issued by agencies		47,087		3,416		—			—			50,503
Commercial-backed issued by agencies		1,703		38		—			—			1,741
Residential-backed		303		—		—			—			303
Commercial-backed		12,543		327		(1	)		—			12,869
Asset-backed		4,090		218		(16	)		(281	)		4,011
Other bonds		78,396		11,289		—			—			89,685

Total fixed maturities	$	408,533	$	35,610	$	(887	)	$	(281	)	$	442,975


	December 31, 2010
			Gross		Gross			Non-credit Loss
	Amortized		Unrealized		Unrealized			Recognized
	Cost		Gains		Losses			in OCI			Fair Value
	(In thousands)
U.S. and U.S. Government agencies	$	55,338	$	1,006	$	(78	)	$	—		$	56,266
Corporate bonds and municipals		383,188		21,133		(1,438	)		—			402,883
Residential-backed issued by agencies		68,932		3,827		(75	)		—			72,684
Commercial-backed issued by agencies		5,156		236		—			—			5,392
Residential-backed		2,344		66		—			—			2,410
Commercial-backed		43,261		2,022		—			—			45,283
Asset-backed		8,046		346		(16	)		(281	)		8,095
Other bonds		78,396		7,996		—			—			86,392

Total fixed maturities	$	644,661	$	36,632	$	(1,607	)	$	(281	)	$	679,405

The amortized cost and fair value of available for sale fixed maturities at September 30, 2011, by contractual maturity, are set forth in the table below. Fixed maturities subject to early or unscheduled prepayments have been included based upon their contractual maturity dates. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2011
	Amortized
	Cost		Fair Value
	(In thousands)
Maturity:
One year or less	$	34,289	$	34,484
Over 1 year through 5 years		70,144		73,639
Over 5 years through 10 years		223,003		249,470
Over 10 years		15,371		15,955

		342,807		373,548
Mortgage-backed and asset-backed securities		65,726		69,427

Total fixed maturities	$	408,533	$	442,975

See Note 5 of Notes to Consolidated Condensed Financial Statements for additional disclosures on fair value measurements.

A summary of net investment income by source is set forth below:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
			(In thousands)
Fixed maturities	$	5,509	$	8,559	$	19,163	$	27,160
Equity securities		—		—		—		—
Short-term and other investments		194		390		1,907		1,866
Agent receivables		59		163		232		857
Student loan interest income		799		1,030		2,461		3,153

		6,561		10,142		23,763		33,036
Less investment expenses		407		413		1,405		1,196

	$	6,154	$	9,729	$	22,358	$	31,840

Realized Gains and Losses

Realized gains and losses on sales of investments are recognized in net income on the specific identification basis and include write downs on those investments deemed to have other than temporary declines in fair values. Gains and losses on trading securities are reported in “Realized gains, net” on the consolidated condensed statements of income. Net realized capital gains for the three and nine months ended 2011 and 2010 were as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011		2010			2011		2010
			(In thousands)
Other-than-temporary impairment (“OTTI”) losses	$	—	$	(765	)	$	—	$	(765	)
Portion of OTTI losses recognized in (released from) other comprehensive income		—		—			—		—

Net impairment losses recognized in earnings		—		(765	)		—		(765	)
Net realized capital gains, excluding OTTI losses on securities ⁽¹⁾		2,546		1,225			8,976		3,866

Realized gains, net	$	2,546	$	460		$	8,976	$	3,101


(1)		Includes $78,000 of realized losses recorded in the quarter ended September 30, 2011 associated with the planned future sale of Company-owned assets

Fixed maturities

Proceeds from the sale and call of investments in fixed maturities were $61.3 million and $189.4 million for the three and nine months ended September 30, 2011, respectively, and $32.0 million and $109.7 million for the three and nine months ended September 30, 2010, respectively. Proceeds from maturities, sinking and principal reductions amounted to $11.6 million and $61.1 million for the three and nine months ended September 30, 2011, respectively, and $8.8 million and $38.5 million for the three and nine months ended September 30, 2010, respectively. During the three and nine months ended September 30, 2011, the Company realized gross gains of $2.6 million and $9.1 million, respectively, on the sale and call of fixed maturity investments. During the three and nine months ended September 30, 2010, the Company realized gross gains of $1.2 million and $3.9 million, respectively, on the sale and call of fixed maturity investments. The Company realized no gross losses in 2011 and 2010 on fixed maturities.

Other than temporary impairment (“OTTI”)

During the nine months ended September 30, 2011, the Company recognized no OTTI losses.

Set forth below is a summary of cumulative OTTI losses on debt securities held by the Company at September 30, 2011, a portion of which have been recognized in “Net impairment losses recognized in earnings” on the consolidated condensed statement of income and a portion of which have been recognized in “Accumulated other comprehensive income” on the consolidated condensed balance sheet:

Reductions for

Cumulative OTTI

Additions to OTTI

increases in cash

Cumulative OTTI

credit losses

Additions to OTTI

securities where

flows expected to

credit losses

recognized for

securities where no

credit losses have

Reductions for

be collected that

recognized for

securities still held

credit losses were

been recognized

securities sold

are recognized

securities still

recognized prior to

prior to

during the period

over the remaining

held at

January 1, 2011

(Realized)

life of the security

September 30, 2011

(In thousands)

4,104

—

(586

)

—

3,518

Unrealized Gains and Losses

Fixed maturities

Set forth below is a summary of gross unrealized losses in its fixed maturities as of September 30, 2011 and December 31, 2010:


	September 30, 2011
	Unrealized Loss				Unrealized Loss
	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
U.S. and U.S. Government agencies	$	—	$	—	$	—	$	—	$	—	$	—
Residential-backed issued by agencies		—		—		—		—		—		—
Commercial-backed issued by agencies		—		—		—		—		—		—
Residential-backed		—		—		—		—		—		—
Commercial-backed		350		1		—		—		350		1
Asset-backed		282		16		981		—		1,263		16
Corporate bonds and municipals		5,970		39		20,031		831		26,001		870
Other bonds		—		—		—		—		—		—

Total	$	6,602	$	56	$	21,012	$	831	$	27,614	$	887


	December 31, 2010
	Unrealized Loss				Unrealized Loss
	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
U.S. and U.S. Government agencies	$	16,254	$	78	$	—	$	—	$	16,254	$	78
Residential-backed issued by agencies		4,810		75		—		—		4,810		75
Commercial-backed issued by agencies		—		—		—		—		—		—
Residential-backed		—		—		426		—		426		—
Commercial-backed		—		—		—		—		—		—
Asset-backed		—		—		3,296		16		3,296		16
Corporate bonds and municipals		7,124		57		30,967		1,381		38,091		1,438
Other bonds		—		—		—		—		—		—

Total	$	28,188	$	210	$	34,689	$	1,397	$	62,877	$	1,607

Unrealized Losses Less Than 12 Months

Of the $56,000 in unrealized losses that had existed for less than twelve months at September 30, 2011, no security had an unrealized loss in excess of 10% of the security’s cost.

Unrealized Losses 12 Months or Longer

Of the $831,000 in unrealized losses that had existed for twelve months or longer at September 30, 2011, no security had an unrealized loss in excess of 10% of the security’s cost.

All issuers of securities we own remain current on all contractual payments. The Company continually monitors investments with unrealized losses that have existed for twelve months or longer and considers such factors as the current financial condition of the issuer, credit ratings, performance of underlying collateral and effective yields. Additionally, HealthMarkets’ considers whether it has the intent to sell the security and whether it is more likely than not that the Company will be required to sell the debt security before the fair value reverts to its cost basis, which may be at maturity of the security. Based on such review, the Company believes that, as of September 30, 2011, the unrealized losses in these investments were caused by an increase in market interest rates and tighter liquidity conditions in the current markets than when the securities were purchased and therefore, is temporary.