10-Q 1 a10-17884_110q.htm 10-Q

Table of Contents

 

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

x  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended September 30, 2010

 

or

 

o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Transition Period From                to               

 

Commission File Number 1-10545

 

Transatlantic Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3355897

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification Number)

 

 

 

80 Pine Street, New York, New York

 

10005

(Address of principal executive offices)

 

(Zip Code)

 

(212) 365-2200

(Registrant’s telephone number, including area code)

 

None

Former name, former address and former fiscal year, if changed since last report.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES x                 NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES x                 NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES o                 NO x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2010. 63,241,933.

 

 

 



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

Page

Part I — Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (unaudited)

1

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)

3

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2010 and 2009 (unaudited)

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

5

 

 

 

Cautionary Statement Regarding Forward-Looking Information

31

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

61

 

 

 

Item 4.

Controls and Procedures

62

 

 

 

Part II — Other Information

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

Item 6.

Exhibits

63

 

 

 

Signatures

63

 

i



Table of Contents

 

Part I — Item 1

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of September 30, 2010 and December 31, 2009

(Unaudited)

 

 

 

2010

 

2009

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

Investments:

 

 

 

 

 

Fixed maturities:

 

 

 

 

 

Held to maturity, at amortized cost (fair value: 2010-$1,278,718; 2009-$1,271,397)

 

$

1,190,897

 

$

1,214,238

 

Available for sale, at fair value (amortized cost: 2010-$10,563,203; 2009-$9,281,934)

 

10,981,079

 

9,454,772

 

Equities, available for sale, at fair value (cost: 2010-$478,370; 2009-$440,924)

 

523,682

 

506,612

 

Other invested assets

 

263,108

 

256,437

 

Short-term investments, at cost (approximates fair value)

 

170,103

 

883,336

 

Total investments

 

13,128,869

 

12,315,395

 

Cash and cash equivalents

 

223,818

 

195,723

 

Accrued investment income receivable

 

153,783

 

148,055

 

Premium balances receivable, net

 

645,072

 

591,300

 

Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses

 

859,957

 

747,073

 

Deferred policy acquisition costs

 

247,954

 

237,466

 

Prepaid reinsurance premiums

 

80,604

 

60,251

 

Deferred tax assets, net

 

342,874

 

454,483

 

Other assets

 

201,095

 

193,913

 

Total assets

 

$

15,884,026

 

$

14,943,659

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Unpaid losses and loss adjustment expenses

 

$

8,959,011

 

$

8,609,105

 

Unearned premiums

 

1,247,223

 

1,187,526

 

Senior notes

 

1,030,409

 

1,033,087

 

Other liabilities

 

286,529

 

79,561

 

Total liabilities

 

11,523,172

 

10,909,279

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value; shares authorized: 10,000,000; none issued

 

 

 

Common stock, $1.00 par value; shares authorized: 200,000,000; shares issued: 2010-67,549,733; 2009-67,431,121

 

67,550

 

67,431

 

Additional paid-in capital

 

306,811

 

283,036

 

Accumulated other comprehensive income

 

316,365

 

69,701

 

Retained earnings

 

3,860,252

 

3,639,200

 

Treasury stock, at cost: 2010-4,307,800; 2009-1,048,500 shares of common stock

 

(190,124

)

(24,988

)

Total stockholders’ equity

 

4,360,854

 

4,034,380

 

Total liabilities and stockholders’ equity

 

$

15,884,026

 

$

14,943,659

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

1



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

Net premiums written

 

$

1,007,030

 

$

972,572

 

$

2,980,918

 

$

3,026,014

 

(Increase) decrease in net unearned premiums

 

(48,739

)

35,510

 

(56,280

)

(13,133

)

Net premiums earned

 

958,291

 

1,008,082

 

2,924,638

 

3,012,881

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

123,840

 

123,205

 

352,224

 

344,224

 

 

 

 

 

 

 

 

 

 

 

Realized net capital gains (losses):

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairments

 

(804

)

(21,946

)

(13,849

)

(88,182

)

Less: other-than-temporary impairments recognized in other comprehensive income

 

 

6,093

 

6,713

 

6,565

 

Other-than-temporary impairments charged to earnings

 

(804

)

(15,853

)

(7,136

)

(81,617

)

Other realized net capital gains

 

11,371

 

22,453

 

24,091

 

2,161

 

Total realized net capital gains (losses)

 

10,567

 

6,600

 

16,955

 

(79,456

)

 

 

 

 

 

 

 

 

 

 

(Loss) gain on early extinguishment of debt

 

(115

)

 

(115

)

9,878

 

Total revenues

 

1,092,583

 

1,137,887

 

3,293,702

 

3,287,527

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Net losses and loss adjustment expenses

 

633,056

 

657,765

 

2,070,923

 

2,011,426

 

Net commissions

 

236,538

 

222,854

 

709,879

 

703,987

 

(Increase) decrease in deferred policy acquisition costs

 

(12,979

)

6,867

 

(10,364

)

(6,770

)

Other underwriting expenses

 

44,187

 

38,671

 

133,015

 

107,214

 

Interest on senior notes

 

17,050

 

10,137

 

51,192

 

30,432

 

Other expenses, net

 

10,697

 

5,514

 

25,348

 

17,272

 

Total expenses

 

928,549

 

941,808

 

2,979,993

 

2,863,561

 

Income before income taxes

 

164,034

 

196,079

 

313,709

 

423,966

 

Income taxes

 

29,978

 

42,816

 

53,268

 

83,183

 

Net income

 

$

134,056

 

$

153,263

 

$

260,441

 

$

340,783

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

2.11

 

$

2.31

 

$

4.04

 

$

5.13

 

Diluted

 

2.08

 

2.28

 

3.99

 

5.10

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.21

 

$

0.20

 

$

0.62

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

63,553

 

66,384

 

64,520

 

66,374

 

Diluted

 

64,447

 

67,081

 

65,284

 

66,821

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

2



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2010

 

2009

 

 

 

(in thousands)

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

759,206

 

$

776,548

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds of fixed maturities available for sale sold

 

742,695

 

487,713

 

Proceeds of fixed maturities available for sale redeemed or matured

 

550,353

 

464,909

 

Proceeds of equities available for sale sold

 

188,486

 

802,418

 

Purchase of fixed maturities available for sale

 

(2,560,237

)

(1,225,548

)

Purchase of equities available for sale

 

(188,214

)

(722,908

)

Net sale (purchase) of other invested assets

 

6,869

 

(24,784

)

Net sale (purchase) of short-term investments

 

707,780

 

(490,832

)

Change in other liabilities for securities in course of settlement

 

40,799

 

1,103

 

Other, net

 

 

(16,456

)

Net cash used in investing activities

 

(511,469

)

(724,385

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Dividends to stockholders

 

(39,389

)

(38,497

)

Common stock issued

 

(1,950

)

(108

)

Acquisition of treasury stock

 

(165,136

)

 

Repurchase of senior notes

 

(3,105

)

(15,479

)

Other, net

 

(1,341

)

1,453

 

Net cash used in financing activities

 

(210,921

)

(52,631

)

Effect of exchange rate changes on cash and cash equivalents

 

(8,721

)

21,995

 

Change in cash and cash equivalents

 

28,095

 

21,527

 

Cash and cash equivalents, beginning of period

 

195,723

 

288,920

 

Cash and cash equivalents, end of period

 

$

223,818

 

$

310,447

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Income taxes (paid), net

 

$

(63,982

)

$

(42,751

)

Interest (paid) on senior notes

 

(34,544

)

(20,110

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

134,056

 

$

153,263

 

$

260,441

 

$

340,783

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Net unrealized appreciation of investments, net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized holding losses of fixed maturities on which other-than-temporary impairments were taken

 

 

(6,093

)

(6,713

)

(6,565

)

Net unrealized holding gains on all other securities

 

239,672

 

499,309

 

271,086

 

730,002

 

Reclassification adjustment for (gains) losses included in net income

 

(20,320

)

(12,219

)

(39,690

)

71,294

 

Deferred income tax charge on above

 

(76,773

)

(168,348

)

(78,639

)

(278,155

)

 

 

142,579

 

312,649

 

146,044

 

516,576

 

 

 

 

 

 

 

 

 

 

 

Net unrealized currency translation gain, net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized currency translation gain

 

96,092

 

50,271

 

154,800

 

29,974

 

Deferred income tax charge on above

 

(33,632

)

(17,595

)

(54,180

)

(10,491

)

 

 

62,460

 

32,676

 

100,620

 

19,483

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

205,039

 

345,325

 

246,664

 

536,059

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

339,095

 

$

498,588

 

$

507,105

 

$

876,842

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

 

These unaudited condensed consolidated financial statements do not include all disclosures required by generally accepted accounting principles in the U.S. (“GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K of Transatlantic Holdings, Inc. (the “Company”, and collectively with its subsidiaries, “TRH”) for the year ended December 31, 2009.

 

In the opinion of management, these condensed consolidated financial statements contain the normal recurring adjustments necessary for a fair statement of the results presented herein.  All material intercompany accounts and transactions have been eliminated.

 

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts and related disclosures.   TRH relies on historical experience and on various other assumptions that it believes to be reasonable, under the circumstances, to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ materially from these estimates.

 

TRH believes its most critical accounting estimates are those with respect to loss reserves, fair value measurements of certain financial assets, other-than-temporary impairments (“OTTI”) of investments, premium revenues and deferred policy acquisition costs, as they require management’s most significant exercise of judgment on both a quantitative and qualitative basis in the preparation of TRH’s condensed consolidated financial statements and footnotes.  The accounting estimates that result require the use of assumptions about certain matters that are highly uncertain at the time of estimation.  To the extent actual experience differs from the assumptions used, TRH’s results of operations and financial condition would be affected, possibly materially.

 

Subsequent events through the time of filing of this Form 10-Q were evaluated for potential recognition or disclosure in the financial statements.

 

Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation.

 

Corrections of Amounts Included in Previously Issued Reports

 

The below errors and related corrections did not, either individually or in the aggregate, have a material effect on the current or any prior period and thus, prior period financial statements have not been restated.

 

(a) Correction of Amortized Cost or Cost of Certain Fixed Maturities and Equities Denominated in Functional Currencies

 

In the first quarter of 2010, it was determined that as of September 30, 2009 and December 31, 2009 the amortized cost of fixed maturities and cost of equities available for sale that were denominated in functional currencies were incorrectly translated into the reporting currency (i.e., U.S. dollars) using historical, rather than period-end, foreign currency exchange rates.  This practice, which began in the third quarter of 2009, resulted in an understatement of amortized cost or cost of such investments of $153.7 million ($133.9 million relating to fixed maturities and $19.8 million relating to equities) as of September 30, 2009 and of $98.1 million ($80.1 million relating to fixed maturities and $18.0 million relating to equities) as of December 31, 2009.  Thus, net unrealized appreciation of investments, net of tax, (a component of accumulated other comprehensive income (“AOCI”) on the Balance Sheet) was overstated by $99.9 million as of September 30, 2009 and $63.7 million as of December 31, 2009 with an equal and offsetting overstatement of net unrealized currency translation loss, net of tax (also a component of AOCI).  The related components of other comprehensive income were similarly affected, with no net effect on other comprehensive income. The errors discussed above had no net effect on AOCI, stockholders’ equity, net income, comprehensive income or cash flows for the full-year 2009 or any of its quarters.

 

5



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

For all quarters-ended in 2010, the amortized cost of fixed maturities and cost of equities available for sale that are denominated in functional currencies were properly translated into the reporting currency using period-end foreign currency exchange rates. However, as the correction of the treatment discussed earlier occurred in the first quarter of 2010, the increase in net unrealized appreciation of investments, net of tax, for the first nine months of 2010 was reduced by $63.7 million (the amount of the correction of the December 31, 2009 amount recorded in first quarter 2010) in the Statement of Comprehensive Income and net unrealized currency translation gain, net of tax, was increased by such amount, with no net effect on other comprehensive income (loss) (“OCI”). There was no impact on the three months ended September 30, 2010. In addition, this correction had no net impact on AOCI and stockholders’ equity as of September 30, 2010 nor did it have any net impact on net income, comprehensive income or cash flows for the three or nine months ended September 30, 2010.

 

(b) Correction of Cumulative Effect Adjustment (“CEA”) Related to the Adoption of Accounting Guidance Related to OTTI of Fixed Maturities

 

In the second quarter of 2009, TRH recorded a CEA of $139.8 million, or $90.9 million, net of tax, in connection with the adoption of new accounting guidance related to OTTI on fixed maturities that was effective April 1, 2009.  See further discussion in Note 2.  In the third quarter of 2009, an error was discovered relating to the discount rate that was applied to the future cash flows used in the CEA calculation.  The correct CEA was $110.1 million, or $71.6 million, net of tax, a reduction of $29.7 million, or $19.3 million, net of tax, from the amounts recorded in the second quarter of 2009.  This correction, which was made in the third quarter of 2009, had no net effect on net income, comprehensive income, stockholders’ equity or cash flows, and affected only the changes in AOCI and retained earnings in equal but offsetting amounts for the three months ended September 30, 2009.  Had this correction been made in the second quarter of 2009, retained earnings reported in that quarter would have been reduced by $19.3 million and accumulated other comprehensive loss would have been reduced by the same amount, with no net effect on stockholders’ equity.

 

(c) Correction of Amortized Cost of Certain Fixed Maturities

 

In connection with the transitioning to a new provider of investment recordkeeping and valuation services in the third quarter of 2009, it was determined that amortized cost on certain fixed maturities available for sale as of June 30, 2009 was understated by $82.9 million. This understatement of amortized cost resulted in an understatement of net unrealized depreciation of investments, net of tax, as of June 30, 2009, of $53.9 million, with an equal and offsetting overstatement of net unrealized currency translation loss, net of tax, with no net effect on AOCI on the balance sheet.  In addition, this understatement had no net effect on net income, stockholders’ equity or cash flows.

 

The corrections made in the third quarter of 2009 are reflected in the Statements of Comprehensive Income for the third quarter and first nine months of 2009.  As a result of those corrections, the increase in net unrealized appreciation of investments, net of tax, was reduced by $53.9 million and the increase in net unrealized currency translation gain, net of tax, was increased by such amount, with no net effect on OCI for each of the quarter and nine months ended September 30, 2009, or on AOCI as of September 30, 2009.  In addition, this correction had no net impact on stockholders’ equity as of September 30, 2009.

 

2. Recent Accounting Standards

 

(a) Recently Adopted Accounting Standards

 

(1)  Adoption of new accounting guidance on OTTI

 

In April 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on OTTI. This guidance amended prior OTTI guidance for fixed maturities to make it more operational and to improve presentation and disclosure of OTTI on fixed maturity and equity securities in the financial statements. This guidance also requires recognition of OTTI on a fixed maturity in an unrealized loss position if (a) an entity intends to sell the security; (b) it is more likely than not the entity will be required to sell the security prior to an anticipated recovery in fair value in order to meet a liquidity, regulatory or other business need; or (c) an entity determines it will not recover the entire amortized cost basis of the security. If an impaired fixed maturity security is designated for sale, or if it is more likely than not it will have to be sold, the total amount of the unrealized loss position is recognized in earnings as a realized capital loss.

 

6



Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

For all other impaired fixed maturities, this guidance requires entities to develop a best estimate of the present value of expected cash flows on a security by security basis. Entities must recognize OTTI equal to the difference between the present value of expected cash flows and the amortized cost basis of the security, if the results of the cash flow analysis indicate the entity will not recover the full amount of its amortized cost basis in the investment. This amount is the credit component of the OTTI and is recorded in earnings as a realized capital loss. The difference between the total unrealized loss position on the security and the OTTI amount recognized in earnings is non-credit related and is recorded in OCI as “net unrealized holding losses of fixed maturities on which other-than-temporary impairments were taken”.

 

TRH adopted this guidance effective April 1, 2009. Upon adoption, this guidance required entities to assess the credit versus non-credit components of previously recognized OTTI on fixed maturities still held, and for which the entity did not intend to sell or more likely than not would not be required to sell prior to an anticipated recovery in fair value. The cumulative amount of non-credit related OTTI amounts on these securities, net of income tax effect, was recorded as an increase to retained earnings and an equal and offsetting reduction to AOCI as of April 1, 2009, with no net change to total stockholders’ equity. TRH recorded a CEA in 2009 of $110.1 million, or $71.6 million, net of tax, related to its adoption of this guidance (see Note 1(b)). The adoption of this guidance did not have a material effect on TRH’s consolidated financial condition, results of operations, comprehensive income or cash flows.

 

(2)          Adoption of new accounting guidance on disclosures about fair value measurements (Accounting Standards Update (“ASU”) 2010-06)

 

In January 2010, the FASB issued new accounting guidance on disclosures about fair value measurements. This guidance requires the amounts and reasons for significant transfers in and out of Levels 1 and 2 to be discussed. In addition, a greater level of disaggregation of asset and liability classes is required in fair value measurement disclosures. For fair value measurements that fall in either Level 2 or Level 3, a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. TRH adopted this portion of the guidance in the first quarter of 2010.  The adoption of this guidance had no effect on TRH’s consolidated financial condition, results of operations or cash flows.

 

In addition, for activity within Level 3, this guidance requires that purchases, sales, issuances and settlements be presented separately rather than as one net amount, as currently permitted. For TRH, these disclosures are effective for interim and annual periods beginning after December 15, 2010.  The adoption of this guidance is expected to have no effect on TRH’s results of operations, financial position or cash flows.

 

(b) Future Application of Accounting Standard

 

In October 2010, the FASB issued new accounting guidance on accounting for costs associated with acquiring or renewing insurance contracts (ASU 2010-26). This guidance specifies that incremental direct costs of contract acquisition and certain costs directly related to certain acquisition activities performed by the insurer for the contract should be capitalized. All other acquisition-related costs should be charged to expense as incurred.

 

For TRH, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and shall be applied prospectively. TRH does not currently expect the implementation of this guidance to be material to TRH’s consolidated financial condition, results of operations or cash flows.

 

3. Fair Value Measurements

 

(a) Fair Value Measurements on a Recurring Basis

 

TRH measures at fair value on a recurring basis financial instruments included principally in its available for sale securities portfolios and certain short-term investments. The fair value of a financial instrument is the amount that would be received to sell an asset in an orderly transaction between willing, able and knowledgeable market participants at the measurement date.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. An active market is one in which transactions for the asset being valued occur with sufficient frequency and volume to provide pricing information on an ongoing basis. An other-than-active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or in which little information is released publicly for the asset being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.

 

TRH management is responsible for the determination of the value of the financial assets and the supporting methodologies and assumptions. With respect to securities, TRH employs independent third party valuation service providers to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments. When TRH’s valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.

 

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted internal valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested under the terms of service agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, currency rates, and other market observable information, as applicable. The valuation models take into account, among other things, market observable information as of the measurement date as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other issue or issuer specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased.

 

TRH employs specific control processes to determine the reasonableness of the fair values of TRH’s financial assets. TRH’s processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. TRH assesses the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, TRH may validate the reasonableness of fair values by comparing information obtained from TRH’s valuation service providers to other third party valuation sources for selected securities. TRH also validates prices obtained from brokers for selected securities through reviews by those who have relevant expertise and who are independent of those charged with executing investing transactions.

 

A further discussion of the most significant categories of investments carried at fair value on a recurring basis follows:

 

(1) Fixed Maturity and Equity Securities Available for Sale

 

TRH maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Whenever available, TRH obtains quoted prices in active markets for identical assets at the balance sheet date to measure at fair value fixed maturity and marketable equity securities in its available for sale portfolios. Market price data generally are obtained from exchange or dealer markets.

 

TRH estimates the fair value of fixed maturity securities not traded in active markets by referring to traded securities with similar attributes, using dealer quotations and matrix pricing methodologies, discounted cash flow analyses or internal valuation models. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. For fixed maturity securities that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments generally are based on available market evidence. In the absence of such evidence, management’s best estimate is used.

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly include the incorporation of counterparty credit risk. Fair values for fixed maturity securities based on internal models would incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.

 

(2) Certain Short-Term Investments

 

Short-term investments are carried at amortized cost, which approximates fair value, and principally include money market instruments, treasury bills and commercial paper. These instruments are typically not traded in active markets; however, their fair values are based on market observable inputs.

 

(b) Fair Value Measurements on a Non-Recurring Basis

 

TRH also measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually, or when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets primarily include held-to-maturity fixed maturities, which are carried on the balance sheet at amortized cost, and equity method investments. When TRH determines that the carrying value of these assets may not be recoverable, TRH records the assets at fair value with the loss recognized in income as a realized capital loss. In such cases, TRH measures the fair value of these assets using the techniques discussed above for fixed maturity and equity securities.

 

(c) Fair Value Hierarchy

 

Assets recorded at fair value in the consolidated balance sheet are measured and classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:

 

·                  Level 1:  Fair value measurements that are quoted prices (unadjusted) in active markets that TRH has the ability to access for identical assets. Market price data generally is obtained from exchange or dealer markets. Assets measured at fair value on a recurring basis and classified as Level 1 principally include actively traded listed common stocks and mutual funds (which are included on the balance sheet in equities available for sale).

 

·                  Level 2:  Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets and inputs other than quoted prices that are observable for the asset, such as interest rates and yield curves that are observable at commonly quoted intervals. Assets measured at fair value on a recurring basis and classified as Level 2 generally include most government and government agency securities, state, municipal and political subdivision obligations, investment-grade and high-yield corporate bonds, most residential mortgage-backed securities (“RMBS”), certain commercial mortgage-backed securities (“CMBS”), certain other asset-backed securities and most short-term investments.

 

·                  Level 3:  Fair value measurements based on valuation techniques that use significant inputs that are unobservable. These measurements may be made under circumstances in which there is little, if any, market activity for the asset. TRH’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, TRH considers factors specific to the asset. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assets measured at fair value on a recurring basis and classified as Level 3 principally include certain RMBS, CMBS, other-asset backed securities and other invested assets.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

(d) Assets Measured at Fair Value on a Recurring Basis

 

The following table presents information about assets measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009 and indicates the level of the fair value measurement based on the levels of the inputs used:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

As of September 30, 2010

 

 

 

 

 

 

 

 

 

Assets(1):

 

 

 

 

 

 

 

 

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Government and government agencies

 

$

 

$

909.9

 

$

 

$

909.9

 

States, municipalities and political subdivisions

 

 

5,487.5

 

 

5,487.5

 

Foreign governments

 

 

662.1

 

0.8

 

662.9

 

Corporate

 

 

3,368.8

 

 

3,368.8

 

Asset-backed:

 

 

 

 

 

 

 

 

 

RMBS

 

 

229.9

 

25.3

 

255.2

 

CMBS

 

 

103.3

 

138.6

 

241.9

 

Other asset-backed

 

 

41.3

 

13.6

 

54.9

 

Total fixed maturities available for sale

 

 

10,802.8

 

178.3

 

10,981.1

 

Equities available for sale

 

518.7

 

 

5.0

 

523.7

 

Other invested assets(2)

 

 

 

80.6

 

80.6

 

Short-term investments(3)

 

 

170.1

 

 

170.1

 

Other assets

 

 

 

0.8

 

0.8

 

Total

 

$

518.7

 

$

10,972.9

 

$

264.7

 

$

11,756.3

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2009

 

 

 

 

 

 

 

 

 

Assets(1):

 

 

 

 

 

 

 

 

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Government and government agencies

 

$

 

$

528.8

 

$

 

$

528.8

 

States, municipalities and political subdivisions

 

 

5,668.8

 

 

5,668.8

 

Foreign governments

 

 

552.1

 

1.4

 

553.5

 

Corporate

 

 

2,317.1

 

 

2,317.1

 

Asset-backed:

 

 

 

 

 

 

 

 

 

RMBS

 

 

239.9

 

18.6

 

258.5

 

CMBS

 

 

60.5

 

32.7

 

93.2

 

Other asset-backed

 

 

17.3

 

17.6

 

34.9

 

Total fixed maturities available for sale

 

 

9,384.5

 

70.3

 

9,454.8

 

Equities available for sale

 

481.5

 

17.6

 

7.5

 

506.6

 

Other invested assets(2)

 

 

 

72.2

 

72.2

 

Short-term investments(3)

 

 

846.3

 

 

846.3

 

Total

 

$

481.5

 

$

10,248.4

 

$

150.0

 

$

10,879.9

 


(1) Represents only items measured at fair value.

(2) Primarily private equities.

(3) Short-term investments in Level 2 are carried at cost which approximates fair value.

 

During the third quarter of 2010, there were no transfers in or out of Level 1, $23.8 million of transfers into Level 2 from Level 3 and $8.3 million of transfers out of Level 2 into Level 3.  During the first nine months of 2010, there were no transfers in or out of Level 1, $23.8 million of transfers into Level 2 from Level 3 and $10.8 million of transfers out of Level 2 into Level 3.  During the third quarter of 2009, there were no transfers in or out of Level 1 and Level 2. During the first nine months of 2009, there were no transfers in or out of Level 1 and $14.2 million of transfers into Level 2 from Level 3 and $17.8 million of transfers out of Level 2 into Level 3. None of the transfers in 2010 and 2009 were significant.

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

At September 30, 2010 and December 31, 2009, Level 3 assets totaled $264.7 million and $150.0 million, respectively, representing 2.3% and 1.4%, respectively, of total assets measured at fair value on a recurring basis.

 

Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. As a result, the unrealized gains and losses on instruments held at September 30, 2010 and December 31, 2009 may include changes in fair value that were attributable to both observable inputs (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).

 

Net unrealized depreciation related to Level 3 investments at September 30, 2010 and December 31, 2009 approximated $5.2 million and $23.9 million, respectively.

 

The following tables present analyses of the changes during the three and nine month periods ended September 30, 2010 and 2009 in Level 3 assets measured at fair value on a recurring basis:

 

 

 

 

 

Net realized/unrealized

 

Purchases,

 

 

 

 

 

 

 

 

 

gains (losses) included in:

 

sales,

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

issuances

 

 

 

 

 

 

 

Balance

 

Net

 

net

 

 

 

and

 

Transfers

 

Balance

 

Three Months Ended

 

July 1,

 

investment

 

capital

 

 

 

settlements,

 

in (out)

 

September 30,

 

September 30, 2010

 

2010

 

income

 

losses(1)

 

AOCI

 

net

 

of Level 3

 

2010

 

 

 

(in millions)

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign governments

 

$

0.7

 

$

 

$

 

$

 

$

 

$

0.1

 

$

0.8

 

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

18.0

 

0.4

 

 

3.0

 

(1.5

)

5.4

 

25.3

 

CMBS

 

131.0

 

(0.5

)

 

7.6

 

(2.3

)

2.8

 

138.6

 

Other asset-backed

 

37.3

 

0.1

 

 

1.6

 

(1.6

)

(23.8

)

13.6

 

Equities available for sale

 

7.5

 

 

 

 

(2.5

)

 

5.0

 

Other invested assets(2)

 

68.0

 

5.2

 

 

 

 

7.4

 

80.6

 

Other assets

 

2.5

 

 

(1.6

)

 

(0.1

)

 

0.8

 

Total

 

$

265.0

 

$

5.2

 

$

(1.6

)

$

12.2

 

$

(8.0

)

$

(8.1

)

$

264.7

 


(1)         There were no unrealized losses recorded in realized net capital losses in the three months ended September 30, 2010 on instruments still held at September 30, 2010.

(2)         Primarily private equities.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

 

 

 

Net realized/unrealized

 

Purchases,

 

 

 

 

 

 

 

 

 

gains (losses) included in:

 

sales,

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

issuances

 

 

 

 

 

 

 

Balance

 

Net

 

net

 

 

 

and

 

Transfers

 

Balance

 

Three Months Ended

 

July 1,

 

investment

 

capital

 

 

 

settlements,

 

in (out)

 

September 30,

 

September 30, 2009

 

2009

 

income

 

losses(1)

 

AOCI

 

net

 

of Level 3

 

2009

 

 

 

(in millions)

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, municipalities and political subdivisions

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Foreign governments

 

 

 

 

 

 

 

 

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

29.0

 

0.5

 

(4.1

)

6.9

 

(16.3

)

 

16.0

 

CMBS

 

41.1

 

(0.1

)

(3.0

)

13.5

 

(0.1

)

 

51.4

 

Other asset-backed

 

20.1

 

0.1

 

 

1.8

 

(1.1

)

 

20.9

 

Equities available for sale

 

7.5

 

 

 

 

 

 

7.5

 

Other invested assets(2)

 

60.0

 

 

 

6.4

 

 

 

66.4

 

Other assets

 

5.3

 

 

(2.7

)

 

 

 

2.6

 

Total

 

$

163.0

 

$

0.5

 

$

(9.8

)

$

28.6

 

$

(17.5

)

$

 

$

164.8

 


(1)         There were $1.7 million of OTTI relating to RMBS and $5.2 million of OTTI relating to CMBS that was recorded in realized net capital losses in the three months ended September 30, 2009 on instruments still held at September 30, 2009.

(2)         Primarily private equities.

 

 

 

 

 

Net realized/unrealized

 

Purchases,

 

 

 

 

 

 

 

 

 

gains (losses) included in:

 

sales,

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

issuances

 

 

 

 

 

 

 

Balance

 

Net

 

net

 

 

 

and

 

Transfers

 

Balance

 

Nine Months Ended

 

January 1,

 

investment

 

capital

 

 

 

settlements,

 

in (out)

 

September 30,

 

September 30, 2010

 

2010

 

income

 

losses(1)

 

AOCI

 

net

 

of Level 3

 

2010

 

 

 

(in millions)

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign governments

 

$

1.4

 

$

 

$

 

$

0.2

 

$

(1.6

)

$

0.8

 

$

0.8

 

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

18.6

 

0.5

 

(6.1

)

11.7

 

(4.8

)

5.4

 

25.3

 

CMBS

 

32.7

 

(0.7

)

 

12.4

 

89.6

 

4.6

 

138.6

 

Other asset-backed

 

17.6

 

0.2

 

 

2.2

 

17.4

 

(23.8

)

13.6

 

Equities available for sale

 

7.5

 

 

 

 

(2.5

)

 

5.0

 

Other invested assets(2)

 

72.2

 

2.9

 

 

(0.4

)

(1.5

)

7.4

 

80.6

 

Other assets

 

 

 

(1.6

)

 

2.4

 

 

0.8

 

Total

 

$

150.0

 

$

2.9

 

$

(7.7

)

$

26.1

 

$

99.0

 

$

(5.6

)

$

264.7

 


(1)         There were $6.1 million of OTTI related to RMBS that was recorded in realized net capital losses in the nine months ended September 30, 2010 on instruments still held at September 30, 2010.

(2)         Primarily private equities.

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

 

 

 

Net realized/unrealized

 

 

 

 

 

 

 

 

 

 

 

gains (losses) included in:

 

Purchases,

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

sales,

 

 

 

 

 

 

 

 

 

 

 

net

 

 

 

issuances

 

 

 

 

 

 

 

Balance

 

Net

 

capital

 

 

 

and

 

Transfers

 

Balance

 

Nine Months Ended

 

January 1,

 

investment

 

gains

 

 

 

settlements,

 

in (out)

 

September 30,

 

September 30, 2009

 

2009

 

income

 

(losses)(1)

 

AOCI

 

net

 

of Level 3

 

2009

 

 

 

(in millions)

 

Fixed maturities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, municipalities and political subdivisions

 

$

 

$

 

$

 

$

0.1

 

$

11.4

 

$

(11.5

)

$

 

Foreign governments

 

0.7

 

 

0.1

 

(0.1

)

(0.7

)

 

 

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

35.1

 

2.7

 

(10.9

)

11.7

 

(21.4

)

(1.2

)

16.0

 

CMBS

 

36.7

 

(0.2

)

(2.9

)

12.2

 

2.2

 

3.4

 

51.4

 

Other asset-backed

 

12.9

 

1.6

 

 

(0.8

)

(0.7

)

7.9

 

20.9

 

Equities available for sale

 

2.5

 

 

 

 

 

5.0

 

7.5

 

Other invested assets(2)

 

33.2

 

3.9

 

 

4.3

 

25.0

 

 

66.4

 

Other assets

 

 

 

(2.7

)

 

5.3

 

 

2.6

 

Total

 

$

121.1

 

$

8.0

 

$

(16.4

)

$

27.4

 

$

21.1

 

$

3.6

 

$

164.8

 


(1)         There were $1.7 million of OTTI relating to RMBS and $5.2 million of OTTI relating to CMBS that was recorded in realized net capital gains (losses) in the nine months ended September 30, 2009 on instruments still held at September 30, 2009.

(2)         Primarily private equities.

 

(e) Assets Measured at Fair Value on a Non-Recurring Basis

 

None of TRH’s assets were written down to fair value on a non-recurring basis during the three or nine month periods ended September 30, 2010 and 2009.

 

4. Investments

 

(a) Statutory Deposits

 

Investments with carrying values of $572 million and $606 million at September 30, 2010 and December 31, 2009, respectively, were deposited with governmental authorities as required by law. The substantial majority of these deposits are fixed maturities and equities available for sale.

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

(b) Gross Unrealized Gains and Losses

 

The amortized cost and fair value of fixed maturities at September 30, 2010 and December 31, 2009 are summarized as follows:

 

 

 

Amortized

 

Gross Unrealized

 

 

 

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

OTTI(1)

 

 

 

(in thousands)

 

September 30, 2010

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities held to maturity and carried at amortized cost:

 

 

 

 

 

 

 

 

 

 

 

States, municipalities and political subdivisions

 

$

1,190,897

 

$

87,821

 

$

 

$

1,278,718

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities available for sale and carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and government agencies

 

$

893,483

 

$

16,912

 

$

(516

)

$

909,879

 

$

 

States, municipalities and political subdivisions

 

5,189,105

 

311,704

 

(13,285

)

5,487,524

 

 

Foreign governments

 

642,999

 

19,947

 

(65

)

662,881

 

 

Corporate

 

3,238,219

 

133,093

 

(2,478

)

3,368,834

 

(386

)

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

305,275

 

136

 

(50,207

)

255,204

 

(113,820

)

CMBS

 

239,332

 

11,220

 

(8,652

)

241,900

 

 

Other asset-backed

 

54,790

 

1,751

 

(1,684

)

54,857

 

 

Total

 

$

10,563,203

 

$

494,763

 

$

(76,887

)

$

10,981,079

 

$

(114,206

)


(1)   Represents the non-credit portion of OTTI, not adjusted for subsequent changes in unrealized gains or losses, taken on securities still held as of period-end (including the pre-tax CEA recorded in 2009), pursuant to accounting guidance adopted on April 1, 2009. See Note 2(a) for additional information.

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

 

Amortized

 

Gross Unrealized

 

 

 

 

 

 

 

Cost(1)

 

Gains

 

Losses

 

Fair Value

 

OTTI(2)

 

 

 

(in thousands)

 

December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities held to maturity and carried at amortized cost:

 

 

 

 

 

 

 

 

 

 

 

States, municipalities and political subdivisions

 

$

1,214,238

 

$

59,959

 

$

(2,800

)

$

1,271,397

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities available for sale and carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and government agencies

 

$

528,290

 

$

3,414

 

$

(2,896

)

$

528,808

 

$

 

States, municipalities and political subdivisions

 

5,513,019

 

189,987

 

(34,178

)

5,668,828

 

 

Foreign governments

 

543,011

 

18,876

 

(8,346

)

553,541

 

 

Corporate

 

2,228,438

 

120,554

 

(31,951

)

2,317,041

 

(386

)

Asset-backed:

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

334,226

 

707

 

(76,488

)

258,445

 

(107,107

)

CMBS

 

99,436

 

6,836

 

(13,081

)

93,191

 

 

Other asset-backed

 

35,514

 

1,006

 

(1,602

)

34,918

 

 

Total

 

$

9,281,934

 

$

341,380

 

$

(168,542

)

$

9,454,772

 

$

(107,493

)


(1)          See Note 1 of Notes to Condensed Consolidated Financial Statements.

(2)          Represents the non-credit portion of OTTI, not adjusted for subsequent changes in unrealized gains or losses, taken on securities still held as of period-end (including the pre-tax CEA), pursuant to accounting guidance adopted on April 1, 2009. See Note 2(a) for additional information.

 

At September 30, 2010 and December 31, 2009, net unrealized appreciation of equities available for sale included gross gains of $55.2 million and $67.8 million, respectively, and gross losses of ($9.9) million and ($2.1) million, respectively. (See Note 1 of Notes to Condensed Consolidated Financial Statements.)

 

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TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

(c) Contractual Maturities of Fixed Maturities

 

The amortized cost and fair value of fixed maturities at September 30, 2010 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments in fixed maturities exclude short-term investments.

 

 

 

As of September 30, 2010

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

 

 

(in thousands)

 

Fixed maturities held to maturity:

 

 

 

 

 

Due after one through five years

 

$

52,540

 

$

58,921

 

Due after five years through ten years

 

227,253

 

243,817

 

Due after ten years

 

911,104

 

975,980

 

Total

 

$

1,190,897

 

$

1,278,718

 

 

 

 

 

 

 

Fixed maturities available for sale:

 

 

 

 

 

Non-asset backed:

 

 

 

 

 

Due in one year or less

 

$

443,943

 

$

447,119

 

Due after one through five years

 

2,778,516

 

2,878,416

 

Due after five through ten years

 

2,272,762

 

2,421,790

 

Due after ten years

 

4,468,584

 

4,681,792

 

Asset-backed (1)

 

599,398

 

551,962

 

Total

 

$

10,563,203

 

$

10,981,079

 


(1) Asset-backed fixed maturities by their nature do not generally have single maturity dates.

 

(d) Net Investment Income

 

An analysis of net investment income follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands)

 

Fixed maturities

 

$

116,710

 

$

105,811

 

$

337,873

 

$

320,624

 

Equities

 

2,329

 

3,520

 

7,622

 

10,721

 

Other invested assets (including alternative investments)

 

8,503

 

12,132

 

13,406

 

9,666

 

Other

 

68

 

4,978

 

4,068

 

11,737

 

Total investment income

 

127,610

 

126,441

 

362,969

 

352,748

 

Investment expenses

 

(3,770

)

(3,236

)

(10,745

)

(8,524

)

Net investment income

 

$

123,840

 

$

123,205

 

$

352,224

 

$

344,224

 

 

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Table of Contents

 

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 

(e) Investment Gains and Losses

 

Realized net capital gains (losses) are summarized as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands)

 

Realized net capital gains (losses) resulted from:

 

 

 

 

 

 

 

 

 

Total OTTI

 

$

(804

)

$

(21,946

)

$

(13,849

)

$

(88,182

)

Less: OTTI recognized in OCI

 

 

6,093

 

6,713

 

6,565

 

OTTI charged to earnings

 

(804

)

(15,853

)

(7,136

)

(81,617

)

Sales and redemptions of securities

 

21,125

 

25,433

 

46,826

 

7,684

 

Net foreign currency transaction losses

 

(9,754

)

(2,980

)

(22,735

)

(5,523

)

Total

 

$

10,567

 

$

6,600

 

$

16,955

 

$

(79,456

)

 

 

 

 

 

 

 

 

 

 

Realized net capital gains (losses) by source: