Note 7 – Investments

The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2011 and December 31, 2010 are shown below.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2011	Cost		Gains		Losses (1)			Value
	(In thousands)

U.S. Treasury securities and obligations of U.S.government corporations and agencies	$	873,069	$	18,039	$	(4,736	)	$	886,372
Obligations of U.S. states and political subdivisions		3,020,694		97,550		(33,449	)		3,084,795
Corporate debt securities		2,348,328		48,467		(6,530	)		2,390,265
Commercial mortgage-backed		164,428		977		(657	)		164,748
Residential mortgage-backed securities		64,282		2,334		-			66,616
Debt securities issued by foreign sovereign governments		147,407		3,947		(338	)		151,016
Total debt securities	$	6,618,208	$	171,314	$	(45,710	)	$	6,743,812
Equity securities		2,602		44		(9	)		2,637

Total investment portfolio	$	6,620,810	$	171,358	$	(45,719	)	$	6,746,449

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2010	Cost		Gains		Losses (1)			Value
	(In thousands)
U.S. Treasury securities and obligations of U.S.government corporations and agencies	$	1,092,890	$	16,718	$	(6,822	)	$	1,102,786
Obligations of U.S. states and political subdivisions		3,549,355		85,085		(54,374	)		3,580,066
Corporate debt securities		2,521,275		54,975		(11,291	)		2,564,959
Residential mortgage-backed securities		53,845		3,255		-			57,100
Debt securities issued by foreign sovereign governments		149,443		1,915		(1,031	)		150,327
Total debt securities	$	7,366,808	$	161,948	$	(73,518	)	$	7,455,238
Equity securities		3,049		40		(45	)		3,044

Total investment portfolio	$	7,369,857	$	161,988	$	(73,563	)	$	7,458,282

(1) At June 30, 2011 and December 31, 2010, there were no other-than-temporary impairment losses recorded in other comprehensive income.

The amortized cost and fair values of debt securities at June 30, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most auction rate and mortgage-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.

	Amortized		Fair
June 30, 2011	Cost		Value
	(In thousands)

Due in one year or less	$	398,691	$	400,037
Due after one year through five years		3,111,422		3,172,929
Due after five years through ten years		1,234,168		1,279,285
Due after ten years		1,342,969		1,373,046

	$	6,087,250	$	6,225,297

Commercial mortgage-backed securities		164,428		164,748
Residential mortgage-backed securities		64,282		66,616
Auction rate securities (1)		302,248		287,151

Total at June 30, 2011	$	6,618,208	$	6,743,812

(1) At June 30, 2011, approximately 97% of auction rate securities had a contractual maturity greater than 10 years.

At June 30, 2011 and December 31, 2010, the investment portfolio had gross unrealized losses of $45.7 million and $73.6 million, respectively. For those securities in an unrealized loss position, the length of time the securities were in such a position, as measured by their month-end fair values, is as follows:

	Less Than 12 Months						12 Months or Greater						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
June 30, 2011	Value			Losses			Value			Losses			Value			Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	181,707		$	4,736		$	-		$	-		$	181,707		$	4,736
Obligations of U.S. states and political subdivisions			566,735			14,439			274,603			19,010			841,338			33,449
Corporate debt securities			699,173			5,359			43,853			1,171			743,026			6,530
Commercial mortgage-backed securities			69,560			657			-			-			69,560			657
Residential mortgage-backed securities			-			-			-			-			-			-
Debt issued by foreign sovereign governments			10,152			86			4,814			252			14,966			338
Equity securities			720			9			-			-			720			9
Total investment portfolio		$	1,528,047		$	25,286		$	323,270		$	20,433		$	1,851,317		$	45,719

	Less Than 12 Months						12 Months or Greater						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
December 31, 2010	Value			Losses			Value			Losses			Value			Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	258,235		$	6,822		$	-		$	-		$	258,235		$	6,822
Obligations of U.S. states and political subdivisions			1,160,877			32,415			359,629			21,959			1,520,506			54,374
Corporate debt securities			817,471			9,921			28,630			1,370			846,101			11,291
Residential mortgage-backed securities			-			-			-			-			-			-
Debt issued by foreign sovereign governments			105,724			1,031			-			-			105,724			1,031
Equity securities			2,723			45			-			-			2,723			45
Total investment portfolio		$	2,345,030		$	50,234		$	388,259		$	23,329		$	2,733,289		$	73,563

The unrealized losses in all categories of our investments were primarily caused by the difference in interest rates at June 30, 2011 and December 31, 2010, respectively, compared to the interest rates at the time of purchase as well as the discount rate applied in our auction rate securities discounted cash flow model. The securities in an unrealized loss position for 12 months or greater are primarily auction rate securities (“ARS”) backed by student loans. See further discussion of these securities below.

We held $287.2 million in ARS backed by student loans at June 30, 2011. ARS are intended to behave like short-term debt instruments because their interest rates are reset periodically through an auction process, most commonly at intervals of 7, 28 and 35 days. The same auction process has historically provided a means by which we may rollover the investment or sell these securities at par in order to provide us with liquidity as needed. The ARS we hold are collateralized by portfolios of student loans, substantially all of which are ultimately 97% guaranteed by the United States Department of Education. At June 30, 2011, approximately 87% of our ARS portfolio was rated AAA/Aaa by one or more of the following major rating agencies: Moody's, Standard & Poor's and Fitch Ratings.

In mid-February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. At June 30, 2011, our entire ARS portfolio, consisting of 28 investments, was subject to failed auctions; however, from the period when the auctions began to fail through June 30, 2011, $235.6 million in par value of ARS was either sold or called, with the average amount we received being approximately 99% of par which approximated the aggregate fair value prior to redemption. To date, we have collected all interest due on our ARS.

As a result of the persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, the investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments come due according to the contractual maturities of the debt issues. However, we continue to believe we will have liquidity to our ARS portfolio by December 31, 2014.

Under the current guidance a debt security impairment is deemed other than temporary if we either intend to sell the security, or it is more likely than not that we will be required to sell the security before recovery or we do not expect to collect cash flows sufficient to recover the amortized cost basis of the security. During the first six months of 2011 there were no other-than-temporary impairments (“OTTI”) recognized compared to $6.1 million during the first six months of 2010.

The following table provides a rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2010.

	Three Months			Six Months
	Ended			Ended
	June 30, 2010
	(In thousands)

Beginning balance	$	1,021		$	1,021
Addition for the amount related to the credit loss for which an OTTI was not previously recognized		-			-
Additional increases to the amount related to the credit loss for which an OTTI was previously recognized		-			-
Reductions for securities sold during the period (realized)		(1,021	)		(1,021	)
Ending balance	$	-		$	-

The net realized investment gains (losses) and OTTI on the investment portfolio are as follows:

		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2011			2010		2011			2010
	(In thousands)
Net realized investment gains (losses) and OTTI on investments:
Fixed maturities		$	21,749		$	31,680	$	27,478		$	58,316
Equity securities			7			19		39			57
Other			(22	)		3		(22	)		231

		$	21,734		$	31,702	$	27,495		$	58,604

	Three Months Ended						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)

Net realized investment gains (losses) and OTTI on investments:
Gains on sales	$	23,553		$	36,608		$	31,945		$	72,588
Losses on sales		(1,819	)		(4,906	)		(4,450	)		(7,932	)
Impairment losses		-			-			-			(6,052	)

	$	21,734		$	31,702		$	27,495		$	58,604

The net realized gains on investments during the first six months of 2010 and 2011 were a result of the continued restructuring of the portfolio into shorter duration, taxable securities. Such sales were made to reduce the proportion of our investment portfolio held in tax-exempt municipal securities and to increase the proportion held in taxable securities principally since the tax benefits of holding tax exempt municipal securities are no longer available based on our recent net operating losses and to shorten the duration of the portfolio to provide liquidity to meet our anticipated claim payment obligations.