6.	Investments

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2011:	Cost		Gains		Losses (1)			Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	592,108	$	4,965	$	(36	)	$	597,037
Obligations of U.S. states and political subdivisions		2,255,192		74,918		(6,639	)		2,323,471
Corporate debt securities		2,007,720		32,750		(7,619	)		2,032,851
Residential mortgage-backed securities		441,589		4,113		(285	)		445,417
Commercial mortgage-backed securities		257,530		7,404		-			264,934
Debt securities issued by foreign sovereign governments		146,755		10,441		(6	)		157,190
Total debt securities		5,700,894		134,591		(14,585	)		5,820,900
Equity securities		2,666		82		(1	)		2,747

Total investment portfolio	$	5,703,560	$	134,673	$	(14,586	)	$	5,823,647

			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)

There were no other-than-temporary impairment losses recorded in other comprehensive income at December 31, 2011 and 2010.

Our foreign investments primarily consist of the investment portfolio supporting our Australian domiciled subsidiary. This portfolio is comprised of Australian government and semi government securities, rated AAA, by one or more of the following major rating agencies: Moody's, Standard & Poor's and Fitch Ratings, representing 94% of the market value of our foreign investments with the remaining 6% invested in corporate securities.

The amortized cost and fair values of debt securities at December 31, 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
December 31, 2011	Cost		Value
	(In thousands)

Due in one year or less	$	1,238,386	$	1,240,917
Due after one year through five years		1,860,588		1,900,400
Due after five years through ten years		897,967		942,561
Due after ten years		828,573		856,774
		4,825,514		4,940,652

Residential mortgage-backed securities		441,589		445,417
Commercial mortgage-backed securities		257,530		264,934
Auction rate securities (1)		176,261		169,897

Total at December 31, 2011	$	5,700,894	$	5,820,900

(1) At December 31, 2011, 100% of auction rate securities had a contractual maturity greater than 10 years.

At December 31, 2011 and 2010, the investment portfolio had gross unrealized losses of $14.6 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
December 31, 2011	Value			Losses			Value			Losses			Value			Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	78,546		$	36		$	-		$	-		$	78,546		$	36
Obligations of U.S. states and political subdivisions			188,879			837			137,965			5,802			326,844			6,639
Corporate debt securities			689,396			6,709			28,174			910			717,570			7,619
Residential mortgage- backed securities			120,405			285			-			-			120,405			285
Debt securities issued by foreign sovereign governments			484			6			-			-			484			6
Equity securities			-			-			33			1			33			1
Total investment portfolio		$	1,077,710		$	7,873		$	166,172		$	6,713		$	1,243,882		$	14,586

	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
Debt securities 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 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. The unrealized losses in all categories of our investments were primarily caused by the difference in interest rates at December 31, 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.

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 2011 we recognized OTTI losses in earnings of $0.7 million, related to further impairments on certain ARS previously impaired in 2010. During 2010 we recognized OTTI losses in earnings of $9.6 million. During 2009 we recognized OTTI losses in earnings of $40.9 million and an additional $1.8 million of OTTI losses in other comprehensive income. In 2010, our OTTI losses were primarily related to certain securities for which the expected cash flows are not sufficient to recover the amortized cost. In 2009, our OTTI losses were primarily related to securities for which we had the intent to sell.

The following table provides a rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income (loss) for the years ended December 31, 2011 and 2010.

	2011		2010
	(In thousands)

Beginning balance	$	-	$	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	)
Ending balance	$	-	$	-

The fair value of our ARS backed by student loans was approximately $170 million and $358 million at December 31, 2011 and 2010, respectively. 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 December 31, 2011, our ARS portfolio was 83% AAA/Aaa-rated by one or more of the major rating agencies.

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 December 31, 2011, our entire ARS portfolio, consisting of 19 investments, was subject to failed auctions; however, from the period when the auctions began to fail through December 31, 2011, $361 million in par value of ARS was either sold or called, with the average amount we received being approximately 97% 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.

Net investment income is comprised of the following:

	2011			2010			2009
	(In thousands)

Fixed maturities	$	202,301		$	236,734		$	291,304
Equity securities		330			315			819
Cash equivalents		496			1,526			3,056
Interest on Sherman note		-			10,796			11,323
Other		926			1,081			1,389

Investment income		204,053			250,452			307,891
Investment expenses		(2,783	)		(3,199	)		(3,213	)

Net investment income	$	201,270		$	247,253		$	304,678

The net realized investment gains (losses), including impairment losses, and change in net unrealized appreciation (depreciation) of investments are as follows:

	2011		2010			2009
	(In thousands)
Net realized investment gains (losses) on investments:
Fixed maturities	$	142,284	$	93,017		$	51,109
Equity securities		330		151			116
Joint ventures		-		(466	)		-
Other		101		235			709

	$	142,715	$	92,937		$	51,934

Change in net unrealized appreciation (depreciation):
Fixed maturities	$	31,576	$	(71,304	)	$	237,521
Equity securities		86		(4	)		144
Other		-		-			(2,263	)

	$	31,662	$	(71,308	)	$	235,402

The reclassification adjustment relating to the change in unrealized investment gains and losses is as follows:

	2011		2010			2009
	(In thousands)

Net unrealized holding gains (losses) arising during the period, net of tax, included in accumulated other comprehensive income	$	68,822	$	(7,534	)	$	143,378
Less: net gains (losses) reclassified out of accumulated other comprehensive income into earnings for the period		47,765		61,540			(9,216	)
Change in unrealized investment gains (losses), net of tax	$	21,057	$	(69,074	)	$	152,594

Note: Components of the 2009 and 2010 “Change in unrealized investment gains (losses), net of tax” have been reclassified. The total “Change in unrealized investment gains (losses), net of tax” remains unchanged.

The tax expense related to the changes in net unrealized appreciation (depreciation) was $10.6 million, $1.0 million (adjusted for the valuation allowance, see Note 14 – “Income taxes”) and $82.8 million for 2011, 2010 and 2009, respectively.

The gross realized gains, gross realized losses and impairment losses are as follows:

	2011			2010			2009
	(In thousands)


Gross realized gains	$	158,659		$	119,325		$	112,148
Gross realized losses		(15,229	)		(16,278	)		(19,274	)
Impairment losses		(715	)		(9,644	)		(40,940	)

Net realized gains on securities	$	142,715		$	93,403		$	51,934

Loss from joint ventures		-			(466	)		-
Total net realized gains	$	142,715		$	92,937		$	51,934

We had $22.3 million and $21.8 million of investments on deposit with various states at December 31, 2011 and 2010, respectively, due to regulatory requirements of those state insurance departments.