Note 7 – Investments

The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at September 30, 2012 and December 31, 2011 are shown below.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2012	Cost		Gains		Losses (1)			Value
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	214,845	$	4,438	$	(20	)	$	219,263
Obligations of U.S. states and political subdivisions		1,228,688		47,441		(4,097	)		1,272,032
Corporate debt securities		2,512,767		52,240		(1,569	)		2,563,438
Residential mortgage-backed securities		446,979		10,160		(229	)		456,910
Commercial mortgage-backed securities		256,794		9,996		-			266,790
Debt securities issued by foreign sovereign governments		133,625		11,815		(27	)		145,413
Total debt securities		4,793,698		136,090		(5,942	)		4,923,846
Equity securities		2,736		182		-			2,918

Total investment portfolio	$	4,796,434	$	136,272	$	(5,942	)	$	4,926,764

			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

(1) At September 30, 2012 and December 31, 2011, there were no other-than-temporary impairment losses recorded in other comprehensive income.

The amortized cost and fair values of debt securities at September 30, 2012, 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
September 30, 2012	Cost		Value
	(In thousands)

Due in one year or less	$	780,615	$	783,234
Due after one year through five years		1,902,433		1,952,796
Due after five years through ten years		869,795		920,848
Due after ten years		421,798		432,197

	$	3,974,641	$	4,089,075

Residential mortgage-backed securities		446,979		456,910
Commercial mortgage-backed securities		256,794		266,790
Auction rate securities (1)		115,284		111,071

Total at September 30, 2012	$	4,793,698	$	4,923,846

(1) At September 30, 2012, all of the auction rate securities had a contractual maturity greater than 10 years.

At September 30, 2012 and December 31, 2011, the investment portfolio had gross unrealized losses of $5.9 million and $14.6 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
September 30, 2012	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	8,953	$	20	$	-	$	-	$	8,953	$	20
Obligations of U.S. states and political subdivisions		66,542		856		64,227		3,241		130,769		4,097
Corporate debt securities		163,008		382		34,057		1,187		197,065		1,569
Residential mortgage-backed securities		37,600		229		-		-		37,600		229
Debt securities issued by foreign sovereign governments		8,195		27		-		-		8,195		27
Total investment portfolio	$	284,298	$	1,514	$	98,284	$	4,428	$	382,582	$	5,942

	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

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 September 30, 2012 and December 31, 2011, respectively, compared to the interest rates at the time of purchase as well as the liquidity discount rate applied in our auction rate securities discounted cash flow model.

The fair value of our ARS backed by student loans was approximately $111 million and $170 million at September 30, 2012 and December 31, 2011, respectively. ARS were 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 had 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 September 30, 2012, our ARS portfolio was approximately 66% 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 September 30, 2012, our entire ARS portfolio, consisting of 13 investments, was subject to failed auctions; however, from the period when the auctions began to fail through September 30, 2012, $422 million in par value of ARS was either sold or called, with the average amount we received being approximately 96% 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.

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 each of the first nine months of 2012 and 2011 there were other-than-temporary impairments ("OTTI") recognized of $0.3 million.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
	(In thousands)
Net realized investment gains (losses) and OTTI on investments:
Fixed maturities	$	8,901		$	10,263	$	110,335		$	37,741
Equity securities		30			12		424			51
Other		(2,747	)		877		(742	)		855

	$	6,184		$	11,152	$	110,017		$	38,647

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
	(In thousands)
Net realized investment gains (losses) and OTTI on investments:
Gains on sales		$	10,559		$	12,007		$	118,599		$	43,952
Losses on sales			(4,375	)		(602	)		(8,243	)		(5,052	)
Impairment losses			-			(253	)		(339	)		(253	)

		$	6,184		$	11,152		$	110,017		$	38,647

We elected to realize these gains, by selling certain securities, given the favorable market conditions experienced in 2011 and the first nine months of 2012. We then reinvested the funds taking into account our anticipated future claim payment obligations. We also continue to reduce our investments in tax exempt municipal securities and increase our investments in taxable securities. For statutory purposes investments are generally held at amortized cost, therefore the realized gains increased our statutory policyholders' position or statutory capital in 2011 and the first nine months of 2012.