Investments

Our held to maturity and available for sale securities within our investment portfolio consisted of the following as of the dates indicated:



	December 31, 2011
(In thousands)	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities held to maturity:
Bonds and notes:
State and municipal obligations	$	2,640	$	2,748	$	115	$	7
	$	2,640	$	2,748	$	115	$	7
Fixed-maturities available for sale:
U.S. government and agency securities	$	10,931	$	13,630	$	2,699	$	—
State and municipal obligations	87,083		82,692		485		4,876
Corporate bonds and notes	17,267		16,610		390		1,047
RMBS	1,308		1,360		53		1
CMBS	1,660		1,669		25		16
Other ABS	1,019		1,177		158		—
Other investments	1,489		1,595		106		—
	$	120,757	$	118,733	$	3,916	$	5,940
Equity securities available for sale (1)	$	114,425	$	128,424	$	14,868	$	869
Total debt and equity securities	$	237,822	$	249,905	$	18,899	$	6,816

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(1)	Comprising broadly diversified domestic equity mutual funds ($116.0 million fair value at December 31, 2011) and various preferred and common stocks invested across numerous companies and industries ($12.4 million fair value at December 31, 2011).



	December 31, 2010
(In thousands)	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities held to maturity:
Bonds and notes:
State and municipal obligations	$	10,773	$	11,416	$	662	$	19
	$	10,773	$	11,416	$	662	$	19
Fixed-maturities available for sale:
U.S. government and agency securities	$	25,120	$	27,742	$	2,622	$	—
State and municipal obligations	269,185		199,187		272		70,270
Corporate bonds and notes	26,748		26,206		334		876
RMBS	11,952		12,538		600		14
CMBS	3,279		3,310		70		39
Other ABS	2,104		2,226		127		5
Other investments	2,407		2,590		183		—
	$	340,795	$	273,799	$	4,208	$	71,204
Equity securities available for sale (1)	$	160,242	$	184,365	$	24,188	$	65
Total debt and equity securities	$	511,810	$	469,580	$	29,058	$	71,288

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(1)	Comprising broadly diversified domestic equity mutual funds ($168.4 million fair value at December 31, 2010) and various preferred and common stocks invested across numerous companies and industries ($16.0 million fair value at December 31, 2010).

The trading securities within our investment portfolio, which are recorded at fair value, consisted of the following as of the dates indicated:



	December 31,
(In thousands)	2011		2010
Trading securities:
U.S. government and agency securities	$	710,006	$	703,636
State and municipal obligations	964,748		983,680
Corporate bonds and notes	683,864		1,034,206
RMBS	928,887		953,416
CMBS	224,180		193,244
CDO	5,467		2,406
Other ABS	98,729		132,149
Foreign government securities (1)	102,851		83,508
Hybrid securities	346,338		318,940
Equity securities	140,764		155,636
Other investments	5,225		2,000
Total	$	4,211,059	$	4,562,821

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(1)

As of December 31, 2011, nearly all of our foreign government securities were rated A or higher by a Nationally Recognized Statistical Rating Organization ("NRSRO"). As of December 31, 2011, our trading portfolio included no securities of five Eurozone countries (Portugal, Ireland, Italy, Greece and Spain, collectively, the "Stressed Eurozone Countries"), whose sovereign obligations have been under stress due to economic uncertainty, potential restructuring and ratings downgrades, or securities of any other countries under similar stress. As of December 31, 2010, our trading portfolio exposure to the Stressed Eurozone Countries consisted of $15.5 million of Italian securities. Our largest concentrations of foreign government securities as of December 31, 2011, were Germany ($42.6 million fair value) and Japan ($28.0 million fair value).

For trading securities that are still held at December 31, 2011 and 2010, we had net gains during 2011 and 2010 associated with those securities in the amount of $112.1 million and $27.0 million, respectively.

Net investment income consisted of:



	Year Ended December 31,
(In thousands)	2011			2010			2009
Investment income:
Fixed-maturities	$	155,183		$	174,204		$	208,755
Equity securities	11,559			7,623			6,973
Short-term investments	611			1,576			4,289
Other	4,017			2,756			1,466
Gross investment income	$	171,370		$	186,159		$	221,483
Investment expenses	(7,850		)	(7,399		)	(7,293		)
Net investment income	$	163,520		$	178,760		$	214,190

Net realized and unrealized gains (losses) on investments consisted of:



	Year Ended December 31,
(In thousands)	2011			2010			2009
Net realized gains (losses):
Fixed-maturities held to maturity	$	491		$	295		$	133
Fixed-maturities available for sale	(52,473		)	(7,661		)	91,577
Equities available for sale	6,228			2,001			764
Trading securities	121,393			66,351			107,479
Short-term investments	(1		)	(67		)	14
Other invested assets	—			388			822
Net realized gains (losses) on investments	75,638			61,307			200,789
Unrealized gains on trading securities	126,539			78,637			56,352
Total gains on investments	$	202,177		$	139,944		$	257,141

At December 31, 2010, our gross unrealized losses related to state and municipal obligations primarily represented our interests in certain bonds held in our available for sale portfolio that were issued as part of securitizations collateralized by the Master Settlement Agreement ("MSA") among certain domestic tobacco manufacturers and 46 states and certain territories. During the second quarter of 2011, we sold all of our interests in these bonds realizing a loss on the sale of $53.7 million on proceeds received of $94.3 million. In December 2010, Moody's took certain ratings actions on a category of tobacco settlement bonds, including placing 67 classes in 19 transactions under review for possible downgrade due primarily to a decline in the most recent annual MSA payment to the trusts. Our decision to sell these bonds was in response to additional negative developments during the second quarter of 2011. Specifically, the MSA payments in April 2011 were the lowest in five years, primarily due to a decline in cigarette consumption that exceeded historical and expected levels, which caused several states to announce, in May 2011, that they expected to draw on liquidity reserves later in 2011 to cover shortfalls in cash flows on these bonds. Although we expected the present value of cash flows ultimately to be collected from each security to be sufficient to recover our amortized cost basis, we concluded that the risk profile of these bonds no longer suited our current portfolio objectives, and as a result, changed our prior intent to hold these bonds until maturity, and instead disposed of these securities during the second quarter of 2011.

For the years ended December 31, 2011, 2010 and 2009, we did not sell or transfer any fixed-maturity investments classified as held to maturity. For the years ended December 31, 2011 and 2009, we did not transfer any securities from the available for sale or trading categories. During 2010, we recorded $3.1 million in gains on securities transferred from the available for sale category into the trading category.

The sources of our proceeds and related investment gains (losses) on our available for sale securities are as follows:



	Year Ended December 31,
(In thousands)	2011			2010			2009
Fixed-maturities available for sale:
Proceeds received from redemptions	$	32,214		$	50,846		$	199,551
Proceeds received from sales	136,217			1,218,460			2,463,626
Gross investment gains from sales and redemptions	1,577			23,363			94,974
Gross investment losses from sales and redemptions	(54,050		)	(31,024		)	(3,397		)
Equities available for sale:
Proceeds received from sales	52,014			15,033			33,807
Gross investment gains from sales	6,238			2,006			1,077
Gross investment losses from sales	(10		)	(5		)	(313		)

The change in unrealized gains (losses) recorded in accumulated other comprehensive loss consisted of the following:



	Year Ended December 31,
(In thousands)	2011			2010			2009
Fixed-maturities:
Unrealized holding gains arising during the period, net of tax	$	11,328		$	23,806		$	151,001
Less reclassification adjustment for net (losses) gains included in net income (loss), net of tax	(34,697		)	(4,980		)	59,392
Net unrealized gains on investments, net of tax	$	46,025		$	28,786		$	91,609
Equities:
Unrealized holding (losses) gains arising during the period, net of tax	$	(3,928	)	$	15,080		$	27,335
Less reclassification adjustment for net gains (losses) included in net income (loss), net of tax	2,769			1,242			(5,395		)
Net unrealized (losses) gains on investments, net of tax	$	(6,697	)	$	13,838		$	32,730

The following tables show the gross unrealized losses and fair value of our available for sale and held to maturity investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated:



December 31, 2011: ($ in thousands)Description of Securities	Less Than 12 Months					12 Months or Greater					Total
	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
State and municipal obligations	1	$	525	$	17	9	$	72,653	$	4,866	10	$	73,178	$	4,883
Corporate bonds and notes	6	2,457		97		18	8,902		950		24	11,359		1,047
RMBS	2	354		1		—	—		—		2	354		1
CMBS	—	—		—		1	527		16		1	527		16
Equity securities	1	9,284		869		—	—		—		1	9,284		869
Total	10	$	12,620	$	984	28	$	82,082	$	5,832	38	$	94,702	$	6,816



December 31, 2010: ($ in thousands) Description of Securities	Less Than 12 Months					12 Months or Greater					Total
	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
State and municipal obligations	6	$	3,507	$	110	26	$	189,194	$	70,179	32	$	192,701	$	70,289
Corporate bonds and notes	31	16,364		852		2	604		24		33	16,968		876
RMBS	1	1,436		14		—	—		—		1	1,436		14
CMBS	3	1,885		39		—	—		—		3	1,885		39
Other ABS	2	802		5		—	—		—		2	802		5
Equity securities	2	205		65		—	—		—		2	205		65
Total	45	$	24,199	$	1,085	28	$	189,798	$	70,203	73	$	213,997	$	71,288

During 2011 and 2010, there were no credit losses recognized in earnings. There were $868 thousand in credit losses recognized in earnings for which a portion of an OTTI was recognized in other comprehensive income ("OCI") from April 1, 2009 (the inception date of the new accounting standard regarding OTTI) through December 31, 2009.

At December 31, 2011 and 2010, we did not have the intent to sell any debt securities in an unrealized loss position, and we determined that it is more likely than not that we will not be required to sell the securities before recovery of their cost basis.

Impairments due to credit deterioration that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security are considered other-than-temporary. Other declines in fair value (for example, due to interest rate changes, sector credit rating changes or company-specific rating changes) that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security, also may serve as a basis to conclude that an OTTI has occurred. To the extent we determine that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

We have securities in an unrealized loss position that we did not consider to be other-than-temporarily impaired as of December 31, 2011. For all investment categories, the unrealized losses of 12 months or greater duration as of December 31, 2011, were generally caused by interest rate or credit spread movements since purchase date. As of December 31, 2011, we expected the present value of cash flows to be collected from these securities to be sufficient to recover the amortized cost basis of these securities. As of December 31, 2011, we did not intend to sell these investments, nor did we believe that it was more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may be at maturity; therefore, we did not consider these investments to be other-than-temporarily impaired at December 31, 2011.

The contractual maturities of fixed-maturity investments are as follows:



	December 31, 2011
	Held to Maturity				Available for Sale
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less (1)	$	1,912	$	2,022	$	1,944	$	1,834
Due after one year through five years (1)	424		428		16,594		17,135
Due after five years through ten years (1)	—		—		5,678		5,326
Due after ten years (1)	304		298		92,554		90,232
RMBS (2)	—		—		1,308		1,360
CMBS (2)	—		—		1,660		1,669
Other ABS (2)	—		—		1,019		1,177
Total	$	2,640	$	2,748	$	120,757	$	118,733

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(1)	Actual maturities may differ as a result of calls before scheduled maturity.


(2)	RMBS, CMBS and Other ABS are shown separately, as they are not due at a single maturity date.

At December 31, 2011, investments in any person and its affiliates that exceeded 10% of total stockholders' equity were as follows (in thousands):



(In thousands)	Year Ended December 31, 2011
Name	Trading Securities		Short-Term Investments		Total
BlackRock Liquidity Funds T-Fund Money Market	$	—	$	173,378	$	173,378
Fidelity Institutional Treasury Only Portfolio	—		167,631		167,631
Federated Treasury Obligations Fund	—		139,000		139,000
State of Illinois	129,672		—		129,672
Invesco-AIM Advisors STIT Treasury PTF Money Market	—		129,000		129,000
Total	$	129,672	$	609,009	$	738,681

Securities on deposit with various state insurance commissioners amounted to $21.1 million and $17.0 million at December 31, 2011 and 2010, respectively. We also had $116.4 million and $140.0 million (book value) of securities pledged as collateral in accordance with various reinsurance agreements at December 31, 2011 and 2010, respectively