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, 2013
(In thousands)	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities held to maturity:
State and municipal obligations	$	358	$	351	$	—	$	7
	$	358	$	351	$	—	$	7
Fixed-maturities available for sale:
U.S. government and agency securities	$	8,939	$	9,106	$	224	$	57
State and municipal obligations	26,489		25,946		26		569
Corporate bonds and notes	11,951		12,045		578		484
RMBS	72,665		73,115		450		—
Other investments	341		341		—		—
	$	120,385	$	120,553	$	1,278	$	1,110
Equity securities available for sale (1)	$	78,106	$	135,168	$	57,062	$	—
Total debt and equity securities	$	198,849	$	256,072	$	58,340	$	1,117

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(1)	Comprising broadly diversified domestic equity mutual funds ($128.3 million fair value) and various preferred and common stocks invested across numerous companies and industries ($6.9 million fair value).



	December 31, 2012
(In thousands)	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities held to maturity:
State and municipal obligations	$	679	$	676	$	3	$	6
	$	679	$	676	$	3	$	6
Fixed-maturities available for sale:
U.S. government and agency securities	$	4,969	$	5,305	$	336	$	—
State and municipal obligations	17,922		17,995		116		43
Corporate bonds and notes	15,618		16,369		1,110		359
RMBS	50		51		3		2
Other investments	922		976		54		—
	$	39,481	$	40,696	$	1,619	$	404
Equity securities available for sale (1)	$	88,260	$	112,139	$	23,879	$	—
Total debt and equity securities	$	128,420	$	153,511	$	25,501	$	410

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(1)	Comprising broadly diversified domestic equity mutual funds ($98.9 million fair value) and various preferred and common stocks invested across numerous companies and industries ($13.2 million fair value).

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)	2013		2012
Trading securities:
U.S. government and agency securities	$	393,815	$	428,519
State and municipal obligations	595,070		669,975
Corporate bonds and notes	1,024,574		1,357,175
RMBS	487,239		663,307
CMBS	288,895		237,294
Other ABS	195,816		254,102
Foreign government and agency securities (1)	40,657		117,686
Hybrid securities	—		211,944
Equity securities	90,604		153,722
Other investments	759		898
Total	$	3,117,429	$	4,094,622

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(1)

As of December 31, 2013 and 2012, our trading portfolio included no foreign sovereign or sub-sovereign (collectively, “Sovereign”) securities of the six European countries (Portugal, Ireland, Italy, Greece, Spain and Hungary) whose Sovereign obligations have been under particular stress due to economic uncertainty, potential restructuring and ratings downgrades or securities of any other countries under similar stress.

For trading securities that were still held at December 31, 2013 and 2012, we had net unrealized losses during 2013 and net unrealized gains during 2012 associated with those securities in the amount of $140.9 million and $29.8 million, respectively.

Net investment income consisted of:



	Year Ended December 31,
(In thousands)	2013			2012			2011
Investment income:
Fixed-maturities	$	101,851		$	106,418		$	155,183
Equity securities	10,843			10,136			11,559
Short-term investments	309			345			611
Other	3,749			5,261			4,017
Gross investment income	116,752			122,160			171,370
Investment expenses	(8,664		)	(7,823		)	(7,850		)
Net investment income	$	108,088		$	114,337		$	163,520

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



	Year Ended December 31,
(In thousands)	2013			2012			2011
Net realized gains (losses):
Fixed-maturities held to maturity	$	2		$	37		$	491
Fixed-maturities available for sale	1,314			3,556			(52,473		)
Equities available for sale	349			5,070			6,228
Trading securities	14,215			224,000			121,393
Short-term investments	2			7			(1		)
Other invested assets	8,841			375			—
Other gains	190			—			—
Net realized gains on investments	24,913			233,045			75,638
Unrealized (losses) gains on trading securities	(175,841		)	(49,815		)	126,539
Unrealized gains on other invested assets	1,208			1,658			—
Total (losses) gains on investments	$	(149,720	)	$	184,888		$	202,177

During 2011, we sold all of 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 among certain domestic tobacco manufacturers and 46 states and certain territories, realizing a loss on the sale of $53.7 million on proceeds received of $94.3 million. 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 2011.

For the years ended December 31, 2013, 2012 and 2011, we did not sell or transfer any fixed-maturity investments classified as held to maturity. For the years ended December 31, 2013 and 2012, we did not transfer any securities from the available for sale or trading categories.

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)	2013			2012			2011
Fixed-maturities available for sale:
Proceeds received from redemptions	$	9,269		$	5,909		$	32,214
Proceeds received from sales	22,248			79,535			136,217
Gross investment gains from sales and redemptions	1,455			4,081			1,577
Gross investment losses from sales and redemptions	(141		)	(525		)	(54,050		)
Equities available for sale:
Proceeds received from sales and redemptions	10,503			31,234			52,014
Gross investment gains from sales and redemptions	349			5,070			6,238
Gross investment losses from sales and redemptions	—			—			(10		)

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



	Year Ended December 31,
(In thousands)	2013			2012			2011
Fixed-maturities:
Unrealized holding gains arising during the period, net of tax	$	173		$	4,415		$	11,328
Less reclassification adjustment for net gains (losses) included in net (loss) income, net of tax	1,152			5,750			(34,697		)
Net unrealized (losses) gains on investments, net of tax	$	(979	)	$	(1,335	)	$	46,025
Equities:
Unrealized holding gains (losses) arising during the period, net of tax	$	21,796		$	9,717		$	(3,928	)
Less reclassification adjustment for net (losses) gains included in net (loss) income, net of tax	(273		)	3,522			2,769
Net unrealized gains (losses) on investments, net of tax	$	22,069		$	6,195		$	(6,697	)

The following tables show the gross unrealized losses and fair value of our securities deemed “available for sale” and “held to maturity,” 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, 2013: ($ 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
U.S. government and agency securities	1	$	5,401	$	57	—	$	—	$	—	1	$	5,401	$	57
State and municipal obligations	4	14,502		42		2	5,514		534		6	20,016		576
Corporate bonds and notes	—	—		—		2	2,966		484		2	2,966		484
Total	5	$	19,903	$	99	4	$	8,480	$	1,018	9	$	28,383	$	1,117



December 31, 2012: ($ 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	—	$	—	$	—	2	$	6,004	$	49	2	$	6,004	$	49
Corporate bonds and notes	—	—		—		6	5,329		359		6	5,329		359
RMBS	1	31		2		—	—		—		1	31		2
Total	1	$	31	$	2	8	$	11,333	$	408	9	$	11,364	$	410

During 2013 and 2012, there was an immaterial amount of credit losses recognized in earnings and in 2011, there were no credit losses recognized in earnings.

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, 2013. For all investment categories, the unrealized losses of 12 months or greater duration as of December 31, 2013, were generally caused by interest rate or credit spread movements since the purchase date. As of December 31, 2013, 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, 2013, 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, which may be at maturity; therefore, we did not consider these investments to be other-than-temporarily impaired at December 31, 2013.

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



	December 31, 2013
	Held to Maturity				Available for Sale
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less (1)	$	50	$	50	$	3,577	$	3,168
Due after one year through five years (1)	—		—		15,127		15,262
Due after five years through ten years (1)	—		—		4,700		4,683
Due after ten years (1)	308		301		24,316		24,325
RMBS (2)	—		—		72,665		73,115
Total	$	358	$	351	$	120,385	$	120,553

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


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

At December 31, 2013, investments in any person and its affiliates that exceeded 10% of our total stockholders’ equity were as follows:



	December 31, 2013
(In thousands) Name	Equity Securities AFS		Trading Securities		Short-Term Investments		Total
Northern Institutional Treasury Portfolio	$	—	$	—	$	399,559	$	399,559
Vanguard Institutional Index Fund	128,286		—		—		128,286
State of Illinois	—		103,348		—		103,348
BlackRock Liquidity Funds T-Fund Portfolio Money Market	—		—		100,980		100,980
Federated Treasury Obligations Fund	—		—		99,450		99,450
Total	$	128,286	$	103,348	$	599,989	$	831,623

As part of the Freddie Mac Agreement, Radian Guaranty deposited $205 million into a collateral account, currently invested primarily in trading securities, which is pledged to cover loss mitigation activity on the loans subject to the agreement. A portion of the funds deposited may be released to Radian Guaranty over time. See Note 9 for further information.

Securities on deposit with various state insurance commissioners amounted to $17.0 million and $18.0 million at December 31, 2013 and 2012, respectively. We also had $317.1 million and $172.6 million (book value) of securities pledged as collateral in accordance with various reinsurance agreements at December 31, 2013 and 2012, respectively.