INVESTMENTS

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities by sector as of December 31, 2013 and 2012 (dollars in thousands):



December 31, 2013:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	11,697,394	$	616,147	$	202,786	$	12,110,755	56.4	%	$	—
Canadian and Canadian provincial governments	2,728,111		669,762		16,848		3,381,025		15.7		—
Residential mortgage-backed securities	970,434		38,126		18,917		989,643		4.6		(300		)
Asset-backed securities	891,751		18,893		15,812		894,832		4.2		(2,259		)
Commercial mortgage-backed securities	1,314,782		91,651		17,487		1,388,946		6.5		(1,609		)
U.S. government and agencies	489,631		16,468		4,748		501,351		2.3		—
State and political subdivisions	313,252		21,907		14,339		320,820		1.5		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,865,379		45,347		23,962		1,886,764		8.8		—
Total fixed maturity securities	$	20,270,734	$	1,518,301	$	314,899	$	21,474,136	100.0	%	$	(4,168	)
Non-redeemable preferred stock	$	81,993	$	5,342	$	5,481	$	81,854	20.2	%
Other equity securities	327,479		618		4,220		323,877		79.8
Total equity securities	$	409,472	$	5,960	$	9,701	$	405,731	100.0	%



December 31, 2012:	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		% of Total		Other-than- temporary impairments in AOCI
Available-for-sale:
Corporate securities	$	11,333,431	$	1,085,973	$	39,333	$	12,380,071	55.5	%	$	—
Canadian and Canadian provincial governments	2,676,777		1,372,731		174		4,049,334		18.2		—
Residential mortgage-backed securities	969,267		76,520		3,723		1,042,064		4.7		(241		)
Asset-backed securities	700,455		19,898		28,798		691,555		3.1		(2,259		)
Commercial mortgage-backed securities	1,608,376		142,369		51,842		1,698,903		7.6		(6,125		)
U.S. government and agencies	231,256		33,958		24		265,190		1.2		—
State and political subdivisions	270,086		38,058		5,646		302,498		1.4		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,769,784		94,929		2,714		1,861,999		8.3		—
Total fixed maturity securities	$	19,559,432	$	2,864,436	$	132,254	$	22,291,614	100.0	%	$	(8,625	)
Non-redeemable preferred stock	$	68,469	$	6,542	$	170	$	74,841	33.6	%
Other equity securities	148,577		416		1,134		147,859		66.4
Total equity securities	$	217,046	$	6,958	$	1,304	$	222,700	100.0	%

The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral, which are excluded from the tables above. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $57.2 million and $16.9 million, and an estimated fair value of $58.0 million and $17.0 million, as of December 31, 2013 and 2012 respectively. The pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the consolidated balance sheet as of December 31, 2013, and are included in other invested assets in the consolidated balance sheet as of December 31, 2012.

The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $94.1 million and $95.6 million, as of December 31, 2013 and 2012, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company’s consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of December 31, 2013 and 2012, none of the collateral had been sold or re-pledged.

As of December 31, 2013, the Company held securities with a fair value of $1,222.3 million that were guaranteed or issued by the Canadian province of Ontario and $1,389.1 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of consolidated stockholders’ equity. As of December 31, 2012, the Company held securities with a fair value of $1,400.0 million that were guaranteed or issued by the Canadian province of Ontario and $1,785.0 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of consolidated stockholders’ equity.

The amortized cost and estimated fair value of fixed maturity securities available-for-sale at December 31, 2013 are shown by contractual maturity in the table below (dollars in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date.



	Amortized Cost		Fair Value
Available-for-sale:
Due in one year or less	$	551,195	$	557,981
Due after one year through five years	3,570,831		3,743,631
Due after five years through ten years	7,090,140		7,295,566
Due after ten years	5,881,601		6,603,537
Asset and mortgage-backed securities	3,176,967		3,273,421
Total	$	20,270,734	$	21,474,136

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of December 31, 2013 and 2012 (dollars in thousands):



December 31, 2013:	Amortized Cost		Estimated Fair Value		% of Total
Finance	$	3,838,716	$	3,983,623	32.9	%
Industrial	5,943,353		6,138,150		50.7
Utility	1,904,100		1,978,218		16.3
Other	11,225		10,764		0.1
Total	$	11,697,394	$	12,110,755	100.0	%
December 31, 2012:	Amortized Cost		Estimated Fair Value		% of Total
Finance	$	3,619,455	$	3,900,152	31.5	%
Industrial	5,881,967		6,443,846		52.0
Utility	1,799,658		2,002,611		16.2
Other	32,351		33,462		0.3
Total	$	11,333,431	$	12,380,071	100.0	%

Other-Than-Temporary Impairments—Fixed Maturity and Equity Securities

As discussed in Note 2 – “Summary of Significant Accounting Policies,” a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities is recognized in AOCI. For these securities the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):



	2013			2012			2011
Balance, beginning of period	$	16,675		$	63,947		$	47,291
Initial impairments - credit loss OTTI recognized on securities not previously impaired	—			1,962			8,349
Additional impairments - credit loss OTTI recognized on securities previously impaired	134			10,186			9,059
Credit loss OTTI previously recognized on securities impaired to fair value during the period	(1,449		)	(22,290		)	—
Credit loss previously recognized on securities which matured, paid down, prepaid or were sold during the period	(3,664		)	(37,130		)	(752		)
Balance, end of period	$	11,696		$	16,675		$	63,947

Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale

Securities acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired securities. For each security, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. At the date of acquisition, the timing and amount of the cash flows expected to be collected was determined based on a best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.

The following tables present information on the Company’s purchased credit impaired securities, which are included in fixed maturity securities available-for-sale (dollars in thousands):



	December 31, 2013		December 31, 2012
Outstanding principal and interest balance⁽¹⁾	$	192,644	$	108,831
Carrying value, including accrued interest⁽²⁾	$	148,822	$	84,765


(1)	Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest.


(2)	Estimated fair value plus accrued interest.

The following table presents information about purchased credit impaired investments acquired during the periods, as of the acquisition dates (dollars in thousands).



	December 31, 2013		December 31, 2012
Contractually required payments (including interest)	$	161,975	$	152,988
Cash flows expected to be collected⁽¹⁾	$	130,578	$	125,449
Fair value of investments acquired	$	87,643	$	85,298


(1)	Represents undiscounted principal and interest cash flow expectations at the date of acquisition.

The following table presents activity for the accretable yield on purchased credit impaired securities for the years ended December 31, 2013 and 2012 (dollars in thousands):



	2013			2012
Balance, beginning of period	$	39,239		$	—
Investments purchased	42,935			40,151
Accretion	(7,755		)	(1,388		)
Disposals	(3,564		)	—
Reclassification from nonaccretable difference	(1,386		)	476
Balance, end of period	$	69,469		$	39,239

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 1,396 and 567 fixed maturity and equity securities at December 31, 2013 and 2012, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):



	December 31, 2013				December 31, 2012
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	296,731	91.4	%	$	54,951	41.2	%
20% or more for less than six months	6,444		2.0		734		0.5
20% or more for six months or greater	21,425		6.6		77,873		58.3
Total	$	324,600	100.0	%	$	133,558	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,396 and 567 fixed maturity and equity securities that have estimated fair values below amortized cost as of December 31, 2013 and 2012, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.



	Less than 12 months				12 months or greater				Total
December 31, 2013:	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Investment grade securities:
Corporate securities	$	3,141,179	$	148,895	$	301,303	$	40,548	$	3,442,482	$	189,443
Canadian and Canadian provincial governments	188,491		14,419		12,029		2,429		200,520		16,848
Residential mortgage-backed securities	283,967		15,900		23,068		1,688		307,035		17,588
Asset-backed securities	255,656		4,916		56,668		4,983		312,324		9,899
Commercial mortgage-backed securities	219,110		3,725		20,068		5,745		239,178		9,470
U.S. government and agencies	133,697		4,469		4,406		279		138,103		4,748
State and political subdivisions	120,193		9,723		15,202		4,616		135,395		14,339
Other foreign government, supranational and foreign government-sponsored enterprises	665,313		21,075		36,212		2,847		701,525		23,922
Total investment grade securities	5,007,606		223,122		468,956		63,135		5,476,562		286,257
Non-investment grade securities:
Corporate securities	283,603		9,451		38,256		3,892		321,859		13,343
Residential mortgage-backed securities	62,146		1,075		3,945		254		66,091		1,329
Asset-backed securities	28,670		415		32,392		5,498		61,062		5,913
Commercial mortgage-backed securities	15,762		81		10,980		7,936		26,742		8,017
Other foreign government, supranational and foreign government-sponsored enterprises	9,403		40		—		—		9,403		40
Total non-investment grade securities	399,584		11,062		85,573		17,580		485,157		28,642
Total fixed maturity securities	$	5,407,190	$	234,184	$	554,529	$	80,715	$	5,961,719	$	314,899
Non-redeemable preferred stock	$	51,386	$	5,479	$	1	$	2	$	51,387	$	5,481
Other equity securities	218,834		1,748		32,550		2,472		251,384		4,220
Total equity securities	$	270,220	$	7,227	$	32,551	$	2,474	$	302,771	$	9,701



	Less than 12 months				12 months or greater				Total
December 31, 2012:	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Investment grade securities:
Corporate securities	$	786,203	$	13,276	$	108,187	$	17,386	$	894,390	$	30,662
Canadian and Canadian provincial governments	12,349		174		—		—		12,349		174
Residential mortgage-backed securities	22,288		97		19,394		3,199		41,682		3,296
Asset-backed securities	59,119		449		96,179		9,508		155,298		9,957
Commercial mortgage-backed securities	89,507		797		29,181		7,974		118,688		8,771
U.S. government and agencies	7,272		24		—		—		7,272		24
State and political subdivisions	20,602		1,514		11,736		4,132		32,338		5,646
Other foreign government, supranational and foreign government-sponsored enterprises	244,817		1,953		7,435		761		252,252		2,714
Total investment grade securities	1,242,157		18,284		272,112		42,960		1,514,269		61,244
Non-investment grade securities:
Corporate securities	181,168		3,170		39,123		5,501		220,291		8,671
Residential mortgage-backed securities	15,199		80		2,633		347		17,832		427
Asset-backed securities	3,421		26		31,938		18,815		35,359		18,841
Commercial mortgage-backed securities	3,317		764		68,405		42,307		71,722		43,071
Total non-investment grade securities	203,105		4,040		142,099		66,970		345,204		71,010
Total fixed maturity securities	$	1,445,262	$	22,324	$	414,211	$	109,930	$	1,859,473	$	132,254
Non-redeemable preferred stock	$	5,577	$	52	$	5,679	$	118	$	11,256	$	170
Other equity securities	85,374		1,134		—		—		85,374		1,134
Total equity securities	$	90,951	$	1,186	$	5,679	$	118	$	96,630	$	1,304

As of December 31, 2013, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines.

As of December 31, 2013, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, unforeseen facts and circumstances may cause the Company to sell equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

Unrealized losses on non-investment grade securities are principally related to high-yield corporate securities due to interest rate movements during 2013. Unrealized losses on non-investment grade securities related to asset and mortgage-backed securities decreased significantly during 2013 driven principally by commercial mortgage-backed securities. During the year ended 2013, commercial mortgage-backed securities benefited from improvement in delinquency rates and the Company sold several non-investment grade commercial mortgage-backed securities.

Investment Income, Net of Related Expenses

Major categories of investment income, net of related expenses consist of the following (dollars in thousands):



	2013			2012			2011
Fixed maturity securities available-for-sale	$	966,759		$	868,682		$	757,726
Mortgage loans on real estate	121,476			96,901			55,931
Policy loans	57,099			62,855			66,621
Funds withheld at interest	545,550			393,586			388,694
Short-term investments	2,236			4,173			2,378
Other invested assets	58,771			49,199			39,939
Investment income	1,751,891			1,475,396			1,311,289
Investment expense	(52,026		)	(39,190		)	(30,092		)
Investment income, net of related expenses	$	1,699,865		$	1,436,206		$	1,281,197

Investment Related Gains (Losses), Net

Investment related gains (losses), net, consist of the following (dollars in thousands):



	2013			2012			2011
Fixed maturity and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturities	$	(12,654	)	$	(15,908	)	$	(30,873	)
Portion of loss recognized in accumulated other comprehensive income (before taxes)	(247		)	(7,618		)	3,924
Net other-than-temporary impairment losses on fixed maturity securities recognized in earnings	(12,901		)	(23,526		)	(26,949		)
Impairment losses on equity securities	—			(3,025		)	(4,116		)
Gain on investment activity	82,744			145,268			132,045
Loss on investment activity	(60,575		)	(27,474		)	(26,996		)
Other impairment losses and change in mortgage loan provision	(6,933		)	(16,602		)	(10,238		)
Derivatives and other, net	61,655			179,495			(99,802		)
Total investment related gains (losses), net	$	63,990		$	254,136		$	(36,056	)

The other-than-temporary impairment losses on fixed maturity securities and the increase on the losses on investment activity during 2013 were primarily due to the decision to sell certain subordinated commercial mortgage-backed securities. The other-than-temporary impairments in 2012 and 2011 were primarily due to a decline in value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. Investment gains decreased during 2013 as the Company repositioned certain assets received from a large fixed annuity reinsurance transaction during 2012 while interest rates were at historic lows causing for elevated realized gains during 2012. The volatility in derivatives and other is primarily due to changes in the fair value of embedded derivative liabilities associated with modified coinsurance and funds withheld treaties and guaranteed minimum benefit riders.

At December 31, 2013 and 2012 the Company held non-income producing securities with amortized costs of $38.5 million and $54.2 million, and estimated fair values of $47.6 million and $58.5 million, respectively. Generally, securities are non-income producing when principal or interest is not paid primarily as a result of bankruptcies or credit defaults, but also include securities where amortization has been discontinued. During 2013, 2012 and 2011 the Company sold fixed maturity and equity securities with fair values of $1,104.0 million, $828.0 million, and $476.6 million, which were below amortized cost, at gross realized losses of $60.6 million, $27.5 million and $27.0 million, respectively. The Company generally does not engage in short-term buying and selling of securities.

Securities Borrowing and Other

The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company’s consolidated balance sheets, are borrowed from a third party. The Company is required to maintain a minimum of 100% of the fair value of the borrowed securities as collateral. The Company had borrowed securities with an amortized cost of $93.0 million and $87.5 million as of December 31, 2013 and 2012, respectively, which was equal to the fair value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.

The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s consolidated balance sheets. As of December 31, 2013 the Company had pledged securities with an amortized cost of $300.3 million and an estimated fair value of $310.8 million, in return the Company received securities with an estimated fair value of $344.2 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, in return the Company received securities with an estimated fair value of $342.0 million.

Mortgage Loans on Real Estate

Mortgage loans represented approximately 7.7% and 7.0% of the Company’s invested assets as of December 31, 2013 and 2012, respectively. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, light warehouses and light industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of December 31, 2013 and 2012 (dollars in thousands):



	2013				2012
	Recorded Investment		Percentage of Total		Recorded Investment		Percentage of Total
Property type:
Apartment	$	289,394	11.6	%	$	229,266	9.9	%
Retail	748,731		30.0		669,958		29.0
Office building	917,284		36.7		825,406		35.7
Industrial	439,890		17.6		455,682		19.7
Other commercial	101,487		4.1		131,855		5.7
Total	$	2,496,786	100.0	%	$	2,312,167	100.0	%

As of December 31, 2013 and 2012, the Company’s mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):



	2013				2012
	Recorded Investment		Percentage of Total		Recorded Investment		Percentage of Total
Pacific	$	671,822	26.9	%	$	593,589	25.7	%
South Atlantic	543,658		21.8		477,068		20.5
Mountain	334,446		13.4		233,174		10.1
Middle Atlantic	266,802		10.7		300,475		13.0
West North Central	138,442		5.5		168,063		7.3
East North Central	236,766		9.5		224,122		9.7
West South Central	168,246		6.7		161,451		7.0
East South Central	59,625		2.4		62,789		2.7
New England	76,979		3.1		91,436		4.0
Total	$	2,496,786	100.0	%	$	2,312,167	100.0	%

The maturities of the mortgage loans, gross of valuation allowances, as of December 31, 2013 and 2012 are as follows (dollars in thousands):



	2013		2012
Due within five years	$	987,109	$	1,187,387
Due after five years through ten years	984,289		776,655
Due after ten years	525,388		348,125
Total	$	2,496,786	$	2,312,167

Information regarding the Company’s credit quality indicators, as determined by the Company's internal evaluation methodology for its recorded investment in mortgage loans, gross of valuation allowances, as of December 31, 2013 and 2012 are as follows (dollars in thousands):



Internal credit quality grade:	2013		2012
High investment grade	$	1,437,244	$	1,235,605
Investment grade	827,993		834,494
Average	155,914		132,607
Watch list	49,404		76,463
In or near default	26,231		32,998
Total	$	2,496,786	$	2,312,167

The age analysis of the Company’s past due recorded investment in mortgage loans, gross of valuation allowances, as of December 31, 2013 and 2012 are as follows (dollars in thousands):



	2013		2012
31-60 days past due	$	—	$	7,504
61-90 days past due	—		—
Greater than 90 days	—		16,886
Total past due	—		24,390
Current	2,496,786		2,287,777
Total	$	2,496,786	$	2,312,167

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances, at (dollars in thousands):



	December 31,
	2013		2012
Mortgage loans:
Individually measured for impairment	$	37,841	$	39,956
Collectively measured for impairment	2,458,945		2,272,211
Mortgage loans, gross of valuation allowances	2,496,786		2,312,167
Valuation allowances:
Individually measured for impairment	3,211		6,980
Collectively measured for impairment	6,895		4,600
Total valuation allowances	10,106		11,580
Mortgage loans, net of valuation allowances	$	2,486,680	$	2,300,587

Information regarding the Company’s loan valuation allowances for mortgage loans as of December 31, 2013, 2012 and 2011 are as follows (dollars in thousands):



	2013			2012			2011
Balance, beginning of period	$	11,580		$	11,793		$	6,239
Charge-offs	(3,431		)	(6,474		)	(3,947		)
Provision	1,957			6,261			9,501
Balance, end of period	$	10,106		$	11,580		$	11,793

Information regarding the portion of the Company’s mortgage loans that were impaired as of December 31, 2013 and 2012 is as follows (dollars in thousands):



	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
December 31, 2013:
Impaired mortgage loans with no valuation allowance recorded	$	21,698	$	21,100	$	—	$	21,100
Impaired mortgage loans with valuation allowance recorded	16,772		16,741		3,211		13,530
Total impaired mortgage loans	$	38,470	$	37,841	$	3,211	$	34,630
December 31, 2012:
Impaired mortgage loans with no valuation allowance recorded	$	13,039	$	12,496	$	—	$	12,496
Impaired mortgage loans with valuation allowance recorded	27,527		27,460		6,980		20,480
Total impaired mortgage loans	$	40,566	$	39,956	$	6,980	$	32,976

The Company’s average investment balance of impaired mortgage loans and the related interest income are reflected in the table below for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):



	2013				2012				2011
	Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	15,023	$	852	$	15,549	$	1,244	$	14,877	$	630
Impaired mortgage loans with valuation allowance recorded	22,818		951		34,434		425		27,712		418
Total	$	37,841	$	1,803	$	49,983	$	1,669	$	42,589	$	1,048


(1)	Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.

The Company did not acquire any impaired mortgage loans during the years ended December 31, 2013 and 2012. The Company had no mortgage loans that were on a nonaccrual status at December 31, 2013, and $16.9 million of mortgage loans, gross of valuation allowances, that were on a nonaccrual status at December 31, 2012.

Policy Loans

Policy loans comprised approximately 3.8% and 3.9% of the Company’s invested assets as of December 31, 2013 and 2012, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. As policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

Funds Withheld at Interest

Funds withheld at interest comprised approximately 17.8% and 17.0% of the Company’s invested assets as of December 31, 2013 and 2012, respectively. Of the $5.8 billion funds withheld at interest balance, net of embedded derivatives, as of December 31, 2013, $4.1 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. Interest accrues to these assets at rates defined by the treaty terms and the Company estimates the yield was approximately 9.68%, 6.97% and 6.87% for the years ended December 31, 2013, 2012 and 2011, respectively. Changes in these estimated yields are affected by equity options held in the funds withheld portfolio associated with equity-indexed annuity treaties. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, real estate joint ventures, structured loans, derivative contracts, FVO contractholder-directed unit-linked investments, Federal Home Loan Bank of Des Moines ("FHLB") common stock (included in other), and real estate held-for-investment (included in other). The fair value option was elected for contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting as separate accounts. Other invested assets represented approximately 4.1% and 3.5% of the Company’s invested assets as of December 31, 2013 and 2012, respectively. Carrying values of these assets as of December 31, 2013 and 2012 are as follows (dollars in thousands):



	December 31,
	2013		2012
Equity securities	$	405,731	$	222,700
Limited partnerships and real estate joint ventures	411,456		356,419
Structured loans	223,549		306,497
Derivatives	75,227		168,208
FVO contractholder-directed unit-linked investments	138,892		—
Other	70,105		105,719
Total other invested assets	$	1,324,960	$	1,159,543

Cash and Investments Transferred to the Company

During the second quarter of 2012, the Company added a large fixed deferred annuity reinsurance transaction in its U.S. Asset-Intensive segment. This transaction increased the Company’s invested asset base by approximately $5.4 billion which was reflected on the condensed consolidated balance sheet as of June 30, 2012 as an investment receivable. In satisfaction of this investment receivable, the Company received the following on July 31, 2012 and August 3, 2012 (dollars in thousands):



	Amortized Cost/ Recorded Investment		Estimated Fair Value at Date of Transfer
Fixed maturity securities – available for sale:
Corporate securities	$	2,585,095	$	2,606,816
Asset-backed securities	137,251		138,918
Commercial mortgage-backed securities	703,313		704,065
U.S. Government and agencies securities	240,952		256,168
State and political subdivision securities	27,297		27,555
Other foreign government, supranational, and foreign government-sponsored enterprises	56,776		55,437
Total fixed maturity securities – available for sale	3,750,684		3,788,959
Mortgage loans on real estate	1,009,454		1,021,661
Short-term investments	101,428		101,338
Cash and cash equivalents	501,593		501,593
Accrued interest	43,739		43,739
Total	$	5,406,898	$	5,457,290

The securities transferred to the Company related to the transaction are considered a non-cash transaction in the consolidated statement of cash flows.