3.INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:


	At September 30, 2014
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	519,888	$	698	$	(815	)	$	519,771
Obligations of U.S. states and political subdivisions		792,193		43,524		(994	)		834,723
Corporate securities		2,010,245		41,864		(21,510	)		2,030,599
Asset-backed securities		91,583		821		(87	)		92,317
Mortgage-backed securities
Commercial		40,935		2,750		(1	)		43,684
Agency residential		626,511		6,873		(6,842	)		626,542
Non-agency residential		307		51		-			358
Foreign government securities		544,947		26,458		(4,274	)		567,131
Foreign corporate securities		1,082,900		27,586		(7,495	)		1,102,991
Total fixed maturity securities	$	5,709,509	$	150,625	$	(42,018	)	$	5,818,116
Equity securities	$	15	$	1	$	-		$	16


	At December 31, 2013
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	72,211	$	420	$	(946	)	$	71,685
Obligations of U.S. states and political subdivisions		970,735		40,815		(9,022	)		1,002,528
Corporate securities		1,669,553		45,355		(12,493	)		1,702,415
Asset-backed securities		38,544		1,065		-			39,609
Mortgage-backed securities
Commercial		34,855		3,811		-			38,666
Agency residential		709,589		6,331		(18,521	)		697,399
Non-agency residential		859		113		(33	)		939
Foreign government securities		654,029		28,739		(7,941	)		674,827
Foreign corporate securities		966,225		23,227		(15,599	)		973,853
Total fixed maturity securities	$	5,116,600	$	149,876	$	(64,555	)	$	5,201,921
Equity securities	$	15	$	-	$	(2	)	$	13

The $567,131 thousand of foreign government securities at September 30, 2014 included $73,825 thousand of European sovereign securities.Approximately 52.9%, 16.8%, 8.4%, 8.1% and 5.4% of European Sovereign Securities represented securities held in the governments of France, the United Kingdom, the Netherlands, Belgium and Germany, respectively.No other countries represented more than 5% of the European sovereign securities.The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at September 30, 2014.

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009.As of September 30, 2014, all of the previously reclassified securities have either matured or have been sold.

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.


	At September 30, 2014				At December 31, 2013
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities available for sale
Due in one year or less	$	452,064	$	451,138	$	462,133	$	463,674
Due after one year through five years		2,786,968		2,812,874		2,251,169		2,300,475
Due after five years through ten years		1,066,319		1,077,855		988,896		1,000,053
Due after ten years		644,822		713,348		630,555		661,106
Asset-backed securities		91,583		92,317		38,544		39,609
Mortgage-backed securities
Commercial		40,935		43,684		34,855		38,666
Agency residential		626,511		626,542		709,589		697,399
Non-agency residential		307		358		859		939
Total fixed maturity securities	$	5,709,509	$	5,818,116	$	5,116,600	$	5,201,921

The changes in net unrealized appreciation (depreciation) for the Companys investments are derived from the following sources for the periods as indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	(41,410	)	$	(12,657	)	$	23,285		$	(144,110	)
Fixed maturity securities, other-than-temporary impairment		-			-			-			(399	)
Equity securities		1			1			3			2
Change in unrealizedappreciation (depreciation), pre-tax		(41,409	)		(12,656	)		23,288			(144,507	)
Deferred tax benefit (expense)		14,492			4,430			(8,151	)		50,438
Deferred tax benefit (expense), other-than-temporary impairment		-			-			-			140
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	(26,917	)	$	(8,226	)	$	15,137		$	(93,929	)

The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review.The Company then assesses whether the decline in value is temporary or other-than-temporary.In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information.Generally, a change in a securitys value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value.Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss).If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value.The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Companys consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Companys consolidated balance sheets.The Companys assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Companys asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:


	Duration of Unrealized Loss at September 30, 2014 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	35,516	$	(190	)	$	24,483	$	(625	)	$	59,999	$	(815	)
Obligations of U.S. states and political subdivisions		18,198		(426	)		36,680		(568	)		54,878		(994	)
Corporate securities		925,037		(16,140	)		185,950		(5,370	)		1,110,987		(21,510	)
Asset-backed securities		30,208		(87	)		-		-			30,208		(87	)
Mortgage-backed securities
Commercial		10,365		(1	)		-		-			10,365		(1	)
Agency residential		35,576		(108	)		299,229		(6,734	)		334,805		(6,842	)
Non-agency residential		-		-			-		-			-		-
Foreign government securities		51,430		(349	)		76,092		(3,925	)		127,522		(4,274	)
Foreign corporate securities		186,212		(1,863	)		149,756		(5,632	)		335,968		(7,495	)
Total fixed maturity securities	$	1,292,542	$	(19,164	)	$	772,190	$	(22,854	)	$	2,064,732	$	(42,018	)
Equity securities		-		-			-		-			-		-
Total	$	1,292,542	$	(19,164	)	$	772,190	$	(22,854	)	$	2,064,732	$	(42,018	)


	Duration of Unrealized Loss at September 30, 2014 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	8,185	$	(37	)	$	69,568	$	(5,163	)	$	77,753	$	(5,200	)
Due in one year through five years		714,621		(10,537	)		274,095		(7,104	)		988,716		(17,641	)
Due in five years through ten years		464,811		(7,784	)		85,723		(2,579	)		550,534		(10,363	)
Due after ten years		28,776		(610	)		43,575		(1,274	)		72,351		(1,884	)
Asset-backed securities		30,208		(87	)		-		-			30,208		(87	)
Mortgage-backed securities		45,941		(109	)		299,229		(6,734	)		345,170		(6,843	)
Total fixed maturity securities	$	1,292,542	$	(19,164	)	$	772,190	$	(22,854	)	$	2,064,732	$	(42,018	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2014 were $2,064,732 thousand and $42,018 thousand, respectively.The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at September 30, 2014, did not exceed 0.7% of the overall market value of the Companys fixed maturity securities.In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.The $19,164 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities.Of these unrealized losses, $3,452 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.The $22,854 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, foreign and domestic corporate securities and foreign government securities.Of these unrealized losses, $21,240 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at September 30, 2014.In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis.In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.


	Duration of Unrealized Loss at December 31, 2013 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	39,274	$	(302	)	$	8,751	$	(644	)	$	48,025	$	(946	)
Obligations of U.S. states and political subdivisions		92,760		(4,852	)		39,689		(4,170	)		132,449		(9,022	)
Corporate securities		388,721		(8,981	)		56,156		(3,512	)		444,877		(12,493	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities
Commercial		-		-			-		-			-		-
Agency residential		381,149		(14,084	)		131,504		(4,437	)		512,653		(18,521	)
Non-agency residential		-		-			202		(33	)		202		(33	)
Foreign government securities		100,984		(5,255	)		29,174		(2,686	)		130,158		(7,941	)
Foreign corporate securities		321,933		(11,394	)		66,715		(4,205	)		388,648		(15,599	)
Total fixed maturity securities	$	1,324,821	$	(44,868	)	$	332,191	$	(19,687	)	$	1,657,012	$	(64,555	)
Equity securities		13		(2	)		-		-			13		(2	)
Total	$	1,324,834	$	(44,870	)	$	332,191	$	(19,687	)	$	1,657,025	$	(64,557	)


	Duration of Unrealized Loss at December 31, 2013 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	17,315	$	(1,273	)	$	31,679	$	(4,132	)	$	48,994	$	(5,405	)
Due in one year through five years		425,627		(8,982	)		111,150		(5,647	)		536,777		(14,629	)
Due in five years through ten years		312,341		(10,408	)		14,865		(663	)		327,206		(11,071	)
Due after ten years		188,389		(10,121	)		42,791		(4,775	)		231,180		(14,896	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities		381,149		(14,084	)		131,706		(4,470	)		512,855		(18,554	)
Total fixed maturity securities	$	1,324,821	$	(44,868	)	$	332,191	$	(19,687	)	$	1,657,012	$	(64,555	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2013 were $1,657,025 thousand and $64,557 thousand, respectively.The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2013, did not exceed 0.9% of the overall market value of the Companys fixed maturity securities.In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.The $44,868 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities, foreign government securities, agency residential mortgage-backed securities as well as state and municipal securities.Of these unrealized losses, $38,527 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.The $19,687 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities, agency residential mortgage-backed securities as well as state and municipal securities.Of these unrealized losses, $18,867 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.The gross unrealized depreciation for mortgage-backed securities included $33 thousand related to sub-prime and alt-A loans.In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, is comprised of common shares of the Companys ultimate parent, Group.At September 30, 2014, the Company held 9,719,971 shares of Group representing 17.7% of the total outstanding shares.

The components of net investment income are presented in the table below for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013
Fixed maturities	$	52,515		$	52,098		$	157,515		$	159,363
Equity securities		7,966			8,390			26,083			27,235
Short-term investments and cash		196			302			841			705
Other invested assets
Limited partnerships		19,254			6,569			18,862			32,109
Dividends from Parent's shares		7,290			4,666			21,870			13,997
Other		869			1,056			3,220			5,311
Gross investment income before adjustments		88,090			73,081			228,391			238,720
Funds held interest income (expense)		970			746			4,262			4,182
Gross investment income		89,060			73,827			232,653			242,902
Investment expenses		(5,614	)		(4,999	)		(16,784	)		(15,469	)
Net investment income	$	83,446		$	68,828		$	215,869		$	227,433

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag.If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.

The Company had contractual commitments to invest up to an additional $227,589 thousand in limited partnerships at September 30, 2014.These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2019.

The components of net realized capital gains (losses) are presented in the table below for the periods indicated:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands)	2014			2013		2014			2013
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-		$	-	$	(199	)	$	-
Gains (losses) from sales		1,070			1,730		(1,855	)		4,062
Fixed maturity securities, fair value:
Gain (losses) from sales		82			37		1,022			127
Gains (losses) from fair value adjustments		(938	)		578		(938	)		(1,004	)
Equity securities, fair value:
Gains (losses) from sales		(2,589	)		1,594		(2,204	)		25,565
Gains (losses) from fair value adjustments		(12,559	)		37,789		65,399			160,323
Other invested assets, fair value:
Gains (losses) from fair value adjustments		14,775			166,697		59,681			344,670
Short-term investment gains (losses)		(1	)		1		(2	)		15
Total net realized capital gains (losses)	$	(160	)	$	208,426	$	120,904		$	533,758

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above.The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013
Proceeds from sales of fixed maturity securities	$	222,915		$	125,516		$	571,537		$	483,482
Gross gains from sales		4,408			3,446			10,698			12,123
Gross losses from sales		(3,256	)		(1,679	)		(11,531	)		(7,934	)

Proceeds from sales of equity securities	$	111,684		$	95,174		$	404,627		$	450,020
Gross gains from sales		1,697			3,746			12,019			33,151
Gross losses from sales		(4,286	)		(2,152	)		(14,223	)		(7,586	)