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Investment Information
 3 Months Ended
Mar. 31, 2013
Disclosure Investment Information [Abstract]  
Investment Information
Investment Information
 
Available For Sale Investments
 
The following table summarizes the fair value and cost or amortized cost of the Company’s investments classified as available for sale:
 
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Cost or
Amortized
Cost
 
OTTI
Unrealized
Losses (2)
March 31, 2013
 

 
 

 
 

 
 

 
 

Fixed maturities and fixed maturities pledged under securities lending agreements (1):
 

 
 

 
 

 
 

 
 

Corporate bonds
$
2,592,744

 
$
77,404

 
$
(6,854
)
 
$
2,522,194

 
$
(56
)
Mortgage backed securities
1,704,813

 
23,249

 
(9,395
)
 
1,690,959

 
(9,330
)
Municipal bonds
1,442,116

 
54,533

 
(1,732
)
 
1,389,315

 
(17
)
Commercial mortgage backed securities
867,856

 
27,757

 
(2,717
)
 
842,816

 
(231
)
U.S. government and government agencies
1,151,429

 
21,512

 
(463
)
 
1,130,380

 
(19
)
Non-U.S. government securities
1,074,797

 
24,745

 
(12,817
)
 
1,062,869

 
—

Asset backed securities
1,146,611

 
24,706

 
(9,760
)
 
1,131,665

 
(3,348
)
Total
9,980,366

 
253,906

 
(43,738
)
 
9,770,198

 
(13,001
)
 
 
 
 
 
 
 
 
 
 
Equity securities
342,091

 
51,325

 
(10,124
)
 
300,890

 
—

Other investments
585,277

 
36,425

 
(2,945
)
 
551,797

 
—

Short-term investments
944,274

 
2,962

 
(4,227
)
 
945,539

 
—

Total
$
11,852,008

 
$
344,618

 
$
(61,034
)
 
$
11,568,424

 
$
(13,001
)
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 

 
 

 
 

 
 

 
 

Fixed maturities and fixed maturities pledged under securities lending agreements (1):
 

 
 

 
 

 
 

 
 

Corporate bonds
$
2,857,513

 
$
105,798

 
$
(6,710
)
 
$
2,758,425

 
$
(62
)
Mortgage backed securities
1,532,736

 
24,809

 
(7,484
)
 
1,515,411

 
(9,329
)
Municipal bonds
1,463,586

 
62,322

 
(1,421
)
 
1,402,685

 
(17
)
Commercial mortgage backed securities
824,165

 
37,514

 
(4,468
)
 
791,119

 
(270
)
U.S. government and government agencies
1,131,688

 
20,178

 
(1,095
)
 
1,112,605

 
(19
)
Non-U.S. government securities
998,901

 
33,701

 
(8,860
)
 
974,060

 
—

Asset backed securities
1,073,999

 
25,528

 
(5,838
)
 
1,054,309

 
(3,346
)
Total
9,882,588

 
309,850

 
(35,876
)
 
9,608,614

 
(13,043
)
 
 
 
 
 
 
 
 
 
 
Equity securities
312,749

 
26,625

 
(12,290
)
 
298,414

 
—

Other investments
549,280

 
32,582

 
(3,257
)
 
519,955

 
—

Short-term investments
730,369

 
3,521

 
(1,248
)
 
728,096

 
—

Total
$
11,474,986

 
$
372,578

 
$
(52,671
)
 
$
11,155,079

 
$
(13,043
)
_________________________________________________
(1)
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities and short-term investments pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities and short-term investments pledged. See “—Securities Lending Agreements.”
(2)
Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At March 31, 2013, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was $5.1 million, compared to a net unrealized gain of $2.0 million at December 31, 2012.

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
March 31, 2013
 

 
 

 
 

 
 

 
 

 
 

Fixed maturities and fixed maturities pledged under securities lending agreements (1):
 

 
 

 
 

 
 

 
 

 
 

Corporate bonds
$
533,561

 
$
(4,593
)
 
$
35,835

 
$
(2,261
)
 
$
569,396

 
$
(6,854
)
Mortgage backed securities
728,792

 
(8,613
)
 
24,055

 
(782
)
 
752,847

 
(9,395
)
Municipal bonds
188,494

 
(1,292
)
 
10,513

 
(440
)
 
199,007

 
(1,732
)
Commercial mortgage backed securities
216,698

 
(2,665
)
 
710

 
(52
)
 
217,408

 
(2,717
)
U.S. government and government agencies
44,237

 
(463
)
 
—

 
—

 
44,237

 
(463
)
Non-U.S. government securities
384,535

 
(7,178
)
 
76,346

 
(5,639
)
 
460,881

 
(12,817
)
Asset backed securities
190,944

 
(4,425
)
 
54,700

 
(5,335
)
 
245,644

 
(9,760
)
Total
2,287,261

 
(29,229
)
 
202,159

 
(14,509
)
 
2,489,420

 
(43,738
)
Equity securities
114,184

 
(8,210
)
 
20,725

 
(1,914
)
 
134,909

 
(10,124
)
Other investments
62,020

 
(2,043
)
 
33,759

 
(902
)
 
95,779

 
(2,945
)
Short-term investments
108,123

 
(4,227
)
 
—

 
—

 
108,123

 
(4,227
)
Total
$
2,571,588

 
$
(43,709
)
 
$
256,643

 
$
(17,325
)
 
$
2,828,231

 
$
(61,034
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 

 
 

 
 

 
 

 
 

 
 

Fixed maturities and fixed maturities pledged under securities lending agreements (1):
 

 
 

 
 

 
 

 
 

 
 

Corporate bonds
$
490,784

 
$
(3,692
)
 
$
52,334

 
$
(3,018
)
 
$
543,118

 
$
(6,710
)
Mortgage backed securities
537,883

 
(4,290
)
 
60,574

 
(3,194
)
 
598,457

 
(7,484
)
Municipal bonds
147,766

 
(1,120
)
 
7,052

 
(301
)
 
154,818

 
(1,421
)
Commercial mortgage backed securities
36,649

 
(2,261
)
 
8,878

 
(2,207
)
 
45,527

 
(4,468
)
U.S. government and government agencies
146,526

 
(1,095
)
 
—

 
—

 
146,526

 
(1,095
)
Non-U.S. government securities
244,827

 
(1,070
)
 
135,564

 
(7,790
)
 
380,391

 
(8,860
)
Asset backed securities
234,584

 
(1,508
)
 
57,371

 
(4,330
)
 
291,955

 
(5,838
)
Total
1,839,019

 
(15,036
)
 
321,773

 
(20,840
)
 
2,160,792

 
(35,876
)
Equity securities
130,385

 
(10,200
)
 
16,469

 
(2,090
)
 
146,854

 
(12,290
)
Other investments
23,849

 
(2,474
)
 
35,083

 
(783
)
 
58,932

 
(3,257
)
Short-term investments
57,415

 
(1,248
)
 
—

 
—

 
57,415

 
(1,248
)
Total
$
2,050,668

 
$
(28,958
)
 
$
373,325

 
$
(23,713
)
 
$
2,423,993

 
$
(52,671
)
_________________________________________________
(1)
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities and short-term investments pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities and short-term investments pledged. See “—Securities Lending Agreements.”

At March 31, 2013, on a lot level basis, approximately 860 security lots out of a total of approximately 4,340 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $3.2 million. At December 31, 2012, on a lot level basis, approximately 910 security lots out of a total of approximately 4,580 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.5 million.
 
The contractual maturities of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
 
March 31, 2013
 
December 31, 2012
Maturity
 
Fair Value
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
Due in one year or less
 
$
414,808

 
$
405,063

 
$
446,402

 
$
436,376

Due after one year through five years
 
3,692,725

 
3,617,078

 
3,876,062

 
3,769,426

Due after five years through 10 years
 
1,852,459

 
1,789,372

 
1,949,297

 
1,869,698

Due after 10 years
 
301,094

 
293,245

 
179,927

 
172,275

 
 
6,261,086

 
6,104,758

 
6,451,688

 
6,247,775

Mortgage backed securities
 
1,704,813

 
1,690,959

 
1,532,736

 
1,515,411

Commercial mortgage backed securities
 
867,856

 
842,816

 
824,165

 
791,119

Asset backed securities
 
1,146,611

 
1,131,665

 
1,073,999

 
1,054,309

Total
 
$
9,980,366

 
$
9,770,198

 
$
9,882,588

 
$
9,608,614


 
Securities Lending Agreements
 
The Company operates a securities lending program under which certain of its fixed income portfolio securities are loaned to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The fair value and amortized cost of fixed maturities and short-term investments pledged under securities lending agreements were $90.8 million and $88.4 million, respectively, at March 31, 2013, compared to $50.8 million and $49.6 million, respectively, at December 31, 2012. The fair value of the portfolio of collateral backing the Company's securities lending program was $84.3 million at March 31, 2013, compared to $42.5 million at December 31, 2012. Such amounts included approximately $5.4 million fair value of sub-prime securities at March 31, 2013, compared to $5.4 million at December 31, 2012. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan to the Company. 

Other Investments

The following table summarizes the Company's other investments, including available for sale and fair value option components:

 
March 31,
2013
 
December 31,
2012
Available for sale:
 
 
 
Asian and emerging markets
$
328,652

 
$
316,860

Investment grade fixed income
249,345

 
220,410

Other
7,280

 
12,010

Total available for sale
585,277

 
549,280

Fair value option:
 
 
 
Term loan investments (par value: $323,833 and $307,016)
328,254

 
308,596

Asian and emerging markets
30,796

 
24,035

Investment grade fixed income
81,583

 
67,624

Non-investment grade fixed income
11,107

 
11,093

Other
86,105

 
116,623

Total fair value option
$
537,845

 
$
527,971

Total
$
1,123,122

 
$
1,077,251



Certain of the Company's other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund's subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company's ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

Fair Value Option
 
The Company elected to carry certain fixed maturity securities, equity securities and other investments (primarily term loans) at fair value under the fair value option afforded by accounting guidance regarding the fair value option for financial assets and liabilities. Changes in fair value of investments accounted for using the fair value option are included in net realized gains or losses while interest income, dividends received and distributions from fund investments which are not a return of capital are reflected in net investment income. The primary reasons for electing the fair value option were to reflect economic events in earnings on a timely basis and to address practicality and cost-benefit considerations.
 
The following table summarizes the Company’s assets and liabilities which are accounted for using the fair value option:
 
 
March 31,
2013
 
December 31,
2012
Fixed maturities
$
364,385

 
$
363,541

Other investments
537,845

 
527,971

Equity securities
—

 
25,954

Investments accounted for using the fair value option
902,230

 
917,466

Securities sold but not yet purchased (1)
—

 
(6,924
)
Net assets accounted for using the fair value option
$
902,230

 
$
910,542

_________________________________________________
(1)
Represents the Company’s obligation to deliver equity securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

Net Investment Income
 
The components of net investment income were derived from the following sources:
 
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
Fixed maturities
$
62,006

 
$
73,450

 
Term loan investments (1)
4,217

 
2,299

 
Equity securities
1,423

 
1,664

 
Short-term investments
392

 
372

 
Other (2)
6,299

 
3,193

 
Gross investment income
74,337

 
80,978

 
Investment expenses
(8,665
)
 
(6,681
)
 
Net investment income
$
65,672

 
$
74,297

 
_________________________________________________
(1)
Included in “investments accounted for using the fair value option” on the Company’s consolidated balance sheets.
(2)
Amounts include dividends on investment funds and other items.
 
Net Realized Gains (Losses)
 
Net realized gains (losses) were as follows, excluding other-than-temporary impairment provisions:

 
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
Available for sale securities:
 

 
 

 
Gross gains on investment sales
$
67,020

 
$
48,012

 
Gross losses on investment sales
(25,056
)
 
(17,936
)
 
Change in fair value of assets and liabilities accounted for using the fair value option:
 

 
 

 
Fixed maturities
5,058

 
8,217

 
Equity securities
699

 
3,387

 
Other investments
9,951

 
3,753

 
TALF investments
—

 
1,224

 
TALF borrowings
—

 
1,071

 
Derivative instruments (1)
(378
)
 
(4,669
)
 
Other
1,046

 
1,062

 
Net realized gains
$
58,340

 
$
44,121

 
_________________________________________________
(1)
See Note 9 for information on the Company’s derivative instruments.
 
Other-Than-Temporary Impairments
 
The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. The following table details the net impairment losses recognized in earnings by asset class:
 
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
Fixed maturities:
 

 
 

 
Mortgage backed securities
$
(15
)
 
$
(746
)
 
Corporate bonds
—

 
(196
)
 
Asset backed securities
(20
)
 
—

 
Total
(35
)
 
(942
)
 
Investment of funds received under securities lending agreements
—

 
(81
)
 
Equity securities
(2,211
)
 
—

 
Net impairment losses recognized in earnings
$
(2,246
)
 
$
(1,023
)
 

 
A description of the methodology and significant inputs used to measure the amount of net impairment losses recognized in earnings in the 2013 first quarter is as follows:

•
Equity securities — the Company utilized information received from asset managers on common stocks, including the business prospects, recent events, industry and market data and other factors. For certain equities which were in an unrealized loss position and where the Company determined that it did not have the intent or ability to hold such securities for a reasonable period of time by which the fair value of the securities would increase and the Company would recover its cost, the cost basis of such securities was adjusted down accordingly;

•
Mortgage backed and asset backed securities — the Company utilized underlying data provided by asset managers, cash flow projections and additional information from credit agencies in order to determine an expected recovery value for each security. The analysis includes expected cash flow projections under base case and stress case scenarios which modify the expected default expectations and loss severities and slow down prepayment assumptions. The significant inputs in the models include the expected default rates, delinquency rates and foreclosure costs. The expected recovery values were reduced on a small number of securities, primarily as a result of increases in expected default expectations and foreclosure costs. The amortized cost basis of the securities were adjusted down, if required, to the expected recovery value calculated in the OTTI review process.

The Company believes that the $13.0 million of OTTI included in accumulated other comprehensive income at March 31, 2013 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (i.e., not credit losses). At March 31, 2013, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.
 
The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:
 
 
Three Months Ended
 
 
March 31,
 
 
2013
 
2012
 
Balance at start of period
$
62,001

 
$
66,545

 
Credit loss impairments recognized on securities not previously impaired
33

 
212

 
Credit loss impairments recognized on securities previously impaired
2

 
811

 
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security
—

 
—

 
Reductions for securities sold during the period
(80
)
 
(482
)
 
Balance at end of period
$
61,956

 
$
67,086

 

 
Restricted Assets
 
The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its insurance and reinsurance operations. The Company’s insurance and reinsurance subsidiaries maintain assets in trust accounts as collateral for insurance and reinsurance transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See Note 4, “Commitments and Contingencies—Letter of Credit and Revolving Credit Facilities,” for further details. The following table details the value of the Company’s restricted assets:
 
 
March 31,
2013
 
December 31,
2012
Assets used for collateral or guarantees:
 

 
 

Affiliated transactions
$
4,104,426

 
$
4,062,097

Third party agreements
791,160

 
771,631

Deposits with U.S. regulatory authorities
308,110

 
290,441

Deposits with non-U.S. regulatory authorities
6,843

 
247,321

Trust funds
110,266

 
96,342

Total restricted assets
$
5,320,805

 
$
5,467,832