Exhibit 99.3
Financial Condition
Investments
Our total investment portfolio increased 0.2% to $10,875.1 million at March 31, 2009 compared to $10,854.1 million at December 31, 2008. This increase is primarily the result of net cash received from interest sensitive and index products, partially offset by the payoff of our line of credit and write-downs for impairments of fixed maturity securities. Net unrealized depreciation of fixed maturity securities increased $32.1 million during 2009 to a net unrealized loss of $1,571.8 million at March 31, 2009. This increase is principally due to the adoption of FSP FAS 115-2, which increased unrealized losses $37.1 million in 2009. Our unrealized loss position remains high due to wide credit spreads primarily due to the continued deterioration of the U.S. housing market, tightened lending conditions and decreased liquidity in the market. In addition, there is a severe global recession which has caused significant market strain. Steps taken by the government to stabilize the financial system are slow to have a meaningful impact and pressures on the financial system continued during the first quarter of 2009. Details regarding the investment impairments are discussed above in the “Realized Losses on Investments” section under “Results of Operations.” Additional details regarding securities in an unrealized loss position at March 31, 2009 are included in the discussion that follows and in Note 2 to our consolidated financial statements.
Internal investment professionals manage our investment portfolio. The investment strategy is designed to achieve superior risk-adjusted returns consistent with the investment philosophy of maintaining a largely investment grade portfolio and providing adequate liquidity for obligations to policyholders and other requirements.
Investment Portfolio Summary
| March 31, 2009 | | December 31, 2008 |
| Carrying Value | | Percent | | Carrying Value | | Percent |
| (Dollars in thousands) |
| Fixed maturities – available for sale: | |
| Public | $ | 7,357,009 | | 67.7 | % | | $ | 7,406,964 | | 68.3 | % |
| 144A private placement | | 1,131,776 | | 10.4 | | | | 1,164,417 | | 10.7 | |
| Private placement | | 392,741 | | 3.6 | | | | 394,062 | | 3.6 | |
Total fixed maturities – available for sale | | 8,881,526 | | 81.7 | | | | 8,965,443 | | 82.6 | |
| Equity securities | | 44,953 | | 0.4 | | | | 44,863 | | 0.4 | |
| Mortgage loans on real estate | | 1,362,146 | | 12.6 | | | | 1,381,854 | | 12.8 | |
| Derivative instruments | | 15,755 | | 0.1 | | | | 12,933 | | 0.1 | |
| Investment real estate | | 2,559 | | – | | | | 2,559 | | – | |
| Policy loans | | 183,423 | | 1.7 | | | | 182,421 | | 1.7 | |
| Other long-term investments | | 1,581 | | – | | | | 1,527 | | – | |
| Short-term investments | | 383,183 | | 3.5 | | | | 262,459 | | 2.4 | |
| Total investments | $ | 10,875,126 | | 100.0 | % | | $ | 10,854,059 | | 100.0 | % |
As of March 31, 2009, 94.9% (based on carrying value) of the available-for-sale fixed maturity securities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of March 31, 2009, the investment in non-investment grade debt was 5.1% of available-for-sale fixed maturity securities. At that time, no single non-investment grade holding exceeded 0.2% of total investments.
Credit Quality by NAIC Designation and Standard & Poor’s (S&P) Rating Equivalents
| | | | March 31, 2009 | | December 31, 2008 |
| NAIC Designation | | Equivalent S&P Ratings (1) | | Carrying Value | | Percent | | Carrying Value | | Percent |
| | | | (Dollars in thousands) | |
| 1 | | AAA, AA, A | | $ | 5,225,104 | | 58.8 | % | | $ | 5,382,110 | | 60.0 | % |
| 2 | | BBB | | | 3,201,705 | | 36.1 | | | | 3,243,034 | | 36.2 | |
| | Total investment grade | | | 8,426,809 | | 94.9 | | | | 8,625,144 | | 96.2 | |
| 3 | | BB | | | 301,786 | | 3.4 | | | | 244,814 | | 2.7 | |
| 4 | | B | | | 109,322 | | 1.2 | | | | 40,565 | | 0.5 | |
| 5 | | CCC, CC, C | | | 19,950 | | 0.2 | | | | 43,064 | | 0.5 | |
| 6 | | In or near default | | | 23,659 | | 0.3 | | | | 11,856 | | 0.1 | |
| | Total below investment grade | | | 454,717 | | 5.1 | | | | 340,299 | | 3.8 | |
| | Total fixed maturities – available for sale | | $ | 8,881,526 | | 100.0 | % | | $ | 8,965,443 | | 100.0 | % |
| (1) | The Securities Valuation Office of the NAIC generally rates private placement securities. Comparisons between NAIC designations and S&P ratings are published by the NAIC. S&P has not rated some of the fixed maturity securities in our portfolio. |
Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
| March 31, 2009 |
| Total Carrying Value | | Carrying Value of Securities with Gross Unrealized Gains | | Gross Unrealized Gains | | Carrying Value of Securities with Gross Unrealized Losses | | Gross Unrealized Losses |
| (Dollars in thousands) |
| Corporate securities: | | | | | | | | | | | | | | |
| Financial services | $ | 1,173,730 | | $ | 66,972 | | $ | 3,196 | | $ | 1,106,758 | | $ | (599,818 | ) |
| Manufacturing | | 1,204,731 | | | 387,324 | | | 12,373 | | | 817,407 | | | (181,596 | ) |
| Mining | | 506,440 | | | 65,679 | | | 1,732 | | | 440,761 | | | (70,819 | ) |
| Retail trade | | 96,277 | | | 27,052 | | | 465 | | | 69,225 | | | (19,928 | ) |
| Services | | 181,521 | | | 33,632 | | | 1,824 | | | 147,889 | | | (26,428 | ) |
| Transportation | | 170,589 | | | 43,312 | | | 4,471 | | | 127,277 | | | (22,366 | ) |
| Utilities | | 1,270,018 | | | 267,065 | | | 11,149 | | | 1,002,953 | | | (120,234 | ) |
| Other | | 161,087 | | | 37,872 | | | 2,433 | | | 123,215 | | | (18,785 | ) |
| Total corporate securities | | 4,764,393 | | | 928,908 | | | 37,643 | | | 3,835,485 | | | (1,059,974 | ) |
| Mortgage and asset-backed securities | | 2,566,904 | | | 1,033,534 | | | 57,771 | | | 1,533,370 | | | (476,785 | ) |
| United States Government and agencies | | 267,362 | | | 267,362 | | | 12,405 | | | – | | | – | |
| State, municipal and other governments | | 1,282,867 | | | 156,471 | | | 5,572 | | | 1,126,396 | | | (148,412 | ) |
| Total | $ | 8,881,526 | | $ | 2,386,275 | | $ | 113,391 | | $ | 6,495,251 | | $ | (1,685,171 | ) |
| | December 31, 2008 |
| | Total Carrying Value | | Carrying Value of Securities with Gross Unrealized Gains | | Gross Unrealized Gains | | Carrying Value of Securities with Gross Unrealized Losses | | Gross Unrealized Losses |
| | (Dollars in thousands) |
| Corporate securities: | | | | | | | | | | | | | | | |
| Financial services | | $ | 1,246,895 | | $ | 114,067 | | $ | 4,806 | | $ | 1,132,828 | | $ | (547,594 | ) |
| Manufacturing | | | 1,211,102 | | | 289,093 | | | 11,187 | | | 922,009 | | | (183,439 | ) |
| Mining | | | 469,935 | | | 24,521 | | | 1,770 | | | 445,414 | | | (73,562 | ) |
| Retail trade | | | 104,379 | | | 24,170 | | | 569 | | | 80,209 | | | (16,819 | ) |
| Services | | | 184,528 | | | 42,850 | | | 1,164 | | | 141,678 | | | (28,796 | ) |
| Transportation | | | 177,844 | | | 52,034 | | | 6,849 | | | 125,810 | | | (20,253 | ) |
| Utilities | | | 1,279,641 | | | 299,537 | | | 16,623 | | | 980,104 | | | (135,654 | ) |
| Other | | | 159,831 | | | 52,252 | | | 3,209 | | | 107,579 | | | (21,275 | ) |
| Total corporate securities | | | 4,834,155 | | | 898,524 | | | 46,177 | | | 3,935,631 | | | (1,027,392 | ) |
| Mortgage and asset-backed securities | | | 2,569,769 | | | 975,193 | | | 46,573 | | | 1,594,576 | | | (478,994 | ) |
| United States Government and agencies | | | 250,893 | | | 217,379 | | | 12,891 | | | 33,514 | | | (4,031 | ) |
| State, municipal and other governments | | | 1,310,626 | | | 142,107 | | | 4,565 | | | 1,168,519 | | | (139,430 | ) |
| Total | | $ | 8,965,443 | | $ | 2,233,203 | | $ | 110,206 | | $ | 6,732,240 | | $ | (1,649,847 | ) |
Credit Quality of Available-for-Sale Fixed Maturity Securities with Unrealized Losses
| | | | March 31, 2009 |
| NAIC Designation | | Equivalent S&P Ratings | | Carrying Value
of Securities with
Gross Unrealized Losses | | Percent of Total | | Gross Unrealized Losses | | Percent of Total |
| | | | (Dollars in thousands) | |
| 1 | | AAA, AA, A | | $ | 3,303,926 | | 50.9 | % | | $ | (683,021) | | 40.5 | % |
| 2 | | BBB | | | 2,778,251 | | 42.8 | | | | (671,884) | | 39.9 | |
| | Total investment grade | | | 6,082,177 | | 93.7 | | | | (1,354,905) | | 80.4 | |
| 3 | | BB | | | 268,052 | | 4.1 | | | | (109,755) | | 6.5 | |
| 4 | | B | | | 103,881 | | 1.6 | | | | (128,109) | | 7.6 | |
| 5 | | CCC, CC, C | | | 19,949 | | 0.3 | | | | (27,068) | | 1.6 | |
| 6 | | In or near default | | | 21,192 | | 0.3 | | | | (65,334) | | 3.9 | |
| | Total below investment grade | | | 413,074 | | 6.3 | | | | (330,266) | | 19.6 | |
| | Total | | $ | 6,495,251 | | 100.0 | % | | $ | (1,685,171) | | 100.0 | % |
| | | | December 31, 2008 |
| NAIC Designation | | Equivalent S&P Ratings | | Carrying Value
of Securities with
Gross Unrealized Losses | | Percent of Total | | Gross Unrealized Losses | | Percent of Total |
| | | | (Dollars in thousands) | |
| 1 | | AAA, AA, A | | $ | 3,545,103 | | 52.7 | % | | $ | (740,675) | | 44.9 | % |
| 2 | | BBB | | | 2,890,656 | | 42.9 | | | | (738,512) | | 44.8 | |
| | Total investment grade | | | 6,435,759 | | 95.6 | | | | (1,479,187) | | 89.7 | |
| 3 | | BB | | | 212,438 | | 3.1 | | | | (70,545) | | 4.3 | |
| 4 | | B | | | 37,399 | | 0.6 | | | | (45,228) | | 2.7 | |
| 5 | | CCC, CC, C | | | 40,308 | | 0.6 | | | | (47,615) | | 2.9 | |
| 6 | | In or near default | | | 6,336 | | 0.1 | | | | (7,272) | | 0.4 | |
| | Total below investment grade | | | 296,481 | | 4.4 | | | | (170,660) | | 10.3 | |
| | Total | | $ | 6,732,240 | | 100.0 | % | | $ | (1,649,847) | | 100.0 | % |
Available-For-Sale Fixed Maturity Securities with Unrealized Losses by Length of Time
| March 31, 2009 |
| | | Amortized Cost | | Gross Unrealized Losses |
| Number
of Issuers | | Market Value is Less
than 75% of Cost | | Market Value is 75% or Greater than Cost | | Market Value is Less than 75% of Cost | | Market Value is 75% or Greater than Cost |
| Three months or less | 71 | | $ | 29,862 | | $ | 336,171 | | $ | (12,625 | ) | | $ | (25,901 | ) |
| Greater than three months to six months | 137 | | | 39,823 | | | 608,734 | | | (15,066 | ) | | | (47,324 | ) |
| Greater than six months to nine months | 155 | | | 55,024 | | | 844,273 | | | (17,946 | ) | | | (72,836 | ) |
| Greater than nine months to twelve months | 240 | | | 192,425 | | | 1,040,536 | | | (61,577 | ) | | | (99,140 | ) |
| Greater than twelve months | 518 | | | 2,030,508 | | | 3,003,066 | | | (945,554 | ) | | | (387,202 | ) |
| Total | | | $ | 2,347,642 | | $ | 5,832,780 | | $ | (1,052,768 | ) | | $ | (632,403 | ) |
| December 31, 2008 |
| | | Amortized Cost | | Gross Unrealized Losses |
| Number
of Issuers | | Market Value is Less than 75% of Cost | | Market Value is 75% or Greater than Cost | | Market Value is Less than 75% of Cost | | Market Value is 75% or Greater than Cost |
| Three months or less | 170 | | $ | 31,774 | | $ | 784,689 | | $ | (12,658 | ) | | $ | (51,824 | ) |
| Greater than three months to six months | 193 | | | 75,356 | | | 1,024,158 | | | (28,791 | ) | | | (82,320 | ) |
| Greater than six months to nine months | 262 | | | 182,184 | | | 1,140,978 | | | (56,719 | ) | | | (111,013 | ) |
| Greater than nine months to twelve months | 143 | | | 288,140 | | | 780,947 | | | (103,539 | ) | | | (97,928 | ) |
| Greater than twelve months | 455 | | | 1,733,949 | | | 2,339,912 | | | (785,180 | ) | | | (319,875 | ) |
| Total | | | $ | 2,311,403 | | $ | 6,070,684 | | $ | (986,887 | ) | | $ | (662,960 | ) |
Available-For-Sale Fixed Maturity Securities with Unrealized Losses by Maturity Date
| March 31, 2009 | | December 31, 2008 |
| Carrying Value of Securities
with Gross Unrealized Losses | | Gross Unrealized Losses | | Carrying Value of Securities
with Gross Unrealized Losses | | Gross Unrealized Losses |
| (Dollars in thousands) |
| Due in one year or less | $ | 28,111 | | $ | (6,083 | ) | | $ | 43,483 | | $ | (4,985 | ) |
| Due after one year through five years | | 725,000 | | | (138,502 | ) | | | 791,636 | | | (143,559 | ) |
| Due after five years through ten years | | 2,000,092 | | | (482,198 | ) | | | 2,037,451 | | | (514,869 | ) |
| Due after ten years | | 2,204,590 | | | (580,691 | ) | | | 2,260,568 | | | (506,966 | ) |
| | 4,957,793 | | | (1,207,474 | ) | | | 5,133,138 | | | (1,170,379 | ) |
| Mortgage and asset-backed securities | | 1,533,370 | | | (476,785 | ) | | | 1,594,576 | | | (478,994 | ) |
| Redeemable preferred stock | | 4,088 | | | (912 | ) | | | 4,526 | | | (474 | ) |
| Total | $ | 6,495,251 | | $ | (1,685,171 | ) | | $ | 6,732,240 | | $ | (1,649,847 | ) |
At March 31, 2009, unrealized losses on available-for-sale fixed maturity securities totaled $1,685.2 million primarily due to $1,060.0 million in unrealized losses on corporate securities. The unrealized losses on corporate securities were primarily due to:
- increased credit spreads on commercial real estate investment trust bonds, due to the underlying real estate exposure and market concerns about the ability to access capital markets,
- increased credit spreads and defaults in collateralized debt obligations,
- a decrease in market liquidity and credit quality concerns of assets held by banking institutions and
- increased credit spreads from weaker operating results in the manufacturing sector.
In addition, the unrealized losses on mortgage and asset-backed securities totaling $476.8 million were primarily due an increase in credit spreads and decrease in market liquidity resulting from concerns about mortgage defaults on subprime and other risky mortgages and potential downgrades or defaults of monoline bond insurers. We do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, therefore we do not consider these investments to be other-than-temporarily impaired at March 31, 2009. See Note 2 to our consolidated financial statements for additional analysis of these unrealized losses.
Mortgage and Asset-Backed Securities
Mortgage and other asset-backed securities comprised 28.9% at March 31, 2009 and 28.7% at December 31, 2008 of our total available-for-sale fixed maturity securities. These securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.
The repayment pattern on mortgage and other asset-backed securities is more variable than that of more traditional fixed maturity securities because the repayment terms are tied to underlying debt obligations that are subject to prepayments. The prepayment speeds (e.g., the rate of individuals refinancing their home mortgages) can vary based on a number of economic factors that cannot be predicted with certainty. These factors include the prevailing interest rate environment and general status of the economy.
At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed, to result in a constant effective yield over the life of the security. This effective yield is computed using historical principal payments and expected future principal payment patterns. Any adjustments to book value to derive the constant effective yield, which may include the reversal of premium or discount amounts previously amortized or accrued, are recorded in the current period as a component of net investment income. Accordingly, deviations in actual prepayment speeds from that originally expected or changes in expected prepayment speeds can cause a change in the yield earned on mortgage and asset-backed securities purchased at a premium or discount and may result in adjustments that have a material positive or negative impact on quarterly reported results. Increases in prepayment speeds, which typically occur in a decreasing interest rate environment, generally increase the rate at which discount is accrued and premium is amortized into income. Decreases in prepayment speeds, which typically occur in an increasing interest rate environment, generally slow down the rate these amounts are recorded into income.
Mortgage and Asset-Backed Securities by Type
| March 31, 2009 |
| Amortized Cost | | Par Value | | Carrying Value | | Percent of Fixed Maturities |
| (Dollars in thousands) |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Sequential | $ | 1,211,633 | | $ | 1,237,379 | | $ | 1,077,966 | | 12.1 | % |
| Pass-through | | 208,285 | | | 208,679 | | | 216,902 | | 2.4 | |
| Planned and targeted amortization class | | 499,657 | | | 505,375 | | | 463,132 | | 5.2 | |
| Other | | 39,990 | | | 40,072 | | | 32,268 | | 0.4 | |
| Total residential mortgage-backed securities | | 1,959,565 | | | 1,991,505 | | | 1,790,268 | | 20.1 | |
| Commercial mortgage-backed securities | | 807,520 | | | 827,065 | | | 655,011 | | 7.4 | |
| Other asset-backed securities | | 218,833 | | | 263,951 | | | 121,625 | | 1.4 | |
| Total mortgage and asset-backed securities | $ | 2,985,918 | | $ | 3,082,521 | | $ | 2,566,904 | | 28.9 | % |
| December 31, 2008 |
| Amortized Cost | Par Value | | Carrying Value | | Percent of Fixed
Maturities |
| (Dollars in thousands) | |
| Residential mortgage-backed securities: | | | | | | | | | | |
| Sequential | $ | 1,237,035 | | $ | 1,264,691 | | $ | 1,068,869 | | 11.9 | % |
| Pass-through | | 219,447 | | | 219,855 | | | 225,513 | | 2.5 | |
| Planned and targeted amortization class | | 508,133 | | | 513,373 | | | 464,296 | | 5.2 | |
| Other | | 40,086 | | | 40,184 | | | 31,011 | | 0.4 | |
| Total residential mortgage-backed securities | | 2,004,701 | | | 2,038,103 | | | 1,789,689 | | 20.0 | |
| Commercial mortgage-backed securities | | 799,546 | | | 819,030 | | | 640,236 | | 7.1 | |
| Other asset-backed securities | | 197,943 | | | 265,435 | | | 139,844 | | 1.6 | |
| Total mortgage and asset-backed securities | $ | 3,002,190 | | $ | 3,122,568 | | $ | 2,569,769 | | 28.7 | % |
The residential mortgage-backed portfolio includes pass-through and collateralized mortgage obligation (CMO) securities. With a pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or "tranches" which provide sequential retirement of the bonds. We invest in sequential tranches which provide cash flow stability in that principal payments do not occur until the previous tranches are paid off. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. CMOs of these types provide more predictable cash flows within a range of prepayment speeds by shifting the prepayment risks to support tranches. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to greater than average risk. These include, but are not limited to, principal only, floater, inverse floater, PAC II and support tranches.
The commercial and other asset-backed securities are primarily sequential securities. Commercial mortgage-backed securities typically have cash flows that are less sensitive to interest rate changes than residential securities of similar types due principally to prepayment restrictions on many of the underlying commercial mortgage loans. The other asset-backed securities, whose collateral is primarily second lien, fixed rate home-equity loans, are also less sensitive to interest rate changes due to the borrowers typically having less ability to refinance as compared to homeowners with a first lien mortgage only.
Our direct exposure to the Alt-A home equity and subprime first-lien loan sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans with this exposure. We do not own any direct investments in subprime lenders or adjustable rate mortgages.
Mortgage and Asset-Backed Securities by Collateral Type
| | March 31, 2009 | | December 31, 2008 |
| Amortized Cost | | Carrying Value | | Percent
of Fixed Maturities | | Amortized Cost | | Carrying Value | | Percent
of Fixed Maturities |
| | (Dollars in thousands) | (Dollars in thousands) |
| Government agency | $ | 544,588 | | $ | 577,895 | | 6.5 | % | | $ | 557,311 | | $ | 579,489 | | 6.5 | % |
| Prime | | 1,038,351 | | | 908,382 | | 10.2 | | | | 1,068,716 | | | 913,772 | | 10.2 | |
| Alt-A | | 544,394 | | | 389,453 | | 4.4 | | | | 524,264 | | | 397,556 | | 4.5 | |
| Subprime | | 30,130 | | | 20,865 | | 0.2 | | | | 30,133 | | | 20,311 | | 0.2 | |
| Commercial mortgage | | 807,520 | | | 655,011 | | 7.4 | | | | 799,546 | | | 640,236 | | 7.1 | |
| Non-mortgage | | 20,935 | | | 15,298 | | 0.2 | | | | 22,220 | | | 18,405 | | 0.2 | |
| Total | $ | 2,985,918 | | $ | 2,566,904 | | 28.9 | % | | $ | 3,002,190 | | $ | 2,569,769 | | 28.7 | % |
The mortgage and asset-backed securities can be summarized into three broad categories: residential, commercial and other asset-backed securities.
Residential Mortgage-Backed Securities by Collateral Type and Origination Year
| March 31, 2009 |
| Government & Prime | | Alt-A | | Total |
| Amortized
Cost (1) | | Carrying
Value | | Amortized
Cost (1) | | Carrying
Value | | Amortized
Cost | | Carrying
Value |
| | (Dollars in thousands) |
| 2008 | $ | 62,191 | | $ | 67,812 | | $ | – | | $ | – | | $ | 62,191 | | $ | 67,812 |
| 2007 | | 115,796 | | | 113,655 | | | 59,714 | | | 34,486 | | | 175,510 | | | 148,141 |
| 2006 | | 114,787 | | | 101,713 | | | 22,437 | | | 13,782 | | | 137,224 | | | 115,495 |
| 2005 | | 27,734 | | | 27,871 | | | – | | | – | | | 27,734 | | | 27,871 |
| 2004 and prior | | 1,239,551 | | | 1,167,310 | | | 317,355 | | | 263,639 | | | 1,556,906 | | | 1,430,949 |
| Total | $ | 1,560,059 | | $ | 1,478,361 | | $ | 399,506 | | $ | 311,907 | | $ | 1,959,565 | | $ | 1,790,268 |
| | |
| December 31, 2008 |
| Government & Prime | | Alt-A | | Total |
| Amortized
Cost (1) | | Carrying
Value | | Amortized
Cost (1) | | Carrying
Value | | Amortized
Cost | | Carrying
Value |
| | (Dollars in thousands) |
| 2008 | $ | 63,195 | | $ | 67,391 | | $ | – | | $ | – | | $ | 63,195 | | $ | 67,391 |
| 2007 | | 120,089 | | | 117,851 | | | 60,265 | | | 32,723 | | | 180,354 | | | 150,574 |
| 2006 | | 117,671 | | | 106,016 | | | 22,436 | | | 11,099 | | | 140,107 | | | 117,115 |
| 2005 | | 28,517 | | | 27,581 | | | – | | | – | | | 28,517 | | | 27,581 |
| 2004 and prior | | 1,273,488 | | | 1,162,275 | | | 319,040 | | | 264,753 | | | 1,592,528 | | | 1,427,028 |
| Total | $ | 1,602,960 | | $ | 1,481,114 | | $ | 401,741 | | $ | 308,575 | | $ | 2,004,701 | | $ | 1,789,689 |
| (1) | Insurance on 2006 Alt-A issues is provided by MBIA Insurance Corporation (78% in 2009 and 2008). Insurance on 2007 Alt-A issues is provided by Assured Guaranty Ltd. (33% in 2009 and 32% in 2008) and MBIA Insurance Corporation (25% in 2009 and 2008). There is no insurance coverage on Government & Prime investments or Alt-A investments with collateral originating prior to 2006. |
Residential Mortgage-Backed Securities by Rating
| | March 31, 2009 | | December 31, 2008 |
| | Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| AAA | | $ | 1,679,076 | | 93.8 | % | | $ | 1,721,046 | | 96.2 | % |
| AA | | | 41,935 | | 2.3 | | | | 3,462 | | 0.2 | |
| A | | | 21,096 | | 1.2 | | | | 24,121 | | 1.3 | |
| BBB | | | 6,285 | | 0.3 | | | | 7,281 | | 0.4 | |
| BB | | | 3,204 | | 0.2 | | | | 17,326 | | 1.0 | |
| B | | | 22,599 | | 1.3 | | | | 16,453 | | 0.9 | |
| CCC | | | 16,073 | | 0.9 | | | | – | | – | |
| Total | | $ | 1,790,268 | | 100.0 | % | | $ | 1,789,689 | | 100.0 | % |
Commercial Mortgage-Backed Securities by Origination Year
| March 31, 2009 | | December 31, 2008 |
| Amortized Cost | | Carrying Value | | Amortized Cost | | Carrying Value |
| (Dollars in thousands) |
| 2008 | $ | 197,863 | | $ | 200,234 | | $ | 197,725 | | $ | 196,908 |
| 2007 | | 194,184 | | | 115,061 | | | 194,169 | | | 114,816 |
| 2006 | | 170,463 | | | 117,439 | | | 170,452 | | | 117,606 |
| 2005 | | 56,614 | | | 41,436 | | | 56,220 | | | 41,877 |
| 2004 and prior | | 188,396 | | | 180,841 | | | 180,980 | | | 169,029 |
| Total | $ | 807,520 | | $ | 655,011 | | $ | 799,546 | | $ | 640,236 |
Commercial Mortgage-Backed Securities by Rating
| | March 31, 2009 | | December 31, 2008 |
| | Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| GNMA | | $ | 391,451 | | 59.8 | % | | $ | 386,634 | | 60.4 | % |
| FNMA | | | 15,763 | | 2.4 | | | | 15,611 | | 2.4 | |
| AAA | | | | | | | | | | | | |
| Generic AAA | | | 15,353 | | 2.3 | | | | 1,174 | | 0.2 | |
| Super Senior AAA | | | 102,376 | | 15.6 | | | | 103,951 | | 16.2 | |
| Mezzanine AAA | | | 61,209 | | 9.3 | | | | 62,823 | | 9.8 | |
| Junior AAA | | | 29,377 | | 4.5 | | | | 41,662 | | 6.5 | |
| Total AAA | | | 208,315 | | 31.7 | | | | 209,610 | | 32.7 | |
| AA | | | 21,473 | | 3.3 | | | | 14,682 | | 2.3 | |
| A | | | 9,914 | | 1.5 | | | | 3,870 | | 0.6 | |
| BBB | | | – | | – | | | | 9,349 | | 1.5 | |
| B | | | 7,735 | | 1.2 | | | | – | | – | |
| CCC | | | 360 | | 0.1 | | | | 480 | | 0.1 | |
| Total | | $ | 655,011 | | 100.0 | % | | $ | 640,236 | | 100.0 | % |
Government National Mortgage Association (GNMA or Ginnie Mae), guarantees principal and interest on mortgage backed securities. The guarantee is backed by the full faith and credit of the United States Government. The Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Association (FHLMC or Freddie Mac), are government-sponsored enterprises (GSE's) that were chartered by Congress to reduce borrowing costs for certain homeowners. GSE's have carried an implicit backing of the U.S. Government but do not have explicit guarantees like GNMA. The Housing and Economic Recovery act of 2008 allows the government to expand its line of credit to Fannie Mae and Freddie Mac and gives the U.S. Treasury the power to purchase an equity stake in the firms through the end of 2009.
The AAA rated commercial mortgage-backed securities are broken down into categories based on subordination levels. Rating agencies disclose subordination levels, which measure of the amount of credit support that the bonds (or tranches) have from subordinated bonds (or tranches). Generic AAA is a term used for securities issued prior to 2005. The super senior securities have subordination levels greater than 27%, the mezzanine securities have subordination levels in the 17-27% range and the junior securities have subordination levels in the 9-17% range.
Other Asset-Backed Securities by Collateral Type and Origination Year
| | March 31, 2009 |
| | Government & Prime | | Alt-A | | Subprime | | Non-Mortgage | | Total |
| | Amortized Cost (1) | | Carrying Value | | Amortized Cost (1) | | Carrying Value | | Amortized Cost (1) | | Carrying Value | | Amortized Cost | | Carrying Value | | Amortized Cost | | Carrying Value |
| | (Dollars in thousands) |
| 2007 | | $ | 9,987 | | $ | 1,310 | | $ | 20,050 | | $ | 6,159 | | $ | — | | $ | — | | $ | 7,084 | | $ | | 3,730 | | $ | 37,121 | | $ | 11,199 |
| 2006 | | | 9,731 | | | 3,367 | | | 86,592 | | | 42,665 | | | — | | | — | | | — | | | | — | | | 96,323 | | | 46,032 |
| 2005 | | | — | | | — | | | 26,651 | | | 22,036 | | | 30,130 | | | 20,865 | | | — | | | | — | | | 56,781 | | | 42,901 |
| 2004 and prior | | | 3,162 | | | 3,239 | | | 11,595 | | | 6,686 | | | — | | | — | | | 13,851 | | | | 11,568 | | | 28,608 | | | 21,493 |
| Total | | $ | 22,880 | | $ | 7,916 | | $ | 144,888 | | $ | 77,546 | | $ | 30,130 | | $ | 20,865 | | $ | 20,935 | | $ | | 15,298 | | $ | 218,833 | | $ | 121,625 |
| | December 31, 2008 |
| | Government & Prime | | Alt-A | | Subprime | | Non-Mortgage | | Total |
| | Amortized Cost (1) | | Carrying Value | | Amortized Cost (1) | | Carrying Value | | Amortized Cost (1) | | Carrying Value | | Amortized Cost | | Carrying Value | | Amortized Cost | | Carrying Value |
| | (Dollars in thousands) |
| 2007 | | $ | 9,989 | | $ | 2,820 | | $ | 17,442 | | $ | 9,140 | | $ | — | | $ | — | | $ | 7,091 | | $ | 4,465 | | $ | 34,522 | | $ | 16,425 |
| 2006 | | | 9,726 | | | 5,966 | | | 66,826 | | | 45,740 | | | — | | | — | | | — | | | — | | | 76,552 | | | 51,706 |
| 2005 | | | — | | | — | | | 26,653 | | | 25,068 | | | 30,133 | | | 20,311 | | | — | | | — | | | 56,786 | | | 45,379 |
| 2004 and prior | | | 3,352 | | | 3,361 | | | 11,602 | | | 9,033 | | | — | | | — | | | 15,129 | | | 13,940 | | | 30,083 | | | 26,334 |
| Total | | $ | 23,067 | | $ | 12,147 | | $ | 122,523 | | $ | 88,981 | | $ | 30,133 | | $ | 20,311 | | $ | 22,220 | | $ | 18,405 | | $ | 197,943 | | $ | 139,844 |
| (1) | Insurance on 2006 Alt-A issues is provided by Financial Guaranty Insurance Co. (49% in 2009 and 38% in 2008) and AMBAC Assurance Corporation (27% in 2009 and 34% in 2008). Insurance on 2007 Alt-A issues is provided by AMBAC Assurance Corporation (50% in 2009 and 57% in 2008), MBIA Insurance Corporation (25% in 2009 and 29% in 2008) and Financial Guaranty Insurance Co. (25% in 2009 and 14% in 2008). The 2006 and 2007 Government & Prime issues are 100% insured by AMBAC Assurance Corporation (2006 issues) and MBIA Insurance Corporation (2007 issues). There is no insurance coverage on other asset-backed securities with non-mortgage collateral or collateral originating prior to 2006. |
Other Asset-Backed Securities by Rating
| | March 31, 2009 | | December 31, 2008 |
| | Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| AAA | | $ | 49,110 | | 40.4 | % | | $ | 59,900 | | 42.8 | % |
| AA | | | 12,992 | | 10.7 | | | | 18,852 | | 13.5 | |
| A | | | 9,056 | | 7.4 | | | | 3,015 | | 2.2 | |
| BBB | | | 25,567 | | 21.0 | | | | 36,337 | | 26.0 | |
| BB | | | 8,907 | | 7.3 | | | | 11,666 | | 8.3 | |
| B | | | 8,122 | | 6.7 | | | | 2,615 | | 1.9 | |
| CCC | | | 1,586 | | 1.3 | | | | 4,894 | | 3.5 | |
| CC | | | 2,673 | | 2.2 | | | | 2,565 | | 1.8 | |
| C | | | 3,612 | | 3.0 | | | | – | | – | |
| Total | | $ | 121,625 | | 100.0 | % | | $ | 139,844 | | 100.0 | % |
The mortgage and asset-backed portfolios include securities wrapped by monoline bond insurers to provide additional credit enhancement for the investment. We believe these securities were underwritten at investment grade levels excluding any credit enhancing protection. At March 31, 2009, the fair value of our insured mortgage and asset-backed holdings totaled $72.3 million, or 2.8% of our mortgage and asset-backed portfolios and 0.8% of our total fixed income portfolio.
We do not consider the investments wrapped by other monoline bond insurers to be other-than-temporarily impaired at March 31, 2009 because we do not have reason to believe that those guarantees, if needed, will not be honored. In addition, we have the intent and ability to hold these investments until a recovery of fair value, which may be maturity. We do not directly own any fixed income or equity investments in monoline bond insurers.
Residential Mortgage-Backed Securities and Other Asset-Backed Securities by Insurance
| | March 31, 2009 | | December 31, 2008 |
| Insurers’
S&P
Rating (1) | | Residential Mortgage- Backed | | Other Asset- Backed | | Total Carrying Value | | Residential Mortgage- Backed | | Other Asset- Backed | | Total Carrying Value |
| Insured: | | (Dollars in thousands) |
| AMBAC Assurance Corporation | | | | | | | | | | | | | | | | | | |
| A | $ | – | | $ | 14,782 | | $ | 14,782 | | $ | – | | $ | 18,380 | | $ | 18,380 |
| Assured Guaranty Ltd. | | | | | | | | | | | | | | | | | | |
| AAA | | 9,596 | | | – | | | 9,596 | | | 11,608 | | | – | | | 11,608 |
| Financial Guaranty Insurance Co. | | | | | | | | | | | | | | | | | | |
| CCC | | – | | | 21,427 | | | 21,427 | | | – | | | 27,239 | | | 27,239 |
| MBIA Insurance Corporation | | | | | | | | | | | | | | | | | | |
| BBB+ | | 19,180 | | | 7,304 | | | 26,484 | | | 15,762 | | | 10,558 | | | 26,320 |
| Total with insurance | | 28,776 | | | 43,513 | | | 72,289 | | | 27,370 | | | 56,177 | | | 83,547 |
| Uninsured: | | | | | | | | | | | | | | | | | |
| GNMA | | 187,369 | | | – | | | 187,369 | | | 187,682 | | | – | | | 187,682 |
| FHLMC | | 256,229 | | | 3,146 | | | 259,375 | | | 257,810 | | | 3,226 | | | 261,036 |
| FNMA | | 131,038 | | | 93 | | | 131,131 | | | 130,613 | | | 135 | | | 130,748 |
| Other | | 1,186,856 | | | 74,873 | | | 1,261,729 | | | 1,186,215 | | | 80,306 | | | 1,266,521 |
| Total | $ | 1,790,268 | | $ | 121,625 | | $ | 1,911,893 | | $ | 1,789,690 | | $ | 139,844 | | $ | 1,929,534 |
(1) Rating in effect as of March 31, 2009.
Collateralized Debt Obligations
Collateralized debt obligation investments are included in the corporate securities portfolio. Our investments in collateralized debt obligations are backed by credit default swaps with no home equity exposure. These securities had a carrying value of $5.4 million and unrealized loss of $46.6 million at March 31, 2009 and a carrying value of $7.4 million and unrealized loss of $45.6 million at December 31, 2008. The unrealized loss increased in 2009 primarily due to actual defaults in the collateral, general spread widening and market concerns of increased defaults in the future. Our investment professionals have stress tested all of these securities and determined that future principal losses are not expected based on reasonably adverse conditions. See Note 2 to our consolidated financial statements for additional details on this testing. In addition, we do not intend to sell or believe we will be required to sell these securities before their anticipated recovery, which may be maturity; therefore we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.
State, Municipal and Other Government Securities
State, municipal and other government securities include investments in general obligation, revenue, military housing and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. The insolvency of one or more of the credit enhancing entities would be a meaningful short-term market liquidity event, but would not dramatically increase our investment portfolio’s risk profile.
State, Municipal and Other Government Holdings by Insurance and Rating
| | March 31, 2009 |
| | | | | | | | | | | | | | Insured Bonds | | | | | | | | Total Bonds | |
| | | | | | | | Insured Bonds by | | | By Underlying | | | Total Bonds by | | | By Underlying | |
| | Uninsured Bonds | | | Insurer Rating | | | Issue Rating | | | Insurer Rating | | | Issue Rating | |
| Rating | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | |
| | | | | | | | (Dollars in thousands) | | | | | | |
| AAA (1) | | $ | 149,626 | | 46.5 | % | | $ | 192,695 | | 20.0 | % | | $ | — | | — | % | | $ | 342,321 | | 26.6 | % | | $ | 149,626 | | 11.8 | % |
| AA | | | 129,328 | | 40.2 | | | | 448,612 | | 46.7 | | | | 321,669 | | 34.0 | | | | 577,940 | | 45.1 | | | | 450,997 | | 35.5 | |
| A | | | 15,285 | | 4.8 | | | | 315,668 | | 32.8 | | | | 359,025 | | 36.4 | | | | 330,953 | | 25.8 | | | | 360,310 | | 28.4 | |
| BBB | | | 27,207 | | 8.5 | | | | 4,446 | | 0.5 | | | | 42,057 | | 4.4 | | | | 31,653 | | 2.5 | | | | 69,264 | | 5.5 | |
| B | | | — | | — | | | | — | | — | | | | 7,372 | | 0.8 | | | | — | | — | | | | 7,372 | | 0.6 | |
| NR (2) | | | — | | — | | | | — | | — | | | | 231,298 | | 24.4 | | | | — | | — | | | | 231,298 | | 18.2 | |
| | $ | 321,446 | | 100.0 | % | | $ | 961,421 | | 100.0 | % | | $ | 961,421 | | 100.0 | % | | $ | 1,282,867 | | 100.0 | % | | $ | 1,268,867 | | 100.0 | % |
| | December 31, 2008 |
| | | | | | | | | | | | | | Insured Bonds | | | | | | | | | Total Bonds by | |
| | | | | | | | Insured Bonds by | | | By Underlying | | | Total Bonds by | | | By Underlying | |
| | Uninsured Bonds | | | Insurer Rating | | | Issue Rating | | | Insurer Rating | | | Issue Rating | |
| Rating | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | | | | Carrying Value | | % of Total | | | | Carrying
Value | | % of Total | | | | Carrying Value | | % of Total | |
| | | | | | | | (Dollars in thousands) | | | | | | |
| AAA (1) | | $ | 166,829 | | 48.7 | % | | $ | 198,432 | | 20.5 | % | | $ | 4,850 | | 0.5 | % | | $ | 365,261 | | 27.9 | % | | $ | 171,679 | | 13.1 | % |
| AA | | | 119,324 | | 34.8 | | | | 454,193 | | 46.9 | | | | 319,786 | | 33.0 | | | | 573,517 | | 43.7 | | | | 439,110 | | 33.5 | |
| A | | | 29,505 | | 8.6 | | | | 310,695 | | 32.1 | | | | 361,165 | | 37.4 | | | | 340,200 | | 26.0 | | | | 390,670 | | 29.8 | |
| BBB | | | 27,039 | | 7.9 | | | | 4,609 | | 0.5 | | | | 42,630 | | 4.4 | | | | 31,648 | | 2.4 | | | | 69,669 | | 5.3 | |
| NR (2) | | | — | | — | | | | — | | — | | | | 239,498 | | 24.7 | | | | — | | — | | | | 239,498 | | 18.3 | |
| | $ | 342,697 | | 100.0 | % | | $ | 967,929 | | 100.0 | % | | $ | 967,929 | | 100.0 | % | | $ | 1,310,626 | | 100.0 | % | | $ | 1,310,626 | | 100.0 | % |
| (1) | AAA uninsured bonds includes $51.5 million in 2009 and $57.7 million in 2008 of bonds with GNMA and/or FNMA collateral. |
| |
| (2) | No formal public rating issued. Approximately 62% in 2009 and 58% in 2008 of the non-rated securities relate to military housing bonds, which we believe have a “BBB” or above shadow rating; approximately 26% in 2009 and 29% in 2008 are revenue obligation bonds; and approximately 12% in 2009 and 13% in 2008 are general obligation bonds. Insurance on these bonds is provided by AMBAC Assurance Corporation (61% in 2009 and 2008), Financial Security Assurance, Inc. (16% in 2009 and 2008), National Insurance Corporation (formerly MBIA Insurance Corporation) (18% in 2009 and 17% in 2008), and Financial Guaranty Insurance Co. (Reinsured by National Insurance Corporation) (5% in 2009 and 2008). |
Equity Securities
Equity securities totaled $45.0 million at March 31, 2009 and $44.9 million at December 31, 2008. Gross unrealized gains totaled $3.8 million and gross unrealized losses totaled $20.1 million at March 31, 2009. At December 31, 2008, gross unrealized gains totaled $4.2 million and gross unrealized losses totaled $11.3 million on these securities. The unrealized losses in 2009 are primarily attributable to non-redeemable perpetual preferred securities from issuers in the financial sector. We believe these losses are due to concerns regarding the quality of the assets the issuers hold and uncertainty regarding when these securities will be called. These securities are similar to fixed maturities as they provide periodic cash flows, contain call features and are similarly rated and priced like long-term callable bonds. We do not intend to sell or believe we will be required to sell these before their anticipated recovery; therefore, we do not consider them to be other-than-temporarily impaired at March 31, 2009.
Mortgage Loans
Mortgage loans totaled $1,362.1 million at March 31, 2009 and $1,381.9 million at December 31, 2008. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. Mortgages more than 60 days delinquent accounted for 0.9% of the carrying value of the mortgage portfolio as of March 31, 2009. The total number of commercial mortgage loans outstanding was 347 at March 31, 2009 and 352 at December 31, 2008. New loans are generally $3 million to $12 million in size, with an average loan size of $5 million and an average loan term of 10 years. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal, with 7.7% that are interest only loans at March 31, 2009. At March 31, 2009, the average loan-to-value of the current outstanding principal balance to the appraised value at origination was 59% and the weighted average debt service coverage ratio was 1.47.
Mortgage Loans by Collateral Type
| | March 31, 2009 | | December 31, 2008 |
| Collateral Type | | Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| Retail | | $ | 463,740 | | 34.0 | % | | $ | 467,942 | | 33.8 | % |
| Office | | | 452,492 | | 33.2 | | | | 466,068 | | 33.7 | |
| Industrial | | | 413,442 | | 30.4 | | | | 418,050 | | 30.3 | |
| Other | | | 32,472 | | 2.4 | | | | 29,794 | | 2.2 | |
| Total | | $ | 1,362,146 | | 100.0 | % | | $ | 1,381,854 | | 100.0 | % |
Mortgage Loans by Geographic Location within the United States
| | March 31, 2009 | | December 31, 2008 |
| Region of the United States | | Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| South Atlantic | | $ | 339,173 | | 25.0 | % | | $ | 341,728 | | 24.8 | % |
| East North Central | | | 266,989 | | 19.6 | | | | 269,876 | | 19.5 | |
| Pacific | | | 252,562 | | 18.5 | | | | 261,581 | | 18.9 | |
| West North Central | | | 170,625 | | 12.5 | | | | 172,283 | | 12.5 | |
| Mountain | | | 131,282 | | 9.6 | | | | 132,649 | | 9.6 | |
| West South Central | | | 68,325 | | 5.0 | | | | 69,582 | | 5.0 | |
| Other | | | 133,190 | | 9.8 | | | | 134,155 | | 9.7 | |
| Total | | $ | 1,362,146 | | 100.0 | % | | $ | 1,381,854 | | 100.0 | % |
Mortgage Loans by Loan-to-Value Ratio (1)
| | March 31, 2009 | | December 31, 2008 |
| | Gross
Carrying Value | | Percent of Total | | Gross
Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| 0% - 50% | | $ | 334,645 | | 24.6 | % | | $ | 330,144 | | 23.9 | % |
| 50% -60% | | | 262,676 | | 19.3 | | | | 269,816 | | 19.6 | |
| 60% - 70% | | | 477,250 | | 35.0 | | | | 474,436 | | 34.3 | |
| 70% - 80% | | | 247,087 | | 18.1 | | | | 267,159 | | 19.3 | |
| 80% - 90% | | | 35,133 | | 2.6 | | | | 34,904 | | 2.5 | |
| 90% - 100% | | | 5,355 | | 0.4 | | | | 5,395 | | 0.4 | |
| Total | | $ | 1,362,146 | | 100.0 | % | | $ | 1,381,854 | | 100.0 | % |
(1) Loan-to-Value Ratio at origination
Mortgage Loans by Year of Origination
| | March 31, 2009 | | December 31, 2008 |
| | Gross
Carrying Value | | Percent of Total | | Gross
Carrying Value | | Percent of Total |
| | (Dollars in thousands) |
| 2008 | | $ | 204,918 | | 15.0 | % | | $ | 205,925 | | 14.9 | % |
| 2007 | | | 289,684 | | 21.3 | | | | 291,261 | | 21.1 | |
| 2006 | | | 195,881 | | 14.4 | | | | 197,153 | | 14.2 | |
| 2005 | | | 135,466 | | 9.9 | | | | 136,753 | | 9.9 | |
| 2004 and prior | | | 536,197 | | 39.4 | | | | 550,762 | | 39.9 | |
| Total | | $ | 1,362,146 | | 100.0 | % | | $ | 1,381,854 | | 100.0 | % |
Mortgage loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement. In 2009, we established a valuation allowance for two impaired loans totaling $0.9 million. There was no valuation allowance for mortgage loans at December 31, 2008. At March 31, 2009, we also had two mortgage loans in the process of foreclosure with total outstanding principal balance of $12.3 million and property appraised value of $14.7 million.
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