Investments | 2. INVESTMENTS The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments ("OTTI") in accumulated other comprehensive income ("AOCI") are as follows for the periods indicated: At December 31, 2015 Amortized Unrealized Unrealized Market OTTI in AOCI (Dollars in thousands) Cost Appreciation Depreciation Value (a) Fixed maturity securities U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 805,273 $ 13,465 $ (1,861 ) $ 816,877 $ - Obligations of U.S. states and political subdivisions 669,945 34,020 (890 ) 703,075 - Corporate securities 4,817,014 97,159 (109,310 ) 4,804,863 1,412 Asset-backed securities 470,320 719 (3,813 ) 467,226 - Mortgage-backed securities Commercial 264,924 4,750 (3,375 ) 266,299 - Agency residential 2,313,265 25,318 (18,059 ) 2,320,524 - Non-agency residential 893 51 (46 ) 898 - Foreign government securities 1,256,983 54,403 (52,205 ) 1,259,181 53 Foreign corporate securities 2,677,589 107,163 (66,401 ) 2,718,351 36 Total fixed maturity securities $ 13,276,206 $ 337,048 $ (255,960 ) $ 13,357,294 $ 1,501 Equity securities $ 122,271 $ 3,401 $ (16,732 ) $ 108,940 $ - At December 31, 2014 Amortized Unrealized Unrealized Market OTTI in AOCI (Dollars in thousands) Cost Appreciation Depreciation Value (a) Fixed maturity securities U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 221,052 $ 10,290 $ (304 ) $ 231,038 $ - Obligations of U.S. states and political subdivisions 783,129 41,969 (626 ) 824,472 - Corporate securities 4,626,002 143,889 (62,906 ) 4,706,985 (6,910 ) Asset-backed securities 340,761 1,691 (1,230 ) 341,222 - Mortgage-backed securities Commercial 231,439 10,675 (429 ) 241,685 - Agency residential 2,157,182 37,555 (11,573 ) 2,183,164 - Non-agency residential 2,734 54 (57 ) 2,731 - Foreign government securities 1,488,144 71,177 (26,866 ) 1,532,455 - Foreign corporate securities 2,980,716 109,673 (53,074 ) 3,037,315 - Total fixed maturity securities $ 12,831,159 $ 426,973 $ (157,065 ) $ 13,101,067 $ (6,910 ) Equity securities $ 148,326 $ 3,831 $ (11,947 ) $ 140,210 $ - (a) Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date 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 December 31, 2015 At December 31, 2014 Amortized Market Amortized Market (Dollars in thousands) Cost Value Cost Value Fixed maturity securities – available for sale: Due in one year or less $ 1,021,200 $ 1,036,016 $ 1,183,247 $ 1,189,416 Due after one year through five years 6,193,426 6,220,563 5,646,466 5,726,277 Due after five years through ten years 2,217,075 2,203,932 2,270,073 2,313,672 Due after ten years 795,103 841,836 999,257 1,102,900 Asset-backed securities 470,320 467,226 340,761 341,222 Mortgage-backed securities: Commercial 264,924 266,299 231,439 241,685 Agency residential 2,313,265 2,320,524 2,157,182 2,183,164 Non-agency residential 893 898 2,734 2,731 Total fixed maturity securities $ 13,276,206 $ 13,357,294 $ 12,831,159 $ 13,101,067 The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods indicated: Years Ended December 31, (Dollars in thousands) 2015 2014 Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon: Fixed maturity securities $ (197,231 ) $ 34,245 Fixed maturity securities, other-than-temporary impairment 8,411 (10,078 ) Equity securities (5,215 ) (3,855 ) Change in unrealized appreciation (depreciation), pre-tax (194,035 ) 20,312 Deferred tax benefit (expense) 16,979 (1,623 ) Deferred tax benefit (expense), other-than-temporary impairment (3,383 ) 3,407 Change in unrealized appreciation (depreciation), net of deferred taxes, included in shareholders' equity $ (180,439 ) $ 22,096 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 The Company's 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. The majority of the Company's equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities. When a fund's value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers. If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss). If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss). Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company's 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 December 31, 2015 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 $ 539,177 $ (1,855 ) $ 692 $ (6 ) $ 539,869 $ (1,861 ) Obligations of U.S. states and political subdivisions 6,434 (84 ) 4,917 (806 ) 11,351 (890 ) Corporate securities 1,818,331 (74,161 ) 440,682 (35,149 ) 2,259,013 (109,310 ) Asset-backed securities 348,545 (2,510 ) 67,230 (1,303 ) 415,775 (3,813 ) Mortgage-backed securities Commercial 145,490 (3,375 ) - - 145,490 (3,375 ) Agency residential 1,021,390 (10,014 ) 326,449 (8,045 ) 1,347,839 (18,059 ) Non-agency residential 152 (2 ) 38 (44 ) 190 (46 ) Foreign government securities 227,384 (21,996 ) 216,428 (30,209 ) 443,812 (52,205 ) Foreign corporate securities 821,548 (25,627 ) 295,389 (40,774 ) 1,116,937 (66,401 ) Total fixed maturity securities $ 4,928,451 $ (139,624 ) $ 1,351,825 $ (116,336 ) $ 6,280,276 $ (255,960 ) Equity securities - - 91,907 (16,732 ) 91,907 (16,732 ) Total $ 4,928,451 $ (139,624 ) $ 1,443,732 $ (133,068 ) $ 6,372,183 $ (272,692 ) Duration of Unrealized Loss at December 31, 2015 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 $ 29,737 $ (1,840 ) $ 74,615 $ (13,440 ) $ 104,352 $ (15,280 ) Due in one year through five years 2,328,805 (62,329 ) 651,228 (59,993 ) 2,980,033 (122,322 ) Due in five years through ten years 969,139 (52,725 ) 206,538 (28,018 ) 1,175,677 (80,743 ) Due after ten years 85,193 (6,829 ) 25,727 (5,493 ) 110,920 (12,322 ) Asset-backed securities 348,545 (2,510 ) 67,230 (1,303 ) 415,775 (3,813 ) Mortgage-backed securities 1,167,032 (13,391 ) 326,487 (8,089 ) 1,493,519 (21,480 ) Total fixed maturity securities $ 4,928,451 $ (139,624 ) $ 1,351,825 $ (116,336 ) $ 6,280,276 $ (255,960 ) The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2015 were $ 6,372,183 272,692 0.7 139,624 46,793 39,037 116,336 72,738 18,447 no 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. 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 December 31, 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 $ 13,187 $ (20 ) $ 26,897 $ (284 ) $ 40,084 $ (304 ) Obligations of U.S. states and political subdivisions 20,428 (242 ) 18,199 (384 ) 38,627 (626 ) Corporate securities 1,245,830 (55,388 ) 362,320 (7,518 ) 1,608,150 (62,906 ) Asset-backed securities 192,253 (1,230 ) - - 192,253 (1,230 ) Mortgage-backed securities Commercial 28,191 (123 ) 9,777 (306 ) 37,968 (429 ) Agency residential 141,807 (172 ) 678,972 (11,401 ) 820,779 (11,573 ) Non-agency residential - - 266 (57 ) 266 (57 ) Foreign government securities 235,725 (15,415 ) 139,200 (11,451 ) 374,925 (26,866 ) Foreign corporate securities 567,905 (36,926 ) 290,234 (16,148 ) 858,139 (53,074 ) Total fixed maturity securities $ 2,445,326 $ (109,516 ) $ 1,525,865 $ (47,549 ) $ 3,971,191 $ (157,065 ) Equity securities 50,285 (4,068 ) 73,994 (7,879 ) 124,279 (11,947 ) Total $ 2,495,611 $ (113,584 ) $ 1,599,859 $ (55,428 ) $ 4,095,470 $ (169,012 ) Duration of Unrealized Loss at December 31, 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 $ 98,021 $ (5,166 ) $ 80,002 $ (8,174 ) $ 178,023 $ (13,340 ) Due in one year through five years 1,233,244 (68,124 ) 518,613 (12,761 ) 1,751,857 (80,885 ) Due in five years through ten years 679,374 (28,529 ) 187,717 (10,734 ) 867,091 (39,263 ) Due after ten years 72,436 (6,172 ) 50,518 (4,116 ) 122,954 (10,288 ) Asset-backed securities 192,253 (1,230 ) - - 192,253 (1,230 ) Mortgage-backed securities 169,998 (295 ) 689,015 (11,764 ) 859,013 (12,059 ) Total fixed maturity securities $ 2,445,326 $ (109,516 ) $ 1,525,865 $ (47,549 ) $ 3,971,191 $ (157,065 ) The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2014 were $ 4,095,470 169,012 0.2 109,516 58,891 34,687 47,549 42,884 15 The components of net investment income are presented in the table below for the periods indicated: Years Ended December 31, (Dollars in thousands) 2015 2014 2013 Fixed maturities $ 433,097 $ 462,757 $ 473,493 Equity securities 45,617 47,193 45,387 Short-term investments and cash 1,577 1,635 1,295 Other invested assets Limited partnerships 14,431 40,868 46,921 Other 1,804 3,619 7,329 Gross investment income before adjustments 496,526 556,072 574,425 Funds held interest income (expense) 10,767 9,471 10,613 Future policy benefit reserve income (expense) (1,907 ) (1,686 ) (2,770 ) Gross investment income 505,386 563,857 582,268 Investment expenses (31,561 ) (33,287 ) (33,759 ) Net investment income $ 473,825 $ 530,570 $ 548,509 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 $ 490,441 The components of net realized capital gains (losses) are presented in the table below for the periods indicated: Years Ended December 31, (Dollars in thousands) 2015 2014 2013 Fixed maturity securities, market value: Other-than-temporary impairments $ (102,199 ) $ (39,502 ) $ (1,052 ) Gains (losses) from sales (22,310 ) 4,408 6,792 Fixed maturity securities, fair value: Gains (losses) from sales 24 (3,137 ) 201 Gains (losses) from fair value adjustments (44 ) (1,498 ) 307 Equity securities, market value: Gains (losses) from sales (6,702 ) 426 2,648 Equity securities, fair value: Gains (losses) from sales (7,305 ) 156 32,747 Gains (losses) from fair value adjustments (45,627 ) 123,196 258,569 Short-term investments gain (loss) 16 (3 ) 15 Total net realized capital gains (losses) $ (184,147 ) $ 84,046 $ 300,227 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: Years Ended December 31, (Dollars in thousands) 2015 2014 2013 Proceeds from sales of fixed maturity securities $ 1,725,917 $ 1,848,268 $ 1,113,960 Gross gains from sales 47,899 37,427 38,141 Gross losses from sales (70,185 ) (36,156 ) (31,148 ) Proceeds from sales of equity securities $ 642,980 $ 600,970 $ 751,973 Gross gains from sales 27,675 20,900 44,703 Gross losses from sales (41,682 ) (20,318 ) (9,308 ) Securities with a carrying value amount of $ 1,398,874 |