Investments | 3. 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 September 30, 2017 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 $ 1,141,002 $ 12,475 $ (6,608 ) $ 1,146,869 $ - Obligations of U.S. states and political subdivisions 652,525 24,061 (4,744 ) 671,842 - Corporate securities 5,599,904 108,072 (31,814 ) 5,676,162 2,902 Asset-backed securities 555,451 1,390 (444 ) 556,397 - Mortgage-backed securities Commercial 253,154 1,462 (1,825 ) 252,791 - Agency residential 2,390,238 13,680 (23,589 ) 2,380,329 - Non-agency residential 519 42 (44 ) 517 - Foreign government securities 1,317,697 46,225 (34,489 ) 1,329,433 182 Foreign corporate securities 2,716,264 89,202 (41,631 ) 2,763,835 961 Total fixed maturity securities $ 14,626,754 $ 296,609 $ (145,188 ) $ 14,778,175 $ 4,045 Equity securities $ 128,116 $ 2,542 $ (3,233 ) $ 127,425 $ - At December 31, 2016 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 $ 1,115,208 $ 20,410 $ (5,303 ) $ 1,130,315 $ - Obligations of U.S. states and political subdivisions 723,938 18,016 (11,970 ) 729,984 - Corporate securities 5,059,388 131,651 (35,758 ) 5,155,281 7,936 Asset-backed securities 488,824 1,110 (1,286 ) 488,648 - Mortgage-backed securities Commercial 308,827 1,983 (3,878 ) 306,932 - Agency residential 2,415,901 17,478 (27,910 ) 2,405,469 - Non-agency residential 642 44 (45 ) 641 - Foreign government securities 1,254,175 61,226 (57,241 ) 1,258,160 115 Foreign corporate securities 2,565,710 130,714 (64,446 ) 2,631,978 1,184 Total fixed maturity securities $ 13,932,613 $ 382,632 $ (207,837 ) $ 14,107,408 $ 9,235 Equity securities $ 129,553 $ 2,298 $ (12,784 ) $ 119,067 $ - (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 September 30, 2017 At December 31, 2016 Amortized Market Amortized Market (Dollars in thousands) Cost Value Cost Value Fixed maturity securities – available for sale: Due in one year or less $ 1,091,257 $ 1,095,288 $ 956,945 $ 966,970 Due after one year through five years 7,267,248 7,334,494 6,769,585 6,870,056 Due after five years through ten years 2,096,762 2,124,265 2,020,215 2,052,733 Due after ten years 972,125 1,034,094 971,674 1,015,959 Asset-backed securities 555,451 556,397 488,824 488,648 Mortgage-backed securities: Commercial 253,154 252,791 308,827 306,932 Agency residential 2,390,238 2,380,329 2,415,901 2,405,469 Non-agency residential 519 517 642 641 Total fixed maturity securities $ 14,626,754 $ 14,778,175 $ 13,932,613 $ 14,107,408 The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2017 2016 2017 2016 Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon: Fixed maturity securities $ (13,993 ) $ (13,544 ) $ (18,184 ) $ 324,147 Fixed maturity securities, other-than-temporary impairment 306 (1,836 ) (5,189 ) 7,088 Equity securities 2,603 2,527 9,795 9,898 Other invested assets 1,595 - 2,860 - Change in unrealized appreciation (depreciation), pre-tax (9,489 ) (12,853 ) (10,718 ) 341,133 Deferred tax benefit (expense) (1,774 ) (256 ) 11,343 (53,666 ) Deferred tax benefit (expense), other-than-temporary impairment 55 855 1,391 (1,470 ) Change in unrealized appreciation (depreciation), net of deferred taxes, included in shareholders' equity $ (11,208 ) $ (12,254 ) $ 2,016 $ 285,997 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 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, 2017 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 $ 376,128 $ (4,865 ) $ 53,039 $ (1,743 ) $ 429,167 $ (6,608 ) Obligations of U.S. states and political subdivisions 89,509 (2,104 ) 67,956 (2,640 ) 157,465 (4,744 ) Corporate securities 1,214,762 (20,914 ) 283,985 (10,900 ) 1,498,747 (31,814 ) Asset-backed securities 189,752 (369 ) 6,262 (75 ) 196,014 (444 ) Mortgage-backed securities Commercial 63,101 (540 ) 40,432 (1,285 ) 103,533 (1,825 ) Agency residential 1,345,113 (13,416 ) 450,890 (10,173 ) 1,796,003 (23,589 ) Non-agency residential - - 77 (44 ) 77 (44 ) Foreign government securities 385,494 (14,007 ) 258,478 (20,482 ) 643,972 (34,489 ) Foreign corporate securities 660,017 (17,136 ) 312,821 (24,495 ) 972,838 (41,631 ) Total fixed maturity securities $ 4,323,876 $ (73,351 ) $ 1,473,940 $ (71,837 ) $ 5,797,816 $ (145,188 ) Equity securities - - 112,015 (3,233 ) 112,015 (3,233 ) Total $ 4,323,876 $ (73,351 ) $ 1,585,955 $ (75,070 ) $ 5,909,831 $ (148,421 ) Duration of Unrealized Loss at September 30, 2017 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 $ 270,695 $ (848 ) $ 123,092 $ (13,069 ) $ 393,787 $ (13,917 ) Due in one year through five years 1,680,251 (31,686 ) 644,557 (37,591 ) 2,324,808 (69,277 ) Due in five years through ten years 639,836 (22,619 ) 136,548 (6,469 ) 776,384 (29,088 ) Due after ten years 135,128 (3,873 ) 72,082 (3,131 ) 207,210 (7,004 ) Asset-backed securities 189,752 (369 ) 6,262 (75 ) 196,014 (444 ) Mortgage-backed securities 1,408,214 (13,956 ) 491,399 (11,502 ) 1,899,613 (25,458 ) Total fixed maturity securities $ 4,323,876 $ (73,351 ) $ 1,473,940 $ (71,837 ) $ 5,797,816 $ (145,188 ) The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2017 were $ 5,909,831 148,421 0.4 73,351 69,276 71,837 67,753 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 securities before recovery of 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, 2016 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 $ 638,740 $ (5,303 ) $ - $ - $ 638,740 $ (5,303 ) Obligations of U.S. states and political subdivisions 221,088 (11,486 ) 564 (484 ) 221,652 (11,970 ) Corporate securities 1,360,743 (24,023 ) 177,153 (11,735 ) 1,537,896 (35,758 ) Asset-backed securities 150,023 (565 ) 18,786 (721 ) 168,809 (1,286 ) Mortgage-backed securities Commercial 143,554 (3,223 ) 7,184 (655 ) 150,738 (3,878 ) Agency residential 1,618,372 (22,461 ) 189,665 (5,449 ) 1,808,037 (27,910 ) Non-agency residential - - 113 (45 ) 113 (45 ) Foreign government securities 360,289 (12,041 ) 236,820 (45,200 ) 597,109 (57,241 ) Foreign corporate securities 687,599 (12,769 ) 295,500 (51,677 ) 983,099 (64,446 ) Total fixed maturity securities $ 5,180,408 $ (91,871 ) $ 925,785 $ (115,966 ) $ 6,106,193 $ (207,837 ) Equity securities - - 105,507 (12,784 ) 105,507 (12,784 ) Total $ 5,180,408 $ (91,871 ) $ 1,031,292 $ (128,750 ) $ 6,211,700 $ (220,621 ) Duration of Unrealized Loss at December 31, 2016 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 $ 178,281 $ (1,122 ) $ 78,153 $ (14,318 ) $ 256,434 $ (15,440 ) Due in one year through five years 2,123,113 (26,263 ) 538,130 (84,803 ) 2,661,243 (111,066 ) Due in five years through ten years 680,334 (22,555 ) 86,631 (8,754 ) 766,965 (31,309 ) Due after ten years 286,731 (15,682 ) 7,123 (1,221 ) 293,854 (16,903 ) Asset-backed securities 150,023 (565 ) 18,786 (721 ) 168,809 (1,286 ) Mortgage-backed securities 1,761,926 (25,684 ) 196,962 (6,149 ) 1,958,888 (31,833 ) Total fixed maturity securities $ 5,180,408 $ (91,871 ) $ 925,785 $ (115,966 ) $ 6,106,193 $ (207,837 ) The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2016 were $ 6,211,700 220,621 1.1 91,871 85,078 115,966 112,132 no 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) 2017 2016 2017 2016 Fixed maturities $ 107,969 $ 100,752 $ 319,336 $ 306,128 Equity securities 8,590 9,905 25,701 31,967 Short-term investments and cash 974 475 2,439 1,220 Other invested assets Limited partnerships 23,315 17,077 54,373 33,922 Other 2,095 1,033 6,652 1,334 Gross investment income before adjustments 142,943 129,242 408,501 374,571 Funds held interest income (expense) 2,284 1,538 7,156 5,818 Future policy benefit reserve income (expense) (280 ) (517 ) (1,015 ) (1,243 ) Gross investment income 144,947 130,263 414,642 379,146 Investment expenses (7,974 ) (7,606 ) (20,872 ) (21,228 ) Net investment income $ 136,973 $ 122,657 $ 393,770 $ 357,918 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 $ 663,222 The Company's other invested assets at September 30, 2017 and December 31, 2016 included $ 367,966 378,862 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) 2017 2016 2017 2016 Fixed maturity securities, market value: Other-than-temporary impairments $ (1,485 ) $ (867 ) $ (5,188 ) $ (31,130 ) Gains (losses) from sales 7,998 5,912 32,913 (7,670 ) Fixed maturity securities, fair value: Gains (losses) from sales - (1 ) - (1,855 ) Gains (losses) from fair value adjustments - 42 - 1,381 Equity securities, market value: Gains (losses) from sales - - (3,436 ) 65 Equity securities, fair value: Gains (losses) from sales (1,525 ) 5,850 3,796 (10,266 ) Gains (losses) from fair value adjustments 36,463 17,475 91,367 36,284 Sale of subsidiary - (28,032 ) - (28,032 ) Other invested assets 85 - 84 - Short-term investments gain (loss) (1 ) 1 (5 ) 2 Total net realized capital gains (losses) $ 41,535 $ 380 $ 119,531 $ (41,221 ) 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) 2017 2016 2017 2016 Proceeds from sales of fixed maturity securities $ 700,728 $ 293,998 $ 1,691,937 $ 890,349 Gross gains from sales 13,743 15,028 46,321 32,674 Gross losses from sales (5,745 ) (9,117 ) (13,408 ) (42,199 ) Proceeds from sales of equity securities $ 57,861 $ 112,451 $ 334,889 $ 542,715 Gross gains from sales 2,258 7,308 14,351 14,040 Gross losses from sales (3,783 ) (1,458 ) (13,991 ) (24,241 ) |