Investments | 9 Months Ended |
Sep. 30, 2013 |
Investments [Abstract] | ' |
Investments | ' |
Investments |
(a) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of held-to-maturity (“HTM”) fixed maturity securities as of September 30, 2013 and December 31, 2012 were as follows: |
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September 30, 2013 | | | | | | | | | | | | |
($ in thousands) | | Amortized Cost | | Net | | Carrying | | Unrecognized | | Unrecognized Holding | | Fair |
Unrealized Gains | Value | Holding | Losses | Value |
(Losses) | | Gains | | |
Foreign government | | $ | 5,292 | | | 151 | | | 5,443 | | | 122 | | | — | | | 5,565 | |
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Obligations of state and political subdivisions | | 372,281 | | | 4,065 | | | 376,346 | | | 19,297 | | | — | | | 395,643 | |
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Corporate securities | | 29,228 | | | (466 | ) | | 28,762 | | | 3,015 | | | — | | | 31,777 | |
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Asset-backed securities (“ABS”) | | 5,890 | | | (755 | ) | | 5,135 | | | 776 | | | — | | | 5,911 | |
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Commercial mortgage-backed securities (“CMBS”) | | 7,241 | | | (965 | ) | | 6,276 | | | 3,357 | | | — | | | 9,633 | |
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Total HTM fixed maturity securities | | $ | 419,932 | | | 2,030 | | | 421,962 | | | 26,567 | | | — | | | 448,529 | |
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December 31, 2012 | | | | | | | | | | | | |
($ in thousands) | | Amortized Cost | | Net | | Carrying | | Unrecognized | | Unrecognized Holding | | Fair |
Unrealized Gains | Value | Holding | Losses | Value |
(Losses) | | Gains | | |
Foreign government | | $ | 5,292 | | | 212 | | | 5,504 | | | 367 | | | — | | | 5,871 | |
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Obligations of state and political subdivisions | | 491,180 | | | 6,769 | | | 497,949 | | | 28,996 | | | (23 | ) | | 526,922 | |
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Corporate securities | | 38,285 | | | (812 | ) | | 37,473 | | | 4,648 | | | — | | | 42,121 | |
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ABS | | 6,980 | | | (1,052 | ) | | 5,928 | | | 1,170 | | | — | | | 7,098 | |
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CMBS | | 8,406 | | | (1,191 | ) | | 7,215 | | | 5,434 | | | — | | | 12,649 | |
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Total HTM fixed maturity securities | | $ | 550,143 | | | 3,926 | | | 554,069 | | | 40,615 | | | (23 | ) | | 594,661 | |
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Unrecognized holding gains and losses of HTM securities are not reflected in the Financial Statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an other-than-temporary impairment (“OTTI”) charge is recognized on an HTM security, through the date of the balance sheet. Our HTM securities had an average duration of 2.3 years as of September 30, 2013. |
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During Nine Months 2013, 16 securities with a carrying value of $39.6 million and a net unrecognized gain position of $1.4 million, were reclassified from an HTM designation to an available-for-sale (“AFS”) designation due to credit rating downgrades by Moody’s Investors Services ("Moody's") and/or Standard and Poor's Financial Services (“S&P”). These unexpected rating downgrades raised concerns about the issuers’ credit worthiness, which changed our intention to hold these securities to maturity. |
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(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of September 30, 2013 and December 31, 2012 were as follows: |
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September 30, 2013 | | | | | | | | | | | | | | |
($ in thousands) | | Cost/ | | Unrealized | | Unrealized | | Fair | | | | | | |
Amortized | Gains | Losses | Value | | | | | | |
Cost | | | | | | | | | |
U.S. government and government agencies | | $ | 169,163 | | | 11,953 | | | (330 | ) | | 180,786 | | | | | | | |
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Foreign government | | 28,797 | | | 996 | | | (84 | ) | | 29,709 | | | | | | | |
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Obligations of states and political subdivisions | | 918,403 | | | 27,705 | | | (16,610 | ) | | 929,498 | | | | | | | |
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Corporate securities | | 1,629,698 | | | 47,932 | | | (14,479 | ) | | 1,663,151 | | | | | | | |
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ABS | | 150,179 | | | 1,063 | | | (476 | ) | | 150,766 | | | | | | | |
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CMBS1 | | 152,464 | | | 2,747 | | | (3,263 | ) | | 151,948 | | | | | | | |
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Residential mortgage-backed | | 525,047 | | | 8,932 | | | (6,405 | ) | | 527,574 | | | | | | | |
securities (“RMBS”)2 | | | | | | |
AFS fixed maturity securities | | 3,573,751 | | | 101,328 | | | (41,647 | ) | | 3,633,432 | | | | | | | |
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AFS equity securities | | 158,323 | | | 24,061 | | | (1,878 | ) | | 180,506 | | | | | | | |
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Total AFS securities | | $ | 3,732,074 | | | 125,389 | | | (43,525 | ) | | 3,813,938 | | | | | | | |
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December 31, 2012 | | | | | | | | | | | | | | |
($ in thousands) | | Cost/ | | Unrealized | | Unrealized | | Fair | | | | | | |
Amortized | Gains | Losses | Value | | | | | | |
Cost | | | | | | | | | |
U.S. government and government agencies | | $ | 241,874 | | | 17,219 | | | (1 | ) | | 259,092 | | | | | | | |
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Foreign government | | 28,813 | | | 1,540 | | | (124 | ) | | 30,229 | | | | | | | |
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Obligations of states and political subdivisions | | 773,953 | | | 44,398 | | | (327 | ) | | 818,024 | | | | | | | |
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Corporate securities | | 1,368,954 | | | 81,696 | | | (402 | ) | | 1,450,248 | | | | | | | |
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ABS | | 126,330 | | | 2,319 | | | (9 | ) | | 128,640 | | | | | | | |
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CMBS1 | | 133,763 | | | 4,572 | | | (1,216 | ) | | 137,119 | | | | | | | |
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RMBS2 | | 456,996 | | | 15,961 | | | (296 | ) | | 472,661 | | | | | | | |
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AFS fixed maturity securities | | 3,130,683 | | | 167,705 | | | (2,375 | ) | | 3,296,013 | | | | | | | |
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AFS equity securities | | 132,441 | | | 19,400 | | | (459 | ) | | 151,382 | | | | | | | |
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Total AFS securities | | $ | 3,263,124 | | | 187,105 | | | (2,834 | ) | | 3,447,395 | | | | | | | |
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1 CMBS includes government guaranteed agency securities with a fair value of $35.5 million at September 30, 2013 and $48.9 million at December 31, 2012. |
2 RMBS includes government guaranteed agency securities with a fair value of $61.4 million at September 30, 2013 and $91.0 million at December 31, 2012. |
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Unrealized gains and losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in AOCI on the Consolidated Balance Sheets. |
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(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at September 30, 2013 and December 31, 2012, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position: |
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September 30, 2013 | | Less than 12 months | | 12 months or longer | | | | | | |
($ in thousands) | | Fair Value | | Unrealized | | Fair Value | | Unrealized | | | | | | |
Losses1 | Losses1 | | | | | | |
AFS securities | | | | | | | | | | | | | | | | | | |
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U.S. government and government agencies | | $ | 13,173 | | | (327 | ) | | 510 | | | (3 | ) | | | | | | |
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Foreign government | | 1,056 | | | (12 | ) | | 2,925 | | | (72 | ) | | | | | | |
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Obligations of states and political subdivisions | | 417,866 | | | (16,610 | ) | | — | | | — | | | | | | | |
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Corporate securities | | 422,816 | | | (14,200 | ) | | 3,837 | | | (279 | ) | | | | | | |
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ABS | | 87,786 | | | (471 | ) | | 302 | | | (5 | ) | | | | | | |
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CMBS | | 69,322 | | | (2,771 | ) | | 2,030 | | | (492 | ) | | | | | | |
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RMBS | | 202,428 | | | (6,231 | ) | | 1,579 | | | (174 | ) | | | | | | |
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Total fixed maturity securities | | 1,214,447 | | | (40,622 | ) | | 11,183 | | | (1,025 | ) | | | | | | |
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Equity securities | | 35,275 | | | (1,878 | ) | | — | | | — | | | | | | | |
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Subtotal | | $ | 1,249,722 | | | (42,500 | ) | | 11,183 | | | (1,025 | ) | | | | | | |
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| | Less than 12 months | | 12 months or longer |
($ in thousands) | | Fair | | Unrealized | | Unrecognized | | Fair | | Unrealized | | Unrecognized |
Value | Losses1 | Gains2 | Value | Losses1 | Gains2 |
HTM securities | | | | | | | | | | | | | | | | | | |
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Obligations of states and political subdivisions | | $ | 492 | | | (20 | ) | | 19 | | | 571 | | | (24 | ) | | 17 | |
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ABS | | — | | | — | | | — | | | 2,476 | | | (690 | ) | | 642 | |
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Subtotal | | $ | 492 | | | (20 | ) | | 19 | | | 3,047 | | | (714 | ) | | 659 | |
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Total AFS and HTM | | $ | 1,250,214 | | | (42,520 | ) | | 19 | | | 14,230 | | | (1,739 | ) | | 659 | |
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December 31, 2012 | | Less than 12 months | | 12 months or longer | | | | | | |
($ in thousands) | | Fair | | Unrealized | | Fair Value | | Unrealized | | | | | | |
Value | Losses1 | Losses1 | | | | | | |
AFS securities | | | | | | | | | | | | | | | | | | |
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U.S. government and government agencies | | $ | 518 | | | (1 | ) | | — | | | — | | | | | | | |
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Foreign government | | — | | | — | | | 2,871 | | | (124 | ) | | | | | | |
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Obligations of states and political subdivisions | | 32,383 | | | (327 | ) | | — | | | — | | | | | | | |
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Corporate securities | | 50,880 | | | (402 | ) | | — | | | — | | | | | | | |
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ABS | | 9,137 | | | (9 | ) | | — | | | — | | | | | | | |
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CMBS | | 7,637 | | | (19 | ) | | 11,830 | | | (1,197 | ) | | | | | | |
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RMBS | | 8,710 | | | (59 | ) | | 5,035 | | | (237 | ) | | | | | | |
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Total fixed maturity securities | | 109,265 | | | (817 | ) | | 19,736 | | | (1,558 | ) | | | | | | |
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Equity securities | | 15,901 | | | (459 | ) | | — | | | — | | | | | | | |
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Subtotal | | $ | 125,166 | | | (1,276 | ) | | 19,736 | | | (1,558 | ) | | | | | | |
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| | Less than 12 months | | 12 months or longer |
($ in thousands) | | Fair | | Unrealized | | Unrecognized | | Fair | | Unrealized | | Unrecognized |
Value | Losses1 | Gains2 | Value | Losses1 | Gains2 |
HTM securities | | | | | | | | | | | | | | | | | | |
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Obligations of states and political subdivisions | | $ | 1,218 | | | (33 | ) | | 29 | | | 1,108 | | | (47 | ) | | 38 | |
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ABS | | — | | | — | | | — | | | 2,860 | | | (840 | ) | | 753 | |
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Subtotal | | 1,218 | | | (33 | ) | | 29 | | | 3,968 | | | (887 | ) | | 791 | |
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Total AFS and HTM | | $ | 126,384 | | | (1,309 | ) | | 29 | | | 23,704 | | | (2,445 | ) | | 791 | |
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1 Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position. |
2 Unrecognized gains represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security. |
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As evidenced by the table below, our net unrealized/unrecognized loss positions increased by $40.6 million as of September 30, 2013 compared to December 31, 2012 as follows: |
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($ in thousands) | | | | | | | | | |
September 30, 2013 | | December 31, 2012 | | | | | | | |
Number of | % of Market/Book | Unrealized/ | | Number of | % of | Unrealized/ | | | | | | | |
Issues | Unrecognized Loss | Issues | Market/Book | Unrecognized | | | | | | | |
| | | | Loss | | | | | | | |
501 | | 80% - 99% | $ | 43,295 | | | 100 | | 80% - 99% | $ | 2,701 | | | | | | | | |
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— | | 60% - 79% | — | | | 1 | | 60% - 79% | 233 | | | | | | | | |
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1 | | 40% - 59% | 286 | | | — | | 40% - 59% | — | | | | | | | | |
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— | | 20% - 39% | — | | | — | | 20% - 39% | — | | | | | | | | |
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— | | 0% - 19% | — | | | — | | 0% - 19% | — | | | | | | | | |
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| | | $ | 43,581 | | | | | | $ | 2,934 | | | | | | | | |
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We have reviewed the securities in the tables above in accordance with our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our 2012 Annual Report. |
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At September 30, 2013, we had 502 securities in an aggregate unrealized/unrecognized loss position of $43.6 million, $1.1 million of which have been in a loss position for more than 12 months. At December 31, 2012, we had 101 securities in an aggregate unrealized/unrecognized loss position of $2.9 million, $1.7 million of which had been in a loss position for more than 12 months. During Nine Months 2013, interest rates on the 10-year U.S. Treasury Note rose by 85 basis points. This interest rate movement has negatively impacted our fixed maturity securities portfolio's valuation, thus increasing the number of securities in a loss position and the corresponding dollar amount of unrealized losses. The increase in the unrealized losses does not correspond to any issuer specific credit concerns; however, it does reflect an expected reduction in market value due to higher market interest rates. For a discussion regarding the sensitivity of interest rate movements and the related impacts on the fixed maturity securities portfolio, refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our 2012 Annual Report. |
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We do not intend to sell any securities in an unrealized/unrecognized loss position, nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of September 30, 2013. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods. |
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(d) Fixed maturity securities at September 30, 2013, by contractual maturity, are shown below. Mortgage-backed securities ("MBS") are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations, with or without call or prepayment penalties. |
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Listed below are HTM fixed maturity securities at September 30, 2013: |
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($ in thousands) | | Carrying Value | | Fair Value | | | | | | | | | | | | |
Due in one year or less | | $ | 72,099 | | | 74,953 | | | | | | | | | | | | | |
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Due after one year through five years | | 312,318 | | | 331,927 | | | | | | | | | | | | | |
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Due after five years through 10 years | | 34,747 | | | 38,176 | | | | | | | | | | | | | |
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Due after 10 years | | 2,798 | | | 3,473 | | | | | | | | | | | | | |
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Total HTM fixed maturity securities | | $ | 421,962 | | | 448,529 | | | | | | | | | | | | | |
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Listed below are AFS fixed maturity securities at September 30, 2013: |
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($ in thousands) | | Fair Value | | | | | | | | | | | | | | | |
Due in one year or less | | $ | 324,743 | | | | | | | | | | | | | | | | |
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Due after one year through five years | | 1,951,770 | | | | | | | | | | | | | | | | |
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Due after five years through 10 years | | 1,329,795 | | | | | | | | | | | | | | | | |
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Due after 10 years | | 27,124 | | | | | | | | | | | | | | | | |
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Total AFS fixed maturity securities | | $ | 3,633,432 | | | | | | | | | | | | | | | | |
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(e) The following table summarizes our other investment portfolio by strategy and the remaining commitment amount associated with each strategy: |
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Other Investments | | Carrying Value | | September 30, | | | | | | | | | |
2013 | | | | | | | | | |
($ in thousands) | | September 30, | | December 31, | | Remaining Commitment | | | | | | | | | |
2013 | 2012 | | | | | | | | | |
Alternative Investments | | | | | | | | | | | | | | | | | | |
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Secondary private equity | | $ | 25,954 | | | 28,032 | | | 7,703 | | | | | | | | | | |
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Private equity | | 18,951 | | | 18,344 | | | 10,502 | | | | | | | | | | |
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Energy/power generation | | 17,049 | | | 18,640 | | | 7,076 | | | | | | | | | | |
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Mezzanine financing | | 12,921 | | | 12,692 | | | 18,796 | | | | | | | | | | |
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Real estate | | 12,385 | | | 11,751 | | | 10,205 | | | | | | | | | | |
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Distressed debt | | 11,911 | | | 12,728 | | | 2,964 | | | | | | | | | | |
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Venture capital | | 7,018 | | | 7,477 | | | 400 | | | | | | | | | | |
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Total alternative investments | | 106,189 | | | 109,664 | | | 57,646 | | | | | | | | | | |
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Other securities | | 1,884 | | | 4,412 | | | 1,289 | | | | | | | | | | |
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Total other investments | | $ | 108,073 | | | 114,076 | | | 58,935 | | | | | | | | | | |
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For a description of our seven alternative investment strategies, as well as information regarding redemption, restrictions, and fund liquidations, refer to Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2012 Annual Report. |
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The following table sets forth aggregated summarized financial information for our other investments portfolio that is carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income, which is the portion included in our Financial Statements. As the majority of these investments report results to us on a quarter lag, the summarized financial statement information for the nine-month periods ended June 30 is as follows: |
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Income Statement Information | | Quarter ended June 30, | | Nine Months ended June 30, | | | | | | |
($ in millions) | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | |
Net investment income | | $ | 97.8 | | | 80 | | | 352.8 | | | 170.1 | | | | | | | |
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Realized gains | | 162.8 | | | 19.6 | | | 762.5 | | | 1,004.90 | | | | | | | |
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Net change in unrealized depreciation | | 104.8 | | | (117.1 | ) | | 85.9 | | | (551.1 | ) | | | | | | |
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Net income (loss) | | $ | 365.4 | | | (17.5 | ) | | 1,201.20 | | | 623.9 | | | | | | | |
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Selective’s insurance subsidiaries’ other investments income | | $ | 2.6 | | | 0.5 | | | 10.1 | | | 5.5 | | | | | | | |
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(f) At September 30, 2013, we had fixed maturity securities, with a carrying value of $61.9 million, that were pledged as collateral for our outstanding borrowing of $58.0 million with the Federal Home Loan Bank of Indianapolis (“FHLBI”). This outstanding borrowing is included in “Notes payable” on the Consolidated Balance Sheets. In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding these securities, which are included in the “U.S. government and government agencies,” “RMBS,” and “CMBS” classifications of our AFS fixed maturity securities portfolio. |
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Also at September 30, 2013, we had fixed maturity securities, with a carrying value of $21.3 million, and short-term investments with a carrying value of $1.7 million, that collateralize reinsurance obligations related to our 2011 acquisition of our E&S book of business. Similar to the FHLBI collateral discussion above, we retain all rights regarding these investments. These fixed maturity securities are included in the "Municipal," "Corporate," "U.S. government and government agencies," "RMBS," and "ABS" classifications of our AFS fixed maturity securities portfolio. |
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In addition, fixed maturity securities with a carrying value of $27.0 million were on deposit with various state and regulatory agencies to comply with insurance laws. We retain all rights regarding these securities, which are primarily included in the "U.S. government and government agencies" classification of our AFS fixed maturity securities portfolio. |
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(g) The components of net investment income earned for the periods indicated were as follows: |
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| | Quarter ended September 30, | | Nine Months ended September 30, | | | | | | |
($ in thousands) | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | |
Fixed maturity securities | | $ | 30,569 | | | 30,839 | | | 90,956 | | | 93,948 | | | | | | | |
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Equity securities | | 1,341 | | | 1,268 | | | 4,422 | | | 3,785 | | | | | | | |
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Short-term investments | | 21 | | | 36 | | | 102 | | | 103 | | | | | | | |
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Other investments | | 2,639 | | | 497 | | | 10,110 | | | 5,460 | | | | | | | |
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Miscellaneous income | | — | | | 41 | | | — | | | 105 | | | | | | | |
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Investment expenses | | (2,113 | ) | | (2,031 | ) | | (6,260 | ) | | (6,117 | ) | | | | | | |
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Net investment income earned | | $ | 32,457 | | | 30,650 | | | 99,330 | | | 97,284 | | | | | | | |
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Net investment income before tax increased in both Third Quarter and Nine Months 2013 compared to the same periods last year, primarily due to higher income from our alternative investments. Partially offsetting this increase in Nine Months 2013 is a decrease in fixed maturity securities income due to lower investment yields than in the prior year period. |
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(h) The following tables summarize OTTI by asset type for the periods indicated: |
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Third Quarter 2013 | | Gross | | Included in Other | | Recognized in | | | | | | | | | |
Comprehensive | Earnings | | | | | | | | | |
($ in thousands) | | | Income (“OCI”) | | | | | | | | | | | |
Equity securities | | $ | 680 | | | — | | | 680 | | | | | | | | | | |
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OTTI losses | | $ | 680 | | | — | | | 680 | | | | | | | | | | |
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Third Quarter 2012 | | Gross | | Included in OCI | | Recognized in Earnings | | | | | | | | | |
($ in thousands) | | | | | | | | | | | | |
AFS fixed maturity securities | | | | | | | | | | | | | | | | | | |
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ABS | | $ | 36 | | | — | | | 36 | | | | | | | | | | |
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CMBS | | (1,504 | ) | | (2,023 | ) | | 519 | | | | | | | | | | |
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Total AFS fixed maturities | | (1,468 | ) | | (2,023 | ) | | 555 | | | | | | | | | | |
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Equity securities | | 2,389 | | | — | | | 2,389 | | | | | | | | | | |
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OTTI losses | | $ | 921 | | | (2,023 | ) | | 2,944 | | | | | | | | | | |
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Nine Months 2013 | | Gross | | Included in OCI | | Recognized in | | | | | | | | | |
($ in thousands) | | | | Earnings | | | | | | | | | |
HTM fixed maturity securities: | | | | | | | | | | | | | | | |
ABS | | $ | (44 | ) | | (47 | ) | | 3 | | | | | | | | | | |
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Total HTM fixed maturity securities | | (44 | ) | | (47 | ) | | 3 | | | | | | | | | | |
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AFS fixed maturity securities: | | | | | | | | | | | | | | | | | | |
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RMBS | | (22 | ) | | (30 | ) | | 8 | | | | | | | | | | |
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Total AFS fixed maturity securities | | (22 | ) | | (30 | ) | | 8 | | | | | | | | | | |
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Equity securities | | 1,326 | | | — | | | 1,326 | | | | | | | | | | |
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Total AFS securities | | 1,304 | | | (30 | ) | | 1,334 | | | | | | | | | | |
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Other investments | | 1,847 | | | — | | | 1,847 | | | | | | | | | | |
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OTTI losses | | $ | 3,107 | | | (77 | ) | | 3,184 | | | | | | | | | | |
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Nine Months 2012 | | Gross | | Included in OCI | | Recognized in | | | | | | | | | |
($ in thousands) | | | | Earnings | | | | | | | | | |
AFS fixed maturity securities | | | | | | | | | | | | | | | | | | |
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ABS | | $ | 98 | | | — | | | 98 | | | | | | | | | | |
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CMBS | | (1,396 | ) | | (2,023 | ) | | 627 | | | | | | | | | | |
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RMBS | | (44 | ) | | (218 | ) | | 174 | | | | | | | | | | |
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Total AFS fixed maturity securities | | (1,342 | ) | | (2,241 | ) | | 899 | | | | | | | | | | |
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Equity securities | | 2,560 | | | — | | | 2,560 | | | | | | | | | | |
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OTTI losses | | $ | 1,218 | | | (2,241 | ) | | 3,459 | | | | | | | | | | |
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The majority of the OTTI charges in Nine Months 2013 relate to an investment in a limited liability company within our other investments portfolio that has sustained significant losses for which we do not anticipate recovery. In addition, OTTI charges on our equity portfolio include: (i) $0.7 million recorded in Third Quarter 2013 on securities that we did not believe would recover in the near term; and (ii) $0.6 million recorded within the first half of 2013 primarily related to securities for which we had the intent to sell. For a discussion of our evaluation for OTTI of fixed maturity securities, short-term investments, equity securities and other investments, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data" of our 2012 Annual Report. |
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The following tables set forth, for the periods indicated, credit loss impairments on fixed maturity securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts: |
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| | Quarter ended September 30, | | | | | | | | | | | | |
($ in thousands) | | 2013 | | 2012 | | | | | | | | | | | | |
Balance, beginning of period | | $ | 7,488 | | | 6,775 | | | | | | | | | | | | | |
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Addition for the amount related to credit loss for which an OTTI was not previously recognized | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities sold during the period | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected | | — | | | — | | | | | | | | | | | | | |
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Additional increases to the amount related to credit loss for which an OTTI was previously recognized | | — | | | 519 | | | | | | | | | | | | | |
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Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected | | — | | | — | | | | | | | | | | | | | |
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Balance, end of period | | $ | 7,488 | | | 7,294 | | | | | | | | | | | | | |
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| | Nine Months ended September 30, | | | | | | | | | | | | |
($ in thousands) | | 2013 | | 2012 | | | | | | | | | | | | |
Balance, beginning of period | | $ | 7,477 | | | 6,602 | | | | | | | | | | | | | |
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Addition for the amount related to credit loss for which an OTTI was not previously recognized | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities sold during the period | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost | | — | | | — | | | | | | | | | | | | | |
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Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected | | — | | | — | | | | | | | | | | | | | |
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Additional increases to the amount related to credit loss for which an OTTI was previously recognized | | 11 | | | 692 | | | | | | | | | | | | | |
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Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected | | — | | | — | | | | | | | | | | | | | |
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Balance, end of period | | $ | 7,488 | | | 7,294 | | | | | | | | | | | | | |
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(i) The components of net realized gains, excluding OTTI charges, for the periods indicated were as follows: |
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| | Quarter ended September 30, | | Nine Months ended September 30, | | | | | | |
($ in thousands) | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | |
HTM fixed maturity securities | | | | | | | | | | | | | | |
Gains | | $ | 32 | | | 40 | | | 35 | | | 195 | | | | | | | |
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Losses | | (37 | ) | | (90 | ) | | (86 | ) | | (196 | ) | | | | | | |
AFS fixed maturity securities | | | | | | | | | | | | | | | | |
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Gains | | 662 | | | 2,168 | | | 2,580 | | | 2,941 | | | | | | | |
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Losses | | (31 | ) | | (262 | ) | | (330 | ) | | (379 | ) | | | | | | |
AFS equity securities | | | | | | | | | | | | | | | | |
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Gains | | 13,801 | | | — | | | 24,272 | | | 4,775 | | | | | | | |
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Losses | | (236 | ) | | — | | | (407 | ) | | (428 | ) | | | | | | |
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Short-term investments | | | | | | | | | | | | | | | | |
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Losses | | — | | | — | | | — | | | (2 | ) | | | | | | |
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Other Investments | | | | | | | | | | | | | | |
Gains | | — | | | — | | | — | | | 1 | | | | | | | |
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Losses | | (80 | ) | | — | | | (940 | ) | | — | | | | | | | |
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Total other net realized investment gains | | 14,111 | | | 1,856 | | | 25,124 | | | 6,907 | | | | | | | |
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Total OTTI charges recognized in earnings | | (680 | ) | | (2,944 | ) | | (3,184 | ) | | (3,459 | ) | | | | | | |
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Total net realized gains (losses) | | $ | 13,431 | | | (1,088 | ) | | 21,940 | | | 3,448 | | | | | | | |
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Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. Of the $14.1 million and $25.1 million in net realized gains in Third Quarter and Nine Months 2013, $13.5 million and $19.1 million, respectively, were related to the sale of AFS equity securities due to the rebalancing of our high-dividend yield strategy holdings within our equity portfolio. In addition, $4.7 million in net realized gains in Nine Months 2013 related to the sale of a private equity security. Of the $6.9 million of net realized gains in Nine Months 2012, $4.3 million were related to the sale of AFS equity securities due to the rebalancing of our high dividend yield strategy holdings within our equity portfolio. |
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Proceeds from the sale of AFS securities were $67.2 million in Third Quarter 2013 and $116.3 million in Nine Months 2013, and $55.0 million and $150.9 million in the same periods a year ago. |