Investments
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Dec. 31, 2011
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments The carrying amounts and fair values of our available for sale securities at December 31, 2011 and 2010 are as follows:
The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or discount since the date of purchase. At December 31, 2011 all of our mortgage-backed and asset-backed securities are rated AA or better. The mortgage-backed and asset-backed securities are made up of $157.6 million of agency mortgage-backed securities, $1.6 million of non-agency mortgage backed securities, $0.1 million of collateralized mortgage obligations, $25.9 million of commercial mortgage-backed securities, and $16.4 million in asset-backed securities. The change in net unrealized gains and losses on fixed maturities for the years ended December 31, 2011, 2010, and 2009 was $(9.9) million, $(52.5) million, and $150.0 million, respectively. The following table presents certain information regarding contractual maturities of our fixed maturity securities at December 31, 2011:
Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Included above in amounts subject to call are $1,024.0 million and $1,047.5 million in amortized cost and fair value, respectively, of fixed maturity securities with make-whole call provisions as of December 31, 2011. Fixed maturity securities valued at approximately $165.6 million and $185.4 million were on deposit with various governmental authorities at December 31, 2011 and 2010, respectively, as required by law. Equity securities at December 31, 2011 and 2010 consisted of investments at a cost basis of $83.2 million and $51.1 million, respectively, and fair value of $105.7 million and $75.2 million, respectively. Equity securities are carried at fair value. The balance of equity securities includes an investment in FIS stock, which we purchased on October 1, 2009 for $50.0 million, pursuant to an investment agreement between us and FIS dated March 31, 2009 in connection with a merger between FIS and Metavante Technologies, Inc. During the third quarter of 2010, we sold 1,611,574 shares as part of a tender offer by FIS at $29.00 per share for a realized gain of $21.7 million. The fair value of this investment is $42.6 million and $43.9 million as of December 31, 2011 and 2010, respectively. The change in unrealized gains (losses) on equity securities for the years ended December 31, 2011, 2010 and 2009 was a net (decrease) increase of $(1.6) million, $(3.8) million, and $36.2 million, respectively. There were no significant investments in banks, trust and insurance companies at December 31, 2011 or 2010. Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2011 and 2010 are as follows (in millions):
A substantial portion of our unrealized losses relate to debt securities. These unrealized losses were primarily caused by widening credit spreads that we consider to be temporary rather than changes in credit quality. We expect to recover the entire amortized cost basis of our temporarily impaired fixed maturity securities as we do not intend to sell these securities and we do not believe that we will be required to sell the fixed maturity securities before recovery of the cost basis. For these reasons, we do not consider these securities other-than-temporarily impaired at December 31, 2011. It is reasonably possible that declines in fair value below cost not considered other-than-temporary in the current period could be considered to be other-than-temporary in a future period and earnings would be reduced to the extent of the impairment. During 2011, we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired, which resulted in impairment charges of $17.1 million. Impairment charges in 2011 related to fixed maturity securities primarily related to our conclusion that the credit risk of these holdings was high and the ability of the issuer to pay the full amount of the principal outstanding was unlikely. During 2010, we incurred no impairment charges relating to investments that were determined to be other-than-temporarily impaired. During 2009, we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired, which resulted in charges of $6.9 million. Impairment charges in 2009 related to equity securities that were deemed other-than-temporarily impaired. The impairment charges relating to the equity securities were based on the duration and severity of the unrealized loss and our inability to reasonably predict the time to recover if the investment continued to be held. In April 2009, the FASB updated their guidance on recognition of other-than-temporary impairments on investments, specifically on debt and equity securities for which changes in fair value are not regularly recognized in earnings. In accordance with the updated guidance, we determined that a total of $1.3 million in other-than-temporary impairments on fixed maturity securities had previously been recognized in relation to investments held at April 1, 2009, all of which were related to credit losses. We further concluded that no cumulative effect adjustment was necessary as a result of implementing the updated guidance as all of the securities for which an other-than-temporary impairment had previously been recognized were sold within three months of the updated guidance. As of December 31, 2011 we held $106.7 million of fixed maturity securities for which other-than-temporary impairments had been previously recognized; all of the impairments related to credit losses. In 2010, we held no investments for which an other-than-temporary impairment had been previously recognized. The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the years ending December 31, 2011, 2010, and 2009, respectively:
Interest and investment income consists of the following:
Included in our other long-term investments are fixed-maturity structured notes purchased in the third quarter of 2009. The structured notes are carried at fair value (see note B) and changes in the fair value of these structured notes are recorded as realized gains and losses in the Consolidated Statements of Earnings. The carrying value of the structured notes was $40.8 million and $90.1 million as of December 31, 2011 and 2010, respectively, and we recorded a net (loss) gain of $(4.4) million, $11.4 million, and $3.7 million related to the structured notes in the years ended December 31, 2011, 2010 and 2009, respectively. Investments in unconsolidated affiliates are recorded using the equity method of accounting and, as of December 31, 2011 and 2010, consisted of the following (in millions):
On January 21, 2011, as part of a Common Stock Rights Offering ("the Offering") to all Remy common shareholders, we purchased an additional 9.9 million shares of Remy common stock in exchange for tendering our 42,359 shares of Remy preferred stock held and cash of $26.0 million. Following the Offering and preferred stock conversion, we own 14.8 million shares of Remy common stock, representing an increase of our ownership interest from 46% to 47%. In addition to our equity method investment in Remy, we held $29.7 million and $29.9 million in par value of a Remy term loan as of December 31, 2011 and 2010, respectively. The fair value of the term loan was $29.3 million and $29.7 million as of December 31, 2011 and 2010, respectively, and is included in our fixed maturity securities available for sale. Also, included in our fixed maturity securities available for sale at December 31, 2010 were $54.8 million of Remy’s bonds. On December 17, 2010, as part of a credit refinancing, Remy called these bonds at 109 percent of par, payable January 14, 2011. We received the proceeds and recognized a gain of $8.5 million during the first quarter of 2011. On May 28, 2010, we completed the sale of our 32% interest in Sedgwick, our former minority-owned affiliate that provides claims management services to large corporate and public sector entities, to a group of private equity funds, resulting in a pre-tax gain of approximately $98.4 million during the second quarter of 2010. We received approximately $225.6 million in proceeds for our ownership interest, of which $32.0 million was held in an indemnity escrow until 2011. During the years ended December 31, 2011, 2010, and 2009, we recorded an aggregate of $9.7 million, $(1.2) million, and $(11.7) million, respectively, in equity in earnings (losses) of unconsolidated affiliates. We account for our equity in Ceridian and Remy on a three-month and one-month lag, respectively. Accordingly, our net earnings for the year ended December 31, 2011, includes our equity in Ceridian’s earnings for the period from October 1, 2010 through September 30, 2011 and our net earnings for the year ended December 31, 2010, includes our equity in Ceridian’s earnings for the period from October 1, 2009 through September 30, 2010. Our net earnings for the year ended December 31, 2011, includes our equity in Remy's earnings for the period from December 1, 2010 through November 30, 2011 and our net earnings for the year ended December 31, 2010, includes our equity in Remy's earnings for the period from December 1, 2009 through November 30, 2010. In addition, we record our share of the other comprehensive earnings (loss) of unconsolidated affiliates. As of December 31, 2011, included within the Consolidated Statements of Equity, we had recorded accumulated other comprehensive losses of $55.0 million and $22.9 million related to our investments in Ceridian and Remy, respectively, and less than $0.1 million related to our other investments in unconsolidated affiliates. Summarized financial information for the periods included in our Consolidated Financial Statements for Ceridian is presented below.
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