Investments |
Note
4—Investments
Portfolio
Composition:
A summary of fixed
maturities available for sale and equity securities by cost or
amortized cost and estimated fair value at December 31, 2013 and
2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013:
|
|
Cost or
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Fair Value |
|
|
Amount per
the Balance
Sheet |
|
|
% of Total
Fixed
Maturities* |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored enterprises
|
|
$ |
428,106 |
|
|
$ |
362 |
|
|
$ |
(75,295 |
) |
|
$ |
353,173 |
|
|
$ |
353,173 |
|
|
|
3 |
% |
States, municipalities, and political
subdivisions
|
|
|
1,278,434 |
|
|
|
69,817 |
|
|
|
(12,947 |
) |
|
|
1,335,304 |
|
|
|
1,335,304 |
|
|
|
10 |
|
Foreign governments
|
|
|
43,811 |
|
|
|
411 |
|
|
|
(67 |
) |
|
|
44,155 |
|
|
|
44,155 |
|
|
|
0 |
|
Corporates
|
|
|
10,133,868 |
|
|
|
702,867 |
|
|
|
(300,389 |
) |
|
|
10,536,346 |
|
|
|
10,536,346 |
|
|
|
82 |
|
Collateralized debt
obligations
|
|
|
66,173 |
|
|
|
0 |
|
|
|
(7,968 |
) |
|
|
58,205 |
|
|
|
58,205 |
|
|
|
1 |
|
Other asset-backed
securities
|
|
|
35,568 |
|
|
|
2,699 |
|
|
|
(98 |
) |
|
|
38,169 |
|
|
|
38,169 |
|
|
|
0 |
|
Redeemable preferred
stocks
|
|
|
502,915 |
|
|
|
25,064 |
|
|
|
(14,198 |
) |
|
|
513,781 |
|
|
|
513,781 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
12,488,875 |
|
|
|
801,220 |
|
|
|
(410,962 |
) |
|
|
12,879,133 |
|
|
|
12,879,133 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
875 |
|
|
|
1,009 |
|
|
|
0 |
|
|
|
1,884 |
|
|
|
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities and equity
securities
|
|
$ |
12,489,750 |
|
|
$ |
802,229 |
|
|
$ |
(410,962 |
) |
|
$ |
12,881,017 |
|
|
$ |
12,881,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012: |
|
Cost or
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Fair Value |
|
|
Amount per
the Balance
Sheet |
|
|
% of Total
Fixed
Maturities* |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored
enterprises
|
|
$ |
492,928 |
|
|
$ |
1,948 |
|
|
$ |
(4,773 |
) |
|
$ |
490,103 |
|
|
$
|
490,103
|
|
|
|
4 |
% |
States, municipalities, and political
subdivisions
|
|
|
1,283,883 |
|
|
|
173,649 |
|
|
|
(189 |
) |
|
|
1,457,343 |
|
|
|
1,457,343 |
|
|
|
11 |
|
Foreign governments
|
|
|
33,577 |
|
|
|
988 |
|
|
|
0 |
|
|
|
34,565 |
|
|
|
34,565 |
|
|
|
0 |
|
Corporates
|
|
|
9,309,408 |
|
|
|
1,442,638 |
|
|
|
(55,023 |
) |
|
|
10,697,023 |
|
|
|
10,697,023 |
|
|
|
79 |
|
Collateralized debt
obligations
|
|
|
64,622 |
|
|
|
0 |
|
|
|
(18,051 |
) |
|
|
46,571 |
|
|
|
46,571 |
|
|
|
0 |
|
Other asset-backed
securities
|
|
|
43,560 |
|
|
|
3,708 |
|
|
|
(401 |
) |
|
|
46,867 |
|
|
|
46,867 |
|
|
|
0 |
|
Redeemable preferred
stocks
|
|
|
735,428 |
|
|
|
43,897 |
|
|
|
(10,604 |
) |
|
|
768,721 |
|
|
|
768,721 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
11,963,406 |
|
|
|
1,666,828 |
|
|
|
(89,041 |
) |
|
|
13,541,193 |
|
|
|
13,541,193 |
|
|
|
100 |
% |
Equity securities
|
|
|
14,875 |
|
|
|
692 |
|
|
|
0 |
|
|
|
15,567 |
|
|
|
15,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities and equity
securities
|
|
$ |
11,978,281 |
|
|
$ |
1,667,520 |
|
|
$ |
(89,041 |
) |
|
$ |
13,556,760 |
|
|
$ |
13,556,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A schedule of fixed
maturities by contractual maturity at December 31, 2013 is shown
below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or
prepayment provisions.
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost |
|
|
Fair
Value |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$ |
102,473 |
|
|
$ |
104,065 |
|
Due from one to five years
|
|
|
494,066 |
|
|
|
538,995 |
|
Due from five to ten years
|
|
|
911,559 |
|
|
|
979,502 |
|
Due from ten to twenty
years
|
|
|
3,109,054 |
|
|
|
3,303,084 |
|
Due after twenty years
|
|
|
7,766,780 |
|
|
|
7,853,621 |
|
Mortgage-backed and asset-backed
securities
|
|
|
104,943 |
|
|
|
99,866 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,488,875 |
|
|
$ |
12,879,133 |
|
|
|
|
|
|
|
|
|
|
Analysis of investment
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income is summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$ |
709,756 |
|
|
$ |
691,229 |
|
|
$ |
683,101 |
|
Equity securities
|
|
|
323 |
|
|
|
1,178 |
|
|
|
1,558 |
|
Policy loans
|
|
|
33,471 |
|
|
|
30,717 |
|
|
|
29,293 |
|
Other long-term
investments
|
|
|
1,281 |
|
|
|
2,320 |
|
|
|
2,439 |
|
Short-term investments
|
|
|
138 |
|
|
|
311 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
744,969 |
|
|
|
725,755 |
|
|
|
716,556 |
|
Less investment expense
|
|
|
(35,226 |
) |
|
|
(32,111 |
) |
|
|
(23,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$ |
709,743 |
|
|
$ |
693,644 |
|
|
$ |
693,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of realized gains
(losses) from investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains
(losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
|
|
$ |
13,138 |
|
|
$ |
47,345 |
|
|
$ |
27,790 |
|
Other-than-temporary
impairments
|
|
|
0 |
|
|
|
(5,600 |
) |
|
|
(20 |
) |
Equity securities
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Loss on redemption of debt
|
|
|
0 |
|
|
|
(4,109 |
) |
|
|
0 |
|
Other
|
|
|
(5,148 |
) |
|
|
197 |
|
|
|
(1,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,990 |
|
|
|
37,833 |
|
|
|
25,904 |
|
Applicable tax
|
|
|
(4,025 |
) |
|
|
(13,242 |
) |
|
|
(9,066 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) from
investments, net of tax
|
|
$ |
3,965 |
|
|
$ |
24,591 |
|
|
$ |
16,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of the net change in
unrealized investment gains (losses) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$ |
317 |
|
|
$ |
(1,489 |
) |
|
$ |
(98 |
) |
Fixed maturities available for
sale
|
|
|
(1,187,529 |
) |
|
|
613,826 |
|
|
|
856,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains
(losses) on securities
|
|
|
(1,187,212 |
) |
|
|
612,337 |
|
|
|
856,326 |
|
Other investments
|
|
|
3,560 |
|
|
|
2,517 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains
(losses)
|
|
$ |
(1,183,652 |
) |
|
$ |
614,854 |
|
|
$ |
856,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information
about securities sold is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales
|
|
$ |
133,463 |
|
|
$ |
345,601 |
|
|
$ |
236,662 |
* |
Gross realized gains
|
|
|
5,948 |
|
|
|
40,851 |
|
|
|
28,249 |
|
Gross realized losses
|
|
|
(1,310 |
) |
|
|
(2,477 |
) |
|
|
(24,323 |
) |
* |
|
Includes $12.3 million of unsettled trades |
Fair value
measurements: The following tables represent the fair value of
assets measured on a recurring basis at December 31, 2013 and
2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013
Using: |
|
Description
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1) |
|
|
Significant Other
Observable
Inputs (Level 2) |
|
|
Significant
Unobservable
Inputs (Level 3) |
|
|
Total Fair
Value |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored enterprises
|
|
$ |
0 |
|
|
$ |
353,173 |
|
|
$ |
0 |
|
|
$ |
353,173 |
|
States, municipalities, and political
subdivisions
|
|
|
0 |
|
|
|
1,335,304 |
|
|
|
0 |
|
|
|
1,335,304 |
|
Foreign governments
|
|
|
0 |
|
|
|
44,155 |
|
|
|
0 |
|
|
|
44,155 |
|
Corporates
|
|
|
47,058 |
|
|
|
10,188,988 |
|
|
|
300,300 |
|
|
|
10,536,346 |
|
Collateralized debt
obligations
|
|
|
0 |
|
|
|
0 |
|
|
|
58,205 |
|
|
|
58,205 |
|
Other asset-backed
securities
|
|
|
0 |
|
|
|
38,169 |
|
|
|
0 |
|
|
|
38,169 |
|
Redeemable preferred
stocks
|
|
|
22,220 |
|
|
|
491,561 |
|
|
|
0 |
|
|
|
513,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
69,278 |
|
|
|
12,451,350 |
|
|
|
358,505 |
|
|
|
12,879,133 |
|
Equity securities
|
|
|
1,108 |
|
|
|
0 |
|
|
|
776 |
|
|
|
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities and equity
securities
|
|
$ |
70,386 |
|
|
$ |
12,451,350 |
|
|
$ |
359,281 |
|
|
$ |
12,881,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
0.5 |
% |
|
|
96.7 |
% |
|
|
2.8 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value Measurements at December 31, 2012
Using: |
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1) |
|
|
Significant Other
Observable
Inputs (Level 2) |
|
|
Significant
Unobservable
Inputs (Level 3) |
|
|
Total Fair
Value |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored enterprises
|
|
$ |
0 |
|
|
$ |
490,103 |
|
|
$ |
0 |
|
|
$ |
490,103 |
|
States, municipalities and political
subdivisions
|
|
|
0 |
|
|
|
1,457,343 |
|
|
|
0 |
|
|
|
1,457,343 |
|
Foreign governments
|
|
|
0 |
|
|
|
34,565 |
|
|
|
0 |
|
|
|
34,565 |
|
Corporates
|
|
|
31,976 |
|
|
|
10,443,526 |
|
|
|
221,521 |
|
|
|
10,697,023 |
|
Collateralized debt
obligations
|
|
|
0 |
|
|
|
0 |
|
|
|
46,571 |
|
|
|
46,571 |
|
Other asset-backed
securities
|
|
|
0 |
|
|
|
38,886 |
|
|
|
7,981 |
|
|
|
46,867 |
|
Redeemable preferred
stocks
|
|
|
128,473 |
|
|
|
630,697 |
|
|
|
9,551 |
|
|
|
768,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
160,449 |
|
|
|
13,095,120 |
|
|
|
285,624 |
|
|
|
13,541,193 |
|
|
|
|
|
|
Equity securities
|
|
|
14,828 |
|
|
|
0 |
|
|
|
739 |
|
|
|
15,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities and equity
securities
|
|
$ |
175,277 |
|
|
$ |
13,095,120 |
|
|
$ |
286,363 |
|
|
$ |
13,556,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
|
1.3 |
% |
|
|
96.6 |
% |
|
|
2.1 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
represents changes in assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Changes in Fair Value Measurements Using
Significant Unobservable Inputs (Level 3) |
|
|
|
Asset-
backed
securities |
|
|
Collateralized
debt
Obligations |
|
|
Corporates* |
|
|
Equities |
|
|
Total |
|
Balance at January 1, 2011
|
|
$ |
8,042 |
|
|
$ |
22,456 |
|
|
$ |
73,673 |
|
|
$ |
670 |
|
|
$ |
104,841 |
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in realized
gains/losses
|
|
|
0 |
|
|
|
0 |
|
|
|
(12,542 |
) |
|
|
0 |
|
|
|
(12,542 |
) |
Included in other comprehensive
income
|
|
|
(714 |
) |
|
|
3,952 |
|
|
|
14,578 |
|
|
|
40 |
|
|
|
17,856 |
|
Sales
|
|
|
0 |
|
|
|
0 |
|
|
|
(13,875 |
) |
|
|
0 |
|
|
|
(13,875 |
) |
Amortization
|
|
|
(206 |
) |
|
|
2,470 |
|
|
|
1,302 |
|
|
|
0 |
|
|
|
3,566 |
|
Other **
|
|
|
0 |
|
|
|
1,442 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,442 |
|
Transfers out of Level 3
|
|
|
0 |
|
|
|
0 |
|
|
|
(51,886 |
) |
|
|
0 |
|
|
|
(51,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2011
|
|
|
7,122 |
|
|
|
30,320 |
|
|
|
11,250 |
|
|
|
710 |
|
|
|
49,402 |
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in realized
gains/losses
|
|
|
0 |
|
|
|
0 |
|
|
|
1,482 |
|
|
|
0 |
|
|
|
1,482 |
|
Included in other comprehensive
income
|
|
|
1,078 |
|
|
|
12,067 |
|
|
|
3,600 |
|
|
|
29 |
|
|
|
16,774 |
|
Acquisitions
|
|
|
0 |
|
|
|
0 |
|
|
|
183,676 |
|
|
|
0 |
|
|
|
183,676 |
|
Sales
|
|
|
0 |
|
|
|
0 |
|
|
|
(13,429 |
) |
|
|
0 |
|
|
|
(13,429 |
) |
Amortization
|
|
|
(219 |
) |
|
|
2,648 |
|
|
|
699 |
|
|
|
0 |
|
|
|
3,128 |
|
Other **
|
|
|
0 |
|
|
|
1,536 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,536 |
|
Transfers into Level 3
|
|
|
0 |
|
|
|
0 |
|
|
|
43,794 |
|
|
|
0 |
|
|
|
43,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2012
|
|
|
7,981 |
|
|
|
46,571 |
|
|
|
231,072 |
|
|
|
739 |
|
|
|
286,363 |
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in realized
gains/losses
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Included in other
comprehensive income
|
|
|
426 |
|
|
|
10,083 |
|
|
|
(17,243 |
) |
|
|
37 |
|
|
|
(6,697 |
) |
Acquisitions
|
|
|
0 |
|
|
|
0 |
|
|
|
129,755 |
|
|
|
0 |
|
|
|
129,755 |
|
Sales
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Amortization
|
|
|
(57 |
) |
|
|
2,838 |
|
|
|
5 |
|
|
|
0 |
|
|
|
2,786 |
|
Other **
|
|
|
0 |
|
|
|
(1,287 |
) |
|
|
(834 |
) |
|
|
0 |
|
|
|
(2,121 |
) |
Transfers out of Level 3
|
|
|
(8,350 |
) |
|
|
0 |
|
|
|
(42,455 |
) |
|
|
0 |
|
|
|
(50,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2013
|
|
$ |
0 |
|
|
$ |
58,205 |
|
|
$ |
300,300 |
|
|
$ |
776 |
|
|
$ |
359,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes redeemable preferred stocks |
** |
|
Includes capitalized interest and foreign exchange
adjustments. |
Acquisitions of Level 3
investments in 2013 and 2012 are comprised of private-placement
fixed maturities managed by an unaffiliated third-party.
Quantitative Information about Level 3
Fair Value Measurements
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Valuation
Techniques |
|
Unobservable
Input |
|
Range |
|
Weighted
Average |
Collateralized debt obligations
|
|
$ |
58,205 |
|
|
Discounted
cash flows |
|
Discount
rate |
|
15% |
|
15% |
Private placement fixed maturities
|
|
|
300,300 |
|
|
Discounted
cash flows |
|
Credit
rating |
|
BBB- to A+
|
|
BBB
|
Other investments
|
|
|
776 |
|
|
Third-party
pricing without
adjustment |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
359,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The collateral underlying
collateralized debt obligations for which fair values are reported
as Level 3 consists primarily of trust preferred securities
issued by banks and insurance companies. None of the collateral is
subprime or Alt-A mortgages (loans for which the typical
documentation was not provided by the borrower). Collateralized
debt obligations are valued at the present value of expected future
cash flows using an unobservable discount rate. Expected cash flows
are determined by scheduling the projected repayment of the
collateral assuming no future defaults, deferrals, or recoveries.
The discount rate is risk-adjusted to take these items into
account. A significant increase (decrease) in the discount rate
will produce a significant decrease (increase) in fair value.
Additionally, a significant increase (decrease) in the cash flow
expectations would result in a significant increase (decrease) in
fair value.
The private placements
are also valued based on discounted cash flows, resulting from the
contractual cash flows discounted by a yield determined as a
treasury benchmark adjusted for a credit spread. The credit spread
is developed from observable indices for similar public fixed
maturities and unobservable indices for private fixed maturities
for corresponding credit ratings. However, the credit ratings for
the private placements are considered unobservable inputs, as they
are assigned by the third party investment manager based on a
quantitative and qualitative assessment of the credit underwritten.
A higher (lower) credit rating would result in a higher (lower)
valuation. For more information regarding valuation procedures,
please refer to Note 1 — Significant Accounting
Policies under the caption Fair Value Measurements,
Investments in Securities.
The following table
presents transfers in and out of each of the valuation levels of
fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
In |
|
|
Out |
|
|
Net |
|
|
In |
|
|
Out |
|
|
Net |
|
|
In |
|
|
Out |
|
|
Net |
|
Level 1
|
|
$ |
19,416 |
|
|
$ |
0 |
|
|
$ |
19,416 |
|
|
$ |
48,536 |
|
|
$ |
0 |
|
|
$ |
48,536 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Level 2
|
|
|
50,805 |
|
|
|
(19,416 |
) |
|
|
31,389 |
|
|
|
0 |
|
|
|
(92,330 |
) |
|
|
(92,330 |
) |
|
|
51,886 |
|
|
|
0 |
|
|
|
51,886 |
|
Level 3
|
|
|
0 |
|
|
|
(50,805 |
) |
|
|
(50,805 |
) |
|
|
43,794 |
|
|
|
0 |
|
|
|
43,794 |
|
|
|
0 |
|
|
|
(51,886 |
) |
|
|
(51,886 |
) |
Transfers into Level 2
from Level 3 result from the availability of observable market data
when a security is valued at the end of a period. Transfers into
Level 3 occur when there is a lack of observable market
information. Transfers into Level 1 from Level 2 occur when direct
quotes are available; transfers from Level 1 into Level 2 result
when only observable market data and no direct quotes are
available.
Other-than-temporary
impairments: Torchmark has determined that certain of its
holdings in fixed maturity investments were other-than-temporarily
impaired during the three years ended December 31, 2013. The
following table presents the writedowns recorded due to these
impairments in accordance with accounting guidance and whether the
writedown was charged to earnings or other comprehensive
income.
Writedowns for
Other-Than-Temporary Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
Net
Income |
|
|
Other
Comprehensive
Income |
|
|
Net
Income |
|
|
Other
Comprehensive
Income |
|
|
Net
Income |
|
|
Other
Comprehensive
Income |
|
Collateralized debt
obligations
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Corporate bonds
|
|
|
0 |
|
|
|
0 |
|
|
|
5,600 |
|
|
|
0 |
|
|
|
20 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
5,600 |
|
|
$ |
0 |
|
|
$ |
20 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After tax
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
3,640 |
|
|
$ |
0 |
|
|
$ |
13 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of year end 2013,
previously written down securities remaining in the portfolio were
carried at a fair value of $42 million. Otherwise, as of
December 31, 2013, Torchmark has no information available to
cause it to believe that any of its investments are
other-than-temporarily impaired. Torchmark has the ability and
intent to hold these investments to recovery, and does not intend
to sell nor expects to be required to sell its other impaired
securities.
Bifurcated credit losses
result when there is an other-than-temporary impairment for which a
portion of the loss is recognized in other comprehensive income.
Torchmark’s balances related to bifurcated credit loss
positions included in other comprehensive income were
$22 million at December 31, 2013, December 31, 2012,
and December 31, 2011. There was no change in this balance
since January 1, 2011.
Unrealized gains/loss
analysis. Conditions in financial
markets improved during 2011 and 2012, resulting in increases in
net unrealized gains in the portfolio in both years. In 2011, net
unrealized gains rose from $108 million in the beginning of the
year to $964 million at December 31, and then further increased to
$1.6 billion at December 31, 2012. In 2013, however, increases in
interest rates in financial markets caused the net unrealized gain
balances to decline to $390 million at December 31, 2013. At
December 31, 2013, investments in securities in the financial
sector were in a $180 million net unrealized gain position. These
investments in the financial sector represented 25% of the
portfolio at amortized cost and 26% at fair value. This is compared
with a net unrealized gain position of $339 million at the end of
the prior year. Investments and securities in the other sectors had
net unrealized gains of $210 million at year end 2013 and $1.2
billion at year end 2012. The following tables disclose gross
unrealized investment losses by class of investment at
December 31, 2013 and December 31, 2012 for the period of
time in a loss position. Torchmark considers these investments to
be only temporarily impaired.
ANALYSIS OF GROSS
UNREALIZED INVESTMENT LOSSES
At December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
Twelve
Months |
|
|
Twelve Months
or
Longer |
|
|
Total |
|
Description of
Securities
|
|
Fair Value |
|
|
Unrealized
Loss |
|
|
Fair
Value |
|
|
Unrealized
Loss |
|
|
Fair Value |
|
|
Unrealized
Loss |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored enterprises
|
|
$ |
242,144 |
|
|
$ |
(42,885 |
) |
|
$ |
87,977 |
|
|
$ |
(32,410 |
) |
|
$ |
330,121 |
|
|
$ |
(75,295 |
) |
States, municipalities and political
subdivisions
|
|
|
167,660 |
|
|
|
(12,807 |
) |
|
|
1,619 |
|
|
|
(140 |
) |
|
|
169,279 |
|
|
|
(12,947 |
) |
Foreign governments
|
|
|
11,966 |
|
|
|
(67 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
11,966 |
|
|
|
(67 |
) |
Corporates
|
|
|
2,692,494 |
|
|
|
(196,139 |
) |
|
|
600,350 |
|
|
|
(104,250 |
) |
|
|
3,292,844 |
|
|
|
(300,389 |
) |
Collateralized debt
obligations
|
|
|
0 |
|
|
|
0 |
|
|
|
58,080 |
|
|
|
(7,968 |
) |
|
|
58,080 |
|
|
|
(7,968 |
) |
Other asset-backed
securities
|
|
|
6,974 |
|
|
|
(26 |
) |
|
|
3,873 |
|
|
|
(72 |
) |
|
|
10,847 |
|
|
|
(98 |
) |
Redeemable preferred
stocks
|
|
|
106,229 |
|
|
|
(3,694 |
) |
|
|
82,287 |
|
|
|
(10,504 |
) |
|
|
188,516 |
|
|
|
(14,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$ |
3,227,467 |
|
|
$ |
(255,618 |
) |
|
$ |
834,186 |
|
|
$ |
(155,344 |
) |
|
$ |
4,061,653 |
|
|
$ |
(410,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANALYSIS OF GROSS
UNREALIZED INVESTMENT LOSSES
At December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
Twelve
Months |
|
|
Twelve Months
or
Longer |
|
|
Total |
|
Description of
Securities
|
|
Fair
Value |
|
|
Unrealized
Loss |
|
|
Fair Value |
|
|
Unrealized
Loss |
|
|
Fair Value |
|
|
Unrealized
Loss |
|
Fixed maturities available for
sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government direct, guaranteed,
and government-sponsored enterprises
|
|
$ |
316,596 |
|
|
$ |
(4,770 |
) |
|
$ |
199 |
|
|
$ |
(3 |
) |
|
$ |
316,795 |
|
|
$ |
(4,773 |
) |
States, municipalities and political
subdivisions
|
|
|
26,206 |
|
|
|
(189 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
26,206 |
|
|
|
(189 |
) |
Foreign governments
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Corporates
|
|
|
761,477 |
|
|
|
(15,339 |
) |
|
|
343,987 |
|
|
|
(39,684 |
) |
|
|
1,105,464 |
|
|
|
(55,023 |
) |
Collateralized debt
obligations
|
|
|
0 |
|
|
|
0 |
|
|
|
46,446 |
|
|
|
(18,051 |
) |
|
|
46,446 |
|
|
|
(18,051 |
) |
Other asset-backed
securities
|
|
|
7,940 |
|
|
|
(88 |
) |
|
|
7,981 |
|
|
|
(313 |
) |
|
|
15,921 |
|
|
|
(401 |
) |
Redeemable preferred
stocks
|
|
|
44,132 |
|
|
|
(310 |
) |
|
|
171,852 |
|
|
|
(10,294 |
) |
|
|
215,984 |
|
|
|
(10,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$ |
1,156,351 |
|
|
$ |
(20,696 |
) |
|
$ |
570,465 |
|
|
$ |
(68,345 |
) |
|
$ |
1,726,816 |
|
|
$ |
(89,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information
about investments in an unrealized loss position is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
Twelve
Months |
|
|
Twelve
Months
or Longer |
|
|
Total |
|
|
|
|
|
|
|
Number of issues (Cusip numbers)
held:
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
462 |
|
|
|
130 |
|
|
|
592 |
|
As of December 31, 2012
|
|
|
195 |
|
|
|
95 |
|
|
|
290 |
|
Torchmark’s entire
fixed-maturity and equity portfolio consisted of 1,619 issues
at December 31, 2013 and 1,630 issues at December 31,
2012. The weighted-average quality rating of all unrealized loss
positions as of December 31, 2013 was BBB+, compared with BBB+
a year earlier. The weighted-average quality ratings are based on
amortized cost.
Other investment
information:
Other long-term
investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
|
Mortgage loans, at cost
|
|
$ |
0 |
|
|
$ |
514 |
|
Investment real estate, at
depreciated cost
|
|
|
203 |
|
|
|
2,816 |
|
Low-income housing
interests
|
|
|
7,589 |
|
|
|
9,875 |
|
Other
|
|
|
5,415 |
|
|
|
5,334 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
13,207 |
|
|
$ |
18,539 |
|
|
|
|
|
|
|
|
|
|
The fair value for
mortgages was approximately $0.5 million at December 31, 2012.
Accumulated depreciation on investment real estate was $1.7 million
at December 31, 2013 and $2.1 million at December 31,
2012.
Torchmark had $125
thousand in fixed maturities at book value ($126 thousand at fair
value) that were non-income producing during the twelve months
ended December 31, 2013. Torchmark did not have any other invested
assets that were non-income producing during the twelve months
ended December 31, 2013.
|