Investments

12 Months Ended

Dec. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Investments

 INVESTMENTS

(A)  Investment Income

The major components of net investment income are as follows:

	Years Ended December 31,
	2014		2013	2012
	(In thousands)
Gross investment income:
Debt securities	$	410,809	410,790	408,204
Mortgage loans	9,847		9,256	11,879
Policy loans	4,252		4,503	5,079
Derivative gains (losses)	68,616		225,899	27,147
Money market investments	401		252	936
Other investment income	12,591		10,759	7,965
Total investment income	506,516		661,459	461,210
Investment expenses	1,086		1,027	1,162
Net investment income	$	505,430	660,432	460,048

The Company had real estate investments that were non-income producing for the preceding twelve months totaling $0.9 million, $1.3 million and $1.5 million at December 31, 2014, 2013 and 2012, respectively.

(B)  Mortgage Loans and Real Estate

A financing receivable is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in a company’s statement of financial position.  The Company’s mortgage, participation and mezzanine loans on real estate are the only financing receivables included in the balance sheet.

In general, the Company originates loans on high quality, income-producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, motels, and health care facilities.  The location of these properties is typically in major metropolitan areas that offer a potential for property value appreciation. Credit and default risk is minimized through strict underwriting guidelines and diversification of underlying property types and geographic locations.  In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lease payments and also by the borrower.  This approach has proven to result in quality mortgage loans with few defaults.  Mortgage loan interest income is recognized on an accrual basis with any premium or discount amortized over the life of the loan.  Prepayment and late fees are recorded on the date of collection.

The Company requires a minimum specified yield on mortgage loan investments.  The historically low interest rate environment of the past couple of years has resulted in fewer loan opportunities being available meeting the Company's required rate of return. Consequently, new mortgage loan origination activity has been less significant in this time frame with $37.1 million and $34.1 million in total loans for the years 2014 and 2013, respectively.

Loans in foreclosure, loans considered impaired or loans past due 90 days or more are placed on a non-accrual status.  If a mortgage loan is determined to be on non-accrual status, the mortgage loan does not accrue any revenue into the Consolidated Statements of Earnings.  The loan is independently monitored and evaluated as to potential impairment or foreclosure.  If delinquent payments are made and the loan is brought current, then the Company returns the loan to active status and accrues income accordingly.  The Company has no loans past due 90 days which are accruing interest.

The Company's direct investments in real estate are not a significant portion of its total investment portfolio as most of these investments were acquired through mortgage loan foreclosures.  The Company also participates in several real estate joint ventures and limited partnerships that invest primarily in income-producing retail properties.  These investments have generally served to enhance the Company's overall investment portfolio returns.

The Company held net investments in mortgage loans totaling $149.5 million and $132.8 million at December 31, 2014 and 2013, respectively.  The diversification of the portfolio by geographic region, property type, and loan-to-value ratio was as follows:

	December 31, 2014					December 31, 2013
	Amount			%		Amount			%
	(In thousands)					(In thousands)
Mortgage Loans by Geographic Region:
West South Central	$	97,918		65.2		$	79,702		59.7
East South Central	14,137			9.4		10,098			7.6
New England	12,155			8.1		17,400			13.0
East North Central	10,714			7.1		10,607			8.0
Pacific	10,282			6.9		10,364			7.8
Mountain	3,050			2.0		3,239			2.4
Middle Atlantic	1,897			1.3		2,005			1.5
Gross balance	150,153			100.0		133,415			100.0
Allowance for possible losses	(650		)	(0.4	)	(650		)	(0.5	)
Totals	$	149,503		99.6		$	132,765		99.5

	December 31, 2014					December 31, 2013
	Amount			%		Amount			%
	(In thousands)					(In thousands)
Mortgage Loans by Property Type:
Retail	$	130,544		86.9		$	103,487		77.6
Apartments	7,333			4.9		15,275			11.4
Land/Lots	3,333			2.2		3,155			2.4
Hotel/Motel	1,600			1.1		3,742			2.8
Office	893			0.6		1,313			1.0
All other	6,450			4.3		6,443			4.8
Gross balance	150,153			100.0		133,415			100.0
Allowance for possible losses	(650		)	(0.4	)	(650		)	(0.5	)
Totals	$	149,503		99.6		$	132,765		99.5

	December 31, 2014					December 31, 2013
	Amount			%		Amount			%
	(In thousands)					(In thousands)
Mortgage Loans by Loan-to-Value Ratio (1):
Less than 50%	$	52,564		35.0		$	57,445		43.0
50% to 60%	50,553			33.7		23,339			17.5
60% to 70%	14,567			9.7		20,120			15.1
70% to 80%	12,656			8.4		9,723			7.3
80% to 90%	5,399			3.6		—			—
Greater than 90%	14,414			9.6		22,788			17.1
Gross balance	150,153			100.0		133,415			100.0
Allowance for possible losses	(650		)	(0.4	)	(650		)	(0.5	)
Totals	$	149,503		99.6		$	132,765		99.5

(1)  Loan-to-Value Ratio using the most recent appraised value. Appraisals are required at the time of funding and may be updated if a material change occurs from the original loan agreement.

The greater than 90% category is related to loans made with a long standing borrower which are backed by the investment property, contracted leases and the guarantee of the borrower.

All mortgage loans are analyzed quarterly in order to monitor the financial quality of these assets. Based on ongoing monitoring, mortgage loans with a likelihood of becoming delinquent are identified and placed on an internal “watch list”. Among the criteria that would indicate a potential problem are: major tenant vacancies or bankruptcies, late payments, and loan relief/restructuring requests. The mortgage loan portfolio is analyzed for the need for a valuation allowance on any loan that is on the internal watch list, in the process of foreclosure or that currently has a valuation allowance.

Mortgage loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When it is determined that a loan is impaired, a loss is recognized for the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell. Estimated value is typically based on the loan’s observable market price or the fair value of the collateral less cost to sell. Impairments and changes in the valuation allowance are reported in net realized capital gains (losses) in the consolidated statements of earnings.

The Company recognized valuation losses of $0.0 million, $0.0 million and $0.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The mortgage loan valuation write-down in 2012 represents a general valuation allowance established for the Company's mortgage loan portfolio based upon the Company's loss experience over the past ten years and is not specifically identified to individual loans. The impairments in 2012 were based on information which indicated that the Company may not collect all amounts in accordance with the mortgage agreement. While the Company closely monitors its mortgage loan portfolio, future changes in economic conditions can result in impairments beyond those currently identified.

The following table represents the mortgage loan allowance for the years ended December 31, 2014 and 2013:

	2014		2013
	(In thousands)
Balance, beginning of period	$	650	650
Provision	—		—
Releases	—		—
Balance, end of period	$	650	650

The Company does not recognize interest income on loans past due 90 days or more.  The Company had no mortgage loan past due six months or more at December 31, 2014, 2013 and 2012.  There was no interest income not recognized in 2014, 2013 and 2012.

The contractual maturities of mortgage loan principal balances at December 31, 2014 and 2013 were as follows:

	December 31, 2014			December 31, 2013
	Amount		%	Amount		%
	(In thousands)			(In thousands)
Principal Balance by Contractual Maturity:
Due in one year or less	$	16,390	10.9	$	10,491	7.8
Due after one year through five years	83,965		55.7	51,304		38.3
Due after five years through ten years	30,591		20.3	51,839		38.7
Due after ten years through fifteen years	—		—	—		—
Due after fifteen years	19,813		13.1	20,300		15.2
Totals	$	150,759	100.0	$	133,934	100.0

The Company's real estate investments totaled approximately $16.7 million at December 31, 2014 and $18.2 million at December 31, 2013, and consist primarily of income-producing properties which are being operated by a wholly-owned subsidiary of the Company.  The Company’s real estate holdings are reflected in other long-term investments in the accompanying consolidated financial statements.  The Company records real estate at the lower of cost or fair value less estimated cost to sell, which is determined on an individual asset basis.  The Company recognized operating income on these properties of approximately $1.7 million, $1.7 million and $1.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.  The Company monitors the conditions and market values of these properties on a regular basis and makes repairs and capital improvements to keep the properties in good condition. The Company recorded net realized investment gains on disposals of $1.0 million, $0.3 million and $2.6 million associated with these properties in the years ended December 31, 2014, 2013 and 2012, respectively.  The realized gains in 2014 were due to several properties being sold: one was an impaired and foreclosed property located in Steubenville, Ohio, another property was located in Houston, Texas and two were located in Freeport, Texas. The realized gain in 2012 was due to an impaired and foreclosed property located in New Orleans, LA that was subsequently sold at an amount above its impaired value.

(C)  Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2014.

	Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
U.S. agencies	$	10,061	705	—		10,766
U.S. Treasury	1,920		409	—		2,329
States and political subdivisions	432,186		31,417	(336	)	463,267
Public utilities	978,847		67,836	(757	)	1,045,926
Corporate	3,754,222		183,650	(18,591	)	3,919,281
Mortgage-backed	1,640,582		68,726	(4,164	)	1,705,144
Home equity	18,886		4,734	(57	)	23,563
Manufactured housing	4,839		328	—		5,167
Totals	$	6,841,543	357,805	(23,905	)	7,175,443

The table below presents amortized costs and fair values of securities available for sale at December 31, 2014.

	Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
States and political subdivisions	$	589	—	(36	)	553
Foreign governments	9,939		386	—		10,325
Public utilities	169,179		10,163	(126	)	179,216
Corporate	2,334,700		128,280	(8,961	)	2,454,019
Mortgage-backed	48,674		4,116	—		52,790
Home equity	11,702		225	(9	)	11,918
Manufactured housing	2,492		64	—		2,556
	2,577,275		143,234	(9,132	)	2,711,377
Equity public	12,799		4,849	(345	)	17,303
Totals	$	2,590,074	148,083	(9,477	)	2,728,680

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2013.

	Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
U.S. agencies	$	23,088	1,700	—		24,788
U.S. Treasury	1,913		434	—		2,347
States and political subdivisions	423,286		13,433	(10,944	)	425,775
Foreign governments	9,997		159	—		10,156
Public utilities	864,324		53,222	(9,687	)	907,859
Corporate	3,463,521		153,442	(81,760	)	3,535,203
Mortgage-backed	1,696,887		54,035	(33,376	)	1,717,546
Home equity	20,179		4,738	(32	)	24,885
Manufactured housing	7,125		460	—		7,585
Totals	$	6,510,320	281,623	(135,799	)	6,656,144

The table below presents amortized costs and fair values of securities available for sale at December 31, 2013.

	Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
States and political subdivisions	$	594	—	(110	)	484
Foreign governments	9,931		—	(156	)	9,775
Public utilities	233,788		15,014	(1,397	)	247,405
Corporate	2,195,124		124,519	(30,732	)	2,288,911
Mortgage-backed	68,799		5,040	—		73,839
Home equity	12,079		245	(7	)	12,317
Manufactured housing	3,803		132	—		3,935
	2,524,118		144,950	(32,402	)	2,636,666
Equity public	11,146		4,489	(757	)	14,878
Totals	$	2,535,264	149,439	(33,159	)	2,651,544

The Company's investment policy is to invest in high quality securities with the primary intention of holding these securities until the stated maturity.  As such, the portfolio has exposure to interest rate risk which is the risk that funds are invested today at a market interest rate and in the future interest rates rise causing the current market price on that investment to be lower.  This risk is not a significant factor relative to the Company's buy and hold portfolio, since the original intention was to receive the stated interest rate and principal at maturity to match liability requirements to policyholders.  Also, the Company takes steps to manage these risks.  For example, the Company purchases the type of mortgage-backed securities that have more predictable cash flow patterns.

In addition, the Company is exposed to credit risk which is continually monitored.  Credit risk is the risk that an issuer of a security will not be able to fulfill their obligations relative to a security payment schedule.  The Company reviewed pertinent information for all issuers in an unrealized loss position at December 31, 2014 including market pricing history, credit ratings, analyst reports, as well as data provided by the issuers themselves.  The Company then made a determination on each specific issuer relating to other-than-temporary impairment.  For the securities that have not been impaired at December 31, 2014, the Company intends to hold these securities until recovery in fair value and expects to receive all amounts due relative to principal and interest.

The Company held below investment grade debt securities totaling $147.1 million and $178.6 million at December 31, 2014 and 2013, respectively. These amounts represent 1.5% and 1.9% of total invested assets for December 31, 2014 and 2013, respectively.  Below investment grade holdings are the result of downgrades subsequent to purchase, as the Company only invests in high quality securities with ratings quoted as investment grade.  Below investment grade securities generally have greater default risk than higher rated corporate debt.  The issuers of these securities are usually more sensitive to adverse industry or economic conditions than are investment grade issuers.

For the year ended December 31, 2014, the Company recorded net realized gains totaling $11.8 million related to the disposition of investment securities.  The net realized gains included $0.2 million of losses for other-than-temporary impairment write-downs on investments in debt and equity securities. For the years ended December 2013 and 2012, the Company recorded realized gains totaling $9.0 million and $14.5 million, respectively, related to disposition of securities.

The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2014.

	Held to Maturity
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)
Debt securities:
State and political subdivisions	$	—	—		23,076	(336	)	23,076	(336	)
Public utilities	7,078		(13	)	48,198	(744	)	55,276	(757	)
Corporate	156,839		(2,997	)	698,316	(15,594	)	855,155	(18,591	)
Mortgage-backed	17,698		(240	)	181,694	(3,924	)	199,392	(4,164	)
Home equity	2,206		(57	)	—	—		2,206	(57	)
Total temporarily impaired securities	$	183,821	(3,307	)	951,284	(20,598	)	1,135,105	(23,905	)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2014.

	Available For Sale
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)
Debt securities:
State and political subdivisions	$	—	—		553	(36	)	553	(36	)
Public utilities	—		—		14,827	(126	)	14,827	(126	)
Corporate	100,373		(2,990	)	187,699	(5,971	)	288,072	(8,961	)
Home equity	—		—		4,826	(9	)	4,826	(9	)
	100,373		(2,990	)	207,905	(6,142	)	308,278	(9,132	)
Equity public	305		(52	)	3,801	(293	)	4,106	(345	)
Total temporarily impaired securities	$	100,678	(3,042	)	211,706	(6,435	)	312,384	(9,477	)

Unrealized losses decreased in 2014 due to the decline in interest rates (which serves to increase market values).  The Company does not consider these investments to be other-than-temporarily impaired because the Company does not intend to sell these securities until recovery in fair value and expects to receive all amounts due relative to principal and interest.

The Company does not consider securities to be other-than-temporarily impaired where the market decline is attributable to factors such as market volatility, liquidity, spread widening and credit quality where we anticipate a recovery of all amounts due under the contractual terms of the security and have the intent and ability to hold until recovery or maturity.  Based on the Company’s review in concert with the Company’s ability and intent to hold these securities until maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2014. The Company will monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

Debt securities. The gross unrealized losses for debt securities are made up of 190 individual issues, or 14.5% of the total debt securities held by the Company. The market value of these bonds as a percent of amortized cost averages 97.8%.  Of the 190 securities, 148, or approximately 77.5%, fall in the 12 months or greater aging category; and 186 were rated investment grade at December 31, 2014.  

Equity securities. The gross unrealized losses for equity securities are made up of 16 individual issues. These holdings are reviewed quarterly for impairment. Four of the equity securities were other-than-temporarily impaired at December 31, 2014, in accordance with Company policy.

The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2013.

	Held to Maturity
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)
Debt securities:
State and political subdivisions	$	128,711	(9,249	)	8,080	(1,695	)	136,791	(10,944	)
Public utilities	260,982		(8,998	)	7,821	(689	)	268,803	(9,687	)
Corporate	1,335,088		(71,330	)	117,179	(10,430	)	1,452,267	(81,760	)
Mortgage-backed	581,373		(32,043	)	13,861	(1,333	)	595,234	(33,376	)
Home equity	—		—		2,617	(32	)	2,617	(32	)
Total temporarily impaired securities	$	2,306,154	(121,620	)	149,558	(14,179	)	2,455,712	(135,799	)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category, and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2013.

	Available For Sale
	Less than 12 Months				12 Months or Greater			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(In thousands)
Debt securities:
State and political subdivisions	$	—	—		484	(110	)	484	(110	)
Foreign governments	9,775		(156	)	—	—		9,775	(156	)
Public utilities	20,090		(1,343	)	962	(54	)	21,052	(1,397	)
Corporate	532,310		(26,376	)	46,187	(4,356	)	578,497	(30,732	)
Mortgage-backed	—		—		—	—		—	—
Home equity	4,833		(7	)	—	—		4,833	(7	)
	567,008		(27,882	)	47,633	(4,520	)	614,641	(32,402	)
Equity public	3,707		(757	)	—	—		3,707	(757	)
Total temporarily impaired securities	$	570,715	(28,639	)	47,633	(4,520	)	618,348	(33,159	)

The amortized cost and fair value of investments in debt securities at December 31, 2014, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Debt Securities Available for Sale			Debt Securities Held to Maturity
	Amortized Cost		Fair Value	Amortized Cost	Fair Value
	(In thousands)
Due in 1 year or less	$	265,789	271,938	213,353	218,435
Due after 1 year through 5 years	665,953		736,333	1,181,707	1,309,733
Due after 5 years through 10 years	1,540,081		1,592,133	3,448,906	3,562,392
Due after 10 years	56,778		58,183	356,995	379,739
	2,528,601		2,658,587	5,200,961	5,470,299
Mortgage and asset-backed securities	48,674		52,790	1,640,582	1,705,144
Total	$	2,577,275	2,711,377	6,841,543	7,175,443

The Company uses the specific identification method in computing realized gains and losses.  The table below details the nature of realized gains and losses, excluding impairments, during the year.

	Years Ended December 31,
	2014			2013		2012
	(In thousands)
Available for sale debt securities:
Realized gains on disposal	$	7,795		4,418		7,115
Realized losses on disposal	(22		)	(6	)	—
Held to maturity debt securities:
Realized gains on redemption	3,453			3,845		6,065
Realized losses on redemption	(17		)	(72	)	(679	)
Equity securities realized gains	69			511		193
Real estate	955			262		2,485
Mortgage loans	—			—		(638	)
Other	(478		)	—		—
Totals	$	11,755		8,958		14,541

Due to significant credit deterioration, one bond from the held to maturity portfolio was sold in both 2013 and 2012. The sale in 2013 resulted in an insignificant realized gain. The sale in 2012 resulted in a loss of $0.3 million. No transfers were made out of the held to maturity portfolio to the available for sale portfolio in 2014, 2013 and 2012.

Except for U.S. government agency mortgage-backed securities, the Company had no other investments in any entity in excess of 10% of stockholders' equity at December 31, 2014 or 2013.

The table below presents net impairment losses recognized in earnings for the periods indicated.

	December 31,
	2014			2013		2012
	(In thousands)
Total other-than-temporary impairment recoveries (losses) on debt securities	$	125		909		1,121
Portion recognized in comprehensive income	(132		)	(1,151	)	(2,364	)
Net impairment losses on debt securities recognized in earnings	(7		)	(242	)	(1,243	)
Equity securities impairments	(143		)	(63	)	(98	)
Totals	$	(150	)	(305	)	(1,341	)

For the years ended December 31, 2014 and December 31, 2013, the Company recovered $0.1 million and $0.9 million, respectively, on previously impaired asset-backed securities. The credit component of the impairment was determined to be the difference between amortized cost and the present value of the cash flows expected to be received, discounted at the original yield. The significant inputs used to project cash flows are estimated future prepayment rates, default rates and default loss severity.  

The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments in other comprehensive loss.

	Year Ended		Year Ended
	December 31, 2014		December 31, 2013
	(In thousands)
Beginning balance, cumulative credit losses related to other-than-temporary impairments	$	2,472	2,247
Reductions for securities sold during current period	—		(17	)
Additions for OTTI where credit losses have been previously recognized	7		242
Ending balance, cumulative credit losses related to other-than-temporary impairments	$	2,479	2,472

(D)  Net Unrealized Gains (Losses)

Net unrealized gains (losses) on investment securities included in stockholders' equity at December 31, 2014 and 2013, are as follows:

	December 31,
	2014			2013
	(In thousands)
Gross unrealized gains	$	157,304		159,080
Gross unrealized losses	(12,926		)	(37,263	)
Adjustments for:
Deferred policy acquisition costs and sales inducements	(62,856		)	(51,929	)
Deferred Federal income tax expense	(28,556		)	(24,484	)
	52,966			45,404
Net unrealized gains related to securities transferred to held to maturity	—			—
Net unrealized gains on investment securities	$	52,966		45,404

(E)  Transfer of Securities

There were no transfers between the held to maturity portfolio and the available for sale portfolio in 2014 or 2013.