Investments

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Investments

6. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) as of the dates indicated:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI (3)
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	164,660	$	14,210	$	110	$	178,760	$	—
Obligations of U.S. states and their political subdivisions		90,435		9,216		—		99,651		—
Foreign government bonds		120,489		14,872		—		135,361		—
Corporate securities		3,427,633		378,975		6,645		3,799,963		(236	)
Asset-backed securities (1)		188,801		11,693		4,756		195,738		(3,746	)
Commercial mortgage-backed securities		440,788		24,844		229		465,403		—
Residential mortgage-backed securities (2)		588,498		23,545		245		611,798		(58	)
Total fixed maturities, available for sale	$	5,021,304	$	477,355	$	11,985	$	5,486,674	$	(4,040	)
Equity securities, available for sale	$	3,316	$	624	$	—	$	3,940	$	—

(1) Includes credit tranched securities collateralized by sub-prime mortgages, credit cards, education loans, and other asset types.

(2) Includes publicly traded agency pass-through securities and collateralized mortgage obligations.

(3) Represents the amount of other-than-temporary impairment losses in "Accumulated other comprehensive income (loss)," or "AOCI," which were not included in earnings. Amount excludes $2.4 million of net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI (3)
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	187,394	$	5,911	$	—	$	193,305	$	—
Obligations of U.S. states and their political subdivisions		69,567		7,949		—		77,516		—
Foreign government bonds		122,152		14,361		—		136,513		—
Corporate securities		3,554,569		396,747		366		3,950,950		(235	)
Asset-backed securities (1)		207,373		14,387		7,790		213,970		(12,200	)
Commercial mortgage-backed securities		455,972		34,597		—		490,569		—
Residential mortgage-backed securities (2)		367,237		26,161		—		393,398		(76	)
Total fixed maturities, available for sale	$	4,964,264	$	500,113	$	8,156	$	5,456,221	$	(12,511	)
Equity securities, available for sale	$	14,484	$	3,150	$	47	$	17,587	$	—

(1) Includes credit tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans, and other asset types.

(2) Includes publicly traded agency pass-through securities and collateralized mortgage obligations.

(3) Represents the amount of other-than-temporary impairment losses in "Accumulated other comprehensive income (loss)," or "AOCI," which were not included in earnings. Amount excludes $6.0 million of net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The amortized cost and fair value of fixed maturities by contractual maturities at September 30, 2011 are as follows:

	Available for Sale
	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	576,021	$	596,234
Due after one year through five years		1,915,199		2,087,196
Due after five years through ten years		839,871		948,599
Due after ten years		472,126		581,706
Asset-backed securities		188,801		195,738
Commercial mortgage-backed securities		440,788		465,403
Residential mortgage-backed securities		588,498		611,798
Total	$	5,021,304	$	5,486,674

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed, and residential mortgage-backed securities are shown separately in the table above, as they are not due at a single maturity date.

The following table depicts the sources of fixed maturity proceeds and related gross investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands)
Fixed maturities, available for sale
Proceeds from sales	$	10,700		$	276,733		$	562,602		$	755,903
Proceeds from maturities/repayments		146,615			83,806			376,721			294,748
Gross investment gains from sales, prepayments, and maturities		7,734			1,017			53,698			9,458
Gross investment losses from sales and maturities		(216	)		—			(216	)		(1,423	)
Fixed maturity and equity security impairments
Writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings (1)	$	(559	)	$	(393	)	$	(858	)	$	(2,482	)
Writedowns for impairments on equity securities	$	3,500		$	—		$	4,250		$	—

(1) Excludes the portion of other-than-temporary impairments recorded in "Other comprehensive income (loss)," representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.

As discussed in Note 3, a portion of certain OTTI losses on fixed maturity securities are recognized in OCI. For these securities the net amount recognized in earnings ("credit loss impairments") represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following tables set forth the amount of pretax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

	Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
	(in thousands)
Balance, beginning of period	$	11,201		$	14,148
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(8,206	)		(11,420	)
Additional credit loss impairments recognized in the current period on securities previously impaired		558			857
Increases due to the passage of time on previously recorded credit losses		55			317
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(76	)		(370	)
Balance, end of period	$	3,532		$	3,532
	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
	(in thousands)
Balance, beginning of period	$	13,911		$	13,038
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(192	)		(809	)
Additional credit loss impairments recognized in the current period on securities previously impaired		394			1,688
Increases due to the passage of time on previously recorded credit losses		126			491
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(140	)		(309	)
Balance, end of period	$	14,099		$	14,099

Trading Account Assets

The following table sets forth the composition of the Company's trading account assets as of the dates indicated:

	September 30, 2011				December 31, 2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)
Fixed maturities:
Asset-backed securities	$	30,448	$	31,587	$	66,205	$	70,831
Equity securities		6,606		6,631		8,132		8,774
Total trading account assets	$	37,054	$	38,218	$	74,337	$	79,605

The net change in unrealized gains and losses from trading account assets still held at period end, recorded within "Asset administration fees and other income" was $(1.1) million and $(0.1) million during the three months ended September 30, 2011 and 2010, respectively and $(3.9) million and $(1.3) million during the nine months ended September 30, 2011 and 2010, respectively.

Commercial Mortgage and Other Loans

The Company's commercial mortgage and other loans are comprised as follows, as of the dates indicated:

	September 30, 2011						December 31, 2010
	Amount			% of Total			Amount			% of Total
	(in thousands)						(in thousands)
Commercial mortgage and other loans by property type:
Office buildings	$	48,976			12.0	%	$	49,248			11.3	%
Retail		39,305			9.7	%		62,078			14.3	%
Apartments/Multi-Family		113,748			28.0	%		124,709			28.7	%
Industrial buildings		145,292			35.7	%		142,003			32.7	%
Hospitality		9,952			2.4	%		8,524			2.0	%
Total commercial mortgage loans		357,273			87.8	%		386,562			89.0	%
Agricultural property loans		49,803			12.2	%		47,850			11.0	%
Total commercial mortgage and other loans		407,076			100.0	%		434,412			100.0	%
Valuation allowance		(3,254	)					(2,980	)
Total net commercial mortgage and other loans by property type	$	403,822					$	431,432

The commercial mortgage and agricultural property loans are geographically dispersed throughout the United States, Canada and Asia with the largest concentrations in California (26%), New York (19%) and Ohio (12%) at September 30, 2011.

Activity in the allowance for losses for all commercial mortgage and other loans, as of the dates indicated, is as follows:

	September 30, 2011		December 31, 2010
	(in thousands)
Allowance for losses, beginning of year	$	2,980	$	2,897
Addition to allowance for losses		274		83
Total Ending Balance (1)	$	3,254	$	2,980

(1) Agricultural loans represent $0.1 million of the ending allowance at September 30, 2011 and December 31, 2010.

The following tables set forth the allowance for credit losses and the recorded investment in commercial mortgage and other loans as of dates indicated:

	September 30, 2011 Total Loans		December 31, 2010 Total Loans
	(in thousands)
Allowance for Credit Losses:
Ending Balance: individually evaluated for impairment (1)	$	473	$	416
Ending Balance: collectively evaluated for impairment (2)		2,781		2,564
Total ending balance	$	3,254	$	2,980
Recorded Investment: (3)
Ending Balance: individually evaluated for impairment (1)	$	3,751	$	3,782
Ending Balance: collectively evaluated for impairment (2)		403,325		430,630
Total ending balance, gross of reserves	$	407,076	$	434,412

(1) There were no agricultural loans individually evaluated for impairments at September 30, 2011 and December 31, 2010.

(2) Agricultural loans collectively evaluated for impairment had a recorded investment of $50.0 million and $48.0 million and related allowance of $0.1 million and $0.2 million at September 30, 2011 and December 31, 2010, respectively.

(3) Recorded investment reflects the balance sheet carrying value gross of related allowance.

Impaired loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. As shown in the table above, impaired commercial mortgage and other loans identified in management's specific review of probable loan losses and the related allowance for losses at September 30, 2011 had a recorded investment of $3.8 million and a related allowance of $0.5 million and a recorded investment of $3.8 million and related allowance of $0.4 million at December 31, 2010, all of which related to the hospitality property type. The average recorded investment in impaired loans with an allowance recorded, before the allowance for losses, was $3.8 million at September 30, 2011 and December 31, 2010. Net investment income recognized on these loans totaled $84 thousand for the nine months ended September 30, 2011 and $266 thousand for the year ended December 31, 2010. See Note 3 for information regarding the Company's accounting policies for non-performing loans.

Impaired commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans' expected future cash flows equals or exceeds the recorded investment. The Company had no such loans at September 30, 2011 or December 31, 2010.

The following tables set forth the credit quality indicators as of September 30, 2011 and December 31, 2010, based upon the recorded investment gross of allowance for credit losses:

Total commercial mortgage and other loans

	Debt Service Coverage Ratio - September 30, 2011
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in thousands)
Loan-to-Value Ratio
0%-49.99%	$	34,941	$	15,683	$	27,518	$	27,785	$	84,755	$	2,570	$	193,252
50%-59.99%		20,663		12,091		6,252		11,032		19,688		—		69,726
60%-69.99%		9,115		4,956		1,410		30,702		16,255		6,610		69,048
70%-79.99%		1,000		1,550		—		4,924		—		—		7,474
80%-89.99%		—		—		—		—		48,846		—		48,846
90%-100%		—		—		—		4,979		—		10,000		14,979
Greater than 100%		—		3,751		—		—		—		—		3,751
Total commercial mortgage and other loans (1)	$	65,719	$	38,031	$	35,180	$	79,422	$	169,544	$	19,180	$	407,076

(1) Agricultural loans had a recorded investment of $50.0 million at September 30, 2011, none of which had a loan-to-value ratio greater than 100% or debt service payments less than 1.0 times the property's net operating income.

See Note 3 for further discussion regarding the credit quality of commercial mortgage and other loans.

Total commercial mortgage and other loans

	Debt Service Coverage Ratio - December 31, 2010
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in thousands)
Loan-to-Value Ratio
0%-49.99%	$	46,286	$	12,127	$	30,887	$	14,121	$	86,754	$	23,736	$	213,911
50%-59.99%		6,795		12,091		2,880		11,186		1,495		—		34,447
60%-69.99%		—		—		6,680		55,286		4,864		2,137		68,967
70%-79.99%		—		—		24,362		5,030		—		14,782		44,174
80%-89.99%		—		—		—		—		—		54,175		54,175
90%-100%		—		—		—		—		—		10,000		10,000
Greater than 100%		—		—		—		3,782		—		4,956		8,738
Total commercial mortgage and other loans (1)	$	53,081	$	24,218	$	64,809	$	89,405	$	93,113	$	109,786	$	434,412

(1) Agricultural loans had a recorded investment of $48.0 million at December 31, 2010, none of which had a loan-to-value ratio greater than 100% or debt service payments less than 1.0 times the property's net operating income.

See Note 3 for further discussion regarding the credit quality of commercial mortgage and other loans.

As of September 30, 2011 and December 31, 2010, all commercial mortgage and other loans were in current status except for $3.8 million of hospitality loans in non-accrual status at the end of both periods.

For the quarter ended September 30, 2011, there were no commercial mortgage and other loans sold or acquired.

The Company's commercial mortgage and other loans involved in a trouble debt restructuring consisted solely of Office building loans as of September 30, 2011. The pre-modification outstanding recorded investment has been adjusted for any partial payoffs and is recorded at carrying value, gross of reserves of $4.9 million as of September 30, 2011. The post-modification outstanding recorded investment is recorded at carrying value, gross of reserves and had a balance of $5.0 million as of September 30, 2011. During the nine months of 2011, the Company did not receive any default payments during the current period, does not have a reserve established for the above mentioned commercial mortgage loans and has not recognized any gain/loss on reserves. See Note 3 for additional information relating to the accounting for troubled debt restructurings. The Company had no payment defaults during the period on commercial mortgage and other loans that were modified as a troubled debt restructuring within the last 12 months.

As of September 30, 2011 the Company has not committed to provide additional funds to borrowers that have been involved in a troubled debt restructuring.

Net Investment Income

Net investment income for the three and nine months ended September 30, 2011 and 2010 was from the following sources:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands)
Fixed maturities, available for sale	$	68,351		$	87,839		$	211,147		$	269,192
Equity securities, available for sale		(10	)		206			333			617
Trading account assets		412			883			1,563			2,511
Commercial mortgage and other loans		6,300			6,667			21,444			19,694
Policy loans		158			1,105			564			676
Short-term investments and cash equivalents		186			309			499			1,099
Other long-term investments		(760	)		856			252			1,213
Gross investment income		74,637			97,865			235,802			295,002
Less investment expenses		(1,650	)		(2,059	)		(5,097	)		(6,293	)
Net investment income	$	72,987		$	95,806		$	230,705		$	288,709

Realized Investment Gains (Losses), Net

Realized investment gains (losses), net, for the three and nine months ended September 30, 2011 and 2010 were from the following sources:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands)
Fixed maturities	$	6,959		$	622		$	52,624		$	5,552
Equity securities		2,039			210			1,996			(158	)
Commercial mortgage and other loans		439			(963	)		5,114			(961	)
Derivatives		46,731			(4,247	)		24,451			42,638
Other		(107	)		3			(109	)		38
Realized investment gains (losses), net	$	56,061		$	(4,375	)	$	84,076		$	47,109

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains and losses on securities classified as "available for sale" and certain other long-term investments and other assets are included in the Unaudited Interim Statements of Financial Position as a component of "Accumulated other comprehensive income (loss)." Changes in these amounts include reclassification adjustments to exclude from OCI those items that are included as part of "Net income" for a period that had been part of OCI in earlier periods. The amounts for the periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains and losses, are as follows:

Net Unrealized Investment Gains and Losses on Fixed Maturity Securities an which on OTTI loss has been recognized

	Net Unrealized Gains (Losses) on Investments			Deferred Policy Acquisition Costs, Deferred Sales Inducements and Valuation of Business Acquired			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2010	$	(6,560	)	$	2,852		$	1,313		$	(2,395	)
Net investment (losses) gains on investments arising during the period		(1,258	)		—			440			(818	)
Reclassification adjustment for gains (losses) included in net income		6,203			—			(2,171	)		4,032
Impact of net unrealized investment (losses) gains on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired		—			(2,049	)		717			(1,332	)
Balance, September 30, 2011	$	(1,615	)	$	803		$	299		$	(513	)

All Other Net Unrealized Investment Gains and Losses in AOCI

	Net Unrealized Gains/(Losses) on Investments (1)			Deferred Policy Acquisition Costs, Deferred Sales Inducements and Valuation of Business Acquired			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2010	$	504,664		$	(220,898	)	$	(100,163	)	$	183,603
Net investment gains (losses) on investments arising during the period		27,858			—			(9,750	)		18,108
Reclassification adjustment for (losses) gains included in net income		(60,823	)		—			21,291			(39,532	)
Impact of net unrealized investment (losses) gains on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired		—			(27,022	)		9,458			(17,564	)
Balance, September 30, 2011	$	471,699		$	(247,920	)	$	(79,164	)	$	144,615

(1) Includes cash flow hedges. See Note 8 to the Unaudited Interim Financial Statements included herein for additional discussion of our cash flow hedges.

The table below presents net unrealized gains (losses) on investments by asset class, as of the dates indicated:

	September 30, 2011			December 31, 2010
	(in thousands)
Fixed maturity securities on which an OTTI loss has been recognized	$	(1,615	)	$	(6,560	)
Fixed maturity securities, available for sale - all other		466,985			498,517
Equity securities, available for sale		624			3,103
Affiliated notes		5,422			5,511
Derivatives designated as cash flow hedges (1)		(1,340	)		(2,462	)
Other long-term investments		8			(5	)
Unrealized gains (losses) on investments and derivatives	$	470,084		$	498,104

(1) See Note 8 for more information on cash flow hedges.

Duration of Gross Unrealized Loss Positions for Fixed Maturities and Equity Securities

The following table shows the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity securities and equity securities have been in a continuous unrealized loss position, as of the dates indicated:

	September 30, 2011
	Less than twelve months				Twelve months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	39,737	$	110	$	—	$	—	$	39,737	$	110
Corporate securities		206,453		6,406		1,020		239		207,473		6,645
Commercial mortgage-backed securities		31,600		229		—		—		31,600		229
Asset-backed securities		47,031		1,100		28,938		3,656		75,969		4,756
Residential mortgage-backed securities		59,818		245		—		—		59,818		245
Total	$	384,639	$	8,090	$	29,958	$	3,895	$	414,597	$	11,985
Equity securities, available for sale	$	—	$	—	$	—	$	—	$	—	$	—
	December 31, 2010
	Less than twelve months				Twelve months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Corporate securities		50,071		366		62		—		50,133		366
Commercial mortgage-backed securities		4,992		—		—		—		4,992		—
Asset-backed securities		25,905		199		42,402		7,591		68,307		7,790
Residential mortgage-backed securities		—		—		—		—		—		—
Total	$	80,968	$	565	$	42,464	$	7,591	$	123,432	$	8,156
Equity securities, available for sale	$	—	$	—	$	746	$	47	$	746	$	47

The gross unrealized losses, related to fixed maturities at September 30, 2011 and December 31, 2010 are composed of $6.1 million and $6.1 million, respectively, related to high or highest quality securities based on NAIC or equivalent rating and $5.9 million and $2.0 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. At September 30, 2011, $3.9 million of the gross unrealized losses represented declines in value of greater than 20%, $1.2 million of which had been in that position for less than six months, as compared to $4.7 million at December 31, 2010 that represented declines in value of greater than 20%, $0.9 million of which had been in that position for less than six months. At September 30, 2011, the $3.9 million of gross unrealized losses of twelve months or more were concentrated in asset backed securities and manufacturing sector of the Company's corporate securities. At December 31, 2010, the $7.6 million of gross unrealized losses of twelve months or more were concentrated in asset backed securities.

In accordance with its policy described in Note 3, the Company concluded that an adjustment to earnings for other-than-temporary impairments for these securities was not warranted at September 30, 2011 or December 31, 2010. These conclusions are based on a detailed analysis of the underlying credit and cash flows on each security. The gross unrealized losses are primarily attributable to credit spread widening and increased liquidity discounts. At September 30, 2011, the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the anticipated recovery of its remaining amortized cost basis.

At September 30, 2011 and December 31, 2010, there were no gross unrealized losses, related to equity securities that represented declines of greater than 20%. Perpetual preferred securities, which the Company invested in at December 31, 2010, have characteristics of both debt and equity securities. Since an impairment model similar to fixed maturity securities is applied to these securities, an other-than-temporary impairment has not been recognized on certain perpetual preferred securities that have been in a continuous unrealized loss position for twelve months or more as of December 31, 2010. In accordance with its policy described in Note 3, the Company concluded that an adjustment for other-than-temporary impairments for these equity securities was not warranted at December 31, 2010. At September 30, 2011, the Company no longer holds these investments.