Investments

9 Months Ended

Sep. 30, 2013

Investments [Abstract]

Investments

Investments

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities by sector as of September 30, 2013 and December 31, 2012 (dollars in thousands):

September 30, 2013:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	11,505,673	$	637,691	$	208,802	$	11,934,562	56.1	%	$	—
Canadian and Canadian provincial governments	2,719,147		785,840		13,831		3,491,156		16.4		—
Residential mortgage-backed securities	922,581		44,948		15,691		951,838		4.5		(300		)
Asset-backed securities	883,495		19,264		17,481		885,278		4.1		(2,259		)
Commercial mortgage-backed securities	1,371,473		102,207		20,566		1,453,114		6.8		(1,609		)
U.S. government and agencies	413,254		20,412		2,819		430,847		2.0		—
State and political subdivisions	288,757		22,626		13,654		297,729		1.4		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,812,970		50,246		18,632		1,844,584		8.7		—
Total fixed maturity securities	$	19,917,350	$	1,683,234	$	311,476	$	21,289,108	100.0	%	$	(4,168	)
Non-redeemable preferred stock	$	80,985	$	5,187	$	3,333	$	82,839	56.4	%
Other equity securities	68,123		—		4,052		64,071		43.6
Total equity securities	$	149,108	$	5,187	$	7,385	$	146,910	100.0	%

December 31, 2012:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	11,333,431	$	1,085,973	$	39,333	$	12,380,071	55.5	%	$	—
Canadian and Canadian provincial governments	2,676,777		1,372,731		174		4,049,334		18.2		—
Residential mortgage-backed securities	969,267		76,520		3,723		1,042,064		4.7		(241		)
Asset-backed securities	700,455		19,898		28,798		691,555		3.1		(2,259		)
Commercial mortgage-backed securities	1,608,376		142,369		51,842		1,698,903		7.6		(6,125		)
U.S. government and agencies	231,256		33,958		24		265,190		1.2		—
State and political subdivisions	270,086		38,058		5,646		302,498		1.4		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,769,784		94,929		2,714		1,861,999		8.3		—
Total fixed maturity securities	$	19,559,432	$	2,864,436	$	132,254	$	22,291,614	100.0	%	$	(8,625	)
Non-redeemable preferred stock	$	68,469	$	6,542	$	170	$	74,841	33.6	%
Other equity securities	148,577		416		1,134		147,859		66.4
Total equity securities	$	217,046	$	6,958	$	1,304	$	222,700	100.0	%

The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $53.8 million and $16.9 million, and an estimated fair value of $54.5 million and $17.0 million, as of September 30, 2013 and December 31, 2012 respectively. The pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets as of September 30, 2013, and are included in other invested assets in the condensed consolidated balance sheets as of December 31, 2012. Securities with an amortized cost of $7,954.6 million and $7,549.0 million, and an estimated fair value of $8,260.6 million and $7,913.8 million, as of September 30, 2013 and December 31, 2012, respectively, were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties.

The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $92.2 million and $95.6 million, as of September 30, 2013 and December 31, 2012, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of September 30, 2013 and December 31, 2012, none of the collateral had been sold or re-pledged.

As of September 30, 2013, the Company held securities with a fair value of $1,238.5 million that were guaranteed or issued by the Canadian province of Ontario and $1,479.4 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity. As of December 31, 2012, the Company held securities with a fair value of $1,400.0 million that were guaranteed or issued by the Canadian province of Ontario and $1,785.0 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity.

The amortized cost and estimated fair value of fixed maturity securities available-for-sale at September 30, 2013 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date. At September 30, 2013, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands):

	Amortized Cost		Fair Value
Available-for-sale:
Due in one year or less	$	416,152	$	421,874
Due after one year through five years	3,712,227		3,890,251
Due after five years through ten years	6,800,712		7,027,350
Due after ten years	5,810,710		6,659,403
Asset and mortgage-backed securities	3,177,549		3,290,230
Total	$	19,917,350	$	21,289,108

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of September 30, 2013 and December 31, 2012 (dollars in thousands):

September 30, 2013:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	3,728,120	$	3,870,583	32.4	%
Industrial	5,926,283		6,125,796		51.3
Utility	1,829,273		1,916,477		16.1
Other	21,997		21,706		0.2
Total	$	11,505,673	$	11,934,562	100.0	%
December 31, 2012:			Estimated
	Amortized Cost		Fair Value		% of Total
Finance	$	3,619,455	$	3,900,152	31.5	%
Industrial	5,881,967		6,443,846		52.0
Utility	1,799,658		2,002,611		16.2
Other	32,351		33,462		0.3
Total	$	11,333,431	$	12,380,071	100.0	%

Other-Than-Temporary Impairments

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2012 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities are recognized in AOCI. 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 AOCI. The following table sets forth the amount of pre-tax 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 AOCI, and the corresponding changes in such amounts (dollars in thousands):

	Three months ended September 30,
	2013			2012
Balance, beginning of period	$	13,324		$	45,903
Initial impairments - credit loss OTTI recognized on securities not previously impaired	—			—
Additional impairments - credit loss OTTI recognized on securities previously impaired	134			1,306
Credit loss OTTI previously recognized on securities impaired to fair value during the period	—			(2,622		)
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	(1,762		)	(20,725		)
Balance, end of period	$	11,696		$	23,862
	Nine months ended September 30,
	2013			2012
Balance, beginning of period	$	16,675		$	63,947
Initial impairments - credit loss OTTI recognized on securities not previously impaired	—			1,962
Additional impairments - credit loss OTTI recognized on securities previously impaired	134			10,187
Credit loss OTTI previously recognized on securities impaired to fair value during the period	(1,449		)	(22,291		)
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	(3,664		)	(29,943		)
Balance, end of period	$	11,696		$	23,862

Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale

Securities acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired securities. For each security, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. At the date of acquisition, the timing and amount of the cash flows expected to be collected was determined based on a best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.

The following tables present information on the Company’s purchased credit impaired securities, which are included in fixed maturity securities available-for-sale (dollars in thousands):

	September 30, 2013		December 31, 2012
Outstanding principal and interest balance(1)	$	186,379	$	108,831
Carrying value, including accrued interest(2)	$	135,862	$	84,765

(1) Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest.

(2) Estimated fair value plus accrued interest.

The following table presents information about purchased credit impaired investments acquired during the periods, as of their acquisition dates (dollars in thousands).

	Nine months ended September 30,
	2013		2012
Contractually required payments (including interest)	$	126,869	$	50,268
Cash flows expected to be collected(1)	101,205		42,316
Fair value of investments acquired	66,880		30,853

(1) Represents undiscounted principal and interest cash flow expectations at the date of acquisition.

The following table presents activity for the accretable yield on purchased credit impaired securities for the three and nine months ended September 30, 2013 and 2012 (dollars in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Balance, beginning of period	$	66,269		$	—		$	39,239		$	—
Investments purchased	4,374			11,463			34,325			11,463
Accretion	(1,952		)	(6		)	(5,774		)	(6		)
Disposals	—			—			(832		)	—
Reclassification from nonaccretable difference	1,388			—			3,121			—
Balance, end of period	$	70,079		$	11,457		$	70,079		$	11,457

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the 1,397 and 567 fixed maturity and equity securities as of September 30, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):

	September 30, 2013				December 31, 2012
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	286,594	89.9	%	$	54,951	41.2	%
20% or more for less than six months	6,325		2.0		734		0.5
20% or more for six months or greater	25,942		8.1		77,873		58.3
Total	$	318,861	100.0	%	$	133,558	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,397 and 567 fixed maturity and equity securities that have estimated fair values below amortized cost as of September 30, 2013 and December 31, 2012, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.

	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
September 30, 2013:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	3,158,429	$	168,659	$	130,027	$	20,031	$	3,288,456	$	188,690
Canadian and Canadian provincial governments	140,648		12,530		6,898		1,301		147,546		13,831
Residential mortgage-backed securities	207,602		11,909		18,997		2,257		226,599		14,166
Asset-backed securities	270,863		4,602		53,786		5,571		324,649		10,173
Commercial mortgage-backed securities	188,153		6,565		22,435		5,968		210,588		12,533
U.S. government and agencies	72,032		2,658		3,958		161		75,990		2,819
State and political subdivisions	95,935		8,776		14,981		4,878		110,916		13,654
Other foreign government, supranational and foreign government-sponsored enterprises	644,427		17,479		10,589		1,153		655,016		18,632
Total investment grade securities	4,778,089		233,178		261,671		41,320		5,039,760		274,498
Non-investment grade securities:
Corporate securities	311,613		12,155		42,024		7,957		353,637		20,112
Residential mortgage-backed securities	53,633		1,068		2,254		457		55,887		1,525
Asset-backed securities	29,043		467		30,901		6,841		59,944		7,308
Commercial mortgage-backed securities	971		25		10,905		8,008		11,876		8,033
Total non-investment grade securities	395,260		13,715		86,084		23,263		481,344		36,978
Total fixed maturity securities	$	5,173,349	$	246,893	$	347,755	$	64,583	$	5,521,104	$	311,476
Non-redeemable preferred stock	$	42,338	$	3,331	$	1	$	2	$	42,339	$	3,333
Other equity securities	47,151		2,619		17,028		1,433		64,179		4,052
Total equity securities	$	89,489	$	5,950	$	17,029	$	1,435	$	106,518	$	7,385

	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
December 31, 2012:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Investment grade securities:
Corporate securities	$	786,203	$	13,276	$	108,187	$	17,386	$	894,390	$	30,662
Canadian and Canadian provincial governments	12,349		174		—		—		12,349		174
Residential mortgage-backed securities	22,288		97		19,394		3,199		41,682		3,296
Asset-backed securities	59,119		449		96,179		9,508		155,298		9,957
Commercial mortgage-backed securities	89,507		797		29,181		7,974		118,688		8,771
U.S. government and agencies	7,272		24		—		—		7,272		24
State and political subdivisions	20,602		1,514		11,736		4,132		32,338		5,646
Other foreign government, supranational and foreign government-sponsored enterprises	244,817		1,953		7,435		761		252,252		2,714
Total investment grade securities	1,242,157		18,284		272,112		42,960		1,514,269		61,244
Non-investment grade securities:
Corporate securities	181,168		3,170		39,123		5,501		220,291		8,671
Residential mortgage-backed securities	15,199		80		2,633		347		17,832		427
Asset-backed securities	3,421		26		31,938		18,815		35,359		18,841
Commercial mortgage-backed securities	3,317		764		68,405		42,307		71,722		43,071
Total non-investment grade securities	203,105		4,040		142,099		66,970		345,204		71,010
Total fixed maturity securities	$	1,445,262	$	22,324	$	414,211	$	109,930	$	1,859,473	$	132,254
Non-redeemable preferred stock	$	5,577	$	52	$	5,679	$	118	$	11,256	$	170
Other equity securities	85,374		1,134		—		—		85,374		1,134
Total equity securities	$	90,951	$	1,186	$	5,679	$	118	$	96,630	$	1,304

As of September 30, 2013, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. As of September 30, 2013, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines.

Unrealized losses on non-investment grade securities are principally related to high-yield corporate securities due to interest rate movements during the first nine months of 2013. As of September 30, 2013 and December 31, 2012, approximately $20.1 million and $8.7 million, respectively, of gross unrealized losses were associated with non-investment grade corporate securities. Unrealized losses on non-investment grade securities related to asset and mortgage-backed securities decreased significantly during 2013 driven principally by commercial mortgage-backed securities. As of September 30, 2013 and December 31, 2012, approximately $15.3 million and $61.5 million, respectively, of gross unrealized losses greater than 12 months were associated with non-investment grade asset and mortgage-backed securities. During the first nine months of 2013, commercial mortgage-backed securities benefited from improvement in delinquency rates and the Company sold several non-investment grade commercial mortgage-backed securities.

Investment Income, Net of Related Expenses

Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Fixed maturity securities available-for-sale	$	243,938		$	221,212		$	723,772		$	633,110
Mortgage loans on real estate	33,013			26,938			89,618			67,258
Policy loans	15,743			16,519			49,103			49,637
Funds withheld at interest	80,024			127,855			376,495			305,861
Short-term investments	374			960			1,609			3,027
Investment receivable	—			—			—			—
Other invested assets	9,411			13,117			36,712			35,803
Investment revenue	382,503			406,601			1,277,309			1,094,696
Investment expense	(13,137		)	(9,820		)	(38,578		)	(28,641		)
Investment income, net of related expenses	$	369,366		$	396,781		$	1,238,731		$	1,066,055

Investment Related Gains (Losses), Net

Investment related gains (losses), net consist of the following (dollars in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Fixed maturities and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturities	$	(391	)	$	(1,996	)	$	(10,396	)	$	(11,562	)
Portion of loss recognized in accumulated other comprehensive income (before taxes)	59			(559		)	(247		)	(7,618		)
Net other-than-temporary impairment losses on fixed maturities recognized in earnings	(332		)	(2,555		)	(10,643		)	(19,180		)
Impairment losses on equity securities	—			—			—			(3,025		)
Gain on investment activity	21,560			53,173			70,085			102,078
Loss on investment activity	(30,434		)	(6,668		)	(48,406		)	(23,090		)
Other impairment losses and change in mortgage loan provision	233			(10,301		)	(1,268		)	(14,382		)
Derivatives and other, net	(67,492		)	42,404			56,381			100,973
Total investment related gains (losses), net	$	(76,465	)	$	76,053		$	66,149		$	143,374

The other-than-temporary impairment losses on fixed maturity securities in the third quarter and first nine months of 2013 were primarily due to the decision to sell certain subordinated commercial mortgage-backed securities. The other-than-temporary impairments in the first nine months of 2012 were primarily due to a decline in value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. The decrease in derivatives and other in the third quarter was primarily due to a decrease in the fair value of embedded derivatives. The decrease in derivatives and other for the first nine months was primarily due to decreases in the fair value of free-standing interest rate swap derivatives due to the rising interest rate environment.

During the three months ended September 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $410.4 million and $220.5 million at losses of $30.4 million and $6.7 million, respectively. During the nine months ended September 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $872.2 million and $622.1 million at losses of $48.4 million and $23.1 million, respectively. The Company generally does not engage in short-term buying and selling of securities.

Securities Borrowing and Other

The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from a third party. The Company is required to maintain a minimum of 100% of the fair value of the borrowed securities as collateral, which consists of rights to reinsurance treaty cash flows. The Company had borrowed securities with an amortized cost of $87.5 million as of September 30, 2013 and December 31, 2012, which was equal to the fair value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.

The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets. As of September 30, 2013 the Company had pledged securities with an amortized cost of $292.4 million and an estimated fair value of $307.0 million, and in return the Company received securities with an estimated fair value of $347.5 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, and in return the Company received securities with an estimated fair value of $342.0 million.

Mortgage Loans on Real Estate

Mortgage loans represented approximately 7.8% and 7.0% of the Company’s total investments as of September 30, 2013 and December 31, 2012. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, and light industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of September 30, 2013 and December 31, 2012 (dollars in thousands):

	September 30, 2013				December 31, 2012
	Recorded Investment		% of Total		Recorded Investment		% of Total
Apartment	$	290,678	11.7	%	$	229,266	9.9	%
Retail	796,144		31.9		669,958		29.0
Office building	854,870		34.2		825,406		35.7
Industrial	444,186		17.8		455,682		19.7
Other commercial	110,373		4.4		131,855		5.7
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%

As of September 30, 2013 and December 31, 2012, the Company’s mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):

	September 30, 2013				December 31, 2012
	Recorded Investment		% of Total		Recorded Investment		% of Total
Pacific	$	658,054	26.4	%	$	593,589	25.7	%
South Atlantic	581,781		23.3		477,068		20.5
Mountain	260,794		10.4		233,174		10.1
Middle Atlantic	269,602		10.8		300,475		13.0
West North Central	181,937		7.3		168,063		7.3
East North Central	239,997		9.6		224,122		9.7
West South Central	155,061		6.2		161,451		7.0
East South Central	67,155		2.7		62,789		2.7
New England	81,870		3.3		91,436		4.0
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%

The maturities of the mortgage loans, gross of valuation allowances, as of September 30, 2013 and December 31, 2012 are as follows (dollars in thousands):

	September 30, 2013				December 31, 2012
	Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	1,024,065	41.0	%	$	1,187,387	51.3	%
Due after five years through ten years	963,479		38.6		776,655		33.6
Due after ten years	508,707		20.4		348,125		15.1
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%

Information regarding the Company’s credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of September 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

	September 30, 2013				December 31, 2012
Internal credit risk grade:	Recorded Investment		% of Total		Recorded Investment		% of Total
High investment grade	$	1,556,974	62.4	%	$	1,235,605	53.5	%
Investment grade	754,369		30.2		834,494		36.1
Average	106,912		4.3		132,607		5.7
Watch list	49,173		2.0		76,463		3.3
In or near default	28,823		1.1		32,998		1.4
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%

The age analysis of the Company’s past due recorded investment in mortgage loans, gross of valuation allowances, as of September 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

	September 30, 2013		December 31, 2012
31-60 days past due	$	—	$	7,504
61-90 days past due	—		—
Greater than 90 days	3,046		16,886
Total past due	3,046		24,390
Current	2,493,205		2,287,777
Total	$	2,496,251	$	2,312,167

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of September 30, 2013 and December 31, 2012 (dollars in thousands):

	September 30, 2013		December 31, 2012
Mortgage loans:
Individually measured for impairment	$	32,624	$	39,956
Collectively measured for impairment	2,463,627		2,272,211
Mortgage loans, gross of valuation allowances	2,496,251		2,312,167
Valuation allowances:
Individually measured for impairment	4,691		6,980
Collectively measured for impairment	2,978		4,600
Total valuation allowances	7,669		11,580
Mortgage loans, net of valuation allowances	$	2,488,582	$	2,300,587

Information regarding the Company’s loan valuation allowances for mortgage loans for the three and nine months ended September 30, 2013 and 2012 is as follows (dollars in thousands):

	Three months ended September 30,
	2013			2012
Balance, beginning of period	$	7,903		$	11,011
Charge-offs	—			(526		)
Provision (release)	(234		)	2,848
Balance, end of period	$	7,669		$	13,333
	Nine months ended September 30,
	2013			2012
Balance, beginning of period	$	11,580		$	11,793
Charge-offs	(2,148		)	(4,595		)
Provision (release)	(1,763		)	6,135
Balance, end of period	$	7,669		$	13,333

Information regarding the portion of the Company’s mortgage loans that were impaired as of September 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
September 30, 2013:
Impaired mortgage loans with no valuation allowance recorded	$	11,762	$	11,157	$	—	$	11,157
Impaired mortgage loans with valuation allowance recorded	21,536		21,467		4,691		16,776
Total impaired mortgage loans	$	33,298	$	32,624	$	4,691	$	27,933
December 31, 2012:
Impaired mortgage loans with no valuation allowance recorded	$	13,039	$	12,496	$	—	$	12,496
Impaired mortgage loans with valuation allowance recorded	27,527		27,460		6,980		20,480
Total impaired mortgage loans	$	40,566	$	39,956	$	6,980	$	32,976
The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
	Three months ended September 30,
	2013				2012
	Average Investment(1)		Interest Income		Average Investment(1)		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	13,631	$	349	$	11,054	$	109
Impaired mortgage loans with valuation allowance recorded	21,490		266		35,047		461
Total	$	35,121	$	615	$	46,101	$	570
	Nine months ended September 30,
	2013				2012
	Average Investment(1)		Interest Income		Average Investment(1)		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	13,504	$	533	$	16,312	$	305
Impaired mortgage loans with valuation allowance recorded	24,337		801		36,178		1,180
Total	$	37,841	$	1,334	$	52,490	$	1,485

(1) Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.

The Company did not acquire any impaired mortgage loans during the nine months ended September 30, 2013 and 2012. The Company had $3.0 million and $16.9 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at September 30, 2013 and December 31, 2012, respectively.

Policy Loans

Policy loans comprised approximately 3.9% of the Company’s total investments as of both September 30, 2013 and December 31, 2012, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. As policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.

Funds Withheld at Interest

Funds withheld at interest comprised approximately 18.0% and 17.0% of the Company’s total investments as of September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, approximately 70.0% and 69.7%, respectively, of the Company’s funds withheld at interest balance, net of embedded derivatives, was associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, real estate joint ventures, structured loans, derivative contracts, Federal Home Loan Bank of Des Moines ("FHLB") common stock (included in other), investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate account assets (included in other), and real estate held-for-investment (included in other). Other invested assets represented approximately 3.5% of the Company’s total investments as of both September 30, 2013 and December 31, 2012. Carrying values of these assets as of September 30, 2013 and December 31, 2012 are as follows (dollars in thousands):

	September 30, 2013		December 31, 2012
Equity securities	$	146,910	$	222,700
Limited partnerships and real estate joint ventures	417,761		356,419
Structured loans	245,404		306,497
Derivatives	87,421		168,208
Other	218,895		105,719
Total other invested assets	$	1,116,391	$	1,159,543

Investments Transferred to the Company

During the second quarter of 2012, the Company added a large fixed deferred annuity reinsurance transaction in its U.S. Asset-Intensive sub-segment. This transaction increased the Company’s invested asset base by approximately $5.4 billion which was reflected on the condensed consolidated balance sheet as of June 30, 2012 as an investment receivable. In satisfaction of this investment receivable, the Company received the following on July 31, 2012 and August 3, 2012 (dollars in thousands):

				Amortized Cost/ Recorded Investment		Estimated Fair Value
Fixed maturity securities - available for sale:
	Corporate securities			$	2,585,095	$	2,606,816
	Asset-backed securities			137,251		138,918
	Commercial mortgage-backed securities			703,313		704,065
	U.S. Government and agencies securities			240,952		256,168
	State and political subdivision securities			27,297		27,555
	Other foreign government, supranational, and
		foreign government-sponsored enterprises		56,776		55,437
			Total fixed maturity securities - available for sale	3,750,684		3,788,959
Mortgage loans on real estate				1,009,454		1,021,661
Short-term investments				101,428		101,338
Cash and cash equivalents				501,593		501,593
Accrued interest				43,739		43,739
			Total	$	5,406,898	$	5,457,290