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Investments
 9 Months Ended
Sep. 30, 2015
Investments [Abstract]  
Investments
3.      INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments ("OTTI") in accumulated other comprehensive income ("AOCI") are as follows for the periods indicated:


   
At September 30, 2015
  
   
Amortized
    
Unrealized
    
Unrealized
    
Market
    
OTTI in AOCI
  
(Dollars in thousands)
  
Cost
    
Appreciation
    
Depreciation
    
Value
    
(a)
  
Fixed maturity securities
                    
U.S. Treasury securities and obligations of
                    
U.S. government agencies and corporations
  
$
222,879
    
$
4,634
    
$
(69
)
  
$
227,444
    
$
-
  
Obligations of U.S. states and political subdivisions
    
683,715
      
32,088
      
(1,524
)
    
714,279
      
-
  
Corporate securities
    
2,012,649
      
35,136
      
(48,623
)
    
1,999,162
      
6
  
Asset-backed securities
    
132,004
      
689
      
(232
)
    
132,461
      
-
  
Mortgage-backed securities
                                        
Commercial
    
62,616
      
1,960
      
(55
)
    
64,521
      
-
  
Agency residential
    
720,508
      
7,833
      
(2,306
)
    
726,035
      
-
  
Non-agency residential
    
141
      
27
      
-
      
168
      
-
  
Foreign government securities
    
448,501
      
25,864
      
(9,658
)
    
464,707
      
-
  
Foreign corporate securities
    
1,044,867
      
33,424
      
(22,706
)
    
1,055,585
      
16
  
Total fixed maturity securities
  
$
5,327,880
    
$
141,655
    
$
(85,173
)
  
$
5,384,362
    
$
22
  
Equity securities
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  



   
At December 31, 2014
  
   
Amortized
    
Unrealized
    
Unrealized
    
Market
    
OTTI in AOCI
  
(Dollars in thousands)
  
Cost
    
Appreciation
    
Depreciation
    
Value
    
(a)
  
Fixed maturity securities
                    
U.S. Treasury securities and obligations of
                    
U.S. government agencies and corporations
  
$
135,724
    
$
1,416
    
$
(304
)
  
$
136,836
    
$
-
  
Obligations of U.S. states and political subdivisions
    
783,129
      
41,969
      
(626
)
    
824,472
      
-
  
Corporate securities
    
1,992,200
      
39,954
      
(53,219
)
    
1,978,935
      
(9,735
)
Asset-backed securities
    
94,470
      
727
      
(374
)
    
94,823
      
-
  
Mortgage-backed securities
                                        
Commercial
    
57,027
      
2,292
      
(51
)
    
59,268
      
-
  
Agency residential
    
596,140
      
6,697
      
(4,720
)
    
598,117
      
-
  
Non-agency residential
    
271
      
44
      
-
      
315
      
-
  
Foreign government securities
    
515,016
      
27,415
      
(5,344
)
    
537,087
      
-
  
Foreign corporate securities
    
1,061,546
      
27,832
      
(25,820
)
    
1,063,558
      
-
  
Total fixed maturity securities
  
$
5,235,523
    
$
148,346
    
$
(90,458
)
  
$
5,293,411
    
$
(9,735
)
Equity securities
  
$
15
    
$
1
    
$
-
    
$
16
    
$
-
  


(a)  Represents the amount of OTTI recognized in AOCI.  Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
 
The amortized cost and market value of fixed maturity securities are shown in the following tables by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.


   
At September 30, 2015
    
At December 31, 2014
  
   
Amortized
    
Market
    
Amortized
    
Market
  
(Dollars in thousands)
  
Cost
    
Value
    
Cost
    
Value
  
Fixed maturity securities – available for sale
                
    Due in one year or less
  
$
345,345
    
$
345,322
    
$
385,721
    
$
384,022
  
    Due after one year through five years
    
2,495,023
      
2,506,790
      
2,387,533
      
2,369,917
  
    Due after five years through ten years
    
970,585
      
971,624
      
1,025,221
      
1,029,077
  
    Due after ten years
    
601,658
      
637,441
      
689,140
      
757,872
  
Asset-backed securities
    
132,004
      
132,461
      
94,470
      
94,823
  
Mortgage-backed securities
                                
Commercial
    
62,616
      
64,521
      
57,027
      
59,268
  
Agency residential
    
720,508
      
726,035
      
596,140
      
598,117
  
Non-agency residential
    
141
      
168
      
271
      
315
  
Total fixed maturity securities
  
$
5,327,880
    
$
5,384,362
    
$
5,235,523
    
$
5,293,411
  


The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods as indicated:


   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(Dollars in thousands)
  
2015
    
2014
    
2015
    
2014
  
Increase (decrease) during the period between the market value and cost
                
of investments carried at market value, and deferred taxes thereon:
                
Fixed maturity securities
  
$
(28,103
)
  
$
(41,410
)
  
$
(11,164
)
  
$
23,285
  
Fixed maturity securities, other-than-temporary impairment
    
22
      
-
      
9,757
      
-
  
Equity securities
    
-
      
1
      
(1
)
    
3
  
Change in unrealized  appreciation (depreciation), pre-tax
    
(28,081
)
    
(41,409
)
    
(1,408
)
    
23,288
  
Deferred tax benefit (expense)
    
9,835
      
14,492
      
3,907
      
(8,151
)
Deferred tax benefit (expense), other-than-temporary impairment
    
(7
)
    
-
      
(3,414
)
    
-
  
Change in unrealized appreciation (depreciation),
                                
net of deferred taxes, included in stockholder's equity
  
$
(18,253
)
  
$
(26,917
)
  
$
(915
)
  
$
15,137
  


The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review.  The Company then assesses whether the decline in value is temporary or other-than-temporary.  In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information.  Generally, a change in a security's value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value.  Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss).  If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value.  The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company's consolidated balance sheets.  The Company's assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.
The majority of the Company's equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities.  When a fund's value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary.  In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers.  If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss).  If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss).

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company's asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:


   
Duration of Unrealized Loss at September 30, 2015 By Security Type
  
   
Less than 12 months
    
Greater than 12 months
    
Total
  
       
Gross
        
Gross
        
Gross
  
       
Unrealized
        
Unrealized
        
Unrealized
  
(Dollars in thousands)
  
Market Value
    
Depreciation
    
Market Value
    
Depreciation
    
Market Value
    
Depreciation
  
Fixed maturity securities - available for sale
                        
U.S. Treasury securities and obligations of
                        
U.S. government agencies and corporations
  
$
201
    
$
(1
)
  
$
1,844
    
$
(68
)
  
$
2,045
    
$
(69
)
Obligations of U.S. states and political subdivisions
    
20,162
      
(316
)
    
35,460
      
(1,208
)
    
55,622
      
(1,524
)
Corporate securities
    
647,568
      
(34,098
)
    
291,894
      
(14,525
)
    
939,462
      
(48,623
)
Asset-backed securities
    
49,224
      
(203
)
    
8,601
      
(29
)
    
57,825
      
(232
)
Mortgage-backed securities
                                                
Commercial
    
6,003
 
    
(55
)
    
-
      
-
      
6,003
      
(55
)
Agency residential
    
97,964
      
(762
)
    
157,863
      
(1,544
)
    
255,827
      
(2,306
)
Non-agency residential
    
-
      
-
      
-
      
-
      
-
      
-
  
Foreign government securities
    
115,876
      
(3,827
)
    
66,812
      
(5,831
)
    
182,688
      
(9,658
)
Foreign corporate securities
    
286,978
      
(18,810
)
    
72,392
      
(3,896
)
    
359,370
      
(22,706
)
Total fixed maturity securities
  
$
1,223,976
    
$
(58,072
)
  
$
634,866
    
$
(27,101
)
  
$
1,858,842
    
$
(85,173
)
Equity securities
    
-
      
-
      
-
      
-
      
-
      
-
  
Total
  
$
1,223,976
    
$
(58,072
)
  
$
634,866
    
$
(27,101
)
  
$
1,858,842
    
$
(85,173
)



   
Duration of Unrealized Loss at September 30, 2015 By Maturity
  
   
Less than 12 months
    
Greater than 12 months
    
Total
  
       
Gross
        
Gross
        
Gross
  
       
Unrealized
        
Unrealized
        
Unrealized
  
(Dollars in thousands)
  
Market Value
    
Depreciation
    
Market Value
    
Depreciation
    
Market Value
    
Depreciation
  
Fixed maturity securities
                        
Due in one year or less
  
$
36,780
    
$
(1,633
)
  
$
17,019
    
$
(1,710
)
  
$
53,799
    
$
(3,343
)
Due in one year through five years
    
594,454
      
(29,341
)
    
304,349
      
(15,213
)
    
898,803
      
(44,554
)
Due in five years through ten years
    
382,520
      
(23,273
)
    
109,012
      
(7,616
)
    
491,532
      
(30,889
)
Due after ten years
    
57,031
      
(2,805
)
    
38,022
      
(989
)
    
95,053
      
(3,794
)
Asset-backed securities
    
49,224
      
(203
)
    
8,601
      
(29
)
    
57,825
      
(232
)
Mortgage-backed securities
    
103,967
      
(817
)
    
157,863
      
(1,544
)
    
261,830
      
(2,361
)
Total fixed maturity securities
  
$
1,223,976
    
$
(58,072
)
  
$
634,866
    
$
(27,101
)
  
$
1,858,842
    
$
(85,173
)
 
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2015 were $1,858,842 thousand and $85,173 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at September 30, 2015, did not exceed 0.3% of the overall market value of the Company's fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $58,072 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities and foreign government securities.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $36,358 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and unrealized foreign exchange losses, $11,313 thousand, as the U.S. dollar has strengthened against other currencies. The $27,101 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and agency residential mortgage-backed securities. The majority of these unrealized losses are attributable to unrealized foreign exchange losses, $13,322 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $5,056 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at September 30, 2015.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis.  In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:


   
Duration of Unrealized Loss at December 31, 2014 By Security Type
  
   
Less than 12 months
    
Greater than 12 months
    
Total
  
       
Gross
        
Gross
        
Gross
  
       
Unrealized
        
Unrealized
        
Unrealized
  
(Dollars in thousands)
  
Market Value
    
Depreciation
    
Market Value
    
Depreciation
    
Market Value
    
Depreciation
  
Fixed maturity securities - available for sale
                        
U.S. Treasury securities and obligations of
                        
U.S. government agencies and corporations
  
$
13,187
    
$
(20
)
  
$
26,897
    
$
(284
)
  
$
40,084
    
$
(304
)
Obligations of U.S. states and political subdivisions
    
20,428
      
(242
)
    
18,199
      
(384
)
    
38,627
      
(626
)
Corporate securities
    
830,928
      
(48,891
)
    
171,207
      
(4,328
)
    
1,002,135
      
(53,219
)
Asset-backed securities
    
62,451
      
(374
)
    
-
      
-
      
62,451
      
(374
)
Mortgage-backed securities
                                                
Commercial
    
11,742
      
(51
)
    
-
      
-
      
11,742
      
(51
)
Agency residential
    
24,230
      
(59
)
    
267,824
      
(4,661
)
    
292,054
      
(4,720
)
Non-agency residential
    
-
      
-
      
-
      
-
      
-
      
-
  
Foreign government securities
    
45,521
      
(913
)
    
53,086
      
(4,431
)
    
98,607
      
(5,344
)
Foreign corporate securities
    
228,733
      
(21,704
)
    
117,713
      
(4,116
)
    
346,446
      
(25,820
)
Total fixed maturity securities
  
$
1,237,220
    
$
(72,254
)
  
$
654,926
    
$
(18,204
)
  
$
1,892,146
    
$
(90,458
)
Equity securities
    
-
      
-
      
-
      
-
      
-
      
-
  
Total
  
$
1,237,220
    
$
(72,254
)
  
$
654,926
    
$
(18,204
)
  
$
1,892,146
    
$
(90,458
)
   
Duration of Unrealized Loss at December 31, 2014 By Maturity
  
   
Less than 12 months
    
Greater than 12 months
    
Total
  
       
Gross
        
Gross
        
Gross
  
       
Unrealized
        
Unrealized
        
Unrealized
  
(Dollars in thousands)
  
Market Value
    
Depreciation
    
Market Value
    
Depreciation
    
Market Value
    
Depreciation
  
Fixed maturity securities
                        
Due in one year or less
  
$
12,858
    
$
(550
)
  
$
53,528
    
$
(4,224
)
  
$
66,386
    
$
(4,774
)
Due in one year through five years
    
622,137
      
(51,262
)
    
243,192
      
(6,306
)
    
865,329
      
(57,568
)
Due in five years through ten years
    
467,187
      
(18,958
)
    
66,630
      
(2,018
)
    
533,817
      
(20,976
)
Due after ten years
    
36,615
      
(1,000
)
    
23,752
      
(995
)
    
60,367
      
(1,995
)
Asset-backed securities
    
62,451
      
(374
)
    
-
      
-
      
62,451
      
(374
)
Mortgage-backed securities
    
35,972
      
(110
)
    
267,824
      
(4,661
)
    
303,796
      
(4,771
)
Total fixed maturity securities
  
$
1,237,220
    
$
(72,254
)
  
$
654,926
    
$
(18,204
)
  
$
1,892,146
    
$
(90,458
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2014 were $1,892,146 thousand and $90,458 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2014, did not exceed 0.3% of the overall market value of the Company's fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $72,254 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $53,772 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies during the fourth quarter of 2014 and unrealized foreign exchange losses, $7,298 thousand, as the U.S. dollar has strengthened against other currencies. The $18,204 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, foreign and domestic corporate securities and foreign government securities.  Of these unrealized losses, $16,680 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at December 31, 2014.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, are comprised of common shares of the Company's ultimate parent, Group.  At September 30, 2015, the Company held 9,719,971 shares of Group representing 18% of the total outstanding shares.

The components of net investment income are presented in the tables below for the periods indicated:


   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(Dollars in thousands)
  
2015
    
2014
    
2015
    
2014
  
Fixed maturities
  
$
46,414
    
$
52,515
    
$
140,829
    
$
157,515
  
Equity securities
    
8,004
      
7,966
      
26,638
      
26,083
  
Short-term investments and cash
    
220
      
196
      
705
      
841
  
Other invested assets
                                
Limited partnerships
    
3,021
      
19,254
      
17,676
      
18,862
  
Dividends from Parent's shares
    
9,234
      
7,290
      
27,702
      
21,870
  
Other
    
(242
)
    
869
      
1,366
      
3,220
  
Gross investment income before adjustments
    
66,651
      
88,090
      
214,916
      
228,391
  
Funds held interest income (expense)
    
940
      
970
      
4,326
      
4,262
  
Interest income from Parent
    
1,075
      
-
      
3,225
      
-
  
Gross investment income
    
68,666
      
89,060
      
222,467
      
232,653
  
Investment expenses
    
(5,303
)
    
(5,614
)
    
(15,598
)
    
(16,784
)
Net investment income
  
$
63,363
    
$
83,446
    
$
206,869
    
$
215,869
  
 
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag.  If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.

The Company had contractual commitments to invest up to an additional $245,663 thousand in limited partnerships at September 30, 2015.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2019.

The components of net realized capital gains (losses) are presented in the tables below for the periods indicated:


   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(Dollars in thousands)
  
2015
    
2014
    
2015
    
2014
  
Fixed maturity securities, market value:
                
Other-than-temporary impairments
  
$
(10,502
)
  
$
-
    
$
(43,433
)
  
$
(199
)
Gains (losses) from sales
    
(6,636
)
    
1,070
      
(30,362
)
    
(1,855
)
Fixed maturity securities, fair value:
                                
Gains (losses) from sales
    
(17
)
    
82
      
25
      
1,022
  
Gains (losses) from fair value adjustments
    
-
      
(938
)
    
56
      
(938
)
Equity securities, market value:
                                
Gains (losses) from sales
    
-
      
-
      
1
      
-
  
Equity securities, fair value:
                                
Gains (losses) from sales
    
(13,656
)
    
(2,589
)
    
(14,010
)
    
(2,204
)
Gains (losses) from fair value adjustments
    
(101,322
)
    
(12,559
)
    
(85,710
)
    
65,399
  
Other invested assets, fair value:
                                
Gains (losses) from fair value adjustments
    
(84,272
)
    
14,775
      
29,549
      
59,681
  
Gain on sale of subsidiary
    
94,704
      
-
      
94,704
      
-
  
Short-term investment gains (losses)
    
6
      
(1
)
    
6
      
(2
)
Total net realized capital gains (losses)
  
$
(121,695
)
  
$
(160
)
  
$
(49,174
)
  
$
120,904
  


The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above.  The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.
 
On July 13, 2015, the Company sold Mt. McKinley, a Delaware domiciled insurance company and wholly-owned subsidiary of the Company to Clearwater Insurance Company, a Delaware domiciled insurance company.  The purchase price of $20,156 thousand was based upon the statutory book value of Mt. McKinley as of the closing date. The Company recognized a pre-tax realized gain of $94,704 thousand on the sale of Mt. McKinley.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the tables below for the periods indicated:


   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(Dollars in thousands)
  
2015
    
2014
    
2015
    
2014
  
Proceeds from sales of fixed maturity securities
  
$
130,284
    
$
222,915
    
$
420,108
    
$
571,537
  
Gross gains from sales
    
1,401
      
4,408
      
9,039
      
10,698
  
Gross losses from sales
    
(8,054
)
    
(3,256
)
    
(39,376
)
    
(11,531
)
                                 
Proceeds from sales of equity securities
  
$
138,799
    
$
111,684
    
$
442,292
    
$
404,627
  
Gross gains from sales
    
5,241
      
1,697
      
17,655
      
12,019
  
Gross losses from sales
    
(18,896
)
    
(4,286
)
    
(31,664
)
    
(14,223
)