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Investments
 6 Months Ended
Jun. 30, 2016
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 June 30, 2016
  
   
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
  
$
383,388
    
$
8,705
    
$
(149
)
  
$
391,944
    
$
-
  
Obligations of U.S. states and political subdivisions
    
701,171
      
49,219
      
(478
)
    
749,912
      
-
  
Corporate securities
    
2,032,340
      
54,062
      
(20,239
)
    
2,066,163
      
4,451
  
Asset-backed securities
    
167,478
      
1,592
      
(157
)
    
168,913
      
-
  
Mortgage-backed securities
                                        
Commercial
    
73,543
      
1,623
      
(65
)
    
75,101
      
-
  
Agency residential
    
756,403
      
11,867
      
(574
)
    
767,696
      
-
  
Non-agency residential
    
103
      
17
      
-
      
120
      
-
  
Foreign government securities
    
512,414
      
28,986
      
(7,997
)
    
533,403
      
-
  
Foreign corporate securities
    
990,572
      
35,288
      
(10,363
)
    
1,015,497
      
2,123
  
Total fixed maturity securities
  
$
5,617,412
    
$
191,359
    
$
(40,022
)
  
$
5,768,749
    
$
6,574
  
Equity securities
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  



   
At December 31, 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
  
$
329,281
    
$
2,422
    
$
(718
)
  
$
330,985
    
$
-
  
Obligations of U.S. states and political subdivisions
    
669,945
      
34,020
      
(890
)
    
703,075
      
-
  
Corporate securities
    
2,011,997
      
27,286
      
(70,725
)
    
1,968,558
      
(86
)
Asset-backed securities
    
145,755
      
290
      
(1,063
)
    
144,982
      
-
  
Mortgage-backed securities
                                        
Commercial
    
61,527
      
1,430
      
(511
)
    
62,446
      
-
  
Agency residential
    
714,907
      
3,994
      
(6,603
)
    
712,298
      
-
  
Non-agency residential
    
126
      
24
      
-
      
150
      
-
  
Foreign government securities
    
447,244
      
24,255
      
(8,425
)
    
463,074
      
-
  
Foreign corporate securities
    
954,690
      
27,616
      
(11,397
)
    
970,909
      
17
  
Total fixed maturity securities
  
$
5,335,472
    
$
121,337
    
$
(100,332
)
  
$
5,356,477
    
$
(69
)


(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 table 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 June 30, 2016
    
At December 31, 2015
  
   
Amortized
    
Market
    
Amortized
    
Market
  
(Dollars in thousands)
  
Cost
    
Value
    
Cost
    
Value
  
Fixed maturity securities - available for sale
                        
    Due in one year or less
  
$
406,621
    
$
405,264
    
$
330,029
    
$
330,509
  
    Due after one year through five years
    
2,809,371
      
2,856,628
      
2,617,079
      
2,618,056
  
    Due after five years through ten years
    
692,168
      
717,637
      
870,266
      
856,230
  
    Due after ten years
    
711,725
      
777,390
      
595,783
      
631,806
  
Asset-backed securities
    
167,478
      
168,913
      
145,755
      
144,982
  
Mortgage-backed securities
                                
Commercial
    
73,543
      
75,101
      
61,527
      
62,446
  
Agency residential
    
756,403
      
767,696
      
714,907
      
712,298
  
Non-agency residential
    
103
      
120
      
126
      
150
  
Total fixed maturity securities
  
$
5,617,412
    
$
5,768,749
    
$
5,335,472
    
$
5,356,477
  


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
    
Six Months Ended
  
   
June 30,
    
June 30,
  
(Dollars in thousands)
  
2016
    
2015
    
2016
    
2015
  
Increase (decrease) during the period between the market value and cost
                        
of investments carried at market value, and deferred taxes thereon:
                        
Fixed maturity securities
  
$
53,863
    
$
(34,272
)
  
$
123,689
    
$
16,939
  
Fixed maturity securities, other-than-temporary impairment
    
6,446
      
-
      
6,643
      
9,735
  
Equity Securities
    
-
      
(1
)
    
-
      
(1
)
Change in unrealized  appreciation (depreciation), pre-tax
    
60,309
      
(34,273
)
    
130,332
      
26,673
  
Deferred tax benefit (expense)
    
(18,852
)
    
11,996
      
(43,291
)
    
(5,928
)
Deferred tax benefit (expense), other-than-temporary impairment
    
(2,256
)
    
-
      
(2,325
)
    
(3,407
)
Change in unrealized appreciation (depreciation),
                                
net of deferred taxes, included in stockholder's equity
  
$
39,201
    
$
(22,277
)
  
$
84,716
    
$
17,338
  


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.
 
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 June 30, 2016 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
  
$
4,759
    
$
(149
)
  
$
-
    
$
-
    
$
4,759
    
$
(149
)
Obligations of U.S. states and political subdivisions
    
-
      
-
      
562
      
(478
)
    
562
      
(478
)
Corporate securities
    
261,660
      
(4,945
)
    
293,977
      
(15,294
)
    
555,637
      
(20,239
)
Asset-backed securities
    
13,337
      
(71
)
    
30,016
      
(86
)
    
43,353
      
(157
)
Mortgage-backed securities
                                                
Commercial
    
3,470
      
(20
)
    
3,352
      
(45
)
    
6,822
      
(65
)
Agency residential
    
32,558
      
(106
)
    
107,907
      
(468
)
    
140,465
      
(574
)
Non-agency residential
    
29
      
-
      
-
      
-
      
29
      
-
  
Foreign government securities
    
9,456
      
(209
)
    
66,601
      
(7,788
)
    
76,057
      
(7,997
)
Foreign corporate securities
    
100,483
      
(3,051
)
    
83,260
      
(7,312
)
    
183,743
      
(10,363
)
Total fixed maturity securities
  
$
425,752
    
$
(8,551
)
  
$
585,675
    
$
(31,471
)
  
$
1,011,427
    
$
(40,022
)
Equity securities
    
-
      
-
      
-
      
-
      
-
      
-
  
Total
  
$
425,752
    
$
(8,551
)
  
$
585,675
    
$
(31,471
)
  
$
1,011,427
    
$
(40,022
)



   
Duration of Unrealized Loss at June 30, 2016 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
  
$
19,629
    
$
(664
)
  
$
29,635
    
$
(3,386
)
  
$
49,264
    
$
(4,050
)
Due in one year through five years
    
217,063
      
(4,758
)
    
325,768
      
(22,222
)
    
542,831
      
(26,980
)
Due in five years through ten years
    
136,768
      
(2,909
)
    
87,271
      
(5,149
)
    
224,039
      
(8,058
)
Due after ten years
    
2,898
      
(23
)
    
1,726
      
(115
)
    
4,624
      
(138
)
Asset-backed securities
    
13,337
      
(71
)
    
30,016
      
(86
)
    
43,353
      
(157
)
Mortgage-backed securities
    
36,057
      
(126
)
    
111,259
      
(513
)
    
147,316
      
(639
)
Total fixed maturity securities
  
$
425,752
    
$
(8,551
)
  
$
585,675
    
$
(31,471
)
  
$
1,011,427
    
$
(40,022
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at June 30, 2016 were $1,011,427 thousand and $40,022 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at June 30, 2016, did not exceed 0.9% 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 $8,551 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 net unrealized foreign exchange losses, $6,030 thousand, as the U.S. dollar has strengthened against other currencies.  The $31,471 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 and foreign government securities.  The majority of these unrealized losses are attributable to net unrealized foreign exchange losses, $22,677 thousand, as the U.S. dollar has strengthened against other currencies.  The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at June 30, 2016.  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, 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
  
$
216,352
    
$
(712
)
  
$
692
    
$
(6
)
  
$
217,044
    
$
(718
)
Obligations of U.S. states and political subdivisions
    
6,434
      
(84
)
    
4,917
      
(806
)
    
11,351
      
(890
)
Corporate securities
    
866,715
      
(49,034
)
    
307,215
      
(21,691
)
    
1,173,930
      
(70,725
)
Asset-backed securities
    
102,506
      
(791
)
    
28,048
      
(272
)
    
130,554
      
(1,063
)
Mortgage-backed securities
                                                
Commercial
    
26,483
      
(511
)
    
-
      
-
      
26,483
      
(511
)
Agency residential
    
320,285
      
(3,094
)
    
150,095
      
(3,509
)
    
470,380
      
(6,603
)
Non-agency residential
    
-
      
-
      
-
      
-
      
-
      
-
  
Foreign government securities
    
61,498
      
(2,182
)
    
77,911
      
(6,243
)
    
139,409
      
(8,425
)
Foreign corporate securities
    
324,904
      
(6,289
)
    
76,951
      
(5,108
)
    
401,855
      
(11,397
)
Total fixed maturity securities
  
$
1,925,177
    
$
(62,697
)
  
$
645,829
    
$
(37,635
)
  
$
2,571,006
    
$
(100,332
)



   
Duration of Unrealized Loss at December 31, 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
  
$
21,780
    
$
(1,577
)
  
$
12,212
    
$
(1,171
)
  
$
33,992
    
$
(2,748
)
Due in one year through five years
    
1,023,437
      
(23,255
)
    
347,203
      
(21,582
)
    
1,370,640
      
(44,837
)
Due in five years through ten years
    
394,978
      
(31,423
)
    
99,335
      
(10,131
)
    
494,313
      
(41,554
)
Due after ten years
    
35,708
      
(2,046
)
    
8,936
      
(970
)
    
44,644
      
(3,016
)
Asset-backed securities
    
102,506
      
(791
)
    
28,048
      
(272
)
    
130,554
      
(1,063
)
Mortgage-backed securities
    
346,768
      
(3,605
)
    
150,095
      
(3,509
)
    
496,863
      
(7,114
)
Total fixed maturity securities
  
$
1,925,177
    
$
(62,697
)
  
$
645,829
    
$
(37,635
)
  
$
2,571,006
    
$
(100,332
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2015 were $2,571,006 thousand and $100,332 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2015, did not exceed 0.07% 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 $62,697 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, agency residential mortgage-backed securities and foreign government securities.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $35,978 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, $6,090 thousand, as the U.S. dollar has strengthened against other currencies. The $37,635 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, $14,807 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $6,959 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 December 31, 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.

Other invested assets, at fair value, as of June 30, 2016, and December 31, 2015, were comprised of preferred shares held in Everest Preferred International Holdings ("Preferred Holdings"), an affiliated company.

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


   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
(Dollars in thousands)
  
2016
    
2015
    
2016
    
2015
  
Fixed maturities
  
$
44,795
    
$
46,443
    
$
90,121
    
$
94,415
  
Equity securities
    
8,734
      
9,892
      
17,882
      
18,634
  
Short-term investments and cash
    
251
      
321
      
555
      
485
  
Other invested assets
                                
Limited partnerships
    
14,192
      
7,276
      
11,678
      
14,655
  
Dividends from Parent's shares
    
-
      
9,234
      
-
      
18,468
  
Dividends from preferred shares of affiliate
    
7,758
      
-
      
15,516
      
-
  
Other
    
729
      
983
      
(183
)
    
1,608
  
Gross investment income before adjustments
    
76,459
      
74,149
      
135,569
      
148,265
  
Funds held interest income (expense)
    
974
      
865
      
3,628
      
3,386
  
Interest income from Parent
    
1,075
      
1,075
      
2,150
      
2,150
  
Gross investment income
    
78,508
      
76,089
      
141,347
      
153,801
  
Investment expenses
    
(4,636
)
    
(5,164
)
    
(9,030
)
    
(10,295
)
Net investment income
  
$
73,872
    
$
70,925
    
$
132,317
    
$
143,506
  
                                 
(Some amounts may not reconcile due to rounding.)
                                


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 $290,398 thousand in limited partnerships at June 30, 2016.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.
 
The components of net realized capital gains (losses) are presented in the table below for the periods indicated:


   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
(Dollars in thousands)
  
2016
    
2015
    
2016
    
2015
  
Fixed maturity securities, market value:
                        
Other-than-temporary impairments
  
$
(1,391
)
  
$
(8,810
)
  
$
(24,406
)
  
$
(32,931
)
Gains (losses) from sales
    
2,244
      
(12,208
)
    
(14,611
)
    
(23,726
)
Fixed maturity securities, fair value:
                                
Gain (losses) from sales
    
(1,854
)
    
14
      
(1,854
)
    
42
  
Gains (losses) from fair value adjustments
    
1,571
      
(6
)
    
1,339
      
56
  
Equity securities, market value:
                                
Gains (losses) from sales
    
-
      
1
      
-
      
1
  
Equity securities, fair value:
                                
Gains (losses) from sales
    
(7,636
)
    
(289
)
    
(15,586
)
    
(354
)
Gains (losses) from fair value adjustments
    
36,987
      
(5,334
)
    
18,662
      
15,612
  
Other invested assets, fair value:
                                
Gains (losses) from fair value adjustments
    
(756
)
    
77,857
      
(756
)
    
113,821
  
Total net realized capital gains (losses)
  
$
29,165
    
$
51,225
    
$
(37,212
)
  
$
72,521
  


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.

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


   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
(Dollars in thousands)
  
2016
    
2015
    
2016
    
2015
  
Proceeds from sales of fixed maturity securities
  
$
110,429
    
$
175,742
    
$
298,475
    
$
289,824
  
Gross gains from sales
    
6,154
      
5,096
      
7,618
      
7,638
  
Gross losses from sales
    
(5,764
)
    
(17,290
)
    
(24,083
)
    
(31,322
)
                                 
Proceeds from sales of equity securities
  
$
335,831
    
$
169,533
    
$
421,980
    
$
303,493
  
Gross gains from sales
    
4,853
      
7,272
      
6,635
      
12,414
  
Gross losses from sales
    
(12,489
)
    
(7,561
)
    
(22,221
)
    
(12,768
)