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Other

Everest Re Group 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. 10-Q
  6. 10-Q
group10q3q2011.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:
September 30, 2011
 
Commission file number:
1-15731

EVEREST RE GROUP, LTD.
(Exact name of registrant as specified in its charter)
 
Bermuda
 
98-0365432
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification No.)
Wessex House – 2nd Floor
45 Reid Street
PO Box HM 845
Hamilton HM DX, Bermuda
441-295-0006

(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive office)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES
X
 
NO
 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES
X
 
NO
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
X
 
Accelerated filer
 
 
Non-accelerated filer
   
 
Smaller reporting company
 
(Do not check if smaller reporting company)
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES
   
NO
X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Number of Shares Outstanding
Class
At November 1, 2011
Common Shares, $0.01 par value
53,708,254

 
 
 

 
 
EVEREST RE GROUP, LTD

Form 10-Q


Page
PART I

FINANCIAL INFORMATION

Item 1.
Financial Statements
 
     
   
 
1
     
   
 
2
     
   
 
3
     
   
 
4
     
 
5
     
Item 2.
 
 
29
     
Item 3.
55
     
Item 4.
55
     

PART II

OTHER INFORMATION

Item 1.
55
     
Item 1A.
55
     
Item 2.
56
     
Item 3.
56
     
Item 4.
56
     
Item 5.
56
     
Item 6.
57
     




PART I

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS



   
September 30,
 
December 31,
(Dollars and share amounts in thousands, except par value per share)
 
2011
 
2010
   
(unaudited)
       
ASSETS:
           
Fixed maturities - available for sale, at market value
  $ 12,154,232     $ 12,450,469  
    (amortized cost: 2011, $11,618,929; 2010, $12,011,336)
               
Fixed maturities - available for sale, at fair value
    120,597       180,482  
Equity securities - available for sale, at market value (cost: 2011, $457,075; 2010, $363,283)
    435,699       363,736  
Equity securities - available for sale, at fair value
    1,138,670       721,449  
Short-term investments
    834,871       785,279  
Other invested assets (cost: 2011, $586,142; 2010, $603,681)
    586,142       605,196  
Cash
    443,706       258,408  
       Total investments and cash
    15,713,917       15,365,019  
Accrued investment income
    129,805       148,990  
Premiums receivable
    1,009,653       844,832  
Reinsurance receivables
    589,320       684,718  
Funds held by reinsureds
    271,691       379,616  
Deferred acquisition costs
    362,741       383,769  
Prepaid reinsurance premiums
    83,954       133,007  
Deferred tax asset
    198,692       149,101  
Federal income taxes recoverable
    146,668       147,988  
Other assets
    229,147       170,931  
TOTAL ASSETS
  $ 18,735,588     $ 18,407,971  
                 
LIABILITIES:
               
Reserve for losses and loss adjustment expenses
  $ 9,979,984     $ 9,340,183  
Future policy benefit reserve
    61,971       63,002  
Unearned premium reserve
    1,380,937       1,455,219  
Funds held under reinsurance treaties
    1,971       99,213  
Commission reserves
    37,818       45,936  
Other net payable to reinsurers
    32,150       47,519  
Revolving credit borrowings
    -       50,000  
5.4% Senior notes due 10/15/2014
    249,847       249,812  
6.6% Long term notes due 5/1/2067
    238,353       238,351  
Junior subordinated debt securities payable
    329,897       329,897  
Accrued interest on debt and borrowings
    12,092       4,793  
Equity index put option liability
    77,740       58,467  
Other liabilities
    240,987       142,062  
       Total liabilities
    12,643,747       12,124,454  
                 
Commitments and contingencies (Note 8)
               
                 
SHAREHOLDERS' EQUITY:
               
Preferred shares, par value: $0.01; 50,000 shares authorized;
               
    no shares issued and outstanding
    -       -  
Common shares, par value: $0.01; 200,000 shares authorized; (2011) 66,403
               
    and (2010) 66,017 outstanding before treasury shares
    664       660  
Additional paid-in capital
    1,884,492       1,863,031  
Accumulated other comprehensive income (loss), net of deferred income tax expense
               
    (benefit) of $127,236 at 2011 and $102,868 at 2010
    402,946       332,258  
Treasury shares, at cost; 12,614 shares (2011) and 11,589 shares (2010)
    (1,065,719 )     (981,480 )
Retained earnings
    4,869,458       5,069,048  
       Total shareholders' equity
    6,091,841       6,283,517  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 18,735,588     $ 18,407,971  
                 
The accompanying notes are an integral part of the consolidated financial statements.
               



EVEREST RE GROUP, LTD.
AND COMPREHENSIVE INCOME (LOSS)


   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands, except per share amounts)
 
2011
 
2010
 
2011
 
2010
   
(unaudited)
 
(unaudited)
REVENUES:
                       
Premiums earned
  $ 1,044,338     $ 997,265     $ 3,095,619     $ 2,914,466  
Net investment income
    156,465       141,368       493,788       468,598  
Net realized capital gains (losses):
                               
Other-than-temporary impairments on fixed maturity securities
    (1,050 )     (2,892 )     (15,817 )     (2,892 )
Other-than-temporary impairments on fixed maturity securities
                               
transferred to other comprehensive income (loss)
    -       -       -       -  
Other net realized capital gains (losses)
    (136,621 )     41,187       (114,543 )     72,212  
Total net realized capital gains (losses)
    (137,671 )     38,295       (130,360 )     69,320  
Net derivative gain (loss)
    (23,427 )     (552 )     (19,273 )     (19,802 )
Other income (expense)
    (14,911 )     1,714       (31,744 )     14,851  
Total revenues
    1,024,794       1,178,090       3,408,030       3,447,433  
                                 
CLAIMS AND EXPENSES:
                               
Incurred losses and loss adjustment expenses
    720,711       674,787       2,706,276       2,225,591  
Commission, brokerage, taxes and fees
    227,969       237,473       701,800       686,628  
Other underwriting expenses
    49,437       44,337       140,290       125,028  
Corporate expenses
    4,204       3,917       11,922       12,379  
Interest, fees and bond issue cost amortization expense
    13,085       13,138       39,199       42,796  
Total claims and expenses
    1,015,406       973,652       3,599,487       3,092,422  
                                 
INCOME (LOSS) BEFORE TAXES
    9,388       204,438       (191,457 )     355,011  
Income tax expense (benefit)
    (53,666 )     30,238       (69,929 )     46,790  
                                 
NET INCOME (LOSS)
  $ 63,054     $ 174,200     $ (121,528 )   $ 308,221  
Other comprehensive income (loss), net of tax
    (57,457 )     192,725       70,688       287,553  
                                 
COMPREHENSIVE INCOME (LOSS)
  $ 5,597     $ 366,925     $ (50,840 )   $ 595,774  
                                 
EARNINGS PER COMMON SHARE:
                               
Basic
  $ 1.16     $ 3.12     $ (2.24 )   $ 5.35  
Diluted
    1.16       3.11       (2.24 )     5.33  
Dividends declared
    0.48       0.48       1.44       1.44  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               
 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF



   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands, except share and dividends per share amounts)
 
2011
 
2010
 
2011
 
2010
   
(unaudited)
 
(unaudited)
COMMON SHARES (shares outstanding):
                       
Balance, beginning of period
    54,346,216       56,242,019       54,428,168       59,317,741  
Issued during the period, net
    39,446       14,177       385,532       181,253  
Treasury shares acquired
    (597,006 )     (1,233,667 )     (1,025,044 )     (4,476,465 )
Balance, end of period
    53,788,656       55,022,529       53,788,656       55,022,529  
                                 
COMMON SHARES (par value):
                               
Balance, beginning of period
  $ 664     $ 660     $ 660     $ 658  
Issued during the period, net
    -       -       4       2  
Balance, end of period
    664       660       664       660  
                                 
ADDITIONAL PAID-IN CAPITAL:
                               
Balance, beginning of period
    1,878,242       1,853,158       1,863,031       1,845,181  
Share-based compensation plans
    6,250       5,399       21,461       13,376  
Balance, end of period
    1,884,492       1,858,557       1,884,492       1,858,557  
                                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
                               
NET OF DEFERRED INCOME TAXES:
                               
Balance, beginning of period
    460,403       366,866       332,258       272,038  
Net increase (decrease) during the period
    (57,457 )     192,725       70,688       287,553  
Balance, end of period
    402,946       559,591       402,946       559,591  
                                 
RETAINED EARNINGS:
                               
Balance, beginning of period
    4,832,340       4,644,952       5,069,048       4,566,771  
Net income (loss)
    63,054       174,200       (121,528 )     308,221  
Dividends declared ($0.48 per quarter and $1.44 year-to-date
                               
per share in 2011 and 2010)
    (25,936 )     (26,574 )     (78,062 )     (82,414 )
Balance, end of period
    4,869,458       4,792,578       4,869,458       4,792,578  
                                 
TREASURY SHARES AT COST:
                               
Balance, beginning of period
    (1,019,091 )     (830,037 )     (981,480 )     (582,926 )
Purchase of treasury shares
    (46,628 )     (99,729 )     (84,239 )     (346,840 )
Balance, end of period
    (1,065,719 )     (929,766 )     (1,065,719 )     (929,766 )
                                 
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD
  $ 6,091,841     $ 6,281,620     $ 6,091,841     $ 6,281,620  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               



   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands)
 
2011
 
2010
 
2011
 
2010
   
(unaudited)
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income (loss)
  $ 63,054     $ 174,200     $ (121,528 )   $ 308,221  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Decrease (increase) in premiums receivable
    (6,371 )     76,794       (159,868 )     71,659  
Decrease (increase) in funds held by reinsureds, net
    (22,036 )     (10,024 )     17,452       (23,609 )
Decrease (increase) in reinsurance receivables
    89,855       (17,392 )     107,610       (79,683 )
Decrease (increase) in deferred tax asset
    (75,216 )     29,324       (73,558 )     24,260  
Decrease (increase) in prepaid reinsurance premiums
    10,126       (17,459 )     49,472       (30,147 )
Increase (decrease) in reserve for losses and loss adjustment expenses
    (115,014 )     8,642       578,371       458,032  
Increase (decrease) in future policy benefit reserve
    (638 )     (220 )     (1,032 )     (789 )
Increase (decrease) in unearned premiums
    34,686       106,215       (79,001 )     119,472  
Change in equity adjustments in limited partnerships
    (16,439 )     1,026       (67,053 )     (31,229 )
Change in other assets and liabilities, net
    94,111       (34,701 )     118,058       (4,437 )
Non-cash compensation expense
    5,295       4,799       12,953       11,929  
Amortization of bond premium (accrual of bond discount)
    8,814       14,850       34,384       36,189  
Amortization of underwriting discount on senior notes
    12       12       36       65  
Net realized capital (gains) losses
    137,671       (38,295 )     130,360       (69,320 )
Net cash provided by (used in) operating activities
    207,910       297,771       546,656       790,613  
                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Proceeds from fixed maturities matured/called - available for sale, at market value
    537,715       424,326       1,348,380       1,207,491  
Proceeds from fixed maturities matured/called - available for sale, at fair value
    -       -       12,775       -  
Proceeds from fixed maturities sold - available for sale, at market value
    487,973       122,884       1,355,653       846,346  
Proceeds from fixed maturities sold - available for sale, at fair value
    12,512       10,689       62,632       19,301  
Proceeds from equity securities sold - available for sale, at market value
    1       3       27,207       715  
Proceeds from equity securities sold - available for sale, at fair value
    61,080       14,899       154,747       87,641  
Distributions from other invested assets
    15,923       21,154       143,017       51,514  
Cost of fixed maturities acquired - available for sale, at market value
    (756,432 )     (366,121 )     (2,293,760 )     (2,327,744 )
Cost of fixed maturities acquired - available for sale, at fair value
    (9,801 )     (56,938 )     (25,025 )     (80,618 )
Cost of equity securities acquired - available for sale, at market value
    (4,772 )     (857 )     (120,583 )     (2,283 )
Cost of equity securities acquired - available for sale, at fair value
    (342,567 )     (23,927 )     (684,867 )     (104,344 )
Cost of other invested assets acquired
    (5,730 )     (16,019 )     (57,832 )     (53,097 )
Cost of businesses acquired
    -       -       (63,100 )     -  
Net change in short-term investments
    (51,333 )     (208,162 )     (48,616 )     83,735  
Net change in unsettled securities transactions
    (11,755 )     (22,855 )     35,446       (34,050 )
Net cash provided by (used in) investing activities
    (67,186 )     (100,924 )     (153,926 )     (305,393 )
                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Common shares issued during the period, net
    951       600       8,508       1,449  
Purchase of treasury shares
    (46,628 )     (99,729 )     (84,239 )     (346,840 )
Revolving credit borrowings
    (40,000 )     (50,000 )     (50,000 )     83,000  
Net cost of senior notes maturing
    -       -       -       (200,000 )
Dividends paid to shareholders
    (25,936 )     (26,574 )     (78,062 )     (82,414 )
Net cash provided by (used in) financing activities
    (111,613 )     (175,703 )     (203,793 )     (544,805 )
                                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    3,072       (11,457 )     (3,639 )     13,127  
                                 
Net increase (decrease) in cash
    32,183       9,687       185,298       (46,458 )
Cash, beginning of period
    411,523       191,453       258,408       247,598  
Cash, end of period
  $ 443,706     $ 201,140     $ 443,706     $ 201,140  
                                 
SUPPLEMENTAL CASH FLOW INFORMATION:
                               
Income taxes paid (recovered)
  $ 6,627     $ (877 )   $ (5,919 )   $ (36,715 )
Interest paid
    5,607       5,660       31,385       40,021  
                                 
Non-cash transaction:
                               
Net assets acquired and liabilities assumed from business acquisitions
    -       -       19,130       -  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               




For the Three and Nine Months Ended September 30, 2011 and 2010

1.  GENERAL

Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and international markets.  As used in this document, “Company” means Group and its subsidiaries.  On December 30, 2008, Group contributed Everest Reinsurance Holdings, Inc. and its subsidiaries (“Holdings”) to its Irish holding company, Everest Underwriting Group (Ireland), Limited (“Holdings Ireland”).

2.  BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 2011 and 2010 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis.  Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2010 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three and nine months ended September 30, 2011 and 2010 are not necessarily indicative of the results for a full year.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2010, 2009 and 2008 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2011 presentation.

Application of Recently Issued Accounting Standard Changes.

Financial Accounting Standards Board Launched Accounting Codification.  In June 2009, Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards CodificationTM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

Following the Codification, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

GAAP is not intended to be changed as a result of the FASB’s Codification, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in the accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s adoption of this guidance impacts the way the Company references U.S. GAAP accounting standards in the financial statements and Notes to Consolidated Financial Statements.

Presentation of Comprehensive Income. In June 2011, FASB issued amendments to existing guidance to provide two alternatives for the presentation of comprehensive income. Components of net income and comprehensive income will either be presented within a single, continuous financial statement or be presented in two separate but consecutive financial statements.  The guidance is effective for reporting periods beginning after December 15, 2011.  The Company will adopt this guidance as of January 1, 2012 and expects to present net income and comprehensive income in a single, continuous financial statement.
 
Common Fair Value Measurement. In May 2011, FASB issued amendments to existing guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. The amendments change wording used to describe many GAAP fair value measurement requirements and disclosures. FASB does not intend for the amendments to cause a change in application of fair value accounting guidance.  The guidance is effective for reporting periods beginning after December 15, 2011.  The Company will adopt this guidance prospectively as of January 1, 2012.
 
Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts.  The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized.  This guidance is effective for reporting periods beginning after December 15, 2011.  The Company will adopt this guidance as of January 1, 2012.  The Company is in the process of determining the effect on its consolidated financial statements.
 
Subsequent Events. In May 2009, the FASB issued authoritative guidance for subsequent events, which was later modified in February 2010, that addresses the accounting for and disclosure of subsequent events not addressed in other applicable U.S. GAAP.  The Company implemented the new disclosure requirement beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

Improving Disclosures About Fair Value Measurements.  In January 2010, the FASB amended the authoritative guidance for disclosures on fair value measurements.  Effective for interim and annual reporting periods beginning after December 15, 2009, the guidance requires a new separate disclosure for:  significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include:  fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3.  The Company implemented this guidance effective January 1, 2010.  Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements.  Comparative disclosures shall be required only for periods ending after initial adoption.  The Company implemented this guidance beginning with the third quarter of 2010.

Other-Than-Temporary Impairments on Investment Securities.  In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated other comprehensive income (loss).  The Company adopted this guidance effective April 1, 2009.  Upon adoption the Company recognized a cumulative-effect adjustment increase in retained earnings and decrease in accumulated other comprehensive income (loss) as follows:
 
(Dollars in thousands)
     
Cumulative-effect adjustment, gross
  $ 65,658  
Tax
    (8,346 )
Cumulative-effect adjustment, net
  $ 57,312  

 
3.  INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:

   
At September 30, 2011
   
Amortized
 
Unrealized
 
Unrealized
 
Market
(Dollars in thousands)
 
Cost
 
Appreciation
 
Depreciation
 
Value
Fixed maturity securities
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 293,927     $ 14,397     $ (857 )   $ 307,467  
Obligations of U.S. states and political subdivisions
    1,742,305       112,418       (572 )     1,854,151  
Corporate securities
    3,305,474       180,511       (45,435 )     3,440,550  
Asset-backed securities
    184,839       7,805       (381 )     192,263  
Mortgage-backed securities
                               
Commercial
    314,532       18,811       (15,608 )     317,735  
Agency residential
    2,057,947       98,193       (1,165 )     2,154,975  
Non-agency residential
    60,713       387       (483 )     60,617  
Foreign government securities
    1,653,456       129,637       (8,592 )     1,774,501  
Foreign corporate securities
    2,005,736       88,607       (42,370 )     2,051,973  
Total fixed maturity securities
  $ 11,618,929     $ 650,766     $ (115,463 )   $ 12,154,232  
Equity securities
  $ 457,075     $ 3,744     $ (25,120 )   $ 435,699  
 

   
At December 31, 2010
 
   
Amortized
 
Unrealized
 
Unrealized
 
Market
(Dollars in thousands)
 
Cost
 
Appreciation
 
Depreciation
 
Value
Fixed maturity securities
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 394,690     $ 12,772     $ (5,655 )   $ 401,807  
Obligations of U.S. states and political subdivisions
    2,809,514       116,920       (24,929 )     2,901,505  
Corporate securities
    2,916,977       168,687       (16,518 )     3,069,146  
Asset-backed securities
    210,717       7,799       (215 )     218,301  
Mortgage-backed securities
                               
Commercial
    324,922       17,751       (5,454 )     337,219  
Agency residential
    2,018,384       76,367       (1,469 )     2,093,282  
Non-agency residential
    76,259       1,205       (1,723 )     75,741  
Foreign government securities
    1,584,355       79,661       (25,668 )     1,638,348  
Foreign corporate securities
    1,675,518       71,268       (31,666 )     1,715,120  
Total fixed maturity securities
  $ 12,011,336     $ 552,430     $ (113,297 )   $ 12,450,469  
Equity securities
  $ 363,283     $ 3,039     $ (2,586 )   $ 363,736  
 
In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009.  The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the periods indicated:
 
(Dollars in thousands)
 
At September 30, 2011
 
At December 31, 2010
Pre-tax cumulative unrealized appreciation (depreciation)
  $ 2,326     $ 1,743  
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 September 30, 2011
 
At December 31, 2010
   
Amortized
 
Market
 
Amortized
 
Market
(Dollars in thousands)
 
Cost
 
Value
 
Cost
 
Value
Fixed maturity securities – available for sale
                       
    Due in one year or less
  $ 456,049     $ 459,881     $ 572,985     $ 580,528  
    Due after one year through five years
    4,715,290       4,905,261       3,911,482       4,057,230  
    Due after five years through ten years
    2,380,999       2,503,612       2,564,948       2,686,005  
    Due after ten years
    1,448,560       1,559,888       2,331,639       2,402,163  
Asset-backed securities
    184,839       192,263       210,717       218,301  
Mortgage-backed securities
                               
Commercial
    314,532       317,735       324,922       337,219  
Agency residential
    2,057,947       2,154,975       2,018,384       2,093,282  
Non-agency residential
    60,713       60,617       76,259       75,741  
Total fixed maturity securities
  $ 11,618,929     $ 12,154,232     $ 12,011,336     $ 12,450,469  
 
The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods indicated:
 
   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands)
 
2011
 
2010
 
2011
 
2010
Increase (decrease) during the period between the market value and cost
                       
of investments carried at market value, and deferred taxes thereon:
                       
Fixed maturity securities
  $ 3,902     $ 193,182     $ 95,587     $ 339,419  
Fixed maturity securities, cumulative other-than-temporary impairment adjustment
    (1,305 )     2,269       582       8,354  
Equity securities
    (29,936 )     542       (21,828 )     810  
Other invested assets
    215       (33 )     (1,515 )     462  
Change in unrealized appreciation (depreciation), pre-tax
    (27,124 )     195,960       72,826       349,045  
Deferred tax benefit (expense)
    (7,880 )     (31,162 )     (20,680 )     (35,520 )
Deferred tax benefit (expense), cumulative other-than-temporary impairment adjustment
    48       (134 )     46       (1,038 )
Change in unrealized appreciation (depreciation),
                               
net of deferred taxes, included in shareholders’ equity
  $ (34,956 )   $ 164,664     $ 52,192     $ 312,487  
 
The Company frequently reviews its fixed maturity securities investment portfolio 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 or interest rate 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 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 and 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, 2011 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
  $ 14,174     $ (352 )   $ 3,460     $ (505 )   $ 17,634     $ (857 )
Obligations of U.S. states and political subdivisions
    -       -       7,472       (572 )     7,472       (572 )
Corporate securities
    786,201       (29,608 )     130,031       (15,827 )     916,232       (45,435 )
Asset-backed securities
    27,912       (214 )     1,455       (167 )     29,367       (381 )
Mortgage-backed securities
                                               
Commercial
    19,475       (2,140 )     47,578       (13,468 )     67,053       (15,608 )
Agency residential
    124,874       (672 )     66,952       (493 )     191,826       (1,165 )
Non-agency residential
    259       (8 )     38,224       (475 )     38,483       (483 )
Foreign government securities
    31,816       (852 )     147,232       (7,740 )     179,048       (8,592 )
Foreign corporate securities
    436,956       (25,487 )     141,881       (16,883 )     578,837       (42,370 )
Total fixed maturity securities
  $ 1,441,667     $ (59,333 )   $ 584,285     $ (56,130 )   $ 2,025,952     $ (115,463 )
Equity securities
    419,281       (25,116 )     11       (4 )     419,292       (25,120 )
Total
  $ 1,860,948     $ (84,449 )   $ 584,296     $ (56,134 )   $ 2,445,244     $ (140,583 )

 
   
Duration of Unrealized Loss at September 30, 2011 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
  $ 36,501     $ (537 )   $ 47,909     $ (8,284 )   $ 84,410     $ (8,821 )
Due in one year through five years
    527,126       (20,364 )     266,180       (21,340 )     793,306       (41,704 )
Due in five years through ten years
    643,071       (31,756 )     76,823       (3,758 )     719,894       (35,514 )
Due after ten years
    62,449       (3,642 )     39,164       (8,145 )     101,613       (11,787 )
Asset-backed securities
    27,912       (214 )     1,455       (167 )     29,367       (381 )
Mortgage-backed securities
    144,608       (2,820 )     152,754       (14,436 )     297,362       (17,256 )
Total fixed maturity securities
  $ 1,441,667     $ (59,333 )   $ 584,285     $ (56,130 )   $ 2,025,952     $ (115,463 )
 
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2011 were $2,445,244 thousand and $140,583 thousand, respectively.  There were no unrealized losses on a single issuer that exceeded 0.05% of the market value of the fixed maturity securities at September 30, 2011.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $59,333 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities and commercial mortgage-backed securities.  Of these unrealized losses, $29,204 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The majority of the unrealized losses related to foreign corporate and foreign government securities are due to currency exchange rate movements as opposed to market value movements.  The $56,130 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 commercial mortgage-backed securities.  Of these unrealized losses, $36,598 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The majority of the unrealized losses related to foreign corporate and foreign government securities are due to currency exchange rate movements as opposed to market value movements.  The non-investment grade securities with unrealized losses were mainly comprised of corporate and commercial mortgage-backed securities.  The gross unrealized depreciation for mortgage-backed securities included $365 thousand related to sub-prime and alt-A loans.  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.  Unrealized losses at September 30, 2011 are comparable with unrealized losses at December 31, 2010.

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, 2010 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
  $ 70,193     $ (2,425 )   $ 43,264     $ (3,230 )   $ 113,457     $ (5,655 )
Obligations of U.S. states and political subdivisions
    336,522       (9,520 )     171,812       (15,409 )     508,334       (24,929 )
Corporate securities
    186,898       (5,077 )     107,520       (11,441 )     294,418       (16,518 )
Asset-backed securities
    7,816       (92 )     2,408       (123 )     10,224       (215 )
Mortgage-backed securities
                                               
Commercial
    962       (25 )     58,036       (5,429 )     58,998       (5,454 )
Agency residential
    208,930       (1,236 )     614       (233 )     209,544       (1,469 )
Non-agency residential
    -       -       44,341       (1,723 )     44,341       (1,723 )