Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 26, 2017)
  • 10-Q (Jul 27, 2017)
  • 10-Q (Apr 27, 2017)
  • 10-Q (Oct 27, 2016)
  • 10-Q (Jul 28, 2016)
  • 10-Q (May 5, 2016)

 
8-K

 
Other

Selective Insurance Group 10-Q 2011
Unassociated Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)

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

For the quarterly period ended:  September 30, 2011
or


For the transition period from                                                                          to                                 
 
Commission File Number:  001-33067

SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

New Jersey
 
22-2168890
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
     
40 Wantage Avenue
   
Branchville, New Jersey
 
07890
(Address of Principal Executive Offices)
 
(Zip Code)

 
(973) 948-3000
 
 
(Registrant’s Telephone Number, Including Area Code)
 

   
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 report), 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. (Check one):
 
Large accelerated filer x
 
Accelerated filer ¨
Non-accelerated filer   ¨
 
Smaller reporting company ¨
(Do not check if a 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
As of September 30, 2011, there were 54,220,632 shares of common stock, par value $2.00 per share, outstanding.
 
 
 

 
 
Table of Contents
 
   
Page
   
No.
PART I.    FINANCIAL INFORMATION  
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
     
     
PART II.    OTHER INFORMATION  
     
     
     
     
 
 
 

 

ITEM 1.  FINANCIAL STATEMENTS
SELECTIVE INSURANCE GROUP, INC.
 
Unaudited
       
 
September 30,
   
December 31,
 
($ in thousands, except share amounts)
 
2011
   
2010
 
ASSETS
           
Investments:
           
Fixed maturity securities, held-to-maturity – at carrying value (fair value:  $901,385 – 2011; $1,256,294 – 2010)
  $ 852,843       1,214,324  
Fixed maturity securities, available-for-sale – at fair value (amortized cost:  $2,649,035 – 2011; $2,285,988 – 2010)
    2,772,348       2,342,742  
Equity securities, available-for-sale – at fair value (cost of:  $150,517 – 2011; $58,039 – 2010)
    139,203       69,636  
Short-term investments (at cost which approximates fair value)
    162,812       161,155  
Other investments
    135,560       137,865  
Total investments
    4,062,766       3,925,722  
Cash
    287       645  
Interest and dividends due or accrued
    35,107       37,007  
Premiums receivable, net of allowance for uncollectible accounts of:  $3,863 – 2011; $4,691 – 2010
    477,869       414,105  
Reinsurance recoverables, net
    631,732       318,752  
Prepaid reinsurance premiums
    121,560       110,327  
Current federal income tax
    17,518       11,200  
Deferred federal income tax
    83,299       93,234  
Property and equipment – at cost, net of accumulated depreciation and amortization of:  $158,383 – 2011; $151,704 – 2010
    39,247       41,775  
Deferred policy acquisition costs
    220,044       209,627  
Goodwill
    7,849       7,849  
Other assets
    51,712       61,529  
Total assets
  $ 5,748,990       5,231,772  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities:
               
Reserve for losses and loss expenses
  $ 3,243,622       2,830,058  
Unearned premiums
    902,112       823,596  
Notes payable
    262,353       262,333  
Accrued salaries and benefits
    98,485       100,933  
Other liabilities
    155,863       143,743  
Total liabilities
  $ 4,662,435       4,160,663  
                 
Stockholders’ Equity:
               
Preferred stock of $0 par value per share: Authorized shares: 5,000,000; no shares issued or outstanding
  $ -       -  
Common stock of $2 par value per share Authorized shares: 360,000,000 Issued:  97,044,503 – 2011; 96,362,667 – 2010
    194,089       192,725  
Additional paid-in capital
    253,939       244,613  
Retained earnings
    1,158,308       1,176,155  
Accumulated other comprehensive income
    32,164       7,024  
Treasury stock – at cost (shares:  42,823,871 – 2011; 42,686,204 – 2010)
    (551,945 )     (549,408 )
Total stockholders’ equity
    1,086,555       1,071,109  
Commitments and contingencies
               
Total liabilities and stockholders’ equity
  $ 5,748,990       5,231,772  
 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
 
 
1

 

SELECTIVE INSURANCE GROUP, INC.
 
Quarter ended
   
Nine Months ended
 
   
September 30,
   
September 30,
 
($ in thousands, except per share amounts)
 
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Net premiums earned
  $ 358,963       354,709       1,065,886       1,063,101  
Net investment income earned
    35,786       32,986       118,604       104,237  
Net realized gains (losses):
                               
Net realized investment gains
    498       2,864       9,203       13,960  
Other-than-temporary impairments
    (2,693 )     (4,091 )     (3,062 )     (16,326 )
Other-than-temporary impairments on fixed maturity securities recognized in other comprehensive income
    150       1,284       (280 )     (905 )
Total net realized (losses) gains
    (2,045 )     57       5,861       (3,271 )
Other income
    1,365       1,950       6,744       6,465  
Total revenues
    394,069       389,702       1,197,095       1,170,532  
                                 
Expenses:
                               
Losses and loss expenses incurred
    305,958       245,019       829,719       739,142  
Policy acquisition costs
    119,456       114,042       346,729       346,143  
Interest expense
    4,559       4,559       13,675       14,056  
Other expenses
    4,924       4,022       18,807       18,636  
Total expenses
    434,897       367,642       1,208,930       1,117,977  
                                 
(Loss) income from continuing operations, before federal income tax
    (40,828 )     22,060       (11,835 )     52,555  
                                 
Federal income tax (benefit) expense:
                               
Current
    (20,001 )     (1,691 )     (12,614 )     8,475  
Deferred
    (1,335 )     4,920       (3,603 )     (1,435 )
Total federal income tax (benefit) expense
    (21,336 )     3,229       (16,217 )     7,040  
                                 
Net (loss) income from continuing operations
    (19,492 )     18,831       4,382       45,515  
                                 
Loss on disposal of discontinued operations, net of tax of $(350) and $(880) for Third Quarter 2011 and 2010 and $(350) and $(2,019) for Nine Months 2011 and 2010
    (650 )     (1,634 )     (650 )     (3,749 )
                                 
Net (loss) income
  $ (20,142 )     17,197       3,732       41,766  
                                 
Earnings per share:
                               
Basic net (loss) income from continuing operations
    (0.36 )     0.35       0.08       0.85  
Basic net loss from disposal of discontinued operations
    (0.01 )     (0.03 )     (0.01 )     (0.07 )
Basic net (loss) income
  $ (0.37 )     0.32       0.07       0.78  
                                 
Diluted net (loss) income from continuing operations
    (0.36 )     0.35       0.08       0.84  
Diluted net loss from disposal of discontinued operations
    (0.01 )     (0.03 )     (0.01 )     (0.07 )
Diluted net (loss) income
  $ (0.37 )     0.32       0.07       0.77  
                                 
Dividends to stockholders
  $ 0.13       0.13       0.39       0.39  

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 
2

 
 
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF
     
     
   
Nine Months ended September 30,
 
($ in thousands, except per share amounts)
 
2011
   
2010
 
Common stock:
                       
Beginning of year
  $ 192,725             191,646        
Dividend reinvestment plan (shares:  74,777 – 2011; 81,471 – 2010)
    150             163        
Stock purchase and compensation plans (shares:  607,059 – 2011; 284,793 – 2010)
    1,214             569        
End of period
    194,089             192,378        
                             
Additional paid-in capital:
                           
Beginning of year
    244,613             231,933        
Dividend reinvestment plan
    1,066             1,098        
Stock purchase and compensation plans
    8,260             8,441        
End of period
    253,939             241,472        
                             
Retained earnings:
                           
Beginning of year
    1,176,155             1,138,978        
Net income
    3,732       3,732       41,766       41,766  
Dividends to stockholders ($0.39 per share – 2011 and 2010)
    (21,579 )             (21,248 )        
End of period
    1,158,308               1,159,496          
                                 
Accumulated other comprehensive income (loss):
                               
Beginning of year
    7,024               (12,460 )        
Other comprehensive income (loss), increase (decrease) in:
                               
Unrealized gains on investment securities:
                               
Non-credit portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
    336               3,026          
Other net unrealized gains on investment securities, net of deferred income tax
    22,617               55,556          
Total unrealized gains on investment securities
    22,953       22,953       58,582       58,582  
Defined benefit pension plans, net of deferred income tax
    2,187       2,187       2,098       2,098  
End of period
    32,164               48,220          
Comprehensive income
            28,872               102,446  
                                 
Treasury stock:
                               
Beginning of year
    (549,408 )             (547,722 )        
Acquisition of treasury stock (shares:  137,667 – 2011; 98,419 – 2010)
    (2,537 )             (1,528 )        
End of period
    (551,945 )             (549,250 )        
Total stockholders’ equity
  $ 1,086,555               1,092,316          

Selective Insurance Group, Inc. also has authorized, but not issued, 5,000,000 shares of preferred stock, without par value, of which 300,000 shares have been designated Series A junior preferred stock, without par value.
 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 
3

 
 
SELECTIVE INSURANCE GROUP, INC.
 
Nine Months ended
 
   
September 30,
 
($ in thousands)
 
2011
   
2010
 
Operating Activities
           
Net Income
  $ 3,732       41,766  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    25,260       23,175  
Loss on disposal of discontinued operations
    650       3,749  
Stock-based compensation expense
    6,383       6,875  
Undistributed income of equity method investments
    (1,793 )     (6,338 )
Net realized (gains) losses
    (5,861 )     3,271  
                 
Changes in assets and liabilities:
               
Increase in reserves for losses and loss expenses, net of reinsurance recoverables
    100,584       32,912  
Increase in unearned premiums, net of prepaid reinsurance and advance premiums
    67,816       25,123  
Increase in net federal income tax recoverable
    (9,570 )     (6,514 )
Increase in premiums receivable
    (63,764 )     (13,817 )
(Increase) decrease in deferred policy acquisition costs
    (10,417 )     11  
Decrease (increase) in interest and dividends due or accrued
    1,943       (1,491 )
(Decrease) increase in accrued salaries and benefits
    (2,448 )     150  
Decrease in accrued insurance expenses
    (6,772 )     (6,872 )
Other-net
    20,817       1,284  
Net adjustments
    122,828       61,518  
Net cash provided by operating activities
    126,560       103,284  
                 
Investing Activities
               
Purchase of fixed maturity securities, available-for-sale
    (350,140 )     (699,133 )
Purchase of equity securities, available-for-sale
    (148,104 )     (47,930 )
Purchase of other investments
    (11,778 )     (14,348 )
Purchase of short-term investments
    (1,030,834 )     (1,409,971 )
Sale of subsidiary
    919       681  
Sale of fixed maturity securities, available-for-sale
    85,773       157,823  
Sale of short-term investments
    1,029,178       1,358,779  
Redemption and maturities of fixed maturity securities, held-to-maturity
    138,907       238,923  
Redemption and maturities of fixed maturity securities, available-for-sale
    95,951       251,875  
Sale of equity securities, available-for-sale
    59,991       76,277  
Distributions from other investments
    15,666       18,468  
Sale of other investments
    16,357       -  
Purchase of property, equipment, and other assets
    (8,932 )     (4,062 )
Net cash used in investing activities
    (107,046 )     (72,618 )
                 
Financing Activities
               
Dividends to stockholders
    (19,863 )     (19,516 )
Acquisition of treasury stock
    (2,537 )     (1,528 )
Principal payment of notes payable
    -       (12,300 )
Net proceeds from stock purchase and compensation plans
    2,718       3,084  
Excess tax benefits from share-based payment arrangements
    (190 )     (795 )
Net cash used in financing activities
    (19,872 )     (31,055 )
Net decrease in cash
    (358 )     (389 )
Cash, beginning of year
    645       811  
Cash, end of period
  $ 287       422  

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 
4

 


Selective Insurance Group, Inc., through its subsidiaries, (collectively referred to as “we,” “us,” or “our”) offers property and casualty insurance products.  Selective Insurance Group, Inc. (referred to as the “Parent”) was incorporated in New Jersey in 1977 and its main offices are located in Branchville, New Jersey.  The Parent’s common stock is publicly traded on the NASDAQ Global Select Market under the symbol “SIGI.”

We classify our business into two operating segments:
 
·
Insurance Operations, which sells property and casualty insurance products and services primarily in 22 states in the Eastern and Midwestern U.S.; and
 
·
Investments.

These interim unaudited consolidated financial statements (“Financial Statements”) include the accounts of the Parent and its subsidiaries, and have been prepared in conformity with:  (i) U.S. generally accepted accounting principles (“GAAP”); and (ii) the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting.  The preparation of the Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  All significant intercompany accounts and transactions between the Parent and its subsidiaries are eliminated in consolidation.

These Financial Statements reflect all adjustments that, in our opinion, are normal, recurring, and necessary for a fair presentation of our results of operations and financial condition.  The Financial Statements cover the third quarters ended September 30, 2011 (“Third Quarter 2011”) and September 30, 2010 (“Third Quarter 2010”) and the nine-month periods ended September 30, 2011 (“Nine Months 2011”) and September 30, 2010 (“Nine Months 2010”).  The Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited financial statements.  Results of operations for any interim period are not necessarily indicative of results for a full year.  Consequently, the Financial Statements should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”).
 
NOTE 3.              Reclassification>
Certain prior year amounts in these Financial Statements and related footnotes have been reclassified to conform to the current year presentation.  Such reclassifications had no effect on our net income, stockholders’ equity, or cash flows.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.  This guidance requires:  (i) separate disclosure of significant transfers between Level 1 and Level 2 of the fair value hierarchy and reasons for the transfers; (ii) disclosure, on a gross basis, of purchases, sales, issuances, and net settlements within Level 3 of the fair value hierarchy; (iii) disclosures by class of assets and liabilities; and (iv) a description of the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  This guidance is effective for reporting periods beginning after December 15, 2009, except for the Level 3 disclosure requirements, which are effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years.  We have included the disclosures required by this guidance in our notes to the consolidated financial statements, where appropriate.
 
 
5

 

In December 2010, the FASB issued ASU 2010-28 Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.  This guidance modifies Step 1 of the goodwill impairment test, which assesses whether the carrying amount of a reporting unit exceeds its fair value, for reporting units with zero or negative carrying amounts.  It requires that an entity perform Step 2 of the goodwill impairment test, which determines if goodwill has been impaired and measures the amount of impairment, if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider the qualitative factors within existing guidance that would require goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  This guidance is effective for interim and annual periods beginning after December 15, 2010.  The adoption of this guidance did not impact our financial condition or results of operations.
 
In December 2010, the FASB issued ASU 2010-29 Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.  This guidance relates to disclosure of pro forma information for business combinations that have occurred in the current reporting period.  It requires that an entity presenting comparative financial statements include revenue and earnings of the combined entity as though the combination had occurred as of the beginning of the comparable prior annual period only.  This guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this guidance did not impact our financial condition or results of operations.

Pronouncements to be effective in the future>
In October 2010, the FASB issued ASU 2010-26, Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (“ASU 2010-26”).  This guidance requires that only costs that are incremental or directly related to the successful acquisition of new or renewal insurance contracts are to be capitalized as a deferred acquisition cost.  This would include, among other items, sales commissions paid to agents, premium taxes, and the portion of employee salaries and benefits directly related to time spent on acquired contracts.  This guidance is effective, either with a prospective or retrospective application, for interim and annual periods beginning after December 15, 2011, with early adoption permitted.  Although we continue to evaluate the impact of this guidance, we anticipate that ASU 2010-26 would have an after-tax impact on our stockholders’ equity of approximately $55 million, or about $1 of book value per share.  The adoption of this guidance is not expected to have a material impact on our results of operations on either a historical or prospective basis.
 
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”).  This guidance changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements to improve consistency in the application and description of fair value between GAAP and International Financial Reporting Standards.  ASU 2011-04 clarifies how the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets, and are not relevant when measuring the fair value of financial assets or liabilities.  In addition, ASU 2011-04 expands the disclosures for unobservable inputs for Level 3 fair value measurements, requiring quantitative information to be disclosed related to:  (i) the valuation processes used; (ii) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs; and (iii) the use of a nonfinancial asset in a way that differs from the asset’s highest and best use.  ASU 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011.  The adoption of this guidance is not expected to have a material impact on our financial condition, results of operations, or current disclosures.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220):  Presentation of Comprehensive Income (“ASU 2011-05”).  ASU 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 also requires financial statement presentation of reclassification adjustments for items that are reclassified from other comprehensive income (“OCI”) to net income.  This guidance, which only changes financial statement presentation, is effective, on a retrospective basis, for interim and annual periods beginning after December 15, 2011.

 
6

 
 
In September 2011, the FASB issued ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies the requirements to test goodwill for impairment.  The amendment permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing events and circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, then performing the two-step impairment test is unnecessary.  However, if the entity concludes otherwise, then it is required to perform the quantitative impairment test.  This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted.  The adoption of this guidance is not expected to have a material impact on our financial condition, results of operations, or current disclosures.
 
NOTE 5.              Statements of Cash Flow>
Cash (received) paid during the period for interest and federal income taxes was as follows:
 
   
Nine Months ended September 30,
 
($ in thousands)
 
2011
   
2010
 
Cash (received) paid during the period for:
           
Interest
  $ 11,074       11,620  
Federal income tax
    (6,460 )     14,000  

(a) The following table provides information related to our held-to-maturity (“HTM”) securities:
 
September 30, 2011
       
Net
                         
         
Unrealized
         
Unrecognized
   
Unrecognized
       
   
Amortized
   
Gains
   
Carrying
   
Holding
   
Holding
   
Fair
 
($ in thousands)
 
Cost
   
(Losses)
   
Value
   
Gains
   
Losses
   
Value
 
Foreign government
  $ 5,292       311       5,603       -       (106 )     5,497  
Obligations of states and political subdivisions
    729,361       15,640       745,001       33,246       (421 )     777,826  
Corporate securities
    67,055       (2,541 )     64,514       7,681       -       72,195  
Asset-backed securities (“ABS”)
    8,366       (1,588 )     6,778       1,544       (9 )     8,313  
Commercial mortgage-backed securities (“CMBS”)
    36,450       (5,597 )     30,853       6,868       (275 )     37,446  
Residential mortgage-backed securities (“RMBS”)
    132       (38 )     94       14       -       108  
Total HTM fixed maturity securities
  $ 846,656       6,187       852,843       49,353       (811 )     901,385  
 
December 31, 2010
       
Net
                         
         
Unrealized
         
Unrecognized
   
Unrecognized
       
   
Amortized
   
Gains
   
Carrying
   
Holding
   
Holding
   
Fair
 
($ in thousands)
 
Cost
   
(Losses)
   
Value
   
Gains
   
Losses
   
Value
 
U.S. government and government agencies
  $ 93,411       4,695       98,106       5,023       -       103,129  
Foreign government
    5,292       368       5,660       -       (30 )     5,630  
Obligations of states and political subdivisions
    874,388       22,183       896,571       16,845       (1,132 )     912,284  
Corporate securities
    76,663       (3,990 )     72,673       9,705       (313 )     82,065  
ABS
    12,947       (2,422 )     10,525       1,847       (444 )     11,928  
CMBS1
    54,909       (7,354 )     47,555       7,483       (109 )     54,929  
RMBS2
    82,191       1,043       83,234       3,095       -       86,329  
Total HTM fixed maturity securities
  $ 1,199,801       14,523       1,214,324       43,998       (2,028 )     1,256,294  

1 CMBS includes government guaranteed agency securities with a carrying value $8.9 million at December 31, 2010.
2 RMBS includes government guaranteed agency securities with a carrying value $4.0 million at December 31, 2010.

Unrecognized holding gains/losses of HTM securities are not reflected in the consolidated Financial Statements, as they represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an other-than-temporary impairment (“OTTI”) charge is recognized on an HTM security, through the date of the balance sheet.  Our HTM securities had an average duration of 3.1 years as of September 30, 2011 and 3.4 years as of December 31, 2010.

 
7

 
 
During Nine Months 2011, 68 securities, with a carrying value of $222.2 million in a net unrecognized gain position of $12.4 million, were reclassified from the HTM category to available-for-sale (“AFS”) due to recent credit rating downgrades by either Moody’s Investors Service, Standard and Poor’s Financial Services, or Fitch Ratings.  These unexpected rating downgrades raised significant concerns about the issuers’ credit worthiness, which changed our intention to hold these securities to maturity.  In addition to the transfer activity, redemptions and maturities of HTM securities amounted to $138.9 million in Nine Months 2011.
 
(b) The following table provides information related to our AFS securities:
 
September 30, 2011
                       
   
Cost/
                   
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
($ in thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
U.S. government and government agencies1
  $ 358,154       21,877       -       380,031  
Foreign government
    31,599       1,313       -       32,912  
Obligations of states and political subdivisions
    524,185       37,375       (45 )     561,515  
Corporate securities
    1,085,081       46,011       (5,533 )     1,125,559  
ABS
    78,393       1,383       (1,082 )     78,694  
CMBS2
    107,404       6,788       (1,301 )     112,891  
RMBS3
    464,219       17,976       (1,449 )     480,746  
AFS fixed maturity securities
    2,649,035       132,723       (9,410 )     2,772,348  
AFS equity securities
    150,517       6,690       (18,004 )     139,203  
   Total AFS securities
  $ 2,799,552       139,413       (27,414 )     2,911,551  
   
December 31, 2010
                               
   
Cost/
                         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
($ in thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
U.S. government and government agencies1
  $ 312,384       8,292       (147 )     320,529  
Foreign government
    19,035       280       (349 )     18,966  
Obligations of states and political subdivisions
    512,013       22,534       (650 )     533,897  
Corporate securities
    973,835       28,674       (8,784 )     993,725  
ABS
    48,558       514       (339 )     48,733  
CMBS2
    103,374       4,024       (2,923 )     104,475  
RMBS3
    316,789       7,871       (2,243 )     322,417  
AFS fixed maturity securities
    2,285,988       72,189       (15,435 )     2,342,742  
AFS equity securities
    58,039       11,597       -       69,636  
   Total AFS securities
  $ 2,344,027       83,786       (15,435 )     2,412,378  

1 U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a fair value of $96.3 million at September 30, 2011 and $121.0 million at December 31, 2010.
2 CMBS includes government guaranteed agency securities with a fair value of $78.0 million at September 30, 2011 and $71.9 million at December 31, 2010.
3 RMBS includes government guaranteed agency securities with a fair value of $101.3 million at September 30, 2011 and $91.1 million at December 31, 2010.

Unrealized gains/losses of AFS securities represent fair value fluctuations from the later of:  (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet.  These unrealized gains and losses are recorded in accumulated other comprehensive income (“AOCI”) on the Consolidated Balance Sheets.

 
8

 
(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at September 30, 2011 and December 31, 2010, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:

September 30, 2011
 
Less than 12 months
   
12 months or longer
 
($ in thousands)
 
Fair Value
   
Unrealized
Losses1
   
Fair Value
   
Unrealized
Losses1
 
AFS securities
                       
Obligations of states and political subdivisions
  $ 2,127       (1 )     1,887       (44 )
Corporate securities
    182,536       (4,898 )     6,739       (636 )
ABS
    6,202       (9 )     1,144       (1,072 )
CMBS
    6,371       (60 )     10,050       (1,240 )
RMBS
    28,893       (490 )     11,781       (960 )
Total fixed maturity securities
    226,129       (5,458 )     31,601       (3,952 )
Equity securities
    85,918       (18,004 )     -       -  
Subtotal
  $ 312,047       (23,462 )     31,601       (3,952 )
 
   
Less than 12 months
   
12 months or longer
 
 
($ in thousands)
 
Fair
Value
   
Unrealized
Losses1
   
Unrecognized
Gains3
   
Fair
Value
   
Unrealized
Losses1
   
Unrecognized
Gains3
 
HTM securities
                                   
Obligations of states and political subdivisions
  $ 3,929       (192 )     178       10,072       (551 )     343  
ABS
    -       -       -       2,830       (1,060 )     762  
CMBS
    14,315       (596 )     575       6,529       (3,348 )     1,016  
RMBS
    -       -       -       108       (38 )     14  
Subtotal
  $ 18,244       (788 )     753       19,539       (4,997 )     2,135  
                                                 
Total AFS and HTM
  $ 330,291       (24,250 )     753       51,140       (8,949 )     2,135  
 
December 31, 2010
 
Less than 12 months
   
12 months or longer
 
 
($ in thousands)
 
Fair
Value
   
Unrealized
Losses1
   
Fair
Value
   
Unrealized
Losses1
 
AFS securities
                       
U.S. government and government agencies2
  $ 3,956       (147 )     -       -  
Foreign government
    10,776       (349 )     -       -  
Obligations of states and political subdivisions
    40,410       (650 )     -       -  
Corporate securities
    362,502       (8,784 )     -       -  
ABS
    30,297       (273 )     880       (66 )
CMBS
    5,453       (271 )     11,115       (2,652 )
RMBS
    70,934       (1,098 )     20,910       (1,145 )
Total fixed maturity securities
    524,328       (11,572 )     32,905       (3,863 )
Equity securities
    -       -       -       -  
Subtotal
  $ 524,328       (11,572 )     32,905       (3,863 )
 
 
9

 

   
Less than 12 months
   
12 months or longer
 
 
($ in thousands)
 
Fair
Value
   
Unrealized 
(Losses) Gains1
   
Unrecognized
Gains (Losses)3
   
Fair
Value
   
Unrealized
Losses1
   
Unrecognized
Gains3
 
HTM securities
                                   
Obligations of states and political subdivisions
  $ 21,036       (381 )     45       27,855       (1,969 )     670  
Corporate securities
    1,985       (434 )     420       -       -       -  
ABS
    507       (546 )     (440 )     2,931       (1,095 )     747  
CMBS
    3,621       15       (17 )     5,745       (3,933 )     833  
RMBS
    -       -       -       95       (38 )     1  
Subtotal
  $ 27,149       (1,346 )     8       36,626       (7,035 )     2,251  
                                                 
Total AFS and HTM
  $ 551,477       (12,918 )     8       69,531       (10,898 )     2,251  

1
Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.  In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.
2
U.S. government includes corporate securities fully guaranteed by the FDIC.
3
Unrecognized holding gains/(losses) represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.
 
The following table provides information regarding securities in an unrealized loss position as of September 30, 2011 and December 31, 2010:

($ in thousands)
September 30, 2011
   
December 31, 2010
 
Number
of Issues
 
% of
Market/Book
   
Unrealized
Unrecognized
Loss
   
Number of
Issues
   
% of
Market/Book
   
Unrealized
Unrecognized
Loss
 
188
  80% - 99%     $ 16,142     193       80% - 99%     $ 16,310  
64
  60% - 79%       9,554     2       60% - 79%       1,125  
11
  40% - 59%       2,963     2       40% - 59%       2,160  
3
  20% - 39%       1,652     1       20% - 39%       986  
-
  0% - 19%       -     1       0% - 19%       976  
          $ 30,311