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)
|
Large
accelerated filer x
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Page
No.
|
|||
PART I.
|
FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
||
Consolidated
Balance Sheets as of June 30, 2010 (Unaudited)
|
|||
and
December 31, 2009
|
1
|
||
Unaudited
Consolidated Statements of Income for the
|
|||
Quarter
and Six Months Ended June 30, 2010 and 2009
|
2
|
||
Unaudited
Consolidated Statements of Stockholders’ Equity for the
|
|||
Six
Months Ended June 30, 2010 and 2009
|
3
|
||
Unaudited
Consolidated Statements of Cash Flow for the
|
|||
Six
Months Ended June 30, 2010 and 2009
|
4
|
||
Notes
to Unaudited Interim Consolidated Financial Statements
|
5
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
||
Forward-Looking
Statements
|
25
|
||
Introduction
|
25
|
||
Critical
Accounting Policies and Estimates
|
25
|
||
Financial
Highlights of Results for Second Quarter 2010 and Six Months
2010
|
26
|
||
Results
of Operations and Related Information by Segment
|
28
|
||
Federal
Income Taxes
|
50
|
||
Financial
Condition, Liquidity, and Capital Resources
|
50
|
||
Ratings
|
52
|
||
Off-Balance
Sheet Arrangements
|
53
|
||
Contractual
Obligations and Contingent Liabilities and Commitments
|
53
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
54
|
|
Item
4.
|
Controls
and Procedures
|
54
|
|
PART II.
|
OTHER INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
54
|
|
Item
1A.
|
Risk
Factors
|
55
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
58
|
|
Item
6.
|
Exhibits
|
59
|
ITEM
1. FINANCIAL STATEMENTS
|
||||||||
SELECTIVE
INSURANCE GROUP, INC.
|
Unaudited
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
June
30,
|
December
31,
|
||||||
($
in thousands, except share amounts)
|
2010
|
2009
|
||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Fixed
maturity securities, held-to-maturity – at carry value
|
||||||||
(fair
value: $1,510,871 – 2010; $1,740,211 – 2009)
|
$ | 1,461,882 | 1,710,403 | |||||
Fixed
maturity securities, available-for-sale – at fair value
|
||||||||
(amortized
cost: $1,798,996 – 2010; $1,616,456 – 2009)
|
1,870,383 | 1,635,869 | ||||||
Equity
securities, available-for-sale – at fair value
|
||||||||
(cost
of: $59,859– 2010; $64,390 – 2009)
|
60,988 | 80,264 | ||||||
Short-term
investments (at cost which approximates fair value)
|
343,900 | 213,848 | ||||||
Other
investments
|
153,475 | 140,667 | ||||||
Total
investments
|
3,890,628 | 3,781,051 | ||||||
Cash
|
591 | 811 | ||||||
Interest
and dividends due or accrued
|
34,865 | 34,651 | ||||||
Premiums
receivable, net of allowance for uncollectible
|
||||||||
accounts
of: $5,327 – 2010; $5,880 – 2009
|
469,096 | 446,577 | ||||||
Reinsurance
recoverables, net
|
287,191 | 276,018 | ||||||
Prepaid
reinsurance premiums
|
104,383 | 105,522 | ||||||
Current
federal income tax
|
21,826 | 17,662 | ||||||
Deferred
federal income tax
|
101,085 | 111,038 | ||||||
Property
and equipment – at cost, net of accumulated
|
||||||||
depreciation
and amortization of: $146,998 – 2010; $141,251 –
2009
|
43,014 | 46,287 | ||||||
Deferred
policy acquisition costs
|
218,200 | 218,601 | ||||||
Goodwill
|
7,849 | 7,849 | ||||||
Other
assets
|
48,206 | 68,760 | ||||||
Total
assets
|
$ | 5,226,934 | 5,114,827 | |||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Reserve
for losses and loss expenses
|
$ | 2,805,841 | 2,745,799 | |||||
Unearned
premiums
|
856,931 | 844,847 | ||||||
Notes
payable
|
262,319 | 274,606 | ||||||
Accrued
salaries and benefits
|
101,908 | 103,802 | ||||||
Other
liabilities
|
150,431 | 143,398 | ||||||
Total
liabilities
|
$ | 4,177,430 | 4,112,452 | |||||
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: 96,094,756
– 2010; 95,822,959 – 2009
|
192,190 | 191,646 | ||||||
Additional
paid-in capital
|
239,341 | 231,933 | ||||||
Retained
earnings
|
1,149,387 | 1,138,978 | ||||||
Accumulated
other comprehensive income (loss)
|
17,826 | (12,460 | ) | |||||
Treasury
stock – at cost (shares: 42,676,595 – 2010; 42,578,779 –
2009)
|
(549,240 | ) | (547,722 | ) | ||||
Total
stockholders’ equity
|
1,049,504 | 1,002,375 | ||||||
Commitments
and contingencies
|
||||||||
Total
liabilities and stockholders’ equity
|
$ | 5,226,934 | 5,114,827 |
Quarter
ended
|
Six
Months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands, except per share amounts)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenues:
|
||||||||||||||||
Net
premiums earned
|
$ | 352,190 | 358,311 | 708,392 | 722,184 | |||||||||||
Net
investment income earned
|
36,545 | 26,368 | 71,251 | 42,085 | ||||||||||||
Net
realized (losses) gains:
|
||||||||||||||||
Net
realized investment gains
|
2,920 | 1,181 | 11,096 | 4,256 | ||||||||||||
Other-than-temporary
impairments
|
(6,162 | ) | (12,534 | ) | (12,235 | ) | (39,634 | ) | ||||||||
Other-than-temporary
impairments on fixed maturity securities recognized in other comprehensive
income
|
(22 | ) | 59 | (2,189 | ) | 59 | ||||||||||
Total
net realized losses
|
(3,264 | ) | (11,294 | ) | (3,328 | ) | (35,319 | ) | ||||||||
Other
income
|
2,247 | 3,810 | 4,515 | 5,091 | ||||||||||||
Total
revenues
|
387,718 | 377,195 | 780,830 | 734,041 | ||||||||||||
Expenses:
|
||||||||||||||||
Losses
and loss expenses incurred
|
239,980 | 239,049 | 494,123 | 491,243 | ||||||||||||
Policy
acquisition costs
|
116,099 | 114,522 | 232,101 | 227,628 | ||||||||||||
Interest
expense
|
4,655 | 4,843 | 9,497 | 9,867 | ||||||||||||
Other
expenses
|
4,136 | 6,533 | 14,614 | 14,038 | ||||||||||||
Total
expenses
|
364,870 | 364,947 | 750,335 | 742,776 | ||||||||||||
Income
(loss) from continuing operations, before federal income
tax
|
22,848 | 12,248 | 30,495 | (8,735 | ) | |||||||||||
Federal
income tax expense (benefit):
|
||||||||||||||||
Current
|
1,322 | (1,631 | ) | 10,166 | 4,244 | |||||||||||
Deferred
|
1,435 | (1,479 | ) | (6,355 | ) | (15,387 | ) | |||||||||
Total
federal income tax expense (benefit)
|
2,757 | (3,110 | ) | 3,811 | (11,143 | ) | ||||||||||
Net
income from continuing operations
|
20,091 | 15,358 | 26,684 | 2,408 | ||||||||||||
Income
from discontinued operations, net of tax of $53 for Second Quarter 2009
and $41 for Six Months 2009
|
- | 330 | - | 403 | ||||||||||||
Loss
on disposal of discontinued operations, net of tax of $(713) for Second
Quarter 2010 and $(1,139) for Six Months 2010
|
(1,325 | ) | - | (2,115 | ) | - | ||||||||||
Total
discontinued operations, net of tax
|
(1,325 | ) | 330 | (2,115 | ) | 403 | ||||||||||
Net
income
|
$ | 18,766 | 15,688 | 24,569 | 2,811 | |||||||||||
Earnings
per share:
|
||||||||||||||||
Basic
net income from continuing operations
|
0.37 | 0.29 | 0.50 | 0.04 | ||||||||||||
Basic
net (loss) income from disposal of discontinued operations
|
(0.02 | ) | 0.01 | (0.04 | ) | 0.01 | ||||||||||
Basic
net income
|
$ | 0.35 | 0.30 | 0.46 | 0.05 | |||||||||||
Diluted
net income from continuing operations
|
0.37 | 0.28 | 0.49 | 0.04 | ||||||||||||
Diluted
net (loss) income from disposal of discontinued operations
|
(0.02 | ) | 0.01 | (0.04 | ) | 0.01 | ||||||||||
Diluted
net income
|
$ | 0.35 | 0.29 | 0.45 | 0.05 | |||||||||||
Dividends
to stockholders
|
$ | 0.13 | 0.13 | 0.26 | 0.26 |
Six
Months ended June 30,
|
||||||||||||||||
($
in thousands, except per share amounts)
|
2010
|
2009
|
||||||||||||||
Common
stock:
|
||||||||||||||||
Beginning
of year
|
$ | 191,646 | 190,527 | |||||||||||||
Dividend
reinvestment plan
|
||||||||||||||||
(shares: 53,272 –
2010; 70,839 – 2009)
|
107 | 141 | ||||||||||||||
Stock
purchase and compensation plans
|
||||||||||||||||
(shares: 218,525 –
2010; 233,878 – 2009)
|
437 | 468 | ||||||||||||||
End
of period
|
192,190 | 191,136 | ||||||||||||||
Additional
paid-in capital:
|
||||||||||||||||
Beginning
of year
|
231,933 | 217,195 | ||||||||||||||
Dividend
reinvestment plan
|
733 | 751 | ||||||||||||||
Stock
purchase and compensation plans
|
6,675 | 7,447 | ||||||||||||||
End
of period
|
239,341 | 225,393 | ||||||||||||||
Retained
earnings:
|
||||||||||||||||
Beginning
of year
|
1,138,978 | 1,128,149 | ||||||||||||||
Cumulative
effect adjustment due to adoption of other-than-temporary impairment
guidance under ASC 320, net of deferred income tax
|
- | 2,380 | ||||||||||||||
Net
income
|
24,569 | 24,569 | 2,811 | 2,811 | ||||||||||||
Cash
dividends to stockholders ($0.26 per share – 2010; $0.26 per share –
2009)
|
(14,160 | ) | (13,924 | ) | ||||||||||||
End
of period
|
1,149,387 | 1,119,416 | ||||||||||||||
Accumulated
other comprehensive income (loss):
|
||||||||||||||||
Beginning
of year
|
(12,460 | ) | (100,666 | ) | ||||||||||||
Cumulative-effect
adjustment due to adoption of other-than-temporary impairment guidance
under ASC 320, net of deferred income tax
|
- | (2,380 | ) | |||||||||||||
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
|
3,830 | (18 | ) | |||||||||||||
Other
net unrealized gains on investment securities, net of deferred income
tax
|
25,044 | 60,306 | ||||||||||||||
Total
unrealized gains on investment securities
|
28,874 | 28,874 | 60,288 | 60,288 | ||||||||||||
Defined
benefit pension plans, net of deferred income tax
|
1,412 | 1,412 | 571 | 571 | ||||||||||||
End
of period
|
17,826 | (42,187 | ) | |||||||||||||
Comprehensive
income
|
54,855 | 63,670 | ||||||||||||||
Treasury
stock:
|
||||||||||||||||
Beginning
of year
|
(547,722 | ) | (544,712 | ) | ||||||||||||
Acquisition
of treasury stock
|
||||||||||||||||
(shares: 97,816 –
2010; 170,540 – 2009)
|
(1,518 | ) | (2,671 | ) | ||||||||||||
End
of period
|
(549,240 | ) | (547,383 | ) | ||||||||||||
Total
stockholders’ equity
|
$ | 1,049,504 | 946,375 |
Six
Months ended
|
||||||||
June
30,
|
||||||||
($
in thousands)
|
2010
|
2009
|
||||||
Operating
Activities
|
||||||||
Net
Income
|
$ | 24,569 | 2,811 | |||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
14,805 | 13,910 | ||||||
Loss
on disposal of discontinued operations
|
2,115 | - | ||||||
Stock-based
compensation expense
|
7,964 | 5,599 | ||||||
Undistributed
(income) losses of equity method investments
|
(4,841 | ) | 29,404 | |||||
Net
realized losses
|
3,328 | 35,319 | ||||||
Postretirement
life curtailment benefit
|
- | (4,217 | ) | |||||
Unrealized
gain on trading securities
|
- | (262 | ) | |||||
Deferred
tax benefit
|
(6,355 | ) | (15,093 | ) | ||||
Changes
in assets and liabilities:
|
||||||||
Increase
in reserves for losses and loss expenses, net of reinsurance
recoverables
|
48,870 | 21,742 | ||||||
Increase
in unearned premiums, net of prepaid reinsurance and advance
premiums
|
13,252 | 18,894 | ||||||
(Increase)
decrease in net federal income tax recoverable
|
(3,025 | ) | 15,639 | |||||
Increase
in premiums receivable
|
(22,519 | ) | (17,697 | ) | ||||
Decrease
(increase) in deferred policy acquisition costs
|
401 | (5,697 | ) | |||||
(Increase)
decrease in interest and dividends due or accrued
|
(206 | ) | 1,086 | |||||
Decrease
in accrued salaries and benefits
|
(2,282 | ) | (14,573 | ) | ||||
Decrease
in accrued insurance expenses
|
(10,003 | ) | (7,703 | ) | ||||
Sale
of trading securities
|
- | 2,831 | ||||||
Other-net
|
(7,862 | ) | (8,002 | ) | ||||
Net
adjustments
|
33,642 | 71,180 | ||||||
Net
cash provided by operating activities
|
58,211 | 73,991 | ||||||
Investing
Activities
|
||||||||
Purchase
of fixed maturity securities, held-to-maturity
|
- | (157,752 | ) | |||||
Purchase
of fixed maturity securities, available-for-sale
|
(396,076 | ) | (512,726 | ) | ||||
Purchase
of equity securities, available-for-sale
|
(30,974 | ) | (75,609 | ) | ||||
Purchase
of other investments
|
(11,150 | ) | (10,595 | ) | ||||
Purchase
of short-term investments
|
(956,904 | ) | (1,160,667 | ) | ||||
Sale
of subsidiary
|
788 | - | ||||||
Sale
of fixed maturity securities, held-to-maturity
|
- | 5,622 | ||||||
Sale
of fixed maturity securities, available-for-sale
|
128,110 | 371,667 | ||||||
Sale
of short-term investments
|
826,853 | 1,163,746 | ||||||
Redemption
and maturities of fixed maturity securities,
held-to-maturity
|
171,900 | 123,213 | ||||||
Redemption
and maturities of fixed maturity securities,
available-for-sale
|
165,513 | 63,897 | ||||||
Sale
of equity securities, available-for-sale
|
56,247 | 123,269 | ||||||
Proceeds
from other investments
|
15,152 | 15,498 | ||||||
Purchase
of property and equipment
|
(2,570 | ) | (2,986 | ) | ||||
Net
cash used in investment activities
|
(33,111 | ) | (53,423 | ) | ||||
Financing
Activities
|
||||||||
Dividends
to stockholders
|
(12,999 | ) | (13,378 | ) | ||||
Acquisition
of treasury stock
|
(1,518 | ) | (2,671 | ) | ||||
Principal
payment of notes payable
|
(12,300 | ) | (12,300 | ) | ||||
Net
proceeds from stock purchase and compensation plans
|
2,310 | 2,402 | ||||||
Excess
tax benefits from share-based payment arrangements
|
(813 | ) | (1,158 | ) | ||||
Net
cash used in financing activities
|
(25,320 | ) | (27,105 | ) | ||||
Net
decrease in cash and cash equivalents
|
(220 | ) | (6,537 | ) | ||||
Net
decrease in cash and cash equivalents from discontinued
operations
|
- | (3,654 | ) | |||||
Net
decrease in cash from continuing operations
|
(220 | ) | (2,883 | ) | ||||
Cash
from continuing operations, beginning of year
|
811 | 3,606 | ||||||
Cash
from continuing operations, end of period
|
$ | 591 | 723 |
NOTE
1.
|
Organization
|
|
·
|
Insurance
Operations, which sells property and casualty insurance products and
services primarily in 22 states in the Eastern and Midwestern U.S.;
and
|
|
·
|
Investments.
|
NOTE
2.
|
Basis
of Presentation
|
NOTE
3.
|
Reclassification
|
NOTE
4.
|
Adoption
of Accounting Pronouncements
|
NOTE 5.
|
Statements of Cash
Flow
|
Six
Months ended June 30,
|
||||||||
($
in thousands)
|
2010
|
2009
|
||||||
Cash
paid (received) during the period for:
|
||||||||
Interest
|
$ | 9,649 | 10,004 | |||||
Federal
income tax
|
14,000 | (10,500 | ) |
NOTE
6.
|
Investments
|
June
30, 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
|
$ | 96,554 | 5,101 | 101,655 | 4,978 | - | 106,633 | |||||||||||||||||
Obligations
of state and political subdivisions
|
1,045,033 | 27,185 | 1,072,218 | 23,952 | (896 | ) | 1,095,274 | |||||||||||||||||
Corporate
securities
|
94,400 | (4,575 | ) | 89,825 | 10,063 | (427 | ) | 99,461 | ||||||||||||||||
Asset-backed
securities (“ABS”)
|
19,855 | (2,976 | ) | 16,879 | 2,496 | (16 | ) | 19,359 | ||||||||||||||||
Commercial
mortgage-backed securities (“CMBS”)1
|
71,404 | (9,362 | ) | 62,042 | 6,866 | (1,175 | ) | 67,733 | ||||||||||||||||
Residential
mortgage-backed securities (“RMBS”)2
|
117,593 | 1,670 | 119,263 | 3,252 | (104 | ) | 122,411 | |||||||||||||||||
Total
HTM fixed maturity securities
|
$ | 1,444,839 | 17,043 | 1,461,882 | 51,607 | (2,618 | ) | 1,510,871 |
December
31, 2009
|
Net
|
|||||||||||||||||||||||
Unrealized
|
Unrecognized
|
Unrecognized
|
||||||||||||||||||||||
Amortized
|
Gains
|
Carrying
|
Holding
|
Holding
|
Fair
|
|||||||||||||||||||
($
in thousands)
|
Cost
|
(Losses)
|
Value
|
Gains
|
Losses
|
Value
|
||||||||||||||||||
U.S.
government and government agencies
|
$ | 139,278 | 5,555 | 144,833 | 1,694 | (549 | ) | 145,978 | ||||||||||||||||
Obligations
of state and political
|
||||||||||||||||||||||||
subdivisions
|
1,167,461 | 33,951 | 1,201,412 | 14,833 | (5,450 | ) | 1,210,795 | |||||||||||||||||
Corporate
securities
|
104,854 | (6,028 | ) | 98,826 | 9,665 | (913 | ) | 107,578 | ||||||||||||||||
ABS
|
35,025 | (6,042 | ) | 28,983 | 4,195 | (82 | ) | 33,096 | ||||||||||||||||
CMBS1
|
107,812 | (18,836 | ) | 88,976 | 7,132 | (3,658 | ) | 92,450 | ||||||||||||||||
RMBS2
|
146,124 | 1,249 | 147,373 | 3,153 | (212 | ) | 150,314 | |||||||||||||||||
Total
HTM fixed maturity securities
|
$ | 1,700,554 | 9,849 | 1,710,403 | 40,672 | (10,864 | ) | 1,740,211 |
June
30, 2010
|
||||||||||||||||
Cost/
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
($
in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S.
government and government agencies1
|
$ | 383,161 | 9,454 | - | 392,615 | |||||||||||
Obligations
of states and political subdivisions
|
441,307 | 24,285 | (20 | ) | 465,572 | |||||||||||
Corporate
securities
|
616,030 | 33,358 | (1,666 | ) | 647,722 | |||||||||||
ABS
|
31,781 | 1,261 | (331 | ) | 32,711 | |||||||||||
CMBS2
|
83,088 | 3,978 | (4,161 | ) | 82,905 | |||||||||||
RMBS3
|
243,629 | 8,505 | (3,276 | ) | 248,858 | |||||||||||
AFS
fixed maturity securities
|
1,798,996 | 80,841 | (9,454 | ) | 1,870,383 | |||||||||||
AFS
equity securities
|
59,859 | 5,416 | (4,287 | ) | 60,988 | |||||||||||
Total
AFS securities
|
$ | 1,858,855 | 86,257 | (13,741 | ) | 1,931,371 |
December
31, 2009
|
||||||||||||||||
Cost/
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
($
in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S.
government and government agencies1
|
$ | 473,750 | 2,994 | (1,210 | ) | 475,534 | ||||||||||
Obligations
of states and political subdivisions
|
359,517 | 20,419 | (137 | ) | 379,799 | |||||||||||
Corporate
securities
|
365,500 | 15,330 | (1,246 | ) | 379,584 | |||||||||||
ABS
|
26,638 | 466 | (57 | ) | 27,047 | |||||||||||
CMBS2
|
93,514 | 1,746 | (637 | ) | 94,623 | |||||||||||
RMBS3
|
297,537 | 2,457 | (20,712 | ) | 279,282 | |||||||||||
AFS
fixed maturity securities
|
1,616,456 | 43,412 | (23,999 | ) | 1,635,869 | |||||||||||
AFS
equity securities
|
64,390 | 16,484 | (610 | ) | 80,264 | |||||||||||
Total
AFS securities
|
$ | 1,680,846 | 59,896 | (24,609 | ) | 1,716,133 |
June 30, 2010
|
Less than 12 months
|
12 months or longer1
|
||||||||||||||
($
in thousands)
|
Fair Value
|
Unrealized
Losses2
|
Fair Value
|
Unrealized
Losses2
|
||||||||||||
AFS securities
|
||||||||||||||||
Obligations
of states and political subdivisions
|
$ | 10,716 | (20 | ) | - | - | ||||||||||
Corporate
securities
|
16,925 | (1,666 | ) | - | - | |||||||||||
ABS
|
1,069 | (2 | ) | 925 | (329 | ) | ||||||||||
CMBS
|
- | - | 9,141 | (4,161 | ) | |||||||||||
RMBS
|
6,324 | (73 | ) | 35,397 | (3,203 | ) | ||||||||||
Total
fixed maturity securities
|
35,034 | (1,761 | ) | 45,463 | (7,693 | ) | ||||||||||
Equity
securities
|
31,437 | (3,684 | ) | 2,803 | (603 | ) | ||||||||||
Subtotal
|
$ | 66,471 | (5,445 | ) | 48,266 | (8,296 | ) |
Less
than 12 months
|
12
months or longer1
|
|||||||||||||||||||||||
Unrecognized
|
Unrecognized
|
|||||||||||||||||||||||
($
in thousands)
|
Fair
Value
|
Unrealized
Losses2
|
Gains
(Losses)3
|
Fair
Value
|
Unrealized
Losses2
|
Gains
(Losses)3
|
||||||||||||||||||
HTM securities
|
||||||||||||||||||||||||
Obligations
of states and political subdivisions
|
$ | 14,944 | (426 | ) | 318 | 62,715 | (3,792 | ) | 1,843 | |||||||||||||||
Corporate
securities
|
2,220 | (595 | ) | 566 | 7,813 | (1,514 | ) | 1,300 | ||||||||||||||||
ABS
|
- | - | - | 6,981 | (2,136 | ) | 1,323 | |||||||||||||||||
CMBS
|
- | - | - | 10,447 | (6,823 | ) | 1,526 | |||||||||||||||||
RMBS
|
- | - | - | 5,961 | (160 | ) | (94 | ) | ||||||||||||||||
Subtotal
|
$ | 17,164 | (1,021 | ) | 884 | 93,917 | (14,425 | ) | 5,898 | |||||||||||||||
Total
AFS and HTM
|
$ | 83,635 | (6,466 | ) | 884 | 142,183 | (22,721 | ) | 5,898 |
December
31, 2009
|
Less
than 12 months1
|
12
months or longer1
|
||||||||||||||
($
in thousands)
|
Fair
Value
|
Unrealized
Losses2
|
Fair
Value
|
Unrealized
Losses2
|
||||||||||||
AFS securities
|
||||||||||||||||
U.S.
government and government agencies4
|
$ | 187,283 | (1,210 | ) | - | - | ||||||||||
Obligations
of states and political subdivisions
|
8,553 | (120 | ) | 3,059 | (17 | ) | ||||||||||
Corporate
securities
|
74,895 | (829 | ) | 10,550 | (417 | ) | ||||||||||
ABS
|
2,983 | (17 | ) | 3,960 | (40 | ) | ||||||||||
CMBS
|
36,447 | (637 | ) | - | - | |||||||||||
RMBS
|
78,328 | (514 | ) | 53,607 | (20,198 | ) | ||||||||||
Total
fixed maturity securities
|
388,489 | (3,327 | ) | 71,176 | (20,672 | ) | ||||||||||
Equity
securities
|
3,828 | (214 | ) | 5,932 | (396 | ) | ||||||||||
Subtotal
|
$ | 392,317 | (3,541 | ) | 77,108 | (21,068 | ) |
Less
than 12 months1
|
12
months or longer1
|
|||||||||||||||||||||||
Unrecognized
|
Unrecognized
|
|||||||||||||||||||||||
($
in thousands)
|
Fair
Value
|
Unrealized
Losses2
|
Gains
(Losses)3
|
Fair
Value
|
Unrealized
Losses2
|
Gains
(Losses)3
|
||||||||||||||||||
HTM securities
|
||||||||||||||||||||||||
U.S.
government and government agencies4
|
$ | 29,459 | - | (317 | ) | - | - | - | ||||||||||||||||
Obligations
of states and political subdivisions
|
46,671 | (598 | ) | 85 | 74,360 | (4,315 | ) | 1,631 | ||||||||||||||||
Corporate
securities
|
6,124 | (1,170 | ) | 1,068 | 19,233 | (4,751 | ) | 3,441 | ||||||||||||||||
ABS
|
- | - | - | 13,343 | (4,968 | ) | 2,472 | |||||||||||||||||
CMBS
|
316 | (538 | ) | (190 | ) | 22,044 | (15,315 | ) | (879 | ) | ||||||||||||||
RMBS
|
5,068 | - | (146 | ) | 5,892 | (1,062 | ) | 127 | ||||||||||||||||
Subtotal
|
$ | 87,638 | (2,306 | ) | 500 | 134,872 | (30,411 | ) | 6,792 | |||||||||||||||
Total
AFS and HTM
|
$ | 479,955 | (5,847 | ) | 500 | 211,980 | (51,479 | ) | 6,792 |
|
·
|
AFS
CMBS with an unrealized loss balance of $4.2
million;
|
|
·
|
AFS
RMBS with an unrealized loss balance of $3.2
million;
|
|
·
|
HTM
CMBS with an unrealized/unrecognized loss balance of $5.3 million;
and
|
|
·
|
All
other fixed maturity securities with an unrealized/unrecognized loss
balance of $3.6 million.
|
|
·
|
$3.1
million of non-credit OTTI charges that have been recognized in
AOCI. These non-credit impairment charges were generated
concurrently with credit-related charges. Prior to their
initial impairment, these securities had a decline in fair value of 73%,
or $11.1 million, as compared to their amortized
cost.
|
|
·
|
$1.1
million in unrealized losses not related to OTTI charges. These
securities had a decline in fair value of 16%, or $1.1 million, as
compared to their amortized cost at June 30,
2010.
|
|
·
|
$0.6
million of non-credit OTTI charges that have been recognized in
AOCI. These non-credit impairment charges were generated
concurrently with credit-related
charges.
|
|
·
|
$2.6
million in unrealized losses not related to OTTI charges. These
securities had a decline in fair value of 9% as compared to their
amortized cost at June 30, 2010.
|
|
·
|
$1.5
million of non-credit OTTI charges that have been recognized in
AOCI. These non-credit impairment charges were generated
concurrently with credit-related charges. Prior to their
initial impairment, these securities had a decline in fair value of 93%,
or $2.6 million, as compared to their amortized
cost.
|
|
·
|
$3.8
million in unrealized/unrecognized losses not related to OTTI
charges. These securities had a decline in fair value of 27%,
as compared to their amortized cost as of June 30,
2010.
|
($
in thousands)
|
Carrying Value
|
Fair Value
|
||||||
Due
in one year or less
|
$ | 211,156 | 211,901 | |||||
Due
after one year through five years
|
753,786 | 783,329 | ||||||
Due
after five years through 10 years
|
467,768 | 484,255 | ||||||
Due
after 10 years
|
29,172 | 31,386 | ||||||
Total
HTM fixed maturity securities
|
$ | 1,461,882 | 1,510,871 |
($
in thousands)
|
Fair
Value
|
|||
Due
in one year or less
|
$ | 138,565 | ||
Due
after one year through five years
|
1,090,827 | |||
Due
after five years through 10 years
|
611,762 | |||
Due
after 10 years
|
29,229 | |||
Total
AFS fixed maturity securities
|
$ | 1,870,383 |
Other
Investments
|
Carrying
Value
|
June
30,
2010
|
||||||||||
June
30,
|
December
31,
|
Remaining
|
||||||||||
($
in thousands)
|
2010
|
2009
|
Commitment
|
|||||||||
Alternative
Investments
|
||||||||||||
Energy/Power
Generation
|
$ | 34,294 | 32,996 | 12,317 | ||||||||
Secondary
Private Equity
|
27,949 | 20,936 | 22,222 | |||||||||
Private
Equity
|
23,172 | 21,525 | 15,963 | |||||||||
Mezzanine
Financing
|
23,033 | 20,323 | 26,119 | |||||||||
Distressed
Debt
|
19,908 | 19,201 | 4,611 | |||||||||
Real
Estate
|
15,779 | 16,856 | 12,188 | |||||||||
Venture
Capital
|
6,422 | 5,752 | 1,400 | |||||||||
Total
Alternative Investments
|
150,557 | 137,589 | 94,820 | |||||||||
Other
Securities
|
2,918 | 3,078 | - | |||||||||
Total
Other Investments
|
$ | 153,475 | 140,667 | 94,820 |
Quarter
ended
|
Six
Months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Fixed
maturity securities
|
$ | 32,977 | 35,972 | 66,173 | 72,233 | |||||||||||
Equity
securities
|
480 | 496 | 932 | 1,011 | ||||||||||||
Trading
securities
|
- | - | - | 262 | ||||||||||||
Short-term
investments
|
133 | 312 | 233 | 924 | ||||||||||||
Other
investments
|
4,884 | (8,787 | ) | 8,816 | (29,164 | ) | ||||||||||
Investment
expenses
|
(1,929 | ) | (1,625 | ) | (4,903 | ) | (3,181 | ) | ||||||||
Net
investment income earned
|
$ | 36,545 | 26,368 | 71,251 | 42,085 |
Second
Quarter 2010
($
in thousands)
|
Gross
|
Included in Other
Comprehensive
Income (“OCI”)
|
Recognized in
Earnings
|
|||||||||
Fixed
maturity securities
|
||||||||||||
CMBS
|
$ | 3,405 | 569 | 2,836 | ||||||||
RMBS
|
2,085 | (591 | ) | 2,676 | ||||||||
Total
fixed maturity securities
|
5,490 | (22 | ) | 5,512 | ||||||||
Equity
securities
|
672 | - | 672 | |||||||||
OTTI
losses
|
$ | 6,162 | (22 | ) | 6,184 |
Second
Quarter 2009
($
in thousands)
|
Gross
|
Included
in OCI
|
Recognized in
Earnings
|
|||||||||
Fixed
maturity securities
|
||||||||||||
Corporate
securities
|
$ | 1,270 | - | 1,270 | ||||||||
ABS
|
376 | (826 | ) | 1,202 | ||||||||
CMBS
|
1,417 | 706 | 711 | |||||||||
RMBS
|
8,830 | 179 | 8,651 | |||||||||
Total
fixed maturity securities
|
11,893 | 59 | 11,834 | |||||||||
Equity
securities
|
641 | - | 641 | |||||||||
OTTI
losses
|
$ | 12,534 | 59 | 12,475 |
Six
Months 2010
($
in thousands)
|
Gross
|
Included
in OCI
|
Recognized in
Earnings
|
|||||||||
Fixed
maturity securities
|
||||||||||||
ABS
|
$ | 158 | 127 | 31 | ||||||||
CMBS
|
3,445 | (2,052 | ) | 5,497 | ||||||||
RMBS
|
7,960 | (264 | ) | 8,224 | ||||||||
Total
fixed maturity securities
|
11,563 | (2,189 | ) | 13,752 | ||||||||
Equity
securities
|
672 | - | 672 | |||||||||
OTTI
losses
|
$ | 12,235 | (2,189 | ) | 14,424 |
Six
Months 2009
($
in thousands)
|
Gross
|
Included
in OCI
|
Recognized in
Earnings
|
|||||||||
Fixed
maturity securities
|
||||||||||||
Corporate
securities
|
$ | 1,270 | - | 1,270 | ||||||||
ABS
|
1,527 | (826 | ) | 2,353 | ||||||||
CMBS
|
1,417 | 706 | 711 | |||||||||
RMBS
|
33,975 | 179 | 33,796 | |||||||||
Total
fixed maturity securities
|
38,189 | 59 | 38,130 | |||||||||
Equity
securities
|
1,445 | - | 1,445 | |||||||||
OTTI
losses
|
$ | 39,634 | 59 | 39,575 |
Second
Quarter 2010
($
in thousands)
|
Gross
|
|||
Balance,
March 31, 2010
|
$ | 24,737 | ||
Addition
for the amount related to credit loss for which an OTTI was not previously
recognized
|
2,004 | |||
Reductions
for securities sold during the period
|
(2,990 | ) | ||
Reductions
for securities for which the amount previously recognized in OCI was
recognized in earnings
|
||||
because
of intention or potential requirement to sell before recovery of amortized
cost
|
- | |||
Reductions
for securities for which the entire amount previously recognized in OCI
was recognized in
|
||||
earnings
due to a decrease in cash flows expected
|
(4,358 | ) | ||
Additional
increases to the amount related to credit loss for which an OTTI was
previously recognized
|
950 | |||
Accretion
of credit loss impairments previously recognized due to an increase in
cash flows expected to be collected
|
- | |||
Balance,
June 30, 2010
|
$ | 20,343 |
Second
Quarter 2009
($
in thousands)
|
Gross
|
|||
Balance,
March 31, 2009
|
$ | - | ||
Addition
for the amount related to credit loss for which an OTTI was not previously
recognized
|
9,647 | |||
Reductions
for securities sold during the period
|
- | |||
Reductions
for securities for which the amount previously recognized in OCI was
recognized in earnings
|
||||
because
of intention or potential requirement to sell before recovery of amortized
cost
|
- | |||
Reductions
for securities for which the entire amount previously recognized in OCI
was recognized in
|
||||
earnings
due to a decrease in cash flows expected
|
- | |||
Additional
increases to the amount related to credit loss for which an OTTI was
previously recognized
|
1,996 | |||
Accretion
of credit loss impairments previously recognized due to an increase in
cash flows expected
|
||||
to
be collected
|
- | |||
Balance,
June 30, 2009
|
$ | 11,643 |
Six
Months 2010
($
in thousands)
|
Gross
|
|||
Balance,
December 31, 2009
|
$ | 22,189 | ||
Addition
for the amount related to credit loss for which an OTTI was not previously
recognized
|
2,134 | |||
Reductions
for securities sold during the period
|
(2,990 | ) | ||
Reductions
for securities for which the amount previously recognized in OCI was
recognized in earnings
|
||||
because
of intention or potential requirement to sell before recovery of amortized
cost
|
- | |||
Reductions
for securities for which the entire amount previously recognized in OCI
was recognized in
|
||||
earnings
due to a decrease in cash flows expected
|
(4,652 | ) | ||
Additional
increases to the amount related to credit loss for which an OTTI was
previously recognized
|
3,662 | |||
Accretion
of credit loss impairments previously recognized due to an increase in
cash flows expected
|
||||
to
be collected
|
- | |||
Balance,
June 30, 2010
|
$ | 20,343 |
|
·
|
$2.7
million and $8.2 million of RMBS credit OTTI charges in Second Quarter and
Six Months 2010, respectively. The Second Quarter 2010 charges related to
declines in the related cash flows of the collateral support. Based on our
analysis, we do not believe it is probable that we will receive all
contractual cash flows for these securities. In addition to the Second
Quarter 2010 charges, losses in Six Months 2010 were largely driven by
impairments on two securities in the first quarter of 2010 that we
intended to sell. We sold these securities in Second Quarter
2010.
|
|
·
|
$2.8
million and $5.5 million of CMBS credit OTTI charges in Second Quarter and
Six Months 2010, respectively. These charges were related to reductions in
the related cash flows of the underlying collateral of these securities.
These charges were associated with securities that had been previously
impaired but, over time, have shown little, if any, improvement in
valuations, poor net operating income performance of the underlying
properties, and, in some cases, an increase in over 60-day delinquency
rates. For Second Quarter 2010, these securities had, on average,
unrealized/unrecognized loss positions of approximately 87% of their
amortized cost. Based on our analysis, we do not believe it is probable
that we will receive all contractual cash flows for these
securities.
|
|
·
|
$0.7
million of equity OTTI charges in both Second Quarter and Six Months 2010.
These charges were driven primarily by one health care company which, due
to a recent recall of one of its products, has experienced a significant
decline in its share price. This coupled with the length of time this
security has been in an unrealized loss position makes a recovery to our
cost basis unlikely in the near
term.
|
|
·
|
$8.7
million and $33.8 million of RMBS credit OTTI charges in Second Quarter
and Six Months 2009, respectively. In Second Quarter 2009, credit charges
of $8.4 million related to one security for which we had the intent to
sell. For the remainder of the impairments, the charges related to
declines in the related cash flows of the collateral. Generally these
securities showed signs of loss at conditional default rates between 3.0
and 7.0 and had declines in their fair value of 61% as compared to their
amortized cost. Based on our assumptions of the expected default rates and
the value of the collateral, we did not believe it was probable that we
would receive all contractual cash flows for these
securities.
|
|
·
|
$0.7
million for both Second Quarter and Six Months 2009 of CMBS credit OTTI
charges. These charges related to declines in the related cash flows of
the collateral. These securities showed signs of loss at a conditional
default rate of 1.5
and had declines in fair value of 73% as compared to their
amortized cost.
Based on our assumptions of the expected default rates and the
value of the collateral, we did not believe it was probable that we would
receive all contractual cash flows for these
securities.
|
|
·
|
$1.2
million and $2.4 million of ABS credit OTTI charges in Second Quarter and
Six Months 2009, respectively. These charges related primarily to two
bonds from the same issuer that were previously written down, which
experienced a technical default in the first quarter of 2009 by violating
indenture covenants. There was no payment default on these securities, but
we believed a payment default was imminent and had recorded impairment
charges for the securities. These charges also included additional credit
impairment losses on another security that was previously written
down.
|
|
·
|
$1.3
million for Second Quarter and Six Months 2009 of corporate debt credit
OTTI charges. In assessing corporate debt securities for OTTI, we
evaluate, among other things, the issuer’s ability to meet its debt
obligations, the value of the company, and, if applicable, the value of
specific collateral securing the position. These charges were primarily
related to a financial institution issuer that we believed to be on the
verge of bankruptcy. This security was subsequently sold in the third
quarter of 2009 at an additional loss of $1.1
million.
|
|
·
|
$0.6
million and $1.4 million of equity OTTI charges in Second Quarter and Six
Months 2009, respectively, related to two banks, one energy company, and a
membership warehouse chain of stores. We believed the share price weakness
of these securities was more reflective of general overall financial
market conditions at that time, as we were not aware of any significant
deterioration in the fundamentals of these four companies. However, the
length of time these securities were in an unrealized loss position, and
the overall distressed trading levels of many coal stocks in the energy
sector, banking stocks in the financial services sector, and
retail/wholesale store stocks during the first half of 2009, made a
recovery to our cost basis unlikely in the near
term.
|
Quarter
ended
|
Six
Months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
HTM
fixed maturity securities
|
||||||||||||||||
Gains
|
$ | 368 | 112 | 412 | 138 | |||||||||||
Losses
|
(210 | ) | (125 | ) | (450 | ) | (294 | ) | ||||||||
AFS
fixed maturity securities
|
||||||||||||||||
Gains
|
325 | 9,090 | 4,782 | 13,598 | ||||||||||||
Losses
|
(7,558 | ) | (7,055 | ) | (7,589 | ) | (8,959 | ) | ||||||||
AFS
equity securities
|
||||||||||||||||
Gains
|
9,995 | 9,043 | 14,174 | 28,706 | ||||||||||||
Losses
|
- | (8,695 | ) | (233 | ) | (27,744 | ) | |||||||||
Other
investments
|
||||||||||||||||
Gains
|
- | - | - | - | ||||||||||||
Losses
|
- | (1,189 | ) | - | (1,189 | ) | ||||||||||
Total
other net realized investment gains
|
2,920 | 1,181 | 11,096 | 4,256 | ||||||||||||
Total
OTTI charges recognized in earnings
|
(6,184 | ) | (12,475 | ) | (14,424 | ) | (39,575 | ) | ||||||||
Total
net realized losses
|
$ | (3,264 | ) | (11,294 | ) | (3,328 | ) | (35,319 | ) |
Note
7.
|
Fair
Values Measurements
|
June
30, 2010
|
December
31, 2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
($
in thousands)
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||
Financial
Assets
|
||||||||||||||||
Fixed
maturity securities:
|
||||||||||||||||
HTM
|
$ | 1,461,882 | 1,510,871 | 1,710,403 | 1,740,211 | |||||||||||
AFS
|
1,870,383 | 1,870,383 | 1,635,869 | 1,635,869 | ||||||||||||
Equity
securities, AFS
|
60,988 | 60,988 | 80,264 | 80,264 | ||||||||||||
Short-term
investments
|
343,900 | 343,900 | 213,848 | 213,848 | ||||||||||||
Receivable
for proceeds related to sale of Selective
|
||||||||||||||||
HR
Solutions (“Selective HR”)
|
8,067 | 8,067 | - | - | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Notes
payable:1
|
||||||||||||||||
8.87%
Senior Notes Series B
|
- | - | 12,300 | 12,300 | ||||||||||||
7.25%
Senior Notes
|
49,902 | 50,965 | 49,900 | 49,505 | ||||||||||||
6.70%
Senior Notes
|
99,417 | 86,000 | 99,406 | 90,525 | ||||||||||||
7.50%
Junior Notes
|
100,000 | 92,040 | 100,000 | 83,680 | ||||||||||||
2.90%
borrowings from FHLBI
|
13,000 | 13,369 | 13,000 | 13,000 | ||||||||||||
Total
notes payable
|
$ | 262,319 | 242,374 | 274,606 | 249,010 |
|
·
|
The
fair values of the 7.25% Senior Notes due November 15, 2034, the 6.70%
Senior Notes due November 1, 2035, and the 7.5% Junior Subordinated Notes
due September 27, 2066, are based on quoted market
prices.
|
|
·
|
The
fair value of the 8.87% Senior Notes as of December 31, 2009 that matured
on May 4, 2010 was estimated to be its carrying value due to the close
proximity of this note’s maturity date to the balance sheet
date.
|
|
·
|
The
fair value of the 2.90% FHLBI borrowings is estimated using a discounted
cash flow analysis based on a current borrowing rate provided by the FHLBI
consistent with the remaining term of the
borrowing.
|
June
30, 2010
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices in
|
||||||||||||||||
Assets
|
Active
Markets for
|
Significant
Other
|
Significant
|
|||||||||||||
Measured
at
|
Identical
Assets/
|
Observable
|
Unobservable
|
|||||||||||||
Fair
Value
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
($
in thousands)
|
at
6/30/10
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
Description
|
||||||||||||||||
U.S.
government and government agencies1
|
$ | 392,615 | 105,781 | 286,834 | - | |||||||||||
Obligations
of states and political subdivisions
|
465,572 | - | 465,572 | - | ||||||||||||
Corporate
securities
|
647,722 | - | 647,722 | - | ||||||||||||
ABS
|
32,711 | - | 32,711 | - | ||||||||||||
CMBS
|
82,905 | - | 79,652 | 3,253 | ||||||||||||
RMBS
|
248,858 | - | 248,858 | - | ||||||||||||
Total
AFS fixed maturity securities
|
1,870,383 | 105,781 | 1,761,349 | 3,253 | ||||||||||||
Equity
securities
|
60,988 | 60,988 | - | - | ||||||||||||
Short-term
investments
|
343,900 | 343,900 | - | - | ||||||||||||
Measured
on a non-recurring basis:
|
||||||||||||||||
CMBS,
HTM
|
470 | - | - | 470 | ||||||||||||
RMBS,
HTM
|
5,865 | - | 5,865 | - | ||||||||||||
Receivable
for proceeds related to sale of Selective HR
|
8,067 | - | - | 8,067 | ||||||||||||
Total
assets
|
$ | 2,289,673 | 510,669 | 1,767,214 | 11,790 |
December
31, 2009
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices in
|
||||||||||||||||
Assets
|
Active
Markets for
|
Significant
Other
|
Significant
|
|||||||||||||
Measured
at
|
Identical
Assets/
|
Observable
|
Unobservable
|
|||||||||||||
Fair
Value
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
($
in thousands)
|
at
12/31/09
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
Description
|
||||||||||||||||
U.S.
government and government agencies1
|
$ | 475,534 | 52,361 | 423,173 | - | |||||||||||
Obligations
of states and political subdivisions
|
379,799 | - | 379,799 | - | ||||||||||||
Corporate
securities
|
379,584 | - | 379,584 | - | ||||||||||||
ABS
|
27,047 | - | 27,047 | - | ||||||||||||
CMBS
|
94,623 | - | 94,623 | - | ||||||||||||
RMBS
|
279,282 | - | 279,282 | - | ||||||||||||
Total
AFS fixed maturity securities
|
1,635,869 | 52,361 | 1,583,508 | - | ||||||||||||
Equity
securities
|
80,264 | 80,264 | - | - | ||||||||||||
Short-term
investments
|
213,848 | 213,848 | - | - | ||||||||||||
Measured
on a non-recurring basis:
|
||||||||||||||||
ABS,
HTM
|
2,412 | - | 2,412 | - | ||||||||||||
CMBS,
HTM
|
5,400 | - | 5,400 | - | ||||||||||||
Total
assets
|
$ | 1,937,793 | 346,473 | 1,591,320 | - |
|
·
|
As
the result of our OTTI analysis, we impaired approximately $6.3 million of
HTM securities down to fair value, which are typically not carried at fair
value. These securities consisted of: (i) one RMBS
security, fair valued at $5.9 million; and (ii) two CMBS, fair valued at
$0.5 million.
|
|
·
|
Due
to changes in assumptions regarding worksite life generation and
retention, we reduced the value of our receivable for the expected
proceeds from the sale of Selective HR, which we will receive over the
course of a 10-year period. This fair value was determined
using Level 3 pricing. The reduction in this receivable is
included in “Loss on disposal of discontinued operations” on the
Consolidated Statement of Income.
|
($
in thousands)
|
CMBS,
AFS
|
|||
Beginning
balance
|
$ | - | ||
Transfers in and/or out of Level 31
|
3,253 | |||
Fair
value, June 30, 2010
|
$ | 3,253 |
NOTE
8.
|
Reinsurance
|
Quarter
ended
|
Six
Months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Premiums
written:
|
||||||||||||||||
Direct
|
$ | 414,913 | 427,209 | 842,749 | 858,850 | |||||||||||
Assumed
|
947 | 2,560 | 6,189 | 7,361 | ||||||||||||
Ceded
|
(62,336 | ) | (64,506 | ) | (127,323 | ) | (125,165 | ) | ||||||||
Net
|
$ | 353,524 | 365,263 | 721,615 | 741,046 | |||||||||||
Premiums
earned:
|
||||||||||||||||
Direct
|
$ | 411,595 | 413,401 | 825,153 | 831,833 | |||||||||||
Assumed
|
4,682 | 5,213 | 11,700 | 10,733 | ||||||||||||
Ceded
|
(64,087 | ) | (60,303 | ) | (128,461 | ) | (120,382 | ) | ||||||||
Net
|
$ | 352,190 | 358,311 | 708,392 | 722,184 | |||||||||||
Losses
and loss expenses incurred:
|
||||||||||||||||
Direct
|
$ | 256,959 | 259,636 | 557,320 | 529,345 | |||||||||||
Assumed
|
3,023 | 3,348 | 4,923 | 7,073 | ||||||||||||
Ceded
|
(20,002 | ) | (23,935 | ) | (68,120 | ) | (45,175 | ) | ||||||||
Net
|
$ | 239,980 | 239,049 | 494,123 | 491,243 |
National
Flood Insurance Program
|
Quarter
ended
|
Six
Months ended
|
||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Ceded
premiums written
|
$ | (44,566 | ) | (46,413 | ) | $ | (90,458 | ) | (88,830 | ) | ||||||
Ceded
premiums earned
|
(45,495 | ) | (42,708 | ) | (89,980 | ) | (84,426 | ) | ||||||||
Ceded
losses and loss expenses incurred
|
(8,122 | ) | (9,222 | ) | (43,076 | ) | (11,100 | ) |
NOTE
9.
|
Segment
Information
|
|
·
|
Insurance
Operations, which is evaluated based on statutory underwriting results
(net premiums earned, incurred losses and loss expenses, policyholders
dividends, policy acquisition costs, and other underwriting expenses), and
statutory combined ratios; and
|
|
·
|
Investments,
which is evaluated based on net investment income and net realized gains
and losses.
|
Revenue
from continuing operations by segment
|
Quarter
ended
|
Six
Months ended
|
||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Insurance
Operations:
|
||||||||||||||||
Net
premiums earned:
|
||||||||||||||||
Commercial
automobile
|
$ | 73,176 | 75,339 | 147,492 | 151,185 | |||||||||||
Workers
compensation
|
62,069 | 66,590 | 126,710 | 136,967 | ||||||||||||
General liability
|
83,967 | 91,853 | 169,188 | 186,077 | ||||||||||||
Commercial
property
|
50,294 | 48,970 | 100,630 | 97,855 | ||||||||||||
Business owners’
policy
|
16,152 | 15,551 | 32,438 | 30,761 | ||||||||||||
Bonds
|
4,828 | 4,560 | 9,431 | 9,183 | ||||||||||||
Other
|
2,515 | 2,382 | 5,020 | 4,762 | ||||||||||||
Total commercial
lines
|
293,001 | 305,245 | 590,909 | 616,790 | ||||||||||||
Personal
automobile
|
35,243 | 33,034 | 69,563 | 65,886 | ||||||||||||
Homeowners
|
21,126 | 17,618 | 41,619 | 34,724 | ||||||||||||
Other
|
2,820 | 2,414 | 6,301 | 4,784 | ||||||||||||
Total personal
lines
|
59,189 | 53,066 | 117,483 | 105,394 | ||||||||||||
Total
net premiums earned
|
352,190 | 358,311 | 708,392 | 722,184 | ||||||||||||
Miscellaneous
income
|
2,231 | 3,797 | 4,497 | 5,063 | ||||||||||||
Total Insurance Operations
revenues
|
354,421 | 362,108 | 712,889 | 727,247 | ||||||||||||
Investments:
|
||||||||||||||||
Net investment
income
|
36,545 | 26,368 | 71,251 | 42,085 | ||||||||||||
Net realized loss on
investments
|
(3,264 | ) | (11,294 | ) | (3,328 | ) | (35,319 | ) | ||||||||
Total investment
revenues
|
33,281 | 15,074 | 67,923 | 6,766 | ||||||||||||
Total
all segments
|
387,702 | 377,182 | 780,812 | 734,013 | ||||||||||||
Other income
|
16 | 13 | 18 | 28 | ||||||||||||
Total
revenues from continuing operations
|
$ | 387,718 | 377,195 | 780,830 | 734,041 |
Income
(loss) from continuing operations, before federal income
tax
|
Quarter
ended
|
Six
Months ended
|
||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Insurance
Operations:
|
||||||||||||||||
Commercial lines
underwriting
|
$ | 3,305 | 8,186 | (7,667 | ) | 8,014 | ||||||||||
Personal lines
underwriting
|
(6,466 | ) | (2,154 | ) | (10,099 | ) | (4,945 | ) | ||||||||
Underwriting (loss) income, before
federal income tax
|
(3,161 | ) | 6,032 | (17,766 | ) | 3,069 | ||||||||||
GAAP
combined ratio
|
100.9 | % | 98.3 | 102.5 | % | 99.6 | ||||||||||
Statutory
combined ratio
|
101.0 | % | 98.8 | 101.9 | % | 99.5 | ||||||||||
Investments:
|
||||||||||||||||
Net investment
income
|
36,545 | 26,368 | 71,251 | 42,085 | ||||||||||||
Net realized loss on
investments
|
(3,264 | ) | (11,294 | ) | (3,328 | ) | (35,319 | ) | ||||||||
Total investment income, before
federal income tax
|
33,281 | 15,074 | 67,923 | 6,766 | ||||||||||||
Total
all segments
|
30,120 | 21,106 | 50,157 | 9,835 | ||||||||||||
Interest expense
|
(4,655 | ) | (4,843 | ) | (9,497 | ) | (9,867 | ) | ||||||||
General corporate and other
expenses
|
(2,617 | ) | (4,015 | ) | (10,165 | ) | (8,703 | ) | ||||||||
Income
(loss) from continuing operations, before federal income
tax
|
$ | 22,848 | 12,248 | 30,495 | (8,735 | ) |
NOTE
10.
|
Federal
Income Taxes
|
NOTE
11.
|
Retirement
Plans
|
Retirement
Income Plan
|
Retirement
Life Plan
|
|||||||||||||||
Quarter
ended June 30,
|
Quarter
ended June 30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Components
of Net Periodic Benefit Cost:
|
||||||||||||||||
Service cost
|
$ | 1,945 | 2,003 | - | - | |||||||||||
Interest cost
|
3,090 | 2,771 | 79 | 74 | ||||||||||||
Expected return on plan
assets
|
(2,810 | ) | (2,367 | ) | - | - | ||||||||||
Amortization of unrecognized
prior service cost
|
38 | 38 | 1 | - | ||||||||||||
Amortization of unrecognized net
loss
|
1,171 | 1,117 | - | - | ||||||||||||
Net periodic
cost
|
$ | 3,434 | 3,562 | 80 | 74 |
Retirement
Income Plan
|
Retirement
Life Plan
|
|||||||||||||||
Six
Months ended June 30,
|
Six
Months ended June 30,
|
|||||||||||||||
($
in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Components
of Net Periodic Benefit Cost:
|
||||||||||||||||
Service
cost
|
$ | 3,942 | 4,007 | - | 32 | |||||||||||
Interest
cost
|
6,015 | 5,542 | 158 | 191 | ||||||||||||
Expected
return on plan assets
|
(5,626 | ) | (4,734 | ) | - | - | ||||||||||
Amortization
of unrecognized prior service cost (credit)
|
75 | 75 | - | (44 | ) | |||||||||||
Amortization
of unrecognized net loss
|
2,095 | 2,235 | 3 | - | ||||||||||||
Curtailment
benefit
|
- | - | - | (4,217 | ) | |||||||||||
Net
periodic cost (benefit)
|
$ | 6,501 | 7,125 | 161 | (4,038 | ) |
Weighted-Average
Expense Assumptions for
the years ended December 31:
|
||||||||||||||||
Discount
rate
|
5.93 | % | 6.24 | 5.93 | % | 6.24 | ||||||||||
Expected
return on plan assets
|
8.00 | % | 8.00 | - | % | - | ||||||||||
Rate
of compensation increase
|
4.00 | % | 4.00 | 4.00 | % | 4.00 |
NOTE
12.
|
Comprehensive
Income
|
Second
Quarter 2010
|
||||||||||||
($
in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net
income
|
$ | 20,810 | 2,044 | 18,766 | ||||||||
Components
of other comprehensive income:
|
||||||||||||
Unrealized gains on
securities:
|
||||||||||||
Unrealized
holding gains during the period
|
31,498 | 11,024 | 20,474 | |||||||||
Portion
of OTTI recognized in OCI
|
3,617 | 1,265 | 2,352 | |||||||||
Amortization
of net unrealized losses on HTM securities
|
(802 | ) | (280 | ) | (522 | ) | ||||||
Reclassification
adjustment for losses included in net income
|
783 | 274 | 509 | |||||||||
Net
unrealized gains
|
35,096 | 12,283 | 22,813 | |||||||||
Defined
benefit pension plans:
|
||||||||||||
Reversal
of amortization items:
|
||||||||||||
Net
actuarial loss
|
1,172 | 411 | 761 | |||||||||
Prior
service credit
|
38 | 13 | 25 | |||||||||
Defined
benefit pension plans
|
1,210 | 424 | 786 | |||||||||
Comprehensive
income
|
$ | 57,116 | 14,751 | 42,365 |
Second
Quarter 2009
|
||||||||||||
($
in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net
income
|
$ | 12,631 | (3,057 | ) | 15,688 | |||||||
Components
of other comprehensive income:
|
||||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gains during the period
|
24,422 | 8,547 | 15,875 | |||||||||
Portion
of OTTI recognized in OCI
|
(27 | ) | (9 | ) | (18 | ) | ||||||
Amortization
of net unrealized gains on HTM securities
|
1,411 | 494 | 917 | |||||||||
Reclassification
adjustment for losses included in net income
|
9,368 | 3,279 | 6,089 | |||||||||
Net
unrealized gains
|
35,174 | 12,311 | 22,863 | |||||||||
Defined
benefit pension plans:
|
||||||||||||
Reversal
of amortization items:
|
||||||||||||
Net
actuarial loss
|
1,117 | 391 | 726 | |||||||||
Prior
service credit
|
38 | 14 | 24 | |||||||||
Defined
benefit pension plans
|
1,155 | 405 | 750 | |||||||||
Comprehensive
income
|
$ | 48,960 | 9,659 | 39,301 |
Six
Months 2010
|
||||||||||||
($
in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net
income
|
$ | 27,241 | 2,672 | 24,569 | ||||||||
Components
of other comprehensive income:
|
||||||||||||
Unrealized gains on
securities:
|
||||||||||||
Unrealized
holding gains during the period
|
46,698 | 16,344 | 30,354 | |||||||||
Portion
of OTTI recognized in OCI
|
5,892 | 2,062 | 3,830 | |||||||||
Amortization
of net unrealized losses on HTM securities
|
(6,555 | ) | (2,294 | ) | (4,261 | ) | ||||||
Reclassification
adjustment for gains included in net income
|
(1,614 | ) | (565 | ) | (1,049 | ) | ||||||
Net
unrealized gains
|
44,421 | 15,547 | 28,874 | |||||||||
Defined
benefit pension plans:
|
||||||||||||
Reversal
of amortization items:
|
||||||||||||
Net
actuarial loss
|
2,098 | 735 | 1,363 | |||||||||
Prior
service credit
|
75 | 26 | 49 | |||||||||
Defined
benefit pension plans
|
2,173 | 761 | 1,412 | |||||||||
Comprehensive
income
|
$ | 73,835 | 18,980 | 54,855 |
Six
Months 2009
|
||||||||||||
($
in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net
income
|
$ | (8,291 | ) | (11,102 | ) | 2,811 | ||||||
Components
of other comprehensive income:
|
||||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gains during the period
|
56,275 | 19,696 | 36,579 | |||||||||
Portion
of OTTI recognized in OCI
|
(27 | ) | (9 | ) | (18 | ) | ||||||
Amortization
of net unrealized gains on HTM securities
|
4,403 | 1,541 | 2,862 | |||||||||
Reclassification
adjustment for losses included in net income
|
32,100 | 11,235 | 20,865 | |||||||||
Net
unrealized gains
|
92,751 | 32,463 | 60,288 | |||||||||
Defined
benefit pension plans:
|
||||||||||||
Reversal
of amortization items:
|
||||||||||||
Net
actuarial loss
|
2,235 | 782 | 1,453 | |||||||||
Curtailment
benefit
|
(1,387 | ) | (485 | ) | (902 | ) | ||||||
Prior
service credit
|
31 | 11 | 20 | |||||||||
Defined
benefit pension plans
|
879 | 308 | 571 | |||||||||
Comprehensive
income
|
$ | 85,339 | 21,669 | 63,670 |
June
30, 2010
|
Defined
|
|||||||||||||||||||
Net
Unrealized Gain (Loss)
|
Benefit
|
Total
|
||||||||||||||||||
OTTI
|
HTM
|
All
|
Pension
|
Accumulated
|
||||||||||||||||
($
in thousands)
|
Related
|
Related
|
Other
|
Plans
|
OCI
|
|||||||||||||||
Balance,
December 31, 2009
|
$ | (8,009 | ) | 11,937 | 25,410 | (41,798 | ) | (12,460 | ) | |||||||||||
Changes
in component during period
|
3,830 | 631 | 24,413 | 1,412 | 30,286 | |||||||||||||||
Balance,
June 30, 2010
|
$ | (4,179 | ) | 12,568 | 49,823 | (40,386 | ) | 17,826 |
NOTE
13.
|
Commitments
and Contingencies
|
NOTE
14.
|
Litigation
|
NOTE
15.
|
Discontinued
Operations
|
($ in
thousands)
|
Second
Quarter
2009
|
Six
Months
2009
|
||||||
Net
revenue
|
$ | 11,054 | 23,773 | |||||
Pre-tax
profit
|
383 | 444 | ||||||
After-tax
profit
|
330 | 403 |
($ in
thousands)
|
Second
Quarter
2009
|
Six
Months
2009
|
||||||
Net
revenue
|
$ | 2,312 | 4,539 |
·
|
Critical
Accounting Policies and Estimates;
|
·
|
Financial
Highlights of Results for Second Quarter 2010 and Six Months
2010;
|
·
|
Results
of Operations and Related Information by
Segment;
|
·
|
Federal
Income Taxes;
|
·
|
Financial
Condition, Liquidity, and Capital
Resources;
|
·
|
Ratings;
|
·
|
Off-Balance
Sheet Arrangements; and
|
·
|
Contractual
Obligations and Contingent Liabilities and
Commitments.
|
Quarter
ended
|
Change
|
Six
Months ended
|
Change
|
|||||||||||||||||||||||
June
30,
|
%
or
|
June
30,
|
%
or
|
|||||||||||||||||||||||
(Shares
and $ in thousands, except per share amounts)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
GAAP
measures:
|
||||||||||||||||||||||||||
Revenues
|
$ | 387,718 | 377,195 | 3 |
%
|
$ | 780,830 | 734,041 | 6 |
%
|
||||||||||||||||
Pre-tax
net investment income
|
36,545 | 26,368 | 39 | 71,251 | 42,085 | 69 | ||||||||||||||||||||
Pre-tax
net income (loss)
|
20,810 | 12,631 | 65 | 27,241 | (8,291 | ) | 429 | |||||||||||||||||||
Net
income
|
18,766 | 15,688 | 20 | 24,569 | 2,811 | 774 | ||||||||||||||||||||
Diluted
net income per share
|
0.35 | 0.29 | 21 | 0.45 | 0.05 | 800 | ||||||||||||||||||||
Diluted
weighted-average outstanding shares2
|
54,361 | 53,234 | 2 | 54,289 | 53,181 | 2 | ||||||||||||||||||||
GAAP
combined ratio
|
100.9 | % | 98.3 | 2.6 |
pts
|
102.5 | % | 99.6 | 2.9 |
pts
|
||||||||||||||||
Statutory
combined ratio
|
101.0 | % | 98.8 | 2.2 | 101.9 | % | 99.5 | 2.4 | ||||||||||||||||||
Return
on average equity
|
7.3 | % | 6.8 | 0.5 | 4.8 | % | 0.6 | 4.2 | ||||||||||||||||||
Non-GAAP
measures:
|
||||||||||||||||||||||||||
Operating income3
|
$ | 22,212 | 22,700 | (2 | ) |
%
|
$ | 28,847 | 25,366 | 14 |
%
|
|||||||||||||||
Diluted operating
income per share3
|
0.41 | 0.42 | (2 | ) | 0.53 | 0.47 | 13 | |||||||||||||||||||
Operating return on
average equity3
|
8.6 | 9.8 | (1.2 | ) |
pts
|
5.6 | 5.5 | 0.1 |
pts
|
|
·
|
Pre-tax
net investment income earned, which increased by $10.2 million, to $36.5
million, primarily driven by income of $4.9 million on the alternative
investment portion of our investment portfolio in Second Quarter 2010,
compared to a loss on these investments of $8.9 million in Second Quarter
2009. Our alternative investments, which are accounted for
under the equity method, primarily consist of investments in limited
partnerships, the majority of which report results to us on a one quarter
lag. The improvement in returns on these investments is
reflective of the stabilization in the capital and credit markets as
compared to the same period last year. This increase was
partially offset by lower fixed maturity security income of $3.0 million,
resulting from lower reinvestment yields and an increase in lower yielding
short-term investments. For additional information on our other
investment portfolio and a discussion of the related strategies associated
with this portfolio, see Note 5. “Investments” in Item 8. “Financial
Statements and Supplementary Data” of our 2009 Annual
Report.
|
|
·
|
Net
realized losses, pre-tax, which decreased by $8.0 million, to $3.3
million, driven by lower pre-tax non-cash OTTI charges of $6.2 million
compared to OTTI charges of $12.5 million in Second Quarter
2009. See Note 6. “Investments” in Item 1. “Financial
Statements” of this Form 10-Q for additional information on net realized
gains and losses.
|
|
·
|
Pre-tax
underwriting losses of $3.2 million in Second Quarter 2010, compared to
pre-tax underwriting income of $6.0 million in Second Quarter 2009,
primarily attributable to an increase of $10.7 million of catastrophe
losses and $5.8 million of non-catastrophe property
losses. This increase was partially offset by favorable prior
year casualty development of approximately $11 million compared to
approximately $5 million in Second Quarter
2009.
|
|
·
|
Pre-tax
net investment income earned, which increased by $29.2 million, to $71.3
million, primarily driven by income of $8.8 million on the alternative
investment portion of our investment portfolio in Six Months 2010,
compared to a loss on these investments of $29.4 million in Six Months
2009. This increase was also partially offset by lower fixed
maturity security income of $6.1 million resulting from lower reinvestment
yields and an increase in lower yielding short-term investments, coupled
with increased investment expenses due to approximately $2.2 million of
costs incurred related to our decision to outsource our investment
portfolio management operations.
|
|
·
|
Net
realized losses, pre-tax, which decreased by $32.0 million, to $3.3
million, in Six Months 2010 driven by lower pre-tax non-cash OTTI charges
of $14.4 million in Six Months 2010 compared to OTTI
charges that were $39.6 million in Six Months
2009.
|
|
·
|
Pre-tax
underwriting losses of $17.8 million in Six Months 2010 compared to
pre-tax underwriting income of $3.1 million in Six Months 2009, primarily
attributable to an increase of $33.6 million in catastrophe
losses. This increase was partially offset by a decrease in
non-catastrophe property losses of $7.7 million and favorable prior year
casualty development of $20 million compared to approximately $16 million
in Six Months 2009.
|
Quarter
ended
June
30,
|
Six
Months ended
June
30,
|
|||||||||||||||
($
in thousands, except per share amounts)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Operating
income
|
$ | 22,212 | 22,700 | 28,847 | 25,366 | |||||||||||
Net
realized losses, after tax
|
(2,121 | ) | (7,342 | ) | (2,163 | ) | (22,958 | ) | ||||||||
Income
from discontinued operations, after tax
|
- | 330 | - | 403 | ||||||||||||
Loss
on disposal of discontinued operations, after tax
|
(1,325 | ) | - | (2,115 | ) | - | ||||||||||
Net
income
|
$ | 18,766 | 15,688 | 24,569 | 2,811 | |||||||||||
Diluted
operating income per share
|
$ | 0.41 | 0.42 | 0.53 | 0.47 | |||||||||||
Diluted
net realized losses per share
|
(0.04 | ) | (0.14 | ) | (0.04 | ) | (0.43 | ) | ||||||||
Diluted
(loss) income on disposal of discontinued operations per
share
|
(0.02 | ) | 0.01 | (0.04 | ) | 0.01 | ||||||||||
Diluted
net income per share
|
$ | 0.35 | 0.29 | 0.45 | 0.05 |
All
Lines
|
Quarter
ended
|
Change
|
Six
Months ended
|
Change
|
||||||||||||||||||||||
June
30,
|
%
or
|
June
30,
|
%
or
|
|||||||||||||||||||||||
($
in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
GAAP
Insurance Operations Results:
|
||||||||||||||||||||||||||
NPW
|
$ | 353,524 | 365,263 | (3 | ) |
%
|
721,615 | 741,046 | (3 | ) |
%
|
|||||||||||||||
Net premiums earned
(“NPE”)
|
352,190 | 358,311 | (2 | ) | 708,392 | 722,184 | (2 | ) | ||||||||||||||||||
Less:
|
||||||||||||||||||||||||||
Losses and loss expenses
incurred
|
239,980 | 239,049 | - | 494,123 | 491,243 | 1 | ||||||||||||||||||||
Net underwriting expenses
incurred
|
114,727 | 112,418 | 2 | 229,896 | 226,595 | 1 | ||||||||||||||||||||
Dividends to
policyholders
|
644 | 812 | (21 | ) | 2,139 | 1,277 | 68 | |||||||||||||||||||
Underwriting (loss)
income
|
$ | (3,161 | ) | 6,032 | (152 | ) |
%
|
(17,766 | ) | 3,069 | (679 | ) |
%
|
|||||||||||||
GAAP
Ratios:
|
||||||||||||||||||||||||||
Loss and loss expense
ratio
|
68.1 | % | 66.7 | 1.4 |
pts
|
69.8 | % | 68.0 | 1.8 |
pts
|
||||||||||||||||
Underwriting expense
ratio
|
32.6 | % | 31.4 | 1.2 | 32.4 | % | 31.4 | 1.0 | ||||||||||||||||||
Dividends to policyholders
ratio
|
0.2 | % | 0.2 | - | 0.3 | % | 0.2 | 0.1 | ||||||||||||||||||
Combined ratio
|
100.9 | % | 98.3 | 2.6 | 102.5 | % | 99.6 | 2.9 | ||||||||||||||||||
Statutory
Ratios:
|
||||||||||||||||||||||||||
Loss and loss expense
ratio
|
68.1 | % | 66.7 | 1.4 | 69.7 | % | 68.0 | 1.7 | ||||||||||||||||||
Underwriting expense
ratio
|
32.7 | % | 31.9 | 0.8 | 31.9 | % | 31.3 | 0.6 | ||||||||||||||||||
Dividends to policyholders
ratio
|
0.2 | % | 0.2 | - | 0.3 | % | 0.2 | 0.1 | ||||||||||||||||||
Combined ratio
|
101.0 | % | 98.8 | 2.2 |
pts
|
101.9 | % | 99.5 | 2.4 |
pts
|
|
·
|
NPW
decreased in both Second Quarter and Six Months 2010 compared to Second
Quarter and Six Months 2009 due to economic conditions despite Commercial
Lines renewal pure price increases of 3.3% in both Second Quarter and Six
Months 2010. Through Six Months 2010, we have experienced the
most significant NPW decreases in our general liability and workers
compensation lines of business, which have experienced reduced levels of
exposure given the reductions in payroll and sales consistent with the
high level of unemployment and the difficult economy. These
factors are reflected in the
following:
|
|
o
|
Reductions
in new business premiums of $11.6 million, to $71.7 million, in Second
Quarter 2010 and $16.9 million, to $148.2 million, in Six Months
2010;
|
|
o
|
Audit
and endorsement return premium of $17.9 million and $36.2 million in
Second Quarter and Six Months 2010, respectively, compared to $19.7
million and $37.2 million in the comparable periods in 2009;
and
|
|
o
|
Commercial
Lines retention decrease of one point in both Second Quarter and Six
Months 2010, to 75% and 76%,
respectively.
|
|
·
|
NPE
decreases in Second Quarter and Six Months 2010 compared to the same
periods last year are consistent with the fluctuation in NPW for the
12-month period ended June 30, 2010 as compared to the 12-month period
ended June 30, 2009.
|
|
·
|
For
Second Quarter 2010 compared to Second Quarter 2009, the GAAP loss and
loss expense ratio increased 1.4 points, due to an increase in property
losses of $16.5 million, which included increased catastrophe losses of
$10.7 million, or 3.1 points, to $16.0 million, in Second Quarter
2010. The catastrophe losses in Second Quarter 2010 were driven
primarily by several wind and thunderstorm events that encompassed the
majority of our footprint. This was partially offset by favorable
prior year casualty development of approximately $11 million, or 3.1
points, compared to approximately $5 million, or 1.5 points, in Second
Quarter 2009. The development in Second Quarter 2010 was primarily
due to favorable results in our 2008 and prior accident years for our
general liability line of business and our 2007 through 2009 accident
years on our commercial automobile line of business. This favorable
development was partially offset by unfavorable development in our workers
compensation line due to pressure in our 2008 and 2009 accident years
resulting from higher claim severity. The favorable development in
Second Quarter 2009 was driven by our workers compensation line of
business.
|
|
·
|
The
increase in the GAAP underwriting expense ratio in Second Quarter and Six
Months 2010, compared to the same periods in the prior year, were
primarily due to premium
shortfalls.
|
|
·
|
A.M.
Best Company (“A.M. Best”) – A.M. Best is maintaining a stable
outlook on the industry looking forward, as they project that balance
sheet strength and liquidity will remain adequate in 2010. The
industry benefited from the recovery in the financial markets to post a
net profit in the first quarter of 2010. However, NPW continues to
deteriorate, falling 1.2% in the first quarter of 2010 amid sustained
competitive market conditions in the commercial lines market, weak
exposure growth, and excess capacity. The industry posted a combined
ratio of 101.0% during the period, which is a result of higher than
expected catastrophe losses primarily driven by the winter storms in the
northeast, offset by favorable prior year development. A.M. Best
believes that in 2010, the industry will continue to push personal line
rate increases; however, rates in commercial lines will experience a
slight decline. They continue to expect industry returns will be
strained through 2010 given an anticipated sluggish economic recovery, low
yields in the credit market, and the likelihood of higher catastrophe
losses that are anticipated to be roughly 4.0 points on the overall 2010
statutory combined ratio.
|
|
·
|
Fitch
Ratings (“Fitch”) – Fitch projected that they would be maintaining
their negative outlook over the next year, reflecting lingering economic
and financial uncertainty. In addition, Fitch projects an
industry-wide statutory combined ratio of 104.0% for 2010, reflecting
their belief that underwriting results will not improve significantly as
they project premiums will have insignificant growth. They
anticipate that underwriting results will be impacted by higher expense
ratios and less favorable reserve development, partially offset by a
return to historical average catastrophe loss
experience.
|
|
·
|
Standard
& Poor’s Financial Services (“S&P”) – Earlier this year
S&P reiterated their negative outlook on the commercial lines industry
citing that although the industry has reaped some benefit from the
economic recovery, commercial lines carriers are still dealing with low
premium rates and weak investment returns, problems that they faced before
the economic crisis began. They believe that rates will remain flat
to down slightly until the economic recovery gains momentum or a large
loss event serves as a catalyst for significant rate increases.
Absent a large loss event, they project that a material improvement in
pricing will not occur in 2010.
|
·
|
Continuing to
concentrate on our long-term strategy to improve profitability by
diversifying our mix of business and writing more non-contractor classes
of business, which typically experience lower volatility during economic
cycles. Through Six Months 2010, non-contractor new business
comprised 66% of Commercial Lines new business, up from 60% in Six Months
2009.
|
|
·
|
Deploying
second generation Commercial Lines predictive modeling tools that give our
underwriters additional information, enabling them to make better
decisions regarding individual account underwriting. These tools
also provide us with increased pricing granularity, allowing our agents
the ability to compete for the most attractive
accounts.
|
·
|
Continuing to manage
our book of business by balancing anticipated Commercial Lines pure price
increases with retention in a very competitive
marketplace.
|
|
·
|
Personal
Lines rate increases for 2010 which we believe could generate $14.8
million in additional premium annually. Despite increases to our
rates over the past several years, Personal Lines policy retention
increased by four points to 83% and new policy counts increased nearly 30%
from a year ago.
|
|
·
|
Implementing
our Claims Strategic Program, which focuses on enhancing areas of:
(i) workers compensation best practices and targeted case management; (ii)
litigation management; (iii) fraud detection and recovery recognition
through use of advanced systems analytics; (iv) claims automation; and (v)
vendor management. We believe that these initiatives will allow us
to maintain our reputation for superior claims service while enabling us
to leverage our current resources to increase the effectiveness and
efficiency of the claims area.
|
|
·
|
Sales
management efforts, including our market planning tools and leads
program. Our market planning tools allow us to identify and
strategically appoint additional independent agencies and hire or redeploy
agency management specialists (“AMS”) in under-penetrated
territories. We have continued to expand our independent agency
count, which now stands at approximately 980 agencies across our
footprint. These independent insurance agencies are serviced by
approximately 100 field-based AMSs who make hands-on underwriting
decisions on a daily basis. In addition, we use our predictive
modeling and business analytics to build tools that help our agents
identify potential new customers.
|
|
·
|
Technology
that allows agents and our field teams to input business seamlessly into
our systems, including our One & Done®
small business system and our xSELerate®
straight-through processing system. Average premiums of
approximately $328,000 per workday were processed through our One &
Done®
small business system during Second Quarter 2010, up 3% from Second
Quarter 2009. These technology-based systems complement our existing
underwriting group, giving them more time to focus on underwriting the
more technical accounts.
|
Commercial Lines
|
Quarter ended
|
Change
|
Six Months ended
|
Change
|
||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
GAAP
Insurance Operations Results:
|
||||||||||||||||||||||||||
NPW
|
$ | 286,882 | 306,630 | (6 | ) |
%
|
598,791 | 632,071 | (5 | ) |
%
|
|||||||||||||||
NPE
|
293,001 | 305,245 | (4 | ) | 590,909 | 616,790 | (4 | ) | ||||||||||||||||||
Less:
|
||||||||||||||||||||||||||
Losses
and loss expenses incurred
|
192,856 | 199,821 | (3 | ) | 401,077 | 411,566 | (3 | ) | ||||||||||||||||||
Net
underwriting expenses incurred
|
96,196 | 96,426 | - | 195,360 | 195,933 | - | ||||||||||||||||||||
Dividends
to policyholders
|
644 | 812 | (21 | ) | 2,139 | 1,277 | 68 | |||||||||||||||||||
Underwriting
income (loss)
|
$ | 3,305 | 8,186 | (60 | ) |
%
|
(7,667 | ) | 8,014 | (196 | ) |
%
|
||||||||||||||
GAAP
Ratios:
|
||||||||||||||||||||||||||
Loss
and loss expense ratio
|
65.8 | % | 65.5 | 0.3 |
pts
|
67.9 | % | 66.7 | 1.2 |
pts
|
||||||||||||||||
Underwriting
expense ratio
|
32.9 | % | 31.5 | 1.4 | 33.0 | % | 31.8 | 1.2 | ||||||||||||||||||
Dividends
to policyholders ratio
|
0.2 | % | 0.3 | (0.1 | ) | 0.4 | % | 0.2 | 0.2 | |||||||||||||||||
Combined
ratio
|
98.9 | % | 97.3 | 1.6 | 101.3 | % | 98.7 | 2.6 | ||||||||||||||||||
Statutory
Ratios:
|
||||||||||||||||||||||||||
Loss
and loss expense ratio
|
65.8 | % | 65.5 | 0.3 | 67.8 | % | 66.7 | 1.1 | ||||||||||||||||||
Underwriting
expense ratio
|
33.9 | % | 32.5 | 1.4 | 32.6 | % | 31.8 | 0.8 | ||||||||||||||||||
Dividends
to policyholders ratio
|
0.2 | % | 0.3 | (0.1 | ) | 0.4 | % | 0.2 | 0.2 | |||||||||||||||||
Combined
ratio
|
99.9 | % | 98.3 | 1.6 |
pts
|
100.8 | % | 98.7 | 2.1 |
pts
|
|
·
|
NPW
decreased in Second Quarter and Six Months 2010 compared to the same
periods last year due to the continued economic weakness and an ongoing
very competitive insurance marketplace. We have experienced the most
significant decreases in our general liability and workers compensation
lines of businesses due to reduced levels of exposure. This decrease
is evidenced by the following:
|
|
o
|
Reductions
in direct new business of $14.7 million, or 21%, to $55.2 million in the
Second Quarter 2010 and $23.5 million, or 17%, to $117.8 million in Six
Months 2010;
|
|
o
|
Reductions
in net renewals of $5.9 million, or 2%, to $264.2 million, including a
1-point decrease in policy retention that was 75% in Second Quarter 2010
compared to 76% in Second Quarter 2009. Net renewals decreased $9.5
million, or 2%, to $543.7 million in Six Months 2010, including a 1-point
decrease in retention, to 76%. These decreases were partially offset
by renewal pure price increases of 3.3% in both Second Quarter and Six
Months 2010 compared to a renewal pure price increase of 0.6% in Second
Quarter 2009 and a decrease of 0.1% in Six Months 2009;
and
|
|
o
|
Audit
and endorsement return premium during Second Quarter and Six Months 2010
was relatively flat compared to the same periods in 2009 at $18.1 million
and $36.6 million, respectively.
|
|
·
|
NPE
decreased in Second Quarter and Six Months 2010, consistent with the
fluctuation in NPW for the 12-month period ended June 30, 2010 as compared
to the 12-month period ended June 30,
2009.
|
·
|
The 0.3-point
increase in the GAAP loss and loss expense ratio in Second Quarter 2010
compared to Second Quarter 2009 was primarily attributable to catastrophe
losses of $11.0 million, or 3.7 points, in Second Quarter 2010 compared to
catastrophe losses of $3.8 million, or 1.2 points, in Second Quarter
2009. Second Quarter 2010 catastrophe losses were driven by 10 wind
and thunderstorm events. Partially offsetting the increases in
losses was approximately $12 million, or 4.1 points, of favorable casualty
prior year development in Second Quarter 2010 compared to approximately $6
million, or 2.1 points, in Second Quarter 2009. The development in
Second Quarter 2010 was primarily due to favorable results in our general
liability and commercial automobile lines, partially offset by adverse
development in our workers compensation line. The development in
Second Quarter 2009 was primarily due to favorable prior year development
in our workers compensation
line.
|
|
·
|
The
GAAP underwriting expense ratio increases in Second Quarter and Six Months
2010 compared to the same periods last year were primarily attributable to
declines in premiums earned.
|
Quarter ended
|
Change
|
Six Months ended
|
Change
|
|||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
Statutory
NPW
|
$ | 83,513 | 92,429 | (10 | ) |
%
|
173,047 | 192,233 | (10 | ) |
%
|
|||||||||||||||
Statutory
NPE
|
83,967 | 91,853 | (9 | ) | 169,188 | 186,077 | (9 | ) | ||||||||||||||||||
Statutory
combined ratio
|
93.5 | % | 103.7 | (10.2 | ) |
pts
|
93.2 | % | 104.0 | (10.8 | ) |
pts
|
||||||||||||||
%
of total statutory commercial NPW
|
29 | % | 30 | 29 | % | 30 |
Quarter ended
|
Change
|
Six Months ended
|
Change
|
|||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
Statutory
NPW
|
$ | 57,360 | 64,696 | (11 | ) |
%
|
129,543 | 136,872 | (5 | ) |
%
|
|||||||||||||||
Statutory
NPE
|
62,069 | 66,590 | (7 | ) | 126,710 | 136,967 | (7 | ) | ||||||||||||||||||
Statutory
combined ratio
|
127.4 | % | 100.9 | 26.5 |
pts
|
121.7 | % | 96.6 | 25.1 |
pts
|
||||||||||||||||
%
of total statutory commercial NPW
|
20 | % | 21 | 22 | % | 22 |
Quarter ended
|
Change
|
Six Months ended
|
Change
|
|||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
Statutory
NPW
|
$ | 72,770 | 76,187 | (4 | ) |
%
|
148,255 | 156,046 | (5 | ) |
%
|
|||||||||||||||
Statutory
NPE
|
73,176 | 75,339 | (3 | ) | 147,492 | 151,185 | (2 | ) | ||||||||||||||||||
Statutory
combined ratio
|
87.9 | % | 99.0 | (11.1 | ) |
pts
|
89.4 | % | 97.6 | (8.2 | ) |
pts
|
||||||||||||||
%
of total statutory commercial NPW
|
25 | % | 25 | 25 | % | 25 |
Quarter ended
|
Change
|
Six Months ended
|
Change
|
|||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
Statutory
NPW
|
$ | 49,502 | 50,217 | (1 | ) |
%
|
99,641 | 100,451 | (1 | ) |
%
|
|||||||||||||||
Statutory
NPE
|
50,295 | 48,970 | 3 | 100,630 | 97,855 | 3 | ||||||||||||||||||||
Statutory
combined ratio
|
90.3 | % | 78.6 | 11.7 |
pts
|
99.3 | % | 89.8 | 9.5 |
pts
|
||||||||||||||||
%
of total statutory commercial NPW
|
17 | % | 16 | 17 | % | 16 |
Personal Lines
|
Quarter ended
|
Change
|
Six Months ended
|
Change
|
||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
GAAP
Insurance Operations Results:
|
||||||||||||||||||||||||||
NPW
|
$ | 66,642 | 58,633 | 14 |
%
|
122,824 | 108,975 | 13 |
%
|
|||||||||||||||||
NPE
|
59,189 | 53,066 | 12 | 117,483 | 105,394 | 11 | ||||||||||||||||||||
Less:
|
||||||||||||||||||||||||||
Losses and loss expenses
incurred
|
47,124 | 39,228 | 20 | 93,046 | 79,677 | 17 | ||||||||||||||||||||
Net underwriting expenses
incurred
|
18,531 | 15,992 | 16 | 34,536 | 30,662 | 13 | ||||||||||||||||||||
Underwriting
loss
|
$ | (6,466 | ) | (2,154 | ) | (200 | ) |
%
|
(10,099 | ) | (4,945 | ) | (104 | ) |
%
|
|||||||||||
GAAP
Ratios:
|
||||||||||||||||||||||||||
Loss and loss expense
ratio
|
79.6 | % | 73.9 | 5.7 |
pts
|
79.2 | % | 75.6 | 3.6 |
pts
|
||||||||||||||||
Underwriting expense
ratio
|
31.3 | % | 30.2 | 1.1 | 29.4 | % | 29.1 | 0.3 | ||||||||||||||||||
Combined ratio
|
110.9 | % | 104.1 | 6.8 | 108.6 | % | 104.7 | 3.9 | ||||||||||||||||||
Statutory
Ratios:
|
||||||||||||||||||||||||||
Loss and loss expense
ratio
|
79.6 | % | 74.0 | 5.6 | 79.2 | % | 75.6 | 3.6 | ||||||||||||||||||
Underwriting expense
ratio
|
28.0 | % | 28.1 | (0.1 | ) | 28.1 | % | 28.9 | (0.8 | ) | ||||||||||||||||
Combined ratio
|
107.6 | % | 102.1 | 5.5 |
pts
|
107.3 | % | 104.5 | 2.8 |
pts
|
|
·
|
NPW
increased in Second Quarter and Six Months 2010 compared to Second Quarter
and Six Months 2009 primarily due
to:
|
|
o
|
21
rate increases, 16 of which are 5% or more, that went into effect across
our Personal Lines footprint during Six Months 2010 and are expected to
generate an additional $10.1 million in annual
premium;
|
|
o
|
New
business direct premium written increases of $3.1 million, or 23%, to
$16.5 million for Second Quarter 2010 and $6.5 million, or 27%, to $30.4
million for Six Months 2010;
|
|
o
|
Net
renewal direct premium written increases of $4.7 million, or 10%, to $51.6
million for Second Quarter 2010 and $6.5 million, or 7%, to $95.3 million
for Six Months 2010; and
|
|
o
|
Policy
retention increase of four points to
83%.
|
|
·
|
NPE
increases in Second Quarter and Six Months 2010, compared to the same
periods last year, are consistent with the fluctuation in NPW for the
12-month period ended June 30, 2010 as compared to the 12-month period
ended June 30, 2009.
|
|
·
|
The
5.7-point increase in the GAAP loss and loss expense ratio in Second
Quarter 2010 compared to Second Quarter 2009 was primarily attributable to
increased property losses of $8.4 million, or 11.5 points, which included
an increase in catastrophe losses of $3.6 million driven by several wind
and thunderstorm events. This was partially offset by premium earned
outpacing loss costs.
|
|
·
|
The
increase in the GAAP underwriting expense ratio in Second Quarter and Six
Months 2010 compared to Second Quarter and Six Months 2009 was primarily
attributable to a South Carolina municipal tax levied on our flood
premiums related to our 2008 and 2009 tax
years.
|
|
·
|
The
per occurrence cap on the total program is $64.0
million.
|
·
|
The first layer continues to have unlimited reinstatements. The annual aggregate limit for the second, $20.0 million in excess of $10.0 million, layer remains at $80.0 million. |
·
|
Consistent with the
prior year treaty, the Property Treaty excludes nuclear, biological,
chemical, and radiological terrorism
losses.
|
|
·
|
The
renewal treaty rate decreased by
2%.
|
|
·
|
The
first layer provides coverage for 85% of up to $3.0 million in excess of a
$2.0 million retention.
|
|
·
|
The
next five layers provide coverage for 100% of up to $85.0 million in
excess of $5.0 million.
|
|
·
|
Consistent
with the prior year, the Casualty Treaty excludes nuclear, biological,
chemical, and radiological terrorism losses. Annual aggregate
terrorism limits, net of co-participation, remained the same at $198.8
million.
|
|
·
|
The
renewal treaty rate increased by
9%.
|
Quarter ended
|
Change
|
Six Months ended
|
Change
|
|||||||||||||||||||||||
June 30,
|
% or
|
June 30,
|
% or
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
Points
|
2010
|
2009
|
Points
|
||||||||||||||||||||
Total
invested assets
|
$ | 3,890,628 | 3,618,987 | 8 |
%
|
|||||||||||||||||||||
Net
investment income – before tax
|
$ | 36,545 | 26,368 | 39 |
%
|
71,251 | 42,085 | 69 | ||||||||||||||||||
Net
investment income – after tax
|
27,928 | 21,869 | 28 | 54,753 | 37,010 | 48 | ||||||||||||||||||||
Unrealized
gain during the period – before tax
|
35,097 | 35,174 | (0 | ) | 44,422 | 92,751 | (52 | ) | ||||||||||||||||||
Unrealized
gain during the period – after tax
|
22,813 | 22,863 | (0 | ) | 28,874 | 60,288 | (52 | ) | ||||||||||||||||||
Net
realized losses – before tax
|
(3,264 | ) | (11,294 | ) | 71 | (3,328 | ) | (35,319 | ) | 91 | ||||||||||||||||
Net
realized losses – after tax
|
(2,121 | ) | (7,342 | ) | 71 | (2,163 | ) | (22,958 | ) | 91 | ||||||||||||||||
Effective
tax rate
|
23.6 | % | 17.1 | 6.5 |
pts
|
23.2 | % | 12.1 | 11.1 |
pts
|
||||||||||||||||
Annual
after-tax yield on fixed maturity securities
|
2.9 | % | 3.4 | (0.5 | ) | |||||||||||||||||||||
Annual
after-tax yield on investment portfolio
|
2.9 | % | 2.1 | 0.8 |
Fixed Maturity
|
June 30,
|
December 31,
|
||||||
Rating
|
2010
|
2009
|
||||||
Aaa/AAA
|
51 | % | 57 | % | ||||
Aa/AA
|
26 | % | 25 | % | ||||
A/A
|
18 | % | 14 | % | ||||
Baa/BBB
|
4 | % | 3 | % | ||||
Ba/BB
or below
|
1 | % | 1 | % | ||||
Total
|
100 | % | 100 | % |
June 30, 2010
|
December 31, 2009
|
|||||||||||||||||
Average
|
Average
|
|||||||||||||||||
Fair
|
Unrealized
|
Credit
|
Fair
|
Unrealized
|
Credit
|
|||||||||||||
($ in millions)
|
Value
|
Gain (Loss)
|
Quality
|
Value
|
Gain (Loss)
|
Quality
|
||||||||||||
AFS
Fixed Maturity Portfolio:
|
||||||||||||||||||
U.S. government
obligations1
|
$ | 392.6 | 9.5 |
AAA
|
$ | 475.6 | 1.8 |
AAA
|
||||||||||
State
and municipal obligations
|
465.6 | 24.3 |
AA+
|
379.8 | 20.3 |
AA+
|
||||||||||||
Corporate
securities
|
647.7 | 31.7 |
A+
|
379.6 | 14.1 |
A+
|
||||||||||||
MBS
|
331.8 | 5.0 |
AA+
|
373.9 | (17.2 | ) |
AA+
|
|||||||||||
Asset-backed
securities (“ABS”)
|
32.7 | 0.9 |
AA+
|
27.0 | 0.4 |
AA
|
||||||||||||
Total
AFS portfolio
|
$ | 1,870.4 | 71.4 |
AA+
|
$ | 1,635.9 | 19.4 |
AA+
|
||||||||||
State
and Municipal Obligations:
|
||||||||||||||||||
General
obligations
|
$ | 271.0 | 12.9 |
AAA
|
$ | 222.6 | 11.0 |
AA+
|
||||||||||
Special
revenue obligations
|
194.6 | 11.4 |
AA+
|
157.2 | 9.3 |
AA+
|
||||||||||||
Total
state and municipal obligations
|
$ | 465.6 | 24.3 |
AA+
|
$ | 379.8 | 20.3 |
AA+
|
||||||||||
Corporate
Securities:
|
||||||||||||||||||
Financial
|
$ | 177.7 | 5.6 |
A+
|
$ | 67.4 | 3.0 |
AA-
|
||||||||||
Industrials
|
70.8 | 5.2 |
A
|
46.6 | 2.2 |
A
|
||||||||||||
Utilities
|
22.6 | 1.5 |
BBB+
|
18.9 | 0.9 |
A-
|
||||||||||||
Consumer
discretion
|
46.2 | 2.6 |
A
|
26.3 | 1.3 |
A-
|
||||||||||||
Consumer
staples
|
66.7 | 3.9 |
A-
|
51.6 | 1.4 |
A
|
||||||||||||
Healthcare
|
110.3 | 6.4 |
AA-
|
52.8 | 1.7 |
AA-
|
||||||||||||
Materials
|
21.7 | 1.8 |
A-
|
20.7 | 0.8 |
A-
|
||||||||||||
Energy
|
55.0 | 0.5 |
AA-
|
42.4 | 1.3 |
AA-
|
||||||||||||
Information
technology
|
24.7 | 1.1 |
A+
|
10.8 | 0.1 |
AA
|
||||||||||||
Telecommunications
services
|
20.4 | 1.0 |
A
|
14.6 | 0.5 |
A
|
||||||||||||
Other
|
31.6 | 2.1 |
A
|
27.5 | 0.9 |
A
|
||||||||||||
Total
corporate securities
|
$ | 647.7 | 31.7 |
A+
|
$ | 379.6 | 14.1 |
A+
|
||||||||||
MBS:
|
||||||||||||||||||
Government
guaranteed agency commercial mortgage-backed securities
(“CMBS”)
|
$ | 73.7 | 4.0 |
AAA
|
$ | 94.6 | 1.1 |
AAA
|
||||||||||
Non-agency
CMBS
|
9.3 | (4.2 | ) |
B+
|
- | - |
-
|
|||||||||||
Government
guaranteed agency RMBS
|
95.6 | 3.6 |
AAA
|
105.2 | 0.1 |
AAA
|
||||||||||||
Other
agency RMBS
|
116.7 | 4.8 |
AAA
|
119.8 | 1.9 |
AAA
|
||||||||||||
Non-agency
RMBS
|
25.6 | (2.5 | ) |
BBB-
|
30.2 | (12.8 | ) |
A-
|
||||||||||
Alternative-A
(“Alt-A”) RMBS
|
10.9 | (0.7 | ) |
AAA
|
24.1 | (7.5 | ) |
A-
|
||||||||||
Total
MBS
|
$ | 331.8 | 5.0 |
AA+
|
$ | 373.9 | (17.2 | ) |
AA+
|
|||||||||
ABS:
|
||||||||||||||||||
ABS
|
$ | 31.8 | 1.2 |
AA+
|
$ | 27.0 | 0.4 |
AA
|
||||||||||
Sub prime ABS2,
3
|
0.9 | (0.3 | ) |
D
|
- | - |
-
|
|||||||||||
Total
ABS
|
$ | 32.7 | 0.9 |
AA+
|
$ | 27.0 | 0.4 |
AA
|
June 30, 2010
($ in millions)
|
Fair
Value
|
Carry
Value
|
Unrecognized
Holding Gain
(Loss)
|
Unrealized
Gain (Loss) in
Accumulated
OCI
|
Total
Unrealized/
Unrecognized
Gain (Loss)
|
Average
Credit
Quality
|
||||||||||||||||
HTM
Fixed Maturity Portfolio:
|
||||||||||||||||||||||
U.S. government
obligations1
|
$ | 106.6 | 101.7 | 4.9 | 5.1 | 10.0 |
AAA
|
|||||||||||||||
State
and municipal obligations
|
1,095.3 | 1,072.2 | 23.1 | 27.2 | 50.3 |
AA+
|
||||||||||||||||
Corporate
securities
|
99.5 | 89.8 | 9.7 | (4.6 | ) | 5.1 |
A
|
|||||||||||||||
MBS
|
190.1 | 181.3 | 8.8 | (7.7 | ) | 1.1 |
AAA
|
|||||||||||||||
ABS
|
19.4 | 16.9 | 2.5 | (3.0 | ) | (0.5 | ) |
A
|
||||||||||||||
Total
HTM portfolio
|
$ | 1,510.9 | 1,461.9 | 49.0 | 17.0 | 66.0 |
AA+
|
|||||||||||||||
State
and Municipal Obligations:
|
||||||||||||||||||||||
General
obligations
|
$ | 295.1 | 289.9 | 5.2 | 12.6 | 17.8 |
AA+
|
|||||||||||||||
Special
revenue obligations
|
800.2 | 782.3 | 17.9 | 14.6 | 32.5 |
AA
|
||||||||||||||||
Total
state and municipal obligations
|
$ | 1,095.3 | 1,072.2 | 23.1 | 27.2 | 50.3 |
AA+
|
|||||||||||||||
Corporate
Securities:
|
||||||||||||||||||||||
Financial
|
$ | 34.0 | 30.2 | 3.8 | (2.6 | ) | 1.2 |
A
|
||||||||||||||
Industrials
|
24.5 | 20.6 | 3.9 | (1.8 | ) | 2.1 |
A
|
|||||||||||||||
Utilities
|
17.2 | 16.3 | 0.9 | (0.1 | ) | 0.8 |
A-
|
|||||||||||||||
Consumer
discretion
|
12.6 | 12.7 | (0.1 | ) | 0.3 | 0.2 |
A+
|
|||||||||||||||
Consumer
staples
|
5.4 | 4.9 | 0.5 | (0.1 | ) | 0.4 |
A
|
|||||||||||||||
Materials
|
2.2 | 1.9 | 0.3 | (0.1 | ) | 0.2 |
BBB-
|
|||||||||||||||
Energy
|
3.6 | 3.2 | 0.4 | (0.2 | ) | 0.2 |
BB+
|
|||||||||||||||
Total
corporate securities
|
$ | 99.5 | 89.8 | 9.7 | (4.6 | ) | 5.1 |
A
|
||||||||||||||
MBS:
|
||||||||||||||||||||||
Government
guaranteed agency CMBS
|
$ | 10.6 | 10.3 | 0.3 | - | 0.3 |
AAA
|
|||||||||||||||
Other
agency CMBS
|
3.7 | 3.7 | - | - | - |
AAA
|
||||||||||||||||
Non-agency
CMBS
|
53.3 | 48.0 | 5.3 | (9.3 | ) | (4.0 | ) |
AA+
|
||||||||||||||
Government
guaranteed agency RMBS
|
4.4 | 4.0 | 0.4 | - | 0.4 |
AAA
|
||||||||||||||||
Other
agency RMBS
|
112.1 | 109.2 | 2.9 | 1.8 | 4.7 |
AAA
|
||||||||||||||||
Non-agency
RMBS
|
6.0 | 6.1 | (0.1 | ) | (0.2 | ) | (0.3 | ) |
AAA
|
|||||||||||||
Total
MBS
|
$ | 190.1 | 181.3 | 8.8 | (7.7 | ) | 1.1 |
AAA
|
||||||||||||||
ABS:
|
||||||||||||||||||||||
ABS
|
$ | 17.8 | 16.0 | 1.8 | (2.4 | ) | (0.6 | ) |
AA-
|
|||||||||||||
Alt-A
ABS
|
1.6 | 0.9 | 0.7 | (0.6 | ) | 0.1 |
CC
|
|||||||||||||||
Total
ABS
|
$ | 19.4 | 16.9 | 2.5 | (3.0 | ) | (0.5 | ) |
A
|
December 31, 2009
($ in millions)
|
Fair
Value
|
Carry
Value
|
Unrecognized
Holding Gain
(Loss)
|
Unrealized Gain
(Loss) in
Accumulated
OCI
|
Total
Unrealized/
Unrecognized
Gain (Loss)
|
Average
Credit
Quality
|
||||||||||||||||
HTM
Fixed Maturity Portfolio:
|
||||||||||||||||||||||
U.S. government
obligations1
|
$ | 146.0 | 144.8 | 1.2 | 5.6 | 6.8 |
AAA
|
|||||||||||||||
State
and municipal obligations
|
1,210.8 | 1,201.4 | 9.4 | 33.9 | 43.3 |
AA
|
||||||||||||||||
Corporate
securities
|
107.5 | 98.8 | 8.7 | (6.0 | ) | 2.7 |
A-
|
|||||||||||||||
MBS
|
242.8 | 236.4 | 6.4 | (17.6 | ) | (11.2 | ) |
AA+
|
||||||||||||||
ABS
|
33.1 | 29.0 | 4.1 | (6.0 | ) | (1.9 | ) |
AA-
|
||||||||||||||
Total
HTM portfolio
|
$ | 1,740.2 | 1,710.4 | 29.8 | 9.9 | 39.7 |
AA+
|
|||||||||||||||
State
and Municipal Obligations:
|
||||||||||||||||||||||
General
obligations
|
$ | 301.5 | 300.8 | 0.7 | 14.7 | 15.4 |
AA+
|
|||||||||||||||
Special
revenue obligations
|
909.3 | 900.6 | 8.7 | 19.2 | 27.9 |
AA
|
||||||||||||||||
Total
state and municipal obligations
|
$ | 1,210.8 | 1,201.4 | 9.4 | 33.9 | 43.3 |
AA
|
|||||||||||||||
Corporate
Securities:
|
||||||||||||||||||||||
Financial
|
$ | 35.4 | 31.8 | 3.6 | (4.0 | ) | (0.4 | ) |
A
|
|||||||||||||
Industrials
|
29.1 | 25.7 | 3.4 | (2.0 | ) | 1.4 |
A-
|
|||||||||||||||
Utilities
|
16.5 | 16.3 | 0.2 | (0.1 | ) | 0.1 |
A-
|
|||||||||||||||
Consumer
discretion
|
6.3 | 6.0 | 0.3 | - | 0.3 |
BBB+
|
||||||||||||||||
Consumer
staples
|
14.6 | 13.9 | 0.7 | 0.5 | 1.2 |
AA-
|
||||||||||||||||
Materials
|
2.1 | 1.9 | 0.2 | (0.1 | ) | 0.1 |
BBB-
|
|||||||||||||||
Energy
|
3.5 | 3.2 | 0.3 | (0.3 | ) | - |
BB+
|
|||||||||||||||
Total
corporate securities
|
$ | 107.5 | 98.8 | 8.7 | (6.0 | ) | 2.7 |
A-
|
||||||||||||||
MBS
|
||||||||||||||||||||||
Government
guaranteed agency CMBS
|
$ | 11.1 | 10.8 | 0.3 | - | 0.3 |
AAA
|
|||||||||||||||
Other
agency CMBS
|
3.8 | 3.8 | - | 0.1 | 0.1 |
AAA
|
||||||||||||||||
Non-agency
CMBS
|
77.6 | 74.4 | 3.2 | (18.9 | ) | (15.7 | ) |
AA+
|
||||||||||||||
Government
guaranteed agency RMBS
|
4.2 | 3.9 | 0.3 | (0.2 | ) | 0.1 |
AAA
|
|||||||||||||||
Other
agency RMBS
|
140.2 | 137.7 | 2.5 | 2.5 | 5.0 |
AAA
|
||||||||||||||||
Non-agency
RMBS
|
5.9 | 5.8 | 0.1 | (1.1 | ) | (1.0 | ) |
AAA
|
||||||||||||||
Total
MBS
|
$ | 242.8 | 236.4 | 6.4 | (17.6 | ) | (11.2 | ) |
AA+
|
|||||||||||||
ABS:
|
||||||||||||||||||||||
ABS
|
$ | 30.2 | 27.0 | 3.2 | (5.1 | ) | (1.9 | ) |
AA
|
|||||||||||||
Alt-A
ABS
|
1.8 | 1.0 | 0.8 | (0.5 | ) | 0.3 |
CC
|
|||||||||||||||
Sub-prime ABS2
|
1.1 | 1.0 | 0.1 | (0.4 | ) | (0.3 | ) |
A
|
||||||||||||||
Total
ABS
|
$ | 33.1 | 29.0 | 4.1 | (6.0 | ) | (1.9 | ) |
AA-
|
Insurers of Municipal Bond Securities
|
Ratings
|
Ratings
|
||||||
with
|
without
|
|||||||
($ in thousands)
|
Fair Value
|
Insurance
|
Insurance
|
|||||
MBIA Inc.
|
$ | 251,174 |
AA-
|
A+
|
||||
Assured
Guaranty
|
207,002 |
AA+
|
AA
|
|||||
Financial
Guaranty Insurance Company
|
132,051 |
AA-
|
AA-
|
|||||
Ambac
Financial Group, Inc.
|
113,081 |
AA-
|
AA-
|
|||||
Other
|
8,235 |
AA
|
A
|
|||||
Total
|
$ | 711,543 |
AA
|
AA-
|
State Exposures of Municipal Bonds
|
General
|
Special
|
Fair
|
Average Credit
|
||||||||||
($ in thousands)
|
Obligation
|
Revenue
|
Value
|
Quality
|
||||||||||
Texas
|
$ | 113,381 | 76,390 | 189,771 |
AA+
|
|||||||||
Washington
|
47,994 | 47,100 | 95,094 |
AA+
|
||||||||||
Florida
|
521 | 89,228 | 89,749 |
AA-
|
||||||||||
Arizona
|
6,911 | 73,734 | 80,645 |
AA+
|
||||||||||
North
Carolina
|
41,290 | 30,325 | 71,615 |
AA+
|
||||||||||
New
York
|
- | 69,066 | 69,066 |
AA+
|
||||||||||
Illinois
|
20,667 | 43,651 | 64,318 |
AA
|
||||||||||
Ohio
|
21,475 | 34,960 | 56,435 |
AA+
|
||||||||||
Colorado
|
35,300 | 22,999 | 58,299 |
AA
|
||||||||||
Other
|
259,243 | 466,419 | 725,662 |
AA+
|
||||||||||
$ | 546,782 | 953,872 | 1,500,654 |
AA+
|
||||||||||
Advanced
refunded/escrowed to maturity bonds
|
19,295 | 40,896 | 60,191 |
AA+
|
||||||||||
Total
|
$ | 566,077 | 994,768 | $ | 1,560,845 |
AA+
|
June 30, 2010
($ in thousands)
|
Market
Value
|
% of Special
Revenue
Bonds
|
Average
Rating
|
|||||||
Essential
Services:
|
||||||||||
Transportation
|
$ | 197,672 | 21 | % |
AA
|
|||||
Water
and Sewer
|
177,253 | 19 | % |
AA+
|
||||||
Electric
|
114,309 | 12 | % |
AA
|
||||||
Total
Essential Services
|
489,234 | 52 | % |
AA+
|
||||||
Education
|
149,852 | 16 | % |
AA+
|
||||||
Special
Tax
|
116,009 | 12 | % |
AA
|
||||||
Housing
|
92,628 | 10 | % |
AA+
|
||||||
Other:
|
||||||||||
Leasing
|
43,426 | 4 | % |
AA
|
||||||
Hospital
|
20,349 | 2 | % |
AA-
|
||||||
Other
|
42,374 | 4 | % |
AA-
|
||||||
Total
Other
|
106,149 | 10 | % |
AA
|
||||||
Total
Special Revenue Bonds
|
$ | 953,872 | 100 | % |
AA+
|
Quarter ended
|
Six Months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
($ in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
HTM fixed maturity securities
|
||||||||||||||||
Gains
|
$ | 368 | 112 | 412 | 138 | |||||||||||
Losses
|
(210 | ) | (125 | ) | (450 | ) | (294 | ) | ||||||||
AFS
fixed maturity securities
|
||||||||||||||||
Gains
|
325 | 9,090 | 4,782 | 13,598 | ||||||||||||
Losses
|
(7,558 | ) | (7,055 | ) | (7,589 | ) | (8,959 | ) | ||||||||
AFS
equity securities
|
||||||||||||||||
Gains
|
9,995 | 9,043 | 14,174 | 28,706 | ||||||||||||
Losses
|
- | (8,695 | ) | (233 | ) | (27,744 | ) | |||||||||
Other
Investments
|
||||||||||||||||
Gains
|
- | - | - | - | ||||||||||||
Losses
|
- | (1,189 | ) | - | (1,189 | ) | ||||||||||
Total
other net realized investment gains
|
2,920 | 1,181 | 11,096 | 4,256 | ||||||||||||
Total
OTTI charges recognized in earnings
|
(6,184 | ) | (12,475 | ) | (14,424 | ) | (39,575 | ) | ||||||||
Total
net realized losses
|
$ | (3,264 | ) | (11,294 | ) | (3,328 | ) | (35,319 | ) |
Period of Time in an
|
Quarter ended
|
Quarter ended
|
||||||||||||||
Unrealized Loss Position
|
June 30, 2010
|
June 30, 2009
|
||||||||||||||
Fair
|
Fair
|
|||||||||||||||
Value on
|
Realized
|
Value on
|
Realized
|
|||||||||||||
($ in thousands)
|
Sale Date
|
Loss
|
Sale Date
|
Loss
|
||||||||||||
Fixed maturities:
|
||||||||||||||||
0 –
6 months
|
$ | 6,403 | 432 | 13,574 | 2,132 | |||||||||||
7 –
12 months
|
- | - | 14,215 | 2,486 | ||||||||||||
Greater
than 12 months
|
10,257 | 7,098 | 27,042 | 2,609 | ||||||||||||
Total
fixed maturities
|
16,660 | 7,530 | 54,831 | 7,227 | ||||||||||||
Equities:
|
||||||||||||||||
0 –
6 months
|
- | - | 10,934 | 8,695 | ||||||||||||
7 –
12 months
|
- | - | - | - | ||||||||||||
Total
equity securities
|
- | - | 10,934 | 8,695 | ||||||||||||
Other
investments
|
||||||||||||||||
7 –
12 months
|
- | - | 4,816 | 1,189 | ||||||||||||
Total
other investments
|
- | - | 4,816 | 1,189 | ||||||||||||
Total
|
$ | 16,660 | 7,530 | 70,581 | 17,111 |
Period of Time in an
|
Six Months ended
|
Six Months ended
|
||||||||||||||
Unrealized Loss Position
|
June 30, 2010
|
June 30, 2009
|
||||||||||||||
Fair
|
Fair
|
|||||||||||||||
Value on
|
Realized
|
Value on
|
Realized
|
|||||||||||||
($ in thousands)
|
Sale Date
|
Loss
|
Sale Date
|
Loss
|
||||||||||||
Fixed
maturities:
|
||||||||||||||||
0 –
6 months
|
$ | 11,462 | 463 | 44,165 | 2,460 | |||||||||||
7 –
12 months
|
- | - | 38,292 | 3,424 | ||||||||||||
Greater
than 12 months
|
10,257 | 7,098 | 36,418 | 3,247 | ||||||||||||
Total
fixed maturities
|
21,719 | 7,561 | 118,875 | 9,131 | ||||||||||||
Equities:
|
||||||||||||||||
0 –
6 months
|
4,128 | 233 | 27,313 | 20,308 | ||||||||||||
7 –
12 months
|
- | - | 8,230 | 7,436 | ||||||||||||
Total
equity securities
|
4,128 | 233 | 35,543 | 27,744 | ||||||||||||
Other
investments
|
||||||||||||||||
7 –
12 months
|
- | - | 4,816 | 1,189 | ||||||||||||
Total
other investments
|
- | - | 4,816 | 1,189 | ||||||||||||
Total
|
$ | 25,847 | 7,794 | 159,234 | 38,064 |
Quarter ended
|
Six Months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
($ in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
HTM securities
|
||||||||||||||||
ABS
|
$ | - | 1,202 | 31 | 2,353 | |||||||||||
CMBS
|
1,464 | 711 | 4,125 | 711 | ||||||||||||
RMBS
|
317 | - | 317 | - | ||||||||||||
Total
HTM securities
|
1,781 | 1,913 | 4,473 | 3,064 | ||||||||||||
AFS
securities
|
||||||||||||||||
Corporate
securities
|
- | 1,271 | - | 1,271 | ||||||||||||
CMBS
|
1,372 | - | 1,372 | - | ||||||||||||
RMBS
|
2,359 | 8,650 | 7,907 | 33,795 | ||||||||||||
Total
fixed maturity AFS securities
|
3,731 | 9,921 | 9,279 | 35,066 | ||||||||||||
Equity
securities
|
672 | 641 | 672 | 1,445 | ||||||||||||
Total
AFS securities
|
4,403 | 10,562 | 9,951 | 36,511 | ||||||||||||
Total
OTTI charges recognized in earnings
|
$ | 6,184 | 12,475 | 14,424 | 39,575 |
June 30, 2010
|
0 – 6 months
|
7 – 11 months
|
12 months or longer 1
|
|||||||||||||||||||||
($ in thousands)
|
Fair Value
|
Net
Unrecognized
Unrealized
Losses
|
Fair Value
|
Net
Unrecognized
Unrealized
Losses
|
Fair Value
|
Net
Unrecognized
Unrealized
Losses
|
||||||||||||||||||
AFS
securities
|
||||||||||||||||||||||||
Obligations
of states and political subdivisions
|
$ | 10,716 | (20 | ) | - | - | - | - | ||||||||||||||||
Corporate
securities
|
16,925 | (1,666 | ) | - | - | - | - | |||||||||||||||||
ABS
|
1,069 | (2 | ) | - | - | 925 | (329 | ) | ||||||||||||||||
CMBS
|
- | - | - | - | 9,141 | (4,161 | ) | |||||||||||||||||
RMBS
|
6,324 | (73 | ) | - | - | 35,397 | (3,203 | ) | ||||||||||||||||
Total
fixed maturity securities
|
35,034 | (1,761 | ) | - | - | 45,463 | (7,693 | ) | ||||||||||||||||
Equity
securities
|
30,295 | (3,361 | ) | 1,142 | (323 | ) | 2,803 | (603 | ) | |||||||||||||||
Subtotal
|
$ | 65,329 | (5,122 | ) | 1,142 | (323 | ) | 48,266 | (8,296 | ) | ||||||||||||||
HTM
securities
|
||||||||||||||||||||||||
Obligations
of states and political subdivisions
|
$ | 5,545 | (33 | ) | 9,399 | (75 | ) | 62,715 | (1,949 | ) | ||||||||||||||
Corporate
securities
|
2,220 | (29 | ) | - | - | 7,813 | (214 | ) | ||||||||||||||||
ABS
|
- | - | - | - | 6,981 | (813 | ) | |||||||||||||||||
CMBS
|
- | - | - | - | 10,447 | (5,297 | ) | |||||||||||||||||
RMBS
|
- | - | - | - | 5,961 | (254 | ) | |||||||||||||||||
Subtotal
|
$ | 7,765 | (62 | ) | 9,399 | (75 | ) | 93,917 | (8,527 | ) | ||||||||||||||
Total
AFS and HTM
|
$ | 73,094 | (5,184 | ) | 10,541 | (398 | ) | 142,183 | (16,823 | ) |
December 31, 2009
|
0 – 6 months
|
7 – 11 months
1
|
12 months or longer
1
|
|||||||||||||||||||||
($ in thousands)
|
Fair
Value
|
Net
Unrecognized
Unrealized
Losses
|
Fair
Value
|
Net
Unrecognized
Unrealized
Losses
|
Fair
Value
|
Net
Unrecognized
Unrealized
Losses
|
||||||||||||||||||
AFS
securities
|
||||||||||||||||||||||||
U.S.
government and government agencies
|
$ | 187,283 | (1,210 | ) | - | - | - | - | ||||||||||||||||
Obligations
of states and political subdivisions
|
8,553 | (120 | ) | - | - | 3,059 | (17 | ) | ||||||||||||||||
Corporate
securities
|
74,895 | (829 | ) | - | - | 10,550 | (417 | ) | ||||||||||||||||
ABS
|
2,983 | (17 | ) | - | - | 3,960 | (40 | ) | ||||||||||||||||
CMBS
|
36,447 | (637 | ) | - | - | - | - | |||||||||||||||||
RMBS
|
77,674 | (493 | ) | 654 | (21 | ) | 53,607 | (20,198 | ) | |||||||||||||||
Total
fixed maturity securities
|
387,835 | (3,306 | ) | 654 | (21 | ) | 71,176 | (20,672 | ) | |||||||||||||||
Equity
securities
|
3,828 | (214 | ) | - | - | 5,932 | (396 | ) | ||||||||||||||||
Sub-total
|
$ | 391,663 | (3,520 | ) | 654 | (21 | ) | 77,108 | (21,068 | ) | ||||||||||||||
HTM
securities
|
||||||||||||||||||||||||
U.S.
government and government agencies
|
$ | 19,746 | (29 | ) | 9,713 | (288 | ) | - | - | |||||||||||||||
Obligations
of states and political subdivisions
|
40,904 | (332 | ) | 5,767 | (181 | ) | 74,360 | (2,684 | ) | |||||||||||||||
Corporate
securities
|
6,124 | (102 | ) | - | - | 19,233 | (1,310 | ) | ||||||||||||||||
ABS
|
- | - | - | - | 13,343 | (2,496 | ) | |||||||||||||||||
CMBS
|
- | - | 316 | (728 | ) | 22,044 | (16,194 | ) | ||||||||||||||||
RMBS
|
5,068 | (146 | ) | - | - | 5,892 | (935 | ) | ||||||||||||||||
Sub-total
|
$ | 71,842 | (609 | ) | 15,796 | (1,197 | ) | 134,872 | (23,619 | ) | ||||||||||||||
Total
AFS and HTM
|
$ | 463,505 | (4,129 | ) | 16,450 | (1,218 | ) | 211,980 | (44,687 | ) |
Cost/
|
Unrealized/
|
|||||||||||
Amortized
|
Fair
|
Unrecognized
|
||||||||||
($ in thousands)
|
Cost
|
Value
|
Losses
|
|||||||||
GS
Mortgage Securities Corp II
|
$ | 5,730 | 3,133 | (2,597 | ) | |||||||
Mach
One Trust
|
4,017 | 1,828 | (2,189 | ) | ||||||||
BP
Capital Markets PLC
|
10,127 | 8,521 | (1,606 | ) | ||||||||
ACT
Depositor Corp
|
1,712 | 208 | (1,504 | ) | ||||||||
Morgan
Stanley Capital I
|
5,000 | 3,525 | (1,475 | ) |
Contractual Maturities
|
Amortized
|
Fair
|
||||||
($ in thousands)
|
Cost
|
Value
|
||||||
One
year or less
|
$ | 7,856 | 6,669 | |||||
Due
after one year through five years
|
57,922 | 51,569 | ||||||
Due
after five years through ten years
|
24,173 | 22,259 | ||||||
Due
after ten years
|
- | - | ||||||
Total
|
$ | 89,951 | 80,497 |
Contractual Maturities
|
Amortized
|
Fair
|
||||||
($ in thousands)
|
Cost
|
Value
|
||||||
One
year or less
|
$ | 13,450 | 11,678 | |||||
Due
after one year through five years
|
62,607 | 57,088 | ||||||
Due
after five years through ten years
|
37,719 | 36,470 | ||||||
Due
after ten years
|
5,970 | 5,845 | ||||||
Total
|
$ | 119,746 | 111,081 |
Required as of
June 30, 2010
|
Actual as of
June 30, 2010
|
|||
Consolidated
net worth
|
$790.0
million
|
$1.0
billion
|
||
Statutory
surplus
|
Not
less than $750 million
|
$1.0
billion
|
||
Debt-to-capitalization
ratio
|
Not
to exceed 30%
|
20.0%
|
||
A.M. Best financial strength
rating
|
|
Minimum of A-
|
|
A+
|
|
·
|
S&P
Insurance Rating Services — Our financial strength rating was revised to
“A” from “A+” in the third quarter of 2009. S&P cited our strong
competitive position in Mid-Atlantic markets, well-developed predictive
modeling capabilities, strong financial flexibility and consistent
recognition by third-party agent satisfaction surveys as a superior
regional carrier. Mitigating the strengths and precipitating the
rating change was a decline in capital adequacy and operating results,
relative to historically strong levels. S&P noted the decline in
statutory surplus was largely attributed to realized and unrealized losses
from the investment portfolio at the end of 2008 and the first quarter of
2009. S&P’s outlook of “negative” reflects continued commercial
lines pricing competition and reduced investment
income.
|
|
·
|
Moody’s
— Our “A2” financial strength rating was reaffirmed in the third quarter
of 2008, citing our strong regional franchise with good independent agency
support, along with our conservative balance sheet, moderate financial
leverage, and consistent profitability. At the same time, Moody’s
revised our outlook from “positive” to “stable” reflecting an increasingly
competitive commercial lines market and continued weakness in our personal
lines book of business.
|
|
·
|
Fitch
Ratings — Our “A+” rating was reaffirmed in the first quarter of 2009,
citing our disciplined underwriting culture, conservative balance sheet,
strong independent agency relationships, and improved diversification
through our continued efforts to reduce our concentration in New
Jersey. Fitch revised our outlook to “negative” from “stable” citing
a deterioration of recent underwriting performance on an absolute basis
and relative to our rating category. To a lesser extent, the
negative outlook also reflected Fitch’s concern about further declines in
our capitalization tied to investment
losses.
|
|
·
|
Related
to our financial condition, review and approval of such matters as minimum
capital and surplus requirements, standards of solvency, security
deposits, methods of accounting, form and content of statutory financial
statements, reserves for unpaid loss and loss expenses, reinsurance,
payment of dividends and other distributions to shareholders, periodic
financial examinations and annual and other report
filings.
|
|
·
|
Related
to our general business, review and approval of such matters as
certificates of authority and other insurance company licenses, licensing
and compensation of agents, premium rates (which may not be excessive,
inadequate, or unfairly discriminatory), policy forms, policy
terminations, reporting of statistical information regarding our premiums
and losses, periodic market conduct examinations, unfair trade practices,
participation in mandatory shared market mechanisms, such as assigned risk
pools and reinsurance pools, participation in mandatory state guaranty
funds, and mandated continuing workers compensation coverage
post-termination of employment.
|
|
·
|
Related
to our ownership of the Insurance Subsidiaries, we are required to
register as an insurance holding company system and report information
concerning all of our operations that may materially affect the
operations, management, or financial condition of the insurers. As
an insurance holding company, the appropriate state regulatory authority
may: (i) examine us or our insurance subsidiaries at any time; (ii)
require disclosure or prior approval of material transactions of any of
the insurance subsidiaries with us or each other; and (iii) require prior
approval or notice of certain transactions, such as payment of dividends
or distributions to us.
|
|
·
|
Repeal of the
McCarran-Ferguson Act. While proposals for McCarran-Ferguson
Act repeal recently have been primarily directed at health insurers, if
enacted and applicable to property and casualty insurers, such repeal
would significantly reduce our ability to compete and materially affect
our results of operations because we rely on the anti-trust exemptions the
law provides to obtain loss data from third party aggregators such as ISO
to predict future losses.
|
|
·
|
National Catastrophe
Funds. Various legislative proposals have been introduced
that would establish a federal reinsurance catastrophic fund as a federal
backstop for future natural disasters. These bills generally
encourage states to create catastrophe funds by creating a federal
backstop for states that create the funds. While homeowners'
insurance is primarily handled at the state level, there are important
roles for the federal government to play, including the establishment of a
national catastrophic fund.
|
|
·
|
Reform of the National
Flood Insurance Program (“NFIP”). There have been legislative
proposals to reform the NFIP by: (i) expanding coverage to include
coverage for losses from wind damage; and (ii) forgiving the nearly $20
billion in debt amassed by the NFIP from the catastrophic storms of 2004
and 2005. We believe that the expansion of coverage to include wind
losses would significantly increase the cost and availability of NFIP
insurance.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF
PROCEEDS
|
Total Number of
|
Maximum Number
|
|||||||||||||||
Total Number of
|
Average
|
Shares Purchased
|
of Shares that May Yet
|
|||||||||||||
Shares
|
Price Paid
|
as Part of Publicly
|
Be Purchased Under the
|
|||||||||||||
Period
|
Purchased1
|
per Share
|
Announced Programs
|
Announced Programs
|
||||||||||||
April
1 – 30, 2010
|
- | $ | - | - | - | |||||||||||
May
1 – 31, 2010
|
323 | 16.77 | - | - | ||||||||||||
June
1 – 30, 2010
|
- | - | - | - | ||||||||||||
Total
|
323 | 16.77 | - | - |
1
|
During
Second Quarter 2010, 323 shares were purchased from employees in
connection with the vesting of restricted stock units. These
repurchases were made in connection with satisfying tax withholding
obligations with respect to those employees and were purchased at the
closing price on the dates of purchase. These shares were not
purchased as part of any publicly announced
program.
|
ITEM
6.
|
EXHIBITS
|
(a)
|
Exhibits:
|
* 3.1
|
Amended
and Restated Certificate of Incorporation of Selective Insurance Group,
Inc., dated May 3, 2010.
|
|
* 10.1
|
Amended
and Restated Selective Insurance Group, Inc. Stock Purchase Plan for
Independent Insurance Agencies (2010)
|
|
* 11
|
Statement
Re: Computation of Per Share Earnings.
|
|
* 31.1
|
Rule
13a-14(a) Certification of the Chief Executive Officer of Selective
Insurance Group, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
|
|
* 31.2
|
Rule
13a-14(a) Certification of the Chief Financial Officer of Selective
Insurance Group, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
|
|
* 32.1
|
Certification
of Chief Executive Officer of Selective Insurance Group, Inc. pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
* 32.2
|
Certification
of Chief Financial Officer of Selective Insurance Group, Inc. pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
**
101.INS
|
XBRL
Instance Document.
|
|
**
101.SCH
|
XBRL
Taxonomy Extension Schema Document.
|
|
**
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document.
|
|
**
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document.
|
|
**
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document.
|
|
**
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
Document.
|
*
|
Filed
herewith
|
**
|
Furnished
and not filed herewith
|
By: /s/ Gregory E.
Murphy
|
July
29, 2010
|
|
Gregory
E. Murphy
|
||
Chairman
of the Board, President and Chief Executive Officer
|
||
By: /s/ Dale A.
Thatcher
|
July
29, 2010
|
|
Dale
A. Thatcher
|
||
Executive
Vice President and Chief Financial Officer
|
||
(principal
accounting officer and principal financial officer)
|