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Investments
3 Months Ended
Sep. 30, 2011
Investments [Abstract] 
Investments

3. Investments

Investments, Available-for-Sale

The following tables summarize the Company’s investment securities (in thousands).

 

                                 

September 30, 2011

   Amortized
Cost		     Gross
Unrealized
Gains		     Gross
Unrealized
Losses		     Fair
Value		  

U.S. government and agencies

   $ 24,900     $ 1,418     $ —       $ 26,318  

State

     6,375       280       —         6,655  

Political subdivisions

     754       29       —         783  

Revenue and assessment

     24,121       1,501       —         25,622  

Corporate bonds

     77,753       6,020       (400 )      83,373  

Collateralized mortgage obligations:

                                

Agency backed

     18,282       1,469       —         19,751  

Non-agency backed – residential

     5,680       182       (155 )      5,707  

Non-agency backed – commercial

     6,107       272       (65 )      6,314  

Redeemable preferred stock

     176       —         (9 )      167  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed maturities, available-for-sale

     164,148       11,171       (629 )      174,690  

Investment in mutual fund, available-for-sale

     7,501       —         (202 )      7,299  
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 171,649     $ 11,171     $ (831 )    $ 181,989  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

                                 

June 30, 2011

   Amortized
Cost		     Gross
Unrealized
Gains		     Gross
Unrealized
Losses		     Fair
Value		  

U.S. government and agencies

   $ 24,897     $ 1,250     $ —       $ 26,147  

State

     7,396       280       —         7,676  

Political subdivisions

     1,798       20       (1 )      1,817  

Revenue and assessment

     25,819       1,123       (171 )      26,771  

Corporate bonds

     78,199       4,686       (240 )      82,645  

Collateralized mortgage obligations:

                                

Agency backed

     19,541       1,440       —         20,981  

Non-agency backed – residential

     5,758       243       (173 )      5,828  

Non-agency backed – commercial

     6,215       556       (11 )      6,760  

Redeemable preferred stock

     176       —         (3 )      173  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total fixed maturities, available-for-sale

     169,799       9,598       (599 )      178,798  

Investment in mutual fund, available-for-sale

     7,501       516       —         8,017  
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 177,300     $ 10,114     $ (599 )    $ 186,815  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The following tables set forth the scheduled maturities of the Company’s fixed maturity securities based on their fair values (in thousands). Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

 

                                 

September 30, 2011

   Securities
with
Unrealized
Gains		     Securities
with
Unrealized
Losses		     Securities
with No
Unrealized
Gains or
Losses		     All
Fixed
Maturity
Securities 		 

One year or less

   $ 16,025     $ —       $ 300     $ 16,325  

After one through five years

     66,846       3,489       —         70,335  

After five through ten years

     42,121       669       —         42,790  

After ten years

     8,197       5,104       —         13,301  

No single maturity date

     29,728       2,211       —         31,939  
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 162,917     $ 11,473     $ 300     $ 174,690  
   

 

 

    

 

 

    

 

 

    

 

 

  
         

June 30, 2011

   Securities
with
Unrealized
Gains		     Securities
with
Unrealized
Losses		     Securities
with No
Unrealized
Gains or
Losses		     All
Fixed
Maturity
Securities 		 

One year or less

   $ 14,120     $ 80     $ 1,500     $ 15,700  

After one through five years

     75,186       26       —         75,212  

After five through ten years

     37,510       —         —         37,510  

After ten years

     8,980       7,827       —         16,807  

No single maturity date

     31,450       2,119       —         33,569  
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 167,246     $ 10,052     $ 1,500     $ 178,798  
   

 

 

    

 

 

    

 

 

    

 

 

  

The following table reflects the number of fixed maturity securities with gross unrealized gains and losses. Gross unrealized losses are further segregated by the length of time that individual securities have been in a continuous unrealized loss position.

 

                         
    Gross Unrealized Losses     Gross
Unrealized
Gains		  

At:

   Less than
or equal to
12 months		     Greater
than 12
months		    

September 30, 2011

     9       4       145  

June 30, 2011

     7       5       151  

The following tables reflect the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

 

                         

Gross Unrealized Losses

at September 30, 2011:

   Number
of
Securities		     Fair
Value		     Gross
Unrealized
Losses		  

Less than or equal to 10%

     2     $ 2,351     $ (78 ) 

Greater than 10%

     2       626       (177 ) 
   

 

 

    

 

 

    

 

 

  
      4     $ 2,977     $ (255 ) 
   

 

 

    

 

 

    

 

 

  
       

Gross Unrealized Losses

at June 30, 2011:

   Number
of
Securities		     Fair
Value		     Gross
Unrealized
Losses		  

Less than or equal to 10%

     2     $ 1,435     $ (57 ) 

Greater than 10%

     3       2,388       (373 ) 
   

 

 

    

 

 

    

 

 

  
      5     $ 3,823     $ (430 ) 
   

 

 

    

 

 

    

 

 

  

 

The following tables set forth the amount of gross unrealized losses by current severity (as compared to amortized cost) and length of time that individual securities have been in a continuous unrealized loss position (in thousands).

 

                                         
    Fair Value of
Securities		           Severity of Gross Unrealized Losses  

Length of

Gross Unrealized Losses

at September 30, 2011:

   with Gross
Unrealized
Losses		     Gross
Unrealized
Losses		     Less
than 5%		     5% to
10%		     Greater
than
10%		  

Less than or equal to:

                                        

Three months

   $ 14,689     $ (566 )    $ (252 )    $ (94 )    $ (220 ) 

Six months

     940       (1 )      (1 )      —         —    

Nine months

     166       (9 )      (9 )      —         —    

Twelve months

     —         —         —         —         —    

Greater than twelve months

     2,977       (255 )      (35 )      (43 )      (177 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 18,772     $ (831 )    $ (297 )    $ (137 )    $ (397 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
       
    Fair Value of
Securities		           Severity of Gross Unrealized Losses  

Length of

Gross Unrealized Losses

at June 30, 2011:

   with Gross
Unrealized
Losses		     Gross
Unrealized
Losses		     Less
than 5%		     5% to
10%		     Greater
than
10%		  

Less than or equal to:

                                        

Three months

   $ 6,056     $ (166 )    $ (166 )    $ —       $ —    

Six months

     173       (3 )      (3 )      —         —    

Nine months

     —         —         —         —         —    

Twelve months

     —         —         —         —         —    

Greater than twelve months

     3,823       (430 )      (57 )      —         (373 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 10,052     $ (599 )    $ (226 )    $ —       $ (373 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Restrictions

At September 30, 2011, fixed maturities and cash equivalents with a fair value of $5.8 million (amortized cost of $5.3 million) were on deposit with various insurance departments as a requirement of doing business in those states. Fixed maturities and cash equivalents with a fair value of $8.7 million (amortized cost of $8.6 million) were on deposit with another insurance company as collateral for an assumed reinsurance contract.

Investment Income and Net Realized Gains and Losses

The major categories of investment income follow (in thousands).

 

                 
    Three Months Ended
September 30,		  
    2011     2010  

Fixed maturities, available-for-sale

   $ 2,002     $ 2,124  

Investment in mutual fund, available-for-sale

     150       145  

Cash and cash equivalents

     —         4  

Other

     29       29  

Investment expenses

     (160 )      (165 ) 
   

 

 

    

 

 

  
    $ 2,021     $ 2,137  
   

 

 

    

 

 

  

 

The components of net realized losses on investments, available-for-sale at fair value follow (in thousands).

 

                 
    Three Months Ended
September 30,		  
    2011     2010  

Gains

   $ 7     $ 81  

Losses

     (33 )      (1 ) 

Other-than-temporary impairment

     (31 )      (304 ) 
   

 

 

    

 

 

  
    $ (57 )    $ (224 ) 
   

 

 

    

 

 

  

Realized gains and losses on sales and redemptions are computed based on specific identification. The non-credit related portion of other-than-temporary impairment (“OTTI”) is included in other comprehensive income (loss). The amounts of non-credit OTTI for securities still owned was $1.1 million for non-agency backed residential collateralized mortgage obligations (“CMOs”) and $0.2 million for non-agency backed commercial CMOs at both September 30, 2011 and June 30, 2011.

Other-Than-Temporary Impairment

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-65, Recognition and Presentation of Other-Than-Temporary Impairments (“FASB ASC 320-10-65”), the Company separates OTTI into the following two components: (i) the amount related to credit losses, which is recognized in the consolidated statement of operations and (ii) the amount related to all other factors, which is recorded in other comprehensive income (loss). The credit-related portion of an OTTI is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge.

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. The Company routinely monitors its investment portfolio for changes in fair value that might indicate potential impairments and performs detailed reviews on such securities. Changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer or (ii) market-related factors such as interest rates or sector declines.

Securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence to estimate the potential for impairment. Resources used include historical financial data included in filings with the SEC for corporate bonds and performance data regarding the underlying loans for CMOs. Securities with declines attributable solely to market or sector declines where the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before the full recovery of its amortized cost basis are not deemed to be other-than-temporarily impaired.

The issuer-specific factors considered in reaching the conclusion that securities with declines are not other-than-temporary include (i) the extent and duration of the decline in fair value, including the duration of any significant decline in value, (ii) whether the security is current as to payments of principal and interest, (iii) a valuation of any underlying collateral, (iv) current and future conditions and trends for both the business and its industry, (v) changes in cash flow assumptions for CMOs and (vi) rating agency actions. Based on these factors, the Company makes a determination as to the probability of recovering principal and interest on the security.

 

The number and amount of securities for which the Company has recognized OTTI charges in net income (loss) are presented in the following tables (in thousands, except for the number of securities).

 

                                 
    Three Months Ended September 30,  
    2011     2010  
    Number of
Securities		     OTTI     Number of
Securities		     OTTI  

Collateralized mortgage obligations:

                                

Non-agency backed – residential

     —       $ —         1     $ (13 ) 

Non-agency backed – commercial

     —         —         1       (4 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  
      —         —         2       (17 ) 

Portion of loss recognized in accumulated other comprehensive income (loss)

             (31 )              (287 ) 
           

 

 

            

 

 

  

Net OTTI recognized in net income (loss)

           $ (31 )            $ (304 ) 
           

 

 

            

 

 

  

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2011 and 2010 (in thousands).

 

                 
    Three Months Ended
September 30,		  
    2011     2010  

Beginning balance

   $ (3,343 )    $ (3,301 ) 

Additional credit impairments on:

                

Previously impaired securities

     (31 )      (304 ) 

Securities without previous impairments

     —         —    
   

 

 

    

 

 

  
      (31 )      (304 ) 

Reductions for securities sold (realized)

     45       —    
   

 

 

    

 

 

  
    $ (3,329 )    $ (3,605 ) 
   

 

 

    

 

 

  

On a quarterly basis, the Company reviews cash flow estimates for certain non-agency backed CMOs of lesser credit quality following the guidance of FASB ASC 325-40-65, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FASB ASC 325-40-65”). Accordingly, when changes in estimated cash flows occur due to actual or estimated prepayment or credit loss experience, and the present value of the revised cash flows is less than the present value previously estimated, OTTI is deemed to have occurred. For non-agency backed CMOs not subject to FASB ASC 325-40-65, the Company reviews quarterly projected cash flow analyses and recognizes OTTI when it determines that a loss is probable. The Company has recognized OTTI related to certain non-agency backed CMOs as the underlying cash flows have been adversely impacted due to a reduction in prepayments from mortgage refinancing and an increase in actual and projected delinquencies in the underlying mortgages.

The Company’s review of non-agency backed CMOs included an analysis of available information such as collateral quality, anticipated cash flows, credit enhancements, default rates, loss severities, the securities’ relative position in their respective capital structures, and credit ratings from statistical rating agencies. The Company reviews quarterly projected cash flow analyses for each security utilizing current assumptions regarding (i) actual and anticipated delinquencies, (ii) delinquency transition-to-default rates and (iii) loss severities. Based on its quarterly reviews, the Company determined that there had not been an adverse change in projected cash flows, except in the case of those securities for which OTTI charges have been recorded. The Company believes that the unrealized losses on the remaining securities for which OTTI charges have not been recorded are not necessarily predictive of the ultimate performance of the underlying collateral. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before the recovery of their amortized cost basis.

The Company believes that the remaining securities having unrealized losses at September 30, 2011 were not other-than-temporarily impaired. The Company also does not intend to sell any of these securities and it is more likely than not that the Company will not be required to sell any of these securities before the recovery of their amortized cost basis.