Investments

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Investments

3. Investments

Investments, Available-for-Sale

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

June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government and agencies	$	22,184	$	1,234	$	—		$	23,418
State		5,010		194		—			5,204
Political subdivisions		753		45		—			798
Revenue and assessment		22,058		1,559		(11	)		23,606
Corporate bonds		67,561		6,394		—			73,955
Collateralized mortgage obligations:
Agency backed		13,485		956		—			14,441
Non-agency backed – residential		5,349		143		(130	)		5,362
Non-agency backed – commercial		5,018		302		—			5,320
Redeemable preferred stocks		1,676		215		(11	)		1,880
Total fixed maturities, available-for-sale		143,094		11,042		(152	)		153,984
Investment in mutual fund, available-for-sale		7,501		376		—			7,877
	$	150,595	$	11,418	$	(152	)	$	161,861

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government and agencies	$	24,178	$	1,350	$	—		$	25,528
State		6,099		288		—			6,387
Political subdivisions		754		27		—			781
Revenue and assessment		24,130		1,302		—			25,432
Corporate bonds		71,392		6,113		(208	)		77,297
Collateralized mortgage obligations:
Agency backed		16,953		1,180		—			18,133
Non-agency backed – residential		5,530		66		(167	)		5,429
Non-agency backed – commercial		5,862		275		(12	)		6,125
Redeemable preferred stock		176		—		(7	)		169
Total fixed maturities, available-for-sale		155,074		10,601		(394	)		165,281
Investment in mutual fund, available-for-sale		7,501		43		—			7,544
	$	162,575	$	10,644	$	(394	)	$	172,825

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.

June 30, 2012	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	20,002	$	—	$	2,155	$	22,157
After one through five years		51,538		1,003		—		52,541
After five through ten years		41,685		—		—		41,685
After ten years		10,598		—		—		10,598
No single maturity date		24,992		1,933		78		27,003
	$	148,815	$	2,936	$	2,233	$	153,984

December 31, 2011	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	15,801	$	2,506	$	955	$	19,262
After one through five years		61,511		—		—		61,511
After five through ten years		42,997		689		—		43,686
After ten years		7,860		3,106		—		10,966
No single maturity date		26,623		2,168		1,065		29,856
	$	154,792	$	8,469	$	2,020	$	165,281

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
June 30, 2012		2		5		127
December 31, 2011		7		4		139

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 June 30, 2012:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		4	$	1,544	$	(38	)
Greater than 10%		1		193		(103	)
		5	$	1,737	$	(141	)
Gross Unrealized Losses at December 31, 2011:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		3	$	2,760	$	(92	)
Greater than 10%		1		191		(110	)
		4	$	2,951	$	(202	)

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 with Gross Unrealized Losses
						Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at June 30, 2012:			Gross Unrealized Losses			Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	196	$	—		$	—		$	—		$	—
Six months		—		—			—			—			—
Nine months		—		—			—			—			—
Twelve months		1,003		(11	)		(11	)		—			—
Greater than twelve months		1,737		(141	)		(27	)		(11	)		(103	)
Total	$	2,936	$	(152	)	$	(38	)	$	(11	)	$	(103	)
	Fair Value of Securities with Gross Unrealized Losses
						Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at December 31, 2011:			Gross Unrealized Losses			Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	2,506	$	—		$	—		$	—		$	—
Six months		1,945		(174	)		—			(174	)		—
Nine months		898		(11	)		(11	)		—			—
Twelve months		169		(7	)		(7	)		—			—
Greater than twelve months		2,951		(202	)		(45	)		(47	)		(110	)
Total	$	8,469	$	(394	)	$	(63	)	$	(221	)	$	(110	)

Restrictions

At June 30, 2012, fixed maturities and cash equivalents with a fair value of $5.9 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 $9.0 million (amortized cost of $8.9 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 June  30,						Six Months Ended June 30,
	2012			2011			2012			2011
Fixed maturities, available-for-sale	$	1,746		$	2,119		$	3,506		$	4,095
Investment in mutual fund, available-for-sale		140			151			277			302
Cash and cash equivalents		9			1			9			2
Other		29			30			58			58
Investment expenses		(162	)		(158	)		(318	)		(323	)
	$	1,762		$	2,143		$	3,532		$	4,134

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

	Three Months Ended June  30,						Six Months Ended June  30,
	2012			2011			2012			2011
Gains	$	5		$	150		$	32		$	150
Losses		(9	)		(1	)		(9	)		(2	)
Other-than-temporary impairment		(15	)		—			(16	)		(77	)
	$	(19	)	$	149		$	7		$	71

Realized gains and losses on sales of securities are computed based on specific identification. The non-credit related portion of other-than-temporary impairment (“OTTI”) charges is included in other comprehensive income (loss). The amounts of non-credit OTTI for securities still owned was $1.0 million for non-agency backed residential collateralized mortgage obligations (“CMOs”) and $0.2 million related to non-agency backed commercial CMOs at both June 30, 2012 and December 31, 2011.

Other-Than-Temporary Impairment

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10, 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-temporarily impaired 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 loss are presented in the following tables (in thousands, except for the number of securities).

	Three Months Ended June 30,
	2012					2011
	Number of Securities		OTTI			Number of Securities		OTTI
Collateralized mortgage obligations:
Non-agency backed – commercial		1	$	(15	)		—	$	—
Portion of loss recognized in accumulated other comprehensive income (loss)				—					—
Net OTTI recognized in net loss			$	(15	)			$	—

	Six Months Ended June 30,
	2012					2011
	Number of Securities		OTTI			Number of Securities		OTTI
Collateralized mortgage obligations:
Non-agency backed – residential		1	$	(1	)		1	$	(77	)
Non-agency backed – commercial		1		(15	)		—		—
		2		(16	)		1		(77	)
Portion of loss recognized in accumulated other comprehensive income (loss)				—					—
Net OTTI recognized in net loss			$	(16	)			$	(77	)

The following is a progression of the credit-related portion of OTTI on investments owned at June 30, 2012 and 2011 (in thousands).

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Beginning balance	$	(3,426	)	$	(3,475	)	$	(3,425	)	$	(3,590	)
Additional credit impairments on:
Previously impaired securities		(15	)		—			(16	)		(77	)
Securities without previous impairments		—			—			—			—
		(15	)		—			(16	)		(77	)
Reductions for securities sold (realized)		—			132			—			324
	$	(3,441	)	$	(3,343	)	$	(3,441	)	$	(3,343	)

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, Investments – Other – Beneficial Interests in Securitized Financial Assets (“FASB ASC 325-40”). 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, 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 non-agency backed 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 June 30, 2012 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.