3.	Investments

Investments, Available-for-Sale

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


September 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government and agencies	$	11,002	$	594	$	—		$	11,596
State		697		27		—			724
Political subdivisions		1,602		66		—			1,668
Revenue and assessment		15,557		630		(115	)		16,072
Corporate bonds		75,083		2,521		(1,911	)		75,693
Collateralized mortgage obligations:
Agency backed		5,892		350		—			6,242
Non-agency backed – residential		5,763		620		—			6,383
Non-agency backed – commercial		4,173		628		—			4,801
Redeemable preferred stocks		1,500		59		—			1,559

Total fixed maturities, available-for-sale		121,269		5,495		(2,026	)		124,738
Mutual funds, available-for-sale		9,901		790		(1	)		10,690

	$	131,170	$	6,285	$	(2,027	)	$	135,428


December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government and agencies	$	11,202	$	908	$	—		$	12,110
State		3,994		117		—			4,111
Political subdivisions		753		37		—			790
Revenue and assessment		16,449		1,553		(6	)		17,996
Corporate bonds		68,114		3,669		(246	)		71,537
Collateralized mortgage obligations:
Agency backed		11,079		791		—			11,870
Non-agency backed – residential		5,098		472		(98	)		5,472
Non-agency backed – commercial		4,652		457		—			5,109
Redeemable preferred stock		1,500		218		—			1,718

Total fixed maturities, available-for-sale .		122,841		8,222		(350	)		130,713
Mutual fund, available-for-sale .		7,501		832		—			8,333

	$	130,342	$	9,054	$	(350	)	$	139,046

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, 2013	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	16,881	$	—	$	500	$	17,381
After one through five years		23,888		12,937		—		36,825
After five through ten years		20,734		20,194		—		40,928
After ten years		7,568		3,051		—		10,619
No single maturity date		18,765		8		212		18,985

	$	87,836	$	36,190	$	712	$	124,738


December 31, 2012	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	9,380	$	—	$	5	$	9,385
After one through five years		34,460		11,518		—		45,978
After five through ten years		25,230		15,181		—		40,411
After ten years		10,770		—		—		10,770
No single maturity date		23,833		336		—		24,169

	$	103,673	$	27,035	$	5	$	130,713

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		Gross Unrealized Gains
September 30, 2013		18		—		85
December 31, 2012		13		1		108

The following table reflects the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months as of December 31, 2012 (there were none as of September 30,2013). Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).


Gross Unrealized Losses at December 31, 2012:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		—	$	—	$	—
Greater than 10%		1		212		(78	)

		1	$	212	$	(78	)

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		Gross Unrealized Losses			Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at September 30, 2013:	Fair Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	3,059	$	(131	)	$	(16	)	$	(115	)	$	—
Six months		18,997		(748	)		(254	)		(494	)		—
Nine months		14,134		(1,147	)		(99	)		(1,048	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		—		—			—			—			—

Total	$	36,190	$	(2,026	)	$	(369	)	$	(1,657	)	$	—


	Fair Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at December 31, 2012:	Fair Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Less than 5%			5% to 10%		Greater than 10%
Less than or equal to:
Three months	$	26,121	$	(266	)	$	(246	)	$	—	$	(20	)
Six months		—		—			—			—		—
Nine months		—		—			—			—		—
Twelve months		702		(6	)		(6	)		—		—
Greater than twelve months		212		(78	)		—			—		(78	)

Total	$	27,035	$	(350	)	$	(252	)	$	—	$	(98	)

Limited Partnership Interests

Limited partnership interests consist of investments in two funds that invest in small balance distressed secured loans and securities and international equity, respectively. These investments have redemption and transfer restrictions, however, the Company does not intend to sell these limited partnership interests, and it is more likely than not that the Company will not be required to sell them before the expiration of such restrictions. At September 30, 2013, the Company had unfunded commitments of $3.2 million to these limited partnerships.

In September 2013, the Company contributed $4.0 million to a third fund that invests in distressed corporate financing opportunities with an effective date of October 1, 2013 for its partnership interest. This deposit of contributed capital is included in other assets on the consolidated balance sheet as of September 30, 2013.

Net earnings from limited partnership interests is recorded in investment income in the consolidated statements of operations and comprehensive income (loss).

Restrictions

At September 30, 2013, fixed maturities and cash equivalents with a fair value and amortized cost of $5.3 million were on deposit with various insurance departments as a requirement of doing business in those states. Cash equivalents with a fair value and amortized cost of $9.4 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,						Nine Months Ended September 30,
	2013			2012			2013			2012
Fixed maturities, available-for-sale	$	1,262		$	1,629		$	3,815		$	5,136
Mutual fund, available-for-sale		176			144			462			420
Limited partnerships interests		128			—			128			—
Other		24			10			65			77
Investment expenses		(117	)		(159	)		(453	)		(477	)

	$	1,473		$	1,624		$	4,017		$	5,156

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Gains	$	44		$	3,242		$	92		$	3,274
Losses		(5	)		(22	)		(67	)		(31	)
Other-than-temporary impairment		(33	)		(7	)		(61	)		(23	)

	$	6		$	3,213		$	(36	)	$	3,220

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”) 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 September 30, 2013 and December 31, 2012.

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 comprehensive income (loss) 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,
	2013					2012
	Number of Securities		OTTI			Number of Securities		OTTI
Collateralized mortgage obligations:
Non-agency backed – residential		1	$	(33	)		1	$	(7	)
Non-agency backed – commercial		—		—			—		—

		1		(33	)		1		(7	)
Portion of loss recognized in accumulated other comprehensive income (loss)				—					—

Net OTTI recognized in net income (loss)			$	(33	)			$	(7	)


	Nine Months Ended September 30,
	2013					2012
	Number of Securities		OTTI			Number of Securities		OTTI
Collateralized mortgage obligations:
Non-agency backed – residential		1	$	(61	)		2	$	(8	)
Non-agency backed – commercial		—		—			1		(15	)

		1		(61	)		3		(23	)
Portion of loss recognized in accumulated other comprehensive income (loss)				—					—

Net OTTI recognized in net income (loss)			$	(61	)			$	(23	)

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2013 and 2012 (in thousands).


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Beginning balance	$	(2,599	)	$	(3,441	)	$	(2,666	)	$	(3,425	)
Additional credit impairments on:
Previously impaired securities		(33	)		(7	)		(61	)		(23	)
Securities without previous impairments		—			—			—			—

		(33	)		(7	)		(61	)		(23	)
Reductions for securities sold (realized)		—			—			(95	)		—

Ending balance	$	(2,632	)	$	(3,448	)	$	(2,632	)	$	(3,448	)

The Company believes that the remaining securities having unrealized losses at September 30, 2013 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.