3. Investments

Investments, Available-for-Sale

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

September 30, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government and agencies	$	4,005	$	290	$	(8)	$	4,287
State		698		33		-		731
Political subdivisions		500		8		-		508
Revenue and assessment		11,346		1,173		-		12,519
Corporate bonds		74,950		2,483		(1,007)		76,426
Collateralized mortgage obligations:
Agency backed		6,848		223		-		7,071
Non-agency backed – residential		3,682		676		-		4,358
Non-agency backed – commercial		2,425		696		-		3,121
Total fixed maturities, available-for-sale		104,454		5,582		(1,015)		109,021
Preferred stock, available-for-sale		1,500		221		-		1,721
Mutual funds, available-for-sale		9,900		871		-		10,771
	$	115,854	$	6,674	$	(1,015)	$	121,513

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government and agencies	$	12,006	$	495	$	(16	)	$	12,485
State		697		39		—			736
Political subdivisions		601		11		—			612
Revenue and assessment		14,050		619		(11	)		14,658
Corporate bonds		73,461		2,127		(2,263	)		73,325
Collateralized mortgage obligations:
Agency backed		7,113		401		—			7,514
Non-agency backed – residential		4,181		480		(1	)		4,660
Non-agency backed – commercial		3,363		580		—			3,943
Total fixed maturities, available-for-sale		115,472		4,752		(2,291	)		117,933
Preferred stock, available-for-sale		1,500		78		—			1,578
Mutual funds, available-for-sale		9,901		836		—			10,737
	$	126,873	$	5,666	$	(2,291	)	$	130,248

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, 2014	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	5,106	$	-	$	-	$	5,106
After one through five years		27,068		10,941		-		38,009
After five through ten years		21,873		20,890		-		42,763
After ten years		6,858		1,735		-		8,593
No single maturity date		14,453		97		-		14,550
	$	75,358	$	33,663	$	-	$	109,021

December 31, 2013	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
One year or less	$	14,305	$	—	$	—	$	14,305
After one through five years		25,667		10,888		—		36,555
After five through ten years		20,445		22,836		—		43,281
After ten years		3,667		4,008		—		7,675
No single maturity date		15,928		189		—		16,117
	$	80,012	$	37,921	$	—	$	117,933

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, 2014		5		11		81
December 31, 2013		12		7		83

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, 2014:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		11	$	25,555	$	(974)
Greater than 10%		-		—		—
		11	$	25,555	$	(974)

Gross Unrealized Losses at December 31, 2013:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		7	$	13,980	$	(1,270	)
Greater than 10%		—		—		—
		7	$	13,980	$	(1,270	)

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).

Length of Gross Unrealized Losses at September 30, 2014:	Fair Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses		Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at September 30, 2014:	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	$	1,198	$	(1)	$	(1)	$	-	$	-
Six months		3,038		(16)		(16)		-		-
Nine months		2,876		(16)		(16)		-		-
Twelve months		996		(8)		(8)		-		-
Greater than twelve months		25,555		(974)		(518)		(456)		-
Total	$	33,663	$	(1,015)	$	(559)	$	(456)	$	-

Length of Gross Unrealized Losses at December 31, 2013:	Fair Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Severity of Gross Unrealized Losses
Length of Gross Unrealized Losses at December 31, 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	$	6,417	$	(40	)	$	(40	)	$	—		$	—
Six months		1,653		(129	)		—			(129	)		—
Nine months		15,871		(852	)		(153	)		(699	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		13,980		(1,270	)		(85	)		(1,185	)		—
Total	$	37,921	$	(2,291	)	$	(278	)	$	(2,013	)	$	—

Other Investments

Other investments consist of the common stock of a real estate investment trust and limited partnership interests in three funds that invest in (i) commercial real estate and secured commercial real estate loans acquired from financial intuitions, (ii) small balance distressed secured loans and debt securities and (iii) undervalued international publicly-traded equities. These investments have redemption and transfer restrictions; however, the Company does not intend to sell these investments, 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, 2014, the Company had unfunded commitments of $3.0 million with two of these investments.

Net income from other investments is recorded in investment income in the consolidated statements of comprehensive income (loss).

Restrictions

At September 30, 2014, fixed maturities and cash equivalents with a fair value and amortized cost of $5.2 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,
	2014		2013			2014		2013
Fixed maturities, available-for-sale	$	1,089	$	1,213		$	3,442	$	3,717
Mutual funds, available-for-sale		151		176			458		462
Other investments		(29)		128			248		128
Other		54		73			156		163
Investment expenses		(123)		(117	)		(368)		(453	)
	$	1,142	$	1,473		$	3,936	$	4,017

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,
	2014		2013			2014		2013
Gains	$	-	$	44		$	85	$	92
Losses		(4)		(5	)		(49)		(67	)
Other-than-temporary impairment		-		(33	)		-		(61	)
	$	(4)	$	6		$	36	$	(36	)

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. The amounts of non-credit OTTI for securities still owned was $0.9 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, 2014 and December 31, 2013.

Other-Than-Temporary Impairment

The Company separates OTTI into the following two components: (i) the amount related to credit losses, which is recognized in the consolidated statement of comprehensive income (loss) and (ii) the amount related to all other factors, which is recorded in 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.

For the three and nine months ended September 30, 2013, the Company recognized OTTI charges in net income of $33 thousand and $61 thousand, respectively, related to one non-agency backed residential CMO.

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2014 and 2013 (in thousands).

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014		2013
Beginning balance	$	(2,632)	$	(2,599	)	$	(2,632)	$	(2,666	)
Additional credit impairments on:
Previously impaired securities		—		(33	)		—		(61	)
Securities without previous impairments		—		—			—		—
		—		(33	)		—		(61	)
Reductions for securities sold (realized)		—		—			—		95
	$	(2,632)	$	(2,632	)	$	(2,632)	$	(2,632	)

The Company believes that the remaining securities having unrealized losses at September 30, 2014 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.