Note 4. Investments

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at March 31, 2014 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	368,697	$	19,970	$	(303	)	$	388,364
Corporate bonds		94,099		945		(74	)		94,970
Commercial mortgage-backed securities		49,884		3,079		—			52,963
U.S. agency-based mortgage-backed securities		20,418		1,794		—			22,212
U.S. Treasury securities and obligations of U.S. government agencies		12,265		1,077		(6	)		13,336
Asset-backed securities		3,249		214		(133	)		3,330

Totals	$	548,612	$	27,079	$	(516	)	$	575,175

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at March 31, 2014 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	153,335	$	3,530	$	(2,790	)	$	154,075
Corporate bonds		106,789		503		(198	)		107,094
U.S. agency-based mortgage-backed securities		10,011		—		(2,991	)		7,020

Total fixed maturity		270,135		4,033		(5,979	)		268,189
Other investments		10,000		820		—			10,820
Equity securities		3,447		261		(26	)		3,682

Totals	$	283,582	$	5,114	$	(6,005	)	$	282,691

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2013 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	381,674	$	18,634	$	(1,153	)	$	399,155
Corporate bonds		67,423		861		(41	)		68,243
Commercial mortgage-backed securities		50,813		3,431		—			54,244
U.S. agency-based mortgage-backed securities		21,775		1,790		—			23,565
U.S. Treasury securities and obligations of U.S. Government agencies		11,514		1,002		—			12,516
Asset-backed securities		3,384		216		(144	)		3,456

Totals	$	536,583	$	25,934	$	(1,338	)	$	561,179

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2013 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	154,024	$	1,491	$	(5,140	)	$	150,375
Corporate bonds		80,344		445		(361	)		80,428
U.S. agency-based mortgage-backed securities		10,041		—		(2,967	)		7,074

Total fixed maturity		244,409		1,936		(8,468	)		237,877
Other investments		10,000		591		—			10,591
Equity securities		9,482		387		(567	)		9,302

Totals	$	263,891	$	2,914	$	(9,035	)	$	257,770

A summary of the cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at March 31, 2014, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Less than one year	$	55,114	$	55,575
One to five years		171,828		179,609
Five to ten years		127,493		136,840
More than ten years		120,626		124,646
U.S. agency-based mortgage-backed securities		20,418		22,212
Commercial mortgage-backed securities		49,884		52,963
Asset-backed securities		3,249		3,330

Total	$	548,612	$	575,175

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at March 31, 2014, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Less than one year	$	41,459	$	41,542
One to five years		60,956		61,229
Five to ten years		15,939		16,289
More than ten years		141,770		142,109
U.S. agency-based mortgage-backed securities		10,011		7,020

Total	$	270,135	$	268,189

The following table summarizes the fair value and gross unrealized losses on securities, aggregated by major investment category and length of time that the individual securities have been in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or Greater				Total
	Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
	(In thousands)
March 31, 2014
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	24,290	$	74	$	—	$	—	$	24,290	$	74
States and political subdivisions		27,027		262		2,012		41		29,039		303
Asset-backed securities		—		—		1,866		133		1,866		133
U.S. Treasury securities and obligations of U.S. government agencies		3,387		6		—		—		3,387		6

Total held-to-maturity securities		54,704		342		3,878		174		58,582		516

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	45,493	$	198	$	—	$	—	$	45,493	$	198
States and political subdivisions		43,605		1,371		12,247		1,419		55,852		2,790
U.S. agency-based mortgage-backed securities		1,324		423		5,695		2,568		7,019		2,991
Equity securities		461		26		—		—		461		26

Total available-for-sale securities		90,883		2,018		17,942		3,987		108,825		6,005

Total	$	145,587	$	2,360	$	21,820	$	4,161	$	167,407	$	6,521


	Less Than 12 Months				12 Months or Greater				Total
	Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
	(In thousands)
December 31, 2013
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	14,090	$	41	$	—	$	—	$	14,090	$	41
States and political subdivisions		54,895		1,147		311		6		55,206		1,153
Asset-backed securities		—		—		1,916		144		1,916		144

Total held-to-maturity securities		68,985		1,188		2,227		150		71,212		1,338

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	29,691	$	361	$	—	$	—	$	29,691	$	361
States and political subdivisions		101,908		4,798		1,753		342		103,661		5,140
U.S. agency-based mortgage-backed securities		1,303		465		5,772		2,502		7,075		2,967
Equity securities		5,205		567		—		—		5,205		567

Total available-for-sale securities		138,107		6,191		7,525		2,844		145,632		9,035

Total	$	207,092	$	7,379	$	9,752	$	2,994	$	216,844	$	10,373

At March 31, 2014, the Company held 144 individual fixed maturity securities and one equity security that were in an unrealized loss position, of which 27 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.

Amerisafe holds investments in a long/short equity fund, accounted for under the equity method. The carrying value of this investment is $10.8 million at March 31, 2014.

Investment income is recognized as it is earned. The discount or premium on fixed maturity securities is amortized using the “constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums or discounts. Realized investment gains and losses are determined using the specific identification method.

We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our investments. We consider various factors in determining if a decline in the fair value of an individual security is other-than-temporary. The key factors we consider are:

•

any reduction or elimination of dividends, or nonpayment of scheduled principal or interest payments;

•

the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that may affect its operations or earnings;

•

how long and by how much the fair value of the security has been below its cost or amortized cost;

•

any downgrades of the security by a rating agency;

•

our intent not to sell the security for a sufficient time period for it to recover its value;

•

the likelihood of being forced to sell the security before the recovery of its value; and

•

an evaluation as to whether there are any credit losses on debt securities.

We reviewed all securities with unrealized losses in accordance with the impairment policy described above. The Company expects to hold investments in equity securities for a reasonable period of time sufficient for a recovery of fair value. We determined that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. We expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the security before the recovery of its amortized cost basis. In addition, none of the unrealized losses on debt securities are considered credit losses.

Net realized gains on investments in the three months ended March 31, 2014 totaled $0.1 million resulting from gains on called fixed maturity securities and the sale of equity securities. Net realized gains in the three months ended March 31, 2013 were immaterial.

As a result of the review of our investment portfolio, there were no impairment losses recognized for other-than-temporary declines in the fair value of our investments in the three months ended March 31, 2014 and 2013.