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 June 30, 2014 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	392,381	$	21,821	$	(66	)	$	414,136
Corporate bonds		102,925		756		(57	)		103,624
Commercial mortgage-backed securities		49,327		2,767		—			52,094
U.S. agency-based mortgage-backed securities		19,170		1,892		—			21,062
U.S. Treasury securities and obligations of U.S. government agencies		12,259		1,132		(1	)		13,390
Asset-backed securities		3,083		243		(120	)		3,206

Totals	$	579,145	$	28,611	$	(244	)	$	607,512

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 June 30, 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	$	151,140	$	5,711	$	(1,759	)	$	155,092
Corporate bonds		121,088		708		(33	)		121,763
U.S. agency-based mortgage-backed securities		10,012		1		(2,255	)		7,758

Total fixed maturity		282,240		6,420		(4,047	)		284,613
Other investments		10,000		1,092		—			11,092
Equity securities		3,446		540		(6	)		3,980

Totals	$	295,686	$	8,052	$	(4,053	)	$	299,685

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 June 30, 2014, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Less than one year	$	55,153	$	55,726
One to five years		186,929		194,771
Five to ten years		140,954		150,762
More than ten years		124,529		129,891
U.S. agency-based mortgage-backed securities		19,170		21,062
Commercial mortgage-backed securities		49,327		52,094
Asset-backed securities		3,083		3,206

Total	$	579,145	$	607,512

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at June 30, 2014, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Less than one year	$	34,052	$	34,120
One to five years		84,799		85,482
Five to ten years		14,305		14,661
More than ten years		139,072		142,592
U.S. agency-based mortgage-backed securities		10,012		7,758

Total	$	282,240	$	284,613

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)
June 30, 2014
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	19,268	$	57	$	—	$	—	$	19,268	$	57
States and political subdivisions		14,872		64		1,423		2		16,295		66
Asset-backed securities		—		—		1,799		120		1,799		120
U.S. Treasury securities and obligations of U.S. government agencies		2,852		1		—		—		2,852		1

Total held-to-maturity securities		36,992		122		3,222		122		40,214		244

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	20,127	$	30	$	986	$	3	$	21,113	$	33
States and political subdivisions		14,689		82		12,700		1,677		27,389		1,759
U.S. agency-based mortgage-backed securities		605		79		7,031		2,176		7,636		2,255
Equity securities		480		6		—		—		480		6

Total available-for-sale securities		35,901		197		20,717		3,856		56,618		4,053

Total	$	72,893	$	319	$	23,939	$	3,978	$	96,832	$	4,297


	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 June 30, 2014, the Company held 88 individual fixed maturity securities and one equity security that were in an unrealized loss position, of which 26 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.

The Company holds investments in a long/short equity fund, accounted for under the equity method. The carrying value of this investment is $11.1 million at June 30, 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 six months ended June 30, 2014 totaled $0.3 million resulting from gains on called fixed maturity securities and the sale of equity securities. Net realized losses in the six months ended June 30, 2013 were $1.3 million from the impairment losses recognized for other-than-temporary declines in the fair value of certain equity securities of $1.9 million offset by realized gains of $0.6 from the sale of equity and fixed maturity securities classified as available-for-sale.