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 September 30, 2014 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	374,869	$	21,092	$	(34	)	$	395,927
Corporate bonds		144,898		579		(204	)		145,273
Commercial mortgage-backed securities		47,657		2,371		—			50,028
U.S. agency-based mortgage-backed securities		18,012		1,735		—			19,747
U.S. Treasury securities and obligations of U.S. Government agencies		10,703		1,016		(1	)		11,718
Asset-backed securities		2,948		227		(85	)		3,090

Totals	$	599,087	$	27,020	$	(324	)	$	625,783

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 September 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	$	151,839	$	6,549	$	(1,599	)	$	156,789
Corporate bonds		152,560		424		(314	)		152,670
U.S. agency-based mortgage-backed securities		9,908		—		(2,089	)		7,819

Total fixed maturity		314,307		6,973		(4,002	)		317,278
Other investments		10,000		1,228		—			11,228
Equity securities		3,446		244		(92	)		3,598

Totals	$	327,753	$	8,445	$	(4,094	)	$	332,104

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


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	130,685	$	132,090
After one year through five years		328,360		343,614
After five years through ten years		70,889		76,599
After ten years		536		615
U.S. agency-based mortgage-backed securities		18,012		19,747
Commercial mortgage-backed securities		47,657		50,028
Asset-backed securities		2,948		3,090

Total	$	599,087	$	625,783

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


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	71,210	$	71,345
After one year through five years		167,036		170,290
After five years through ten years		47,917		50,249
After ten years		18,236		17,575
U.S. agency-based mortgage-backed securities		9,908		7,819

Total	$	314,307	$	317,278

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)
September 30, 2014
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	77,260	$	204	$	—	$	—	$	77,260	$	204
States and political subdivisions		7,760		34		—		—		7,760		34
Asset-backed securities		—		—		1,746		85		1,746		85
U.S. Treasury securities and obligations of U.S. Government agencies		2,851		1		—		—		2,851		1

Total held-to-maturity securities		87,871		239		1,746		85		89,617		324

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	78,350	$	314	$	—	$	—	$	78,350	$	314
States and political subdivisions		6,894		33		11,070		1,566		17,964		1,599
U.S. agency-based mortgage-backed securities		724		60		7,095		2,029		7,819		2,089
Equity securities		1,182		92		—		—		1,182		92

Total available-for-sale securities		87,150		499		18,165		3,595		105,315		4,094

Total	$	175,021	$	738	$	19,911	$	3,680	$	194,932	$	4,418


	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 September 30, 2014, the Company held 126 individual fixed maturity securities and two equity securities that were in an unrealized loss position, of which 21 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 $11.2 million at September 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. With the exception of one security deemed to be other-than-temporarily impaired, the Company 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.

During the third quarter of 2014, the Company impaired a fixed maturity security in the amount of $0.2 million. The impairment charge is included in “Net realized gains (losses) on investments” for 2014. We impaired the security due to a recent downgrade of the security and the amount of the accumulated unrealized loss.

Net realized gains in the nine months ended September 30, 2014 were $0.2 million resulting from $0.4 million in gains on called fixed maturity securities offset by an impairment loss of $0.2 million recognized for the other-than-temporary decline in the fair value of a fixed maturity security. Net realized losses in the nine months ended September 30, 2013 were $1.9 million due to $2.2 million of impairment losses recognized for other-than-temporary declines in the fair value of certain equity securities offset by realized gains of $0.2 million.