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, 2015 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	439,985	$	15,536	$	(961	)	$	454,560
Corporate bonds		183,246		425		(384	)		183,287
Commercial mortgage-backed securities		44,907		1,001		—			45,908
U.S. agency-based mortgage-backed securities		14,974		1,516		(2	)		16,488
U.S. Treasury securities and obligations of U.S. Government agencies		12,869		1,045		—			13,914
Asset-backed securities		2,532		236		(69	)		2,699

Totals	$	698,513	$	19,759	$	(1,416	)	$	716,856

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, 2015 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	168,047	$	5,725	$	(609	)	$	173,163
Corporate bonds		163,985		398		(330	)		164,053
U.S. agency-based mortgage-backed securities		9,559		4		(2,120	)		7,443

Total fixed maturity		341,591		6,127		(3,059	)		344,659
Other investments		10,000		1,695		—			11,695
Equity securities		—		28		—			28

Totals	$	351,591	$	7,850	$	(3,059	)	$	356,382

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, 2014 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	385,623	$	20,100	$	(58	)	$	405,665
Corporate bonds		176,880		374		(520	)		176,734
Commercial mortgage-backed securities		46,662		1,867		—			48,529
U.S. agency-based mortgage-backed securities		16,972		1,702		(2	)		18,672
U.S. Treasury securities and obligations of U.S. Government agencies		10,697		1,097		(2	)		11,792
Asset-backed securities		2,797		264		(82	)		2,979

Totals	$	639,631	$	25,404	$	(664	)	$	664,371

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, 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	$	151,744	$	7,302	$	(1,672	)	$	157,374
Corporate bonds		165,412		428		(470	)		165,370
U.S. agency-based mortgage-backed securities		9,848		2		(1,352	)		8,498

Total fixed maturity		327,004		7,732		(3,494	)		331,242
Other investments		10,000		1,748		—			11,748
Equity securities		—		28		—			28

Totals	$	337,004	$	9,508	$	(3,494	)	$	343,018

A summary of the cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at June 30, 2015, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	146,632	$	147,370
After one year through five years		280,016		287,865
After five years through ten years		137,031		142,228
After ten years		72,721		74,298
U.S. agency-based mortgage-backed securities		14,974		16,488
Commercial mortgage-backed securities		44,907		45,908
Asset-backed securities		2,532		2,699

Total	$	698,513	$	716,856

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at June 30, 2015, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	54,714	$	54,750
After one year through five years		133,161		133,717
After five years through ten years		16,132		16,165
After ten years		128,025		132,584
U.S. agency-based mortgage-backed securities		9,559		7,443

Total	$	341,591	$	344,659

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, 2015
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	92,732	$	356	$	10,852	$	28	$	103,584	$	384
States and political subdivisions		77,142		961		—		—		77,142		961
U.S. agency-based mortgage-backed securities		71		2		—		—		71		2
Asset-backed securities		—		—		1,560		69		1,560		69

Total held-to-maturity securities		169,945		1,319		12,412		97		182,357		1,416

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	76,180	$	323	$	4,085	$	7	$	80,265	$	330
States and political subdivisions		33,017		333		4,392		276		37,409		609
U.S. agency-based mortgage-backed securities		577		17		7,743		2,103		8,320		2,120

Total available-for-sale securities		109,774		673		16,220		2,386		125,994		3,059

Total	$	279,719	$	1,992	$	28,632	$	2,483	$	308,351	$	4,475

December 31, 2014
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	129,788	$	520	$	—	$	—	$	129,788	$	520
States and political subdivisions		16,896		58		—		—		16,896		58
U.S. Treasury securities and obligations of U.S. Government agencies		3,385		2		—		—		3,385		2
U.S. agency-based mortgage-backed securities		78		2		—		—		78		2
Asset-backed securities		—		—		1,662		82		1,662		82

Total held-to-maturity securities		150,147		582		1,662		82		151,809		664


Available-for Sale
Fixed maturity securities:
Corporate bonds	$	106,185	$	470	$	—	$	—	$	106,185	$	470
States and political subdivisions		3,810		6		10,347		1,666		14,157		1,672
U.S. agency-based mortgage-backed securities		627		11		7,757		1,341		8,384		1,352

Total available-for-sale securities		110,622		487		18,104		3,007		128,726		3,494

Total	$	260,769	$	1,069	$	19,766	$	3,089	$	280,535	$	4,158

At June 30, 2015, the Company held 205 individual fixed maturity securities that were in an unrealized loss position, of which 22 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 $11.7 million at June 30, 2015.

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 specific 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 preferred 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. With the exception of four securities 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 securities before the recovery of the amortized cost basis.

During the second quarter of 2015, the Company impaired four fixed maturity securities in the amount of $2.7 million. The impairment charge is included in “Net realized gains/(losses) on investments” for 2015. We impaired the securities due to recent downgrades of the securities and the amount of the accumulated unrealized loss. After reviewing the change in relevant benchmark yields, the Company determined the loss was credit related.

Net realized losses in the six months ended June 30, 2015 were $2.6 million resulting from an impairment loss of $2.7 million recognized for the other-than-temporary decline in the fair value of four fixed maturity securities offset by $0.1 million in gains on called fixed maturity securities. Net realized gains in the six months ended June 30, 2014 were $0.3 million resulting from gains on called fixed maturity securities and the sale of equity securities.