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, 2016 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	423,631	$	19,066	$	(3	)	$	442,694
Corporate bonds		163,648		1,739		(117	)		165,270
Commercial mortgage-backed securities		6,681		37		(6	)		6,712
U.S. agency-based mortgage-backed securities		11,849		1,280		(1	)		13,128
U.S. Treasury securities and obligations of U.S. government agencies		12,261		1,057		—			13,318
Asset-backed securities		2,095		183		(76	)		2,202

Totals	$	620,165	$	23,362	$	(203	)	$	643,324

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, 2016 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	171,931	$	9,788	$	(70	)	$	181,649
Corporate bonds		201,031		2,590		(288	)		203,333
U.S. agency-based mortgage-backed securities		12,672		46		(703	)		12,015
U.S. Treasury securities and obligations of U.S. government agencies		62,354		1,346		—			63,700

Total fixed maturity		447,988		13,770		(1,061	)		460,697
Other investments		10,000		850		—			10,850
Equity securities		—		32		—			32

Totals	$	457,988	$	14,652	$	(1,061	)	$	471,579

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, 2015 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	408,447	$	15,352	$	(45	)	$	423,754
Corporate bonds		171,224		159		(810	)		170,573
Commercial mortgage-backed securities		37,494		204		(15	)		37,683
U.S. agency-based mortgage-backed securities		13,223		1,249		(1	)		14,471
U.S. Treasury securities and obligations of U.S. government agencies		12,487		897		(4	)		13,380
Asset-backed securities		2,289		202		(76	)		2,415

Totals	$	645,164	$	18,063	$	(951	)	$	662,276

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, 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	$	164,684	$	6,942	$	(207	)	$	171,419
Corporate bonds		202,537		253		(1,486	)		201,304
U.S. agency-based mortgage-backed securities		8,888		4		(1,593	)		7,299

Total fixed maturity		376,109		7,199		(3,286	)		380,022
Other investments		10,000		2,217		—			12,217
Equity securities		—		31		—			31

Totals	$	386,109	$	9,447	$	(3,286	)	$	392,270

A summary of the cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at June 30, 2016, by contractual maturity, is as follows:


Maturity	Amortized Cost		Fair Value
	(in thousands)
Within one year	$	101,082	$	102,092
After one year through five years		294,889		304,442
After five years through ten years		117,736		123,845
After ten years		85,833		90,903
U.S. agency-based mortgage-backed securities		11,849		13,128
Commercial mortgage-backed securities		6,681		6,712
Asset-backed securities		2,095		2,202

Totals	$	620,165	$	643,324

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at June 30, 2016, by contractual maturity, is as follows:


Maturity	Amortized Cost		Fair Value
	(in thousands)
Within one year	$	59,564	$	59,891
After one year through five years		214,075		217,789
After five years through ten years		52,827		54,534
After ten years		108,850		116,468
U.S. agency-based mortgage-backed securities		12,672		12,015

Totals	$	447,988	$	460,697

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, 2016
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	14,753	$	71	$	5,498	$	46	$	20,251	$	117
States and political subdivisions		4,780		3		—		—		4,780		3
U.S. agency-based mortgage-backed securities		—		—		25		1		25		1
Commercial mortgage-backed securities		1,720		6		—		—		1,720		6
Asset-backed securities		—		—		1,269		76		1,269		76

Total held-to-maturity securities		21,253		80		6,792		123		28,045		203

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	10,008	$	103	$	3,078	$	185	$	13,086	$	288
States and political subdivisions		1,807		1		4,722		69		6,529		70
U.S. agency-based mortgage-backed securities		—		—		7,792		703		7,792		703

Total available-for-sale securities		11,815		104		15,592		957		27,407		1,061

Total	$	33,068	$	184	$	22,384	$	1,080	$	55,452	$	1,264


	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, 2015
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	128,436	$	687	$	18,139	$	123	$	146,575	$	810
States and political subdivisions		24,068		45		—		—		24,068		45
U.S. Treasury securities and obligations of U.S. government agencies		2,980		4		—		—		2,980		4
U.S. agency-based mortgage-backed securities		18		—		28		1		46		1
Commercial mortgage-backed securities		9,784		15		—		—		9,784		15
Asset-backed securities		—		—		1,389		76		1,389		76

Total held-to-maturity securities		165,286		751		19,556		200		184,842		951

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	141,857	$	1,475	$	4,216	$	11	$	146,073	$	1,486
States and political subdivisions		6,560		9		4,439		198		10,999		207
U.S. agency-based mortgage-backed securities		434		37		6,794		1,556		7,228		1,593

Total available-for-sale securities		148,851		1,521		15,449		1,765		164,300		3,286

Total	$	314,137	$	2,272	$	35,005	$	1,965	$	349,142	$	4,237

At June 30, 2016, the Company held 51 individual fixed maturity securities that were in an unrealized loss position, of which 24 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.

The Company holds investments in a limited partnership hedge fund accounted for under the equity method. The carrying value of this investment is $10.8 million at June 30, 2016.

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. 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 six months ended June 30, 2016, there were no impairment losses recognized for other-than-temporary declines in the fair value of our investments compared to $2.7 million for the same period in 2015.

Net realized gains in the six months ended June 30, 2016 were $0.8 million resulting from the sale of fixed maturity securities classified as available-for-sale. 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.