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Investments
6 Months Ended
Jun. 30, 2013
Investments [Abstract]  
Investments
Investments
The cost or amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the Company’s investments were as follows:
 
 
Cost or Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
 
(in thousands)
At June 30, 2013
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Treasuries
 
$
143,294

 
$
8,830

 
$
(39
)
 
$
152,085

U.S. Agencies
 
85,104

 
3,930

 
(3
)
 
89,031

States and municipalities
 
713,702

 
45,248

 
(4,117
)
 
754,833

Corporate securities
 
725,567

 
31,031

 
(9,790
)
 
746,808

Residential mortgage-backed securities
 
231,561

 
10,260

 
(2,796
)
 
239,025

Commercial mortgage-backed securities
 
53,618

 
423

 
(2,608
)
 
51,433

Asset-backed securities
 
36,977

 
94

 
(259
)
 
36,812

Total fixed maturity securities
 
1,989,823

 
99,816

 
(19,612
)
 
2,070,027

Equity securities
 
85,559

 
55,114

 
(304
)
 
140,369

Total investments
 
$
2,075,382

 
$
154,930

 
$
(19,916
)
 
$
2,210,396

At December 31, 2012
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Treasuries
 
$
138,839

 
$
13,651

 
$

 
$
152,490

U.S. Agencies
 
88,202

 
5,765

 

 
93,967

States and municipalities
 
689,776

 
68,740

 

 
758,516

Corporate securities
 
627,047

 
49,461

 
(265
)
 
676,243

Residential mortgage-backed securities
 
236,461

 
16,488

 
(97
)
 
252,852

Commercial mortgage-backed securities
 
54,755

 
1,410

 
(45
)
 
56,120

Asset-backed securities
 
34,062

 
211

 
(33
)
 
34,240

Total fixed maturity securities
 
1,869,142

 
155,726

 
(440
)
 
2,024,428

Equity securities
 
81,067

 
45,399

 
(1,380
)
 
125,086

Total investments
 
$
1,950,209

 
$
201,125

 
$
(1,820
)
 
$
2,149,514


The amortized cost and estimated fair value of fixed maturity securities at June 30, 2013, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Amortized Cost
 
Estimated Fair Value
 
 
(in thousands)
Due in one year or less
 
$
151,956

 
$
154,046

Due after one year through five years
 
751,560

 
784,120

Due after five years through ten years
 
583,868

 
614,269

Due after ten years
 
180,283

 
190,322

Mortgage and asset-backed securities
 
322,156

 
327,270

Total
 
$
1,989,823

 
$
2,070,027


The following is a summary of investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or greater as of June 30, 2013 and December 31, 2012.
 
 
June 30, 2013
 
December 31, 2012
 
 
Estimated Fair Value
 
Gross Unrealized Losses
 
Number of Issues
 
Estimated Fair Value
 
Gross Unrealized Losses
 
Number of Issues
 
 
(dollars in thousands)
Less than 12 months:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
 
$
12,107

 
$
(39
)
 
5

 
$

 
$

 

U.S. Agencies
 
3,025

 
(3
)
 
1

 

 

 

States and municipalities
 
96,389

 
(4,117
)
 
26

 

 

 

Corporate securities
 
292,305

 
(9,664
)
 
110

 
36,338

 
(265
)
 
12

Residential mortgage-backed securities
 
80,475

 
(2,785
)
 
36

 
14,629

 
(28
)
 
6

Commercial mortgage-backed securities
 
33,254

 
(2,608
)
 
10

 
10,432

 
(45
)
 
4

Asset-backed securities
 
28,903

 
(259
)
 
13

 
16,714

 
(33
)
 
5

Total fixed maturity securities
 
546,458

 
(19,475
)
 
201

 
78,113

 
(371
)
 
27

Equity securities
 
10,005

 
(268
)
 
38

 
11,645

 
(1,207
)
 
35

Total less than 12 months
 
$
556,463

 
$
(19,743
)
 
239

 
$
89,758

 
$
(1,578
)
 
62

 
 
 
 
 
 
 
 
 
 
 
 
 
12 months or greater:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
$
2,460

 
$
(126
)
 
1

 
$

 
$

 

Residential mortgage-backed securities
 
511

 
(11
)
 
17

 
2,341

 
(69
)
 
17

Total fixed maturity securities
 
2,971

 
(137
)
 
18

 
2,341

 
(69
)
 
17

Equity securities
 
331

 
(36
)
 
2

 
456

 
(173
)
 
4

Total 12 months or greater
 
$
3,302

 
$
(173
)
 
20

 
$
2,797

 
$
(242
)
 
21

 
 
 
 
 
 
 
 
 
 
 
 
 
Total available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
 
$
12,107

 
$
(39
)
 
5

 
$

 
$

 

U.S. Agencies
 
3,025

 
(3
)
 
1

 

 

 

States and municipalities
 
96,389

 
(4,117
)
 
26

 

 

 

Corporate securities
 
294,765

 
(9,790
)
 
111

 
36,338

 
(265
)
 
12

Residential mortgage-backed securities
 
80,986

 
(2,796
)
 
53

 
16,970

 
(97
)
 
23

Commercial mortgage-backed securities
 
33,254

 
(2,608
)
 
10

 
10,432

 
(45
)
 
4

Asset-backed securities
 
28,903

 
(259
)
 
13

 
16,714

 
(33
)
 
5

Total fixed maturity securities
 
549,429

 
(19,612
)
 
219

 
80,454

 
(440
)
 
44

Equity securities
 
10,336

 
(304
)
 
40

 
12,101

 
(1,380
)
 
39

Total available-for-sale
 
$
559,765

 
$
(19,916
)
 
259

 
$
92,555

 
$
(1,820
)
 
83


Based on reviews of the fixed maturity securities, the Company determined that unrealized losses as of June 30, 2013 were primarily the result of changes in prevailing interest rates and not the credit quality of the issuers. The fixed maturity securities whose total fair value was less than amortized cost were not determined to be other-than-temporarily impaired given the severity and duration of the impairment, the credit quality of the issuers, the Company’s intent to not sell the securities, and a determination that it is not more likely than not that the Company will be required to sell the securities until fair value recovers to above cost, or maturity.
Based on reviews of the equity securities as of June 30, 2013, the Company recognized an impairment of $0.1 million in the fair value of one equity security as a result of the severity and duration of the change in fair value of that security.
Realized gains on investments, net, and the change in unrealized gains (losses) on fixed maturity and equity securities are determined on a specific-identification basis and were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2013

2012
 
2013

2012
 
 
(in thousands)
Realized gains on investments, net
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
Gross gains
 
$
1

 
$
592

 
$
1

 
$
2,295

Gross losses
 

 

 

 
(5
)
Realized gains on fixed maturity securities, net
 
$
1

 
$
592

 
$
1

 
$
2,290

Equity securities
 
 
 
 
 
 
 
 
Gross gains
 
$
3,933

 
$
613

 
$
4,977

 
$
1,161

Gross losses
 
(68
)
 
(260
)
 
(318
)
 
(728
)
Realized gains on equity securities, net
 
$
3,865

 
$
353

 
$
4,659

 
$
433

Total
 
$
3,866

 
$
945

 
$
4,660

 
$
2,723

 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses)
 
 

 
 

 
 
 
 
Fixed maturity securities
 
$
(62,851
)
 
$
8,015

 
$
(75,082
)
 
$
3,558

Equity securities
 
(687
)
 
(3,047
)
 
10,790

 
8,931

Total
 
$
(63,538
)
 
$
4,968

 
$
(64,292
)
 
$
12,489


Net investment income was as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in thousands)
Fixed maturity securities
 
$
17,280

 
$
18,045

 
$
34,526

 
$
36,289

Equity securities
 
947

 
777

 
1,783

 
1,424

Cash equivalents and restricted cash
 
28

 
94

 
63

 
223

 
 
18,255

 
18,916

 
36,372

 
37,936

Investment expenses
 
(610
)
 
(619
)
 
(1,322
)
 
(1,254
)
Net investment income
 
$
17,645

 
$
18,297

 
$
35,050

 
$
36,682


The Company is required by various state laws and regulations to keep securities or letters of credit in depository accounts with certain states in which it does business. As of June 30, 2013 and December 31, 2012, securities having a fair value of $592.1 million and $530.6 million, respectively, were on deposit. These laws and regulations govern not only the amount, but also the types of securities that are eligible for deposit. The deposits are limited to fixed maturity securities in all states. Additionally, certain reinsurance contracts require Company funds to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities assumed by the Company. The fair value of fixed maturity securities held in trust for the benefit of ceding reinsurers at June 30, 2013 and December 31, 2012 was $32.0 million and $35.0 million, respectively. Pursuant to the Amended Credit Facility, a portion of the Company's debt was secured by fixed maturity securities and restricted cash and cash equivalents that had a fair value of $107.2 million and $110.4 million at June 30, 2013 and December 31, 2012, respectively.