Investments

12 Months Ended

Dec. 31, 2012

Investments/Financial Instruments [Abstract]

Investments

(2) Investments

Net investment income (dollars in thousands) is summarized as follows:

	Years ended December 31,
	2012		2011		2010
Fixed maturity securities	$	31,348	$	32,454	$	32,524
Common stock		—		—		626
Preferred stock		230		185		201
Short-term investments and cash and cash equivalents		43		168		67
		31,621		32,807		33,418
Less investment expenses		1,423		1,469		1,280
Net investment income	$	30,198	$	31,338	$	32,138

Realized and unrealized gains and losses (dollars in thousands) were as follows:

	Years ended December 31,
	2012			2011			2010
Realized gains:
Fixed maturity	$	9,851		$	12,553		$	2,144
Common stock		—			—			274
Preferred stock		—			—			16
Total gains		9,851			12,553			2,434
Realized losses:
Fixed maturity		(158	)		(1,587	)		(183	)
Common stock		—			—			—
Preferred stock		—			—			—
Total losses		(158	)		(1,587	)		(183	)
Net realized gains (losses) (1)	$	9,693		$	10,966		$	2,251
Changes in unrealized gains:
Fixed maturity	$	9,660		$	10,706		$	15,512
Common stock		(53	)		(175	)		63
Preferred stock		149			21			24
Net change in unrealized gains	$	9,756		$	10,552		$	15,599

⁽¹⁾  Realized gains on the Statement of Operations for 2012 include $0.3 million of net unrealized holding gains from trading securities.

For the years ended December 31, 2012 and 2011, available-for-sale fixed maturity securities were sold for total proceeds of $115.3 million and $342.6 million, respectively, resulting in net realized gains to the Company totaling $9.4 million and $11.0 million in 2012 and 2011, respectively. For the purpose of determining net realized gains, the cost of securities sold is based on specific identification.

Trading securities are reported at fair value, with unrealized holding gains and losses reported as part of net earnings. Net unrealized holding gains from trading securities totaled $0.3 million for 2012. These holding gains are included in net realized gains and losses for the period. There were no trading securities within the portfolio as of December 31, 2011.

At December 31, 2012 and 2011, the Company did not hold fixed maturity securities, which individually exceeded 10% of shareholders’ equity, except U.S. government and government agency securities.

The amortized cost and estimated fair values of the Company’s available for sale investments at December 31, 2012 and 2011, (dollars in thousands) are as follows:

December 31, 2012	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	53,591	$	2,961	$	(11	)	$	56,541
States of the U.S. and political subdivisions of the states		40,100		6,064		—			46,164
Corporate securities		304,725		36,089		(85	)		340,729
Mortgage-backed securities		237,653		11,088		(501	)		248,240
Commercial mortgage-backed securities		57,521		5,694		—			63,215
Asset-backed securities		71,769		3,138		(219	)		74,688
Total fixed maturities	$	765,359	$	65,034	$	(816	)	$	829,577
Common stock	$	9,004	$	6	$	(234	)	$	8,776
Preferred stock	$	2,789	$	317	$	(25	)	$	3,081

December 31, 2011	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	58,814	$	4,315	$	(39	)	$	63,090
States of the U.S. and political subdivisions of the states		27,676		4,581		—			32,257
Corporate securities		298,452		29,601		(1,127	)		326,926
Mortgage-backed securities		257,864		12,973		(26	)		270,811
Commercial mortgage-backed securities		60,198		3,941		(178	)		63,961
Asset-backed securities		58,437		666		(149	)		58,954
Total fixed maturities	$	761,441	$	56,077	$	(1,519	)	$	815,999
Common stock	$	6,926	$	—	$	(175	)	$	6,751
Preferred stock	$	2,789	$	212	$	(69	)	$	2,932

At December 31, 2012, the Company’s investment in corporate fixed maturities totaled $340.7 million, composed of $165.2 million of securities issued by companies in the industrial sector, $127.2 million in the financial sector, $39.5 million in utilities and $8.8 million in foreign agencies and other securities.

At December 31, 2011, the Company’s investment in corporate fixed maturities totaled $326.9 million, composed of $149.2 million of securities issued by companies in the industrial sector, $110.3 million in the financial sector, $57.4 million in utilities and $10.0 million in foreign agencies and other securities.

Fixed income securities with fair values of $29.5 million and $29.9 million were on deposit with insurance regulatory authorities at December 31, 2012 and 2011, in accordance with statutory requirements.

The amortized cost and estimated fair values of fixed maturities at December 31, 2012, by contractual maturity are shown below. Expected maturities may differ from contractual maturities as certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalty.

	Amortized cost		Estimated fair value
	(dollars in thousands)
Due in one year or less	$	40,900	$	41,544
Due after one year through five years		97,214		104,414
Due after five years through ten years		189,141		207,642
Due after ten years		71,161		89,834
Mortgage and asset-backed securities		366,943		386,143
Total	$	765,359	$	829,577

The following tables summarize the gross unrecognized and unrealized losses of the Company’s investment portfolio as of December 31, 2012 and 2011, by category and length of time that the securities have been in a continuous unrealized or unrecognized loss position.

December 31, 2012

	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(dollars in thousands)
US Treasury securities & other government corporations and agencies	$	4,985	$	(11	)	$	—	$	—		$	4,985	$	(11	)
States of the US and political subdivisions of the states		—		—			—		—			—		—
Corporate securities		24,489		(85	)		—		—			24,489		(85	)
Mortgage-backed securities		36,345		(336	)		3,751		(165	)		40,096		(501	)
Commercial mortgage-backed securities		—		—			—		—			—		—
Asset-backed securities		7,536		(210	)		59		(9	)		7,595		(219	)
Subtotal fixed maturity securities		73,355		(642	)		3,810		(174	)		77,165		(816	)
Common stock		1,067		(14	)		6,926		(220	)		7,993		(234	)
Preferred stock		490		(2	)		504		(23	)		994		(25	)
Total temporarily impaired securities	$	74,912	$	(658	)	$	11,240	$	(417	)	$	86,152	$	(1,075	)

December 31, 2011

	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(dollars in thousands)
US Treasury securities & other government corporations and agencies	$	3,749	$	(39	)	$	—	$	—		$	3,749	$	(39	)
States of the US and political subdivisions of the states		—		—			—		—			—		—
Corporate securities		31,808		(1,127	)		—		—			31,808		(1,127	)
Mortgage-backed securities		6,574		(26	)		—		—			6,574		(26	)
Commercial mortgage-backed securities		13,401		(135	)		5,432		(43	)		18,833		(178	)
Asset-backed securities		15,537		(149	)		—		—			15,537		(149	)
Subtotal fixed maturity securities		71,069		(1,476	)		5,432		(43	)		76,501		(1,519	)
Common stock		6,751		(175	)		—		—			6,751		(175	)
Preferred stock		1,436		(50	)		509		(19	)		1,945		(69	)
Total temporarily impaired securities	$	79,256	$	(1,701	)	$	5,941	$	(62	)	$	85,197	$	(1,763	)

We hold a total of 2,110 available-for-sale securities, of which 144 were in an unrealized loss position for less than twelve months and five were in an unrealized loss position for a period of twelve months or greater as of December 31, 2012. Unrealized losses greater than twelve months on fixed maturities were the result of increased credit spreads and higher market yields relative to the date the securities were purchased. We do not consider these investments to be other-than-temporary impaired at December 31, 2012.

We routinely review our investments that have experienced declines in fair value to determine if the decline is other than temporary. These reviews are performed with consideration of the facts and circumstances of an issuer in accordance with the Securities and Exchange Commission (“SEC”), Accounting for Non-Current Marketable Equity Securities; ASC 320-10-05, Accounting for Certain Investments in Debt and Equity Securities, and related guidance. The identification of distressed investments and the assessment of whether a decline is other-than-temporary involve significant management judgment and require evaluation of factors including but not limited to:

• percentage decline in value and the length of time during which the decline has occurred;

• recoverability of principal and interest;

• market conditions;

• ability and intent to hold the investment to recovery;

• a pattern of continuing operating losses of the issuer;

• rating agency actions that affect the issuer’s credit status;

• adverse changes in the issuer’s availability of production resources, revenue sources, technological conditions; and

• adverse changes in the issuer’s economic, regulatory, or political environment.

Additionally, credit analysis and/or credit rating issues related to specific investments may trigger more intensive monitoring to determine if a decline in market value is other than temporary (“OTTI”). For investments with a market value below cost, the process includes evaluating the length of time and the extent to which cost exceeds market value, the prospects and financial condition of the issuer, and evaluation for a potential recovery in market value, among other factors. This process is not exact and further requires consideration of risks such as credit risk and interest rate risk. Therefore, if an investment’s cost exceeds its market value solely due to changes in interest rates, recognizing impairment may not be appropriate. For the years ended 2012 and 2011, the Company did not incur any OTTI losses.