Investments

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at June 30, 2012 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,000	$	33	$	—	$	1,033
Obligations of states and political subdivisions		47,987		2,148		—		50,135
Corporate securities		250		1		—		251
Residential mortgage-backed securities		212		15		—		227
Totals	$	49,449	$	2,197	$	—	$	51,646

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	72,105	$	1,287	$	174	$	73,218
Obligations of states and political subdivisions		374,212		28,563		252		402,523
Corporate securities		70,642		2,665		344		72,963
Residential mortgage-backed securities		113,352		3,819		27		117,144
Fixed maturities		630,311		36,334		797		665,848
Equity securities		2,844		143		36		2,951
Totals	$	633,155	$	36,477	$	833	$	668,799

At June 30, 2012, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $354.4 million and an amortized cost of $330.2 million. Our holdings also included special revenue bonds with an aggregate fair value of $98.3 million and an amortized cost of $92.0 million. With respect to both categories of these bonds, we held no securities of any issuer that comprised more than 10% of the category at June 30, 2012. Education bonds and water and sewer utility bonds represented 54% and 14%, respectively, of our total investments in special revenue bonds based on their carrying values at June 30, 2012. Many of the issuers of the special revenue bonds we held at June 30, 2012 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held were similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2011 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,000	$	54	$	—	$	1,054
Obligations of states and political subdivisions		56,966		2,857		—		59,823
Corporate securities		250		3		—		253
Residential mortgage-backed securities		274		19		1		292
Totals	$	58,490	$	2,933	$	1	$	61,422

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	59,432	$	1,546	$	—	$	60,978
Obligations of states and political subdivisions		372,663		26,252		39		398,876
Corporate securities		62,837		1,805		528		64,114
Residential mortgage-backed securities		119,367		3,307		44		122,630
Fixed maturities		614,299		32,910		611		646,598
Equity securities		7,239		606		407		7,438
Totals	$	621,538	$	33,516	$	1,018	$	654,036

At December 31, 2011, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $372.2 million and an amortized cost of $348.4 million. Our holdings also included special revenue bonds with an aggregate fair value of $86.5 million and an amortized cost of $81.0 million. With respect to both categories of these bonds, we held no securities of any issuer that comprised more than 10% of the category at December 31, 2011. Education bonds and water and sewer utility bonds represented 59% and 17%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2011. Many of the issuers of the special revenue bonds we held at December 31, 2011 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held were similar to general obligation bonds.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2012 by contractual maturity. Expected maturities may 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)
Held to maturity
Due in one year or less	$	2,000	$	2,036
Due after one year through five years		38,096		39,744
Due after five years through ten years		9,141		9,639
Due after ten years		—		—
Residential mortgage-backed securities		212		227
Total held to maturity	$	49,449	$	51,646
Available for sale
Due in one year or less	$	18,063	$	18,251
Due after one year through five years		65,705		67,745
Due after five years through ten years		188,906		199,407
Due after ten years		244,285		263,301
Residential mortgage-backed securities		113,352		117,144
Total available for sale	$	630,311	$	665,848

Gross realized gains and losses from investments before applicable income taxes were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012		2011
	(in thousands)
Gross realized gains:
Fixed maturities	$	2,199		$	—	$	3,695	$	441
Equity securities		(41	)		4,416		788		4,505
		2,158			4,416		4,483		4,946
Gross realized losses:
Fixed maturities		2			—		7		102
Equity securities		628			100		638		155
		630			100		645		257
Net realized gains	$	1,528		$	4,316	$	3,838	$	4,689

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at June 30, 2012 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	7,810	$	174	$	—	$	—
Obligations of states and political subdivisions		14,279		220		527		33
Corporate securities		12,283		344		—		—
Residential mortgage-backed securities		11,278		21		804		5
Equity securities		1,009		36		—		—
Totals	$	46,659	$	795	$	1,331	$	38

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2011 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		1,638		17		540		21
Corporate securities		10,101		528		—		—
Residential mortgage-backed securities		7,412		44		1		—
Equity securities		4,084		408		—		—
Totals	$	23,235	$	997	$	541	$	21

Of our total fixed maturity securities with an unrealized loss at June 30, 2012, we classified 35 securities with a fair value of $47.0 million and an unrealized loss of $797,006 as available-for-sale and carried them at fair value on our balance sheet.

Of our total fixed maturity securities with an unrealized loss at December 31, 2011, we classified 19 securities with a fair value of $19.7 million and an unrealized loss of $610,646 as available-for-sale and carried them at fair value on our balance sheet.

We have no direct exposure to sub-prime residential mortgage-backed securities and hold no collateralized debt obligations. Substantially all of the unrealized losses in our fixed maturity investment portfolio have resulted from general market conditions and the related impact on our fixed maturity investment valuations. We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, when we consider the decline in value of an individual investment to be other than temporary, we write the investment down to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations. We individually monitor all investments for other-than-temporary declines in value. Generally, if an individual equity security has depreciated in value by more than 20% of its original cost, and has been in such an unrealized loss position for more than six months, we assume there has been an other-than-temporary decline in value. We held four equity securities that were in an unrealized loss position at June 30, 2012. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we consider these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the security prior to recovery. If it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. To determine whether a credit loss has occurred, we compare the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider a credit loss to have occurred. If we consider a credit loss to have occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including whether the fair value of the investment is significantly below its cost, whether the financial condition of the issuer of the security has deteriorated, the occurrence of industry, company and geographic events that have negatively impacted the value of the security and rating agency downgrades. We determined that no investments with fair values below cost had declined on an other-than-temporary basis during the first six months of 2012 and 2011, respectively.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

We account for investments in our affiliates using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of our affiliates’ earnings and losses as well as changes in our affiliates’ equity due to unrealized gains and losses. Our investments in affiliates include our 48.2% ownership interest in DFSC. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and 2011, respectively, from the financial statements of DFSC. The financial information at June 30, 2012 and for the three and six months then ended is unaudited.

Balance sheets:	June 30, 2012		December 31, 2011
	(in thousands)
Total assets	$	514,940	$	532,938
Total liabilities	$	444,230	$	466,940
Stockholders’ equity		70,710		65,998
Total liabilities and stockholders’ equity	$	514,940	$	532,938

	Three Months Ended June 30,				Six Months Ended June 30,
Income statements:	2012		2011		2012		2011
	(in thousands)
Net income	$	2,303	$	453	$	4,739	$	701