Investments

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 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	$	23	$	—	$	1,023
Obligations of states and political subdivisions		42,437		2,020		—		44,457
Corporate securities		250		1		—		251
Residential mortgage-backed securities		201		16		—		217
Totals	$	43,888	$	2,060	$	—	$	45,948

	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	$	75,426	$	1,557	$	11	$	76,972
Obligations of states and political subdivisions		378,337		34,297		62		412,572
Corporate securities		70,680		3,735		162		74,253
Residential mortgage-backed securities		119,445		4,342		105		123,682
Fixed maturities		643,888		43,931		340		687,479
Equity securities		2,462		144		23		2,583
Totals	$	646,350	$	44,075	$	363	$	690,062

At September 30, 2012, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $360.4 million and an amortized cost of $331.9 million. Our holdings also included special revenue bonds with an aggregate fair value of $96.6 million and an amortized cost of $88.9 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 September 30, 2012. Education bonds and water and sewer utility bonds represented 50% and 19%, respectively, of our total investments in special revenue bonds based on their carrying values at September 30, 2012. Many of the issuers of the special revenue bonds we held at September 30, 2012 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are 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 are similar to general obligation bonds.

We show below the amortized cost and estimated fair value of our fixed maturities at September 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	$	1,500	$	1,524
Due after one year through five years		33,069		34,535
Due after five years through ten years		9,118		9,672
Due after ten years		—		—
Residential mortgage-backed securities		201		217
Total held to maturity	$	43,888	$	45,948
Available for sale
Due in one year or less	$	15,257	$	15,390
Due after one year through five years		62,479		64,884
Due after five years through ten years		190,144		203,214
Due after ten years		256,563		280,309
Residential mortgage-backed securities		119,445		123,682
Total available for sale	$	643,888	$	687,479

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Gross realized gains:
Fixed maturities	$	1,249	$	3,464	$	4,944	$	3,905
Equity securities		215		129		1,003		4,634
		1,464		3,593		5,947		8,539
Gross realized losses:
Fixed maturities		36		61		42		163
Equity securities		116		1,073		755		1,228
		152		1,134		797		1,391
Net realized gains	$	1,312	$	2,459	$	5,150	$	7,148

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 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	$	1,771	$	11	$	—	$	—
Obligations of states and political subdivisions		3,547		62		—		—
Corporate securities		3,665		25		1,851		137
Residential mortgage-backed securities		12,359		105		6		—
Equity securities		536		23		—		—
Totals	$	21,878	$	226	$	1,857	$	137

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 September 30, 2012, we classified 14 securities with a fair value of $23.2 million and an unrealized loss of $340,143 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 two equity securities that were in an unrealized loss position at September 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 debt 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 nine 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 September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011, respectively, from the financial statements of DFSC. The financial information at September 30, 2012 and for the three and nine months then ended is unaudited.

	September 30, 2012		December 31, 2011
	(in thousands)
Balance sheets:
Total assets	$	504,551	$	532,938
Total liabilities	$	429,538	$	466,940
Stockholders’ equity		75,013		65,998
Total liabilities and stockholders’ equity	$	504,551	$	532,938

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Income statements:
Net income	$	2,771	$	2,129	$	7,510	$	2,830