Investments

3 Months Ended

Mar. 31, 2013

Investments [Abstract]

Investments

5—Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at March 31, 2013 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	$	1	$	—	$	1,001
Obligations of states and political subdivisions		39,234		1,343		—		40,577
Residential mortgage-backed securities		180		13		—		193
Totals	$	40,414	$	1,357	$	—	$	41,771

	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	$	80,876	$	1,089	$	94	$	81,871
Obligations of states and political subdivisions		388,138		28,760		1,344		415,554
Corporate securities		70,599		3,080		160		73,519
Residential mortgage-backed securities		124,301		2,712		509		126,504
Fixed maturities		663,914		35,641		2,107		697,448
Equity securities		9,735		329		239		9,825
Totals	$	673,649	$	35,970	$	2,346	$	707,273

At March 31, 2013, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $352.2 million and an amortized cost of $329.5 million. Our holdings at March 31, 2013 also included special revenue bonds with an aggregate fair value of $103.9 million and an amortized cost of $97.9 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 March 31, 2013. Education bonds and water and sewer utility bonds represented 54% and 16%, respectively, of our total investments in special revenue bonds based on their carrying values at March 31, 2013. Many of the issuers of the special revenue bonds we held at March 31, 2013 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, 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	$	12	$	—	$	1,012
Obligations of states and political subdivisions		40,909		1,609		—		42,518
Residential mortgage-backed securities		191		15		—		206
Totals	$	42,100	$	1,636	$	—	$	43,736

	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	$	70,254	$	1,101	$	44	$	71,311
Obligations of states and political subdivisions		385,372		32,221		606		416,987
Corporate securities		73,942		3,523		109		77,356
Residential mortgage-backed securities		125,606		3,316		66		128,856
Fixed maturities		655,174		40,161		825		694,510
Equity securities		8,663		201		107		8,757
Totals	$	663,837	$	40,362	$	932	$	703,267

At December 31, 2012, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $358.5 million and an amortized cost of $332.4 million. Our holdings at December 31, 2012 also included special revenue bonds with an aggregate fair value of $101.0 million and an amortized cost of $93.9 million. With respect to both categories, we held no securities of any issuer that comprised more than 10% of the category at December 31, 2012. Education bonds and water and sewer utility bonds represented 54% and 19%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2012. Many of the issuers of the special revenue bonds we held at December 31, 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.

We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2013 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	$	1,501	$	1,507
Due after one year through five years		33,764		34,895
Due after five years through ten years		4,969		5,176
Due after ten years		—		—
Residential mortgage-backed securities		180		193
Total held to maturity	$	40,414	$	41,771
Available for sale
Due in one year or less	$	18,812	$	19,065
Due after one year through five years		69,953		72,469
Due after five years through ten years		197,455		209,715
Due after ten years		253,393		269,695
Residential mortgage-backed securities		124,301		126,504
Total available for sale	$	663,914	$	697,448

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

	Three Months Ended March 31,
	2013		2012
	(in thousands)
Gross realized gains:
Fixed maturities	$	951	$	1,496
Equity securities		474		829
		1,425		2,325
Gross realized losses:
Fixed maturities		14		5
Equity securities		70		10
		84		15
Net realized gains	$	1,341	$	2,310

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at March 31, 2013 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	$	15,195	$	94	$	—	$	—
Obligations of states and political subdivisions		49,603		1,344		—		—
Corporate securities		13,744		160		—		—
Residential mortgage-backed securities		43,176		509		—		—
Equity securities		1,948		239		—		—
Totals	$	123,666	$	2,346	$	—	$	—

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 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	$	12,308	$	44	$	—	$	—
Obligations of states and political subdivisions		22,134		606		—		—
Corporate securities		12,272		79		2,959		30
Residential mortgage-backed securities		22,492		66		—		—
Equity securities		2,226		107		—		—
Totals	$	71,432	$	902	$	2,959	$	30

Of our total fixed maturity securities with an unrealized loss at March 31, 2013, we classified 88 securities with a fair value of $121.7 million and an unrealized loss of $2.1 million 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, 2012, we classified 46 securities with a fair value of $72.2 million and an unrealized loss of $825,168 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 five equity securities that were in an unrealized loss position at March 31, 2013. 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 three months of 2013 and 2012, 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 March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012, respectively, from the financial statements of DFSC. The financial information at March 31, 2013 and for the three months then ended is unaudited.

Balance sheets:	March 31, 2013		December 31, 2012
	(in thousands)
Total assets	$	514,200	$	509,670
Total liabilities	$	436,590	$	433,490
Stockholders’ equity		77,610		76,180
Total liabilities and stockholders’ equity	$	514,200	$	509,670
	Three Months Ended March 31,
Income statements:	2013		2012
	(in thousands)
Net income	$	2,258	$	2,436