Investments

The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
As of December 31, 2011	Cost		Gains		Losses			Value

U.S. Treasury securities and obligations of U.S. Government	$	11,152	$	24	$	-		$	11,176
Corporate bonds		93,272		2,305		(1,655	)		93,922
Collateralized corporate bank loans		94,638		175		(1,920	)		92,893
Municipal bonds		177,432		3,458		(2,549	)		178,341
Mortgage-backed		4,084		80		(27	)		4,137

Total debt securities		380,578		6,042		(6,151	)		380,469

Financial services		11,618		4,463		(260	)		15,821
All other		18,847		9,554		(63	)		28,338

Total equity securities		30,465		14,017		(323	)		44,159

Total debt and equity securities	$	411,043	$	20,059	$	(6,474	)	$	424,628

As of December 31, 2010

U.S. Treasury securities and obligations of U.S. Government	$	39,767	$	36	$	-		$	39,803
Corporate bonds		82,956		3,465		(844	)		85,577
Collateralized corporate bank loans		106,723		1,685		(95	)		108,313
Municipal bonds		153,334		2,421		(1,842	)		153,913
Mortgage-backed		750		43		-			793

Total debt securities		383,530		7,650		(2,781	)		388,399

Financial services		15,385		5,770		(270	)		20,885
All other		17,084		6,196		(123	)		23,157

Total equity securities		32,469		11,966		(393	)		44,042

Total debt and equity securities	$	415,999	$	19,616	$	(3,174	)	$	432,441

Major categories of net investment income are summarized as follows (in thousands):

	Twelve Months Ended
	December 31
	2011			2010			2009

U.S. Treasury securities and obligations of U.S. Government	$	115		$	71		$	169
Corporate bonds		3,851			3,905			5,193
Collateralized corporate bank loans		5,284			4,149			1,925
Municipal bonds		6,632			6,259			6,486
Mortgage backed		86			35			15
Equity securities-financial services		89			335			941
Equity securities-all other		395			501			420
Cash and cash equivalents		163			195			216
		16,615			15,450			15,365
Investment expenses		(735	)		(601	)		(418	)
Investment income, net of expenses	$	15,880		$	14,849		$	14,947

No investments in any entity or its affiliates exceeded 10% of stockholders’ equity at December 31, 2011, 2010 or 2009.

Major categories of net realized gains on investments are summarized as follows (in thousands):

	Twelve Months Ended
	December 31
	2011			2010			2009

U.S. Treasury securities and obligations of U.S. Government	$	35		$	-		$	-
Corporate bonds		300			2,026			31
Collateralized corporate bank loans		699			2,170			1,513
Municipal bonds		(500	)		(86	)		(41	)
Equity securities-financial services		2,029			2,858			1,862
Equity securities-all other		1,070			1,434			205
Net realized gain		3,633			8,402			3,570
Other-than-temporary impairments		-			-			(538	)
Gain on investments	$	3,633		$	8,402		$	3,032

We realized gross gains on investments of $4.6 million, $8.6 million, and $5.0 million during the years ended December 31, 2011, 2010 and 2009, respectively. We realized gross losses on investments of $1.0 million, $0.2 million and $1.4 million during the years ended December 31, 2011, 2010 and 2009, respectively. We recorded proceeds from the sale of investment securities of $62.7 million, $23.0 million and $37.4 million during the years ended December 31, 2011, 2010 and 2009, respectively. Realized investment gains and losses are recognized in operations on the specific identification method.

The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of December 31, 2011 and December 31, 2010 (in thousands):

	As of December 31, 2011
	12 months or less					Longer than 12 months					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

U.S. Treasury securities and obligations of U.S. Government	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		21,752		(869	)		2,366		(786	)		24,118		(1,655	)
Collateralized corporate bank loans		69,717		(1,917	)		19		(3	)		69,736		(1,920	)
Municipal bonds		26,780		(196	)		39,741		(2,353	)		66,521		(2,549	)
Mortgage-backed		740		(27	)		-		-			740		(27	)
Total debt securities		118,989		(3,009	)		42,126		(3,142	)		161,115		(6,151	)

Financial services		1,789		(260	)		-		-			1,789		(260	)
All other		2,959		(63	)		-		-			2,959		(63	)
Total equity securities		4,748		(323	)		-		-			4,748		(323	)
Total debt and equity securities	$	123,737	$	(3,332	)	$	42,126	$	(3,142	)	$	165,863	$	(6,474	)

	As of December 31, 2010
	12 months or less					Longer than 12 months					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

U.S. Treasury securities and obligations of U.S. Government	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		8,036		(13	)		2,342		(831	)		10,378		(844	)
Collateralized corporate bank loans		17,370		(90	)		19		(5	)		17,389		(95	)
Municipal bonds		24,755		(248	)		46,591		(1,594	)		71,346		(1,842	)
Mortgage-backed		-		-			-		-			-		-
Total debt securities		50,161		(351	)		48,952		(2,430	)		99,113		(2,781	)

Financial services		1,234		(270	)		-		-			1,234		(270	)
All other		625		(123	)		-		-			625		(123	)
Total equity securities		1,859		(393	)		-		-			1,859		(393	)
Total debt and equity securities	$	52,020	$	(744	)	$	48,952	$	(2,430	)	$	100,972	$	(3,174	)

At December 31, 2011, the gross unrealized losses more than twelve months old were attributable to 25 debt security positions. At December 31, 2010, the gross unrealized losses more than twelve months old were attributable to 31 debt security positions. We consider these losses as a temporary decline in value as they are predominately on bonds that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis. We see no other indications that the decline in values of these securities is other-than-temporary.

Based on evidence gathered through our normal credit evaluation process, we presently expect that all debt securities held in our investment portfolio will be paid in accordance with their contractual terms. Nonetheless, it is at least reasonably possible that the performance of certain issuers of these debt securities will be worse than currently expected resulting in future write-downs within our portfolio of debt securities.

Also, as a result of the challenging market conditions, we expect the volatility in the valuation of our equity securities to continue in the foreseeable future. This volatility may lead to impairments on our equity securities portfolio or changes regarding retention strategies for certain equity securities.

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary. All securities with an unrealized loss are reviewed. We recognize an impairment loss when an investment's value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary.

Debt Investments: We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.

Equity Investments: Some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include: (1) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; (2) the recoverability of cost; (3) the length of time and extent to which the fair value has been less than cost; and (4) the financial condition and near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. When it is determined that an equity investment is other-than-temporarily impaired, the security is written down to fair value, and the amount of the impairment is included in earnings as a realized investment loss. The fair value then becomes the new cost basis of the investment, and any subsequent recoveries in fair value are recognized at disposition. We recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made. When we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale, the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made.

The amortized cost and estimated fair value of debt securities at December 31, 2011 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Fair
	Cost		Value
	(in thousands)

Due in one year or less	$	43,826	$	44,188
Due after one year through five years		160,000		162,921
Due after five years through ten years		120,260		117,602
Due after ten years		52,408		51,621
Mortgage-backed		4,084		4,137
	$	380,578	$	380,469

Activity related to the credit component recognized in earnings on debt securities held by us for which a portion of other-than-temporary impairment was recognized in other comprehensive income for the year ended December 31, 2009 is as follows (in thousands):

Balance, January 1, 2009	$	-
Credit component of other-than-temporary impairment not reclassified to OCI in conjuction with the cumulative effect transition adjustment (1)		1,168
Balance, January 1, 2010	$	1,168
Reductions for securities sold or matured during the period		(1,168	)
Balance, December 31, 2010	$	-

(1) As of April 1, 2009, we had securities with $3.7 million of other-than-temporary impairment previously recognized in earnings of which $1.1 million represented the credit component and $2.6 million represented the noncredit component which was reclassified back to accumulated other comprehensive income through a cumulative-effect adjustment. (Note 1)

We have certain of our securities pledged for the benefit of various state insurance departments and reinsurers. These securities are included with our available-for-sale debt securities because we have the ability to trade these securities. We retain the interest earned on these securities. These securities had a carrying value of $27.5 million at December 31, 2011 and a carrying value of $33.4 million at December 31, 2010.