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Investments
 12 Months Ended
Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
2. 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, 2012   Cost     Gains     Losses     Value  
                         
U.S. Treasury securities and obligations of U.S. Government   $ 40,050     $ 14     $ (3 )   $ 40,061  
Corporate bonds     79,516       2,794       (763 )     81,547  
Collateralized corporate bank loans     106,093       1,021       (743 )     106,371  
Municipal bonds     162,479       4,023       (2,770 )     163,732  
Mortgage-backed     9,662       97       (35 )     9,724  
                                 
Total debt securities     397,800       7,949       (4,314 )     401,435  
                                 
Financial services     11,008       3,880       (1 )     14,887  
All other     20,494       9,058       (514 )     29,038  
                                 
Total equity securities     31,502       12,938       (515 )     43,925  
                                 
Total debt and equity securities   $ 429,302     $ 20,887     $ (4,829 )   $ 445,360  
                                 
                                 
As of December 31, 2011                                
                                 
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  

  

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

 

    Twelve Months Ended  
    December 31  
    2012     2011     2010  
                   
U.S. Treasury securities and obligations of U.S. Government   $ 53     $ 115     $ 71  
Corporate bonds     4,218       3,851       3,905  
Collateralized corporate bank loans     5,261       5,284       4,149  
Municipal bonds     5,616       6,632       6,259  
Mortgage backed     106       86       35  
Equity securities-financial services     70       89       335  
Equity securities-all other     464       395       501  
Cash and cash equivalents     246       163       195  
      16,034       16,615       15,450  
Investment expenses     (741 )     (735 )     (601 )
Investment income, net of expenses   $ 15,293     $ 15,880     $ 14,849  

 

No investments in any entity or its affiliates exceeded 10% of stockholders’ equity at December 31, 2012 or 2011.

 

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

 

    Twelve Months Ended  
    December 31  
    2012     2011     2010  
                   
U.S. Treasury securities and obligations of U.S. Government   $ -     $ 35     $ -  
Corporate bonds     13       300       2,026  
Collateralized corporate bank loans     391       699       2,170  
Municipal bonds     (441 )     (500 )     (86 )
Equity securities-financial services     84       2,029       2,858  
Equity securities-all other     2,142       1,070       1,434  
Net realized gain     2,189       3,633       8,402  
Other-than-temporary impairments     (246 )     -       -  
Gain on investments   $ 1,943     $ 3,633     $ 8,402  

 

We realized gross gains on investments of $2.9 million, $4.6 million, and $8.6 million during the years ended December 31, 2012, 2011 and 2010, respectively. We realized gross losses on investments of $0.7 million, $1.0 million and $0.2 million during the years ended December 31, 2012, 2011 and 2010, respectively. We recorded proceeds from the sale of investment securities of $12.4 million, $62.7 million and $23.0 million during the years ended December 31, 2012, 2011 and 2010, 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, 2012 and December 31, 2011 (in thousands):

 

    As of December 31, 2012  
    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   $ 23,998     $ (3 )   $ -     $ -     $ 23,998     $ (3 )
Corporate bonds     10,802       (38 )     6,910       (725 )     17,712       (763 )
Collateralized corporate bank loans     6,273       (97 )     14,236       (646 )     20,509       (743 )
Municipal bonds     30,073       (362 )     28,809       (2,408 )     58,882       (2,770 )
Mortgage-backed     7,367       (32 )     84       (3 )     7,451       (35 )
Total debt securities     78,513       (532 )     50,039       (3,782 )     128,552       (4,314 )
                                                 
Financial services     92       (1 )     -       -       92       (1 )
All other     3,271       (514 )     -       -       3,271       (514 )
Total equity securities     3,363       (515 )     -       -       3,363       (515 )
Total debt and equity securities   $ 81,876     $ (1,047 )   $ 50,039     $ (3,782 )   $ 131,915     $ (4,829 )

 

    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  
                                     
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 )

 

At December 31, 2012, the gross unrealized losses more than twelve months old were attributable to 56 debt security positions. At December 31, 2011, the gross unrealized losses more than twelve months old were attributable to 25 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. We recognized other-than-temporary losses on our debt securities portfolio of $0.2 million during 2012.

 

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, 2012 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   $ 67,748     $ 68,739  
Due after one year through five years     167,458       169,811  
Due after five years through ten years     101,673       102,770  
Due after ten years     51,259       50,391  
Mortgage-backed     9,662       9,724  
    $ 397,800     $ 401,435  

 

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 $24.3 million at December 31, 2012 and a carrying value of $27.5 million at December 31, 2011.