Comprehensive Loss

Comprehensive income or loss, net of income tax is comprised of the following (in thousands):



	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Net income (loss)	$	(42,739	)	$	(2,082	)	$	(44,611	)	$	(10,185	)
Other comprehensive loss, net of tax:
Unrealized depreciation on available-for-sale securities	(5,263		)	1,675			(12,746		)	(1,323		)
Foreign currency translation	(1,282		)	(41		)	(1,756		)	(400		)
Total other comprehensive loss, net of tax	(6,545		)	1,634			(14,502		)	(1,723		)
Comprehensive loss	(49,284		)	(448		)	(59,113		)	(11,908		)
Noncontrolling interest	(7,182		)	764			(5,330		)	2,305
Comprehensive loss attributable to PICO Holdings, Inc.	$	(56,466	)	$	316		$	(64,443	)	$	(9,603	)

Total comprehensive loss is net of a deferred income tax charge of $26 million and a benefit of $1.5 million for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, total comprehensive loss is net of a deferred income tax charge of $20 million and a benefit of $4.5 million, respectively.

The components of accumulated other comprehensive income are as follows (in thousands):



	September 30, 2011			December 31, 2010

Net unrealized appreciation on available-for-sale investments	$	7,362		$	20,108
Foreign currency translation	(6,537		)	(4,781		)
Accumulated other comprehensive income	$	825		$	15,327

The accumulated balance is net of deferred income tax liability of $407,000 at September 30, 2011 and $8.4 million at December 31, 2010.

The following table reports the cost and carrying value of available-for-sale investments at September 30, 2011 and December 31, 2010 (in thousands):



September 30, 2011	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Fixed maturities:
U.S. Treasury securities	$	7,057	$	225	$	(2	)	$	7,280
Municipal bonds	3,126		266					3,392
Corporate bonds	25,972		629		(548		)	26,053
Government sponsored enterprises	2,627		84					2,711
	38,782		1,204		(550		)	39,436
Marketable equity securities	38,203		12,469		(1,816		)	48,856
Total	$	76,985	$	13,673	$	(2,366	)	$	88,292



December 31, 2010	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
Fixed maturities:
U.S. Treasury securities	$	4,911	$	56	$	(64	)	$	4,903
Municipal bonds	3,147		107					3,254
Corporate bonds	28,365		783		(675		)	28,473
Government sponsored enterprises	4,193		187					4,380
	40,616		1,133		(739		)	41,010
Marketable equity securities	80,664		30,687		(941		)	110,410
Total	$	121,280	$	31,820	$	(1,680	)	$	151,420

The following table summarizes the market value of those investments in an unrealized loss position for periods less than or greater than 12 months (in thousands):



	2011				2010
Less than 12 months	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Treasury securities	$	552	$	2	$	3,494	$	64
Corporate bonds	8,444		161		11,286		196
	8,996		163		14,780		260
Marketable equity securities	11,247		1,057		5,907		459
Total	$	20,243	$	1,220	$	20,687	$	719



	2011				2010
Greater than 12 months	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Fixed maturities:
Corporate bonds	$	7,043	$	387	$	7,053	$	479
Marketable equity securities	3,726		759		2,534		482
Total	$	10,769	$	1,146	$	9,587	$	961

Marketable Equity Securities: The Company’s investments in marketable equity securities totaled $48.9 million at September 30, 2011, and principally consist of common stock of publicly traded small-capitalization companies in the U.S. and selected foreign markets. At September 30, 2011, the Company reviewed all of its equity securities in an unrealized loss position and concluded certain securities were not other-than-temporarily impaired as the declines were not of sufficient duration and severity, and publicly-available financial information did not indicate impairment. The primary cause of the losses on those securities was normal market volatility. The securities that were other-than-temporarily were recorded as an impairment loss and amounted to $988,000 and $1 million, respectively, for the three and nine months ended September 30, 2011. During the three and nine months ended September 30, 2010, the Company recorded $36,000 and $347,000, respectively, of other-than-temporary impairment charges on marketable equity securities.

Corporate Bonds and U.S. Treasury Obligations: The Company owns various fixed maturity bonds in its portfolio. The U.S. Treasury, municipal, and government-sponsored enterprise bonds are typically held to meet state regulatory capital and deposit requirements for the insurance companies. The remainder of the bond portfolio consists of corporate bonds, which are purchased on a case by case basis depending on the maturity and yield-to-maturity of the bond and an analysis of the fundamental characteristics of the issuer. At September 30, 2011, there were unrealized losses on certain bonds in the portfolio. The Company does not consider those bonds to be other-than-temporarily impaired because the Company expects to hold, and will not be required to sell, these particular bonds, and it expects to recover the entire amortized cost basis at maturity. During the three and nine months ended September 30, 2011, and 2010, the Company did not record any impairment charges on investments in fixed maturity securities.

Fair Value Measurements:

The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis at September 30, 2011, and December 31, 2010, by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company owns $29.8 million of available-for-sale equity securities that trade on over-the-counter bulletin board markets. At September 30, 2011, the Company classified $19.1 million of those securities as Level 2 due to the trading volumes being lower than normal, coupled with wide bid/ask spreads, lack of current publicly available information, or few or no recent transactions. A description of the levels follows the table below.

At September 30, 2011 (in thousands):



Assets	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Balance at September 30, 2011
Available-for-sale securities (A)	$	69,158	$	19,134		$	88,292
Liabilities
Deferred compensation (B)	$	35,794				$	35,794

At December 31, 2010 (in thousands):



Assets	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Balance at December 31, 2010
Available-for-sale securities (A)	$	132,677	$	18,743		$	151,420
Liabilities
Deferred compensation (B)	$	37,879				$	37,879

(A) Where there are quoted market prices that are readily available in an active market, securities are classified as Level 1 of the valuation hierarchy. Level 1 available-for-sale investments are valued using quoted market prices multiplied by the number of shares owned and debt securities are valued using a market quote in an active market. All Level 2 available-for-sale securities are one class because they all contain similar risks and are valued using market prices and include securities where the markets are not active, that is where there are few transactions, or the prices are not current or the prices vary considerably over time. Inputs include directly or indirectly observable inputs such as quoted prices. Level 3 available-for-sale securities would include securities where valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

(B) Deferred compensation plans are compensation plans directed by the Company and structured as a Rabbi Trust for certain executives and non-employee directors. The investment assets of the Rabbi Trust are valued using quoted market prices multiplied by the number of shares held in each trust account including the shares of PICO common stock held in the trusts. The related deferred compensation liability represents the fair value of the investment assets.

The following table sets forth the Company's non-financial assets that were measured at fair value on a non-recurring basis for the nine months ended September 30, 2011, by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset (in thousands):



Assets	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Total Loss
(1) Intangible asset (exclusive right to use infrastructure)			$	84,900	$	16,224

(1) As of September 30, 2011, the Company had a non-recurring fair value measurement for an intangible asset with a carrying amount of $101.1 million that was written down to its implied fair value of $84.9 million, resulting in an impairment charge of $16.2 million, which was included in earnings for 2011. The implied fair value was calculated using a discounted cash flow model that incorporated a wide range of assumptions including current asset pricing, price escalation, discount rates, absorption rates, and timing of sales, and costs. Given the continued dramatic and prolonged slow-down in housing starts and sales in the North Valleys of Reno, Nevada, and the recent decline in market prices for similar assets, the Company adjusted its assumptions and judgments in the model by reducing the price, lengthening the timing of absorption of water sales from the original projections.

Investment in Unconsolidated Affiliate (spigit inc.):

During the nine months ended September 30, 2011, spigit, inc. raised additional capital and as a result, the Company's ownership dropped from 37% to 32%. The Company's share of spigit's loss was $1.6 million and $5.3 million for the three and nine months ended September 30, 2011, respectively, and $942,000, and $2.4 million for the three and nine months ended September 30, 2010, respectively. The carrying value of the investment was zero and $5.2 million at September 30, 2011 and December 31, 2010 respectively, and is reported in other investments in the accompanying balance sheets.

As the total losses recorded to date on the investment in spigit have reduced the carrying value to zero at September 30, 2011, the Company will not accrue any additional losses reported by spigit unless the Company decides to invest more capital into the operations. There are no plans or obligations to invest additional capital at this time.

The following is unaudited summarized financial information of spigit, inc. for the nine months ended September 30, 2011 and 2010 (in thousands):



	September 30, 2011			September 30, 2010
Revenues	$	6,093		$	3,035
Gross profit	$	3,746		$	2,671
Loss from continuing operations and net loss	$	(18,335	)	$	(6,584	)