Investments

6 Months Ended

Jun. 30, 2011

Investment [Abstract]

Investments

4. Investments

Under current other-than-temporary impairment accounting guidance, if management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then an entity may separate the other-than-temporary impairments into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income (loss)). The credit related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge recorded in earnings is required to reduce the amortized cost of that security to fair value.

The cost or amortized cost and fair value of investments in fixed maturities and equity securities are as follows:

	Cost or		Gross Unrealized		Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(Dollars in thousands)
June 30, 2011:
Fixed Maturities:
U.S. Government and government agency obligations	$	128,185	$	3,046	$	(288	)	$	130,943
Foreign government obligations		5,702		11		—			5,713
State and local government obligations		285,008		7,337		(892	)		291,453
Residential mortgage-backed securities		198,105		3,722		(2,916	)		198,911
Commercial mortgage-backed securities		7,799		10		(85	)		7,724
Corporate obligations		262,834		7,314		(422	)		269,726
Redeemable preferred stocks		10,254		179		(205	)		10,228
Total fixed maturities		897,887		21,619		(4,808	)		914,698
Equity securities:
Common stocks		19,042		2,575		(406	)		21,211
Perpetual preferred stocks		1,309		309		—			1,618
Total equity securities		20,351		2,884		(406	)		22,829
Short-term investments		68		—		—			68
Total investments	$	918,306	$	24,503	$	(5,214	)	$	937,595
December 31, 2010:
Fixed Maturities:
U.S. Government and government agency obligations	$	183,370	$	2,463	$	(976	)	$	184,857
Foreign government obligations		5,741		—		(65	)		5,676
State and local government obligations		267,966		4,611		(2,562	)		270,015
Residential mortgage-backed securities		196,644		3,126		(3,032	)		196,738
Commercial mortgage-backed securities		5,798		—		(228	)		5,570
Corporate obligations		229,263		4,400		(1,086	)		232,577
Redeemable preferred stocks		12,427		126		(411	)		12,142
Total fixed maturities		901,209		14,726		(8,360	)		907,575
Equity securities:
Common stocks		12,115		3,197		—			15,312
Perpetual preferred stocks		1,309		88		(34	)		1,363
Total equity securities		13,424		3,285		(34	)		16,675
Short-term investments		67		—		—			67
Total investments	$	914,700	$	18,011	$	(8,394	)	$	924,317

The table above excludes investments in limited partnerships accounted for under the equity method of $27.4 million and $13.8 million (included in “other investments”) at June 30, 2011 and December 31, 2010, respectively. As such, they are not reported at fair value.

The amortized cost and fair value of fixed maturities at June 30, 2011, by contractual maturity, are shown below. 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. The average life of mortgage-backed securities is 3.8 years in the Company’s investment portfolio.

Amortized cost and fair value of the fixed maturities in the Company’s investment portfolio were as follows:

	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	27,399	$	28,023
Due after one year through five years		246,622		253,350
Due after five years through ten years		302,150		310,386
Due after ten years		115,812		116,304
		691,983		708,063
Mortgage-backed securities		205,904		206,635
Total	$	897,887	$	914,698

Gains and losses on the sale of investments, including other-than-temporary impairment charges and other investments’ gains or losses, were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
	(Dollars in thousands)					(Dollars in thousands)
Fixed maturity gains	$	275	$	1,949		$	708	$	2,408
Fixed maturity losses		—		(102	)		—		(102	)
Equity security gains		706		—			1,278		30
Equity security losses		—		—			—		—
Other investments, net gains (losses)		335		(178	)		530		215
Net realized gains on investments	$	1,316	$	1,669		$	2,516	$	2,551

Pre-tax net realized gains were $1.3 million and $2.5 million for the three and six months ended June 30, 2011, respectively. The net realized gains for both the three and six months ended June 30, 2011 were generated from realized gains associated with the sales or calls of securities of $1.0 million and $2.0 million, respectively, which were primarily from common stocks and corporate obligations, and net gains associated with equity in earnings of limited partnerships (included in “other investments”) of $0.3 million and $0.5 million, respectively. There were no impairment charges taken during the three and six months ended June 30, 2011.

Pre-tax net realized gains were $1.7 million and $2.6 million for the three and six months ended June 30, 2010, respectively. The net realized gains for both the three and six month periods ended June 30, 2010 were primarily generated from net realized gains associated with the sales of securities of $2.0 million and $2.5 million, respectively. The gains on sales of equity and fixed maturity securities were primarily due to favorable market conditions that increased the value of the securities over book value, and the Company sold these securities in order to generate funds for the July 1, 2010 purchase of Vanliner. Included in the six months ended June 30, 2010 were gains associated with other investments of $0.4 million, which occurred during the first three months of 2010. Partially offsetting these gains were losses on other investments of $0.2 million during the three months ended June 30, 2011 and an other-than-temporary impairment charge of $0.1 million for both the three and six months ended June 30, 2010.

The following table summarizes the Company’s gross unrealized losses on fixed maturities and equity securities and the length of time that individual securities have been in a continuous unrealized loss position:

	Less than Twelve Months										Twelve Months or More
						Fair										Fair
						Value			Number							Value			Number
	Fair		Unrealized			as % of			of		Fair		Unrealized			as % of			of
	Value		Losses			Cost			Holdings		Value		Losses			Cost			Holdings
	(Dollars in thousands)
June 30, 2011:
Fixed maturities:
U.S. Government and government agency obligations	$	32,003	$	(288	)		99.1	%		17	$	—	$	—			—			—
State and local government obligations		22,720		(313	)		98.6	%		20		5,569		(579	)		90.6	%		4
Residential mortgage-backed securities		54,588		(561	)		99.0	%		20		6,361		(2,355	)		73.0	%		6
Commercial mortgage-backed securities		2,064		(11	)		99.5	%		1		3,631		(74	)		98.0	%		1
Corporate obligations		37,019		(389	)		99.0	%		66		2,967		(33	)		98.9	%		2
Redeemable preferred stocks		3,731		(125	)		96.8	%		7		920		(80	)		92.0	%		2
Total fixed maturities		152,125		(1,687	)		98.9	%		131		19,448		(3,121	)		86.2	%		15
Equity securities:
Common stocks		3,142		(406	)		88.6	%		4		—		—			—			—
Total equity securities		3,142		(406	)		88.6	%		4		—		—			—			—
Total fixed maturities and equity securities	$	155,267	$	(2,093	)		98.7	%		135	$	19,448	$	(3,121	)		86.2	%		15
December 31, 2010:
Fixed maturities:
U.S. Government and government agency obligations	$	76,781	$	(976	)		98.7	%		35	$	—	$	—			—			—
Foreign government obligations		5,676		(65	)		98.9	%		3		—		—			—			—
State and local government obligations		124,938		(1,599	)		98.7	%		108		5,194		(963	)		84.4	%		4
Residential mortgage-backed securities		78,332		(1,056	)		98.7	%		25		7,317		(1,976	)		78.7	%		5
Commercial mortgage-backed securities		2,034		(48	)		97.7	%		1		3,536		(180	)		95.2	%		1
Corporate obligations		62,158		(652	)		99.0	%		61		6,311		(434	)		93.6	%		7
Redeemable preferred stocks		3,326		(266	)		92.6	%		8		3,691		(145	)		96.2	%		5
Total fixed maturities		353,245		(4,662	)		98.7	%		241		26,049		(3,698	)		87.6	%		22
Equity securities:
Perpetual preferred stocks		605		(34	)		94.7	%		4		—		—			—			—
Total equity securities		605		(34	)		94.7	%		4		—		—			—			—
Total fixed maturities and equity securities	$	353,850	$	(4,696	)		98.7	%		245	$	26,049	$	(3,698	)		87.6	%		22

The gross unrealized losses on the Company’s fixed maturities and equity securities portfolios decreased from $8.4 million at December 31, 2010 to $5.2 million at June 30, 2011. The improvement in gross unrealized losses was driven by a decrease in market yields and a general tightening of credit spreads from December 31, 2010. The $5.2 million in gross unrealized losses at June 30, 2011 was primarily on fixed maturity holdings in residential mortgage-backed securities, and to a lesser extent, state and local government obligations and corporate obligations. The gross unrealized losses on common stocks are minimal and are considered to be temporary. There were no gross unrealized losses on perpetual preferred stocks. Investment grade securities (as determined by nationally recognized rating agencies) represented 86.5% of all fixed maturity securities with unrealized losses.

At June 30, 2011, gross unrealized losses on residential mortgage-backed securities were $2.9 million and represented 60.6% of the total gross unrealized losses on fixed maturities. There were six securities with gross unrealized losses of $2.4 million that were in an unrealized loss position for 12 months or more. Three of these securities previously had both credit and non-credit other-than-temporary impairment charges and were in a gross unrealized loss position of $1.5 million at June 30, 2011. Based on historical payment data and analysis of expected future cash flows of the underlying collateral, independent credit ratings and other facts and analysis, including management’s current intent and ability to hold these securities for a period of time sufficient to allow for anticipated recovery, management believes that, based upon information currently available, the Company will recover its cost basis in all these securities and no additional charges for other-than-temporary impairments will be required.

At June 30, 2011, the state and local government obligations, with gross unrealized losses of $0.9 million, had 20 holdings that were in an unrealized loss position of $0.3 million for less than 12 months and four holdings that were in an unrealized loss position of $0.6 million for more than 12 months. Investment grade securities represented 86.5% of all state and local government obligations with unrealized losses greater than 12 months. The corporate obligations had gross unrealized losses totaling $0.4 million at June 30, 2011. The gross unrealized losses on corporate obligations consisted of 66 holdings with gross unrealized losses of $0.4 million that were in an unrealized loss position for less than 12 months. Investment grade securities represented 66.7% of all corporate obligations with unrealized losses greater than 12 months.

Management concluded that no additional charges for other-than-temporary impairment were required on the fixed maturity holdings based on many factors, including the Company’s ability and current intent to hold these investments for a period of time sufficient to allow for anticipated recovery of its amortized cost, the length of time and the extent to which fair value has been below cost, analysis of company-specific financial data and the outlook for industry sectors and credit ratings. The Company believes these unrealized losses are primarily due to temporary market and sector-related factors and does not consider these securities to be other-than-temporarily impaired. If the Company’s strategy was to change or these securities were determined to be other-than-temporarily impaired, the Company would recognize a write-down in accordance with its stated policy.

The following table is a progression of the amount related to credit losses on fixed maturity securities for which the non-credit portion of an other-than-temporary impairment has been recognized in other comprehensive income.

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
	(Dollars in thousands)					(Dollars in thousands)
Beginning balance	$	2,017	$	1,910		$	2,017	$	1,910
Additional credit impairments on:
Previously impaired securities		—		101			—		101
Securities without prior impairments		—		—			—		—
Reductions		—		(37	)		—		(37	)
Ending balance	$	2,017	$	1,974		$	2,017	$	1,974