INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at September 30, 2012, and December 31, 2011:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012
U.S. government and agency securities	$	49,366	$	432	$	177	$	49,621
States, municipalities and political subdivisions	17,128		1,864		—		18,992
Corporate securities	51,332		4,080		—		55,412
Redeemable preferred stocks	430		3		1		432
Total fixed maturities	$	118,256	$	6,379	$	178	$	124,457
Common stocks	2,973		540		35		3,478
Nonredeemable preferred stocks	272		—		8		264
Total equity securities	$	3,245	$	540	$	43	$	3,742
Other long-term investments	300		—		—		300
Total investments	$	121,801	$	6,919	$	221	$	128,499

December 31, 2011
U.S. government and agency securities	$	48,011	$	219	$	111	$	48,119
States, municipalities and political subdivisions	17,159		1,207		—		18,366
Corporate securities	51,135		2,366		145		53,356
Redeemable preferred stocks	558		—		21		537
Total fixed maturities	$	116,863	$	3,792	$	277	$	120,378
Common stocks	2,807		359		43		3,123
Nonredeemable preferred stocks	477		—		19		458
Total equity securities	$	3,284	$	359	$	62	$	3,581
Other long-term investments	300		—		—		300
Total investments	$	120,447	$	4,151	$	339	$	124,259

On September 25, 2012, we acquired an investment in a limited partnership, recorded in other assets, that is currently being accounted for at cost. Our total investment in the partnership is $750,000 and is currently bifurcated between a capital contribution of $187,500 and a note receivable of $562,500 that will be utilized to fund our future capital contributions. We are not required to fund any additional amounts in excess of our initial $750,000 investment. At September 30, 2012, the cost basis of our investment approximated its fair value.

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three- and nine-month periods ended September 30, 2012, and 2011:



	2012					2011
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Fixed maturities	$	42		$	3,066	$	—		$	—
Total realized gains	$	42		$	3,066	$	—		$	—
Realized losses on equity securities	(5		)	200		—			—
Total realized losses	$	(5	)	$	200	$	—		$	—
Net realized investment gains	$	37		$	3,266	$	—		$	—

Nine Months Ended September 30,
Fixed maturities	$	198		$	7,340	$	110		$	12,046
Equity securities	119			887		10			65
Total realized gains	$	317		$	8,227	$	120		$	12,111
Fixed maturities	(141		)	9,243		(8		)	2,990
Equity securities	(21		)	391		—			96
Total realized losses	$	(162	)	$	9,634	$	(8	)	$	3,086
Net realized investment gains	$	155		$	17,861	$	112		$	15,197

We realized $37,000 and $155,000, respectively, of net investment gains during the three and nine months ended September 30, 2012, compared to $0 and $112,000, respectively, of net investment gains during the three and nine months ended September 30, 2011.

The table below summarizes our fixed maturities at September 30, 2012, by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.



	September 30, 2012
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	42,293	35.8	%	$	42,309	34.0	%
Due after one year through five years	20,492		17.3		21,151		17.0
Due after five years through ten years	37,128		31.4		40,979		32.9
Due after ten years	18,343		15.5		20,018		16.1
Total	$	118,256	100.0	%	$	124,457	100.0	%

The following table summarizes our net investment income by major investment category:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Fixed maturities	$	757		$	678		$	2,202		$	1,780
Equity securities	34			34			104			110
Cash, cash equivalents and short-term investments	16			95			25			151
Net investment income	$	807		$	807		$	2,331		$	2,041
Investment expenses	(23		)	(24		)	(117		)	(116		)
Net investment income, less investment expenses	$	784		$	783		$	2,214		$	1,925

The following table presents an aging of our unrealized investment losses by investment class:



	Less Than Twelve Months					Twelve Months or More
	Number of Securities*	Gross Unrealized Losses		Fair Value		Number of Securities*	Gross Unrealized Losses		Fair Value
September 30, 2012
U.S. government and agency securities	4	$	177	$	10,277	—	$	—	$	—
Redeemable preferred stocks	—	—		—		1	1		102
Total fixed maturities	4	$	177	$	10,277	1	$	1	$	102
Common stocks	9	27		516		1	8		48
Nonredeemable preferred stocks	—	—		—		2	8		264
Total equity securities	9	$	27	$	516	3	$	16	$	312
Total	13	$	204	$	10,793	4	$	17	$	414

December 31, 2011
U.S. government and agency securities	2	$	90	$	16,915	1	$	21	$	1,627
Corporate securities	3	145		3,924		—	—		—
Redeemable preferred stocks	—	—		—		4	21		537
Total fixed maturities	5	$	235	$	20,839	5	$	42	$	2,164
Common stocks	12	40		740		1	3		9
Nonredeemable preferred stocks	—	—		—		3	19		458
Total equity securities	12	$	40	$	740	4	$	22	$	467
Total	17	$	275	$	21,579	9	$	64	$	2,631

* This amount represents the actual number of discrete securities, not the number of shares of those securities. The numbers are not presented in thousands.

During our quarterly evaluations of our securities for impairment, we determined that none of our investments in debt and equity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of our debt securities continue to make principal and interest payments on a timely basis. We do not intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. All the issuers of the equity securities we own had near-term prospects that indicated we could recover our cost basis, and we also have the ability and the intent to hold these securities until their value equals or exceeds their cost.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2012, and December 31, 2011:



	Total		Level 1		Level 2
September 30, 2012
U.S. government and agency securities	$	49,621	$	31,821	$	17,800
States, municipalities and political subdivisions	18,992		—		18,992
Corporate securities	55,412		—		55,412
Redeemable preferred stocks	432		432		—
Total fixed maturities	$	124,457	$	32,253	$	92,204
Common stocks	3,478		3,478		—
Nonredeemable preferred stocks	264		264		—
Total equity securities	$	3,742	$	3,742	$	—
Other long-term investments	300		300		—
Total investments	$	128,499	$	36,295	$	92,204

December 31, 2011
U.S. government and agency securities	$	48,119	$	24,176	$	23,943
States, municipalities and political subdivisions	18,366		—		18,366
Corporate securities	53,356		—		53,356
Redeemable preferred stocks	537		537		—
Total fixed maturities	$	120,378	$	24,713	$	95,665
Common stocks	3,123		3,123		—
Nonredeemable preferred stocks	458		458		—
Total equity securities	$	3,581	$	3,581	$	—
Other long-term investments	300		300		—
Total investments	$	124,259	$	28,594	$	95,665

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

We are responsible for the determination of fair value and the supporting assumptions and methodologies. We gain assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.

We do not hold any investments that require unobservable inputs to determine their fair value. At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. We made no such transfers during the three and nine months ended September 30, 2012.

For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from Synovus Trust Company, NA, which uses a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs.