INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at September 30, 2013, and December 31, 2012:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2013
U.S. government and agency securities	$	61,241	$	36	$	652	$	60,625
States, municipalities and political subdivisions	45,782		933		395		46,320
Public utilities	8,607		169		78		8,698
Other corporate securities	118,065		1,053		1,417		117,701
Total fixed maturities	$	233,695	$	2,191	$	2,542	$	233,344
Public utilities	741		16		23		734
Other common stocks	10,371		969		152		11,188
Nonredeemable preferred stocks	272		—		17		255
Total equity securities	$	11,384	$	985	$	192	$	12,177
Other long-term investments	300		—		—		300
Total investments	$	245,379	$	3,176	$	2,734	$	245,821

December 31, 2012
U.S. government and agency securities	$	95,296	$	201	$	289	$	95,208
States, municipalities and political subdivisions	17,117		1,918		—		19,035
Public utilities	4,135		225		—		4,360
Other corporate securities	28,282		2,013		1		30,294
Redeemable preferred stocks	259		2		1		260
Total fixed maturities	$	145,089	$	4,359	$	291	$	149,157
Public utilities	316		16		6		326
Other common stocks	1,949		228		38		2,139
Nonredeemable preferred stocks	272		—		14		258
Total equity securities	$	2,537	$	244	$	58	$	2,723
Other long-term investments	300		—		—		300
Total investments	$	147,926	$	4,603	$	349	$	152,180

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, 2013, and 2012:



	2013					2012
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Fixed maturities	$	2		$	6,007	$	42		$	3,066
Total realized gains	$	2		$	6,007	$	42		$	3,066
Fixed maturities	(40		)	4,078		—			—
Equity securities	—			—		(5		)	200
Total realized losses	$	(40	)	$	4,078	$	(5	)	$	200
Net realized investment gains (losses)	$	(38	)	$	10,085	$	37		$	3,266

Nine Months Ended September 30,
Fixed maturities	$	30		$	20,134	$	198		$	7,340
Equity securities	31			155		119			887
Total realized gains	$	61		$	20,289	$	317		$	8,227
Fixed maturities	(258		)	42,725		(141		)	9,243
Equity securities	(2		)	28		(21		)	391
Total realized losses	$	(260	)	$	42,753	$	(162	)	$	9,634
Net realized investment gains (losses)	$	(199	)	$	63,042	$	155		$	17,861

We realized $(38,000) and $(199,000) of net investment losses during the three and nine months ended September 30, 2013, respectively, compared to $37,000 and $155,000 of net investment gains during the three and nine months ended September 30, 2012, respectively.

The table below summarizes our fixed maturities at September 30, 2013, 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, 2013
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	19,281	8.3	%	$	19,308	8.3	%
Due after one year through five years	121,131		51.8		121,246		52.0
Due after five years through ten years	61,502		26.3		60,933		26.1
Due after ten years	31,781		13.6		31,857		13.6
Total	$	233,695	100.0	%	$	233,344	100.0	%

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Fixed maturities	$	983		$	757		$	2,426		$	2,202
Equity securities	93			34			174			104
Cash, cash equivalents and short-term investments	8			16			28			25
Other investments	5			—			16			—
Net investment income	$	1,089		$	807		$	2,644		$	2,331
Investment expenses	(40		)	(23		)	(159		)	(117		)
Net investment income, less investment expenses	$	1,049		$	784		$	2,485		$	2,214

Portfolio monitoring

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-than-temporarily impaired. If our management decides to sell the security or determines that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity, contractual or regulatory purposes, then the security's decline in fair value is considered other-than-temporary and is recorded in earnings.

If we have not made the decision to sell the fixed income security and it is not more likely than not that we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compares this to the cost or amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, we consider various factors, including whether we have the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. If we lack the intent and ability to hold to recovery, or if we believe the recovery period is extended, the equity security's decline in fair value is considered other-than-temporary and is recorded in earnings.

Our portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its cost or amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in our evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other-than-temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.

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 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, 2013
U.S. government and agency securities	27	$	652	$	33,135	—	$	—	$	—
States, municipalities and political subdivisions	23	395		27,307		—	—		—
Public utilities	3	78		3,338		—	—		—
Corporate securities	45	1,417		57,322		—	—		—
Total fixed maturities	98	$	2,542	$	121,102	—	$	—	$	—
Public utilities	6	23		455		—	—		—
All other common stocks	35	152		3,337		—	—		—
Nonredeemable preferred stocks	—	—		—		2	17		255
Total equity securities	41	$	175	$	3,792	2	$	17	$	255
Total	139	$	2,717	$	124,894	2	$	17	$	255

December 31, 2012
U.S. government and agency securities	13	$	289	$	44,174	—	$	—	$	—
Corporate securities	1	1		2,000		—	—		—
Redeemable preferred stocks	—	—		—		1	1		102
Total fixed maturities	14	$	290	$	46,174	1	$	1	$	102
Public utilities	3	6		178		—	—		—
All other common stocks	13	35		442		1	3		53
Nonredeemable preferred stocks	—	—		—		2	14		258
Total equity securities	16	$	41	$	620	3	$	17	$	311
Total	30	$	331	$	46,794	4	$	18	$	413

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

The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2013, and December 31, 2012:



	Total		Level 1		Level 2
September 30, 2013
U.S. government and agency securities	$	60,625	$	—	$	60,625
States, municipalities and political subdivisions	46,320		—		46,320
Public utilities	8,698		—		8,698
Corporate securities	117,701		—		117,701
Total fixed maturities	$	233,344	$	—	$	233,344
Public utilities	734		734		—
Common stocks	11,188		11,188		—
Nonredeemable preferred stocks	255		255		—
Total equity securities	$	12,177	$	12,177	$	—
Other long-term investments	300		300		—
Total investments	$	245,821	$	12,477	$	233,344

December 31, 2012
U.S. government and agency securities	$	95,208	$	66,710	$	28,498
States, municipalities and political subdivisions	19,035		—		19,035
Public utilities	4,360		—		4,360
Corporate securities	30,294		—		30,294
Redeemable preferred stocks	260		260		—
Total fixed maturities	$	149,157	$	66,970	$	82,187
Public utilities	326		326		—
Common stocks	2,139		2,139		—
Nonredeemable preferred stocks	258		258		—
Total equity securities	$	2,723	$	2,723	$	—
Other long-term investments	300		300		—
Total investments	$	152,180	$	69,993	$	82,187

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 Unaudited or Audited 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 we 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 our 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 months ended September 30, 2013.

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.

Limited partnerships

On September 27, 2013, 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 of $1,000,000, is currently bifurcated between a capital contribution of $500,000 and a note receivable of $500,000 that will be utilized to fund our future capital contributions. We are not required to fund any additional amounts in excess of our initial $1,000,000 commitment. At September 30, 2013, the cost basis of our investment approximated its fair value.

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 of $750,000, has been reduced by capital distributions totaling $12,000. At September 30, 2013, the cost basis of our investment approximated its fair value of $738,000. Our investment in the partnership is currently bifurcated between a note receivable of $375,000 that will be utilized to fund our future required contributions and a capital contribution of $363,000. We are not required to fund any additional amounts in excess of our initial $750,000 commitment.