Note 4 Investment Securities

12 Months Ended

Dec. 31, 2011

Investments, Debt and Equity Securities

Note 4 Investments

Note 4.                        Investment Securities

            The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of investment securities are as follows:

				December 31, 2011
						GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE
				(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	319,343	$	5,873	$	(2,076)	$	323,140
	CMOs (1)  - residential			33,119		5,200		(1,544)		36,775
	CMOs (1)  - commercial			1,448		-		(910)		538
	U.S. Government obligations			164,807		1,775		-		166,582
	Agency MBS (2) residential			539		46		-		585
	GSEs (3)			59,633		379		(161)		59,851
	States and political subdivisions			250,361		5,692		(651)		255,402
		Total fixed maturities	$	829,250	$	18,965	$	(5,342)	$	842,873
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Common stocks		$	6,537	$	311	$	(149)	$	6,699
	Preferred stocks-perpetual			21,767		422		(451)		21,738
	Preferred stocks-with maturities			8,051		1,136		(83)		9,104
		Total equity securities	$	36,355	$	1,869	$	(683)	$	37,541

				December 31, 2010
						GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE
				(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	272,061	$	3,595	$	(3,661)	$	271,995
	CMOs (1)  - residential			58,829		6,662		(1,847)		63,644
	CMOs (1)  - commercial			1,447		-		(639)		808
	U.S. Government obligations			16,617		351		-		16,968
	Agency MBS (2) residential			10,069		206		(51)		10,224
	GSEs  (3)			70,199		510		(182)		70,527
	States and political subdivisions			365,578		2,070		(8,158)		359,490
		Total fixed maturities	$	794,800	$	13,394	$	(14,538)	$	793,656
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Common stocks		$	4,600	$	167	$	(98)	$	4,669
	Preferred stocks-perpetual			31,530		1,065		(315)		32,280
	Preferred stocks-with maturities			9,790		1,334		-		11,124
		Total equity securities	$	45,920	$	2,566	$	(413)	$	48,073

(1)         Collateralized mortgage obligations (“CMOs”).

(2)         Mortgage-backed securities (“MBS”).

(3)         Government-sponsored enterprises (“GSEs”) which are the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Federal Home Loan Banks. GSEs are private enterprises established and chartered by the Federal Government.

The unrealized gains (losses) on certain available-for-sale securities (residential CMO’s and certain preferred stocks with maturities) at December 31, 2011 and 2010 include $2,625,000 and $1,763,000, respectively, of the non-credit related component of other-than-temporary impairment losses, pretax, that were recognized in accumulated other comprehensive income.

The amortized cost and fair value of fixed maturities at December 31, 2011, by contractual maturity, are shown below. Expected maturities will 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 affected by prepayments on the underlying loans and, therefore, is materially shorter than the original stated maturity.

			AMORTIZED		FAIR	% OF TOTAL FAIR
			COST		VALUE	VALUE
			(In thousands)
Due in one year or less		$	5,094	$	5,139	.6%
Due after one year through five years			220,680		223,003	26.4%
Due after five years through ten years			228,277		231,758	27.5%
Due after ten years			283,349		288,071	34.2%
			737,400		747,971	88.7%
CMO and MBS
	15 year		50,159		52,935	6.3%
	20 year		830		839	.1%
	30 year		40,861		41,128	4.9%
		$	829,250	$	842,873	100.0%

            The following table summarizes, for all securities in an unrealized loss position at December 31, 2011 and 2010, respectively, the aggregate fair value and gross unrealized loss by length of time those securities had continuously been in an unrealized loss position:

			Less than 12 Months				12 Months or Longer					Total
			Fair		Unrealized		Fair		Unrealized		Fair			Unrealized
December 31, 2011			Value		Losses		Value		Losses		Value			Losses
			(In thousands)
Corporate securities		$	128,820	$	1,989	$	9,451	$	87	$	138,271		$	2,076
CMOs (1)  - residential			1,396		176		14,597		1,368		15,993			1,544
CMOs (1)  - commercial			-		-		538		910		538			910
GSE			15,134		131		2,367		30		17,501			161
States and political
	subdivisions		43,978		291		20,929		360		64,907			651
Total fixed maturities			189,328		2,587		47,882		2,755		237,210			5,342
Common stocks			1,724		149		-		-		1,724			149
Preferred stocks-perpetual			-		-		4,968		451		4,968			451
Preferred stocks-with maturities			1,644		83		-		-		1,644			83
Total temporarily impaired
	securities	$	192,696	$	2,819	$	52,850	$	3,206	$	245,546		$	6,025

			Less than 12 Months				12 Months or Longer					Total
			Fair		Unrealized		Fair		Unrealized		Fair			Unrealized
December 31, 2010			Value		Losses		Value		Losses		Value			Losses
			(In thousands)
Corporate securities		$	103,247	$	3,404	$	12,253	$	257	$	115,500		$	3,661
CMOs (1) - residential			12,494		476		16,979		1,371		29,473			1,847
CMOs (1) - commercial			-		-		808		639		808			639
Agency MBS (2) residential			5,085		51		-		-		5,085			51
GSE			32,481		170		1,389		12		33,870			182
States and political
	subdivisions		195,589		5,292		37,655		2,866		233,244			8,158
Total fixed maturities			348,896		9,393		69,084		5,145		417,980			14,538
Common stocks			999		98		-		-		999			98
Preferred stocks-perpetual			14,845		315		-		-		14,845			315
Total temporarily impaired
	securities	$	364,740	$	9,806	$	69,084	$	5,145	$	433,824		$	14,951

At December 31, 2011 and 2010, a total of 53 and 117 fixed maturities, respectively, and 5 and 13 equity securities, respectively, were in a continuous unrealized loss position for less than 12 months. At December 31, 2011 and 2010, a total of 29 and 27 fixed maturities, respectively, and 1 and nil equity securities, respectively, had continuous unrealized losses for 12 months or longer.

Substantially all of the unrealized losses on fixed maturities at December 31, 2011 and 2010 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The unrealized loss on corporate securities and state and political subdivisions is due to wider spreads. Spreads have widened as investors shifted funds to US Treasuries in response to the current market turmoil. Because the Company does not intend to sell, nor is it more likely than not, that the Company will have to sell such investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2011.

At December 31, 2011, the Company had $19,430,000 invested in whole loan CMOs backed by Alt-A mortgages. Of this amount, 44% were in CMOs that originated in 2005 or earlier and 56% were in CMOs that originated in 2006. The unrealized losses on all other CMO’s relate to prime rate CMO’s and are primarily attributable to general disruptions in the credit market subsequent to purchase. The Company’s mortgage security portfolio has no direct exposure to sub-prime mortgages.

Other-Than-Temporary-Impairments

Based on management's review of the portfolio, which considered the various factors described in Note 1 (E) (vi) and Note 1 (F), the Company recorded the following losses for other-than-temporary impairments for the years ended December 31, 2011, 2010 and 2009 (in thousands):

							2011		2010		2009
Impairment losses recognized in earnings:
			Fixed maturities			$	1,523	$	3,819	$	522
			Preferred stocks				-		-		271
				Available-for-sale securities:			1,523		3,819		793
			Investment in AMIC				-		-		29,198
					Total impairment losses recognized in earnings		1,523		3,819		29,991
Impairment losses recognized in other
	comprehensive income:
		Fixed maturities					948		-		-
					Total other-than-temporary impairment losses	$	2,471	$	3,819	$	29,991

For the year ended December 31, 2011, the amount of other-than-temporary impairment losses on fixed maturities recognized in earnings consist of $1,346,000 of credit losses recorded as a result of expected cash flows of certain securities less than the securities’ amortized cost and $177,000 of losses recorded as a result of the Company's intent to sell certain corporate debt securities prior to the recovery of their amortized cost bases. For the year ended December 31, 2010, the amount of other-than-temporary impairments on fixed maturities consist of $3,087,000 of credit losses recorded as a result of expected cash flows of certain securities less than the securities’ amortized cost and $732,000 of losses recorded as a result of the Company's intent to sell certain municipal debt securities prior to the recovery of their amortized cost bases.

Cumulative credit losses for other-than-temporary impairments recorded on securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows (in thousands):

			2011		2010		2009
Balance at beginning of year		$	1,763	$	2,394	$	-
Adoption of new accounting standards			-		-		2,394
Credit portion of other-than-temporary impairment
	losses recognized during period		878		-		-
Securities sold			(86)		(631)		-
Balance at end of year		$	2,555	$	1,763	$	2,394

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalance in liquidity that exist in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

Refer to Note 2 for information regarding the other-than-temporary impairment recorded in connection with the Company’s investment in AMIC in 2009.