Note 4 Investments

3 Months Ended

Mar. 31, 2012

Investments, Debt and Equity Securities

Note 4 Investments

Note  4.

Investments

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:

				March 31, 2012
						GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE
				(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	343,552	$	5,446	$	(3,283)	$	345,715
	CMOs- residential (1)			22,419		5,114		(735)		26,798
	CMOs - commercial			1,448		-		(915)		533
	U.S. Government obligations			21,671		627		(4)		22,294
	Agency MBS - residential (2)			499		43		-		542
	GSEs (3)			60,395		510		(162)		60,743
	States and political subdivisions			253,358		7,558		(732)		260,184
		Total fixed maturities	$	703,342	$	19,298	$	(5,831)	$	716,809
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Common stocks		$	3,001	$	84	$	(5)	$	3,080
	Preferred stock - perpetual			16,349		406		-		16,755
	Preferred stock - with maturities			8,051		1,577		-		9,628
		Total equity securities	$	27,401	$	2,067	$	(5)	$	29,463

				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 - residential (1)			33,119		5,200		(1,544)		36,775
	CMOs - commercial			1,448		-		(910)		538
	U.S. Government obligations			164,807		1,775		-		166,582
	Agency MBS - residential (2)			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 stock - perpetual			21,767		422		(451)		21,738
	Preferred stock - with maturities			8,051		1,136		(83)		9,104
		Total equity securities	$	36,355	$	1,869	$	(683)	$	37,541

(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.

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The unrealized gains (losses) on certain available-for-sale securities (residential CMO’s and certain preferred stocks with maturities) at March 31, 2012 and December 31, 2011 include $1,897,000 and $2,625,000, 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 available-for-sale at March 31, 2012, 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.

						% OF
			AMORTIZED		FAIR	TOTAL FAIR
			COST		VALUE	VALUE
			(In thousands)
Due in one year or less		$	10,495	$	10,694	1.5%
Due after one year through five years			153,663		156,083	21.8%
Due after five years through ten years			173,812		175,236	24.4%
Due after ten years			283,493		289,001	40.3%
			621,463		631,014	88.0%
CMO and MBS
	15 year		39,228		42,781	6.0%
	20 year		813		830	.1%
	30 year		41,838		42,184	5.9%
		$	703,342	$	716,809	100.0%

The following tables summarize, for all available-for-sale securities in an unrealized loss position at March 31, 2012 and December 31, 2011, respectively, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position:

				Less than 12 Months				12 Months or Longer				Total
				Fair		Unrealized		Fair		Unrealized		Fair			Unrealized
March 31, 2012				Value		Losses		Value		Losses		Value			Losses
				(In thousands)
Corporate securities			$	137,266	$	(2,950)	$	19,630	$	(333)	$	156,896	$	(3,283)
CMOs - residential				200		(134)		8,726		(601)		8,926		(735)
CMO's - commercial				-		-		533		(915)		533		(915)
U.S. Government obligations				1,238		(4)		-		-		1,238		(4)
Agency MBS residential				-		-		-		-		-		-
GSEs				13,356		(89)		3,336		(73)		16,692		(162)
States and political
		subdivisions		52,214		(494)		18,831		(238)		71,045		(732)
Total fixed maturities				204,274		(3,671)		51,056		(2,160)		255,330		(5,831)
Common stocks				851		(5)		-		-		851		(5)
Preferred stocks-perpetual				-		-		-		-		-		-
Total temporarily
	impaired securities		$	205,125	$	(3,676)	$	51,056	$	(2,160)	$	256,181	$	(5,836)

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			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 - residential			1,396		176		14,597		1,368		15,993		1,544
CMOs - commercial			-		-		538		910		538		910
GSEs			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

At March 31, 2012 and December 31, 2011, a total of 60 and 53 fixed maturities available-for-sale, respectively, and 4 and 5 equity securities available-for-sale, respectively, were in a continuous unrealized loss position for less than 12 months. At both March 31, 2012 and December 31, 2011 a total of 29 fixed maturities available-for-sale, and nil and 1 equity security available-for-sale, respectively, had continuous unrealized losses for 12 months or longer. 

Substantially all of the unrealized losses on fixed maturities available-for-sale at March 31, 2012 and December 31, 2011 relate to investment grade securities and 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 are 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 March 31, 2012.

At March 31, 2012, the Company had $12,868,000 invested in whole loan CMOs backed by Alt-A mortgages. Of this amount, 21.3% were in CMOs that originated in 2005 or earlier and 78.7% were in CMOs that originated in 2006. The unrealized losses on all other CMO’s relate to prime rate CMO’s and are primarily attributed to general disruptions in the credit market subsequent to purchase. The Company’s mortgage security portfolio has no exposure to sub-prime mortgages.

Other-Than-Temporary Impairment Evaluations

The Company reviews its investment securities regularly and determines whether other-than- temporary impairments have occurred. The factors considered by management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to:  the length of time and extent to which the fair value has been less than cost; the Company's intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support; whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions including the effect of changes in market interest rates. If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to total other-than-temporary impairment losses in

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the Condensed Consolidated Statement of Operations.  If a decline in fair value of a debt security is judged by management to be other-than-temporary and; (i) the Company does not intend to sell the security; and (ii) it is not more likely than not that it will be required to sell the security prior to recovery of the security’s amortized cost, the Company assesses whether the present value of the cash flows to be collected from the security is less than its amortized cost basis. To the extent that the present value of the cash flows generated by a debt security is less than the amortized cost basis, a credit loss exists. For any such security, the impairment is bifurcated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations, establishing a new cost basis for the security. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income in the Condensed Consolidated Statement of Comprehensive Income. It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.

In assessing corporate debt securities for other-than-temporary impairment, the Company evaluates the ability of the issuer to meet its debt obligations and the value of the company or specific collateral securing the debt position. For mortgage-backed securities where loan level data is not available, the Company uses a cash flow model based on the collateral characteristics. Assumptions about loss severity and defaults used in the model are primarily based on actual losses experienced and defaults in the collateral pool. Prepayment speeds, both actual and estimated, are also considered. The cash flows generated by the collateral securing these securities are then determined with these default, loss severity and prepayment assumptions. These collateral cash flows are then utilized, along with consideration for the issue’s position in the overall structure, to determine the cash flows associated with the mortgage-backed security held by the Company. In addition, the Company evaluates other asset-backed securities for other-than-temporary impairment by examining similar characteristics referenced above for mortgage-backed securities.  The Company evaluates U.S. Treasury securities and obligations of U.S. Government corporations, U.S. Government agencies, and obligations of states and political subdivisions for other-than-temporary impairment by examining the terms and collateral of the security.

Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the security to recovery. If a decline in fair value is judged by management to be other-than-temporary or management does not have the intent or ability to hold a security, a loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations. For the purpose of other-than-temporary impairment evaluations, preferred stocks with maturities are treated in a manner similar to debt securities. Declines in the creditworthiness of the issuer of debt securities with both debt and equity-like features requires the use of the equity model in analyzing the security for other-than-temporary impairment.

Subsequent increases and decreases, if not an other-than-temporary impairment, in the fair value of available-for-sale securities that were previously impaired, are included in other comprehensive income.

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Based on management’s review of the portfolio, which considered these factors, the Company recorded the following losses for other-than-temporary impairments in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (in thousands):

			Three Months Ended
			March 31,
			2012		2011
Other-than-temporary impairments:
	Fixed maturities	$	83	$	303

For the three months ended March 31, 2012 and 2011 other-than-temporary impairments on fixed maturities of $83,000 and $303,000, respectively, consist of credit losses recorded as a result of expected cash flows on certain debt securities less than their amortized cost. No losses for other-than-temporary impairments were recognized in other comprehensive income for the three months ended March 31, 2012 or 2011.

For the three months ended March 31, 2012 and 2011, 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):

		2012		2011
Balance at beginning of year	$	2,555	$	1,763
Credit portion of other-than-temporary
impairment losses recognized during period		-		-
Securities sold		(576)		-
Balance at end of period	$	1,979	$	1,763

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 exists 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.