Note 4. Investment Securities

9 Months Ended

Sep. 30, 2013

Notes

Note 4. Investment Securities

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 for the periods indicated (in thousands):

		September 30, 2013
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	216,279	$	1,895	$	(6,513)	$	211,661
CMOs - residential (1)		3,338		714		-		4,052
CMOs - commercial		975		-		(403)		572
U.S. Government obligations		19,298		332		(71)		19,559
Agency MBS - residential (2)		99		6		-		105
GSEs (3)		31,572		132		(299)		31,405
States and political subdivisions		249,622		2,825		(5,699)		246,748
Foreign governments		30,574		24		(1,810)		28,788
Redeemable preferred stocks		4,036		73		(292)		3,817
Total fixed maturities	$	555,793	$	6,001	$	(15,087)	$	546,707

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Nonredeemable preferred stocks	$	5,504	$	112	$	(11)	$	5,605
Total equity securities	$	5,504	$	112	$	(11)	$	5,605

		December 31, 2012
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	343,529	$	11,247	$	(953)	$	353,823
CMOs - residential (1)		12,993		7,166		(65)		20,094
CMOs - commercial		975		-		(405)		570
U.S. Government obligations		18,376		492		(2)		18,866
Agency MBS - residential (2)		397		31		-		428
GSEs (3)		48,598		1,075		(67)		49,606
States and political subdivisions		260,086		9,134		(995)		268,225
Redeemable preferred stocks		6,323		1,667		-		7,990
Total fixed maturities	$	691,277	$	30,812	$	(2,487)	$	719,602

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Nonredeemable preferred stocks	$	15,355	$	253	$	(10)	$	15,598
Total equity securities	$	15,355	$	253	$	(10)	$	15,598

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

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

(3)         Government-sponsored enterprises (“GSEs”) are private enterprises established and chartered by the Federal Government or its various insurance and lease programs which carry the full faith and credit obligation of the U.S. Government.

The amortized cost and fair value of fixed maturities available-for-sale at September 30, 2013, by contractual maturity, are shown below (in thousands). 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. CMOs and MBSs are shown separately, as they are not due at a single maturity.

		AMORTIZED		FAIR
		COST		VALUE
Due in one year or less	$	2,350	$	2,635
Due after one year through five years		54,528		55,024
Due after five years through ten years		183,314		178,605
Due after ten years		279,616		274,308
CMOs and MBSs		35,985		36,135
	$	555,793	$	546,707

The following tables summarize, for all available-for-sale securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position, for the periods indicated:

		September 30, 2013
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	142,526	$	6,169	$	4,684	$	344	$	147,210	$	6,513
CMOs - commercial		-		-		572		403		572		403
U.S. Government obligations		4,127		71		-		-		4,127		71
GSEs		3,574		91		5,482		208		9,056		299
States and political subdivisions		139,702		4,801		22,687		898		162,389		5,699
Foreign governments		26,215		1,684		1,327		126		27,542		1,810
Redeemable preferred stocks		3,471		292		-		-		3,471		292
Total fixed maturities		319,615		13,108		34,752		1,979		354,367		15,087
Nonredeemable preferred stocks		1,238		11		-		-		1,238		11
Total temporarily impaired
securities	$	320,853	$	13,119	$	34,752	$	1,979	$	355,605	$	15,098
Number of securities in an
unrealized loss position		109				16				125

		December 31, 2012
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	61,386	$	953	$	-	$	-	$	61,386	$	953
CMOs - residential		2,416		21		1,138		44		3,554		65
CMOs - commercial		-		-		570		405		570		405
U.S. Government obligations		5,667		2		-		-		5,667		2
GSEs		6,162		40		2,784		27		8,946		67
States and political subdivisions		53,036		657		17,707		338		70,743		995
Total fixed maturities		128,667		1,673		22,199		814		150,866		2,487
Nonredeemable preferred stocks		1,378		10		-		-		1,378		10
Total temporarily impaired
securities	$	130,045	$	1,683	$	22,199	$	814	$	152,244	$	2,497
Number of securities in an
unrealized loss position		45				23				68

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, 2013 and December 31, 2012 relate to investment grade securities and are attributable to changes in market interest rates. 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 September 30, 2013.

Net realized investment gains (losses) are as follows for periods indicated (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2013		2012		2013		2012
Sales of available-for-sale securities:
Fixed maturities	$	2,045	$	1,282	$	18,321	$	4,625
Preferred stocks		-		(76)		177		(567)
Total sales of available-for-sale securities		2,045		1,206		18,498		4,058
Sales of trading securities		744		184		1,129		289
Other gains (losses)		(199)		-		(853)		-
Total realized gains (losses)		2,590		1,390		18,774		4,347
Unrealized gains (losses) on trading securities:
Available-for-sale securities transferred
to trading category		-		-		-		138
Change in unrealized gains (losses) on trading securities		(173)		65		(3)		(43)
Total unrealized gains (losses)  on trading securities		(173)		65		(3)		95
Loss on other investment		-		(444)		-		(444)
Net realized investment gains (losses)	$	2,417	$	1,011	$	18,771	$	3,998

For the three months and nine months ended September 30, 2013, the Company realized gross gains of $2,324,000 and $21,060,000, respectively, and realized gross losses of $279,000 and $2,562,000, respectively, on sales of available-for-sale securities. For the three months and nine months ended September 30, 2012, the Company realized gross gains of $2,170,000 and $8,259,000, respectively, and realized gross losses of $964,000 and $4,201,000, respectively, on sales of available-for-sale securities.

On January 1, 2012, the Company transferred equity securities previously classified as available-for-sale into the trading category and, as a result, recognized $287,000 of gross gains and $149,000 of gross losses in net realized investment gains on the accompanying Condensed Consolidated Statement of Income. These gains and losses were previously included in accumulated other comprehensive income.

Other-Than-Temporary Impairment Evaluations

We recognize an other-than-temporary impairment loss in earnings in the period that we determine: 1) we intend to sell the security; 2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or 3) the security has a credit loss. Any non-credit portion of the other-than-temporary impairment loss is recognized in other comprehensive income (loss). See Note 1E(vi) to the Consolidated Financial Statements in the 2012 Annual Report for further discussion of the factors considered by management in its regular review to identify and recognize other-than-temporary impairments on available-for-sale securities. Our other-than-temporary impairment losses were as follows for the periods indicated (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2013		2012		2013		2012
Total other-than-temporary impairment losses	$	-	$	-	$	-	$	992
Portion of losses recognized in other comprehensive
income (loss)		-		-		-		(288)
Net impairment losses recognized in earnings	$	-	$	-	$	-	$	704

Credit losses were recognized on certain fixed maturities for which each security also had an impairment loss recognized in other comprehensive income (loss). The rollforward of these credit losses were as follows for the periods indicated (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2013		2012		2013		2012
Balance at beginning of year	$	563	$	2,600	$	1,976	$	2,555
Credit losses during the period for which an other-
than-temporary loss was not previously recognized		-		-		-		473
Additional credit losses for which an other-than-
temporary loss was previously recognized		-		-		-		148
Securities sold		-		(624)		(1,413)		(1,200)
Balance at end of period	$	563	$	1,976	$	563	$	1,976

The after-tax portion of other-than-temporary impairments included in accumulated other comprehensive income (loss) at September 30, 2013 and December 31, 2012 consists of $345,000 and $389,000, respectively, related to CMO securities; and $0 and $684,000, respectively, related to redeemable preferred stock.