Note 2. Investment Securities

12 Months Ended

Dec. 31, 2013

Notes

Note 2. Investment Securities

Note 2.                        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 for the periods indicated (in thousands):

		December 31, 2013
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	215,412	$	1,315	$	(7,467)	$	209,260
CMOs - residential(1)		2,457		8		(8)		2,457
CMOs - commercial		975		-		(382)		593
U.S. Government obligations		15,596		271		(6)		15,861
Agency MBS - residential(2)		79		4		-		83
GSEs(3)		28,484		4		(340)		28,148
States and political subdivisions		256,645		2,435		(9,377)		249,703
Foreign government		34,437		20		(2,107)		32,350
Redeemable preferred stocks		4,036		74		(278)		3,832
Total fixed maturities	$	558,121	$	4,131	$	(19,965)	$	542,287

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stocks	$	7,517	$	328	$	(70)	$	7,775
Nonredeemable preferred stocks		4,004		58		(34)		4,028
Total equity securities	$	11,521	$	386	$	(104)	$	11,803

		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 December 31, 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	$	756	$	778
Due after one year through five years		54,395		55,018
Due after five years through ten years		182,427		175,969
Due after ten years		288,548		279,241
CMOs and MBSs		31,995		31,281
	$	558,121	$	542,287

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 (in thousands):

		December 31, 2013
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	124,531	$	5,340	$	21,070	$	2,127	$	145,601	$	7,467
CMO’s  - residential		2,047		8		-		-		2,047		8
CMOs - commercial		-		-		593		382		593		382
U.S. Government obligations		493		6		-		-		493		6
GSEs		22,731		123		5,360		217		28,091		340
States and political subdivisions		149,704		7,312		32,983		2,065		182,687		9,377
Foreign governments		27,587		1,766		3,523		341		31,110		2,107
Redeemable preferred stocks		3,485		278		-		-		3,485		278
Total fixed maturities		330,578		14,833		63,529		5,132		394,107		19,965
Common stocks		2,589		70		-		-		2,589		70
Nonredeemable preferred stocks		2,625		34		-		-		2,625		34
Total equity securities		5,214		104		-		-		5,214		104
Total temporarily impaired
securities	$	335,792	$	14,937	$	63,529	$	5,132	$	399,321	$	20,069
Number of securities in an
unrealized loss position		126				27				153

		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 equity securities		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 December 31, 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 December 31, 2013.

The following table summarizes the Company’s net investment income for the years indicated (in thousands):

		2013		2012		2011
Fixed maturities	$	22,667	$	27,785	$	33,161
Equity securities		1,065		1,967		2,749
Short-term investments		118		194		63
Policy loans		1,020		1,542		1,587
Partnership income:
Investment partnerships		337		592		677
Operating partnerships		2,169		1,435		1,591
Other		291		5		175
Investment income, gross		27,667		33,520		40,003
Investment expenses		(196)		(164)		(215)
Net investment income	$	27,471	$	33,356	$	39,788

The following table summarizes the Company’s net realized investment gains (losses) for the years indicated (in thousands):

		2013		2012		2011
Sales of available-for-sale securities:
Fixed maturities	$	18,810	$	6,837	$	9,086
Common stocks		-		419		(874)
Preferred stocks		177		(495)		749
Total sales of available-for-sale securities		18,987		6,761		8,961
Sales of trading securities		1,619		79		-
Other gains (losses)		(1,146)		(1,409)		-
Total realized gains (losses)		19,460		5,431		8,961
Unrealized gains (losses) on trading securities:
Available-for-sale securities transferred
to trading category		-		138		-
Change in unrealized gains (losses) on trading securities		94		(26)		-
Total unrealized gains (losses) on trading securities		94		112		-
Loss on other investments		196		(444)		(291)
Net realized investment gains (losses)	$	19,750	$	5,099	$	8,670

For the years ended December 31, 2013, 2012 and 2011, the company realized gross gains of $21,889,000, $10,629,000 and $18,661,000, respectively, and gross losses of $2,902,000, $3,868,000 and $9,700,000, 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 Consolidated Statement of Income. These gains and losses were previously included in accumulated other comprehensive income (loss).

We recognize other-than-temporary impairment losses 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). Our other-than-temporary impairment losses were as follows for the years indicated (in thousands):

		2013		2012		2011
Total other-than-temporary impairment losses	$	-	$	992	$	2,471
Portion of losses recognized in other comprehensive income (loss)		-		(288)		(948)
Net impairment losses recognized in earnings	$	-	$	704	$	1,523

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 years indicated (in thousands):

		2013		2012		2011
Balance at beginning of year	$	1,976	$	2,555	$	1,763
Credit losses during the period for which an other-
than-temporary loss was not previously recognized		-		473		878
Additional credit losses for which an other-than-temporary
loss was previously recognized		-		148		-
Securities sold		(1,503)		(1,200)		(86)
Balance at end of period	$	473	$	1,976	$	2,555

The after-tax portion of other-than-temporary impairments included in accumulated other comprehensive income (loss) at December 31, 2013 and 2012 consists of $335,000 and $389,000, respectively, related to CMO securities; and $0 and $684,000, respectively, related to redeemable preferred stock.