Note 3. Investment Securities

9 Months Ended

Sep. 30, 2014

Notes

Note 3. Investment Securities

Note  3.                       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):

		September 30, 2014
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	244,113	$	410	$	(4,692)	$	239,831
CMOs - residential (1)		3,158		20		(13)		3,165
CMOs - commercial		975		-		(51)		924
U.S. Government obligations		22,760		25		-		22,785
Agency MBS - residential (2)		69		3		-		72
GSEs (3)		16,505		12		(150)		16,367
States and political subdivisions		234,610		2,560		(3,017)		234,153
Foreign government obligations		45,724		168		(694)		45,198
Redeemable preferred stocks		4,036		100		(19)		4,117
Total fixed maturities	$	571,950	$	3,298	$	(8,636)	$	566,612

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stocks	$	8,452	$	700	$	(145)	$	9,007
Nonredeemable preferred stocks		4,004		113		(3)		4,114
Total equity securities	$	12,456	$	813	$	(148)	$	13,121

		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 obligations		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

(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, 2014, 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	$	15,306	$	15,162
Due after one year through five years		87,574		87,064
Due after five years through ten years		219,861		217,224
Due after ten years		229,530		227,660
CMOs and MBSs		19,679		19,502
	$	571,950	$	566,612

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):

		September 30, 2014
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	107,877	$	1,754	$	83,832	$	2,938	$	191,709	$	4,692
CMO’s  - residential		1,657		13		-		-		1,657		13
CMOs - commercial		-		-		924		51		924		51
GSEs		9,164		80		2,516		70		11,680		150
States and political subdivisions		59,372		627		95,235		2,390		154,607		3,017
Foreign government obligations		21,238		187		18,499		507		39,737		694
Redeemable preferred stocks		3,743		19		-		-		3,743		19
Total fixed maturities		203,051		2,680		201,006		5,956		404,057		8,636
Common stocks		2,610		145		-		-		2,610		145
Nonredeemable preferred stocks		1,407		3		-		-		1,407		3
Total equity securities		4,017		148		-		-		4,017		148
Total temporarily impaired
securities	$	207,068	$	2,828	$	201,006	$	5,956	$	408,074	$	8,784
Number of securities in an
unrealized loss position		76				65				141

		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 government obligations		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

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, 2014 and December 31, 2013 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, 2014.

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

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2014		2013		2014		2013
Sales of available-for-sale securities:
Fixed maturities	$	1,641	$	2,045	$	7,709	$	18,321
Preferred stocks		-		-		(5)		177
Total sales of available-for-sale securities		1,641		2,045		7,704		18,498
Sales of trading securities		321		744		351		1,129
Other gains (losses)		(108)		(199)		(683)		(853)
Total realized gains (losses)		1,854		2,590		7,372		18,774
Unrealized gains (losses) on trading securities:
Change in unrealized gains (losses) on trading securities		(1,010)		(173)		(458)		(3)
Total unrealized gains (losses)  on trading securities		(1,010)		(173)		(458)		(3)
Net realized investment gains (losses)	$	844	$	2,417	$	6,914	$	18,771

For the three months and nine months ended September 30, 2014, proceeds from sales of available-for-sale securities were $71,845,000 and $297,372,000, respectively, and the Company realized gross gains of $1,794,000 and $8,398,000, respectively, and gross losses of $153,000  and $694,000, respectively, as a result of those sales. For the three months and nine months ended September 30, 2013, proceeds from sales of available-for-sale securities were $57,418,000 and $528,428,000, respectively, and the Company realized gross gains of $2,324,000 and $21,060,000, respectively, and gross losses of $279,000 and $2,562,000, respectively, as a result of those sales.

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 1G(vi) to the Consolidated Financial Statements in the 2013 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. The Company did not recognize any other-than-temporary impairments on available-for-sale securities in 2014 or 2013.

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,
		2014		2013		2014		2013
Balance at beginning of year	$	473	$	563	$	473	$	1,976
Additional credit losses for which an other-than-
temporary loss was previously recognized		-		-		-		-
Securities sold		-		-		-		(1,413)
Balance at end of period	$	473	$	563	$	473	$	563

The after-tax portion of other-than-temporary impairments included in accumulated other comprehensive income (loss) at both September 30, 2014 and December 31, 2013 consists of $335,000 related to CMO securities.