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Note 3. Investment Securities
 9 Months Ended
Sep. 30, 2015
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, 2015

 

 

 

 

       GROSS

 

       GROSS

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

     FAIR

 

 

       COST

 

        GAINS

 

       LOSSES

 

   VALUE

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

         170,411

$

                  411

$

            (4,575)

$

     166,247

CMOs - residential (1)

 

             3,165

 

                    45

 

                     - 

 

         3,210

CMOs - commercial

 

                975

 

                  303

 

                     - 

 

         1,278

U.S. Government obligations

 

           36,269

 

                  334

 

                     - 

 

       36,603

Agency MBS - residential (2)

 

                  36

 

                      1

 

                     - 

 

              37

GSEs (3)

 

           11,901

 

                    25

 

               (243)

 

       11,683

States and political subdivisions

 

         209,143

 

               3,300

 

            (1,552)

 

     210,891

Foreign government obligations

 

             1,837

 

                    50

 

                     - 

 

         1,887

Redeemable preferred stocks

 

             4,036

 

                    98

 

                 (41)

 

         4,093

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

         437,773

$

               4,567

$

            (6,411)

$

     435,929

 

EQUITY SECURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Common stocks

$

             4,927

$

                       -

$

               (355)

$

         4,572

Nonredeemable preferred stocks

 

             4,004

 

                  172

 

                     - 

 

         4,176

 

 

 

 

 

 

 

 

 

Total equity securities

$

             8,931

$

                  172

$

               (355)

$

         8,748

 

 

 

                                                   December 31, 2014

 

 

 

 

       GROSS

 

       GROSS

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

     FAIR

 

 

       COST

 

        GAINS

 

       LOSSES

 

   VALUE

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

         264,162

$

               1,076

$

            (3,314)

$

     261,924

CMOs - residential (1)

 

             5,073

 

                    55

 

                 (22)

 

         5,106

CMOs - commercial

 

                975

 

                       -

 

                 (22)

 

            953

U.S. Government obligations

 

           22,766

 

                  126

 

                     - 

 

       22,892

Agency MBS - residential (2)

 

                  65

 

                      4

 

                     - 

 

              69

GSEs (3)

 

           14,706

 

                    36

 

                 (86)

 

       14,656

States and political subdivisions

 

         238,514

 

               3,253

 

            (2,386)

 

     239,381

Foreign government obligations

 

           34,863

 

                  136

 

               (299)

 

       34,700

Redeemable preferred stocks

 

             4,036

 

                  163

 

                     - 

 

         4,199

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

         585,160

$

               4,849

$

            (6,129)

$

     583,880

 

EQUITY SECURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Common stocks

$

             8,452

$

               1,452

$

               (147)

$

         9,757

Nonredeemable preferred stocks

 

             4,004

 

                  134

 

                     - 

 

         4,138

 

 

 

 

 

 

 

 

 

Total equity securities

$

           12,456

$

               1,586

$

               (147)

$

       13,895

 

(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, 2015, 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 repayment 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

 

$

3,796

 

$

3,819

Due after one year through five years

 

 

86,666

 

 

86,501

Due after five years through ten years

 

 

119,483

 

 

119,799

Due after ten years

 

 

212,745

 

 

210,618

CMOs and MBSs

 

 

15,083

 

 

15,192

 

 

 

 

 

 

 

 

 

$

437,773

 

$

435,929

 

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, 2015

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

96,293

 

$

2,898

 

$

33,355

 

$

1,677

 

$

129,648

$

4,575

GSEs

 

5,604

 

 

125

 

 

5,035

 

 

118

 

 

10,639

 

243

States and political subdivisions

 

36,049

 

 

637

 

 

32,903

 

 

915

 

 

68,952

 

1,552

Redeemable preferred stocks

 

3,722

 

 

41

 

 

-

 

 

-

 

 

3,722

 

41

   Total fixed maturities

 

141,668

 

 

3,701

 

 

71,293

 

 

2,710

 

 

212,961

 

6,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

4,069

 

 

355

 

 

-

 

 

-

 

 

4,069

 

355

   Total equity securities

 

4,069

 

 

355

 

 

-

 

 

-

 

 

4,069

 

355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       securities

$

145,737

 

$

4,056

 

$

71,293

 

$

2,710

 

$

217,030

$

6,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of securities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   unrealized loss position

 

62

 

 

 

 

 

21

 

 

 

 

 

83

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

77,868

 

$

1,473

 

$

69,498

 

$

1,841

 

$

147,366

$

3,314

CMO’s  - residential

 

2,062

 

 

16

 

 

1,562

 

 

6

 

 

3,624

 

22

CMOs - commercial

 

-

 

 

-

 

 

953

 

 

22

 

 

953

 

22

GSEs

 

-

 

 

-

 

 

9,581

 

 

86

 

 

9,581

 

86

States and political subdivisions

 

58,819

 

 

744

 

 

67,318

 

 

1,642

 

 

126,137

 

2,386

Foreign government obligations

 

21,148

 

 

171

 

 

12,229

 

 

128

 

 

33,377

 

299

   Total fixed maturities

 

159,897

 

 

2,404

 

 

161,141

 

 

3,725

 

 

321,038

 

6,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

2,007

 

 

136

 

 

348

 

 

11

 

 

2,355

 

147

   Total equity securities

 

2,007

 

 

136

 

 

348

 

 

11

 

 

2,355

 

147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       securities

$

161,904

 

$

2,540

 

$

161,489

 

$

3,736

 

$

323,393

$

6,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of securities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   unrealized loss position

 

70

 

 

 

 

 

46

 

 

 

 

 

116

 

 

 

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, 2015 and December 31, 2014 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, 2015.

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

   Fixed maturities

$

        122 

$

     1,536 

$

     3,536 

$

    7,027 

   Common stocks

 

              - 

 

              - 

 

     1,465 

 

             - 

   Preferred stocks

 

              - 

 

              - 

 

              - 

 

           (5)

      Total  available-for-sale securities

 

        122 

 

     1,536 

 

     5,001 

 

    7,022 

 

 

 

 

 

 

 

 

 

Trading securities

 

       (703)

 

        321 

 

   (1,124)

 

        351 

      Total realized gains (losses)

 

       (581)

 

     1,857 

 

     3,877 

 

    7,373 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on trading securities:

 

 

 

 

 

 

 

 

   Change in unrealized gains (losses) on trading securities

 

       (530)

 

   (1,010)

 

      (882)

 

      (458)

      Total unrealized gains (losses)  on trading securities

 

       (530)

 

   (1,010)

 

      (882)

 

      (458)

 

 

 

 

 

 

 

 

 

Gain (losses) on other investments

 

             2 

 

           (3)

 

           (4)

 

           (1)

 

 

 

 

 

 

 

 

 

Net realized investment gains (losses)  

$

   (1,109)

$

        844 

$

     2,991 

$

    6,914 

 

For the three months and nine months ended September 30, 2015, proceeds from sales of available-for-sale securities were $226,350,000 and $612,363,000, respectively, and the Company realized gross gains of $301,000 and $6,074,000, respectively, and gross losses of $148,000 and $790,000, respectively, as a result of those sales. 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.

 

Other-Than-Temporary Impairment Evaluations

 

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). See Note 1G(iv) to the Consolidated Financial Statements in the 2014 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 recognized $228,000 of other-than-temporary impairment losses in earnings on equity securities available-for-sale during the three months and nine months ended September 30, 2015 due to the length of time and extent an equity security was below cost. The Company did not recognize any other-than-temporary impairments on available-for-sale securities in 2014.

 

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,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Balance at beginning of year

$

           473

$

          473

$

       473

$

           473

Additional credit losses for which an other-than-

 

 

 

 

 

 

 

 

    temporary loss was previously recognized

 

                -

 

                -

 

             -

 

                -

Securities sold

 

                -

 

                -

 

             -

 

                -

 

 

 

 

 

 

 

 

 

Balance at end of period

$

           473

$

          473

$

       473

$

           473

 

The after-tax portion of other-than-temporary impairments included in accumulated other comprehensive income (loss) at both September 30, 2015 and December 31, 2014 consists of $335,000 related to CMO securities.