Note 4. Investment Securities

9 Months Ended

Sep. 30, 2016

Notes

Note 4. Investment Securities

Note  4.                       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, 2016
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	200,741	$	2,307	$	(1,431)	$	201,617
CMOs - residential (1)		6,295		68		-		6,363
U.S. Government obligations		33,819		292		(26)		34,085
Agency MBS - residential (2)		25		1		-		26
GSEs (3)		10,401		1		(222)		10,180
States and political subdivisions		199,031		4,932		(984)		202,979
Foreign government obligations		5,618		93		(58)		5,653
Redeemable preferred stocks		11,454		92		(101)		11,445
Total fixed maturities	$	467,384	$	7,786	$	(2,822)	$	472,348

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stocks	$	2,717	$	301	$	-	$	3,018
Nonredeemable preferred stocks		3,588		98		(19)		3,667
Total equity securities	$	6,305	$	399	$	(19)	$	6,685

		December 31, 2015
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	172,621	$	93	$	(5,868)	$	166,846
CMOs - residential (1)		3,068		2		(14)		3,056
CMOs - commercial		899		296		-		1,195
U.S. Government obligations		44,738		120		(64)		44,794
Agency MBS - residential (2)		34		1		-		35
GSEs (3)		11,814		2		(254)		11,562
States and political subdivisions		194,364		2,159		(1,857)		194,666
Foreign government obligations		2,318		12		(6)		2,324
Redeemable preferred stocks		4,036		101		(14)		4,123
Total fixed maturities	$	433,892	$	2,786	$	(8,077)	$	428,601

EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stocks	$	4,926	$	-	$	(142)	$	4,784
Nonredeemable preferred stocks		3,588		56		(2)		3,642
Total equity securities	$	8,514	$	56	$	(144)	$	8,426

(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, 2016, 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	$	11,684	$	11,681
Due after one year through five years		112,394		112,991
Due after five years through ten years		154,702		157,923
Due after ten years		171,883		173,184
CMOs and MBSs		16,721		16,569
	$	467,384	$	472,348

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, 2016
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	24,023	$	225	$	30,032	$	1,206	$	54,055	$	1,431
U.S. Government obligations		18,229		26		-		-		18,229		26
GSEs		-		-		10,160		222		10,160		222
States and political subdivisions		38,919		363		24,875		621		63,794		984
Foreign government obligations		3,666		58		-		-		3,666		58
Redeemable preferred stocks		-		-		3,662		101		3,662		101
Total fixed maturities		84,837		672		68,729		2,150		153,566		2,822
Nonredeemable preferred stocks		1,308		19		-		-		1,308		19
Total equity securities		1,308		19		-		-		1,308		19
Total temporarily impaired
securities	$	86,145	$	691	$	68,729	$	2,150	$	154,874	$	2,841
Number of securities in an
unrealized loss position		39				28				67

		December 31, 2015
		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Corporate securities	$	101,903	$	2,559	$	55,217	$	3,309	$	157,120	$	5,868
CMO’s - residential		2,867		14		-		-		2,867		14
U.S. Government obligations		19,809		64		-		-		19,809		64
GSEs		6,539		128		4,997		126		11,536		254
States and political subdivisions		68,898		780		31,351		1,077		100,249		1,857
Foreign government obligations		484		6		-		-		484		6
Redeemable preferred stocks		3,749		14		-		-		3,749		14
Total fixed maturities		204,249		3,565		91,565		4,512		295,814		8,077
Common stocks		4,784		142		-		-		4,784		142
Nonredeemable preferred stocks		1,324		2		-		-		1,324		2
Total equity securities		6,108		144		-		-		6,108		144
Total temporarily impaired
securities	$	210,357	$	3,709	$	91,565	$	4,512	$	301,922	$	8,221
Number of securities in an
unrealized loss position		99				31				130

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, 2016 and December 31, 2015 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, 2016.

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

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2016		2015		2016		2015
Available-for-sale securities:
Fixed maturities	$	2,226	$	122	$	3,847	$	3,536
Common stocks		220		-		220		1,465
Total sales of available-for-sale securities		2,446		122		4,067		5,001
Trading securities		-		(703)		-		(1,124)
Total realized gains		2,446		(581)		4,067		3,877
Unrealized gains (losses) on trading securities:
Change in unrealized gains (losses) on trading securities		(80)		(530)		(124)		(882)
Total unrealized gains (losses)  on trading securities		(80)		(530)		(124)		(882)
Gains (losses) on other investments		1		2		2		(4)
Net realized investment gains	$	2,367	$	(1,109)	$	3,945	$	2,991

For the three months and nine months ended September 30, 2016, proceeds from sales of available-for-sale securities were $179,735,000 and $339,171,000, respectively, and the Company realized gross gains of $2,668,000 and $4,521,000, respectively, and gross losses of $94,000 and $275,000, respectively, on those sales. 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, on 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 1H(iv) to the Consolidated Financial Statements in the 2015 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. In the three months and nine months ended September 30, 2016, the Company recognized an other-than-temporary impairment loss of $1,475,000 on certain fixed maturities available-for-sale due to credit losses. The Company determined it is more likely than not that we will sell the securities before recovery of their amortized cost basis. 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.  

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,
		2016		2015		2016		2015
Balance at beginning of year	$	-	$	473	$	473	$	473
Securities sold		-		-		(473)		-
Balance at end of period	$	-	$	473	$	-	$	473