Investments

9 Months Ended

Sep. 30, 2011

Investment [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 2011 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,000	$	64	$	—	$	1,064
Obligations of states and political subdivisions		58,062		3,021		—		61,083
Corporate securities		250		3		—		253
Residential mortgage-backed securities		395		28		—		423
Totals	$	59,707	$	3,116	$	—	$	62,823
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	55,543	$	2,420	$	—	$	57,963
Obligations of states and political subdivisions		359,629		19,542		65		379,106
Corporate securities		66,377		1,284		326		67,335
Residential mortgage-backed securities		117,742		3,535		45		121,232
Fixed maturities		599,291		26,781		436		625,636
Equity securities		8,502		4,362		1,736		11,128
Totals	$	607,793	$	31,143	$	2,172	$	636,764

At September 30, 2011, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $357.2 million and an amortized cost of $338.8 million. Our holdings also included special revenue bonds with an aggregate fair value of $83.0 million and an amortized cost of $78.9 million. With respect to both categories, we held no securities of any issuer that comprised more than 10% of the category at September 30, 2011. Education bonds and water and sewer utility bonds represented 57% and 13%, respectively, of our total investments in special revenue bonds based on their carrying values at September 30, 2011. Many of the issuers of the special revenue bonds we held at September 30, 2011 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held were similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2010 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,000	$	84	$	—	$	1,084
Obligations of states and political subdivisions		59,852		2,894		—		62,746
Corporate securities		3,247		25		—		3,272
Residential mortgage-backed securities		667		40		—		707
Totals	$	64,766	$	3,043	$	—	$	67,809
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	57,284	$	484	$	452	$	57,316
Obligations of states and political subdivisions		388,091		6,838		5,300		389,629
Corporate securities		67,518		650		1,074		67,094
Residential mortgage-backed securities		88,410		1,851		454		89,807
Fixed maturities		601,303		9,823		7,280		603,846
Equity securities		2,504		7,693		35		10,162
Totals	$	603,807	$	17,516	$	7,315	$	614,008

At December 31, 2010, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $366.7 million and an amortized cost of $362.5 million. Our holdings also included special revenue bonds with an aggregate fair value of $85.7 million and an amortized cost of $85.5 million. With respect to both categories, we held no securities of any issuer that comprised more than 10% of the category at December 31, 2010. Education bonds and water and sewer utility bonds represented 53% and 11%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2010. Many of the issuers of the special revenue bonds we held at December 31, 2010 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

The amortized cost and estimated fair value of our fixed maturities at September 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	750	$	754
Due after one year through five years		34,409		36,147
Due after five years through ten years		24,153		25,499
Due after ten years		—		—
Residential mortgage-backed securities		395		423
Total held to maturity	$	59,707	$	62,823
Available for sale
Due in one year or less	$	19,552	$	19,809
Due after one year through five years		65,765		67,099
Due after five years through ten years		155,079		162,880
Due after ten years		241,153		254,616
Residential mortgage-backed securities		117,742		121,232
Total available for sale	$	599,291	$	625,636

Gross realized gains and losses from investments before applicable income taxes were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	3,464	$	2,050	$	3,905	$	3,681
Equity securities		129		765		4,634		1,300
	$	3,593	$	2,815	$	8,539	$	4,981
Gross realized losses:
Fixed maturities	$	61	$	355	$	163	$	534
Equity securities		1,073		—		1,228		—
		1,134		355		1,391		534
Net realized gains	$	2,459	$	2,460	$	7,148	$	4,447

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 2011 as follows:

	Less than 12 months				More than 12 months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		9,957		63		1,212		2
Corporate securities		9,469		326		—		—
Residential mortgage-backed securities		2,791		45		—		—
Equity securities		4,639		1,736		—		—
Totals	$	26,856	$	2,170	$	1,212	$	2

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2010 as follows:

	Less than 12 months				More than 12 months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	23,901	$	452	$	—	$	—
Obligations of states and political subdivisions		171,610		5,209		1,407		91
Corporate securities		44,101		1,062		491		12
Residential mortgage-backed securities		35,930		454		—		—
Equity securities		314		35		—		—
Totals	$	275,856	$	7,212	$	1,898	$	103

Of our total fixed maturity securities with an unrealized loss at September 30, 2011, we classified 28 securities with a fair value of $23.4 million and an unrealized loss of $436,266 as available-for-sale and carried them at fair value on our balance sheet.

Of our total fixed maturity securities with an unrealized loss at December 31, 2010, we classified 301 securities with a fair value of $277.4 million and an unrealized loss of $7.3 million as available-for-sale and carried them at fair value on our balance sheet.

We have no direct exposure to sub-prime residential mortgage-backed securities and hold no collateralized debt obligations. Substantially all of the unrealized losses in our fixed maturity investment portfolio have resulted from general market conditions and the related impact on our fixed maturity investment valuations. We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, when we consider the decline in value of an individual investment to be other than temporary, we write the investment down to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations. We individually monitor all investments for other-than-temporary declines in value. Generally, if an individual equity security has depreciated in value by more than 20% of original cost, and has been in such an unrealized loss position for more than six months, we assume there has been an other-than-temporary decline in value. We held 23 equity securities that were in an unrealized loss position at September 30, 2011. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we consider these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the security prior to recovery. If it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. To determine whether a credit loss has occurred, we compare the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider a credit loss to have occurred. If we consider a credit loss to have occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including whether the fair value of the investment is significantly below its cost, whether the financial condition of the issuer of the security has deteriorated, the occurrence of industry, company and geographic events that have negatively impacted the value of the security and rating agency downgrades. We determined that no investments with fair values below cost had declined on an other-than-temporary basis during the first nine months of 2011 and 2010, respectively.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts for mortgage-backed debt securities using anticipated prepayments.

We account for investments in our affiliates using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of our affiliates’ earnings and losses as well as changes in our affiliates’ equity due to unrealized gains and losses. Our investments in affiliates include our 48.2% ownership interest in DFSC. We include our share of DFSC’s net income in other income. We have compiled the following summary financial information for DFSC at September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010, respectively, from the financial statements of DFSC.

Balance sheets:	September 30, 2011		December 31, 2010
	(in thousands)
Total assets	$	536,965	$	99,118
Total liabilities	$	471,911	$	81,510
Stockholders equity		65,054		17,608
Total liabilities and stockholders equity	$	536,965	$	99,118

	Three Months Ended September 30,					Nine Months Ended September 30,
Income statements:	2011		2010			2011		2010
	(in thousands)
Net income (loss)	$	2,129	($	330	)	$	2,830	($	607	)