5. Investments

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary. All securities with an unrealized loss are reviewed. We recognize an impairment loss when an investment's value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary.

Debt Investments: We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.

Equity Investments: Some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include: (1) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; (2) the recoverability of cost; (3) the length of time and extent to which the fair value has been less than cost; and (4) the financial condition and near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. When it is determined that an equity investment is other-than-temporarily impaired, the security is written down to fair value, and the amount of the impairment is included in earnings as a realized investment loss. The fair value then becomes the new cost basis of the investment, and any subsequent recoveries in fair value are recognized at disposition. We recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made. When we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale, the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made.

Major categories of net realized gains (losses) on investments are summarized as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30				June 30
	2011		2010		2011			2010

U.S. Treasury securities and obligations of U.S. Government	$	-	$	-	$	14		$	-
Corporate bonds		271		-		271			2,078
Collateralized corporate bank loans		206		74		640			1,290
Municipal bonds		66		24		(1	)		(72	)
Mortgage-backed		-		-		-			-
Equity securities-financial services		51		1,201		789			1,767
Equity securities-all other		1,070		344		1,070			383
Gain on investments		1,664		1,643		2,783			5,446
Other-than-temporary impairments		-		-		-			-
Net realized gains	$	1,664	$	1,643	$	2,783		$	5,446

We realized gross gains on investments of $1.7 million and $1.6 million during the three months ended June 30, 2011 and 2010, respectively and $2.9 million and $5.5 million for the six months ended June 30, 2011 and 2010, respectively. We realized gross losses on investments of $43 thousand and $11 thousand for the three months ended June 30, 2011 and 2010. We realized gross losses on investments of $0.1 million for the six months ended both June 30, 2011 and 2010. We recorded proceeds from the sale of investment securities of $82.9 million and $26.5 million during the three months ended June 30, 2011 and 2010, respectively, and $165.7 million and $73.6 million for the six months ended June 30, 2011 and 2010, respectively. Realized investment gains and losses are recognized in operations on the specific identification method.

The amortized cost and estimated fair value of investments in debt and equity securities (in thousands) by category is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
As of June 30, 2011	Cost		Gains		Losses			Value

U.S. Treasury securities and obligations of U.S. Government	$	23,098	$	57	$	-		$	23,155
Corporate bonds		70,647		3,079		(779	)		72,947
Collateralized corporate bank loans		108,861		534		(180	)		109,215
Municipal bonds		190,231		2,929		(3,207	)		189,953
Mortgage-backed		660		45		-			705

Total debt securities		393,497		6,644		(4,166	)		395,975

Financial services		14,522		3,860		(334	)		18,048
All other		17,051		7,885		(41	)		24,895

Total equity securities		31,573		11,745		(375	)		42,943

Total debt and equity securities	$	425,070	$	18,389	$	(4,541	)	$	438,918

As of December 31, 2010

U.S. Treasury securities and obligations of U.S. Government	$	39,767	$	36	$	-		$	39,803
Corporate bonds		82,956		3,465		(844	)		85,577
Collateralized corporate bank loans		106,723		1,685		(95	)		108,313
Municipal bonds		153,334		2,421		(1,842	)		153,913
Mortgage-backed		750		43		-			793

Total debt securities		383,530		7,650		(2,781	)		388,399

Financial services		15,385		5,770		(270	)		20,885
All other		17,084		6,196		(123	)		23,157

Total equity securities		32,469		11,966		(393	)		44,042

Total debt and equity securities	$	415,999	$	19,616	$	(3,174	)	$	432,441

The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2011 and December 31, 2010 (in thousands):

	As of June 30, 2011
	12 months or less					Longer than 12 months					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

U.S. Treasury securities and obligations of U.S. Government	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		3,472		(17	)		2,400		(762	)		5,872		(779	)
Collateralized corporate bank loans		35,384		(176	)		19		(4	)		35,403		(180	)
Municipal bonds		38,571		(534	)		38,815		(2,673	)		77,386		(3,207	)
Mortgage-backed		-		-			-		-			-		-
Total debt securities		77,427		(727	)		41,234		(3,439	)		118,661		(4,166	)

Financial services		2,363		(239	)		746		(95	)		3,109		(334	)
All other		1,950		(41	)		-		-			1,950		(41	)
Total equity securities		4,313		(280	)		746		(95	)		5,059		(375	)

Total debt and equity securities	$	81,740	$	(1,007	)	$	41,980	$	(3,534	)	$	123,720	$	(4,541	)

	As of December 31, 2010
	12 months or less					Longer than 12 months					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

U.S. Treasury securities and obligations of U.S. Government	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		8,036		(13	)		2,342		(831	)		10,378		(844	)
Collateralized corporate bank loans		17,370		(90	)		19		(5	)		17,389		(95	)
Municipal bonds		24,755		(248	)		46,591		(1,594	)		71,346		(1,842	)
Mortgage-backed		-		-			-		-			-		-
Total debt securities		50,161		(351	)		48,952		(2,430	)		99,113		(2,781	)

Financial services		1,234		(270	)		-		-			1,234		(270	)
All other		625		(123	)		-		-			625		(123	)
Equity securities		1,859		(393	)		-		-			1,859		(393	)

Total debt and equity securities	$	52,020	$	(744	)	$	48,952	$	(2,430	)	$	100,972	$	(3,174	)

At June 30, 2011, the gross unrealized losses more than twelve months old were attributable to 25 debt security positions. At December 31, 2010, the gross unrealized losses more than twelve months old were attributable to 31 debt security positions. We consider these losses as a temporary decline in value as they are predominately on bonds that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis. We see no other indications that the decline in values of these securities is other-than-temporary.

Based on evidence gathered through our normal credit evaluation process, we presently expect that all debt securities held in our investment portfolio will be paid in accordance with their contractual terms. Nonetheless, it is at least reasonably possible that the performance of certain issuers of these debt securities will be worse than currently expected resulting in additional future write-downs within our portfolio of debt securities.

Also, as a result of the challenging market conditions, we expect the volatility in the valuation of our equity securities to continue in the foreseeable future. This volatility may lead to additional impairments on our equity securities portfolio or changes regarding retention strategies for certain equity securities.

The amortized cost and estimated fair value of debt securities at June 30, 2011 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Fair
	Cost		Value
	(in thousands)

Due in one year or less	$	55,262	$	55,864
Due after one year through five years		154,545		158,273
Due after five years through ten years		137,861		137,283
Due after ten years		45,169		43,850
Mortgage-backed		660		705
	$	393,497	$	395,975