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Investments
 9 Months Ended
Sep. 30, 2014
Investments [Abstract]  
Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. Investments

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

As of September 30, 2014

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

obligations of U.S. Government

$                 75,390       

 

$                   44                

 

$                         (76)

 

$                    75,358       

Corporate bonds

 

 
29,569 

 
1,183 

 

                            -

 
30,752 

Collateralized corporate bank loans
113,839 

 
192 

 
(1,831)

 
112,200 

Municipal bonds

 

 
141,140 

 
2,514 

 
(1,666)

 
141,988 

Mortgage-backed

 

 
51,062 

 
571 

 
(669)

 
50,964 

 

 

 

 

 

 

 

 

 

 

 

          Total debt securities

 
411,000 

 
4,504 

 
(4,242)

 
411,262 

 

 

 

 

 

 

 

 

 

 

 

Total equity securities

 
24,967 

 
29,714 

 
(3)

 
54,678 

 

 

 

 

 

 

 

 

 

 

 

Total debt and equity securities

 
$
435,967 

 
$
34,218 

 
$
(4,245)

 
$
465,940 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

 obligations of U.S. Government
$
78,894 

 
$
24 

 
$
(165)

 
$
78,753 

Corporate bonds

 

 
42,946 

 
1,379 

 
(450)

 
43,875 

Collateralized corporate bank loans
102,053 

 
614 

 
(489)

 
102,178 

Municipal bonds

 

 
156,950 

 
2,577 

 
(1,975)

 
157,552 

Mortgage-backed

 

 
27,784 

 
460 

 
(507)

 
27,737 

 

 

 

 

 

 

 

 

 

 

 

          Total debt securities

 
408,627 

 
5,054 

 
(3,586)

 
410,095 

 

 

 

 

 

 

 

 

 

 

 

          Total equity securities

 
24,902 

 
26,642 

 
(314)

 
51,230 

 

 

 

 

 

 

 

 

 

 

 

Total debt and equity securities

 
$
433,529 

 
$
31,696 

 
$
(3,900)

 
$
461,325 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30

 

September 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

  obligations of U.S. Government

$             -  

 

$         -  

 

$       -  

 

$      -  

Corporate bonds

 

 
(22)

 
21 

 
111 

 
846 

Collateralized corporate bank loans
10 

 
44 

 
99 

 
316 

Municipal bonds

 

 
(69)

 
(50)

 
(123)

 
(11)

Mortgage-backed
29 

 

-

 
31 

 

-

Equity securities
29 

 
6,935 

 
34 

 
8,572 

(Loss) gain on investments

 

 
(23)

 
6,950 

 
152 

 
9,723 

Other-than-temporary impairments

-

 

-

 
(274)

 

   -

Net realized (losses) gains

 

 
$
(23)

 

$       6,950

 
$
(122)

 

$  9,723

 

We realized gross gains on investments of $0.1 million and $7.1 million during the three months ended September 30, 2014 and 2013, respectively and $0.4 million and $9.9 million for the nine months ended September 30, 2014 and 2013, respectively. We realized gross losses on investments of  $0.1 million for the three months ended both September 30, 2014 and 2013.  We realized gross losses on investments of $0.2 million for the nine months both ended September 30, 2014 and 2013.  We recorded proceeds from the sale of investment securities of $0.6 million and $12.5 million during the three months ended September 30, 2014 and 2013, respectively, and $14.9 million and $30.2 million for the nine months ended September 30, 2014 and 2013, respectively. Realized investment gains and losses are recognized in operations on the specific identification method.

 

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 September 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2014

 

 

 

 

 

 

 

 

 

 

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
$
29,723 
$
(76)

 

$                -  

$                 -  

 
$
29,723 
$
(76)

Corporate bonds
113 

-  

 

-

-  

 
113 

-  

Collateralized corporate bank loans
72,134 
(874)

 
8,057 
(957)

 
80,191 
(1,831)

Municipal bonds
30,834 
(787)

 
22,715 
(879)

 
53,549 
(1,666)

Mortgage-backed
10,214 
(236)

 
3,977 
(433)

 
14,191 
(669)

   Total debt securities
143,018 
(1,973)

 
34,749 
(2,269)

 
177,767 
(4,242)

 

 

 

 

 

 

 

 

 

   Total equity securities
283 
(3)

 

-  

-  

 
283 
(3)

 

 

 

 

 

 

 

 

 

Total debt and equity securities
$
143,301 
$
(1,976)

 
$
34,749 
$
(2,269)

 
$
178,050 
$
(4,245)

 

As of  December 31, 2013

 

 

 

 

 

 

 

 

 

 

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
$
47,162 
$
(165)

 

$              -  

$             -  

 
$
47,162 
$
(165)

Corporate bonds
5,649 
(56)

 
4,421 
(394)

 
10,070 
(450)

Collateralized corporate bank loans
23,026 
(422)

 
6,968 
(67)

 
29,994 
(489)

Municipal bonds
35,719 
(413)

 
34,684 
(1,562)

 
70,403 
(1,975)

Mortgage-backed
1,383 
(229)

 
4,840 
(278)

 
6,223 
(507)

   Total debt securities
112,939 
(1,285)

 
50,913 
(2,301)

 
163,852 
(3,586)

 

 

 

 

 

 

 

 

 

   Total equity securities
316 
(2)

 
2,721 
(312)

 
3,037 
(314)

 

 

 

 

 

 

 

 

 

Total debt and equity securities
$
113,255 
$
(1,287)

 
$
53,634 
$
(2,613)

 
$
166,889 
$
(3,900)

 

At September 30, 2014, the gross unrealized losses more than twelve months old were attributable to 46 debt security positions.  At December 31, 2013, the gross unrealized losses more than twelve months old were attributable to 84 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.  

 

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.

 

The amortized cost and estimated fair value of debt securities at September 30, 2014 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

 
$
55,209 

 
$
55,553 

Due after one year through five years
168,202 

 
169,167 

Due after five years through ten years
106,628 

 
105,598 

Due after ten years

 

 
29,899 

 
29,980 

Mortgage-backed

 

 
51,062 

 
50,964 

 

 

 

 
$
411,000 

 
$
411,262