INVESTMENTS

6 Months Ended

Jun. 30, 2012

INVESTMENTS

INVESTMENTS

2.INVESTMENTS

Our investments include fixed income debt securities and common stock equity securities.  As disclosed in our 2011 Annual Report on Form 10-K, we present our investments in these classes as available-for-sale, held-to-maturity, or trading securities.  When available, we obtain quoted market prices to determine fair value for our investments.  If a quoted market price is not available, fair value is estimated using a secondary pricing source or using quoted market prices of similar securities. We have no investment securities for which fair value is determined using Level 3 inputs as defined in note 3 to the unaudited condensed consolidated interim financial statements, “Fair Value Measurements.”

The following tables show the amortized cost, unrealized gains/losses, fair value and contractual maturities for our available-for-sale and held-to-maturity securities.

Available-for-Sale Securities

The amortized cost and fair value of securities available-for-sale at June 30, 2012 and December 31, 2011 were as follows:

Available-for-sale

(in thousands)

	6/30/2012
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Asset Class	Cost		Gains		Losses			Value
U.S. agencies	$	24,142	$	252	$	(1	)	$	24,393
Corporates	512,298		36,243		(1,190		)	547,351
Mortgage-backed	250,903		16,664		(1		)	267,566
ABS/CMO*	84,328		3,016		(18		)	87,326
Non-U.S. govt. & agency	8,408		653		—			9,061
U.S. government	16,018		391		(9		)	16,400
States, political subdivisions and revenues	347,518		13,945		(721		)	360,742
Total Fixed Income	$	1,243,615	$	71,164	$	(1,940	)	$	1,312,839
Equities	$	269,301	$	138,727	$	(1,954	)	$	406,074

Available-for-sale

(in thousands)

	12/31/2011
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Asset Class	Cost		Gains		Losses			Value
U.S. agencies	$	112,975	$	844	$	—		$	113,819
Corporates	439,079		31,640		(3,619		)	467,100
Mortgage-backed	233,134		15,852		—			248,986
ABS/CMO*	54,325		2,628		—			56,953
Non-U.S. govt. & agency	6,403		294		—			6,697
U.S. government	15,721		459		(8		)	16,172
States, political subdivisions and revenues	224,091		12,517		(18		)	236,590
Total Fixed Income	$	1,085,728	$	64,234	$	(3,645	)	$	1,146,317
Equities	$	269,400	$	121,833	$	(2,544	)	$	388,689

*Asset-backed and collateralized mortgage obligations

The following table presents the amortized cost and fair value of available-for-sale debt securities by contractual maturity dates as of June 30, 2012:

	6/30/2012
AFS	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	9,282	$	9,412
Due after one year through five years	103,003		108,950
Due after five years through 10 years	599,112		637,049
Due after 10 years	196,987		202,536
Mtge/ABS/CMO*	335,231		354,892
Total available-for-sale	$	1,243,615	$	1,312,839

*Mortgage-backed, asset-backed & collateralized mortgage obligations

Held-to-Maturity Debt Securities

The carrying value and fair value of held-to-maturity securities at June 30, 2012 and December 31, 2011 were as follows:

Held-to-maturity

(in thousands)

	6/30/2012
			Gross		Gross
	Amortized Cost/		Unrecognized		Unrecognized			Fair
Asset Class	Carrying Value**		Gains		Losses			Value
U.S. agencies	$	89,970	$	314	$	(6	)	$	90,278
Corporates	—		—		—			—
Mortgage-backed	—		—		—			—
ABS/CMO*	—		—		—			—
Non-U.S. govt. & agency	—		—		—			—
U.S. government	—		—		—			—
States, political subdivisions and revenues	1,653		105		—			1,758
Total Fixed Income	$	91,623	$	419	$	(6	)	$	92,036

Held-to-maturity

(in thousands)

	12/31/2011
			Gross		Gross
	Amortized Cost/		Unrecognized		Unrecognized			Fair
Asset Class	Carrying Value**		Gains		Losses			Value
U.S. agencies	$	243,571	$	1,085	$	—		$	244,656
Corporates	15,000		—		(464		)	14,536
Mortgage-backed	—		—		—			—
ABS/CMO*	—		—		—			—
U.S. government	—		—		—			—
States, political subdivisions and revenues	1,655		134		—			1,789
Total Fixed Income	$	260,226	$	1,219	$	(464	)	$	260,981

*Asset-backed and collateralized mortgage obligations

** Held-to-maturity securities are carried on the unaudited condensed consolidated balance sheets at amortized cost and changes in the fair value of these securities, other than impairment charges, are not reported on the financial statements.

The following table presents the carrying value and fair value of debt securities held-to-maturity by contractual maturity dates as of June 30, 2012:

	6/30/2012
HTM	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	4,988	$	5,123
Due after one year through five years	652		733
Due after five years through 10 years	—		—
Due after 10 years	85,983		86,180
Mtge/ABS/CMO*	—		—
Total held-to-maturity	$	91,623	$	92,036

*Mortgage-backed, asset-backed & collateralized mortgage obligations

We conduct and document periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary.  The following tables are used as part of our impairment analysis and illustrate the total value of securities that were in an unrealized loss position as of June 30, 2012 and December 31, 2011. The tables segregate the securities based on type, noting the fair value, cost (or amortized cost), and unrealized loss on each category of investment as well as in total. The tables further classify the securities based on the length of time they have been in an unrealized loss position.  As of June 30, 2012 and December 31, 2011, unrealized losses, as shown in the following tables, were less than 1% of total invested assets.  Unrealized losses have decreased in 2012, as interest rates have decreased during the first half of the year, market value of fixed income securities have increased.

Investment Positions with Unrealized Losses

Segmented by Type and Period of Continuous

Unrealized Loss at June 30, 2012

(dollars in thousands)	< 12 Mos.			12 Mos. & Greater			Total
U.S. Government
Fair value	$	5,330		$	—		$	5,330
Cost or Amortized Cost	5,339			—			5,339
Unrealized Loss	(9		)	—			(9		)
U.S. Agency
Fair value	$	7,992		$	—		$	7,992
Cost or Amortized Cost	7,999			—			7,999
Unrealized Loss	(7		)	—			(7		)
Non-U.S. govt. & agency
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
Mortgage-backed
Fair value	$	5,274		$	—		$	5,274
Cost or Amortized Cost	5,275			—			5,275
Unrealized Loss	(1		)	—			(1		)
ABS/CMO*
Fair value	$	6,225		$	—		$	6,225
Cost or Amortized Cost	6,243			—			6,243
Unrealized Loss	(18		)	—			(18		)
Corporate
Fair value	$	27,232		$	7,029		$	34,261
Cost or Amortized Cost	27,900			7,551			35,451
Unrealized Loss	(668		)	(522		)	(1,190		)
States, political subdivisions and revenues
Fair value	$	86,053		$	—		$	86,053
Cost or Amortized Cost	86,774			—			86,774
Unrealized Loss	(721		)	—			(721		)
Subtotal, debt securities
Fair value	$	138,106		$	7,029		$	145,135
Cost or Amortized Cost	139,530			7,551			147,081
Unrealized Loss	(1,424		)	(522		)	(1,946		)
Common Stock
Fair value	$	11,198		$	—		$	11,198
Cost or Amortized Cost	13,152			—			13,152
Unrealized Loss	(1,954		)	—			(1,954		)
Total
Fair value	$	149,304		$	7,029		$	156,333
Cost or Amortized Cost	152,682			7,551			160,233
Unrealized Loss	(3,378		)	(522		)	(3,900		)

* Asset-backed & collateralized mortgage obligations.

This table excludes securities with a fair value of less than $0.1 million classified as trading.

Investment Positions with Unrealized Losses

Segmented by Type and Period of Continuous

Unrealized Loss at December 31, 2011

(dollars in thousands)	< 12 Mos.			12 Mos. & Greater			Total
U.S. Government
Fair value	$	5,023		$	—		$	5,023
Cost or Amortized Cost	5,031			—			5,031
Unrealized Loss	(8		)	—			(8		)
U.S. Agency
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
Mortgage-backed
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
ABS/CMO *
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
Corporate
Fair value	$	49,464		$	28,698		$	78,162
Cost or Amortized Cost	51,894			30,351			82,245
Unrealized Loss	(2,430		)	(1,653		)	(4,083		)
States, political subdivisions and revenues
Fair value	$	—		$	1,050		$	1,050
Cost or Amortized Cost	—			1,068			1,068
Unrealized Loss	—			(18		)	(18		)
Subtotal, debt securities
Fair value	$	54,487		$	29,748		$	84,235
Cost or Amortized Cost	56,925			31,419			88,344
Unrealized Loss	(2,438		)	(1,671		)	(4,109		)
Common Stock
Fair value	$	25,952		$	—		$	25,952
Cost or Amortized Cost	28,496			—			28,496
Unrealized Loss	(2,544		)	—			(2,544		)
Total
Fair value	$	80,439		$	29,748		$	110,187
Cost or Amortized Cost	85,421			31,419			116,840
Unrealized Loss	(4,982		)	(1,671		)	(6,653		)

* Asset-backed & collateralized mortgage obligations.

This table excludes securities with a fair value of $0.1 million, classified as trading.

The following table shows the composition of the fixed income securities in unrealized loss positions at June 30, 2012 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings.  The vast majority of the securities are rated by S&P and/or Moody’s.

	Equivalent	Equivalent	(dollars in thousands)
NAIC	S&P	Moody’s	Amortized				Unrealized			Percent
Rating	Rating	Rating	Cost		Fair Value		Loss			to Total
1	AAA/AA/A	Aaa/Aa/A	$	136,581	$	134,789	$	(1,792	)	92.1	%
2	BBB	Baa	10,500		10,346		(154		)	7.9	%
3	BB	Ba	—		—		—			—
4	B	B	—		—		—			—
5	CCC or lower	Caa or lower	—		—		—			—
6			—		—		—			—
		Total	$	147,081	$	145,135	$	(1,946	)	100.0	%

Cash and Short-term Investments

Cash consists of uninvested balances in bank accounts.  We had a cash balance of $32.2 million at the end of the second quarter, compared to $81.2 million at the end of 2011. In the second quarter of 2012, collateral that was being held on a large commercial surety account was returned and replaced with a letter of credit, resulting in a $50.0 million cash outflow.  This collateral was originally received in the second quarter of 2011.  Short-term investments are carried at cost, which approximates fair value.  The balance at June 30, 2012 was $65.9 million compared to $23.9 million at December 31, 2011.

Evaluating Investments for OTTI

The fixed income portfolio contained 70 securities in an unrealized loss position as of June 30, 2012. The $1.9 million in associated unrealized losses for these 70 securities represents 0.1% of the fixed income portfolio’s cost basis. Of these 70 securities, four have been in an unrealized loss position for 12 consecutive months or longer and these collectively represent $0.5 million in unrealized losses.  The unrealized losses on these four securities are primarily due to broader economic conditions, wider bid/ask differentials, and changes in interest rates.  We believe the amortized cost of these four securities is fully recoverable under current assumptions.  All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities.  GAAP guidance requires any credit-related impairment related to fixed income securities we do not plan to sell and for which we are not more-likely-than-not to be required to sell be recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. Based on our monitoring and analysis, our fixed income portfolio contains high quality bonds and we believe we will recover the amortized cost basis of these securities.  We continually monitor the credit quality of our fixed income investments to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest.  There were no other-than-temporary impairment (OTTI) losses recognized in net earnings or other comprehensive earnings in the periods presented on the fixed income portfolio.

As of June 30, 2012, we held four common stock positions that were in unrealized loss positions. Unrealized losses on these securities totaled $2.0 million. Based on our analysis, we believe these securities will recover in a reasonable period of time and we have the intent and ability to hold these securities until recovery.  Of the four common stock positions that were in an unrealized loss position, none have been in an unrealized loss position for 12 consecutive months or longer.

In the second quarter of 2012, we recognized $1.2 million in other-than-temporary impairment charges for equity securities. All OTTI losses were on securities we no longer had the intent to hold. Comparatively, we did not recognize any OTTI losses on equity securities during the first six months of 2011.