INVESTMENTS

9 Months Ended

Sep. 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 September 30, 2012 and December 31, 2011 were as follows:

Available-for-sale

(in thousands)

	9/30/2012
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Asset Class	Cost		Gains		Losses			Value
U.S. agencies	$	19,632	$	182	$	—		$	19,814
Corporates	543,236		48,063		(229		)	591,070
Mortgage-backed	253,610		18,665		—			272,275
ABS/CMO*	82,752		4,949		—			87,701
Non-U.S. govt. & agency	8,408		880		—			9,288
U.S. government	16,359		393		—			16,752
States, political subdivisions and revenues	418,092		18,022		(45		)	436,069
Total Fixed Income	$	1,342,089	$	91,154	$	(274	)	$	1,432,969
Equities	$	254,428	$	148,720	$	(1,049	)	$	402,099

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 September 30, 2012:

	9/30/2012
AFS	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	25,304	$	25,393
Due after one year through five years	127,050		133,778
Due after five years through 10 years	662,829		714,560
Due after 10 years	190,544		199,262
Mtge/ABS/CMO*	336,362		359,976
Total available-for-sale	$	1,342,089	$	1,432,969

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

Held-to-Maturity Debt Securities

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

Held-to-maturity

(in thousands)

	9/30/2012
			Gross		Gross
	Amortized Cost/		Unrecognized		Unrecognized		Fair
Asset Class	Carrying Value**		Gains		Losses		Value
U.S. agencies	$	10,071	$	135	$	—	$	10,206
Corporates	—		—		—		—
Mortgage-backed	—		—		—		—
ABS/CMO*	—		—		—		—
Non-U.S. govt. & agency	—		—		—		—
U.S. government	—		—		—		—
States, political subdivisions and revenues	1,653		87		—		1,740
Total Fixed Income	$	11,724	$	222	$	—	$	11,946

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 September 30, 2012:

	9/30/2012
HTM	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	2,992	$	3,065
Due after one year through five years	652		727
Due after five years through 10 years	—		—
Due after 10 years	8,080		8,154
Mtge/ABS/CMO*	—		—
Total held-to-maturity	$	11,724	$	11,946

*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 September 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 September 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 equity markets have increased while the market value of our fixed income securities has increased as interest rates have decreased during the year.

Investment Positions with Unrealized Losses

Segmented by Type and Period of Continuous

Unrealized Loss at September 30, 2012

(dollars in thousands)	< 12 Mos.			12 Mos. & Greater			Total
U.S. Government
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
U.S. Agency
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
Non-U.S. govt. & agency
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
Mortgage-backed
Fair value	$	—		$	—		$	—
Cost or Amortized Cost	—			—			—
Unrealized Loss	—			—			—
ABS/CMO*
Fair value	$	27		$	—		$	27
Cost or Amortized Cost	27			—			27
Unrealized Loss	—			—			—
Corporate
Fair value	$	22,504		$	3,760		$	26,264
Cost or Amortized Cost	22,536			3,957			26,493
Unrealized Loss	(32		)	(197		)	(229		)
States, political subdivisions and revenues
Fair value	$	20,530		$	—		$	20,530
Cost or Amortized Cost	20,575			—			20,575
Unrealized Loss	(45		)	—			(45		)
Subtotal, debt securities
Fair value	$	43,061		$	3,760		$	46,821
Cost or Amortized Cost	43,138			3,957			47,095
Unrealized Loss	(77		)	(197		)	(274		)
Common Stock
Fair value	$	21,425		$	—		$	21,425
Cost or Amortized Cost	22,474			—			22,474
Unrealized Loss	(1,049		)	—			(1,049		)
Total
Fair value	$	64,486		$	3,760		$	68,246
Cost or Amortized Cost	65,612			3,957			69,569
Unrealized Loss	(1,126		)	(197		)	(1,323		)

* 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	—			—			—
Non-U.S. govt. & 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 September 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	$	47,095	$	46,821	$	(274	)	100.0	%
2	BBB	Baa	—		—		—			—
3	BB	Ba	—		—		—			—
4	B	B	—		—		—			—
5	CCC or lower	Caa or lower	—		—		—			—
6			—		—		—			—
		Total	$	47,095	$	46,821	$	(274	)	100.0	%

Cash and Short-term Investments

Cash consists of uninvested balances in bank accounts.  We had a cash balance of $31.3 million at the end of the third quarter, compared to $81.2 million at the end of 2011. Short-term investments are carried at cost, which approximates fair value.  The balance at September 30, 2012 was $82.2 million compared to $23.9 million at December 31, 2011.

Evaluating Investments for OTTI

The fixed income portfolio contained 22 securities in an unrealized loss position as of September 30, 2012. The $0.3 million in associated unrealized losses for these 22 securities represents less than 0.1% of the fixed income portfolio’s cost basis. Of these 22 securities, two have been in an unrealized loss position for 12 consecutive months or longer and these collectively represent $0.2 million in unrealized losses.  The unrealized losses on these two securities are primarily due to high liquidity premiums and wide bid/ask differentials.  We believe the amortized cost of these two 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 September 30, 2012, we held seven common stock positions that were in unrealized loss positions. Unrealized losses on these securities totaled $1.0 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 seven common stock positions that were in an unrealized loss position, none have been in an unrealized loss position for 12 consecutive months or longer.

While no securities were considered to be other-than-temporarily impaired during the third quarter, we recognized $1.2 million in other-than-temporary impairment charges during the second quarter of 2012. All of these OTTI losses were on equity securities we no longer had the intent to hold, and were subsequently sold during the third quarter. Comparatively, we recognized $0.3 million in OTTI losses on equity securities during the first nine months of 2011.