Note B - Investments

The following is a summary of available for sale securities at December 31:

										Net
			Cost or		Gross		Gross			Unrealized
	Fair		Amortized		Unrealized		Unrealized			Gains
	Value		Cost		Gains		Losses			(Losses)
2011:
U.S. government obligations	$	73,137	$	73,009	$	139	$	(11	)	$	128
Government sponsored entities		349		345		4		-			4
Residential mortgage-backed securities		21,872		21,778		619		(525	)		94
Commercial mortgage-backed securities		11,300		11,388		116		(204	)		(88	)
State and municipal obligations		190,035		188,991		1,275		(231	)		1,044
Corporate securities		91,646		91,949		1,429		(1,732	)		(303	)
Foreign government obligations		21,121		21,483		168		(530	)		(362	)
Total fixed maturities		409,460		408,943		3,750		(3,233	)		517
Equity securities:
Financial institutions		9,428		4,955		4,778		(305	)		4,473
Industrial & Miscellaneous		78,657		42,736		36,921		(1,000	)		35,921
Total equity securities		88,085		47,691		41,699		(1,305	)		40,394
Total available-for-sale securities	$	497,545	$	456,634	$	45,449	$	(4,538	)		40,911

							Applicable federal income taxes				(14,319	)

							Net unrealized gains - net of tax			$	26,592

2010:
U.S. government obligations	$	62,998	$	62,882	$	150	$	(34	)	$	116
Government sponsored entities		3,324		3,325		7		(8	)		(1	)
Residential mortgage-backed securities		37,101		36,513		847		(259	)		588
Commercial mortgage-backed securities		14,714		14,417		405		(108	)		297
State and municipal obligations		192,706		192,236		1,006		(536	)		470
Corporate securities		84,417		83,121		1,931		(635	)		1,296
Foreign government obligations		20,294		20,095		354		(155	)		199
Total fixed maturities		415,554		412,589		4,700		(1,735	)		2,965
Equity securities:
Financial institutions		11,477		4,945		6,559		(27	)		6,532
Industrial & Miscellaneous		85,180		42,532		42,947		(299	)		42,648
Total equity securities		96,657		47,477		49,506		(326	)		49,180
Total available-for-sale securities	$	512,211	$	460,066	$	54,206	$	(2,061	)		52,145

							Applicable federal income taxes				(18,251	)

							Net unrealized gains - net of tax			$	33,894

The following table summarizes, for fixed maturity and equity security investments in an unrealized loss position at December 31, the aggregate fair value and gross unrealized loss categorized by the duration those securities have been continuously in an unrealized loss position.

	2011							2010
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturity securities:
12 months or less		206	$	86,470	$	(2,303	)		214	$	152,505	$	(1,525	)
Greater than 12 months		44		11,930		(930	)		16		5,460		(210	)
Total fixed maturities		250		98,400		(3,233	)		230		157,965		(1,735	)
Equity securities:
12 months or less		35		8,317		(1,275	)		3		1,676		(66	)
Greater than 12 months		4		216		(30	)		7		2,394		(260	)
Total equity securities		39		8,533		(1,305	)		10		4,070		(326	)
Total		289	$	106,933	$	(4,538	)		240	$	162,035	$	(2,061	)

Unrealized losses in the Company's fixed maturity portfolio are generally the result of interest rate fluctuations as well as the disruption of credit markets occasioned by financial market turmoil. The average unrealized loss for all fixed maturity securities in a loss position at December 31, 2011 is approximately 3% of original or adjusted cost. The Company does not intend to sell any fixed maturity securities and it is not more likely than not that the Company will have to sell any fixed maturity security before recovery of its amortized cost basis. For equity securities, the Company has evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment and based on that evaluation the Company has the ability and intent to hold these investments until a recovery of fair value. Therefore, the Company does not believe the unrealized losses represent an other-than-temporary impairment as of December 31, 2011.

The fair value and the cost or amortized cost of fixed maturity investments, at December 31, 2011, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

	Fair Value				Cost or Amortized Cost

One year or less	$	154,646	37.8	%	$	154,472	37.8	%
Excess of one year to five years		205,224	50.1			204,552	50.0
Excess of five years to ten years		7,731	1.9			7,836	1.9
Excess of ten years		3,240	0.8			3,255	0.7
Total maturities		370,841	90.6			370,115	90.4
Asset-backed securities		38,619	9.4			38,828	9.6
	$	409,460	100.0	%	$	408,943	100.0	%

Major categories of investment income for the years ended December 31 are summarized as follows:

		2011			2010			2009
Fixed maturities		$	11,016		$	11,838		$	14,151
Equity securities			1,738			1,433			1,327
Money market funds			36			39			162
Short-term and other			24			32			328
			12,814			13,342			15,968
Investment expenses			(2,085	)		(2,007	)		(1,997	)
	Net investment income	$	10,729		$	11,335		$	13,971

Gains and losses on investments, including equity method earnings from limited partnerships, for the years ended December 31 are summarized below:

	2011			2010			2009
Fixed maturities:
Gross gains	$	6,443		$	4,005		$	8,646
Gross losses		(6,805	)		(1,215	)		(1,505	)
Net gains (losses)		(362	)		2,790			7,141

Equity securities:
Gross gains		7,409			7,447			1,533
Gross losses		(2,960	)		(1,958	)		(3,426	)
Net gains (losses)		4,449			5,489			(1,893	)

Limited partnerships - net gain (loss)		(21,890	)		8,206			25,568


Total net gains (losses)	$	(17,803	)	$	16,485		$	30,816

Shareholders' equity includes approximately $15,600, net of deferred federal income taxes, of undistributed earnings from limited partnerships as of December 31, 2011.

Gain and loss activity for fixed maturity and equity security investments, as shown in the previous table, include adjustments for other-than-temporary impairment for the years ended December 31 summarized as follows:

	2011			2010			2009

Cumulative charges to income at beginning of year	$	7,604		$	9,235		$	11,698

Writedowns based on objective and subjective criteria		1,906			42			2,846
Recovery of prior writedowns upon sale or disposal		(1,332	)		(1,673	)		(5,309	)
Net pre-tax realized gain (loss)		(574	)		1,631			2,463

Cumulative charges to income at end of year	$	8,178		$	7,604		$	9,235

Addition (reduction) to earnings per share from net
after-tax realized gain (loss)	$	(.03	)	$	.07		$	.11

Unrealized gain on investments previously
written down at end of the year - see note below	$	6,782		$	9,535		$	9,379

Note: Recovery in market value of an investment which has previously been adjusted for other-than-temporary impairment is treated as an unrealized gain until the investment matures or is sold.

There is no primary or secondary market for the Company's investments in limited partnerships and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and generally must seek approval from the general partner for any such disposal. Distributions of earnings from these partnerships are largely at the sole discretion of the general partners and distributions are generally not received by the Company for many years after the earnings have been reported. The Company has commitments to contribute an additional $10,024 to various limited partnerships as of December 31, 2011.

The Company has invested a total of $24,000 in three limited partnerships, with an aggregate estimated value of $37,260 at December 31, 2011, that are managed by organizations in which two directors of the Company are executive officers, directors and owners. The Company's ownership interest in these limited partnerships ranges from 3% to 16%. These limited partnerships added ($18,673), $7,464 and $18,591, net of fees, to investment gains (losses) in 2011, 2010 and 2009, respectively. During 2011, 2010 and 2009, the Company has recorded management fees of $793, $820 and $632, respectively, and performance-based fees of $0, $687 and $1,247, respectively, to these organizations for management of these limited partnerships. The Company has been informed that the fee rates applied to its investments in these limited partnerships are the same as, or lower than, the fee rates charged to unaffiliated customers for similar investments.

The Company utilized the services of a broker-dealer firm of which two directors of the Company are executive officers and owners. This broker-dealer serves as agent for purchases and sales of securities and manages an equity securities portfolio and fixed maturity portfolio with market values of approximately $1,684 and $19,026, respectively, at December 31, 2011. The Company has been informed that commission and management rates charged by this broker-dealer to the Company are commensurate with rates charged to non-affiliated customers for similar investments. Total commissions and net fees earned by the broker-dealer and affiliates on these transactions and for advice and consulting were approximately $174, $155 and $173 during 2011, 2010 and 2009, respectively.

The Company's limited partnerships include one significant investment which invests in public and private equity markets in India. This limited partnership investment's value as of December 31, 2011 and 2010 was $23,465 and $33,197, respectively. At December 31, 2011, the Company's estimated ownership interest in this limited partnership investment was less than 4%. The Company's share of earnings from this limited partnership investment was ($9,732), $3,521 and $10,915 in 2011, 2010 and 2009, respectively. The summarized financial information of the significant limited partnership investment as of and for the years ended December 31 is as follows:

	2011			2010		2009
Total assets	$	633,165		$	963,207	$	914,927
Total partners' capital		579,568			895,207		843,633
Net increase in partners' capital resulting from operations		(266,314	)		98,279		333,120

The fair value of regulatory deposits with various insurance departments in the United States and Canada totaled $41,758 and $34,338 at December 31, 2011 and 2010, respectively.

Short-term investments at December 31, 2011 include $2,982 in time certificates of deposit by a Bermuda bank.

The Company's fixed maturities are over 91% invested in investment grade fixed maturity investments. The Company has a total of $36,500, representing 16 different investments, of fixed maturity investments which were originally issued with guarantees by three different third party insurance companies, with the largest exposure to a single investment being $5,500. The average S&P credit rating of such investments, with consideration of the guarantee, is AA. The average S&P underlying credit rating of such investments, without consideration of the guarantee, is AA. The Company does not have any direct exposure to any guarantor.

Approximately $35,600 of fixed maturity investments (5.6% of total invested assets) consists of bonds rated as less than investment grade at year end. These investments include a diversified portfolio of over 40 investments including catastrophe bonds and have a $1,297 net unrealized loss position at December 31, 2011.