Investments, Debt and Equity Securities

3 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

4.             Investments

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of long-term investment securities are as follows:

					SEPTEMBER 30, 2011
								GROSS		GROSS
					AMORTIZED			UNREALIZED		UNREALIZED		FAIR
					COST			GAINS		LOSSES		VALUE
							(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities				$	23,757		$	554	$	(33)	$	24,278
	Collateralized mortgage obligations (CMO) –
				residential	2,023			176		(83)		2,116
	CMO – commercial				579			-		(362)		217
	States, municipalities and political subdivisions				11,551			612		(5)		12,158
	U.S. Government				5,981			314		-		6,295
	Government sponsored enterprise (GSE)				10,373			300		(37)		10,636
	Agency mortgage backed pass
				through securities (MBS)		202			15		-		217
			Total fixed maturities		$	54,466		$	1,971	$	(520)	$	55,917
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
		Common stock			$	1,354		$	7	$	(126)	$	1,235
		Preferred stock with maturities				1,271			41		(10)		1,302
		Preferred stock without maturities				3,475			62		(73)		3,464
		Total equity securities			$	6,100		$	110	$	(209)	$	6,001

				DECEMBER 31, 2010
							GROSS		GROSS
				AMORTIZED			UNREALIZED		UNREALIZED		FAIR
				COST			GAINS		LOSSES		VALUE
						(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities			$	15,850		$	167	$	(248)	$	15,769
	CMO – residential			2,021			279		(107)		2,193
	CMO – commercial			579			-		(256)		323
	States, municipalities and political subdivisions			17,239			152		(327)		17,064
	U.S. Government			10,137			159		-		10,296
	GSE			7,678			145		(5)		7,818
	MBS				256			17		-		273
			Total fixed maturities	$	53,760		$	919	$	(943)	$	53,736
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
		Common stock		$	604		$	26	$	(20)	$	610
		Preferred stock with maturities			273			54		-		327
		Preferred stock without maturities			2,993			77		(10)		3,060
		Total equity securities		$	3,870		$	157	$	(30)	$	3,997

Government-sponsored enterprise mortgage-backed securities consist of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association securities.

The unrealized gains (losses) on certain preferred stocks with maturities at September 30, 2011 and December 31, 2010 includes $99,000 related to the non-credit related component of other-than-temporary impairment losses recorded in accumulated other comprehensive income in connection with new accounting standards adopted on April 1, 2009

The amortized cost and fair value of fixed maturities at September 30, 2011, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  The average life of mortgage-backed securities is affected by prepayments on the underlying loans and, therefore, is materially shorter than the original stated maturity.

						% OF
			AMORTIZED		FAIR	TOTAL FAIR
			COST		VALUE	VALUE
			(In thousands)
Due in one year or less		$	2,532	$	2,555	5%
Due after one year through five years			18,856		19,538	35%
Due after five years through ten years			17,042		17,571	31%
Due after ten years			7,062		7,399	13%
			45,492		47,063	84%
CMO and MBS
	15 years		2,804		2,550	5%
	20 years		-		-	-%
	30 years		6,170		6,304	11%
		$	54,466	$	55,917	100%

The following tables summarize, for all securities in an unrealized loss position at September 30, 2011 and December 31, 2010, the aggregate fair value and gross unrealized loss by length of time, those securities that have continuously been in an unrealized loss position (in thousands):

			September 30, 2011
			Less than 12 Months				12 Months or Longer				Total
			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
			Value		Losses		Value		Losses		Value		Losses
FIXED MATURITIES:
Corporate securities		$	1,607	$	29	$	376	$	4	$	1,983	$	33
CMO – residential			81		4		359		79		440		83
CMO – commercial			-		-		217		362		217		362
States, municipalities and political subdivisions			-		-		479		5		479		5
GSE			3,943		27		531		10		4,474		37
	Total fixed maturities	$	5,631	$	60	$	1,962	$	460	$	7,593	$	520
EQUITY SECURITIES:
Common stock		$	1,057	$	126	$	-	$	-	$	1,057	$	126
Preferred stock with maturities			987		10		-		-		987		10
Preferred stock without maturities			1,470		8		430		65		1,900		73
	Total equity securities	$	3,514	$	144	$	430	$	65	$	3,944	$	209

			December 31, 2010
			Less than 12 Months				12 Months or Longer				Total
			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
			Value		Losses		Value		Losses		Value		Losses
FIXED MATURITIES:
Corporate securities		$	6,970	$	216	$	359	$	32	$	7,329	$	248
CMO – residential			88		16		642		91		730		107
CMO – commercial			-		-		323		256		323		256
States, municipalities and political subdivisions			6,351		189		2,413		138		8,764		327
GSE			544		5		-		-		544		5
	Total fixed maturities	$	13,953	$	426	$	3,737	$	517	$	17,690	$	943
EQUITY SECURITIES:
Common stock		$	141	$	20	$	-	$	-	$	141	$	20
Preferred stock without maturities			1,283		10		-		-		1,283		10
	Total equity securities	$	1,424	$	30	$	-	$	-	$	1,424	$	30

At September 30, 2011, a total of 6 fixed maturities and 18 equity securities were in a continuous unrealized loss position for less than 12 months.  Also, at September 30, 2011, a total of 5 fixed maturities and one equity security were in a continuous unrealized loss position for 12 months or longer.  At December 31, 2010 a total of 20 fixed maturities and 9 equity securities were in a continuous unrealized loss position for less than 12 months.  Also, at December 31, 2010, a total of 7 fixed maturities were in a continuous unrealized loss position for 12 months or longer.  Except for certain fixed maturities which are determined to be other-than-temporarily impaired, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect the current amortized cost basis of the security.

Substantially all of the unrealized losses on fixed maturities at September 30, 2011 and December 31, 2010 were attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The unrealized losses on corporate securities and state and political subdivisions are due to wider spreads.  Spreads have widened in recent years as investors shifted funds to US Treasuries in response to the current market turmoil.  Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell, such investments before recovery of their amortized cost bases, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2011.

At September 30, 2011, the Company had $809,000 invested in whole loan CMOs backed by Alt-A mortgages.  Of this amount, 70.5% were in CMOs that originated in 2005 or earlier and 29.5% were in CMOs that originated in 2006 or later.  The unrealized losses on all other CMO’s relate to prime rate CMO’s and are primarily attributable to general disruptions in the credit market subsequent to purchase. 

Other-Than-Temporary Impairment Evaluations

The Company reviews its investment securities regularly and determines whether other-than-temporary impairments have occurred. Beginning April 1, 2009, the Company adopted new accounting guidance that specified new criteria for identifying and recognizing other-than-temporary impairment losses on fixed maturities.  The factors considered by management in its regular review include, but are not limited to:  the length of time and extent to which the fair value has been less than cost; the Company's intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support; whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions including the effect of changes in market interest rates.  If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations.  If a decline in fair value of a debt security is judged by management to be other-than-temporary and; (i) the Company does not intend to sell the security; and (ii) it is not more likely than not that it will be required to sell the security prior to recovery of the security’s amortized cost, the Company assesses whether the present value of the cash flows to be collected from the security is less than its amortized cost basis. To the extent that the present value of the cash flows generated by a debt security is less than the amortized cost basis, a credit loss exists.  For any such security, the impairment is bifurcated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations, establishing a new cost basis for the security. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income in the Condensed Consolidated Balance Sheets.  It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.

In assessing corporate debt securities for other-than-temporary impairment, the Company evaluates the ability of the issuer to meet its debt obligations and the value of the company or specific collateral securing the debt position. For mortgage-backed securities where loan level data is not available, the Company uses a cash flow model based on the collateral characteristics. Assumptions about loss severity and defaults used in the model are primarily based on actual losses experienced and defaults in the collateral pool. Prepayment speeds, both actual and estimated, are also considered. The cash flows generated by the collateral securing these securities are then determined with these default, loss severity and prepayment assumptions. These collateral cash flows are then utilized, along with consideration for the issue’s position in the overall structure, to determine the cash flows associated with the mortgage-backed security held by the Company. In addition, the Company evaluates other asset-backed securities for other-than-temporary impairment by examining similar characteristics referenced above for mortgage-backed securities.  The Company evaluates U.S. Treasury securities and obligations of U.S. Government corporations, U.S. Government agencies, and obligations of states and political subdivisions for other-than-temporary impairment by examining the terms and collateral of the security.

Prior to April 1, 2009, the Company assessed its ability and intent to hold a fixed maturity for a period of time sufficient to allow for a recovery in fair value. If the Company could not assert this condition, an other-than-temporary impairment loss was recognized in the Condensed Consolidated Statements of Operations.

Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the security to recovery.  If a decline in fair value is judged by management to be other-than-temporary or management does not have the intent or ability to hold a security, a loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations for the difference between the carrying value and the fair value of the securities.  For the purpose of other-than-temporary impairment evaluations, preferred stocks with maturities are treated in a manner similar to debt securities.  Declines in the creditworthiness of the issuer of debt securities with both debt and equity-like features requires the use of the equity model in analyzing the security for other-than-temporary impairment.

Subsequent increases and decreases, if not an other-than-temporary impairment, in the fair value of available-for-sale securities that were previously impaired, are included in other comprehensive income in the Condensed Consolidated Balance Sheet.

Cumulative credit losses for other-than-temporary impairments recorded on securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows (in thousands):

Balance at December 31, 2010	$	99
Additions		-
Balance at September 30, 2011	$	99

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalance in liquidity that exist in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

5.             Net Realized Investment Gains (Losses)

Net realized investment gains (losses) for the three months and nine months ended September 30, 2011 and 2010 are as follows (in thousands):

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2011		2010		2011		2010
Net realized investment gains (losses):
	Fixed maturities	$	347	$	160	$	450	$	462
	Common stock		(103)		(27)		(121)		7
	Preferred stock		(6)		3		(6)		(24)
Net realized investment gains		$	238	$	136	$	323	$	445

For the three months and nine months ended September 30, 2011, the Company recorded realized gross gains of $332,000 and $623,000, respectively, and gross losses of $94,000 and $300,000, respectively on sales of available-for-sale securities.  For the three months and nine months ended September 30, 2010, the Company recorded realized gross gains of $225,000 and $671,000, respectively, and gross losses of $89,000 and $226,000, respectively, on sales of available-for-sale securities.