Note 4. Investments

The gross unrealized gains and losses on, and the cost and fair value of, those investments classified as held-to-maturity at June 30, 2013 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	395,641	$	21,298	$	(1,262	)	$	415,677
Corporate bonds		77,235		1,045		(74	)		78,206
Commercial mortgage-backed securities		51,502		4,230		—			55,732
U.S. agency-based mortgage-backed securities		26,732		2,179		—			28,911
U.S. Treasury securities and obligations of U.S. government agencies		11,020		1,205		—			12,225
Asset-backed securities		3,744		216		(180	)		3,780

Totals	$	565,874	$	30,173	$	(1,516	)	$	594,531

The gross unrealized gains and losses on, and the cost and fair value of, those investments classified as available-for-sale at June 30, 2013 are summarized as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	132,603	$	2,229	$	(2,567	)	$	132,265
Corporate bonds		58,566		377		(273	)		58,670
U.S. agency-based mortgage-backed securities		10,418		2		(1,981	)		8,439

Total fixed maturity		201,587		2,608		(4,821	)		199,374
Equity securities		13,881		345		(728	)		13,498

Totals	$	215,468	$	2,953	$	(5,549	)	$	212,872

The gross unrealized gains and losses on, and the cost and fair value of, those investments classified as held-to-maturity at December 31, 2012 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	400,687	$	31,387	$	(106	)	$	431,968
Corporate bonds		82,824		1,565		(12	)		84,377
Commercial mortgage-backed securities		51,529		6,433		—			57,962
U.S. agency-based mortgage-backed securities		32,984		3,063		(5	)		36,042
U.S. Treasury securities and obligations of U.S. Government agencies		11,034		1,721		—			12,755
Asset-backed securities		4,229		192		(176	)		4,245

Totals	$	583,287	$	44,361	$	(299	)	$	627,349

The gross unrealized gains and losses on, and the cost and fair value of, those investments classified as available-for-sale at December 31, 2012 are summarized as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	93,362	$	5,022	$	(142	)	$	98,242
Corporate bonds		39,211		623		(24	)		39,810
U.S. agency-based mortgage-backed securities		11,941		5		(859	)		11,087

Total fixed maturity		144,514		5,650		(1,025	)		149,139
Equity securities		7,000		451		(685	)		6,766

Totals	$	151,514	$	6,101	$	(1,710	)	$	155,905

A summary of the cost or amortized cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at June 30, 2013, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Less than one year	$	66,726	$	67,210
One to five years		143,021		150,147
Five to ten years		132,814		143,055
More than ten years		141,335		145,696
U.S. agency-based mortgage-backed securities		26,732		28,911
Commercial mortgage-backed securities		51,502		55,732
Asset-backed securities		3,744		3,780

Total	$	565,874	$	594,531

A summary of the cost or amortized cost and fair value of investments in fixed maturity securities, classified as available-for-sale at June 30, 2013, by contractual maturity, is as follows:


Remaining Time to Maturity	Cost Basis		Fair Value
	(in thousands)
Less than one year	$	30,653	$	30,679
One to five years		21,431		21,653
Five to ten years		18,252		18,370
More than ten years		120,833		120,233
U.S. agency-based mortgage-backed securities		10,418		8,439

Total	$	201,587	$	199,374

The following table summarizes, as of June 30, 2013, gross unrealized losses on a total of 158 securities that were at a loss for either less than twelve months or twelve months or greater:


	As of June 30, 2013
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
	(in thousands)
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	29,035	$	74	$	—	$	—	$	29,035	$	74
States and political subdivisions		47,223		1,262		—		—		47,223		1,262
U.S. agency-based mortgage-backed securities		—		—		9		—		9		—
Asset-backed securities		—		—		2,047		180		2,047		180

Total held-to-maturity securities		76,258		1,336		2,056		180		78,314		1,516

Available-for-Sale
Fixed maturity securities:
Corporate bonds	$	26,823	$	273	$	—	$	—	$	26,823	$	273
States and political subdivisions		69,199		2,567		—		—		69,199		2,567
U.S. agency-based mortgage-backed securities		8,309		1,981		—		—		8,309		1,981
Equity securities		3,917		728		—		—		3,917		728

Total available-for-sale securities		108,248		5,549		—		—		108,248		5,549

Total	$	184,506	$	6,885	$	2,056	$	180	$	186,562	$	7,065

The following table summarizes, as of December 31, 2012, gross unrealized losses on a total of 49 securities that were at a loss for either less than twelve months or twelve months or greater:


	As of December 31, 2012
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
	(in thousands)
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	10,734	$	12	$	—	$	—	$	10,734	$	12
State and political subdivisions		11,913		106		—		—		11,913		106
U.S. agency-based mortgage-backed securities		117		—		68		5		185		5
Asset-backed securities		—		—		2,277		176		2,277		176

Total held-to-maturity securities		22,764		118		2,345		181		25,109		299

Available-for-Sale
Fixed maturity securities:
Corporate bonds	$	6,411	$	24	$	—	$	—	$	6,411	$	24
States and political subdivisions		6,281		142		—		—		6,281		142
U.S. agency-based mortgage-backed securities		10,919		859		—		—		10,919		859
Equity securities		4,186		685		—		—		4,186		685

Total available-for-sale securities		27,797		1,710		—		—		27,797		1,710

Total	$	50,561	$	1,828	$	2,345	$	181	$	52,906	$	2,009

We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our investments. We consider various factors in determining if a decline in the fair value of an individual security is other-than-temporary. The key factors we consider are:

•

any reduction or elimination of dividends, or nonpayment of scheduled principal or interest payments;

•

the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that may affect its operations or earnings;

•

how long and by how much the fair value of the security has been below its cost or amortized cost;

•

any downgrades of the security by a rating agency;

•

our intent not to sell the security for a sufficient time period for it to recover its value;

•

the likelihood of being forced to sell the security before the recovery of its value; and

•

an evaluation as to whether there are any credit losses on debt securities.

We reviewed all securities with unrealized losses in accordance with the impairment policy described above. We determined that the unrealized losses in the fixed maturity securities portfolios related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally. We expect to recover the carrying value of these securities since management does not intend to sell the securities and it is not more likely than not that we will be required to sell the security before the recovery of its amortized cost basis. In addition, none of the unrealized losses on debt securities are considered credit losses.

In the three months ended June 30, 2013, we sold equity and fixed maturity securities classified as available-for-sale. The cost basis of these securities at disposal was $5.0 million with realized gains on the sale of these securities of $0.6 million. In the three months ended June 30, 2012, we sold equity securities classified as available-for-sale. The cost basis of these securities at disposal was $0.9 million with realized gains on the sale of these securities of $0.1 million.

In the six months ended June 30, 2013 and 2012, we sold equity and fixed maturity securities classified as available-for-sale. The cost basis of these securities at disposal was $5.0 million with realized gains on the sale of these securities of $0.6 million for the six months ended June 30, 2013, compared to a cost basis of $20.0 million and realized gains of $1.9 million for the same period in 2012.

As a result of the review of our investment portfolio, there were impairment losses recognized for other-than-temporary declines in the fair value of two of our investments in equity securities in the three and six months ended June 30, 2013. These charges are included in “Net realized gains/(losses) on investments” and total $1.9 million. No such impairment charges were taken the first two quarters of 2012.