Note 4. Investments

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at September 30, 2015 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	417,804	$	16,307	$	(195	)	$	433,916
Corporate bonds		170,176		555		(241	)		170,490
Commercial mortgage-backed securities		43,396		586		—			43,982
U.S. agency-based mortgage-backed securities		14,094		1,393		(1	)		15,486
U.S. Treasury securities and obligations of U.S. Government agencies		12,365		1,074		—			13,439
Asset-backed securities		2,415		224		(59	)		2,580

Totals	$	660,250	$	20,139	$	(496	)	$	679,893

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at September 30, 2015 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	166,520	$	6,685	$	(447	)	$	172,758
Corporate bonds		189,169		762		(451	)		189,480
U.S. agency-based mortgage-backed securities		9,059		7		(1,471	)		7,595

Total fixed maturity		364,748		7,454		(2,369	)		369,833
Other investments		10,000		1,759		—			11,759
Equity securities		—		31		—			31

Totals	$	374,748	$	9,244	$	(2,369	)	$	381,623

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2014 are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
States and political subdivisions	$	385,623	$	20,100	$	(58	)	$	405,665
Corporate bonds		176,880		374		(520	)		176,734
Commercial mortgage-backed securities		46,662		1,867		—			48,529
U.S. agency-based mortgage-backed securities		16,972		1,702		(2	)		18,672
U.S. Treasury securities and obligations of U.S. Government agencies		10,697		1,097		(2	)		11,792
Asset-backed securities		2,797		264		(82	)		2,979

Totals	$	639,631	$	25,404	$	(664	)	$	664,371

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2014 are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Fixed maturity:
States and political subdivisions	$	151,744	$	7,302	$	(1,672	)	$	157,374
Corporate bonds		165,412		428		(470	)		165,370
U.S. agency-based mortgage-backed securities		9,848		2		(1,352	)		8,498

Total fixed maturity		327,004		7,732		(3,494	)		331,242
Other investments		10,000		1,748		—			11,748
Equity securities		—		28		—			28

Totals	$	337,004	$	9,508	$	(3,494	)	$	343,018

A summary of the cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at September 30, 2015, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	125,030	$	125,807
After one year through five years		281,139		289,630
After five years through ten years		123,928		129,689
After ten years		70,248		72,719
U.S. agency-based mortgage-backed securities		14,094		15,486
Commercial mortgage-backed securities		43,396		43,982
Asset-backed securities		2,415		2,580

Total	$	660,250	$	679,893

A summary of cost and fair value of investments in fixed maturity securities, classified as available-for-sale at September 30, 2015, by contractual maturity, is as follows:


Remaining Time to Maturity	Amortized Cost Basis		Fair Value
	(in thousands)
Within one year	$	31,131	$	31,258
After one year through five years		183,756		185,173
After five years through ten years		25,294		25,470
After ten years		115,508		120,337
U.S. agency-based mortgage-backed securities		9,059		7,595

Total	$	364,748	$	369,833

The following table summarizes the fair value and gross unrealized losses on securities, aggregated by major investment category and length of time that the individual securities have been in a continuous unrealized loss position:


	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)
September 30, 2015
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	52,041	$	192	$	20,270	$	49	$	72,311	$	241
States and political subdivisions		36,630		195		—		—		36,630		195
U.S. agency-based mortgage-backed securities		53		1		5		—		58		1
Asset-backed securities		—		—		1,480		59		1,480		59

Total held-to-maturity securities		88,724		388		21,755		108		110,479		496

Available-for Sale
Fixed maturity securities:
Corporate bonds	$	46,388	$	440	$	4,241	$	11	$	50,629	$	451
States and political subdivisions		11,419		61		4,263		386		15,682		447
U.S. agency-based mortgage-backed securities		486		26		7,023		1,445		7,509		1,471

Total available-for-sale securities		58,293		527		15,527		1,842		73,820		2,369

Total	$	147,017	$	915	$	37,282	$	1,950	$	184,299	$	2,865

December 31, 2014
Held-to-Maturity
Fixed maturity securities:
Corporate bonds	$	129,788	$	520	$	—	$	—	$	129,788	$	520
States and political subdivisions		16,896		58		—		—		16,896		58
U.S. Treasury securities and obligations of U.S. Government agencies		3,385		2		—		—		3,385		2
U.S. agency-based mortgage-backed securities		78		2		—		—		78		2
Asset-backed securities		—		—		1,662		82		1,662		82

Total held-to-maturity securities		150,147		582		1,662		82		151,809		664


Available-for Sale
Fixed maturity securities:
Corporate bonds	$	106,185	$	470	$	—	$	—	$	106,185	$	470
States and political subdivisions		3,810		6		10,347		1,666		14,157		1,672
U.S. agency-based mortgage-backed securities		627		11		7,757		1,341		8,384		1,352

Total available-for-sale securities		110,622		487		18,104		3,007		128,726		3,494

Total	$	260,769	$	1,069	$	19,766	$	3,089	$	280,535	$	4,158

At September 30, 2015, the Company held 121 individual fixed maturity securities that were in an unrealized loss position, of which 28 individual fixed maturity securities were in a continuous unrealized loss position for longer than 12 months.

The Company holds investments in a long/short equity fund, accounted for under the equity method. The carrying value of this investment is $11.8 million at September 30, 2015.

Investment income is recognized as it is earned. The discount or premium on fixed maturity securities is amortized using the “constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums or discounts. Realized investment gains and losses are determined using the specific identification method.

We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of specific 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 preferred 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. With the exception of four securities deemed to be other-than-temporarily impaired, the Company determined that the unrealized losses in the fixed maturity securities portfolio 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, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. We expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the securities before the recovery of the amortized cost basis.

During the nine months ended September 30, 2015, the Company impaired four fixed maturity securities in the amount of $2.7 million. The impairment charge is included in “Net realized gains/(losses) on investments” for 2015. We impaired the securities due to recent downgrades of the securities and the amount of the accumulated unrealized loss. After reviewing the change in relevant benchmark yields, the Company determined the loss was credit related.

During the nine months ended September 30, 2014, the Company impaired a fixed maturity security in the amount of $0.2 million. The impairment charge is included in “Net realized gains (losses) on investments” for 2014. We impaired the security due to a downgrade of the security and the amount of the accumulated unrealized loss.

Net realized losses in the nine months ended September 30, 2015 were $2.5 million resulting from an impairment loss of $2.7 million recognized for the other-than-temporary declines in the fair value of four fixed maturity securities. Net realized gains in the nine months ended September 30, 2014 were $0.2 million resulting from $0.4 million in gains on called fixed maturity securities offset by an impairment loss of $0.2 million recognized for the other-than-temporary decline in the fair value of a fixed maturity security.