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Investments | 9 Months Ended
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Sep. 30, 2012
Investments [Abstract ] |
Investments | Note 9. Investments The following tables set forth the carrying value, gross unrealized gains, gross unrealized losses and amortized cost of the Company's investments, aggregated by type and industry, as of September 30, 2012 and December 31, 2011. Investments were comprised of the following:
|  | September 30, 2012 |
|  | Carrying Value |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Amortized Cost |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies and authorities |  | $ | 27,548 |  |  | $ | 4,648 |  |  | $ | - |  |  | $ | 22,900 |
Obligations of states and political subdivisions |  |  | 17,849 |  |  |  | 2,596 |  |  |  | - |  |  |  | 15,253 |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utilities and telecom |  |  | 17,888 |  |  |  | 3,039 |  |  |  | - |  |  |  | 14,849 |
Financial services |  |  | 43,343 |  |  |  | 3,326 |  |  |  | 468 |  |  |  | 40,485 |
Other business – diversified |  |  | 65,934 |  |  |  | 7,556 |  |  |  | - |  |  |  | 58,378 |
Other consumer – diversified |  |  | 51,647 |  |  |  | 8,538 |  |  |  | 2 |  |  |  | 43,111 |
Total corporate securities |  |  | 178,812 |  |  |  | 22,459 |  |  |  | 470 |  |  |  | 156,823 |
Redeemable preferred stocks: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial services |  |  | 5,786 |  |  |  | 41 |  |  |  | 14 |  |  |  | 5,759 |
Other consumer – diversified |  |  | 193 |  |  |  | - |  |  |  | - |  |  |  | 193 |
Total redeemable preferred stocks |  |  | 5,979 |  |  |  | 41 |  |  |  | 14 |  |  |  | 5,952 |
Total fixed maturities |  |  | 230,188 |  |  |  | 29,744 |  |  |  | 484 |  |  |  | 200,928 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common and non-redeemable preferred stocks: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utilities and telecom |  |  | 1,367 |  |  |  | 403 |  |  |  | - |  |  |  | 964 |
Financial services |  |  | 7,690 |  |  |  | 915 |  |  |  | 14 |  |  |  | 6,789 |
Other business – diversified |  |  | 132 |  |  |  | 85 |  |  |  | - |  |  |  | 47 |
Other consumer – diversified |  |  | 2,350 |  |  |  | 673 |  |  |  | - |  |  |  | 1,677 |
Total equity securities |  |  | 11,539 |  |  |  | 2,076 |  |  |  | 14 |  |  |  | 9,477 |
Other invested assets |  |  | 588 |  |  |  | - |  |  |  | - |  |  |  | 588 |
Policy loans |  |  | 2,320 |  |  |  | - |  |  |  | - |  |  |  | 2,320 |
Real estate |  |  | 38 |  |  |  | - |  |  |  | - |  |  |  | 38 |
Investments in unconsolidated trusts |  |  | 1,238 |  |  |  | - |  |  |  | - |  |  |  | 1,238 |
Total investments |  | $ | 245,911 |  |  | $ | 31,820 |  |  | $ | 498 |  |  | $ | 214,589 |
|  | December 31, 2011 |
|  | Carrying Value |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Amortized Cost |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |
Bonds: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies and authorities |  | $ | 35,922 |  |  | $ | 4,186 |  |  | $ | - |  |  | $ | 31,736 |
Obligations of states and political subdivisions |  |  | 17,030 |  |  |  | 1,757 |  |  |  | - |  |  |  | 15,273 |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utilities and telecom |  |  | 18,598 |  |  |  | 2,736 |  |  |  | - |  |  |  | 15,862 |
Financial services |  |  | 34,900 |  |  |  | 725 |  |  |  | 1,346 |  |  |  | 35,521 |
Other business – diversified |  |  | 56,553 |  |  |  | 5,043 |  |  |  | 152 |  |  |  | 51,662 |
Other consumer – diversified |  |  | 46,908 |  |  |  | 6,170 |  |  |  | 12 |  |  |  | 40,750 |
Total corporate securities |  |  | 156,959 |  |  |  | 14,674 |  |  |  | 1,510 |  |  |  | 143,795 |
Redeemable preferred stocks: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utilities and telecom |  |  | 2,668 |  |  |  | 168 |  |  |  | - |  |  |  | 2,500 |
Financial services |  |  | 4,576 |  |  |  | 29 |  |  |  | 462 |  |  |  | 5,009 |
Other consumer – diversified |  |  | 193 |  |  |  | - |  |  |  | - |  |  |  | 193 |
Total redeemable preferred stocks |  |  | 7,437 |  |  |  | 197 |  |  |  | 462 |  |  |  | 7,702 |
Total fixed maturities |  |  | 217,348 |  |  |  | 20,814 |  |  |  | 1,972 |  |  |  | 198,506 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common and non-redeemable preferred stocks: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utilities and telecom |  |  | 1,203 |  |  |  | 239 |  |  |  | - |  |  |  | 964 |
Financial services |  |  | 5,148 |  |  |  | 558 |  |  |  | 199 |  |  |  | 4,789 |
Other business – diversified |  |  | 115 |  |  |  | 68 |  |  |  | - |  |  |  | 47 |
Other consumer – diversified |  |  | 1,882 |  |  |  | 205 |  |  |  | - |  |  |  | 1,677 |
Total equity securities |  |  | 8,348 |  |  |  | 1,070 |  |  |  | 199 |  |  |  | 7,477 |
Other invested assets |  |  | 567 |  |  |  | - |  |  |  | - |  |  |  | 567 |
Policy loans |  |  | 2,246 |  |  |  | - |  |  |  | - |  |  |  | 2,246 |
Real estate |  |  | 38 |  |  |  | - |  |  |  | - |  |  |  | 38 |
Investments in unconsolidated trusts |  |  | 1,238 |  |  |  | - |  |  |  | - |  |  |  | 1,238 |
Total investments |  | $ | 229,785 |  |  | $ | 21,884 |  |  | $ | 2,171 |  |  | $ | 210,072 |
The amortized cost and carrying value of the Company's investments in fixed maturities at September 30, 2012 by contractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.
|  | September 30, 2012 |
|  | Carrying Value |  |  | Amortized Cost |
Due in one year or less |  | $ | 1,523 |  |  | $ | 1,500 |
Due after one year through five years |  |  | 4,666 |  |  |  | 4,219 |
Due after five years through ten years |  |  | 40,238 |  |  |  | 36,987 |
Due after ten years |  |  | 182,582 |  |  |  | 157,228 |
Varying maturities |  |  | 1,179 |  |  |  | 994 |
Totals |  | $ | 230,188 |  |  | $ | 200,928 |
The following table sets forth the carrying value, amortized cost, and net unrealized gains or losses of the Company's investments aggregated by industry as of September 30, 2012 and December 31, 2011.
|  | September 30, 2012 |  |  | December 31, 2011 |
|  | Carrying Value |  |  | Amortized Cost |  |  | Unrealized Gains |  |  | Carrying Value |  |  | Amortized Cost |  |  | Unrealized Gains (Losses) |
U.S. Treasury securities and obligations of U.S. Government agencies and authorities |  | $ | 27,548 |  |  | $ | 22,900 |  |  | $ | 4,648 |  |  | $ | 35,922 |  |  | $ | 31,736 |  |  | $ | 4,186 |
Obligations of states and political subdivisions |  |  | 17,849 |  |  |  | 15,253 |  |  |  | 2,596 |  |  |  | 17,030 |  |  |  | 15,273 |  |  |  | 1,757 |
Utilities and telecom |  |  | 19,255 |  |  |  | 15,813 |  |  |  | 3,442 |  |  |  | 22,469 |  |  |  | 19,326 |  |  |  | 3,143 |
Financial services |  |  | 56,819 |  |  |  | 53,033 |  |  |  | 3,786 |  |  |  | 44,624 |  |  |  | 45,319 |  |  |  | (695 | )
Other business – diversified |  |  | 66,066 |  |  |  | 58,425 |  |  |  | 7,641 |  |  |  | 56,668 |  |  |  | 51,709 |  |  |  | 4,959 |
Other consumer – diversified |  |  | 54,190 |  |  |  | 44,981 |  |  |  | 9,209 |  |  |  | 48,983 |  |  |  | 42,620 |  |  |  | 6,363 |
Other investments |  |  | 4,184 |  |  |  | 4,184 |  |  |  | - |  |  |  | 4,089 |  |  |  | 4,089 |  |  |  | - |
Investments |  | $ | 245,911 |  |  | $ | 214,589 |  |  | $ | 31,322 |  |  | $ | 229,785 |  |  | $ | 210,072 |  |  | $ | 19,713 |
The following tables present the Company's unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of September 30, 2012 and December 31, 2011.
| September 30, 2012 |
| Less than 12 months |  | 12 months or longer |  | Total |
| Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |
Corporate securities |  | $ | 2,888 |  |  | $ | 30 |  |  | $ | 1,560 |  |  | $ | 440 |  |  | $ | 4,448 |  |  | $ | 470 |
Redeemable preferred stocks |  |  | 1,909 |  |  |  | 10 |  |  |  | 996 |  |  |  | 4 |  |  |  | 2,905 |  |  |  | 14 |
Common and non-redeemable preferred stocks |  |  | 986 |  |  |  | 14 |  |  |  | - |  |  |  | - |  |  |  | 986 |  |  |  | 14 |
Total temporarily impaired securities |  | $ | 5,783 |  |  | $ | 54 |  |  | $ | 2,556 |  |  | $ | 444 |  |  | $ | 8,339 |  |  | $ | 498 |
| December 31, 2011 |
| Less than 12 months |  | 12 months or longer |  | Total |
| Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |
Corporate securities |  | $ | 30,675 |  |  | $ | 1,112 |  |  | $ | 1,602 |  |  | $ | 398 |  |  | $ | 32,277 |  |  | $ | 1,510 |
Redeemable preferred stocks |  |  | - |  |  |  | - |  |  |  | 2,807 |  |  |  | 462 |  |  |  | 2,807 |  |  |  | 462 |
Common and non-redeemable preferred stocks |  |  | 824 |  |  |  | 176 |  |  |  | 1,245 |  |  |  | 23 |  |  |  | 2,069 |  |  |  | 199 |
Total temporarily impaired securities |  | $ | 31,499 |  |  | $ | 1,288 |  |  | $ | 5,654 |  |  | $ | 883 |  |  | $ | 37,153 |  |  | $ | 2,171 |
The evaluation for an other than temporary impairment is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer's financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, among other factors, management's intent and ability to hold these securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer's continued satisfaction of its obligations in accordance with their contractual terms, and management's expectation as to the issuer's ability and intent to continue to do so, as well as ratings actions that may affect the issuer's credit status. As of September 30, 2012, securities in an unrealized loss position primarily included certain of the Company's investments in fixed maturities within the financial services sector. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company's expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company's evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of September 30, 2012. The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.
Level 1 | Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company's financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks.
Level 2 | Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company's financial instruments valued using Level 2 criteria include substantially all of its fixed maturities, which consist of U.S. Treasury securities and U.S. Government securities, municipal bonds, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements using Level 2 criteria, the Company utilizes various external pricing sources.
Level 3 | Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). The Company's financial instruments valued using Level 3 criteria include certain fixed maturities and a zero cost interest rate collar. Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. As of September 30, 2012, the value of the Company's fixed maturities valued using Level 3 criteria was $2,100 and the value of the zero cost interest rate collar was a liability of $342 (See Note 5). The use of different criteria or assumptions regarding data may have yielded different valuations.
As of September 30, 2012, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  |  |
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  | $ | - |  |  | $ | 228,088 |  |  | $ | 2,100 |  |  | $ | 230,188 |
Equity securities |  |  | 4,059 |  |  |  | 7,480 |  |  |  | - |  |  |  | 11,539 |
Cash equivalents |  |  | 18,870 |  |  |  | - |  |  |  | - |  |  |  | 18,870 |
Total |  | $ | 22,929 |  |  | $ | 235,568 |  |  | $ | 2,100 |  |  | $ | 260,597 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative |  | $ | - |  |  | $ | - |  |  | $ | 342 |  |  | $ | 342 |
As of December 31, 2011, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  |  |
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  | $ | - |  |  | $ | 215,313 |  |  | $ | 2,035 |  |  | $ | 217,348 |
Equity securities |  |  | 3,374 |  |  |  | 4,974 |  |  |  | - |  |  |  | 8,348 |
Cash equivalents |  |  | 19,519 |  |  |  | - |  |  |  | - |  |  |  | 19,519 |
Total |  | $ | 22,893 |  |  | $ | 220,287 |  |  | $ | 2,035 |  |  | $ | 245,215 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative |  | $ | - |  |  | $ | - |  |  | $ | 876 |  |  | $ | 876 |
The following is a roll-forward of the financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month and nine month periods ended September 30, 2012.
|  | Fixed Maturities |  |  | Derivative (Liability) |
Balance, December 31, 2011 |  | $ | 2,035 |  |  | $ | (876) |
Total unrealized gains (losses) included in comprehensive income |  |  | (61) |  |  |  | 153 |
Balance, March 31, 2012 |  |  | 1,974 |  |  |  | (723) |
Total unrealized gains included in comprehensive income |  |  | 125 |  |  |  | 193 |
Balance, June 30, 2012 |  |  | 2,099 |  |  |  | (530) |
Total unrealized gains included in comprehensive income |  |  | 1 |  |  |  | 188 |
Balance, September 30, 2012 |  | $ | 2,100 |  |  | $ | (342) |
The Company's fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows (based on current cash flows) discounted at reasonable estimated rates of interest. There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable. As the derivative is an interest rate collar, changes in valuation are more closely correlated with changes in interest rates and, accordingly, values are estimated using projected cash flows at current interest rates discounted at a reasonably estimated rate of interest. At September 30, 2012, the value of the derivative was determined based on the difference between the contractual interest rate of 4.77% and the current 3-month LIBOR rate of 0.42%. Fair value quotations are also obtained and considered, as applicable, from the counterparty to the transaction.

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