Investments

(a) Available-for-Sale Securities

The amortized cost, estimated market value and gross unrealized appreciation and depreciation of available-for-sale securities as of June 30, 2012, are presented in the table below:

(Amounts in Thousands)	Original or amortized cost		Gross unrealized gains		Gross unrealized losses			Market value
Preferred stock	$	5,091	$	57	$	(289	)	$	4,859
Common stock		20,904		2,238		(2,171	)		20,971
U.S. treasury securities		44,087		2,781		(5	)		46,863
U.S. government agencies		53,619		762		—			54,381
Municipal bonds		261,865		11,274		(87	)		273,052
Corporate bonds:
Finance		744,393		26,438		(16,202	)		754,629
Industrial		266,459		9,407		(3,105	)		272,761
Utilities		38,227		2,003		(929	)		39,301
Commercial mortgage backed securities		10,015		103		—			10,118
Residential mortgage backed securities:
Agency backed		346,956		20,794		(320	)		367,430
Non-agency backed		7,950		2		(728	)		7,224
	$	1,799,566	$	75,859	$	(23,836	)	$	1,851,589

Proceeds from the sale of investments in available-for-sale securities during the six months ended June 30, 2012 and 2011 were approximately $380,614 and $738,742, respectively.

A summary of the Company’s available-for-sale fixed securities as of June 30, 2012, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Amounts in Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	14,363	$	14,907
Due after one through five years		373,115		364,853
Due after five through ten years		763,908		794,965
Due after ten years		257,264		266,262
Mortgage backed securities		364,921		384,772
Total fixed maturities	$	1,773,571	$	1,825,759

(b) Investment Income

Net investment income for the three and six months ended June 30, 2012 and 2011 was derived from the following sources:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in Thousands)	2012		2011		2012		2011
Fixed maturity securities	$	16,059	$	12,302	$	29,723	$	25,976
Equity maturities		100		120		498		286
Cash and short term investments		385		966		976		1,572
		16,544		13,388		31,197		27,834
Less:
Investment expenses and interest expense on securities sold under agreement to repurchase		200		221		335		475
	$	16,344	$	13,167	$	30,862	$	27,359

(c) Other-Than-Temporary Impairment

The table below summarizes the gross unrealized losses of our fixed maturity and equity securities by length of time the security has continuously been in an unrealized position as of June 30, 2012:

	Less Than 12 Months							12 Months or More							Total
(Amounts in Thousands)	Fair Market Value		Unrealized Losses			No. of Positions Held		Fair Market Value		Unrealized Losses			No. of Positions Held		Fair Market Value		Unrealized Losses
Common and preferred stock	$	10,377	$	(2,428	)		26	$	306	$	(32	)		1	$	10,683	$	(2,460	)
U.S. treasury securities		3,160		(5	)		5		—		—			—		3,160		(5	)
U.S. government agencies		—		—			—		—		—			—		—		—
Municipal bonds		56,538		(87	)		14		—		—			—		56,538		(87	)
Corporate bonds:
Finance		201,962		(6,063	)		48		86,509		(10,139	)		16		288,471		(16,202	)
Industrial		112,721		(2,551	)		32		2,813		(554	)		2		115,534		(3,105	)
Utilities		5,372		(443	)		2		5,677		(486	)		1		11,049		(929	)
Commercial Mortgage backed securities		—		—			—		—		—			—		—		—
Residential mortgage backed securities:
Agency backed		17,571		(320	)		1		—		—			—		17,571		(320	)
Non-agency backed		7,138		(728	)		2		—		—			—		7,138		(728	)
Total temporarily impaired securities	$	414,839	$	(12,625	)		130	$	95,305	$	(11,211	)		20	$	510,144	$	(23,836	)

There are 150 securities at June 30, 2012 that account for the gross unrealized loss, none of which is deemed by the Company to be OTTI. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent not to sell these securities and it being not more likely than not that the Company will be required to sell these investments before anticipated recovery of fair value to the Company’s cost basis.

(d) Derivatives

The Company from time to time invests in a limited amount of derivatives and other financial instruments as part of its investment portfolio to manage interest rate changes or other exposures to a particular financial market. The Company records changes in valuation on its derivative positions not designated as a hedge as a component of net realized gains and losses.

The Company records changes in valuation on its hedge positions as a component of other comprehensive income. As of June 30, 2012, the Company had two interest rate swaps designated as a hedge and were recorded as a liability amount of $4,472 and were included as a component of accrued expenses and other liabilities.

The following table presents the notional amounts by remaining maturity of the Company’s interest rate swaps as of June 30, 2012:

Remaining Life of Notional Amount ⁽¹⁾

(Amounts in Thousands)

One
Year

Two
Through
Five Years

Six Through
Ten Years

After Ten
years

Total

Interest rate swaps

—

70,000

—

70,000

⁽¹⁾

Notional amount is not representative of either market risk or credit risk and is not recorded in the consolidated balance sheet.

(e) Restricted Cash and Investments

The Company, in order to conduct business in certain states, is required to maintain letters of credit or assets on deposit to support state mandated regulatory requirements and certain third party agreements. The Company also utilizes trust accounts to collateralize business with its reinsurance counterparties. These assets are primarily in the form of cash and certain high grade securities. The fair values of our restricted assets as of June 30, 2012 and December 31, 2011 are as follows:

(Amounts in Thousands)	2012		2011
Restricted cash	$	45,333	$	23,104
Restricted investments		280,866		187,227
Total restricted cash and investments	$	326,199	$	210,331

(f) Other

Securities sold but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price and, thereby, create a liability to purchase the security in the market at prevailing prices. The Company’s liability for securities to be delivered is measured at their fair value and as of June 30, 2012 was $56,920 for corporate bonds and $58 for equity securities. These transactions result in off-balance sheet risk, as the Company’s ultimate cost to satisfy the delivery of securities sold but not yet purchased may exceed the amount reflected at June 30, 2012. Subject to certain limitations, all securities owned, to the extent required to cover the Company’s obligations to sell or repledge the securities to others, are pledged to the clearing broker.

The Company enters into repurchase agreements, which are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities that it invests or holds in short term or fixed income securities. As of June 30, 2012, there were $231,919 principal amount outstanding at interest rates between .38% and .47%. Interest expense associated with these repurchase agreements for the three months ended June 30, 2012 and 2011 was $200 and $221, respectively, and interest expense associated with these repurchase agreements for the six months ended June 30, 2012 and 2011 was $335 and $475, respectively, of which $0 was accrued as of June 30, 2012. The Company has approximately $253,600 of collateral pledged in support of these agreements. Additionally, during the three and six months ended June 30, 2012, the Company entered into a reverse repurchase agreement in the amount of $57,000 that is included in cash and cash equivalents as of June 30, 2012. The Company retains collateral of $57,000 related to this agreement.