| Investments | INVESTMENTS The following table details fixed maturity available-for-sale and equity securities, by major investment category, at June 30, 2018 and December 31, 2017 : Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value June 30, 2018 U.S. government and agency securities $ 90,391 $ 2 $ 1,912 $ 88,481 Foreign government 3,002 — 24 2,978 States, municipalities and political subdivisions 161,257 555 1,997 159,815 Public utilities 25,892 17 738 25,171 Corporate securities 290,701 224 6,597 284,328 Mortgage-backed securities 212,320 37 4,711 207,646 Asset backed securities 79,993 2 217 79,778 Redeemable preferred stocks 765 7 87 685 Total fixed maturities $ 864,321 $ 844 $ 16,283 $ 848,882 Mutual funds $ 44,385 $ 3,219 $ 44 $ 47,560 Public utilities 1,946 327 30 2,243 Other common stocks 24,059 8,188 446 31,801 Non-redeemable preferred stocks 1,718 39 16 1,741 Total equity securities $ 72,108 $ 11,773 $ 536 $ 83,345 December 31, 2017 U.S. government and agency securities $ 93,827 $ 40 $ 1,241 $ 92,626 Foreign government 2,022 14 — 2,036 States, municipalities and political subdivisions 200,706 1,929 1,123 201,512 Public utilities 20,215 127 85 20,257 Corporate securities 287,025 1,746 1,209 287,562 Mortgage-backed securities 143,982 235 952 143,265 Asset-backed securities 14,902 23 20 14,905 Redeemable preferred stocks 755 11 74 692 Total fixed maturities $ 763,434 $ 4,125 $ 4,704 $ 762,855 Mutual fund $ 29,079 $ 2,845 $ — $ 31,924 Public utilities 1,343 359 — 1,702 Other common stocks 18,856 9,093 47 27,902 Non-redeemable preferred stocks 1,718 53 4 1,767 Total equity securities $ 50,996 $ 12,350 $ 51 $ 63,295 When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three and six months ended June 30, 2018 and 2017 : 2018 2017 Gains (Losses) Fair Value at Sale Gains (Losses) Fair Value at Sale Three Months Ended June 30, Fixed maturities $ 14 $ 4,706 $ 41 $ 6,310 Equity securities 59 207 7 19 Total realized gains 73 4,913 48 6,329 Fixed maturities (511 ) 38,091 (170 ) 13,848 Equity securities — — (10 ) 100 Total realized losses (511 ) 38,091 (180 ) 13,948 Net realized investment gains (losses) $ (438 ) $ 43,004 $ (132 ) $ 20,277 Six Months Ended June 30, Fixed maturities $ 56 $ 6,881 $ 140 $ 18,896 Equity securities 509 1,182 7 19 Total realized gains 565 8,063 147 18,915 Fixed maturities (792 ) 70,319 (620 ) 37,396 Equity securities — — (10 ) 100 Total realized losses (792 ) 70,319 (630 ) 37,496 Net realized investment gains (losses) $ (227 ) $ 78,382 $ (483 ) $ 56,411 The table below summarizes our fixed maturities at June 30, 2018 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations. June 30, 2018 Cost or Amortized Cost Percent of Total Fair Value Percent of Total Due in one year or less $ 60,570 7.0 % $ 60,252 7.1 % Due after one year through five years 321,349 37.2 % 316,312 37.3 % Due after five years through ten years 179,582 20.8 % 174,875 20.6 % Due after ten years 10,507 1.2 % 10,020 1.2 % Asset and mortgage backed securities 292,313 33.8 % 287,423 33.8 % Total $ 864,321 100.0 % $ 848,882 100.0 % The following table summarizes our net investment income by major investment category: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Fixed maturities $ 5,392 $ 4,087 $ 10,204 $ 6,585 Equity securities 467 345 930 565 Cash and cash equivalents 617 90 839 160 Other investments 607 109 789 261 Other assets 8 6 15 17 Investment income 7,091 4,637 12,777 7,588 Investment expenses (246 ) (19 ) (489 ) (269 ) Net investment income $ 6,845 $ 4,618 $ 12,288 $ 7,319 Portfolio monitoring We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired. For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-than-temporary. If our management decides to sell the security or determines that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, then the security's decline in fair value is considered other-than-temporary and is recorded in earnings. If we have not made the decision to sell the fixed income security and it is more likely than not that we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compare this to the cost or amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income. Our portfolio monitoring process includes a quarterly review of all fixed-income securities to identify instances where the fair value of a security compared to its cost or amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated for potential other-than-temporary impairment using information relevant to the collectability or recovery of the security that is reasonably available. Inherent in our evaluation of other-than-temporary impairment for these fixed income securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other-than-temporary are: (1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; (2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and (3) the length of time and extent to which the fair value has been less than amortized cost or cost. The following table presents an aging of our unrealized investment losses by investment class: Less Than Twelve Months Twelve Months or More Number of Securities (1) Gross Unrealized Losses Fair Value Number of Securities (1) Gross Unrealized Losses Fair Value June 30, 2018 U.S. government and agency securities 41 $ 547 $ 33,151 57 $ 1,364 $ 53,423 Foreign governments 5 24 2,979 — — — States, municipalities and political subdivisions 145 1,634 113,255 23 363 14,571 Public utilities 43 668 22,118 5 70 986 Corporate securities 521 5,860 240,733 44 737 18,231 Mortgage-backed securities 187 3,923 176,704 60 788 15,118 Asset backed securities 87 214 70,926 5 3 1,249 Redeemable preferred stocks 1 3 122 3 85 304 Total fixed maturities 1,030 12,873 659,988 197 3,410 103,882 Mutual Fund 1 44 14,937 — — — Public utilities 4 30 629 — — — Other common stocks 54 410 5,342 2 36 205 Non-redeemable preferred stocks 12 16 563 — — — Total equity securities 71 500 21,471 2 36 205 Total 1,101 $ 13,373 $ 681,459 199 $ 3,446 $ 104,087 December 31, 2017 U.S. government and agency securities 40 $ 166 $ 26,979 73 $ 1,075 $ 58,980 States, municipalities and political subdivisions 106 734 91,245 31 389 19,718 Public utilities 16 44 7,052 5 41 1,016 Corporate securities 263 871 134,755 52 338 16,476 Mortgage-backed securities 89 475 76,349 50 477 15,210 Asset-backed securities 18 20 11,682 — — — Redeemable preferred stocks — — — 3 74 303 Total fixed maturities 532 2,310 348,062 214 2,394 111,703 Mutual Funds 1 — 131 — — — Other common stocks 5 47 748 — — — Non-redeemable preferred stocks 4 4 87 — — — Total equity securities 10 51 966 — — — Total 542 $ 2,361 $ 349,028 214 $ 2,394 $ 111,703 (1) This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not presented in thousands. During our quarterly evaluations of our securities for impairment, we determined that none of our investments in fixed-income securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of our debt securities continue to make interest payments on a timely basis. We do not intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. Due to the adoption of ASU 2016-01 as of January 1, 2018, equity securities are reported at fair value with changes in fair value recognized in valuation of equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales. During the three and six months ended June 30, 2018 and 2017 , we recorded no other-than-temporary impairment charges. Fair value measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access. Level 2: Assets and liabilities whose values are based on the following: (a) Quoted prices for similar assets or liabilities in active markets; (b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or (c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities. We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, Nasdaq and NYSE MKT. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on June 30, 2018 and December 31, 2017 . Changes in interest rates subsequent to June 30, 2018 may affect the fair value of our investments. The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. For our Level 3 assets, our internal pricing methods are primarily based on models using discounted cash flow methodologies that determine a single best estimate of fair value for individual financial instruments. In addition, our models use a discount rate and internally assigned credit ratings as inputs (which are generally consistent with any external ratings) and those we use to report our holdings by credit rating. Market related inputs used in these fair values, which we believe are representative of inputs other market participants would use to determine fair value of the same instruments include: interest rate yield curves, quoted market prices of comparable securities, credit spreads and other applicable market data. As a result of the significance of non-market observable inputs, including internally assigned credit ratings as described above, judgment is required in developing these fair values. The fair value of these financial assets may differ from the amount actually received if we were to sell the asset. Moreover, the use of different valuation assumptions may have a material effect on the fair values of the financial assets. Any change in the estimated fair value of our fixed-income securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive income on our Unaudited Consolidated Balance Sheet as of June 30, 2018 . The following table presents the fair value of our financial instruments measured on a recurring basis by level at June 30, 2018 and December 31, 2017 : Total Level 1 Level 2 Level 3 June 30, 2018 U.S. government and agency securities $ 88,481 $ — $ 88,481 $ — Foreign government 2,979 — 2,979 — States, municipalities and political subdivisions 159,815 — 159,815 — Public utilities 25,172 — 25,172 — Corporate securities 284,328 — 284,328 — Mortgage-backed securities 207,646 — 207,646 — Asset-backed securities 79,778 — 79,778 — Redeemable preferred stocks 685 563 122 — Total fixed maturities 848,884 563 848,321 — Mutual funds 47,560 47,560 — — Public utilities 2,242 2,242 — — Other common stocks 31,802 31,802 — — Non-redeemable preferred stocks 1,741 1,741 — — Total equity securities 83,345 83,345 — — Other long-term investments 8,242 300 7,296 646 Total investments $ 940,471 $ 84,208 $ 855,617 $ 646 December 31, 2017 U.S. government and agency securities $ 92,626 $ — $ 92,626 $ — Foreign government 2,036 — 2,036 — States, municipalities and political subdivisions 201,512 — 201,512 — Public utilities 20,257 — 20,257 — Corporate securities 287,562 — 287,562 — Mortgage-backed securities 143,265 — 143,265 — Asset-backed securities 14,905 — 14,905 — Redeemable preferred stocks 692 692 — — Total fixed maturities 762,855 692 762,163 — Mutual Funds 31,924 31,924 — — Public utilities 1,702 1,702 — — Other common stocks 27,902 27,902 — — Non-redeemable preferred stocks 1,767 1,767 — — Total equity securities 63,295 63,295 — — Other long-term investments 8,381 300 7,447 634 Total investments $ 834,531 $ 64,287 $ 769,610 $ 634 The table below presents the rollforward of our Level 3 investments held at fair value during the six months ended June 30, 2018 : Other Investments December 31, 2017 $ 634 Transfers in — Partnership income 71 Return of capital (93 ) Unrealized gains in accumulated other comprehensive income 34 June 30, 2018 $ 646 We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the quarter ended June 30, 2018 , we did not transfer any investments between levels. We used unobservable inputs to derive our estimated fair value for Level 3 investments, and the unobservable inputs are significant to the overall fair value measurement. For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment custodians, which use a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, and adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in its calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs. Other investments We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Consolidated Balance Sheets and these investments are currently being accounted for at fair value utilizing a discounted cash flow methodology. The estimated fair value of our investments in the limited partnership interests at June 30, 2018 was $7,942,000 . We have fully funded two investments and are still obligated to fund an additional $3,170,000 for the remaining four investments. The information presented in the table below is as of June 30, 2018 : Book Value Unrealized Gain Unrealized Loss Fair Value Limited partnership investments $ 7,584 $ 358 $ — $ 7,942 Certificates of deposit 300 — — 300 Total other investments $ 7,884 $ 358 $ — $ 8,242 The following table summarizes the quantitative impact that the significant unobservable inputs used to estimate the fair value of our Level 3 investments has on the estimated fair value of our investments shown in the tables above. Those limited partnership investments being carried at cost are excluded from the table below. Our investment in DCR Mortgage Partners VI, L.P. (DCR VI) was valued using a duration of 60 months for both periods presented below. Fair Value Valuation Rate Impact Technique Unobservable Input Adjustment June 30, 2018 DCR VI $ (32 ) Discounted cash flow Discount rate based on D&B paydex scale 2.35% December 31, 2017 DCR VI $ (37 ) Discounted cash flow Discount rate based on D&B paydex scale 2.35% Portfolio loans At December 31, 2017 , we held commercial portfolio loans of $20,000,000 . We believe that making sound loans is a necessary and desirable means of employing funds available for investment. Recognizing our obligation to our stockholders, management is expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. These were short-term collateralized loans (less than one year), which were repaid in full in April 2018, primarily from cash flows of the borrowers. |
