| Investments | INVESTMENTS The following table details fixed-maturity available-for-sale securities, by major investment category, at September 30, 2019 and December 31, 2018 : Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2019 U.S. government and agency securities $ 114,446 $ 1,168 $ 201 $ 115,413 Foreign government 3,980 93 1 4,072 States, municipalities and political subdivisions 134,605 2,892 50 137,447 Public utilities 29,394 763 29 30,128 Corporate securities 289,456 7,155 118 296,493 Mortgage-backed securities 269,252 6,245 243 275,254 Asset backed securities 59,459 849 21 60,287 Redeemable preferred stocks 2,120 46 48 2,118 Total fixed maturities $ 902,712 $ 19,211 $ 711 $ 921,212 December 31, 2018 U.S. government and agency securities $ 100,240 $ 50 $ 1,315 $ 98,975 Foreign government 3,993 5 16 3,982 States, municipalities and political subdivisions 145,415 354 1,301 144,468 Public utilities 24,560 11 681 23,890 Corporate securities 307,875 272 6,159 301,988 Mortgage-backed securities 227,004 333 3,483 223,854 Asset-backed securities 64,071 105 139 64,037 Redeemable preferred stocks 1,287 3 139 1,151 Total fixed maturities $ 874,445 $ 1,133 $ 13,233 $ 862,345 Equity securities are summarized as follows: September 30, 2019 December 31, 2018 Estimated Fair Value Percent of Total Estimated Fair Value Percent of Total Mutual funds $ 60,137 57.5 % $ 50,016 61.8 % Public utilities 2,917 2.8 % 1,759 2.2 Other common stocks 39,774 38.0 % 27,198 33.6 Nonredeemable preferred stocks 1,801 1.7 % 2,005 2.4 Total equity securities $ 104,629 100.0 % $ 80,978 100.0 % 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 nine months ended September 30, 2019 and 2018 : 2019 2018 Gains (Losses) Fair Value at Sale Gains (Losses) Fair Value at Sale Three Months Ended September 30, Fixed maturities $ 66 $ 34,282 $ 12 $ 4,864 Equity securities 3 272 8 411 Short-term investments — 2,511 — — Total realized gains 69 37,065 20 5,275 Fixed maturities (48 ) 2,033 (441 ) 46,268 Equity securities (3 ) 14 (26 ) 387 Short-term investments — 10 — — Total realized losses (51 ) 2,057 (467 ) 46,655 Net realized investment gains (losses) $ 18 $ 39,122 $ (447 ) $ 51,930 Nine Months Ended September 30, Fixed maturities $ 597 $ 129,364 $ 68 $ 11,745 Equity securities 94 814 517 1,593 Short-term investments — 3,571 — — Total realized gains 691 133,749 585 13,338 Fixed maturities (287 ) 36,661 (1,233 ) 116,587 Equity securities (217 ) 1,163 (26 ) 387 Short-term investments (1 ) 1,035 — — Total realized losses (505 ) 38,859 (1,259 ) 116,974 Net realized investment gains (losses) $ 186 $ 172,608 $ (674 ) $ 130,312 The table below summarizes our fixed maturities at September 30, 2019 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. September 30, 2019 Cost or Amortized Cost Percent of Total Fair Value Percent of Total Due in one year or less $ 101,063 11.2 % $ 101,143 11.0 % Due after one year through five years 297,049 32.9 % 301,240 32.7 % Due after five years through ten years 168,910 18.7 % 175,932 19.1 % Due after ten years 6,979 0.8 % 7,356 0.8 % Asset and mortgage backed securities 328,711 36.4 % 335,541 36.4 % Total $ 902,712 100.0 % $ 921,212 100.0 % The following table summarizes our net investment income by major investment category: Three Months Ended September 30, Nine Months Ended 2019 2018 2019 2018 Fixed maturities $ 5,757 $ 5,725 $ 17,379 $ 15,929 Equity securities 614 525 1,728 1,455 Cash and cash equivalents 1,611 588 3,407 1,427 Other investments 83 41 847 830 Other assets 11 9 108 24 Investment income 8,076 6,888 23,469 19,665 Investment expenses (273 ) (267 ) (801 ) (756 ) Net investment income $ 7,803 $ 6,621 $ 22,668 $ 18,909 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 (loss). 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 September 30, 2019 U.S. government and agency securities 20 $ 50 $ 18,550 40 $ 151 $ 34,669 Foreign governments — — — 2 1 600 States, municipalities and political subdivisions 24 40 21,349 4 10 3,188 Public utilities 9 28 4,634 2 1 250 Corporate securities 49 62 21,686 45 56 18,617 Mortgage-backed securities 52 84 25,835 56 159 16,691 Asset backed securities 14 12 7,466 6 9 2,260 Redeemable preferred stocks 3 12 1,104 2 36 199 Total fixed maturities 171 $ 288 $ 100,624 157 $ 423 $ 76,474 December 31, 2018 U.S. government and agency securities 45 $ 111 $ 28,464 55 $ 1,204 $ 61,264 Foreign governments 5 16 2,978 — — — States, municipalities and political subdivisions 49 272 38,469 91 1,029 68,115 Public utilities 30 374 13,685 19 307 7,805 Corporate securities 351 3,149 144,769 208 3,010 117,351 Mortgage-backed securities 87 1,303 88,754 135 2,180 70,510 Asset-backed securities 67 136 41,871 7 3 1,372 Redeemable preferred stocks 8 62 711 2 77 8,377 Total fixed maturities 642 $ 5,423 $ 359,701 517 $ 7,810 $ 334,794 (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 security investments 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 the valuation of equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales. During the three and nine months ended September 30, 2019 and 2018 , 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 Condensed 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 American. 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 September 30, 2019 and December 31, 2018 . Changes in interest rates subsequent to September 30, 2019 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. 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 (loss) on our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2019 . The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2019 and December 31, 2018 : Total Level 1 Level 2 Level 3 September 30, 2019 U.S. government and agency securities $ 115,413 $ — $ 115,413 $ — Foreign government 4,072 — 4,072 — States, municipalities and political subdivisions 137,447 — 137,447 — Public utilities 30,128 — 30,128 — Corporate securities 296,493 — 296,493 — Mortgage-backed securities 275,254 — 275,254 — Asset-backed securities 60,287 — 60,287 — Redeemable preferred stocks 2,118 594 1,524 — Total fixed maturities 921,212 594 920,618 — Mutual funds 60,137 56,730 3,407 — Public utilities 2,917 2,917 — — Other common stocks 39,774 39,774 — — Non-redeemable preferred stocks 1,801 1,801 — — Total equity securities 104,629 101,222 3,407 — Other investments (1) 763 300 463 — Total investments $ 1,026,604 $ 102,116 $ 924,488 $ — December 31, 2018 U.S. government and agency securities $ 98,975 $ — $ 98,975 $ — Foreign government 3,982 — 3,982 — States, municipalities and political subdivisions 144,468 — 144,468 — Public utilities 23,890 — 23,890 — Corporate securities 301,988 — 301,988 — Mortgage-backed securities 223,854 — 223,854 — Asset-backed securities 64,037 — 64,037 — Redeemable preferred stocks 1,151 790 361 — Total fixed maturities 862,345 790 861,555 — Mutual Funds 50,016 47,223 2,793 — Public utilities 1,759 1,759 — — Other common stocks 27,198 27,198 — — Non-redeemable preferred stocks 2,005 2,005 — — Total equity securities 80,978 78,185 2,793 — Other investments (1) 300 300 — — Total investments $ 943,623 $ 79,275 $ 864,348 $ — (1) Other investments included in the fair value hierarchy exclude these limited partnership interests that are measured at estimated fair value using the net asset value per share (or its equivalent) practical expedient. The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2019 and December 31, 2018 , because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration, the Branch Banking & Trust Corporation (BB&T) and our senior notes approximate fair value as the interest rates and terms are variable. 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 September 30, 2019 , we transferred no investments between levels. 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 Our investments in limited partnerships, recorded in the other investments line of our Unaudited Condensed Consolidated Balance Sheets, are accounted for at fair value utilizing a net asset value per share equivalent methodology. The estimated fair value of our investments in the limited partnership interests at September 30, 2019 was $9,261,000 . The information presented in the table below is as of September 30, 2019 : Book Value Unrealized Gain Unrealized Loss Fair Value Limited partnership investments (1) $ 8,482 $ 779 $ — $ 9,261 Certificates of deposit 300 — — 300 Short-term investments 463 — — 463 Total other investments $ 9,245 $ 779 $ — $ 10,024 (1) Distributions will be generated from investment gains, from operating income, from underlying investments of funds, and from liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next two to ten years. Restricted Cash We are required to maintain assets on deposit with various regulatory authorities to support our insurance operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also hold funds in trust for certain reinsurance transactions. The following table presents the components of restricted assets: September 30, 2019 December 31, 2018 Trust funds $ 73,607 $ 70,208 Cash on deposit (regulatory deposits) 1,242 1,233 Total restricted cash $ 74,849 $ 71,441 |
