| Investments | INVESTMENTS The following table details fixed-maturity available-for-sale securities, by major investment category, at September 30, 2020 and December 31, 2019: Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2020 U.S. government and agency securities $ 118,213 $ 4,942 $ 25 $ 123,130 Foreign government 1,725 144 — 1,869 States, municipalities and political subdivisions 157,280 5,521 120 162,681 Public utilities 39,083 2,872 — 41,955 Corporate securities 331,208 17,120 662 347,666 Mortgage-backed securities 267,532 12,285 400 279,417 Asset-backed securities 62,623 1,055 327 63,351 Redeemable preferred stocks 6,364 66 61 6,369 Total fixed maturities $ 984,028 $ 44,005 $ 1,595 $ 1,026,438 December 31, 2019 U.S. government and agency securities $ 120,260 $ 749 $ 193 $ 120,816 Foreign government 3,975 97 1 4,071 States, municipalities and political subdivisions 131,203 2,611 63 133,751 Public utilities 24,660 700 26 25,334 Corporate securities 281,892 7,123 143 288,872 Mortgage-backed securities 248,206 4,174 477 251,903 Asset-backed securities 56,487 683 41 57,129 Redeemable preferred stocks 2,915 72 2 2,985 Total fixed maturities $ 869,598 $ 16,209 $ 946 $ 884,861 Equity securities are summarized as follows: September 30, 2020 December 31, 2019 Estimated Fair Value Percent of Total Estimated Fair Value Percent of Total Mutual funds $ 7,945 21.8 % $ 65,453 56.1 % Public utilities — — 3,663 3.1 Other common stocks 20,343 55.8 44,492 38.2 Nonredeemable preferred stocks 8,182 22.4 3,002 2.6 Total equity securities $ 36,470 100.0 % $ 116,610 100.0 % 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, 2020 and 2019, respectively: 2020 2019 Gains Fair Value at Sale Gains Fair Value at Sale Three Months Ended September 30, Fixed maturities $ 708 $ 47,153 $ 66 $ 34,282 Equity securities 26,724 97,725 3 272 Short-term investments — 1,275 — 2,511 Total realized gains 27,432 146,153 69 37,065 Fixed maturities (45) 1,203 (48) 2,033 Equity securities (2,419) 9,509 (3) 14 Short-term investments — — — 10 Total realized losses (2,464) 10,712 (51) 2,057 Net realized investment gains $ 24,968 $ 156,865 $ 18 $ 39,122 Nine Months Ended September 30, Fixed maturities $ 1,425 $ 139,609 $ 597 $ 129,364 Equity securities 27,550 101,696 94 814 Short-term investments — 1,346 — 3,571 Total realized gains 28,975 242,651 691 133,749 Fixed maturities (439) 7,942 (287) 36,661 Equity securities (3,577) 12,879 (217) 1,163 Short-term investments — 128 (1) 1,035 Total realized losses (4,016) 20,949 (505) 38,859 Net realized investment gains $ 24,959 $ 263,600 $ 186 $ 172,608 The table below summarizes our fixed maturities at September 30, 2020 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, 2020 Cost or Amortized Cost Percent of Total Fair Value Percent of Total Due in one year or less $ 93,973 9.5 % $ 94,650 9.2 % Due after one year through five years 264,627 26.9 276,916 27.0 Due after five years through ten years 279,045 28.4 295,069 28.7 Due after ten years 16,228 1.6 17,035 1.7 Asset and mortgage backed securities 330,155 33.6 342,768 33.4 Total $ 984,028 100.0 % $ 1,026,438 100.0 % The following table summarizes our net investment income by major investment category: Three Months Ended Nine Months Ended 2020 2019 2020 2019 Fixed maturities $ 5,744 $ 5,757 $ 16,806 $ 17,379 Equity securities 467 614 1,966 1,728 Cash and cash equivalents 30 1,611 767 3,407 Other investments 62 83 17 847 Other assets 12 11 114 108 Investment income 6,315 8,076 19,670 23,469 Investment expenses (305) (273) (836) (801) Net investment income $ 6,010 $ 7,803 $ 18,834 $ 22,668 Portfolio monitoring We have a quarterly portfolio monitoring process to identify and evaluate each fixed-income security whose carrying value may be impaired as the result of a credit loss. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or 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, the security's entire decline in fair value is recorded in earnings. If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive income. During the three and nine months ended September 30, 2020, we determined that none of our fixed-income securities shown in the table below that are in an unrealized loss position have declines in fair value that are reflected as a result of credit losses. Therefore, no credit loss allowance was recorded at September 30, 2020. 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. Equity securities are reported at fair value with changes in fair value recognized in the valuation of equity investments. 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, 2020 U.S. government and agency securities 2 $ 1 $ 1,490 21 $ 24 $ 12,126 States, municipalities and political subdivisions 20 120 15,811 — — — Corporate securities 45 659 20,229 4 3 1,004 Mortgage-backed securities 51 298 27,677 7 102 3,495 Asset-backed securities 16 297 5,523 1 30 970 Redeemable preferred stocks 28 61 3,075 — — — Total fixed maturities 162 $ 1,436 $ 73,805 33 $ 159 $ 17,595 December 31, 2019 U.S. government and agency securities 37 $ 89 $ 26,372 39 $ 104 $ 31,364 Foreign governments — — — 2 1 600 States, municipalities and political subdivisions 31 61 14,508 2 2 1,262 Public utilities 9 25 4,626 2 1 250 Corporate securities 42 124 22,435 27 19 9,605 Mortgage-backed securities 89 322 59,101 50 155 12,738 Asset-backed securities 15 34 8,447 5 7 1,259 Redeemable preferred stocks — — — 1 2 97 Total fixed maturities 223 $ 655 $ 135,489 128 $ 291 $ 57,175 (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. 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, 2020 and December 31, 2019. Changes in interest rates subsequent to September 30, 2020 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 on our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2020. The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2020 and December 31, 2019: Total Level 1 Level 2 Level 3 September 30, 2020 U.S. government and agency securities $ 123,130 $ — $ 123,130 $ — Foreign government 1,869 — 1,869 — States, municipalities and political subdivisions 162,681 — 162,681 — Public utilities 41,955 — 41,955 — Corporate securities 347,666 — 347,666 — Mortgage-backed securities 279,417 — 279,417 — Asset-backed securities 63,351 — 63,351 — Redeemable preferred stocks 6,369 1,587 4,782 — Total fixed maturities 1,026,438 1,587 1,024,851 — Mutual funds 7,945 7,945 — — Other common stocks 20,343 20,343 — — Non-redeemable preferred stocks 8,182 8,182 — — Total equity securities 36,470 36,470 — — Other investments (1) 28,100 300 27,800 — Total investments $ 1,091,008 $ 38,357 $ 1,052,651 $ — December 31, 2019 U.S. government and agency securities $ 120,816 $ — $ 120,816 $ — Foreign government 4,071 — 4,071 — States, municipalities and political subdivisions 133,751 — 133,751 — Public utilities 25,334 — 25,334 — Corporate securities 288,872 — 288,872 — Mortgage-backed securities 251,903 — 251,903 — Asset-backed securities 57,129 — 57,129 — Redeemable preferred stocks 2,985 747 2,238 — Total fixed maturities 884,861 747 884,114 — Mutual Funds 65,453 65,453 — — Public utilities 3,663 3,663 — — Other common stocks 44,492 44,492 — — Non-redeemable preferred stocks 3,002 3,002 — — Total equity securities 116,610 116,610 — — Other investments (1) 499 300 199 — Total investments $ 1,001,970 $ 117,657 $ 884,313 $ — (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, 2020 and December 31, 2019, 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, Truist Financial Corporation (Truist) (formerly known as Branch Banking & Trust Corporation or 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, 2020, 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 We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Condensed Consolidated Balance Sheets, and we currently account for these investments at fair value utilizing a net asset value per share equivalent methodology. The information presented in the table below is as of September 30, 2020: Book Value Unrealized Gain Unrealized Loss Fair Value Limited partnership investments (1) $ 9,510 $ 1,088 $ 327 $ 10,271 Certificates of deposit 300 — — 300 Short-term investments 27,801 — 1 27,800 Total other investments $ 37,611 $ 1,088 $ 328 $ 38,371 (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 use trust funds in certain reinsurance transactions. The following table presents the components of restricted assets: September 30, 2020 December 31, 2019 Trust funds $ 52,301 $ 70,668 Cash on deposit (regulatory deposits) 933 920 Total restricted cash $ 53,234 $ 71,588 |
