| Investments | INVESTMENTS The following table details fixed-maturity available-for-sale securities, by major investment category, at June 30, 2021 and December 31, 2020: Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value June 30, 2021 U.S. government and agency securities $ 107,376 $ 679 $ 1,753 $ 106,302 Foreign government 1,369 113 — 1,482 States, municipalities and political subdivisions 109,928 1,140 797 110,271 Public utilities 28,942 306 576 28,672 Corporate securities 257,401 4,016 3,128 258,289 Mortgage-backed securities 263,400 1,994 3,005 262,389 Asset-backed securities 67,368 416 141 67,643 Redeemable preferred stocks 5,900 191 34 6,057 Total fixed maturities $ 841,684 $ 8,855 $ 9,434 $ 841,105 December 31, 2020 U.S. government and agency securities $ 129,417 $ 1,147 $ 139 $ 130,425 Foreign government 1,374 142 — 1,516 States, municipalities and political subdivisions 132,336 2,318 272 134,382 Public utilities 29,526 482 28 29,980 Corporate securities 285,814 6,633 118 292,329 Mortgage-backed securities 285,639 3,039 466 288,212 Asset-backed securities 56,351 525 219 56,657 Redeemable preferred stocks 6,257 266 13 6,510 Total fixed maturities $ 926,714 $ 14,552 $ 1,255 $ 940,011 Equity securities are summarized as follows: June 30, 2021 December 31, 2020 Estimated Fair Value Percent of Total Estimated Fair Value Percent of Total Mutual funds $ 15,565 49.9 % $ 152 2.0 % Other common stocks 8,949 28.7 — — Nonredeemable preferred stocks 6,662 21.4 7,293 98.0 Total equity securities $ 31,176 100.0 % $ 7,445 100.0 % 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 six-months ended June 30, 2021 and 2020, respectively: 2021 2020 Gains Fair Value at Sale Gains Fair Value at Sale Three Months Ended June 30, Fixed maturities $ 107 $ 55,065 $ 372 $ 33,231 Equity securities — — 814 3,691 Short-term investments — 7,774 — 36 Total realized gains 107 62,839 1,186 36,958 Fixed maturities (212) 7,195 (57) 2,221 Equity securities (16) 425 (1,070) 2,417 Short-term investments (3) 1,998 — — Total realized losses (231) 9,618 (1,127) 4,638 Net realized investment gains (losses) $ (124) $ 72,457 $ 59 $ 41,596 Six Months Ended June 30, Fixed maturities $ 719 $ 111,202 $ 717 $ 92,456 Equity securities 2 23 826 3,971 Short-term investments — 14,830 — 71 Total realized gains 721 126,055 1,543 96,498 Fixed maturities (308) 31,621 (394) 6,739 Equity securities (18) 519 (1,158) 3,370 Short-term investments (16) 7,984 — 128 Total realized losses (342) 40,124 (1,552) 10,237 Net realized investment gains (losses) $ 379 $ 166,179 $ (9) $ 106,735 The table below summarizes our fixed maturities at June 30, 2021 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, 2021 Cost or Amortized Cost Percent of Total Fair Value Percent of Total Due in one year or less $ 63,491 7.5 % $ 64,002 7.6 % Due after one year through five years 182,777 21.8 185,649 22.1 Due after five years through ten years 252,060 29.9 249,137 29.6 Due after ten years 12,588 1.5 12,285 1.5 Asset and mortgage-backed securities 330,768 39.3 330,032 39.2 Total $ 841,684 100.0 % $ 841,105 100.0 % The following table summarizes our net investment income by major investment category: Three Months Ended Six Months Ended 2021 2020 2021 2020 Fixed maturities $ 3,333 $ 5,592 $ 7,022 $ 11,062 Equity securities 199 728 328 1,499 Cash and cash equivalents 39 66 97 737 Other investments 295 (311) 285 (45) Other assets 71 93 112 102 Investment income 3,937 6,168 7,844 13,355 Investment expenses (254) (261) (578) (531) Net investment income $ 3,683 $ 5,907 $ 7,266 $ 12,824 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 six-months ended June 30, 2021, 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 June 30, 2021. 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 June 30, 2021 U.S. government and agency securities 51 $ 1,750 $ 31,218 11 $ 3 $ 5,774 States, municipalities and political subdivisions 2 797 6,502 — — — Public utilities 17 576 20,820 — — — Corporate securities 165 3,114 149,532 3 14 843 Mortgage-backed securities 227 2,996 271,163 6 9 369 Asset-backed securities 39 76 23,923 4 65 1,813 Redeemable preferred stocks 10 30 685 1 4 95 Total fixed maturities 511 $ 9,339 $ 503,843 25 $ 95 $ 8,894 December 31, 2020 U.S. government and agency securities 44 $ 129 $ 40,341 18 $ 10 $ 10,482 States, municipalities and political subdivisions 22 272 30,538 — — — Public utilities 8 28 9,472 — — — Corporate securities 40 116 25,052 3 2 753 Mortgage-backed securities 87 397 100,171 8 69 3,479 Asset-backed securities 21 207 17,682 1 12 988 Redeemable preferred stocks 5 13 358 — — — Total fixed maturities 227 $ 1,162 $ 223,614 30 $ 93 $ 15,702 (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 June 30, 2021 and December 31, 2020. Changes in interest rates subsequent to June 30, 2021 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 June 30, 2021. The following table presents the fair value of our financial instruments measured on a recurring basis by level at June 30, 2021 and December 31, 2020: Total Level 1 Level 2 Level 3 June 30, 2021 U.S. government and agency securities $ 106,302 $ — $ 106,302 $ — Foreign government 1,482 — 1,482 — States, municipalities and political subdivisions 110,271 — 110,271 — Public utilities 28,672 — 28,672 — Corporate securities 258,289 — 258,289 — Mortgage-backed securities 262,389 — 262,389 — Asset-backed securities 67,643 — 67,643 — Redeemable preferred stocks 6,057 1,514 4,543 — Total fixed maturities 841,105 1,514 839,591 — Mutual funds 15,565 13,296 2,269 — Other common stocks 8,949 8,949 — — Non-redeemable preferred stocks 6,662 6,662 — — Total equity securities 31,176 28,907 2,269 — Other investments (1) 15,407 300 15,107 — Total investments $ 887,688 $ 30,721 $ 856,967 $ — December 31, 2020 U.S. government and agency securities $ 130,425 $ — $ 130,425 $ — Foreign government 1,516 — 1,516 — States, municipalities and political subdivisions 134,382 — 134,382 — Public utilities 29,980 — 29,980 — Corporate securities 292,329 — 292,329 — Mortgage-backed securities 288,212 — 288,212 — Asset-backed securities 56,657 — 56,657 — Redeemable preferred stocks 6,510 1,554 4,956 — Total fixed maturities 940,011 1,554 938,457 — Mutual Funds 152 152 — — Non-redeemable preferred stocks 7,293 7,293 — — Total equity securities 7,445 7,445 — — Other investments (1) 38,002 300 37,702 — Total investments $ 985,458 $ 9,299 $ 976,159 $ — (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. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). There were no financial instruments measured on a non-recurring basis at June 30, 2021 and December 31, 2020. The carrying amounts for the following financial instrument categories approximate their fair values at June 30, 2021 and December 31, 2020, 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 June 30, 2021, 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 these investments are currently being accounted for at fair value utilizing a net asset value per share equivalent methodology. The information presented in the table below is as of June 30, 2021: Book Value Unrealized Gain Unrealized Loss Fair Value Limited partnership investments (1) $ 14,338 $ 805 $ 36 $ 15,107 Certificates of deposit 300 — — 300 Short-term investments 44,672 — 1 44,671 Total other investments $ 59,310 $ 805 $ 37 $ 60,078 (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 few months to seven 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: June 30, 2021 December 31, 2020 Trust funds $ 41,751 $ 61,142 Cash on deposit (regulatory deposits) 1,040 936 Total restricted cash $ 42,791 $ 62,078 In addition to the cash held on deposit described above, we also have securities on deposit with regulators, which are presented within our Fixed Maturities or Other Investments lines on the Unaudited Condensed Balance Sheets, dependent upon if they are short-term or long-term in nature. The table below shows the carrying value of those securities held on deposit with regulators. June 30, 2021 December 31, 2020 Invested assets on deposit (regulatory deposits) $ 4,015 $ 4,023 |
