Investments | 5 - Investments The amortized cost and estimated fair values of our fixed maturities and equity securities at June 30, 2017 were as follows: Amortized Gross Gross Estimated (in thousands) Held to Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 65,104 $ 1,454 $ 497 $ 66,061 Obligations of states and political subdivisions 133,149 10,574 195 143,528 Corporate securities 103,305 2,338 1,287 104,356 Mortgage-backed securities 54,749 804 83 55,470 Totals $ 356,307 $ 15,170 $ 2,062 $ 369,415 Amortized Gross Gross Estimated (in thousands) Available for Sale U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 39,186 $ 85 $ 437 $ 38,834 Obligations of states and political subdivisions 157,048 5,582 204 162,426 Corporate securities 93,225 1,060 442 93,843 Mortgage-backed securities 217,734 744 2,272 216,206 Fixed maturities 507,193 7,471 3,355 511,309 Equity securities 42,163 4,875 722 46,316 Totals $ 549,356 $ 12,346 $ 4,077 $ 557,625 At June 30, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $209.9 million and an amortized cost of $199.7 million. Our holdings at June 30, 2017 also included special revenue bonds with an aggregate fair value of $96.1 million and an amortized cost of $90.5 million. With respect to both categories of those bonds at June 30, 2017, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 58% and 23%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2017. Many of the issuers of the special revenue bonds we held at June 30, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at June 30, 2017 were similar to general obligation bonds. The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2016 were as follows: Amortized Gross Gross Estimated (in thousands) Held to Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 61,382 $ 1,255 $ 674 $ 61,963 Obligations of states and political subdivisions 122,793 8,404 369 130,828 Corporate securities 91,555 1,172 1,678 91,049 Mortgage-backed securities 60,371 546 110 60,807 Totals $ 336,101 $ 11,377 $ 2,831 $ 344,647 Amortized Gross Gross Estimated (in thousands) Available for Sale U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 39,094 $ 100 $ 606 $ 38,588 Obligations of states and political subdivisions 179,889 6,637 443 186,083 Corporate securities 87,715 662 921 87,456 Mortgage-backed securities 204,931 637 2,620 202,948 Fixed maturities 511,629 8,036 4,590 515,075 Equity securities 42,432 4,788 132 47,088 Totals $ 554,061 $ 12,824 $ 4,722 $ 562,163 At December 31, 2016, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $220.1 million and an amortized cost of $211.0 million. Our holdings at December 31, 2016 also included special revenue bonds with an aggregate fair value of $96.8 million and an amortized cost of $91.7 million. With respect to both categories of those bonds at December 31, 2016, we held no securities of any issuer that comprised more than 10% of that category. Education bonds and water and sewer utility bonds represented 62% and 23%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2016. Many of the issuers of the special revenue bonds we held at December 31, 2016 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds. We made reclassifications from available for sale to held to maturity of certain fixed maturities at fair value on November 30, 2013. We segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities we reclassified from available for sale to held to maturity. We are amortizing this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of $604,812 and $694,613 in other comprehensive income during the six months ended June 30, 2017 and 2016, respectively. At June 30, 2017 and December 31, 2016, net unrealized losses of $10.4 million and $11.0 million, respectively, remained within accumulated other comprehensive loss. We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2017 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Estimated (in thousands) Held to maturity Due in one year or less $ 7,719 $ 7,727 Due after one year through five years 51,321 52,370 Due after five years through ten years 135,275 139,408 Due after ten years 107,243 114,440 Mortgage-backed securities 54,749 55,470 Total held to maturity $ 356,307 $ 369,415 Available for sale Due in one year or less $ 74,570 $ 76,005 Due after one year through five years 88,896 90,496 Due after five years through ten years 102,651 104,184 Due after ten years 23,342 24,418 Mortgage-backed securities 217,734 216,206 Total available for sale $ 507,193 $ 511,309 Gross realized gains and losses from investments before applicable income taxes for the three and six months ended June 30, 2017 and 2016 were as follows: Three Six Months Ended 2017 2016 2017 2016 (in thousands) (in thousands) Gross realized gains: Fixed maturities $ 45 $ 675 $ 50 $ 1,840 Equity securities 1,085 56 3,629 56 1,130 731 3,679 1,896 Gross realized losses: Fixed maturities 30 3 30 258 Equity securities 3 13 3 452 33 16 33 710 Net realized gains $ 1,097 $ 715 $ 3,646 $ 1,186 We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at June 30, 2017 as follows: Less Than 12 Months More Than 12 Months Fair Value Unrealized Fair Unrealized (in thousands) U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 41,087 $ 934 $ — $ — Obligations of states and political subdivisions 20,102 385 696 14 Corporate securities 48,822 1,195 6,051 534 Mortgage-backed securities 164,760 2,325 1,196 30 Equity securities 6,222 473 370 249 Totals $ 280,993 $ 5,312 $ 8,313 $ 827 We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2016 as follows: Less Than 12 Months More Than 12 Months Fair Value Unrealized Fair Unrealized (in thousands) U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 37,730 $ 1,280 $ — $ — Obligations of states and political subdivisions 40,739 802 710 9 Corporate securities 80,181 2,127 4,707 472 Mortgage-backed securities 168,772 2,728 417 3 Equity securities 5,421 132 — — Totals $ 332,843 $ 7,069 $ 5,834 $ 484 We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down the investment to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of an individual equity security investment to be other than temporary. We monitor all investments individually for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of our original cost and has been in such an unrealized loss position for more than six months. We held eight equity securities that were in an unrealized loss position at June 30, 2017. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 207 debt securities that were in an unrealized loss position at June 30, 2017. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary. We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method. We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments. Our investment in affiliate represents our 48.2% ownership interest in DFSC. We account for our investment in affiliate using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of DFSC’s earnings and losses as well as changes in the equity of DFSC due to unrealized gains and losses. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2017 and 2016 and for the three and six months then ended is unaudited. Balance sheets: June 30, December 31, (in thousands) Total assets $ 544,943 $ 535,590 Total liabilities $ 464,454 $ 457,101 Stockholders’ equity 80,489 78,489 Total liabilities and stockholders’ equity $ 544,943 $ 535,590 Three Six Income statements: 2017 2016 2017 2016 (in thousands) (in thousands) Net income $ 802 $ 634 $ 1,285 $ 707 |