Investments | 5 - Investments The amortized cost and estimated fair values of our fixed maturities at June 30, 2018 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 $ 72,936 $ 40 $ 1,529 $ 71,447 Obligations of states and political subdivisions 149,759 8,092 795 157,056 Corporate securities 118,611 360 3,746 115,225 Mortgage-backed securities 44,516 51 762 43,805 Totals $ 385,822 $ 8,543 $ 6,832 $ 387,533 Amortized Gross Gross Estimated (in thousands) Available for Sale U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 44,748 $ 6 $ 1,394 $ 43,360 Obligations of states and political subdivisions 96,256 2,274 596 97,934 Corporate securities 121,776 165 2,916 119,025 Mortgage-backed securities 267,944 82 8,366 259,660 Totals $ 530,724 $ 2,527 $ 13,272 $ 519,979 At June 30, 2018, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $172.2 million and an amortized cost of $166.5 million. Our holdings at June 30, 2018 also included special revenue bonds with an aggregate fair value of $82.8 million and an amortized cost of $79.5 million. With respect to both categories of those bonds at June 30, 2018, 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 53% and 27%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2018. Many of the issuers of the special revenue bonds we held at June 30, 2018 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at June 30, 2018 are similar to general obligation bonds. The amortized cost and estimated fair values of our fixed maturities at December 31, 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 $ 71,736 $ 804 $ 547 $ 71,993 Obligations of states and political subdivisions 137,581 11,162 112 148,631 Corporate securities 108,025 2,860 731 110,154 Mortgage-backed securities 49,313 516 157 49,672 Totals $ 366,655 $ 15,342 $ 1,547 $ 380,450 Amortized Gross Gross Estimated (in thousands) Available for Sale U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 44,759 $ 20 $ 730 $ 44,049 Obligations of states and political subdivisions 128,478 3,942 303 132,117 Corporate securities 105,254 1,011 526 105,739 Mortgage-backed securities 259,923 445 3,327 257,041 Totals $ 538,414 $ 5,418 $ 4,886 $ 538,946 At December 31, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $190.7 million and an amortized cost of $181.4 million. Our holdings at December 31, 2017 also included special revenue bonds with an aggregate fair value of $90.0 million and an amortized cost of $84.7 million. With respect to both categories of those bonds at December 31, 2017, we held no securities of any issuer that comprised more than 10% of that category. Education bonds and water and sewer utility bonds represented 53% and 26%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2017. Many of the issuers of the special revenue bonds we held at December 31, 2017 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 reclassifications. 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 $575,107 and $604,812 in other comprehensive (loss) income during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, net unrealized losses of $9.3 million and $9.8 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, 2018 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 $ 8,764 $ 8,755 Due after one year through five years 70,693 70,905 Due after five years through ten years 129,890 129,018 Due after ten years 131,959 135,050 Mortgage-backed securities 44,516 43,805 Total held to maturity $ 385,822 $ 387,533 Available for sale Due in one year or less $ 52,789 $ 53,178 Due after one year through five years 86,597 85,532 Due after five years through ten years 105,649 103,585 Due after ten years 17,745 18,024 Mortgage-backed securities 267,944 259,660 Total available for sale $ 530,724 $ 519,979 The cost and estimated fair values of our equity securities at June 30, 2018 were as follows: Cost Gross Gross Estimated (in thousands) Equity securities $ 48,013 $ 7,107 $ 1,518 $ 53,602 The cost and estimated fair values of our equity securities at December 31, 2017 were as follows: Cost Gross Gross Estimated (in thousands) Equity securities $ 44,219 $ 6,505 $ 279 $ 50,445 Gross realized gains and losses from investments before applicable income taxes for the three and six months ended June 30, 2018 and 2017 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) (in thousands) Gross realized gains: Fixed maturities $ 12 $ 45 $ 12 $ 50 Equity securities 2,125 1,085 3,270 3,629 2,137 1,130 3,282 3,679 Gross realized losses: Fixed maturities 1 30 45 30 Equity securities 619 3 2,638 3 620 33 2,683 33 Net realized gains $ 1,517 $ 1,097 $ 599 $ 3,646 We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018. We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2018 as follows: Less Than 12 Months More Than 12 Months Fair Value Unrealized Fair Value Unrealized (in thousands) U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 65,937 $ 1,040 $ 37,132 $ 1,883 Obligations of states and political subdivisions 39,855 739 15,042 652 Corporate securities 166,767 4,644 31,547 2,018 Mortgage-backed securities 157,372 3,607 130,521 5,521 Totals $ 429,931 $ 10,030 $ 214,242 $ 10,074 We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2017 as follows: Less Than 12 Months More Than 12 Months Fair Value Unrealized Fair Value Unrealized (in thousands) U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 24,024 $ 287 $ 33,987 $ 990 Obligations of states and political subdivisions 10,223 120 14,127 295 Corporate securities 35,204 253 31,561 1,004 Mortgage-backed securities 100,534 817 124,062 2,667 Equity securities 4,292 279 — — Totals $ 174,277 $ 1,756 $ 203,737 $ 4,956 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 measure investments at fair value and, beginning January 1, 2018, we recognize changes in fair value in our results of operations. 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 523 debt securities that were in an unrealized loss position at June 30, 2018. 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 DFSC 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, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2018 and 2017 and for the three and six months then ended is unaudited. June 30, December 31, (in thousands) Balance sheets: Total assets $ 560,519 $ 567,935 Total liabilities $ 478,652 $ 487,604 Stockholders’ equity 81,867 80,331 Total liabilities and stockholders’ equity $ 560,519 $ 567,935 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) (in thousands) Income statements: Net income $ 1,634 $ 802 $ 2,945 $ 1,285 |