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Investments
12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments
4. Investments

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities (in thousands):
December 31, 2017
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair
Value
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and government agencies
 
$
15,283

 
$
470

 
$
(31
)
 
$
15,722

States, municipalities and political subdivisions
 
377,549

 
18,953

 
(1,052
)
 
395,450

Foreign government
 
6,331

 

 
(333
)
 
5,998

Residential mortgage-backed securities
 
101,974

 
4,185

 
(1,264
)
 
104,895

Commercial mortgage-backed securities
 
30,152

 
269

 
(16
)
 
30,405

Asset-backed securities
 
145,479

 
2,610

 
(163
)
 
147,926

Corporate and other
 
589,803

 
51,891

 
(1,464
)
 
640,230

Total fixed maturity securities
 
$
1,266,571

 
$
78,378

 
$
(4,323
)
 
$
1,340,626

Equity securities
 
 
 
 
 
 
 
 
Common stocks
 
$
4,938

 
$
116

 
$
(126
)
 
$
4,928

Perpetual preferred stocks
 
40,902

 
1,735

 
(65
)
 
42,572

Total equity securities
 
$
45,840

 
$
1,851

 
$
(191
)
 
$
47,500

December 31, 2016
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair
Value
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and government agencies
 
$
15,910

 
$
135

 
$
(95
)
 
$
15,950

States, municipalities and political subdivisions
 
374,527

 
4,408

 
(3,858
)
 
375,077

Foreign government
 
6,380

 

 
(402
)
 
5,978

Residential mortgage-backed securities
 
136,126

 
2,634

 
(564
)
 
138,196

Commercial mortgage-backed securities
 
48,715

 
427

 
(89
)
 
49,053

Asset-backed securities
 
76,303

 
1,934

 
(572
)
 
77,665

Corporate and other
 
600,458

 
23,635

 
(7,054
)
 
617,039

Total fixed maturity securities
 
$
1,258,419

 
$
33,173

 
$
(12,634
)
 
$
1,278,958

Equity securities
 
 
 
 
 
 
 
 
Common stocks
 
$
16,236

 
$

 
$
(1,371
)
 
$
14,865

Perpetual preferred stocks
 
37,041

 
191

 
(578
)
 
36,654

Total equity securities
 
$
53,277

 
$
191

 
$
(1,949
)
 
$
51,519



The Company has investments in mortgage-backed securities ("MBS") that contain embedded derivatives (primarily interest-only MBS) that do not qualify for hedge accounting. The Company recorded the change in the fair value of these securities within Net realized gains (losses) on investments. These investments had a fair value of $12.3 million, $15.2 million, and $21.0 million as of December 31, 2017, 2016, and 2015 respectively. The change in fair value related to these securities resulted in a gain of $0.9 million, a loss of $1.2 million, and a loss of $0.3 million for the years ended December 31, 2017, 2016, and 2015 respectively.

Maturities of Fixed Maturity Securities Available-for-Sale

The amortized cost and fair value of fixed maturity securities available-for-sale as of December 31, 2017 are shown by contractual maturity in the table below (in thousands). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date:
 
 
Amortized Cost
 
Fair
 Value
Corporate, Municipal, U.S. Government and Other securities
 
 
 
 
Due in one year or less
 
$
19,306

 
$
19,017

Due after one year through five years
 
103,803

 
106,178

Due after five years through ten years
 
153,927

 
159,615

Due after ten years
 
711,930

 
772,590

Subtotal
 
988,966

 
1,057,400

Mortgage-backed securities
 
132,126

 
135,300

Asset-backed securities
 
145,479

 
147,926

Total
 
$
1,266,571

 
$
1,340,626



Corporate and Other Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate and other fixed maturity securities (in thousands):
 
 
December 31, 2017
 
December 31, 2016
 
 
Amortized Cost
 
Fair
Value
 
% of
Total
 
Amortized Cost
 
Fair
Value
 
% of
Total
Finance, insurance, and real estate
 
$
191,234

 
$
203,735

 
31.8
%
 
$
214,911

 
$
211,834

 
34.3
%
Transportation, communication and other services
 
186,114

 
201,802

 
31.5
%
 
180,647

 
189,163

 
30.7
%
Manufacturing
 
100,942

 
111,391

 
17.4
%
 
112,644

 
118,440

 
19.2
%
Other
 
111,513

 
123,302

 
19.3
%
 
92,256

 
97,602

 
15.8
%
Total
 
$
589,803

 
$
640,230

 
100.0
%
 
$
600,458

 
$
617,039

 
100.0
%


Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities

A portion of certain other-than-temporary impairment ("OTTI") losses on fixed maturity securities is recognized in AOCI. For these securities the net amount, which is recognized in the Consolidated Statements of Operations in the below line items, represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The Company recorded the following (in thousands):
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Net realized gains (losses) on investments
 
$

 
$
163

 
$

Other expenses, net
 
6,550

 
2,451

 

Total Other-Than-Temporary Impairments
 
$
6,550

 
$
2,614

 
$



Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total unrealized losses for the 126, 269, and 528 fixed maturity and equity securities held by the Company as of December 31, 2017, 2016, and 2015, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (in thousands):
 
 
December 31, 2017
 
December 31, 2016
 
December 31, 2015
 
 
Unrealized Losses
 
% of
Total
 
Unrealized Losses
 
% of
Total
 
Unrealized Losses
 
% of
Total
Fixed maturity and equity securities
 
 
 
 
 
 
 
 
 
 
 
 
Less than 20%
 
$
(4,230
)
 
93.7
%
 
$
(10,069
)
 
69.0
%
 
$
(5,667
)
 
52.2
%
20% or more for less than six months
 
(174
)
 
3.9
%
 
(482
)
 
3.3
%
 

 
%
20% or more for six months or greater
 
(110
)
 
2.4
%
 
(4,032
)
 
27.7
%
 
(5,198
)
 
47.8
%
Total
 
$
(4,514
)
 
100.0
%
 
$
(14,583
)
 
100.0
%
 
$
(10,865
)
 
100.0
%


The determination of whether unrealized losses are "other-than-temporary" requires judgment based on subjective as well as objective factors. Factors considered and resources used by management include (i) whether the unrealized loss is credit-driven or a result of changes in market interest rates, (ii) the extent to which fair value is less than cost basis, (iii) cash flow projections received from independent sources, (iv) historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases, (v) near-term prospects for improvement in the issuer and/or its industry, (vi) third party research and communications with industry specialists, (vii) financial models and forecasts, (viii) the continuity of dividend payments, maintenance of investment grade ratings and hybrid nature of certain investments, (ix) discussions with issuer management, and (x) ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value.

The Company analyzes its MBS for OTTI each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan-to-collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data.

The Company believes it will recover its cost basis in the non-impaired securities with unrealized losses and that the Company has the ability to hold the securities until they recover in value. The Company neither intends to sell nor does it expect to be required to sell the securities with unrealized losses as of December 31, 2017. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines.

The following tables present the estimated fair values and gross unrealized losses for the 126, 269, and 528 fixed maturity and equity securities held by the Company that have estimated fair values below amortized cost as of each of December 31, 2017, 2016, and 2015, respectively. The Company does not have any OTTI losses reported in AOCI. These investments are presented by investment category and the length of time the related fair value has remained below amortized cost (in thousands):
December 31, 2017
 
Less than 12 months
 
12 months of greater
 
Total
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
 
$
5,044

 
$
(17
)
 
$
2,199

 
$
(14
)
 
$
7,243

 
$
(31
)
States, municipalities and political subdivisions
 
32,939

 
(834
)
 
10,757

 
(218
)
 
43,696

 
(1,052
)
Foreign government
 

 

 
5,999

 
(333
)
 
5,999

 
(333
)
Residential mortgage-backed securities
 
5,139

 
(546
)
 
16,150

 
(718
)
 
21,289

 
(1,264
)
Commercial mortgage-backed securities
 
5,053

 
(12
)
 
1,003

 
(4
)
 
6,056

 
(16
)
Asset-backed securities
 
19,771

 
(64
)
 
3,963

 
(99
)
 
23,734

 
(163
)
Corporate and other
 
18,478

 
(824
)
 
19,433

 
(640
)
 
37,911

 
(1,464
)
Total fixed maturity securities
 
$
86,424

 
$
(2,297
)
 
$
59,504

 
$
(2,026
)
 
$
145,928

 
$
(4,323
)
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
 
$
1,057

 
$
(126
)
 
$

 
$

 
$
1,057

 
$
(126
)
Perpetual preferred stocks
 
1,614

 
(13
)
 
1,048

 
(52
)
 
2,662

 
(65
)
Total equity securities
 
$
2,671

 
$
(139
)
 
$
1,048

 
$
(52
)
 
$
3,719

 
$
(191
)
December 31, 2016
 
Less than 12 months
 
12 months of greater
 
Total
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
 
$
4,392

 
$
(95
)
 
$

 
$

 
$
4,392

 
$
(95
)
States, municipalities and political subdivisions
 
207,740

 
(3,858
)
 

 

 
207,740

 
(3,858
)
Foreign government
 
5,978

 
(402
)
 

 

 
5,978

 
(402
)
Residential mortgage-backed securities
 
54,385

 
(564
)
 

 

 
54,385

 
(564
)
Commercial mortgage-backed securities
 
13,159

 
(89
)
 

 

 
13,159

 
(89
)
Asset-backed securities
 
12,443

 
(572
)
 

 

 
12,443

 
(572
)
Corporate and other
 
147,653

 
(3,022
)
 
3,579

 
(4,032
)
 
151,232

 
(7,054
)
Total fixed maturity securities
 
$
445,750

 
$
(8,602
)
 
$
3,579

 
$
(4,032
)
 
$
449,329

 
$
(12,634
)
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
 
$
14,585

 
$
(1,371
)
 
$

 
$

 
$
14,585

 
$
(1,371
)
Perpetual preferred stocks
 
20,464

 
(578
)
 

 

 
20,464

 
(578
)
Total equity securities
 
$
35,049

 
$
(1,949
)
 
$

 
$

 
$
35,049

 
$
(1,949
)


December 31, 2015
 
Less than 12 months
 
12 months of greater
 
Total
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
 
$
15,409

 
$
(49
)
 
$

 
$

 
$
15,409

 
$
(49
)
States, municipalities and political subdivisions
 
294,105

 
(1,227
)
 

 

 
294,105

 
(1,227
)
Residential mortgage-backed securities
 
77,695

 
(588
)
 

 

 
77,695

 
(588
)
Commercial mortgage-backed securities
 
44,618

 
(96
)
 

 

 
44,618

 
(96
)
Asset-backed securities
 
22,550

 
(51
)
 

 

 
22,550

 
(51
)
Corporate and other
 
466,293

 
(7,537
)
 

 

 
466,293

 
(7,537
)
Total fixed maturity securities
 
$
920,670


$
(9,548
)

$


$


$
920,670


$
(9,548
)
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
 
$
13,657

 
$
(1,311
)
 
$

 
$

 
$
13,657

 
$
(1,311
)
Perpetual preferred stocks
 
7,378

 
(6
)
 

 

 
7,378

 
(6
)
Total equity securities
 
$
21,035


$
(1,317
)

$


$


$
21,035


$
(1,317
)


As of December 31, 2017, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 7.3% of the gross unrealized loss and 10.4% of the fair value. As of December 31, 2016, investment grade fixed maturity securities represented approximately 54.5% of the gross unrealized loss and 83.0% of the fair value. As of December 31, 2015, investment grade fixed maturity securities represented approximately 33.2% of the gross unrealized loss and 88.3% of the fair value.

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

Other Invested Assets

Carrying values of other invested assets accounted for under cost and equity method are as follows (in thousands):
 
 
December 31, 2017
 
December 31, 2016
 
 
Cost
Method
 
Equity Method
 
Fair Value
 
Cost
Method
 
Equity Method
 
Fair
Value
Common Equity
 
$

 
$
1,484

 
$

 
$
138

 
$
1,047

 
$

Preferred Equity
 
2,484

 
14,197

 

 
2,484

 
9,971

 

Derivatives
 
422

 

 
260

 
3,097

 

 
3,813

Limited Partnerships
 

 

 

 

 
1,116

 

Joint Ventures
 

 
66,572

 

 

 
40,697

 

Total
 
$
2,906

 
$
82,253

 
$
260

 
$
5,719

 
$
52,831

 
$
3,813



Summarized financial information for equity method investees not consolidated for the years ended December 31, 2017, 2016, and 2015 is as follows (information for two of the investees is reported on a one month lag, in thousands):
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Net revenue
 
$
481,528

 
$
558,180

 
$
502,122

Gross profit
 
$
122,103

 
$
164,853

 
$
103,236

Income (loss) from continuing operations
 
$
7,597

 
$
51,690

 
$
(18,743
)
Net income (loss)
 
$
(17,530
)
 
$
(11,123
)
 
$
(36,873
)
 
 
 
 
 
 
 
Current assets
 
$
357,329

 
$
285,466

 
$
256,372

Noncurrent assets
 
$
188,319

 
$
278,766

 
$
219,434

Current liabilities
 
$
227,229

 
$
184,068

 
$
169,002

Noncurrent liabilities
 
$
161,014

 
$
131,587

 
$
132,934



Net Investment Income

The major sources of net investment income were as follows (in thousands):
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Fixed maturity securities, available-for-sale at fair value
 
$
59,403

 
$
54,685

 
$
964

Equity securities, available-for-sale at fair value
 
2,620

 
2,263

 
93

Mortgage loans
 
2,474

 
491

 

Policy loans
 
1,150

 
1,173

 
18

Other invested assets
 
628

 
321

 

Gross investment income
 
66,275

 
58,933

 
1,075

External investment expense
 
(205
)
 
(901
)
 
(44
)
Net investment income
 
$
66,070

 
$
58,032

 
$
1,031



Net Realized and Unrealized Gains (Losses) on Investments

The major sources of net realized gains (losses) on investments were as follows (in thousands):
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Realized gains on fixed maturity securities
 
$
4,393

 
$
4,868

 
$
256

Realized losses on fixed maturity securities
 
(1,045
)
 
(2,367
)
 

Realized gains on equity securities
 
(566
)
 
4,525

 

Realized losses on equity securities
 
981

 
(352
)
 

Net unrealized and realized gains (losses) on derivative instruments
 
1,220

 
(1,492
)
 

Impairment loss
 

 
(163
)
 

Net realized gains (losses)
 
$
4,983

 
$
5,019

 
$
256