(5) Investments

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company's intent and ability are to hold the investment until maturity and are carried at amortized cost without consideration to unrealized gains or losses. Investments classified as trading securities include debt and equity securities bought and held primarily for sale in the near term and are carried at fair value with unrealized holding gains and losses included in current period operations. Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments and are carried at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders' equity, namely "Other Comprehensive Income."

Total investments increased $71.4 million, or 32.3%, to $292.1 million as of June 30, 2014, compared with $220.7 million as of December 31, 2013. The change is due primarily to our homeowners' gross written premium, which increased by $70.3 million, or 68.7%, to $172.6 million for the six months ended June 30, 2014, compared with $102.3 million for the six months ended June 30, 2013. The increased homeowners' gross written premium generated additional cash available for investment, of which approximately $59.0 million was transferred to the investment accounts during the six months ended June 30, 2014.

The debt and equity securities that are available-for-sale and carried at fair value represent 97% of total investments as of June 30, 2014 and December 31, 2013.

We did not hold any trading investment securities during the six months ended June 30, 2014.

The FASB issued guidance also addresses the determination as to when an investment is considered impaired, whether that impairment is other-than temporary, and the measurement of an impairment loss. The Company's policy for the valuation of temporarily impaired securities is to determine impairment based on the analysis of the following factors.

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rating downgrade or other credit event (eg., failure to pay interest when due);

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length of time and the extent to which the fair value has been less than amortized cost;

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financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology or discontinuance of a business segment;

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prospects for the issuer's industry segment;

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intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value;

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historical volatility of the fair value of the security.

Pursuant to FASB issued guidance, the Company records the unrealized losses, net of estimated income taxes that are associated with that part of our portfolio classified as available-for-sale through the shareholders' equity account titled "Other Comprehensive Income". Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost either is other -than temporarily or permanently impaired. Factors used in such consideration include, but are not limited to, the extent and length of time over which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our ability and intent to keep the investment for a period sufficient to allow for an anticipated recovery in market value.

In reaching a conclusion that a security is either other-than-temporarily or permanently impaired we consider such factors as the timeliness and completeness of expected dividends, principal and interest payments, ratings from nationally recognized statistical rating organizations such as Standard and Poor's ("S&P") and Moody's Investors Service, Inc. ("Moody's"), as well as information released via the general media channels. During the six months ended June 30, 2014 and 2013, respectively, in connection with the process, we have not charged operations with investment losses.

As of June 30, 2014 and December 31, 2013, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of June 30, 2014 and December 31, 2013, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of June 30, 2014, 81% of our debt portfolio was in diverse industries and 19% was in United States government bonds. As of June 30, 2014, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds. As of December 31, 2013, 83% of our debt portfolio was in diverse industries and 17% was in United States government bonds. As of December 31, 2013, approximately 91% of our equity holdings were in equities related to diverse industries and 9% were in mutual funds.

As of June 30, 2014 and December 31, 2013, we have classified $7.5 million and $7.2 million, respectively, of our bond portfolio as held-to-maturity. We classify bonds as held-to-maturity to support securitization of credit requirements.

During the six months ended June 30, 2014 and 2013, respectively, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity.

(A) Debt and Equity Securities

The following table summarizes, by type, our investments as of June 30, 2014 and December 31, 2013.

	June 30, 2014					December 31, 2013
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
			(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	43,823		15.00	%	$	27,209		12.33	%
Obligations of states and political subdivisions		78,100		26.74	%		52,064		23.59	%
Corporate		115,187		39.44	%		91,941		41.66	%
International		10,837		3.71	%		3,698		1.68	%
		247,947		84.89	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,257		1.46	%		4,630		2.10	%
Corporate		2,979		1.02	%		2,475		1.12	%
International		262		0.09	%		109		0.05	%
		7,498		2.57	%		7,214		3.27	%
Total debt securities		255,445		87.46	%		182,126		82.53	%

Equity securities, at market:		36,630		12.54	%		38,584		17.47	%
Total investments	$	292,075		100.00	%	$	220,710		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended June 30, 2014 and 2013.

	Three Months Ended June 30,
	2014					2013
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
				(Dollars in Thousands)
Debt securities	$	157		$	12,576	$	260		$	8,134
Equity securities		1,949			6,138		973			3,365
Total realized gains		2,106			18,714		1,233			11,499
Debt securities		(28	)		3,007		(91	)		6,555
Equity securities		(22	)		183		(255	)		955
Total realized losses		(50	)		3,190		(346	)		7,510
Net realized gains on investments	$	2,056		$	21,904	$	887		$	19,009

Net realized investment gains totaled $2.1 million for the three months ended June 30, 2014, compared with $0.9 million during the three months ended June 30, 2013. During the three months ended June 30, 2014, the investment committee decided to increase the fixed income asset allocation by directing new invested dollars and reducing our exposure to equities.

The following table shows the realized gains (losses) for debt and equity securities for the six months ended June 30, 2014 and 2013.

	Six Months Ended June 30,
	2014					2013
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
				(Dollars in Thousands)
Debt securities	$	292		$	22,244	$	1,393		$	30,735
Equity securities		3,560			10,953		1,162			4,444
Total realized gains		3,852			33,197		2,555			35,179
Debt securities		(98	)		6,706		(500	)		23,031
Equity securities		(366	)		1,521		(355	)		1,578
Total realized losses		(464	)		8,227		(855	)		24,609
Net realized gains on investments	$	3,388		$	41,424	$	1,700		$	59,788

Net realized investment gains totaled $3.4 million for the six months ended June 30, 2014, compared with $1.7 million during the six months ended June 30, 2013. During the six months ended June 30, 2014, the investment committee decided to increase the fixed income asset allocation by directing new invested dollars and reducing our exposure to equities.

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at June 30, 2014 and December 31, 2013 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
			(Dollars in Thousands)
June 30, 2014
Debt Securities - Available-For-Sale:
United States government obligations and authorities	$	43,322	$	591	$	90	$	43,823
Obligations of states and political subdivisions		77,191		937		28		78,100
Corporate		113,018		2,275		106		115,187
International		10,755		91		9		10,837
	$	244,286	$	3,894	$	233	$	247,947
Debt Securities - Held-To-Maturity:
United States government obligations and authorities	$	4,257	$	36	$	176	$	4,117
Corporate		2,979		53		1		3,031
International		262		2		1		263
	$	7,498	$	91	$	178	$	7,411
Equity securities - common stocks	$	28,487	$	8,407	$	264	$	36,630

December 31, 2013
Debt Securities - Available-For-Sale:
United States government obligations and authorities	$	27,422	$	186	$	399	$	27,209
Obligations of states and political subdivisions		51,883		303		122		52,064
Corporate		91,475		1,233		767		91,941
International		3,731		5		38		3,698
	$	174,511	$	1,727	$	1,326	$	174,912
Debt Securities - Held-To-Maturity:
United States government obligations and authorities	$	4,630	$	32	$	326	$	4,336
Corporate		2,475		22		17		2,480
International		109		-		1		108
	$	7,214	$	54	$	344	$	6,924
Equity securities - common stocks	$	29,423	$	9,436	$	275	$	38,584

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of June 30, 2014.

	Unrealized Losses		Less than 12 months		12 months or longer
			(Dollars in Thousands)
Debt securities:

United States government obligations and authorities	$	90	$	1	$	89
Obligations of states and political subdivisions		28		12		16
Corporate		106		23		83
International		9		9		-
		233		45		188
Equity securities:
Common stocks		264		254		10
Total debt and equity securities	$	497	$	299	$	198

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of December 31, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
			(Dollars in Thousands)
Debt securities:

United States government obligations and authorities	$	399	$	391	$	8
Obligations of states and political subdivisions		122		122		-
Corporate		767		761		6
International		38		38		-
		1,326		1,312		14
Equity securities:
Common stocks		275		148		127
Total debt and equity securities	$	1,601	$	1,460	$	141

Below is a summary of debt securities at June 30, 2014 and December 31, 2013, by contractual or expected maturity periods. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2014				December 31, 2013
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
			(Dollars in Thousands)
Due in one year or less	$	14,999	$	15,060	$	5,161	$	5,181
Due after one through five years		153,641		155,455		113,027		113,561
Due after five through ten years		83,118		84,810		62,656		62,220
Due after ten years		26		33		881		874
Total	$	251,784	$	255,358	$	181,725	$	181,836

United States Treasury notes with a book value of $61,984 and $2,214,639, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of June 30, 2014, as required by law for FNIC, and are included with other investments held until maturity.

United States Treasury notes with a book value of $62,490 and $2,193,814, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2013, as required by law for FNIC, and are included with other investments held until maturity.

The table below sets forth investment results for the three months ended June 30, 2014 and 2013.

	Three Months Ended June 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	1,209	$	654
Dividends on equity securities		92		132
Interest on cash and cash equivalents		1		2
Total investment income	$	1,302	$	788
Net realized gains	$	2,056	$	887

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended June 30, 2014 and 2013, were approximately $23.1 million and $20.2 million, respectively.

The table below sets forth investment results for the six months ended June 30, 2014 and 2013.

	Six Months Ended June 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	2,104	$	1,369
Dividends on equity securities		203		211
Interest on cash and cash equivalents		1		2
Total investment income	$	2,308	$	1,582
Net realized gains	$	3,388	$	1,700

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the six months ended June 30, 2014 and 2013, were approximately $44.1 million and $64.4 million, respectively.

The table below sets forth a summary of net realized investment gains during the three months ended June 30, 2014 and 2013.

	Three Months Ended June 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains
Debt securities	$	129	$	169
Equity securities		1,927		718
Total	$	2,056	$	887

The table below sets forth a summary of net realized investment gains during the six months ended June 30, 2014 and 2013.

	Six Months Ended June 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains
Debt securities	$	194	$	893
Equity securities		3,194		807
Total	$	3,388	$	1,700

The table below sets forth a summary of net unrealized investment gains as of June 30, 2014 and December 31, 2013.

	Unrealized Gains
	June 30, 2014		December 31, 2013
	(Dollars in Thousands)

Net unrealized gains
Debt securities	$	3,661	$	401
Equity securities		8,143		9,161

Total	$	11,804	$	9,562