3.Investments

The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, and equity securities, including interests in mutual funds, and other invested assets, were as follows for the periods indicated.


	As of December 31, 2016
					Gross Unrealized Losses (3)
	Cost or		Gross		Non-OTTI		OTTI		Estimated
	Amortized		Unrealized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Losses (4)		Value
U.S. Treasury securities	$	302	$	—	$	—	$	—	$	302
Obligations of states and political subdivisions		382,811		11,534		(3,912)		—		390,433
Residential mortgage-backed securities (1)		252,031		3,256		(2,656)		—		252,631
Commercial mortgage-backed securities		35,695		191		(432)		—		35,454
Other asset-backed securities		70,411		89		(90)		—		70,410
Corporate and other securities		401,413		7,070		(3,444)		—		405,039
Subtotal, fixed maturity securities		1,142,663		22,140		(10,534)		—		1,154,269
Equity securities (2)		92,326		15,504		(2,735)		—		105,095
Other invested assets (5)		21,142		—		—		—		21,142
Totals	$	1,256,131	$	37,644	$	(13,269)	$	—	$	1,280,506


	As of December 31, 2015
					Gross Unrealized Losses (3)
	Cost or		Gross		Non-OTTI		OTTI		Estimated
	Amortized		Unrealized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Losses (4)		Value
U.S. Treasury securities	$	1,805	$	—	$	(4)	$	—	$	1,801
Obligations of states and political subdivisions		377,188		21,160		(426)		—		397,922
Residential mortgage-backed securities (1)		237,896		5,188		(1,628)		—		241,456
Commercial mortgage-backed securities		28,851		30		(218)		—		28,663
Other asset-backed securities		24,037		39		(145)		—		23,931
Corporate and other securities		394,194		4,191		(10,521)		—		387,864
Subtotal, fixed maturity securities		1,063,971		30,608		(12,942)		—		1,081,637
Equity securities (2)		102,541		13,498		(5,835)		—		110,204
Other invested assets (5)		17,602		—		—		—		17,602
Totals	$	1,184,114	$	44,106	$	(18,777)	$	—	$	1,209,443

(1)

Residential mortgage‑backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).

(2)

Equity securities include interests in mutual funds held to fund the Company’s executive deferred compensation plan.

(3)

The Company’s investment portfolio included 343 and 514 securities in an unrealized loss position at December 31, 2016 and December 31, 2015, respectively.

(4)

Amounts in this column represent other‑than‑temporary impairment (“OTTI”) recognized in accumulated other comprehensive income.

(5)

Other invested assets are accounted for under the equity method which approximates fair value.

The amortized cost and the estimated fair value of fixed maturity securities, by maturity, are shown below for the period indicated. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	As of December 31, 2016
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	44,289	$	44,539
Due after one year through five years		429,323		440,328
Due after five years through ten years		301,211		300,043
Due after ten years through twenty years		6,677		7,529
Due after twenty years		3,025		3,335
Asset-backed securities		358,138		358,495
Totals	$	1,142,663	$	1,154,269

The gross realized gains and losses on sales of investments were as follows for the periods indicated.


	Year Ended December 31,
	2016		2015		2014
Gross realized gains
Fixed maturity securities	$	803	$	496	$	644
Equity securities		6,946		2,727		1,534
Gross realized losses
Fixed maturity securities		(1,242)		(3,315)		(1,651)
Equity securities		(948)		(377)		(330)
Net realized gains (losses) on investments	$	5,559	$	(469)	$	197

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including investments in fixed maturities and equity securities. Investment transactions have credit exposure to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying, trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.

The following tables as of December 31, 2016 and 2015 present the gross unrealized losses included in the Company’s investment portfolio and the fair value of those securities aggregated by investment category. The tables also present the length of time that they have been in a continuous unrealized loss position.


	As of December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	301	$	—	$	—	$	—	$	301	$	—
Obligations of states and political subdivisions		79,960		3,912		—		—		79,960		3,912
Residential mortgage-backed securities		182,265		2,476		4,595		180		186,860		2,656
Commercial mortgage-backed securities		15,521		432		—		—		15,521		432
Other asset-backed securities		31,869		90		—		—		31,869		90
Corporate and other securities		118,625		2,044		17,531		1,400		136,156		3,444
Subtotal, fixed maturity securities		428,541		8,954		22,126		1,580		450,667		10,534
Equity securities		6,364		315		14,841		2,420		21,205		2,735
Total temporarily impaired securities	$	434,905	$	9,269	$	36,967	$	4,000	$	471,872	$	13,269


	As of December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	1,801	$	4	$	—	$	—	$	1,801	$	4
Obligations of states and political subdivisions		34,837		342		4,777		84		39,614		426
Residential mortgage-backed securities		85,561		860		32,845		768		118,406		1,628
Commercial mortgage-backed securities		26,113		218		—		—		26,113		218
Other asset-backed securities		14,454		145		—		—		14,454		145
Corporate and other securities		173,493		5,528		33,522		4,993		207,015		10,521
Subtotal, fixed maturity securities		336,259		7,097		71,144		5,845		407,403		12,942
Equity securities		19,409		1,739		12,054		4,096		31,463		5,835
Total temporarily impaired securities	$	355,668	$	8,836	$	83,198	$	9,941	$	438,866	$	18,777

Other‑Than‑Temporary Impairments

ASC 320, Investments—Debt and Equity Securities requires entities to separate an OTTI of a debt security into two components when there are credit related losses associated with the impaired debt security for which the Company asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis. Under ASC 320, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded as a component of other comprehensive income (loss). In instances where no credit loss exists but it is more likely than not that the Company will have to sell the debt security prior to the anticipated recovery, the decline in market value below amortized cost is recognized as an OTTI in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. For debt securities for which OTTI was recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income.

The Company holds no subprime mortgage debt securities. All of the Company’s holdings in mortgage‑backed securities are either U.S. Government or Agency guaranteed or are rated investment grade by either Moody’s or Standard & Poor’s.

The unrealized losses in the Company’s fixed income and equity portfolio as of December 31, 2016 were reviewed for potential other-than-temporary asset impairments. The Company held five debt securities at December 31, 2016 with a material (20% or greater) unrealized loss for four or more consecutive quarters that additionally had certain qualitative factors that led to an impairment charge. As a result of our analysis, during the year ended December 31, 2016, the Company recognized OTTI of $798 which consisted entirely of credit losses related to fixed maturity securities. During the year ended December 31, 2015, the Company recognized $796 which consisted entirely of credit losses related to fixed maturity securities.

Specific qualitative analysis was also performed for any additional securities appearing on the Company’s “Watch List,” if any. Qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security.

The qualitative analysis performed by the Company concluded that outside of the securities that were recognized through OTTI, the unrealized losses recorded on the investment portfolio at December 31, 2016 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, decreases in fair values of the Company’s securities are viewed as being temporary.

The following table summarizes the credit loss recognized in earnings related to fixed maturity securities:


		Year Ended December 31,
		2016		2015
Credit losses on fixed maturity securities, beginning of period		$	796	$	-
	Add: credit losses on OTTI not previously recognized		798		796
	Less: credit losses on securities sold		(500)		-
	Less: credit losses on securities impaired due to intent to sell		-		-
	Add: credit losses on previously impaired securities		-		-
	Less: increases in cash flows expected on previously impaired securities		-		-
Credit losses on fixed maturity securities, end of period		$	1,094	$	796

At December 31, 2016 and December 31, 2015, there were no amounts included in accumulated other comprehensive income related to securities which were considered by the Company to be other‑than‑temporarily impaired.

Based upon the qualitative analysis performed, the Company’s decision to hold these securities, the Company’s current level of liquidity and its positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.

Net Investment Income

The components of net investment income were as follows for the periods indicated.


	Year Ended December 31,
	2016		2015		2014
Interest on fixed maturity securities	$	36,961	$	38,794	$	40,717
Dividends on equity securities		3,401		3,362		3,428
Equity in earnings of other invested assets		949		918		685
Interest on other assets		64		74		79
Interest on cash and cash equivalents		43		11		10
Total Investment Income		41,418		43,159		44,919
Investment expenses		3,005		2,625		2,616
Net investment income	$	38,413	$	40,534	$	42,303