Note 4 — Investments

a) Available-for-Sale Securities

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At September 30, 2017 and December 31, 2016, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:


	Cost or Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
*As of September 30, 2017*
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	47,348	$	5	$	(112	)	$	47,241
Corporate bonds		121,459		1,862		(811	)		122,510
State, municipalities, and political subdivisions		74,924		2,099		(83	)		76,940
Exchange-traded debt		9,293		194		(211	)		9,276
Redeemable preferred stock		138		2		(5	)		135

Total		253,162		4,162		(1,222	)		256,102
Equity securities		58,242		5,361		(580	)		63,023

Total available-for-sale securities	$	311,404	$	9,523	$	(1,802	)	$	319,125

*As of December 31, 2016*
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	1,975	$	—	$	(36	)	$	1,939
Corporate bonds		75,538		607		(1,641	)		74,504
State, municipalities, and political subdivisions		78,018		776		(488	)		78,306
Exchange-traded debt		11,463		36		(237	)		11,262
Redeemable preferred stock		237		3		(3	)		237

Total		167,231		1,422		(2,405	)		166,248
Equity securities		47,750		5,769		(484	)		53,035

Total available-for-sale securities	$	214,981	$	7,191	$	(2,889	)	$	219,283

At September 30, 2017, fixed-maturity securities included $252 of U.S. Treasury securities related to a statutory deposit held in trust for the South Carolina Director of Insurance.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of September 30, 2017 and December 31, 2016 are as follows:


	Amortized Cost		Estimated Fair Value
*As of September 30, 2017*
Available-for-sale
Due in one year or less	$	30,082	$	30,115
Due after one year through five years		127,627		127,444
Due after five years through ten years		66,146		67,853
Due after ten years		29,307		30,690

	$	253,162	$	256,102


	Amortized Cost		Estimated Fair Value
*As of December 31, 2016*
Available-for-sale
Due in one year or less	$	2,656	$	2,662
Due after one year through five years		49,915		50,023
Due after five years through ten years		90,360		89,332
Due after ten years		24,300		24,231

	$	167,231	$	166,248

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and nine months ended September 30, 2017 and 2016 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended September 30, 2017
Fixed-maturity securities	$	2,765	$	97	$	(23	)

Equity securities	$	4,827	$	223	$	(525	)

Three months ended September 30, 2016
Fixed-maturity securities	$	3,891	$	196	$	—

Equity securities	$	5,000	$	491	$	(104	)

Nine months ended September 30, 2017
Fixed-maturity securities	$	9,638	$	126	$	(45	)

Equity securities	$	25,729	$	3,058	$	(865	)

Nine months ended September 30, 2016
Fixed-maturity securities	$	37,415	$	579	$	—

Equity securities	$	14,155	$	850	$	(530	)

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including-

•

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

•

the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

•

general market conditions and industry or sector specific factors and other qualitative factors;

•

nonpayment by the issuer of its contractually obligated interest and principal payments; and

•

the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Fixed-maturity Securities

There was no impairment loss recognized for the three months ended September 30, 2017. For the nine months ended September 30, 2017, the Company recognized $100 of impairment losses related to the sale of two intent-to-sell fixed-maturity securities. At September 30, 2017, two fixed-maturity securities were considered other-than-temporarily impaired due to their credit risk. The Company intends to hold these two fixed-maturity securities until maturity, but does not expect a full recovery of their carrying value.

In June 2016, the Company sold one impaired fixed-maturity security that was previously intended to hold until maturity due to uncertainties surrounding the issuer’s announced restructuring plan. Prior to the sale of this security, the remaining $202 of unrealized impairment loss was reclassified from comprehensive income and recognized in total other-than-temporary impairment losses in the Company’s consolidated statement of income. For the three months ended September 30, 2016, the Company recorded $531 of impairment loss, of which $180 was considered other-than-temporarily impaired due to a credit related loss and recorded in the consolidated statement of income, with the remaining amount of $351 related to non-credit factors and recorded in other comprehensive income. For the nine months ended September 30, 2016, the Company recognized $675 of impairment loss in the consolidated statement of income, representing $206 of additional losses recorded during the period and the reclassification of $469 previously recorded in other comprehensive income. At September 30, 2016, one fixed-maturity security the Company intended to hold to maturity had a credit related loss.

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in income from available for sale fixed-maturity securities.


	2017		2016
Balance at January 1	$	475	$	111
Additional credit impairments on previously impaired securities		—		293

Balance at March 31		475		404
Credit impaired security fully disposed of for which there was no prior intent or requirement to sell		—		(385	)
Reduction due to increase in expected cash flows recognized over the remaining life of the previously impaired security		—		(19	)

Balance at June 30		475		—
Credit impairment on impaired securities		—		180

Balance at September 30	$	475	$	180

Equity Securities

In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost, the length of time each security has been in an unrealized loss position, the extent of the decline and the near-term prospect for recovery. The Company recognized impairment losses of $474 and $44 in the consolidated statement of income for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the Company recognized impairment losses of $764 and $766, respectively. At September 30, 2017 and 2016, the Company had four and 16 equity securities, respectively, that were other-than-temporarily impaired.

Securities with gross unrealized loss positions at September 30, 2017 and December 31, 2016, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:


	Less Than Twelve Months					Twelve Months or Longer					Total
As of September 30, 2017	Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	(112	)	$	45,344	$	—		$	—	$	(112	)	$	45,344
Corporate bonds		(530	)		49,789		(281	)		15,346		(811	)		65,135
State, municipalities, and political subdivisions		(29	)		4,332		(54	)		3,889		(83	)		8,221
Exchange-traded debt		(209	)		3,189		(2	)		80		(211	)		3,269
Redeemable preferred stock		(5	)		45		—			—		(5	)		45

Total fixed-maturity securities		(885	)		102,699		(337	)		19,315		(1,222	)		122,014
Equity securities		(545	)		11,154		(35	)		1,260		(580	)		12,414

Total available-for-sale securities	$	(1,430	)	$	113,853	$	(372	)	$	20,575	$	(1,802	)	$	134,428

At September 30, 2017, there were 127 securities in an unrealized loss position. Of these securities, 17 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for less than twelve months included $133 of other-than-temporary impairment losses related to non-credit factors.


	Less Than Twelve Months					Twelve Months or Longer					Total
As of December 31, 2016	Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	(36	)	$	1,939	$	—		$	—	$	(36	)	$	1,939
Corporate bonds		(1,546	)		43,859		(95	)		2,814		(1,641	)		46,673
State, municipalities, and political subdivisions		(441	)		26,029		(47	)		3,036		(488	)		29,065
Exchange-traded debt		(191	)		4,980		(46	)		1,954		(237	)		6,934
Redeemable preferred stock		(3	)		47		—			—		(3	)		47

Total fixed-maturity securities		(2,217	)		76,854		(188	)		7,804		(2,405	)		84,658
Equity securities		(293	)		10,042		(191	)		3,209		(484	)		13,251

Total available-for-sale securities	$	(2,510	)	$	86,896	$	(379	)	$	11,013	$	(2,889	)	$	97,909

At December 31, 2016, there were 134 securities in an unrealized loss position. Of these securities, 20 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or longer included $76 of other-than-temporary impairment losses related to non-credit factors.

b) Trading Securities

At September 30, 2017, the cost, net unrealized gains, and estimated fair value of the Company’s trading equity securities were $929, $74, and $1,003, respectively. There were no investments in trading equity securities at December 31, 2016.

Sales of Trading Securities

Proceeds received, and the gross realized gains and losses from sales of trading equity securities, for the three and nine months ended September 30, 2017 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended September 30, 2017
Equity securities	$	580	$	12	$	(10	)

Nine months ended September 30, 2017
Equity securities	$	580	$	12	$	(10	)

The Company did not hold any trading equity security during 2016.

c) Limited Partnership Investments

The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make all decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. In August 2017, the Company entered into a subscription agreement with another limited partnership. The following table provides information related to the Company’s investments in limited partnerships.


	September 30, 2017						December 31, 2016
Investment Strategy	Carrying Value		Unfunded Balance		(%)(a)		Carrying Value		Unfunded Balance		(%)(a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	7,134	$	5,505		15.37	$	6,246	$	6,428		16.50
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		7,630		1,746		1.76		7,358		1,360		1.76
Maximum long-term capital appreciation through long and short positions in equity and/or debt securities of publicly traded U.S. and non-U.S. issuers, derivative instruments and certain other financial instruments. (f)		—		—		—		11,333		—		66.58
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(g)(h)		6,148		3,766		0.18		4,326		5,766		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(i)(j)		86		4,914		0.62		—		—		—

Total	$	20,998	$	15,931			$	29,263	$	13,554

(a)	Represents the Company’s percentage investment in the fund at each balance sheet date.

(b)	Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.

(c)	Expected to have a 10-year term and the capital commitment is expected to expire on September 3, 2019.

(d)	Expected to have a three-year term from the end of the capital commitment period, which is March 31, 2018.

(e)	At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.

(f)	The withdrawal was effective on February 15, 2017. As a result, the Company’s investment in this limited partnership was terminated.

(g)	Expected to have a 10-year term and the capital commitment is expected to expire on June 30, 2020.

(h)	With the consent of a super majority of partners, the term of the fund may be extended for up to three additional one-year periods.

(i)	Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.

(j)	Unless extended or terminated for reasons specified in the agreement, the capital commitment is expected to expire on December 1, 2018.

The following is the aggregated summarized unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. In applying the equity method of accounting, the Company uses the most recently available financial information provided by the general partner of each of these partnerships. The financial statements of these limited partnerships are audited annually.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Operating results:
Total income	$	71,854		$	166,374		$	301,604		$	143,305
Total expenses		(24,663	)		(54,577	)		(78,482	)		(184,598	)

Net income (loss)	$	47,191		$	111,797		$	223,122		$	(41,293	)

For the three and nine months ended September 30, 2017, the Company recognized net investment income of $392 and $1,724, respectively, for these investments. During the third quarter of 2017, the Company received in cash a return on investment totaling $428. During the nine-month period ended September 30, 2017, the Company received total cash distributions of $12,612, representing $11,758 of returned capital and $854 of return on investment. Included in the return of capital was $11,626 from one limited partnership the Company withdrew from in February 2017.

For the three and nine months ended September 30, 2016, the Company recognized net investment income of $1,119 and $54, respectively. During the three and nine months ended September 30, 2016, the Company received cash distributions of $384 and $428, respectively, of return on investment. At September 30, 2017 and December 31, 2016, the Company’s cumulative contributed capital to the partnerships existing at each respective balance sheet date totaled $19,569 and $31,946, respectively, and the Company’s maximum exposure to loss aggregated $20,998 and $29,263, respectively.

d) Investment in Unconsolidated Joint Venture

The Company has an equity investment in FMKT Mel JV, which is a limited liability company treated as a joint venture under U.S. GAAP. In March 2017, FMKT Mel JV sold a portion of its outparcel land for gross proceeds of $825 and recognized a $331 gain on sale of which $199 was allocated to the Company in accordance with the profit allocation specified in the operating agreement.

At September 30, 2017 and December 31, 2016, the Company’s maximum exposure to loss relating to this variable interest entity was $1,664 and $2,102, respectively, representing the carrying value of the investment. At September 30, 2017, there was $0 of undistributed income from this equity method investment as compared with an undistributed loss, after an equity distribution, of $25 at December 31, 2016, the amounts of which were included in the Company’s consolidated retained income.

The limited liability company members received no cash distributions during the three months ended September 30, 2017 and 2016. During the nine months ended September 30, 2017, the Company received a cash distribution of $564, representing a combined distribution of $147 in earnings and $417 in capital as compared with no cash distribution during the nine months ended September 30, 2016. The following tables provide FMKT Mel JV’s summarized unaudited financial results and the unaudited financial positions:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Operating results:
Total revenues and gain	$	—		$	235		$	331		$	949
Total expenses		(18	)		(318	)		(83	)		(801	)

Net (loss) income	$	(18	)	$	(83	)	$	248		$	148

The Company’s share of net (loss) income*	$	(16	)	$	(75	)	$	126		$	153

*	Included in net investment income in the Company’s consolidated statements of income.


	September 30, 2017		December 31, 2016
Balance Sheet:
Construction in progress - real estate	$	375	$	334
Property and equipment, net		1,213		1,654
Cash		110		179
Other		180		180

Total assets	$	1,878	$	2,347

Accounts payable	$	15	$	11
Other liabilities		14		—
Members’ capital		1,849		2,336

Total liabilities and members’ capital	$	1,878	$	2,347

Investment in unconsolidated joint venture, at equity*	$	1,664	$	2,102

*	Included the 90% share of FMKT Mel JV’s operating results.

e) Real Estate Investments

Real estate investments include office and retail space that is leased to tenants, wet and dry boat storage, one restaurant, and two marinas. Real estate investments consist of the following as of September 30, 2017 and December 31, 2016.


	September 30, 2017			December 31, 2016
Land	$	20,422		$	17,592
Land improvements		9,904			9,336
Buildings		17,742			16,154
Tenant and leasehold improvements		996			872
Construction in progress*		—			3,404
Other		2,911			2,683

Total, at cost		51,975			50,041
Less: accumulated depreciation and amortization		(3,014	)		(1,955	)

Real estate investments	$	48,961		$	48,086

*	This project, which was developed by the Company’s consolidated variable interest entity, was completed in July 2017. The costs were reclassified to land, land improvement, and building.

Depreciation and amortization expense related to real estate investments was $374 and $126 for the three months ended September 30, 2017 and 2016, respectively, and $1,062 and $314 for the nine months ended September 30, 2017 and 2016, respectively.

f) Consolidated Variable Interest Entity

The Company has a commercial property in Riverview, Florida. The development project of this property was completed in July 2017 through a limited liability company treated under U.S. GAAP as a joint venture in which the Company’s subsidiary has a controlling financial interest and, as a result, it is the primary beneficiary. The following table summarizes the assets and liabilities related to this variable interest entity which are included in the accompanying consolidated balance sheets.


	September 30, 2017		December 31, 2016
Cash and cash equivalents	$	90	$	65
Construction in progress included in real estate investments	$	—	$	3,404
Real estate investments	$	4,472	$	—
Other assets	$	139	$	—
Accrued expenses	$	59	$	68
Other liabilities	$	42	$	11

g) Net Investment Income

Net investment income (loss), by source, is summarized as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Available-for-sale securities:
Fixed-maturity securities	$	1,532		$	1,164		$	4,172		$	3,394
Equity securities		790			817			2,461			2,552
Investment expense		(176	)		(165	)		(526	)		(488	)
Limited partnership investments		392			1,119			1,724			54
Real estate investments		(292	)		(372	)		(856	)		(455	)
(Loss) income from unconsolidated joint venture		(16	)		(75	)		126			153
Cash and cash equivalents		648			285			1,415			755
Other		—			12			6			35

Net investment income	$	2,878		$	2,785		$	8,522		$	6,000