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Investments (Tables)
 9 Months Ended
Sep. 30, 2018
Investments Schedule [Abstract]  
Schedule of Amortized Cost and Estimated Fair Value of Investments

The amortized cost and estimated fair value of investments were as follows as of September 30, 2018 and December 31, 2017:

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

Other than

temporary

impairments

recognized

in AOCI (1)

 

As of September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and agency obligations

 

$

81,565

 

 

$

156

 

 

$

(2,051

)

 

$

79,670

 

 

$

-

 

Obligations of states and political subdivisions

 

 

100,494

 

 

 

131

 

 

 

(998

)

 

 

99,627

 

 

 

-

 

Mortgage-backed securities

 

 

138,442

 

 

 

280

 

 

 

(3,878

)

 

 

134,844

 

 

 

-

 

Asset-backed securities

 

 

201,317

 

 

 

46

 

 

 

(1,641

)

 

 

199,722

 

 

 

(1

)

Commercial mortgage-backed securities

 

 

186,081

 

 

 

3

 

 

 

(5,876

)

 

 

180,208

 

 

 

-

 

Corporate bonds

 

 

466,198

 

 

 

235

 

 

 

(9,601

)

 

 

456,832

 

 

 

-

 

Foreign corporate bonds

 

 

125,559

 

 

 

33

 

 

 

(2,814

)

 

 

122,778

 

 

 

-

 

Total fixed maturities

 

 

1,299,656

 

 

 

884

 

 

 

(26,859

)

 

 

1,273,681

 

 

 

(1

)

Common stock

 

 

137,554

 

 

 

-

 

 

 

-

 

 

 

137,554

 

 

 

-

 

Other invested assets

 

 

85,268

 

 

 

-

 

 

 

-

 

 

 

85,268

 

 

 

-

 

Total

 

$

1,522,478

 

 

$

884

 

 

$

(26,859

)

 

$

1,496,503

 

 

$

(1

)

 

(1)

Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).

 

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

Other than

temporary

impairments

recognized

in AOCI (1)

 

As of December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and agency obligations

 

$

105,311

 

 

$

562

 

 

$

(1,193

)

 

$

104,680

 

 

$

-

 

Obligations of states and political subdivisions

 

 

94,947

 

 

 

441

 

 

 

(274

)

 

 

95,114

 

 

 

-

 

Mortgage-backed securities

 

 

150,237

 

 

 

404

 

 

 

(1,291

)

 

 

149,350

 

 

 

-

 

Asset-backed securities

 

 

203,827

 

 

 

267

 

 

 

(393

)

 

 

203,701

 

 

 

(1

)

Commercial mortgage-backed securities

 

 

140,761

 

 

 

101

 

 

 

(1,067

)

 

 

139,795

 

 

 

-

 

Corporate bonds

 

 

422,486

 

 

 

2,295

 

 

 

(1,391

)

 

 

423,390

 

 

 

-

 

Foreign corporate bonds

 

 

125,575

 

 

 

377

 

 

 

(545

)

 

 

125,407

 

 

 

-

 

Total fixed maturities

 

 

1,243,144

 

 

 

4,447

 

 

 

(6,154

)

 

 

1,241,437

 

 

 

(1

)

Common stock

 

 

124,915

 

 

 

18,574

 

 

 

(3,260

)

 

 

140,229

 

 

 

-

 

Other invested assets

 

 

77,820

 

 

 

-

 

 

 

-

 

 

 

77,820

 

 

 

-

 

Total

 

$

1,445,879

 

 

$

23,021

 

 

$

(9,414

)

 

$

1,459,486

 

 

$

(1

)

 

(1)

Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).
Summary of Amortized Cost and Estimated Fair Value Through Fixed Maturities

The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at September 30, 2018, by contractual maturity, are shown below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

 

Amortized

Cost

 

 

Estimated

Fair Value

 

Due in one year or less

 

$

84,071

 

 

$

83,626

 

Due in one year through five years

 

 

440,787

 

 

 

433,350

 

Due in five years through ten years

 

 

238,245

 

 

 

231,360

 

Due in ten years through fifteen years

 

 

6,501

 

 

 

6,331

 

Due after fifteen years

 

 

4,212

 

 

 

4,240

 

Mortgage-backed securities

 

 

138,442

 

 

 

134,844

 

Asset-backed securities

 

 

201,317

 

 

 

199,722

 

Commercial mortgage-backed securities

 

 

186,081

 

 

 

180,208

 

Total

 

$

1,299,656

 

 

$

1,273,681

 

 
Summary of Securities With Gross Unrealized Losses

The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of September 30, 2018.  Due to new accounting guidance implemented in 2018 regarding the treatment of gains and losses on equity securities, common stock is no longer included in the table:  

 

 

 

Less than 12 months

 

 

12 months or longer (1)

 

 

Total

 

(Dollars in thousands)

 

Fair Value

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

Gross

Unrealized

Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and agency obligations

 

$

16,462

 

 

$

(279

)

 

$

61,137

 

 

$

(1,772

)

 

$

77,599

 

 

$

(2,051

)

Obligations of states and political subdivisions

 

 

62,981

 

 

 

(778

)

 

 

8,849

 

 

 

(220

)

 

 

71,830

 

 

 

(998

)

Mortgage-backed securities

 

 

90,574

 

 

 

(2,563

)

 

 

35,442

 

 

 

(1,315

)

 

 

126,016

 

 

 

(3,878

)

Asset-backed securities

 

 

138,627

 

 

 

(1,247

)

 

 

23,861

 

 

 

(394

)

 

 

162,488

 

 

 

(1,641

)

Commercial mortgage-backed securities

 

 

97,440

 

 

 

(3,249

)

 

 

77,775

 

 

 

(2,627

)

 

 

175,215

 

 

 

(5,876

)

Corporate bonds

 

 

385,878

 

 

 

(8,625

)

 

 

34,749

 

 

 

(976

)

 

 

420,627

 

 

 

(9,601

)

Foreign corporate bonds

 

 

83,304

 

 

 

(2,224

)

 

 

28,124

 

 

 

(590

)

 

 

111,428

 

 

 

(2,814

)

Total fixed maturities

 

$

875,266

 

 

$

(18,965

)

 

$

269,937

 

 

$

(7,894

)

 

$

1,145,203

 

 

$

(26,859

)

 

(1)

Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery.  The Company has analyzed these securities and has determined that they are not other than temporarily impaired.

The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2017:  

 

 

 

Less than 12 months

 

 

12 months or longer (1)

 

 

Total

 

(Dollars in thousands)

 

Fair Value

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

Gross

Unrealized

Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and agency obligations

 

$

79,403

 

 

$

(962

)

 

$

17,469

 

 

$

(231

)

 

$

96,872

 

 

$

(1,193

)

Obligations of states and political subdivisions

 

 

34,537

 

 

 

(149

)

 

 

12,060

 

 

 

(125

)

 

 

46,597

 

 

 

(274

)

Mortgage-backed securities

 

 

127,991

 

 

 

(1,247

)

 

 

1,866

 

 

 

(44

)

 

 

129,857

 

 

 

(1,291

)

Asset-backed securities

 

 

97,817

 

 

 

(371

)

 

 

6,423

 

 

 

(22

)

 

 

104,240

 

 

 

(393

)

Commercial mortgage-backed securities

 

 

83,051

 

 

 

(523

)

 

 

27,976

 

 

 

(544

)

 

 

111,027

 

 

 

(1,067

)

Corporate bonds

 

 

147,064

 

 

 

(754

)

 

 

53,024

 

 

 

(637

)

 

 

200,088

 

 

 

(1,391

)

Foreign corporate bonds

 

 

53,320

 

 

 

(305

)

 

 

20,582

 

 

 

(240

)

 

 

73,902

 

 

 

(545

)

Total fixed maturities

 

 

623,183

 

 

 

(4,311

)

 

 

139,400

 

 

 

(1,843

)

 

 

762,583

 

 

 

(6,154

)

Common stock

 

 

32,759

 

 

 

(3,260

)

 

 

-

 

 

 

-

 

 

 

32,759

 

 

 

(3,260

)

Total

 

$

655,942

 

 

$

(7,571

)

 

$

139,400

 

 

$

(1,843

)

 

$

795,342

 

 

$

(9,414

)

 

(1)

Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery.  The Company has analyzed these securities and has determined that they are not other than temporarily impaired.

Schedule of Other Than Temporary Impairments on Investments

The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the quarters and nine months ended September 30, 2018 and 2017:

 

 

 

Quarters Ended

September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTTI losses, gross

 

$

(24

)

 

$

-

 

 

$

(395

)

 

$

(31

)

Portion of loss recognized in other comprehensive income (pre-tax)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net impairment losses on fixed maturities recognized in earnings

 

 

(24

)

 

 

-

 

 

 

(395

)

 

 

(31

)

Equity securities

 

 

-

 

 

 

(1,020

)

 

 

-

 

 

 

(1,677

)

Total

 

$

(24

)

 

$

(1,020

)

 

$

(395

)

 

$

(1,708

)

 
Schedule of Credit Losses Recognized in Earnings

The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quarters and nine months ended September 30, 2018 and 2017 for which a portion of the OTTI loss was recognized in other comprehensive income.

 

 

 

Quarters Ended

September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Balance at beginning of period

 

$

13

 

 

$

16

 

 

$

13

 

 

$

31

 

Additions where no OTTI was previously recorded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Additions where an OTTI was previously recorded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reductions for securities for which the company intends to sell or more likely than not will be required to sell before recovery

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reductions reflecting increases in expected cash

   flows to be collected

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reductions for securities sold during the period

 

 

-

 

 

 

(3

)

 

 

-

 

 

 

(18

)

Balance at end of period

 

$

13

 

 

$

13

 

 

$

13

 

 

$

13

 

 
Schedule of Accumulated Other Comprehensive Income, Net of Tax

Accumulated other comprehensive income, net of tax, as of September 30, 2018 and December 31, 2017 was as follows:

 

(Dollars in thousands)

 

September 30, 2018

 

 

December 31, 2017

 

Net unrealized gains (losses)from:

 

 

 

 

 

 

 

 

Fixed maturities

 

$

(25,975

)

 

$

(1,707

)

Common stock

 

 

-

 

 

 

15,314

 

Foreign currency fluctuations

 

 

(1,003

)

 

 

551

 

Deferred taxes

 

 

3,149

 

 

 

(5,175

)

Accumulated other comprehensive income, net of tax

 

$

(23,829

)

 

$

8,983

 

 
Changes in Accumulated Other Comprehensive Income

The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the quarters and nine months ended September 30, 2018 and 2017:

 

Quarter Ended September 30, 2018

(Dollars In Thousands)

 

Unrealized

Gains

and Losses

on Available

for Sale

Securities

 

 

Foreign

Currency

Items

 

 

Accumulated

Other

Comprehensive

Income

 

Beginning balance, net of tax

 

$

(21,926

)

 

$

(549

)

 

$

(22,475

)

Other comprehensive loss before reclassification, before tax

 

 

(1,945

)

 

 

(454

)

 

 

(2,399

)

Amounts reclassified from accumulated other comprehensive income (loss), before tax

 

 

835

 

 

 

-

 

 

 

835

 

Other comprehensive loss, before tax

 

 

(1,110

)

 

 

(454

)

 

 

(1,564

)

Income tax benefit related to items of OCI

 

 

210

 

 

 

-

 

 

 

210

 

Cumulative effect adjustment, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

Ending balance, net of tax

 

$

(22,826

)

 

$

(1,003

)

 

$

(23,829

)

 

Quarter Ended September 30, 2017

(Dollars In Thousands)

 

Unrealized

Gains

and Losses

on Available

for Sale

Securities

 

 

Foreign

Currency

Items

 

 

Accumulated

Other

Comprehensive

Income

 

Beginning balance, net of tax

 

$

5,549

 

 

$

437

 

 

$

5,986

 

Other comprehensive income before reclassification, before tax

 

 

4,486

 

 

 

548

 

 

 

5,034

 

Amounts reclassified from accumulated other comprehensive income (loss), before tax

 

 

923

 

 

 

(326

)

 

 

597

 

Other comprehensive income, before tax

 

 

5,409

 

 

 

222

 

 

 

5,631

 

Income Tax (expense) benefit related to items of OCI

 

 

(1,583

)

 

 

51

 

 

 

(1,532

)

Cumulative effect adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance, net of tax

 

$

9,375

 

 

$

710

 

 

$

10,085

 

 

Nine Months Ended September 30, 2018

(Dollars In Thousands)

 

Unrealized

Gains

and Losses

on Available

for Sale

Securities

 

 

Foreign

Currency

Items

 

 

Accumulated

Other

Comprehensive

Income

 

Beginning balance, net of tax

 

$

8,272

 

 

$

711

 

 

$

8,983

 

Other comprehensive loss before reclassification, before tax

 

 

(25,928

)

 

 

(1,554

)

 

 

(27,482

)

Amounts reclassified from accumulated  other comprehensive income (loss), before tax

 

 

1,660

 

 

 

-

 

 

 

1,660

 

Other comprehensive loss, before tax

 

 

(24,268

)

 

 

(1,554

)

 

 

(25,822

)

Income Tax benefit related to items of OCI

 

 

3,038

 

 

 

-

 

 

 

3,038

 

Cumulative effect adjustment, net of tax

 

 

(9,868

)

 

 

(160

)

 

 

(10,028

)

Ending balance, net of tax

 

$

(22,826

)

 

$

(1,003

)

 

$

(23,829

)

 

Nine Months Ended September 30, 2017

(Dollars In Thousands)

 

Unrealized

Gains

and Losses

on Available

for Sale

Securities

 

 

Foreign

Currency

Items

 

 

Accumulated

Other

Comprehensive

Income

 

Beginning balance, net of tax

 

$

(554

)

 

$

(64

)

 

$

(618

)

Other comprehensive income before reclassification, before tax

 

 

14,675

 

 

 

1,212

 

 

 

15,887

 

Amounts reclassified from accumulated other comprehensive income (loss), before tax

 

 

(830

)

 

 

(336

)

 

 

(1,166

)

Other comprehensive income, before tax

 

 

13,845

 

 

 

876

 

 

 

14,721

 

Income Tax (expense) related to items of OCI

 

 

(3,916

)

 

 

(102

)

 

 

(4,018

)

Cumulative effect adjustment, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

Ending balance, net of tax

 

$

9,375

 

 

$

710

 

 

$

10,085

 

 
Reclassifications Out of Accumulated Other Comprehensive Income

The reclassifications out of accumulated other comprehensive income for the quarters and nine months ended September 30, 2018 and 2017 were as follows:

 

 

 

 

 

Amounts Reclassified from

Accumulated Other

Comprehensive Income

 

(Dollars in thousands)

 

 

 

Quarters Ended

September 30,

 

Details about Accumulated Other

Comprehensive Income Components

 

Affected Line Item in the Consolidated

Statements of Operations

 

2018

 

 

2017

 

Unrealized gains and losses on available for sale securities

 

Other net realized investment (gains) losses

 

$

811

 

 

$

(97

)

 

 

Other than temporary impairment losses on investments

 

 

24

 

 

 

1,020

 

 

 

Total before tax

 

 

835

 

 

 

923

 

 

 

Income tax (benefit)

 

 

(118

)

 

 

(270

)

 

 

Unrealized gains and losses on available for sale securities, net of tax

 

 

717

 

 

 

653

 

Foreign currency items

 

Other net realized investment (gains)

 

 

-

 

 

$

(326

)

 

 

Income tax expense

 

 

-

 

 

 

114

 

 

 

Foreign currency items, net of tax

 

 

-

 

 

 

(212

)

Total reclassifications

 

Total reclassifications, net of tax

 

$

717

 

 

$

441

 

 

 

 

 

 

Amounts Reclassified from

Accumulated Other

Comprehensive Income

 

(Dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

Details about Accumulated Other

Comprehensive Income Components

 

Affected Line Item in the Consolidated

Statements of Operations

 

2018

 

 

2017

 

Unrealized gains and losses on available for sale securities

 

Other net realized investment (gains) losses

 

$

1,265

 

 

$

(2,538

)

 

 

Other than temporary impairment losses on investments

 

 

395

 

 

 

1,708

 

 

 

Total before tax

 

 

1,660

 

 

 

(830

)

 

 

Income tax expense (benefit)

 

 

(257

)

 

 

261

 

 

 

Unrealized gains and losses on available for sale securities, net of tax

 

 

1,403

 

 

 

(569

)

Foreign currency items

 

Other net realized investment (gains)

 

 

-

 

 

 

(336

)

 

 

Income tax expense

 

 

-

 

 

 

117

 

 

 

Foreign currency items, net of tax

 

 

-

 

 

 

(219

)

Total reclassifications

 

Total reclassifications, net of tax

 

$

1,403

 

 

$

(788

)

 
Components of Net Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2018 and 2017 were as follows:

 

 

 

Quarters Ended

September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

$

329

 

 

$

434

 

 

$

373

 

 

$

3,122

 

Gross realized losses

 

 

(1,164

)

 

 

(300

)

 

 

(2,033

)

 

 

(2,358

)

Net realized gains (losses)

 

 

(835

)

 

 

134

 

 

 

(1,660

)

 

 

764

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

5,789

 

 

 

917

 

 

 

12,116

 

 

 

2,711

 

Gross realized losses

 

 

(946

)

 

 

(1,648

)

 

 

(9,582

)

 

 

(2,309

)

Net realized gains (losses)

 

 

4,843

 

 

 

(731

)

 

 

2,534

 

 

 

402

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

1,690

 

 

 

486

 

 

 

8,457

 

 

 

822

 

Gross realized losses

 

 

(379

)

 

 

(852

)

 

 

(1,498

)

 

 

(2,838

)

Net realized gains (losses) (1)

 

 

1,311

 

 

 

(366

)

 

 

6,959

 

 

 

(2,016

)

Total net realized investment gains (losses)

 

$

5,319

 

 

$

(963

)

 

$

7,833

 

 

$

(850

)

 

(1)

Includes periodic net interest settlements related to the derivatives of $0.4 million and $0.9 million for the quarters ended September 30, 2018 and 2017, respectively, and $1.5 million and $2.8 million for the nine months ended September 30, 2018 and 2017, respectively.
Summary of Calculation of Realized Gains and Losses

The following table shows the calculation of the portion of realized gains and losses related to common stock held as of September 30, 2018:

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2018

 

Net gains and losses recognized during the period on equity securities

 

$

4,843

 

 

$

2,534

 

Less: Net gains and losses recognized during the

   period on equity securities sold during the period

 

 

2,096

 

 

 

3,958

 

Unrealized gains and losses recognized during

   the reporting period on equity securities still held

   at the reporting date

 

$

2,747

 

 

$

(1,424

)

 
Proceeds from Sales and Redemptions of Available-for-Sale Securities

The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the nine months ended September 30, 2018 and 2017 were as follows:

 

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

Fixed maturities

 

$

229,362

 

 

$

742,229

 

Equity securities

 

 

28,141

 

 

 

24,483

 

 
Schedule of Investment Income

The sources of net investment income for the quarters and nine months ended September 30, 2018 and 2017 were as follows:

 

 

 

Quarters Ended

September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Fixed maturities

 

$

9,520

 

 

$

9,020

 

 

$

27,236

 

 

$

24,032

 

Equity securities

 

 

1,006

 

 

 

906

 

 

 

3,010

 

 

 

2,740

 

Cash and cash equivalents

 

 

285

 

 

 

226

 

 

 

814

 

 

 

621

 

Other invested assets

 

 

1,631

 

 

 

655

 

 

 

5,194

 

 

 

2,423

 

Total investment income

 

 

12,442

 

 

 

10,807

 

 

 

36,254

 

 

 

29,816

 

Investment expense

 

 

(692

)

 

 

(673

)

 

 

(2,146

)

 

 

(2,198

)

Net investment income

 

$

11,750

 

 

$

10,134

 

 

$

34,108

 

 

$

27,618

 

 
Schedule of Total Investment Return

The Company’s total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2018 and 2017 were as follows:

 

 

 

Quarters Ended

September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net investment income

 

$

11,750

 

 

$

10,134

 

 

$

34,108

 

 

$

27,618

 

Net realized investment gains (losses)

 

 

5,319

 

 

 

(963

)

 

 

7,833

 

 

 

(850

)

Change in unrealized holding gains and losses

 

 

(1,564

)

 

 

5,631

 

 

 

(25,822

)

 

 

14,721

 

Net realized and unrealized investment returns

 

 

3,755

 

 

 

4,668

 

 

 

(17,989

)

 

 

13,871

 

Total investment return

 

$

15,505

 

 

$

14,802

 

 

$

16,119

 

 

$

41,489

 

Total investment return % (1)

 

 

1.0

%

 

 

0.9

%

 

 

1.1

%

 

 

2.6

%

Average investment portfolio

 

$

1,541,975

 

 

$

1,629,989

 

 

$

1,533,825

 

 

$

1,587,645

 

 

(1)

Not annualized.
Summary of Insurance Enhanced Municipal Bonds Backed by Financial Guarantors

A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including the pre-refunded bonds that are escrowed in U.S. government obligations, as of September 30, 2018, is as follows:

 

(Dollars in thousands) Financial Guarantor

 

Total

 

 

Pre-

refunded

Securities

 

 

Government

Guaranteed

Securities

 

 

Exposure

Net of Pre-

refunded &

Government

Guaranteed

Securities

 

Municipal Bond Insurance Association

 

$

708

 

 

$

-

 

 

$

-

 

 

$

708

 

Total backed by financial guarantors

 

 

708

 

 

 

-

 

 

 

-

 

 

 

708

 

Other credit enhanced municipal bonds

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

708

 

 

$

-

 

 

$

-

 

 

$

708

 

 
Summary of Estimated Fair Values of Bonds Held on Deposit

The fair values were as follows as of September 30, 2018 and December 31, 2017:

 

 

 

Estimated Fair Value

 

(Dollars in thousands)

 

September 30, 2018

 

 

December 31, 2017

 

On deposit with governmental authorities

 

$

25,817

 

 

$

26,852

 

Intercompany trusts held for the benefit of U.S. policyholders

 

 

205,995

 

 

 

328,494

 

Held in trust pursuant to third party requirements

 

 

97,407

 

 

 

94,098

 

Letter of credit held for third party requirements

 

 

2,317

 

 

 

3,944

 

Securities held as collateral for borrowing arrangements (1)

 

 

74,714

 

 

 

88,040

 

Total

 

$

406,250

 

 

$

541,428

 

 

(1)

Amount required to collateralize margin borrowing facility.