Investments and Estimated Fair Value

Investments in Fixed Maturity Securities

The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for fixed maturity securities by major classification are as follows:



As of March 31, 2019 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
Government obligations	$	1,018	$	—	$	4	$	1,014
General obligations of U.S. states, territories and political subdivisions	21,627		527		11		22,143
Special revenue issuer obligations of U.S. states, territories and political subdivisions	53,894		1,827		73		55,648
Corporate debt securities	10,000		444		17		10,427
Total	$	86,539	$	2,798	$	105	$	89,232



As of December 31, 2018 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
Government obligations	$	1,023	$	—	$	7	$	1,016
General obligations of U.S. states, territories and political subdivisions	19,518		229		143		19,604
Special revenue issuer obligations of U.S. states, territories and political subdivisions	56,675		1,237		329		57,583
Corporate debt securities	10,498		303		47		10,754
Total	$	87,714	$	1,769	$	526	$	88,957

The special revenue category for both periods presented includes approximately 60 individual fixed maturity securities with revenue sources from a variety of industry sectors.

The scheduled maturities of fixed maturity securities at March 31, 2019 are as follows:



	Available-for-Sale
(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	13,200	$	13,216
Due one year through five years	31,881		32,984
Due five years through ten years	40,650		41,872
Due after ten years	808		1,160
Total	$	86,539	$	89,232

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

The following table presents the gross unrealized losses on fixed maturity securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2019 and December 31, 2018:



	Less than 12 Months					12 Months or Longer					Total
As of March 31, 2019 (in thousands)	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Government obligations	$	—	$	—		$	1,014	$	(4	)	$	1,014	$	(4	)
General obligations of U.S. states, territories and political subdivisions	1,559		(2		)	1,076		(9		)	2,635		(11		)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	1,464		(1		)	5,828		(72		)	7,292		(73		)
Corporate debt securities	6,234		(17		)	—		—			6,234		(17		)
Total temporarily impaired securities	$	9,257	$	(20	)	$	7,918	$	(85	)	$	17,175	$	(105	)



	Less than 12 Months					12 Months or Longer					Total
As of December 31, 2018 (in thousands)	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Government obligations	$	1,016	$	(7	)	$	—	$	—		$	1,016	$	(7	)
General obligations of U.S. states, territories and political subdivisions	4,888		(32		)	6,469		(111		)	11,357		(143		)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	12,326		(100		)	9,720		(229		)	22,046		(329		)
Corporate debt securities	4,490		(28		)	3,733		(19		)	8,223		(47		)
Total temporarily impaired securities	$	22,720	$	(167	)	$	19,922	$	(359	)	$	42,642	$	(526	)

The decline in estimated fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities. Because the Company does not have the intent to sell these securities and will likely not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 19 and 51 fixed maturity securities had unrealized losses at March 31, 2019 and December 31, 2018, respectively. Reviews of the values of securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods resulting in a realized loss. The Company recorded no other-than-temporary impairment charges related to fixed maturity securities for the three-month periods ended March 31, 2019 and 2018. In the event the Company determines an other-than-temporary impairment charge is necessary, the expense would be recorded in net realized investment gains in the Consolidated Statements of Income when recognized.

Investments in Equity Securities

The cost and estimated fair value of equity securities are as follows:



As of March 31, 2019 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	32,055	$	53,959
Total	$	32,055	$	53,959



As of December 31, 2018 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	31,255	$	48,489
Total	$	31,255	$	48,489

Unrealized holding gains and losses are reported in the Consolidated Statements of Income as net unrealized gain (loss) on equity securities.

Net Realized Investment Gains

Gross realized gains and losses on sales of investments for the three-month periods ended March 31 are summarized as follows:



(in thousands)	2019			2018
Gross realized gains from securities:
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	—		$	—
Corporate debt securities	—			—
Common stocks	831			164
Total	$	831		$	164
Gross realized losses from securities:
General obligations of U.S. states, territories and political subdivisions	$	—		$	—
Special revenue issuer obligations of U.S. states, territories and political subdivisions	—			—
Common stocks	(41		)	(11		)
Other-than-temporary impairment of securities	—			—
Total	$	(41	)	$	(11	)
Net realized gains from securities	$	790		$	153
Net realized gains on other investments:
Gains on other investments	$	—		$	—
Total	$	—		$	—
Net realized investment gains	$	790		$	153

Realized gains and losses are determined on the specific identification method.

Variable Interest Entities

The Company holds investments in variable interest entities ("VIEs") that are not consolidated in the Company's financial statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with a third-party general partner or managing member that cannot be removed except for cause. The following table sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability companies ("LLCs"), as of March 31, 2019:



Type of Investment (in thousands)	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Tax credit LPs	Other investments	$	1,162	$	1,129	$	2,010
Real estate LLCs or LPs	Other investments	4,739		6,319		9,250
Small business investment LPs	Other investments	3,732		6,500		7,225
Total		$	9,633	$	13,948	$	18,485



(a)		Maximum potential loss is calculated as the total investment in the LLC or LP, including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.

Valuation of Financial Assets

The FASB has established a valuation hierarchy for disclosure of the inputs used to measure estimated fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement – consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.

The Level 1 category includes equity securities that are measured at estimated fair value using quoted active market prices.

The Level 2 category includes fixed maturity securities such as corporate debt securities, U.S. government obligations, and obligations of U.S. states, territories, and political subdivisions. Estimated fair value is principally based on market values obtained from a third-party pricing service. Factors that are used in determining estimated fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third-party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of March 31, 2019 and December 31, 2018, the Company did not adjust any Level 2 fair values.

A number of the Company’s investment grade corporate debt securities are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from which the Company has obtained estimated fair values for these instruments uses valuation models that use observable market inputs in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.

In the measurement of the estimated fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, ASC 820 excludes from its scope certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.

In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

Measurement alternative equity investments

The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less impairments plus or minus any changes resulting from observable price changes. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.

Accrued interest and dividends

The carrying amount for accrued dividends and interest is a reasonable estimate of fair value due to the short-term maturity of these assets.

The following table presents, by level, fixed maturity securities carried at estimated fair value measured as of March 31, 2019 and December 31, 2018:



As of March 31, 2019 (in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions*	$	—	$	78,805	$	—	$	78,805
Corporate debt securities*	—		10,427		—		10,427
Total	$	—	$	89,232	$	—	$	89,232



As of December 31, 2018 (in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions*	$	—	$	78,203	$	—	$	78,203
Corporate debt securities*	—		10,754		—		10,754
Total	$	—	$	88,957	$	—	$	88,957

*Denotes fair market value obtained from pricing services.

The estimated fair values of equity investments and other financial instruments as of March 31, 2019 and December 31, 2018 are presented in the following table:



As of March 31, 2019 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	22,052	$	—	$	—	$	22,052
Accrued interest and dividends	1,368		—		—		1,368
Equity securities, at fair value:
Common stocks	53,959		—		—		53,959
Short-term investments:
Commercial paper and money market funds	29,696		—		—		29,696
Other investments:
Equity investments in unconsolidated affiliates, equity method	—		—		5,393		5,393
Equity investments in unconsolidated affiliates, measurement alternative	—		—		6,184		6,184
Total	$	107,075	$	—	$	11,577	$	118,652



As of December 31, 2018 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	18,694	$	—	$	—	$	18,694
Accrued interest and dividends	946		—		—		946
Equity securities, at fair value:
Common stocks	48,489		—		—		48,489
Short-term investments:
Commercial paper and money market funds	32,787		—		—		32,787
Other investments:
Equity investments in unconsolidated affiliates, equity method	—		—		5,847		5,847
Equity investments in unconsolidated affiliates, measurement alternative	—		—		6,589		6,589
Total	$	100,916	$	—	$	12,436	$	113,352

The Company did not hold any Level 3 category debt or marketable equity investment securities as of March 31, 2019 or December 31, 2018.

There were no transfers into or out of Levels 1, 2 or 3 during the periods presented.

To help ensure that estimated fair value determinations are consistent with ASC 820, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks; and default rates. The Company reviews the procedures and inputs used by its pricing services, and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data. The Company believes that these processes and inputs result in appropriate classifications and estimated fair values consistent with ASC 820.

Certain equity investments under the measurement alternative are measured at estimated fair value on a non-recurring basis and are reviewed for impairment quarterly. If any such investment is determined to be other-than-temporarily impaired, an impairment charge is recorded against such investment and reflected in the Consolidated Statements of Income. There were no impairments of such investments made during the three-month period ended March 31, 2019 or the twelve-month period ended December 31, 2018. The following table presents a rollforward of equity investments under the measurement alternative as of March 31, 2019 and December 31, 2018:



(in thousands)	Balance, January 1, 2019		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions			Balance, March 31, 2019
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	$	6,589	$	—	$	—	$	613	$	(1,018	)	$	6,184
Total	$	6,589	$	—	$	—	$	613	$	(1,018	)	$	6,184



(in thousands)	Balance, January 1, 2018		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions			Balance, December 31, 2018
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	$	5,439	$	—	$	—	$	1,486	$	(336	)	$	6,589
Total	$	5,439	$	—	$	—	$	1,486	$	(336	)	$	6,589