Investments

Investments consist of available-for-sale securities and are recorded at fair value, which is based on quoted market prices. Unrealized gains and temporary losses on investments, net of tax, are recorded in Other comprehensive income. Realized gains and losses are determined using the specific identification method. The amortized cost of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in Investment income, net.

At December 31, 2014 investments classified as available-for-sale securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities:
U.S. Treasury securities	$	509,783	$	32	$	—	$	509,815
Corporate debt securities	101,587		—		1,482		100,105
Preferred stock	26,963		—		5		26,958
	$	638,333	$	32	$	1,487	$	636,878

At December 31, 2013 investments classified as available-for-sale securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities:
U.S. Treasury securities	$	124,861	$	88	$	—	$	124,949
Corporate debt securities	24,236		—		2,213		22,023
	$	149,097	$	88	$	2,213	$	146,972

Fairholme Capital Management, L.L.C. (“Fairholme Capital”), serves as an investment advisor to the Company. As of December 31, 2014, funds managed by Fairholme Capital beneficially owned approximately 27.1% of the Company’s common stock. Mr. Bruce Berkowitz is the Managing Member of Fairholme Capital and the Chairman of the Company’s Board of Directors. Fairholme Capital receives no compensation for their services as the Company’s investment advisor.

Pursuant to the terms of the Company's Investment Management Agreement as amended (the “Agreement”) with Fairholme Capital, Fairholme Capital agreed to supervise and direct the investments of an investment account established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board of Directors. The investment guidelines are set forth in the Agreement and require that, as of the date of any investment: (i) at least 50% of the investment account be held in cash or cash equivalents, as defined in the Agreement, (ii) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government) and (iii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% but not 15%, requires the consent of at least two members of the Investment Committee. The investment account may not be invested in common stock securities.

As of December 31, 2014, the investment account included $20.0 million of money market funds (all of which are classified within cash and cash equivalents on the Company’s Consolidated Balance Sheets), $509.8 million of U.S. Treasury securities (all of which are classified within investments on the Company’s Consolidated Balance Sheets), and $100.1 million of corporate debt securities and $27.0 million of preferred stock. As of December 31, 2014, the Company’s corporate debt securities were invested in one issuer who is a national retail chain that is non-investment grade. In addition, a portion of the Company’s preferred stock investments of $23.7 million was issued by a financial services firm that is non-investment grade.

During 2014, realized losses from the sale of available-for-sale securities were $0.8 million and proceeds from the sale of available-for-sale securities were $83.2 million and proceeds from the maturity of available-for-sale securities were $150.0 million (which were primarily reinvested in U.S. treasury securities). During 2013, realized gains from the sale of available-for-sale securities were $0.1 million, proceeds from the sale of available-for-sale securities were $7.7 million and proceeds from the maturity of U.S. Treasury securities were $100.0 million.

As of December 31, 2014, certain of the Company’s U.S. Treasuries and preferred stock had unrealized losses. At December 31, 2013, there were no U.S. treasury securities with unrealized losses. As of December 31, 2014, corporate debt securities that have been in an unrealized loss position for less than twelve months had a fair value of $100.1 million and had $1.5 million of unrealized losses. As of December 31, 2013, corporate debt securities that had been in a continuous unrealized loss position for less than twelve months had a with a fair value of $22.0 million and had $2.2 million of unrealized losses.

The Company evaluates investments classified as available-for-sale with unrealized losses to determine if they are other-than-temporary impaired. This evaluation is based on various factors, including the financial condition, business prospects, industry and creditworthiness of the issuer, severity and length of time the securities were in a loss position, the Company’s ability and intent to hold investments until unrealized losses are recovered or until maturity and amount of the unrealized loss. If a decline in fair value is considered other-than-temporary, the decline is then bifurcated into its credit and non-credit related components. The amount of the credit-related component is recognized in earnings, and the amount of the non-credit related component is recognized in other comprehensive loss, unless the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security prior to its anticipated recovery.

During 2014, the Company determined that unrealized losses related to its corporate debt securities were other-than-temporary and the Company recorded $1.3 million related to credit-related losses in Investment income, net on the Company’s Consolidated Statements of Income. The credit-losses were measured as the difference between the present value of the expected cash flows of the corporate debt securities discounted using the effective interest rate at the date of purchase and the amortized cost of the corporate debt securities. The non-credit component of was recorded in Accumulated other comprehensive loss as of December 31, 2014. At December 31, 2013, the unrealized losses related to the corporate debt securities of $2.2 million were deemed temporary and included in Accumulated other comprehensive loss as of December 31, 2013.

The net carrying value and estimated fair value of investments classified as available-for-sale at December 31, 2014, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations.



	Cost		Fair Value
Due in one year or less	$	509,783	$	509,815
Due after one year through five years	101,587		100,105
	611,370		609,920
Preferred stock	26,963		26,958
	$	638,333	$	636,878