Note 3. Investments

The following tables set forth our Company’s investments as of September 30, 2015 and December 31, 2014 and include Other-than-temporary-impairment (“OTTI”) securities recognized within AOCI:

	As of September 30, 2015
			Gross		Gross			Cost or
	Fair		Unrealized		Unrealized			Amortized
amounts in thousands	Value		Gains		(Losses)			Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	301,915	$	4,327	$	(8,812	)	$	306,400
States, municipalities and political subdivisions		571,104		17,402		(927	)		554,629
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		360,198		7,200		(912	)		353,910
Residential mortgage obligations		31,568		854		(104	)		30,818
Asset-backed securities		197,934		591		(846	)		198,189
Commercial mortgage-backed securities		204,876		5,335		(958	)		200,499
Subtotal	$	794,576	$	13,980	$	(2,820	)	$	783,416
Corporate bonds		729,392		10,776		(4,111	)		722,727
Total fixed maturities	$	2,396,987	$	46,485	$	(16,670	)	$	2,367,172
Equity securities		274,928		16,486		(7,318	)		265,760
Short-term investments		233,142		33		—			233,109
Total investments	$	2,905,057	$	63,004	$	(23,988	)	$	2,866,041

	As of December 31, 2014
			Gross		Gross			Cost or
	Fair		Unrealized		Unrealized			Amortized
amounts in thousands	Value		Gains		(Losses)			Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities		184,295		30,756		(1,304	)		154,843
Short-term investments		179,506		—		(21	)		179,527
Total investments	$	2,729,735	$	83,078	$	(11,672	)	$	2,658,329

As of September 30, 2015 and December 31, 2014, our Company did not have a concentration of greater than 5% of invested assets in a single non-U.S. government-backed issuer.

As of September 30, 2015 and December 31, 2014, Fixed maturities for which non-credit OTTI was previously recognized and included in AOCI are now in an unrealized gains position of $0.6 million and $0.7 million, respectively.

The fair value of our Company’s investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. Our Company does not have the intent to sell nor is it more likely than not that it will have to sell Fixed maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell, and it is more likely than not that our Company will not be required to sell, these securities before the recovery of the amortized cost basis. For Equity securities, our Company also considers our intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. Our Company may realize investment losses to the extent our liquidity needs require the disposition of Fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors our Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the Consolidated Financial Statements.

The contractual maturity dates for Fixed maturities categorized by the number of years until maturity as of September 30, 2015 are shown in the following table:

	As of September 30, 2015
	Fair		Amortized
amounts in thousands	Value		Cost
Due in one year or less	$	82,515	$	86,268
Due after one year through five years		802,221		794,442
Due after five years through ten years		307,813		302,656
Due after ten years		409,862		400,390
Mortgage-backed and asset-backed securities		794,576		783,416
Total	$	2,396,987	$	2,367,172

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Prepayment assumptions associated with the mortgage-backed and asset-backed securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective accounting method. Due to the periodic repayment of principal, the mortgage-backed and asset-backed securities are estimated to have an effective maturity of approximately 4.6 years.

The following tables summarize all securities in a gross unrealized loss position as of September 30, 2015 and December 31, 2014, showing the aggregate fair value and gross unrealized loss by the length of time those securities have continuously been in a gross unrealized loss position:

	As of September 30, 2015
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
amounts in thousands	Value		(Losses)			Value		(Losses)			Value		(Losses)
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	37,766	$	(1,866	)	$	28,143	$	(6,946	)	$	65,909	$	(8,812	)
States, municipalities and political subdivisions		54,653		(540	)		4,669		(387	)		59,322		(927	)
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		52,009		(259	)		23,259		(653	)		75,268		(912	)
Residential mortgage obligations		5,196		(22	)		1,947		(82	)		7,143		(104	)
Asset-backed securities		28,823		(146	)		78,725		(700	)		107,548		(846	)
Commercial mortgage-backed securities		47,297		(939	)		3,440		(19	)		50,737		(958	)
Subtotal	$	133,325	$	(1,366	)	$	107,371	$	(1,454	)	$	240,696	$	(2,820	)
Corporate bonds		224,426		(3,454	)		17,784		(657	)		242,210		(4,111	)
Total fixed maturities	$	450,170	$	(7,226	)	$	157,967	$	(9,444	)	$	608,137	$	(16,670	)
Equity securities		128,247		(7,318	)		—		—			128,247		(7,318	)
Total fixed maturities and equity securities	$	578,417	$	(14,544	)	$	157,967	$	(9,444	)	$	736,384	$	(23,988	)

	As of December 31, 2014
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
amounts in thousands	Value		(Losses)			Value		(Losses)			Value		(Losses)
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	87,915	$	(1,061	)	$	117,683	$	(4,904	)	$	205,598	$	(5,965	)
States, municipalities and political subdivisions		16,349		(60	)		37,340		(498	)		53,689		(558	)
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		18,881		(80	)		58,301		(918	)		77,182		(998	)
Residential mortgage obligations		5,625		(50	)		1,728		(88	)		7,353		(138	)
Asset-backed securities		110,275		(539	)		34,530		(425	)		144,805		(964	)
Commercial mortgage-backed securities		19,741		(71	)		1,391		(27	)		21,132		(98	)
Subtotal	$	154,522	$	(740	)	$	95,950	$	(1,458	)	$	250,472	$	(2,198	)
Corporate bonds		190,461		(871	)		31,126		(755	)		221,587		(1,626	)
Total fixed maturities	$	449,247	$	(2,732	)	$	282,099	$	(7,615	)	$	731,346	$	(10,347	)
Equity securities		19,690		(1,297	)		238		(7	)		19,928		(1,304	)
Total fixed maturities and equity securities	$	468,937	$	(4,029	)	$	282,337	$	(7,622	)	$	751,274	$	(11,651	)

As of September 30, 2015, there were 252 Fixed maturities and 58 Equity securities in an unrealized loss position. In the above table, the gross unrealized loss for the greater than 12 months category consists primarily of agency and foreign government bonds principally due to an unfavorable foreign exchange movement. As of December 31, 2014, there were 259 Fixed maturities and 15 Equity securities in an unrealized loss position. The gross unrealized loss for the greater than 12 months category consists primarily of Treasury and agency bonds, due to an increase in interest rates and unfavorable foreign exchange movement.

As of September 30, 2015 and December 31, 2014, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.7 million and $0.5 million, respectively.

Our Company analyzes impaired securities quarterly to determine if any are other-than-temporary. The above securities with unrealized losses have been determined to be temporarily impaired based on our evaluation. For Fixed maturities, when assessing whether the amortized cost basis of the security will be recovered, our Company compares the present value of cash flows expected to be collected in relation to the current book value. Any shortfalls of the present value of the cash flows expected to be collected to the amortized cost basis is considered the credit loss portion of OTTI losses and is recognized in earnings. All non-credit losses are recognized as changes in OTTI losses within AOCI.

To determine whether the unrealized loss on structured securities is other-than-temporary, our Company analyzes the projections provided by our investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break-even default rate is also calculated. A comparison of the break-even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. For securities in which a tranche loss is present and the net present value of loss adjusted cash flows is less than book value, impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability, severity and prepayment assumptions. Projected losses are a function of both loss severity and probability of default, which differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell, and it is more likely than not that it will not be required to sell, these securities before the recovery of the amortized cost basis.

For Equity securities, in general, our Company reviews securities with a fair value less than 80% of their cost for six or more consecutive months. If warranted as the result of conditions relating to a particular security, our Company will review significant declines in fair value regardless of the time period involved. Factors considered in evaluating potential impairment include, but are not limited to, the current fair value as compared to cost of the security, the length of time the investment has been below cost and by how much the investment is below cost. If an Equity security is deemed to be other-than-temporarily impaired, the cost is written down to fair value with the loss recognized in earnings.

Our Company’s ability to hold securities is supported by sufficient cash flow from our operations and from maturities within our investment portfolio in order to meet our claims payments and other disbursement obligations arising from our underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security's value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

Our Company had three credit related OTTI losses of $1.3 million and $1.7 million in the equity portfolio during the three and nine months ended September 30, 2015, respectively. Our Company did not have any credit related OTTI losses during the three and nine months ended September 30, 2014.

As of September 30, 2015 and 2014, the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on Fixed maturities were $2.4 million and $2.7 million, respectively. There was no activity for the three and nine months ended September 30, 2015 related to these amounts. We sold one bond with a credit loss of $1.5 million during the three and nine months ended September 30, 2014 related to these amounts. Our Company does not intend to sell, and it is more likely than not that it will not be required to sell, the securities prior to recovery of the amortized cost basis and for which the non-credit loss portion is included in AOCI.

Our Company’s Net investment income was derived from the following sources:

	Three Months Ended September 30,						Nine Months Ended September 30,
amounts in thousands	2015			2014			2015			2014
Fixed maturities	$	15,353		$	14,401		$	45,660		$	42,540
Equity securities		2,543			1,956			6,383			7,160
Short-term investments		272			225			604			686
Total investment income	$	18,168		$	16,582		$	52,647		$	50,386
Investment expenses		(797	)		(743	)		(2,428	)		(2,289	)
Net investment income	$	17,371		$	15,839		$	50,219		$	48,097

Realized gains and losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
amounts in thousands	2015			2014			2015			2014
Fixed maturities:
Gains	$	484		$	3,702		$	2,889		$	8,682
Losses		(667	)		(1,645	)		(2,757	)		(3,752	)
Fixed maturities, net	$	(183	)	$	2,057		$	132		$	4,930
Short-term:
Gains	$	9		$	—		$	109		$	—
Losses		(120	)		—			(273	)		—
Short-term, net	$	(111	)	$	—		$	(164	)	$	—
Equity securities:
Gains	$	1,107		$	6,109		$	12,185		$	9,445
Losses		(295	)		(1,448	)		(1,700	)		(2,351	)
Equity securities, net	$	812		$	4,661		$	10,485		$	7,094
Net realized gains (losses)	$	518		$	6,718		$	10,453		$	12,024