NOTE 3. INVESTMENTS

The following tables set forth our Company’s investments as of September 30, 2016 and December 31, 2015 and include Other-than-temporary-impairment (“OTTI”) securities recognized within Accumulated other comprehensive income (“AOCI”):

	September 30, 2016
			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	$	262,030	$	3,691	$	(3,981	)	$	262,320
States, municipalities and political subdivisions		580,324		29,288		(769	)		551,805
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		526,069		11,778		(105	)		514,396
Residential mortgage obligations		27,055		455		(97	)		26,697
Asset-backed securities		288,636		1,503		(458	)		287,591
Commercial mortgage-backed securities		165,405		6,392		(423	)		159,436
Subtotal	$	1,007,165	$	20,128	$	(1,083	)	$	988,120
Corporate bonds		810,898		23,447		(1,354	)		788,805
Total fixed maturities	$	2,660,417	$	76,554	$	(7,187	)	$	2,591,050
Equity securities		342,677		38,538		(1,767	)		305,906
Other invested assets		2,021		—		—			2,021
Short-term investments		134,273		—		—			134,273
Total investments	$	3,139,388	$	115,092	$	(8,954	)	$	3,033,250

	December 31, 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	$	252,882	$	2,273	$	(9,214	)	$	259,823
States, municipalities and political subdivisions		576,859		21,233		(781	)		556,407
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		379,269		5,573		(2,082	)		375,778
Residential mortgage obligations		30,465		694		(82	)		29,853
Asset-backed securities		225,012		85		(1,624	)		226,551
Commercial mortgage-backed securities		189,713		3,119		(1,864	)		188,458
Subtotal	$	824,459	$	9,471	$	(5,652	)	$	820,640
Corporate bonds		760,010		7,373		(10,738	)		763,375
Total fixed maturities	$	2,414,210	$	40,350	$	(26,385	)	$	2,400,245
Equity securities		305,271		26,341		(3,013	)		281,943
Short-term investments		217,745		2		—			217,743
Total investments	$	2,937,226	$	66,693	$	(29,398	)	$	2,899,931

As of September 30, 2016 and December 31, 2015, our Company did not have a concentration of greater than 5% of invested assets in a single non-government backed issuer.

During the third quarter of 2016, the Company made investments in certain companies, which are reported as Other invested assets on the Consolidated Balance Sheet and accounted for using the equity method. Our initial estimate of the net asset value of these investments is the transaction price. We believe the net asset value to be a practical expedient for the fair value of these investments.

As of September 30, 2016 and December 31, 2015, Fixed maturities for which non-credit OTTI was previously recognized and included in AOCI are now in a net unrealized net gains position of $0.4 million and $0.5 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, 2016 are shown in the following table:

	September 30, 2016
	Fair		Amortized
amounts in thousands	Value		Cost
Due in one year or less	$	81,849	$	83,551
Due after one year through five years		810,165		799,159
Due after five years through ten years		296,471		281,368
Due after ten years		464,767		438,852
Mortgage-backed and asset-backed securities		1,007,165		988,120
Total	$	2,660,417	$	2,591,050

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 4.1 years.

The following tables summarize all securities in a gross unrealized loss position as of September 30, 2016 and December 31, 2015, 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:

	September 30, 2016
	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	$	91,676	$	(969	)	$	19,897	$	(3,012	)	$	111,573	$	(3,981	)
States, municipalities and political subdivisions		49,881		(593	)		9,932		(176	)		59,813		(769	)
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		52,754		(17	)		13,547		(88	)		66,301		(105	)
Residential mortgage obligations		1,317		(16	)		1,631		(81	)		2,948		(97	)
Asset-backed securities		22,422		(158	)		61,499		(300	)		83,921		(458	)
Commercial mortgage-backed securities		20,864		(38	)		8,854		(385	)		29,718		(423	)
Subtotal	$	97,357	$	(229	)	$	85,531	$	(854	)	$	182,888	$	(1,083	)
Corporate bonds		120,114		(622	)		23,053		(732	)		143,167		(1,354	)
Total fixed maturities	$	359,028	$	(2,413	)	$	138,413	$	(4,774	)	$	497,441	$	(7,187	)
Equity securities		38,050		(1,490	)		4,723		(277	)		42,773		(1,767	)
Total fixed maturities and equity securities	$	397,078	$	(3,903	)	$	143,136	$	(5,051	)	$	540,214	$	(8,954	)

	December 31, 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	$	142,233	$	(3,032	)	$	22,230	$	(6,182	)	$	164,463	$	(9,214	)
States, municipalities and political subdivisions		50,577		(549	)		4,808		(232	)		55,385		(781	)
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		164,817		(1,315	)		29,862		(767	)		194,679		(2,082	)
Residential mortgage obligations		3,910		(5	)		1,684		(77	)		5,594		(82	)
Asset-backed securities		112,479		(663	)		81,477		(961	)		193,956		(1,624	)
Commercial mortgage-backed securities		83,024		(1,826	)		3,065		(38	)		86,089		(1,864	)
Subtotal	$	364,230	$	(3,809	)	$	116,088	$	(1,843	)	$	480,318	$	(5,652	)
Corporate bonds		395,399		(10,114	)		13,849		(624	)		409,248		(10,738	)
Total fixed maturities	$	952,439	$	(17,504	)	$	156,975	$	(8,881	)	$	1,109,414	$	(26,385	)
Equity securities		58,531		(3,013	)		—		—			58,531		(3,013	)
Total fixed maturities and equity securities	$	1,010,970	$	(20,517	)	$	156,975	$	(8,881	)	$	1,167,945	$	(29,398	)

As of September 30, 2016, there were 177 Fixed maturities and 42 Equity securities in an unrealized loss position. As of December 31, 2015, there were 368 Fixed maturities and 57 Equity securities in an unrealized loss position. As of September 30, 2016 and December 31, 2015, 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. The gross unrealized losses for the less than 12 months category for the period ended September 30, 2016 is broadly spread across our common equity portfolio and to a lesser extent, agency and foreign government bonds due to an unfavorable exchange movement. The gross unrealized loss for the less than 12 months category for the period ended December 31, 2015 consists primarily of Corporate bonds in the energy sector, which have been impacted by the recent decline in oil prices.

As of September 30, 2016 and December 31, 2015, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.4 million and $2.6 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.

Our Company reviews the magnitude of a security’s unrealized loss compared to its cost/amortized cost and the length of time that the security has been impaired to determine if an unrealized loss is other-than-temporary. If warranted as a result of conditions relating to a particular security, our Company will also review securities with declines in fair value resulting from a headline news event involving the issuer, a headline news event involving the asset class, the advice of our external asset managers, or economic events that may impact the issuer to determine if an unrealized loss is other-than-temporary. The depth of analysis performed is dependent upon the nature and magnitude of the indicators of other-than-temporary impairment present in regards to each impaired security.

For Equity securities, our Company performs a fundamental analysis of the issuer, including an evaluation of the mean analysts’ target price, to assess the likelihood of recovery of our cost basis in the security. Management also assesses the likelihood of future cash flows, dividends and increases to dividends, all of which affect the securities eligibility for our equity strategy and therefore our intent to hold the security. 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.

For Fixed maturities, our Company assesses the underlying fundamentals of each issuer to determine if there is a change in the amount or timing of expected cash flows. Management compares the amortized cost basis to the present value of the revised cash flows using the historical book yield to determine the credit loss portion of impairment which is recognized in earnings. All non-credit losses where we have the intent and ability to hold the security until recovery are recognized as changes in OTTI losses within AOCI.

Specifically for structured Fixed maturities, our Company analyzes 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, credit impairment is recognized in earnings. 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’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.

As of September 30, 2016, our Company does not intend to sell, and it is more-likely-than-not that it will not be required to sell any of its securities with unrealized losses before they recover in value.

Our Company had no credit related OTTI losses during the three months ended September 30, 2016. Our Company had one credit related OTTI loss of $0.2 million in the Fixed maturities portfolio during the nine months ended September 30, 2016. Our Company had three credit related losses totaling $1.3 million and $1.7 million in the equity portfolio during the three and nine months ended September 30, 2015, respectively.

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on Fixed maturities for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,					Nine Months Ended September 30,
amounts in thousands	2016			2015		2016			2015
Beginning balance	$	2,511		$	2,361	$	2,361		$	2,361
Additions for credit loss impairments recognized in the current period on securities not previously impaired		—			—		150			—
Additions for credit loss impairments recognized in the current period on securities previously impaired		—			—		—			—
Reductions for credit loss impairments previously recognized on securities sold during the period		(150	)		—		(150	)		—
Ending balance	$	2,361		$	2,361	$	2,361		$	2,361

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	2016			2015			2016			2015
Fixed maturities	$	17,124		$	15,353		$	50,781		$	45,660
Equity securities		3,540			2,543			10,418			6,383
Short-term investments		70			272			568			604
Total investment income	$	20,734		$	18,168		$	61,767		$	52,647
Investment expenses		(859	)		(797	)		(2,423	)		(2,428	)
Net investment income	$	19,875		$	17,371		$	59,344		$	50,219

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	2016			2015			2016			2015
Fixed maturities:
Gains	$	1,356		$	484		$	5,200		$	2,889
Losses		(1,221	)		(667	)		(3,086	)		(2,757	)
Fixed maturities, net	$	135		$	(183	)	$	2,114		$	132
Short-term:
Gains	$	128		$	9		$	803		$	109
Losses		(107	)		(120	)		(250	)		(273	)
Short-term, net	$	21		$	(111	)	$	553		$	(164	)
Equity securities:
Gains	$	1,443		$	1,107		$	3,123		$	12,185
Losses		(13	)		(295	)		(647	)		(1,700	)
Equity securities, net	$	1,430		$	812		$	2,476		$	10,485
Net realized gains (losses)	$	1,586		$	518		$	5,143		$	10,453