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Investments
 12 Months Ended
Dec. 31, 2016
Investments Debt And Equity Securities [Abstract]  
Investments

NOTE 3.  INVESTMENTS

The following tables set forth our Company’s available- for- sale investments as of December 31, 2016 and 2015 and include OTTI securities recognized within AOCI:

 

 

 

December 31, 2016

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Amortized

 

amounts in thousands

 

Fair Value

 

 

Gains

 

 

Losses

 

 

Cost

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds, agency bonds and foreign

   government bonds

 

$

273,776

 

 

$

2,192

 

 

$

(5,128

)

 

$

276,712

 

States, municipalities and political subdivisions

 

 

547,415

 

 

 

11,542

 

 

 

(4,036

)

 

 

539,909

 

Mortgage-backed and asset-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

 

487,364

 

 

 

4,016

 

 

 

(6,585

)

 

 

489,933

 

Residential mortgage obligations

 

 

20,530

 

 

 

453

 

 

 

(55

)

 

 

20,132

 

Asset-backed securities

 

 

314,601

 

 

 

824

 

 

 

(1,178

)

 

 

314,955

 

Commercial mortgage-backed securities

 

 

154,139

 

 

 

2,859

 

 

 

(1,904

)

 

 

153,184

 

Subtotal

 

$

976,634

 

 

$

8,152

 

 

$

(9,722

)

 

$

978,204

 

Corporate bonds

 

 

838,057

 

 

 

10,185

 

 

 

(5,528

)

 

 

833,400

 

Total fixed maturities

 

$

2,635,882

 

 

$

32,071

 

 

$

(24,414

)

 

$

2,628,225

 

Equity securities

 

 

349,142

 

 

 

27,016

 

 

 

(5,785

)

 

 

327,911

 

Short-term investments

 

 

143,539

 

 

 

88

 

 

 

—

 

 

 

143,451

 

Total investments

 

$

3,128,563

 

 

$

59,175

 

 

$

(30,199

)

 

$

3,099,587

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Amortized

 

amounts in thousands

 

Fair 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

 

 

 

During 2016 our Company made strategic investments in certain companies which are reported as Other invested assets on the Consolidated Balance Sheet and accounted for using the equity method.  In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our Company’s proportionate share of the net income or loss of the companies. Our initial purchase price of $2.0 million is reflected in our December 31, 2016 Consolidated Balance Sheet at $2.0 million.

 

As of December 31, 2016 and 2015, 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 December 31, 2016 and 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 December 31, 2016 are shown in the following table:

 

 

 

December 31, 2016

 

 

 

 

 

 

 

Amortized

 

amounts in thousands

 

Fair Value

 

 

Cost

 

Due in one year or less

 

$

133,644

 

 

$

134,931

 

Due after one year through five years

 

 

778,875

 

 

 

778,511

 

Due after five years through ten years

 

 

295,742

 

 

 

291,811

 

Due after ten years

 

 

450,987

 

 

 

444,768

 

Mortgage-backed and asset-backed securities

 

 

976,634

 

 

 

978,204

 

Total

 

$

2,635,882

 

 

$

2,628,225

 

 

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 4.9 years.

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

 

 

 

December 31, 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

 

$

150,891

 

 

$

(2,570

)

 

$

16,819

 

 

$

(2,558

)

 

$

167,710

 

 

$

(5,128

)

States, municipalities and political subdivisions

 

 

137,731

 

 

 

(3,111

)

 

 

13,255

 

 

 

(925

)

 

 

150,986

 

 

 

(4,036

)

Mortgage-backed and asset-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

 

349,119

 

 

 

(6,155

)

 

 

12,401

 

 

 

(430

)

 

 

361,520

 

 

 

(6,585

)

Residential mortgage obligations

 

 

953

 

 

 

(18

)

 

 

926

 

 

 

(37

)

 

 

1,879

 

 

 

(55

)

Asset-backed securities

 

 

95,514

 

 

 

(970

)

 

 

48,093

 

 

 

(208

)

 

 

143,607

 

 

 

(1,178

)

Commercial mortgage-backed securities

 

 

51,932

 

 

 

(1,164

)

 

 

7,910

 

 

 

(740

)

 

 

59,842

 

 

 

(1,904

)

Subtotal

 

$

497,518

 

 

$

(8,307

)

 

$

69,330

 

 

$

(1,415

)

 

$

566,848

 

 

$

(9,722

)

Corporate bonds

 

 

325,733

 

 

 

(5,086

)

 

 

26,005

 

 

 

(442

)

 

 

351,738

 

 

 

(5,528

)

Total fixed maturities

 

$

1,111,873

 

 

$

(19,074

)

 

$

125,409

 

 

$

(5,340

)

 

$

1,237,282

 

 

$

(24,414

)

Equity securities

 

 

145,014

 

 

 

(5,419

)

 

 

1,994

 

 

 

(366

)

 

 

147,008

 

 

 

(5,785

)

Total fixed maturities and equity securities

 

$

1,256,887

 

 

$

(24,493

)

 

$

127,403

 

 

$

(5,706

)

 

$

1,384,290

 

 

$

(30,199

)

 

 

 

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

)

 

 

Our Company analyzes impaired securities quarterly to determine if any impairments are other-than-temporary. The above securities with unrealized losses have been determined to be temporarily impaired based on our evaluation.

 

At December 31, 2016, there were 413 Fixed maturities and 75 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 and is mostly due to an unfavorable foreign exchange movement in our Canadian portfolio. To a lesser extent the gross unrealized loss for the greater than 12 months category is driven by unrealized losses on our longer dated municipal securities which were impacted by rising interest rates and credit spreads widening. The gross unrealized loss for the less than 12 months category consists primarily of agency mortgage backed securities, corporate bonds and preferred stocks, which are reported in equity securities, due to an increase in interest rates.   At December 31, 2015, there were 368 fixed maturities and 57 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 mostly due to an unfavorable foreign exchange movement in our Canadian portfolio.  The gross unrealized loss for the less than 12 months category consists primarily of corporate bonds in the energy sector which have been impacted by recent declines in oil prices.  To a lesser extent, losses on equity securities in the less than 12 month category were impacted by volatility in the equity markets coupled with the timing of the purchases of certain equity securities.

As of December 31, 2016 and 2015, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $1.0 million and $2.6 million, respectively.

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 one credit related OTTI loss totaling $0.2 million during the year ended December 31, 2016 from our fixed maturities portfolio. Our Company had three credit related OTTI losses totaling $1.7 million during the year ended December 31, 2015 from our equity portfolio. Our Company did not have any credit related OTTI losses during the year ended December 31, 2014.     

 

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on fixed maturities for the years ended December 31, 2016, 2015 and 2014.

 

 

Years Ended December 31,

 

amounts in thousands

 

2016

 

 

2015

 

 

2014

 

Beginning balance

 

$

2,361

 

 

$

2,361

 

 

$

5,154

 

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

)

 

 

—

 

 

 

(2,793

)

Ending balance

 

$

2,361

 

 

$

2,361

 

 

$

2,361

 

 

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

 

 

 

Years Ended December 31,

 

amounts in thousands

 

2016

 

 

2015

 

 

2014

 

Fixed maturities

 

$

67,772

 

 

$

61,572

 

 

$

57,219

 

Equity securities

 

 

14,271

 

 

 

9,813

 

 

 

9,036

 

Short-term investments

 

 

727

 

 

 

683

 

 

 

911

 

Total investment income

 

$

82,770

 

 

$

72,068

 

 

$

67,166

 

Investment expenses

 

 

(3,319

)

 

 

(3,350

)

 

 

(2,998

)

Net investment income

 

$

79,451

 

 

$

68,718

 

 

$

64,168

 

 

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

 

 

 

Years Ended December 31,

 

amounts in thousands

 

2016

 

 

2015

 

 

2014

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

Gains

 

$

5,681

 

 

$

4,756

 

 

$

8,326

 

Losses

 

 

(4,271

)

 

 

(5,926

)

 

 

(2,610

)

Fixed maturities, net

 

$

1,410

 

 

$

(1,170

)

 

$

5,716

 

Short-term:

 

 

 

 

 

 

 

 

 

 

 

 

Gains

 

$

890

 

 

$

130

 

 

$

—

 

Losses

 

 

(1,552

)

 

 

(383

)

 

 

—

 

Short-term, net

 

$

(662

)

 

$

(253

)

 

$

—

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Gains

 

$

9,096

 

 

$

14,331

 

 

$

9,447

 

Losses

 

 

(658

)

 

 

(4,535

)

 

 

(2,351

)

Equity securities, net

 

$

8,438

 

 

$

9,796

 

 

$

7,096

 

Net realized gains (losses)

 

$

9,186

 

 

$

8,373

 

 

$

12,812