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Investments
 3 Months Ended
Mar. 31, 2017
Investments Debt And Equity Securities [Abstract]  
Investments

NOTE 3.  INVESTMENTS

The following tables set forth our Company’s available-for-sale investments as of March 31, 2017 and December 31, 2016 and include Other-than-temporary-impairment (“OTTI”) securities recognized within Accumulated other comprehensive income (“AOCI”):

 

 

 

March 31, 2017

 

 

 

 

 

 

 

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

 

$

270,009

 

 

$

2,110

 

 

$

(3,671

)

 

$

271,570

 

States, municipalities and political subdivisions

 

 

604,912

 

 

 

13,772

 

 

 

(3,353

)

 

 

594,493

 

Mortgage-backed and asset-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

 

468,255

 

 

 

3,858

 

 

 

(7,051

)

 

 

471,448

 

Residential mortgage obligations

 

 

16,970

 

 

 

439

 

 

 

(37

)

 

 

16,568

 

Asset-backed securities

 

 

331,567

 

 

 

1,470

 

 

 

(769

)

 

 

330,866

 

Commercial mortgage-backed securities

 

 

147,353

 

 

 

2,670

 

 

 

(1,843

)

 

 

146,526

 

Subtotal

 

$

964,145

 

 

$

8,437

 

 

$

(9,700

)

 

$

965,408

 

Corporate exposures

 

 

856,211

 

 

 

12,948

 

 

 

(3,741

)

 

 

847,004

 

Total fixed maturities

 

$

2,695,277

 

 

$

37,267

 

 

$

(20,465

)

 

$

2,678,475

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

$

169,905

 

 

$

29,474

 

 

$

(652

)

 

$

141,083

 

Preferred stocks

 

 

192,309

 

 

 

7,702

 

 

 

(1,220

)

 

 

185,827

 

Total Equity securities

 

$

362,214

 

 

$

37,176

 

 

$

(1,872

)

 

$

326,910

 

Short-term investments

 

 

123,846

 

 

 

50

 

 

 

—

 

 

 

123,796

 

Total investments

 

$

3,181,337

 

 

$

74,493

 

 

$

(22,337

)

 

$

3,129,181

 

 

 

 

December 31, 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

 

$

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 exposures

 

 

838,057

 

 

 

10,185

 

 

 

(5,528

)

 

 

833,400

 

Total fixed maturities

 

$

2,635,882

 

 

$

32,071

 

 

$

(24,414

)

 

$

2,628,225

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

$

164,087

 

 

$

24,677

 

 

$

(964

)

 

$

140,374

 

Preferred stocks

 

 

185,055

 

 

 

2,339

 

 

 

(4,821

)

 

 

187,537

 

Total 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

 

 

Corporate exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

During 2016, our 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.  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 investments. Our initial purchase price for these investments was $2.0 million with a current carrying value of $1.8 million at March 31, 2017 as reflected on our Consolidated Balance Sheet.

 

As of March 31, 2017 and December 31, 2016, our Company did not have a concentration of greater than 5% of invested assets in a single non-government backed issuer.

 

As of March 31, 2017 and December 31, 2016, Fixed maturities for which non-credit OTTI was previously recognized and included in AOCI were in a net unrealized gain position of $0.4 million in each period.

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 March 31, 2017 are shown in the following table:

 

 

 

March 31, 2017

 

 

 

Fair

 

 

Amortized

 

amounts in thousands

 

Value

 

 

Cost

 

Due in one year or less

 

$

173,505

 

 

$

174,014

 

Due after one year through five years

 

 

732,625

 

 

 

730,523

 

Due after five years through ten years

 

 

321,037

 

 

 

315,580

 

Due after ten years

 

 

503,965

 

 

 

492,950

 

Mortgage-backed and asset-backed securities

 

 

964,145

 

 

 

965,408

 

Total

 

$

2,695,277

 

 

$

2,678,475

 

 

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 4.8 years.

The following tables summarize all securities in a gross unrealized loss position as of March 31, 2017 and December 31, 2016, 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:

 

 

 

March 31, 2017

 

 

 

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

 

$

153,332

 

 

$

(2,275

)

 

$

11,844

 

 

$

(1,396

)

 

$

165,176

 

 

$

(3,671

)

States, municipalities and political subdivisions

 

 

120,372

 

 

 

(2,534

)

 

 

17,706

 

 

 

(819

)

 

 

138,078

 

 

 

(3,353

)

Mortgage-backed and asset-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

 

347,179

 

 

 

(6,622

)

 

 

11,810

 

 

 

(429

)

 

 

358,989

 

 

 

(7,051

)

Residential mortgage obligations

 

 

486

 

 

 

(5

)

 

 

1,204

 

 

 

(32

)

 

 

1,690

 

 

 

(37

)

Asset-backed securities

 

 

68,847

 

 

 

(708

)

 

 

17,944

 

 

 

(61

)

 

 

86,791

 

 

 

(769

)

Commercial mortgage-backed securities

 

 

51,336

 

 

 

(1,024

)

 

 

6,385

 

 

 

(819

)

 

 

57,721

 

 

 

(1,843

)

Subtotal

 

$

467,848

 

 

$

(8,359

)

 

$

37,343

 

 

$

(1,341

)

 

$

505,191

 

 

$

(9,700

)

Corporate exposures

 

 

269,427

 

 

 

(3,571

)

 

 

21,901

 

 

 

(170

)

 

 

291,328

 

 

 

(3,741

)

Total fixed maturities

 

$

1,010,979

 

 

$

(16,739

)

 

$

88,794

 

 

$

(3,726

)

 

$

1,099,773

 

 

$

(20,465

)

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stocks

 

$

28,586

 

 

$

(652

)

 

$

—

 

 

$

—

 

 

$

28,586

 

 

$

(652

)

Preferred Stocks

 

 

42,470

 

 

 

(1,128

)

 

 

2,557

 

 

 

(92

)

 

 

45,027

 

 

 

(1,220

)

Total Equity securities

 

$

71,056

 

 

$

(1,780

)

 

$

2,557

 

 

$

(92

)

 

$

73,613

 

 

$

(1,872

)

Total fixed maturities and equity securities

 

$

1,082,035

 

 

$

(18,519

)

 

$

91,351

 

 

$

(3,818

)

 

$

1,173,386

 

 

$

(22,337

)

 

 

 

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 exposures

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

$

31,272

 

 

$

(634

)

 

$

1,471

 

 

$

(330

)

 

$

32,743

 

 

$

(964

)

Preferred stocks

 

 

113,742

 

 

 

(4,785

)

 

 

523

 

 

 

(36

)

 

 

114,265

 

 

 

(4,821

)

Total 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

)

 

 

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

 

As of March 31, 2017, there were 398 Fixed maturities and 45 Equity securities in an unrealized loss position. As of December 31, 2016, there were 413 Fixed maturities and 75 Equity securities in an unrealized loss position. As of March 31, 2017 and December 31, 2016, 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. 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 bonds and one commercial mortgage-backed security which were impacted by rising interest rates and widening credit spreads. The gross unrealized loss for the less than 12 months category for the period ended March 31, 2017 and December 31, 2016 consists primarily of agency mortgage-backed securities and corporate exposures due to an increase in interest rates since the time of purchase.    

As of March 31, 2017 and December 31, 2016, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $1.1 million and $1.0 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 two credit related OTTI losses of $1.1 million in the equity portfolio during the three months ended March 31, 2017.  Our Company did not have any credit related losses during the three months ended March 31, 2016.

As of March 31, 2017 and 2016, the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on Fixed maturities was $2.4 million.  There was no change to the cumulative amounts of our Company’s credit loss portion of OTTI for the three months ended March 31, 2017 and 2016.

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

 

 

 

Three Months Ended March 31,

 

 

amounts in thousands

 

2017

 

 

2016

 

 

Fixed maturities

 

$

18,341

 

 

$

16,737

 

 

Equity securities

 

 

3,784

 

 

 

3,447

 

 

Short-term investments

 

 

212

 

 

 

210

 

 

Total investment income

 

$

22,337

 

 

$

20,394

 

 

Investment expenses

 

 

(889

)

 

 

(800

)

 

Net investment income

 

$

21,448

 

 

$

19,594

 

 

 

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

 

 

 

Three Months Ended March 31,

 

 

amounts in thousands

 

2017

 

 

2016

 

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

Gains

 

$

468

 

 

$

2,548

 

 

Losses

 

 

(1,256

)

 

 

(1,127

)

 

Fixed maturities, net

 

$

(788

)

 

$

1,421

 

 

Short-term:

 

 

 

 

 

 

 

 

 

Gains

 

$

112

 

 

$

268

 

 

Losses

 

 

(191

)

 

 

(83

)

 

Short-term, net

 

$

(79

)

 

$

185

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

Gains

 

$

1,916

 

 

$

609

 

 

Losses

 

 

—

 

 

 

(618

)

 

Equity securities, net

 

$

1,916

 

 

$

(9

)

 

Net realized gains

 

$

1,049

 

 

$

1,597