NOTE 3. INVESTMENTS

The following tables set forth our Company’s available-for-sale investments as of September 30, 2017 and December 31, 2016 and include Other-Than-Temporary-Impairment (“OTTI”) securities recognized within Accumulated Other Comprehensive Income (“AOCI”):

	September 30, 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	$	269,851	$	8,169	$	(607	)	$	262,289
States, Municipalities and Political Subdivisions		684,792		20,643		(1,481	)		665,630
Mortgage-Backed and Asset-Backed Securities:
Agency Mortgage-Backed Securities		426,441		3,365		(4,298	)		427,374
Residential Mortgage Obligations		34,748		570		(27	)		34,205
Asset-Backed Securities		331,646		2,503		(426	)		329,569
Commercial Mortgage-Backed Securities		140,601		2,742		(1,308	)		139,167
Subtotal	$	933,436	$	9,180	$	(6,059	)	$	930,315
Corporate Exposures⁽¹⁾		910,106		18,221		(1,983	)		893,868
Total Fixed Maturities	$	2,798,185	$	56,213	$	(10,130	)	$	2,752,102
Equity Securities:
Common Stocks	$	180,771	$	35,179	$	(815	)	$	146,407
Preferred Stocks		195,105		7,418		(645	)		188,332
Total Equity Securities	$	375,876	$	42,597	$	(1,460	)	$	334,739
Short-Term Investments		247,607		5		—			247,602
Total Investments	$	3,421,668	$	98,815	$	(11,590	)	$	3,334,443

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

	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⁽¹⁾		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

(1) - 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 September 30, 2017 as reflected on our Consolidated Balance Sheet.

As of September 30, 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 September 30, 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 $0.5 million and $0.4 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, 2017 are shown in the following table:

	September 30, 2017
	Fair		Amortized
amounts in thousands	Value		Cost
Due in one year or less	$	218,780	$	216,537
Due after one year through five years		708,302		697,520
Due after five years through ten years		333,260		324,180
Due after ten years		604,407		583,550
Mortgage-Backed and Asset-Backed Securities		933,436		930,315
Total	$	2,798,185	$	2,752,102

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, our 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 September 30, 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:

	September 30, 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	$	67,562	$	(344	)	$	31,928	$	(263	)	$	99,490	$	(607	)
States, Municipalities and Political Subdivisions		80,570		(732	)		31,125		(749	)		111,695		(1,481	)
Mortgage-Backed and Asset-Backed Securities:
Agency Mortgage-Backed Securities		237,804		(2,846	)		56,656		(1,452	)		294,460		(4,298	)
Residential Mortgage Obligations		7,899		(6	)		586		(21	)		8,485		(27	)
Asset-Backed Securities		69,885		(379	)		4,942		(47	)		74,827		(426	)
Commercial Mortgage-Backed Securities		41,572		(594	)		7,924		(714	)		49,496		(1,308	)
Subtotal	$	357,160	$	(3,825	)	$	70,108	$	(2,234	)	$	427,268	$	(6,059	)
Corporate Exposures		150,289		(915	)		93,463		(1,068	)		243,752		(1,983	)
Total Fixed Maturities	$	655,581	$	(5,816	)	$	226,624	$	(4,314	)	$	882,205	$	(10,130	)
Equity Securities:
Common Stocks	$	15,633	$	(814	)	$	87	$	(1	)	$	15,720	$	(815	)
Preferred Stocks		31,775		(614	)		667		(31	)		32,442		(645	)
Total Equity Securities	$	47,408	$	(1,428	)	$	754	$	(32	)	$	48,162	$	(1,460	)
Total Fixed Maturities and Equity Securities	$	702,989	$	(7,244	)	$	227,378	$	(4,346	)	$	930,367	$	(11,590	)

	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 September 30, 2017, there were 317 Fixed Maturities and 35 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 September 30, 2017, the gross unrealized loss for the greater than 12 months category consists primarily of Agency Mortgage-Backed Securities and Corporate Exposures principally due to an increase in interest rates since the time of purchase. As of 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 unfavorable foreign exchange movement. The gross unrealized loss for the less than 12 months category for the period ended September 30, 2017 consists primarily of Agency Mortgage-Backed Securities due to an increase in interest rates since the time of purchase. The gross unrealized loss for the less than 12 months category for the period ended December 31, 2016 consists primarily of Agency Mortgage-Backed Securities, Corporate Exposures and Preferred Stocks, which are reported as Equity Securities, due to an increase in interest rates since the time of purchase.

As of September 30, 2017 and December 31, 2016, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.8 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 $1.0 million in the equity portfolio during the three months ended September 30, 2017. Our Company had four credit related OTTI losses of $2.1 million in the equity portfolio during the nine months ended September 30, 2017. Our Company had no credit related OTTI losses during the three months ended September 30, 2016 and one credit related OTTI loss of $0.2 million in the Fixed Maturities portfolio during the nine months ended September 30, 2016.

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, 2017 and 2016

	Three Months Ended September 30,					Nine Months Ended September 30,
amounts in thousands	2017		2016			2017		2016
Beginning Balance	$	2,361	$	2,511		$	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	2017			2016			2017			2016
Fixed Maturities	$	19,491		$	17,124		$	57,019		$	50,781
Equity Securities		3,774			3,540			11,337			10,418
Short-Term Investments		250			70			662			568
Total Investment Income	$	23,515		$	20,734		$	69,018		$	61,767
Investment Expenses		(917	)		(859	)		(2,707	)		(2,423	)
Net Investment Income	$	22,598		$	19,875		$	66,311		$	59,344

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	2017			2016			2017			2016
Fixed Maturities:
Gains	$	2,589		$	1,356		$	3,401		$	5,200
Losses		(900	)		(1,221	)		(3,114	)		(3,086	)
Fixed Maturities, Net	$	1,689		$	135		$	287		$	2,114
Short-Term:
Gains	$	767		$	128		$	1,014		$	803
Losses		(111	)		(107	)		(371	)		(250	)
Short-Term, Net	$	656		$	21		$	643		$	553
Equity Securities:
Gains	$	2,863		$	1,443		$	7,249		$	3,123
Losses		(18	)		(13	)		(246	)		(647	)
Equity Securities, Net	$	2,845		$	1,430		$	7,003		$	2,476
Net Realized Gains	$	5,190		$	1,586		$	7,933		$	5,143