Investments

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 2016 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	59,254	$	3,130	$	7	$	62,377
Obligations of states and political subdivisions		122,203		14,292		4		136,491
Corporate securities		86,582		3,360		598		89,344
Mortgage-backed securities		64,234		2,425		—		66,659
Totals	$	332,273	$	23,207	$	609	$	354,871
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	36,009	$	368	$	2	$	36,375
Obligations of states and political subdivisions		184,068		10,219		11		194,276
Corporate securities		88,826		2,156		141		90,841
Mortgage-backed securities		190,936		3,444		51		194,329
Fixed maturities		499,839		16,187		205		515,821
Equity securities		41,806		4,917		411		46,312
Totals	$	541,645	$	21,104	$	616	$	562,133

At September 30, 2016, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $229.6 million and an amortized cost of $213.6 million. Our holdings at September 30, 2016 also included special revenue bonds with an aggregate fair value of $101.2 million and an amortized cost of $92.7 million. With respect to both categories of those bonds at September 30, 2016, we held no securities of any issuer that constituted more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 62% and 24%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2016. Many of the issuers of the special revenue bonds we held at September 30, 2016 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at September 30, 2016 were similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2015 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	51,194	$	1,544	$	—	$	52,738
Obligations of states and political subdivisions		119,115		10,828		119		129,824
Corporate securities		65,307		816		1,561		64,562
Mortgage-backed securities		74,643		1,181		149		75,675
Totals	$	310,259	$	14,369	$	1,829	$	322,799
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	37,080	$	160	$	51	$	37,189
Obligations of states and political subdivisions		223,769		13,151		364		236,556
Corporate securities		73,474		350		1,012		72,812
Mortgage-backed securities		154,687		1,045		896		154,836
Fixed maturities		489,010		14,706		2,323		501,393
Equity securities		35,765		2,269		773		37,261
Totals	$	524,775	$	16,975	$	3,096	$	538,654

At December 31, 2015, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $256.9 million and an amortized cost of $241.1 million. Our holdings also included special revenue bonds with an aggregate fair value of $109.5 million and an amortized cost of $101.8 million. With respect to both categories of bonds, we held no securities of any issuer that comprised more than 10% of that category at December 31, 2015. Education bonds and water and sewer utility bonds represented 57% and 26%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2015. Many of the issuers of the special revenue bonds we held at December 31, 2015 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We made reclassifications from available for sale to held to maturity of certain fixed maturities at fair value on November 30, 2013. We segregated within accumulated other comprehensive income the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities we reclassified from available for sale to held to maturity. We are amortizing this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of $1.0 million and $905,446 in accumulated other comprehensive income during the nine months ended September 30, 2016 and 2015, respectively. At September 30, 2016 and December 31, 2015, net unrealized losses of $11.3 million and $12.3 million, respectively, remained within accumulated other comprehensive income.

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2016 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	9,643	$	9,657
Due after one year through five years		42,967		44,275
Due after five years through ten years		86,925		92,926
Due after ten years		128,504		141,354
Mortgage-backed securities		64,234		66,659
Total held to maturity	$	332,273	$	354,871
Available for sale
Due in one year or less	$	36,476	$	37,158
Due after one year through five years		115,204		119,709
Due after five years through ten years		105,689		109,631
Due after ten years		51,534		54,994
Mortgage-backed securities		190,936		194,329
Total available for sale	$	499,839	$	515,821

Gross realized gains and losses from investments before applicable income taxes for the three and nine months ended September 30, 2016 and 2015 were as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
	(in thousands)
Gross realized gains:
Fixed maturities	$	289	$	7		$	2,129	$	974
Equity securities		1,170		30			1,226		733
		1,459		37			3,355		1,707
Gross realized losses:
Fixed maturities		22		27			280		105
Equity securities		419		764			870		919
		441		791			1,150		1,024
Net realized gains (losses)	$	1,018	$	(754	)	$	2,205	$	683

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 2016 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	2,988	$	9	$	—	$	—
Obligations of states and political subdivisions		4,248		13		722		2
Corporate securities		21,006		205		2,911		534
Mortgage-backed securities		20,567		49		831		2
Equity securities		4,515		308		163		103
Totals	$	53,324	$	584	$	4,627	$	641

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2015 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	10,168	$	51	$	—	$	—
Obligations of states and political subdivisions		19,437		483		—		—
Corporate securities		69,482		1,615		11,324		958
Mortgage-backed securities		105,300		876		7,538		168
Equity securities		9,245		773		—		—
Totals	$	213,632	$	3,798	$	18,862	$	1,126

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down the investment to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of an individual equity security investment to be other than temporary. We monitor all investments individually for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of our original cost and has been in such an unrealized loss position for more than six months. We held seven equity securities that were in an unrealized loss position at September 30, 2016. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 55 debt securities that were in an unrealized loss position at September 30, 2016. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

We account for our investment in affiliate using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of our affiliate’s earnings and losses as well as changes in the equity of our affiliate due to unrealized gains and losses. Our investment in affiliate represents our 48.2% ownership interest in DFSC. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015, respectively, from the financial statements of DFSC. The financial information of DFSC at September 30, 2016 and 2015 and for the three and nine months then ended is unaudited.

Balance sheets:	September 30, 2016		December 31, 2015
	(in thousands)
Total assets	$	522,118	$	507,139
Total liabilities	$	438,942	$	427,423
Stockholders’ equity		83,176		79,716
Total liabilities and stockholders’ equity	$	522,118	$	507,139

	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2016		2015		2016		2015
	(in thousands)
Net income	$	742	$	847	$	1,449	$	2,372