5 -

Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at March 31, 2017 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	$	63,474	$	1,338	$	658	$	64,154
Obligations of states and political subdivisions		129,306		8,844		285		137,865
Corporate securities		102,024		1,372		1,166		102,230
Mortgage-backed securities		57,492		664		109		58,047

Totals	$	352,296	$	12,218	$	2,218	$	362,296


	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	$	39,090	$	93	$	576	$	38,607
Obligations of states and political subdivisions		168,602		6,217		319		174,500
Corporate securities		91,299		762		761		91,300
Mortgage-backed securities		208,865		645		2,748		206,762

Fixed maturities		507,856		7,717		4,404		511,169
Equity securities		43,625		5,176		200		48,601

Totals	$	551,481	$	12,893	$	4,604	$	559,770

At March 31, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $216.6 million and an amortized cost of $207.4 million. Our holdings at March 31, 2017 also included special revenue bonds with an aggregate fair value of $95.8 million and an amortized cost of $90.6 million. With respect to both categories of those bonds at March 31, 2017, 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 58% and 23%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at March 31, 2017. Many of the issuers of the special revenue bonds we held at March 31, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at March 31, 2017 were similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 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	$	61,382	$	1,255	$	674	$	61,963
Obligations of states and political subdivisions		122,793		8,404		369		130,828
Corporate securities		91,555		1,172		1,678		91,049
Mortgage-backed securities		60,371		546		110		60,807

Totals	$	336,101	$	11,377	$	2,831	$	344,647


	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	$	39,094	$	100	$	606	$	38,588
Obligations of states and political subdivisions		179,889		6,637		443		186,083
Corporate securities		87,715		662		921		87,456
Mortgage-backed securities		204,931		637		2,620		202,948

Fixed maturities		511,629		8,036		4,590		515,075
Equity securities		42,432		4,788		132		47,088

Totals	$	554,061	$	12,824	$	4,722	$	562,163

At December 31, 2016, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $220.1 million and an amortized cost of $211.0 million. Our holdings also included special revenue bonds with an aggregate fair value of $96.8 million and an amortized cost of $91.7 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, 2016. Education bonds and water and sewer utility bonds represented 62% and 23%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2016. Many of the issuers of the special revenue bonds we held at December 31, 2016 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 $296,659 and $368,497 in accumulated other comprehensive income during the three months ended March 31, 2017 and 2016, respectively. At March 31, 2017 and December 31, 2016, net unrealized losses of $10.7 million and $11.0 million, respectively, remained within accumulated other comprehensive income.

We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2017 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	$	10,830	$	10,850
Due after one year through five years		51,254		52,381
Due after five years through ten years		131,295		134,235
Due after ten years		101,425		106,783
Mortgage-backed securities		57,492		58,047

Total held to maturity	$	352,296	$	362,296

Available for sale
Due in one year or less	$	76,426	$	78,276
Due after one year through five years		88,029		89,498
Due after five years through ten years		97,313		97,917
Due after ten years		37,223		38,716
Mortgage-backed securities		208,865		206,762

Total available for sale	$	507,856	$	511,169

Gross realized gains and losses from investments before applicable income taxes for the three months ended March 31, 2017 and 2016 were as follows:


	Three Months Ended March 31,
	2017		2016
	(in thousands)
Gross realized gains:
Fixed maturities	$	5	$	1,165
Equity securities		2,544		—

		2,549		1,165

Gross realized losses:
Fixed maturities		—		255
Equity securities		—		439

		—		694

Net realized gains	$	2,549	$	471

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at March 31, 2017 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	$	40,432	$	1,234	$	—	$	—
Obligations of states and political subdivisions		33,890		594		705		10
Corporate securities		69,055		1,589		4,839		338
Mortgage-backed securities		173,073		2,857		108		—
Equity securities		4,267		117		436		83

Totals	$	320,717	$	6,391	$	6,088	$	431

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 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	$	37,730	$	1,280	$	—	$	—
Obligations of states and political subdivisions		40,739		802		710		9
Corporate securities		80,181		2,127		4,707		472
Mortgage-backed securities		168,772		2,728		417		3
Equity securities		5,421		132		—		—

Totals	$	332,843	$	7,069	$	5,834	$	484

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 nine equity securities that were in an unrealized loss position at March 31, 2017. 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 the 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 242 debt securities that were in an unrealized loss position at March 31, 2017. 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 March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016, respectively, from the financial statements of DFSC. The financial information of DFSC at March 31, 2017 and 2016 and for the three months then ended is unaudited.

Balance sheets:


	March 31, 2017		December 31, 2016
	(in thousands)
Total assets	$	541,225	$	535,590

Total liabilities	$	462,113	$	457,101
Stockholders’ equity		79,112		78,489

Total liabilities and stockholders’ equity	$	541,225	$	535,590

Income statements:


	Three Months Ended March 31,
	2017		2016
	(in thousands)
Net income	$	483	$	73