5—Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 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	$	70,145	$	1,357	$	444	$	71,058
Obligations of states and political subdivisions		136,835		10,941		152		147,624
Corporate securities		106,387		2,786		1,077		108,096
Mortgage-backed securities		51,910		818		77		52,651

Totals	$	365,277	$	15,902	$	1,750	$	379,429


	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	$	47,217	$	63	$	499	$	46,781
Obligations of states and political subdivisions		135,367		4,874		270		139,971
Corporate securities		100,230		1,228		347		101,111
Mortgage-backed securities		246,925		794		2,121		245,598

Fixed maturities		529,739		6,959		3,237		533,461
Equity securities		44,819		5,855		646		50,028

Totals	$	574,558	$	12,814	$	3,883	$	583,489

At September 30, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $197.1 million and an amortized cost of $187.3 million. Our holdings at September 30, 2017 also included special revenue bonds with an aggregate fair value of $90.5 million and an amortized cost of $84.9 million. With respect to both categories of those bonds at September 30, 2017, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 54% and 24%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2017. Many of the issuers of the special revenue bonds we held at September 30, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at September 30, 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 at December 31, 2016 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 those bonds at December 31, 2016, we held no securities of any issuer that comprised more than 10% of that category. 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 loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassifications. 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 $909,044 and $1.0 million in other comprehensive income during the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017 and December 31, 2016, net unrealized losses of $10.1 million and $11.0 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 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
Held to maturity	(in thousands)
Due in one year or less	$	6,681	$	6,689
Due after one year through five years		52,418		53,656
Due after five years through ten years		139,103		143,566
Due after ten years		115,165		122,867
Mortgage-backed securities		51,910		52,651

Total held to maturity	$	365,277	$	379,429

Available for sale
Due in one year or less	$	54,276	$	55,289
Due after one year through five years		94,106		95,647
Due after five years through ten years		110,187		111,712
Due after ten years		24,245		25,215
Mortgage-backed securities		246,925		245,598

Total available for sale	$	529,739	$	533,461

Gross realized gains and losses from investments before applicable income taxes for the three and nine months ended September 30, 2017 and 2016 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	87	$	289	$	138	$	2,129
Equity securities		513		1,170		4,142		1,226

		600		1,459		4,280		3,355

Gross realized losses:
Fixed maturities		39		22		69		280
Equity securities		—		419		3		870

		39		441		72		1,150

Net realized gains	$	561	$	1,018	$	4,208	$	2,205

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 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	$	50,877	$	865	$	1,919	$	78
Obligations of states and political subdivisions		19,651		366		4,601		56
Corporate securities		39,754		735		16,426		689
Mortgage-backed securities		176,141		1,677		16,653		521
Equity securities		4,678		475		766		171

Totals	$	291,101	$	4,118	$	40,365	$	1,515

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 seven equity securities that were in an unrealized loss position at September 30, 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 with respect to that security. 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 232 debt securities that were in an unrealized loss position at September 30, 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.

Our investment in affiliate represents our 48.2% ownership interest in DFSC. 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 DFSC’s earnings and losses as well as changes in the equity of DFSC due to unrealized gains and losses. 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, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016, respectively, from the financial statements of DFSC. The financial information of DFSC at September 30, 2017 and 2016 and for the three and nine months then ended is unaudited.


Balance sheets:	September 30, 2017		December 31, 2016
	(in thousands)
Total assets	$	559,961	$	535,590

Total liabilities	$	478,455	$	457,101
Stockholders’ equity		81,506		78,489

Total liabilities and stockholders’ equity	$	559,961	$	535,590


	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2017		2016		2017		2016
	(in thousands)				(in thousands)
Net income	$	837	$	742	$	2,122	$	1,449