4 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2017 and 2016 are as follows:


	2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	71,736,445	$	804,012	$	546,868	$	71,993,589
Obligations of states and political subdivisions		137,581,155		11,161,650		112,193		148,630,612
Corporate securities		108,024,776		2,860,255		730,843		110,154,188
Mortgage-backed securities		49,312,701		515,976		156,638		49,672,039

Totals	$	366,655,077	$	15,341,893	$	1,546,542	$	380,450,428


	2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,759,456	$	20,377	$	730,409	$	44,049,424
Obligations of states and political subdivisions		128,478,000		3,941,610		302,440		132,117,170
Corporate securities		105,254,120		1,010,744		525,445		105,739,419
Mortgage-backed securities		259,922,761		444,603		3,327,327		257,040,037

Fixed maturities		538,414,337		5,417,334		4,885,621		538,946,050
Equity securities		44,219,097		6,505,287		279,141		50,445,243

Totals	$	582,633,434	$	11,922,621	$	5,164,762	$	589,391,293


	2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	61,381,605	$	1,255,480	$	674,371	$	61,962,714
Obligations of states and political subdivisions		122,793,411		8,403,996		368,530		130,828,877
Corporate securities		91,555,136		1,172,002		1,678,133		91,049,005
Mortgage-backed securities		60,370,796		545,812		110,066		60,806,542

Totals	$	336,100,948	$	11,377,290	$	2,831,100	$	344,647,138


	2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	39,093,734	$	99,429	$	605,139	$	38,588,024
Obligations of states and political subdivisions		179,889,661		6,635,941		442,717		186,082,885
Corporate securities		87,715,049		662,132		921,362		87,455,819
Mortgage-backed securities		204,931,200		637,268		2,620,256		202,948,212

Fixed maturities		511,629,644		8,034,770		4,589,474		515,074,940
Equity securities		42,431,695		4,788,218		132,071		47,087,842

Totals	$	554,061,339	$	12,822,988	$	4,721,545	$	562,162,782

At December 31, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $190.7 million and an amortized cost of $181.4 million. Our holdings also included special revenue bonds with an aggregate fair value of $90.0 million and an amortized cost of $84.7 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, 2017. Education bonds and water and sewer utility bonds represented 53% and 26%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2017. Many of the issuers of the special revenue bonds we held at December 31, 2017 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.

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 have segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities reclassified from available for sale to held to maturity. We will amortize this balance over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same fixed maturities. During 2017, we recorded amortization of $1.2 million in accumulated other comprehensive income. At December 31, 2017 and 2016, net unrealized losses of $9.8 million and $11.0 million, respectively, remained within accumulated other comprehensive loss.

We set forth below the amortized cost and estimated fair value of fixed maturities at December 31, 2017 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Estimated Fair Value
Held to maturity
Due in one year or less	$	4,096,270	$	4,090,120
Due after one year through five years		57,702,099		58,997,125
Due after five years through ten years		118,294,836		121,747,801
Due after ten years		137,249,171		145,943,343
Mortgage-backed securities		49,312,701		49,672,039

Total held to maturity	$	366,655,077	$	380,450,428

Available for sale
Due in one year or less	$	49,257,873	$	49,729,548
Due after one year through five years		97,814,378		98,914,332
Due after five years through ten years		103,015,782		103,609,213
Due after ten years		28,403,543		29,652,920
Mortgage-backed securities		259,922,761		257,040,037

Total available for sale	$	538,414,337	$	538,946,050

The amortized cost of fixed maturities on deposit with various regulatory authorities at December 31, 2017 and 2016 amounted to $9,646,390 and $9,632,126, respectively.

Our investment in DFSC represented our 48.2% investment in the amount of $38,773,420 and $37,884,918 at December 31, 2017 and 2016, respectively. We account for our investment in DFSC 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 DFSC’s equity due to its 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 December 31, 2017 and 2016 from the financial statements of DFSC.


	December 31,
	2017		2016
Balance sheets:
Total assets	$	567,935,408	$	535,590,133

Total liabilities	$	487,603,999	$	457,101,287
Stockholders’ equity		80,331,409		78,488,846

Total liabilities and stockholders’ equity	$	567,935,408	$	535,590,133


	Year Ended December 31,
	2017		2016		2015
Income statements:
Net income	$	3,362,861	$	2,252,456	$	2,372,650

Other comprehensive income (loss) in our statements of comprehensive income includes net unrealized gains (losses) of $112,053, ($103,331) and ($263,991) for 2017, 2016 and 2015, respectively, representing our share of DFSC’s unrealized investment gains or losses.

We received distributions from DFSC of $1.0 million and $1.6 million during 2017 and 2016, respectively. Based on the nature of the activities that generated these distributions, we made an accounting policy election to classify these distributions as a return on our investment in DFSC.

We derive net investment income, consisting primarily of interest and dividends, from the following sources:


	2017			2016			2015
Fixed maturities	$	26,143,924		$	25,066,582		$	23,636,468
Equity securities		999,335			1,187,814			707,703
Short-term investments		407,580			115,763			181,154
Other		33,316			108,003			33,450

Investment income		27,584,155			26,478,162			24,558,775
Investment expenses		(4,056,851	)		(3,845,432	)		(3,609,077	)

Net investment income	$	23,527,304		$	22,632,730		$	20,949,698

We present below gross realized gains and losses from investments, including those we classified as held to maturity, and the change in the difference between fair value and cost of investments:


	2017		2016			2015
Gross realized gains:
Fixed maturities	$	168,855	$	2,161,108		$	2,259,045
Equity securities		6,197,253		1,378,548			1,088,467

		6,366,108		3,539,656			3,347,512

Gross realized losses:
Fixed maturities		98,723		281,131			105,432
Equity securities		562,130		732,950			1,307,656

		660,853		1,014,081			1,413,088

Net realized gains	$	5,705,255	$	2,525,575		$	1,934,424

Change in difference between fair value and cost of investments:
Fixed maturities	$	2,335,578	$	(12,932,470	)	$	(10,787,772	)
Equity securities		1,569,999		3,160,356			659,597

Totals	$	3,905,577	$	(9,772,114	)	$	(10,128,175	)

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2017 as follows:


	Less than 12 months				12 months or longer
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,024,445	$	286,518	$	33,987,229	$	990,759
Obligations of states and political subdivisions		10,223,383		120,076		14,127,415		294,557
Corporate securities		35,203,959		253,241		31,560,591		1,003,047
Mortgage-backed securities		100,533,516		817,315		124,061,502		2,666,650
Equity securities		4,291,875		279,141		—		—

Totals	$	174,277,178	$	1,756,291	$	203,736,737	$	4,955,013

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				12 months or longer
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	37,729,947	$	1,279,510	$	—	$	—
Obligations of states and political subdivisions		40,739,099		802,311		710,280		8,936
Corporate securities		80,181,238		2,127,451		4,706,945		472,044
Mortgage-backed securities		168,771,543		2,727,720		416,828		2,602
Equity securities		5,420,875		132,071		—		—

Totals	$	332,842,702	$	7,069,063	$	5,834,053	$	483,582

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 investment to be other than temporary. We individually monitor all investments 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 original cost and has been in such an unrealized loss position for more than six months. We held five equity securities that were in an unrealized loss position at December 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 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, company or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 280 debt securities that were in an unrealized loss position at December 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 did not recognize any impairment losses in 2017, 2016 or 2015. We had no sales or transfers from our held to maturity portfolio in 2017, 2016 or 2015. We had no derivative instruments or hedging activities during 2017, 2016 or 2015.