5 - Investments

The amortized cost and estimated fair values of our fixed maturities at March 31, 2018 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	$	71,875	$	194	$	1,216	$	70,853
Obligations of states and political subdivisions		144,720		8,463		544		152,639
Corporate securities		114,055		803		2,075		112,783
Mortgage-backed securities		46,847		104		570		46,381

Totals	$	377,497	$	9,564	$	4,405	$	382,656


	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	$	44,754	$	9	$	1,226	$	43,537
Obligations of states and political subdivisions		116,611		2,771		499		118,883
Corporate securities		109,907		286		1,892		108,301
Mortgage-backed securities		261,615		126		7,045		254,696

Totals	$	532,887	$	3,192	$	10,662	$	525,417

At March 31, 2018, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $185.4 million and an amortized cost of $179.0 million. Our holdings at March 31, 2018 also included special revenue bonds with an aggregate fair value of $86.1 million and an amortized cost of $82.3 million. With respect to both categories of those bonds at March 31, 2018, 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 52% and 24%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at March 31, 2018. Many of the issuers of the special revenue bonds we held at March 31, 2018 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at March 31, 2018 were similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities at December 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	$	71,736	$	804	$	547	$	71,993
Obligations of states and political subdivisions		137,581		11,162		112		148,631
Corporate securities		108,025		2,860		731		110,154
Mortgage-backed securities		49,313		516		157		49,672

Totals	$	366,655	$	15,342	$	1,547	$	380,450


	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	$	44,759	$	20	$	730	$	44,049
Obligations of states and political subdivisions		128,478		3,942		303		132,117
Corporate securities		105,254		1,011		526		105,739
Mortgage-backed securities		259,923		445		3,327		257,041

Totals	$	538,414	$	5,418	$	4,886	$	538,946

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 at December 31, 2017 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 those bonds at December 31, 2017, we held no securities of any issuer that comprised more than 10% of that category. 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.

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 $294,196 and $296,659 in other comprehensive (loss) income during the three months ended March 31, 2018 and 2017, respectively. At March 31, 2018 and December 31, 2017, net unrealized losses of $9.5 million and $9.8 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2018 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	$	11,005	$	11,019
Due after one year through five years		70,008		70,528
Due after five years through ten years		125,133		125,515
Due after ten years		124,504		129,213
Mortgage-backed securities		46,847		46,381

Total held to maturity	$	377,497	$	382,656

Available for sale
Due in one year or less	$	73,401	$	74,054
Due after one year through five years		83,226		82,662
Due after five years through ten years		96,893		95,888
Due after ten years		17,752		18,117
Mortgage-backed securities		261,615		254,696

Total available for sale	$	532,887	$	525,417

The cost and estimated fair values of our equity securities at March 31, 2018 were as follows:


	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	45,803	$	6,226	$	999	$	51,030

The cost and estimated fair values of our equity securities at December 31, 2017 were as follows:


	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	44,219	$	6,505	$	279	$	50,445

Gross realized gains and losses from investments before applicable income taxes for the three months ended March 31, 2018 and 2017 were as follows:


	Three Months Ended March 31,
	2018			2017
	(in thousands)
Gross realized gains:
Fixed maturities	$	—		$	5
Equity securities		1,145			2,544

		1,145			2,549

Gross realized losses:
Fixed maturities		44			—
Equity securities		2,019			—

		2,063			—

Net realized (losses) gains	$	(918	)	$	2,549

We recognized $1.0 million of gains and $2.0 million of losses on equity securities held at March 31, 2018 in net realized investment losses for the three months ended March 31, 2018.

We held fixed maturities with unrealized losses representing declines that we considered temporary at March 31, 2018 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	$	45,031	$	829	$	35,385	$	1,613
Obligations of states and political subdivisions		32,405		536		13,908		507
Corporate securities		123,863		2,427		29,595		1,540
Mortgage-backed securities		154,392		2,938		126,911		4,677

Totals	$	355,691	$	6,730	$	205,799	$	8,337

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				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	$	24,024	$	287	$	33,987	$	990
Obligations of states and political subdivisions		10,223		120		14,127		295
Corporate securities		35,204		253		31,561		1,004
Mortgage-backed securities		100,534		817		124,062		2,667
Equity securities		4,292		279		—		—

Totals	$	174,277	$	1,756	$	203,737	$	4,956

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 measure investments at fair value and, beginning January 1, 2018, we recognize changes in fair value in our results of operations. 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 464 debt securities that were in an unrealized loss position at March 31, 2018. 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 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 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 March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at March 31, 2018 and 2017 and for the three months then ended is unaudited.


	March 31, 2018		December 31, 2017
	(in thousands)
Balance sheets:
Total assets	$	577,378	$	567,935

Total liabilities	$	496,926	$	487,604
Stockholders’ equity		80,452		80,331

Total liabilities and stockholders’ equity	$	577,378	$	567,935


	Three Months Ended March 31,
	2018		2017
	(in thousands)
Income statements:
Net income	$	1,311	$	483