5 - Investments

The amortized cost and estimated fair values of our fixed maturities at June 30, 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	$	72,936	$	40	$	1,529	$	71,447
Obligations of states and political subdivisions		149,759		8,092		795		157,056
Corporate securities		118,611		360		3,746		115,225
Mortgage-backed securities		44,516		51		762		43,805

Totals	$	385,822	$	8,543	$	6,832	$	387,533


	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	$	44,748	$	6	$	1,394	$	43,360
Obligations of states and political subdivisions		96,256		2,274		596		97,934
Corporate securities		121,776		165		2,916		119,025
Mortgage-backed securities		267,944		82		8,366		259,660

Totals	$	530,724	$	2,527	$	13,272	$	519,979

At June 30, 2018, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $172.2 million and an amortized cost of $166.5 million. Our holdings at June 30, 2018 also included special revenue bonds with an aggregate fair value of $82.8 million and an amortized cost of $79.5 million. With respect to both categories of those bonds at June 30, 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 53% and 27%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2018. Many of the issuers of the special revenue bonds we held at June 30, 2018 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at June 30, 2018 are 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 $575,107 and $604,812 in other comprehensive (loss) income during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, net unrealized losses of $9.3 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 June 30, 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	$	8,764	$	8,755
Due after one year through five years		70,693		70,905
Due after five years through ten years		129,890		129,018
Due after ten years		131,959		135,050
Mortgage-backed securities		44,516		43,805

Total held to maturity	$	385,822	$	387,533

Available for sale
Due in one year or less	$	52,789	$	53,178
Due after one year through five years		86,597		85,532
Due after five years through ten years		105,649		103,585
Due after ten years		17,745		18,024
Mortgage-backed securities		267,944		259,660

Total available for sale	$	530,724	$	519,979

The cost and estimated fair values of our equity securities at June 30, 2018 were as follows:


	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	48,013	$	7,107	$	1,518	$	53,602

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 and six months ended June 30, 2018 and 2017 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	12	$	45	$	12	$	50
Equity securities		2,125		1,085		3,270		3,629

		2,137		1,130		3,282		3,679

Gross realized losses:
Fixed maturities		1		30		45		30
Equity securities		619		3		2,638		3

		620		33		2,683		33

Net realized gains	$	1,517	$	1,097	$	599	$	3,646

We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 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	$	65,937	$	1,040	$	37,132	$	1,883
Obligations of states and political subdivisions		39,855		739		15,042		652
Corporate securities		166,767		4,644		31,547		2,018
Mortgage-backed securities		157,372		3,607		130,521		5,521

Totals	$	429,931	$	10,030	$	214,242	$	10,074

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 523 debt securities that were in an unrealized loss position at June 30, 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 June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2018 and 2017 and for the three and six months then ended is unaudited.


	June 30, 2018		December 31, 2017
	(in thousands)
Balance sheets:
Total assets	$	560,519	$	567,935

Total liabilities	$	478,652	$	487,604
Stockholders’ equity		81,867		80,331

Total liabilities and stockholders’ equity	$	560,519	$	567,935


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Income statements:
Net income	$	1,634	$	802	$	2,945	$	1,285