| Investments |
NOTE 3 – INVESTMENTS
Securities Available for Sale
The following table provides the cost or amortized cost and fair value of securities available for sale as of the dates presented (in thousands):
|
|
|
December 31, 2014 |
|
|
|
|
Cost or |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
Fixed Maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
$ |
120,627 |
|
|
$ |
38 |
|
|
$ |
(627 |
) |
|
$ |
120,038 |
|
|
Corporate bonds |
|
|
120,025 |
|
|
|
171 |
|
|
|
(364 |
) |
|
|
119,832 |
|
|
Mortgage-backed and asset-backed securities |
|
|
107,589 |
|
|
|
136 |
|
|
|
(502 |
) |
|
|
107,223 |
|
|
Redeemable preferred stock |
|
|
6,700 |
|
|
|
165 |
|
|
|
(9 |
) |
|
|
6,856 |
|
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
331 |
|
|
|
4 |
|
|
|
(65 |
) |
|
|
270 |
|
|
Mutual funds |
|
|
21,296 |
|
|
|
— |
|
|
|
(1,924 |
) |
|
|
19,372 |
|
|
Short-term investments |
|
|
50,000 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
49,990 |
|
|
Total |
|
$ |
426,568 |
|
|
$ |
514 |
|
|
$ |
(3,501 |
) |
|
$ |
423,581 |
|
|
|
|
December 31, 2013 |
|
|
|
|
Cost or |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
Fixed Maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
$ |
105,229 |
|
|
$ |
19 |
|
|
$ |
(1,033 |
) |
|
$ |
104,215 |
|
|
Corporate bonds |
|
|
94,708 |
|
|
|
265 |
|
|
|
(770 |
) |
|
|
94,203 |
|
|
Mortgage-backed and asset-backed securities |
|
|
91,502 |
|
|
|
75 |
|
|
|
(577 |
) |
|
|
91,000 |
|
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
8,500 |
|
|
|
916 |
|
|
|
(121 |
) |
|
|
9,295 |
|
|
Mutual funds |
|
|
55,113 |
|
|
|
2,266 |
|
|
|
(1,652 |
) |
|
|
55,727 |
|
|
Total |
|
$ |
355,052 |
|
|
$ |
3,541 |
|
|
$ |
(4,153 |
) |
|
$ |
354,440 |
|
The Company has made an assessment of its invested assets for fair value measurement as further described in “NOTE 16 – Fair Value Measurements.”
The following table provides the credit quality of investments with contractual maturities as of the dates presented (in thousands):
|
December 31, 2014 |
|
|
Standard and Poor's |
|
|
|
|
|
% of Total |
|
|
Rating Services |
|
Fair Value |
|
|
Fair Value |
|
|
AAA |
|
$ |
31,783 |
|
|
|
7.9 |
% |
|
AA |
|
|
207,953 |
|
|
|
51.5 |
% |
|
A |
|
|
79,675 |
|
|
|
19.7 |
% |
|
BBB |
|
|
45,781 |
|
|
|
11.3 |
% |
|
BB and Below (1) |
|
|
2,677 |
|
|
|
0.7 |
% |
|
No Rating Available (2) |
|
|
36,070 |
|
|
|
8.9 |
% |
|
Total |
|
$ |
403,939 |
|
|
|
100.0 |
% |
|
December 31, 2013 |
|
|
Standard and Poor's |
|
|
|
|
|
% of Total |
|
|
Rating Services |
|
Fair Value |
|
|
Fair Value |
|
|
AAA |
|
$ |
82,889 |
|
|
|
28.6 |
% |
|
AA |
|
|
120,976 |
|
|
|
41.8 |
% |
|
A |
|
|
46,689 |
|
|
|
16.1 |
% |
|
BBB |
|
|
38,114 |
|
|
|
13.2 |
% |
|
No Rating Available |
|
|
750 |
|
|
|
0.3 |
% |
|
Total |
|
$ |
289,418 |
|
|
|
100.0 |
% |
|
(1) |
As of December 31, 2014, $268 thousand of these investments were rated “Baa3” by Moody’s Investors Service, Inc. |
|
(2) |
As of December 31, 2014, $7.9 million of these investments were rated “Aaa” by Moody’s Investors Service, Inc. |
The following table summarizes the cost or amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
|
Cost or |
|
|
|
|
|
|
Cost or |
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
$ |
64,905 |
|
|
$ |
64,619 |
|
|
$ |
64,028 |
|
|
$ |
63,547 |
|
|
Non-agency |
|
|
8,053 |
|
|
|
7,987 |
|
|
|
— |
|
|
|
— |
|
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loan receivables |
|
|
16,551 |
|
|
|
16,556 |
|
|
|
14,816 |
|
|
|
14,841 |
|
|
Credit card receivables |
|
|
13,481 |
|
|
|
13,457 |
|
|
|
11,478 |
|
|
|
11,425 |
|
|
Other receivables |
|
|
4,599 |
|
|
|
4,604 |
|
|
|
1,180 |
|
|
|
1,187 |
|
|
Total |
|
$ |
107,589 |
|
|
$ |
107,223 |
|
|
$ |
91,502 |
|
|
$ |
91,000 |
|
The following table summarizes the fair value and gross unrealized losses on securities available for sale, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented (in thousands):
|
|
|
December 31, 2014 |
|
|
|
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
|
3 |
|
|
$ |
27,341 |
|
|
$ |
(55 |
) |
|
|
4 |
|
|
$ |
34,050 |
|
|
$ |
(572 |
) |
|
Corporate bonds |
|
|
67 |
|
|
|
58,271 |
|
|
|
(238 |
) |
|
|
12 |
|
|
|
15,105 |
|
|
|
(126 |
) |
|
Mortgage-backed and asset-backed securities |
|
|
20 |
|
|
|
48,335 |
|
|
|
(273 |
) |
|
|
5 |
|
|
|
16,842 |
|
|
|
(229 |
) |
|
Redeemable preferred stock |
|
|
12 |
|
|
|
1,153 |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2 |
|
|
|
87 |
|
|
|
(20 |
) |
|
|
2 |
|
|
|
117 |
|
|
|
(45 |
) |
|
Mutual funds |
|
|
2 |
|
|
|
10,514 |
|
|
|
(97 |
) |
|
|
1 |
|
|
|
8,859 |
|
|
|
(1,827 |
) |
|
Short-term investments |
|
|
2 |
|
|
|
37,490 |
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
108 |
|
|
$ |
183,191 |
|
|
$ |
(702 |
) |
|
|
24 |
|
|
$ |
74,973 |
|
|
$ |
(2,799 |
) |
|
|
|
December 31, 2013 |
|
|
|
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
Number of |
|
|
|
|
|
|
Unrealized |
|
|
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Issues |
|
|
Fair Value |
|
|
Losses |
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies |
|
|
6 |
|
|
$ |
71,042 |
|
|
$ |
(1,033 |
) |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Corporate bonds |
|
|
55 |
|
|
|
65,926 |
|
|
|
(770 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Mortgage-backed and asset-backed securities |
|
|
16 |
|
|
|
67,110 |
|
|
|
(577 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
13 |
|
|
|
3,517 |
|
|
|
(121 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Mutual funds |
|
|
5 |
|
|
|
19,646 |
|
|
|
(1,652 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
95 |
|
|
$ |
227,241 |
|
|
$ |
(4,153 |
) |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
At December 31, 2014, we held fixed maturity and equity securities that were in an unrealized loss position as presented in the table above. For fixed maturity securities with significant declines in value, we perform quarterly fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data. For fixed maturity and equity securities, the Company considers whether it has the intent and ability to hold the securities for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the security’s decline in fair value is considered other than temporary and is recorded in earnings. Based upon management’s intent and ability to hold the securities until recovery and its credit analysis of the individual issuers of the securities, management has no reason to believe the unrealized losses for securities available for sale at December 31, 2014 are other than temporary.
The following table presents the amortized cost and fair value of investments with contractual maturities as of the date presented (in thousands):
|
|
|
December 31, 2014 |
|
|
|
|
Cost or |
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Due in one year or less |
|
$ |
101,406 |
|
|
$ |
101,368 |
|
|
Due after one year through five years |
|
|
185,184 |
|
|
|
184,457 |
|
|
Due after five years through ten years |
|
|
3,067 |
|
|
|
3,057 |
|
|
Due after ten years |
|
|
3,593 |
|
|
|
3,673 |
|
|
Mortgage-backed and asset-backed securities |
|
|
107,589 |
|
|
|
107,223 |
|
|
Perpetual maturity securities |
|
|
4,102 |
|
|
|
4,161 |
|
|
Total |
|
$ |
404,941 |
|
|
$ |
403,939 |
|
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without penalty.
The following table provides certain information related to securities available for sale during the periods presented (in thousands):
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
Sales proceeds (fair value) |
|
$ |
181,134 |
|
|
$ |
15,542 |
|
|
Gross realized gains |
|
$ |
6,205 |
|
|
$ |
1,301 |
|
|
Gross realized losses |
|
$ |
(578 |
) |
|
$ |
(4 |
) |
|
Other than temporary impairment |
|
$ |
— |
|
|
$ |
— |
|
The following table presents the components of net investment income, comprised primarily of interest and dividends, for the periods presented (in thousands):
|
|
|
Year Ended December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Cash and cash equivalents (1) |
|
$ |
83 |
|
|
$ |
148 |
|
|
$ |
705 |
|
|
Fixed maturities |
|
|
3,329 |
|
|
|
1,420 |
|
|
|
66 |
|
|
Equity securities |
|
|
988 |
|
|
|
1,982 |
|
|
|
566 |
|
|
Short-term investments |
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
Total investment income |
|
|
4,446 |
|
|
|
3,550 |
|
|
|
1,337 |
|
|
Less: Investment expenses (2) |
|
|
(2,071 |
) |
|
|
(1,622 |
) |
|
|
(896 |
) |
|
Net investment (expense) income |
|
$ |
2,375 |
|
|
$ |
1,928 |
|
|
$ |
441 |
|
(1)Includes interest earned on cash and cash equivalents and restricted cash and cash equivalents.
(2)Includes investment expenses related to cash and cash equivalents and restricted cash and cash equivalents.
Trading Portfolio
The Company liquidated its trading portfolio of equity securities and transferred the fixed maturities that were outstanding at December 31, 2012 into its portfolio of securities available for sale effective March 1, 2013. The unrealized gain (loss) associated with the fixed maturities trading portfolio was recognized in earnings up to the date of transfer.
The following table provides the effect of trading activities on the Company’s results of operations for the periods presented by type of instrument and by line item in the Consolidated Statements of Income (in thousands):
|
|
|
Year Ended December 31, |
|
|
|
|
2013 |
|
|
2012 |
|
|
Realized gains (losses) on investments: |
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
(15,969 |
) |
|
$ |
(12,286 |
) |
|
Derivatives (non-hedging instruments) (1) |
|
|
(68 |
) |
|
|
343 |
|
|
Total realized gains (losses) on trading portfolio |
|
|
(16,037 |
) |
|
|
(11,943 |
) |
|
Change in unrealized gains (losses) on investments: |
|
|
|
|
|
|
|
|
|
Fixed maturities |
|
|
13 |
|
|
|
195 |
|
|
Equity securities |
|
|
7,758 |
|
|
|
9,158 |
|
|
Derivatives (non-hedging instruments) (1) |
|
|
89 |
|
|
|
145 |
|
|
Other |
|
|
14 |
|
|
|
(55 |
) |
|
Total change in unrealized gains (losses) on trading portfolio |
|
|
7,874 |
|
|
|
9,443 |
|
|
Net gains (losses) recognized on trading portfolio |
|
$ |
(8,163 |
) |
|
$ |
(2,500 |
) |
|
(1) |
This table provides the alternative quantitative disclosures permitted for derivatives that are not used as hedging instruments and are included in the trading portfolio. |
The Company liquidated its trading portfolio in March 2013; therefore, for periods subsequent to March 31, 2013 there was no effect of trading activities on the Company’s results of operations. |