Investments |
Note 5. Investments Available-for-sale securities The following tables summarize the cost and fair value of our available-for-sale securities: | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | (in thousands) | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | Available-for-sale securities: | | | | | | | | | U.S. treasury | | $ | 5,093 |
| | $ | 0 |
| | $ | 62 |
| | $ | 5,031 |
| Government sponsored entities | | 2,004 |
| | 22 |
| | 0 |
| | 2,026 |
| States & political subdivisions | | 249,312 |
| | 6,113 |
| | 2,293 |
| | 253,132 |
| Corporate debt securities | | 321,041 |
| | 3,293 |
| | 1,386 |
| | 322,948 |
| Residential mortgage-backed securities | | 16,232 |
| | 61 |
| | 191 |
| | 16,102 |
| Commercial mortgage-backed securities | | 37,723 |
| | 59 |
| | 933 |
| | 36,849 |
| Collateralized debt obligations | | 68,998 |
| | 351 |
| | 96 |
| | 69,253 |
| Other debt securities | | 2,000 |
| | 0 |
| | 0 |
| | 2,000 |
| Total fixed maturities | | 702,403 |
| | 9,899 |
| | 4,961 |
| | 707,341 |
| Common stock | | 6,152 |
| | 0 |
| | 202 |
| | 5,950 |
| Total available-for-sale securities | | $ | 708,555 |
| | $ | 9,899 |
| | $ | 5,163 |
| | $ | 713,291 |
|
| | | | | | | | | | | | | | | | | | | | At December 31, 2015 | (in thousands) | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair value | Available-for-sale securities: | | | | | | | | | States & political subdivisions | | $ | 221,093 |
| | $ | 10,761 |
| | $ | 7 |
| | $ | 231,847 |
| Corporate debt securities | | 254,464 |
| | 281 |
| | 4,412 |
| | 250,333 |
| Residential mortgage-backed securities | | 13,639 |
| | 4 |
| | 130 |
| | 13,513 |
| Commercial mortgage-backed securities | | 38,630 |
| | 30 |
| | 1,089 |
| | 37,571 |
| Collateralized debt obligations | | 51,905 |
| | 61 |
| | 221 |
| | 51,745 |
| Other debt securities | | 2,241 |
| | 0 |
| | 41 |
| | 2,200 |
| Total fixed maturities | | 581,972 |
| | 11,137 |
| | 5,900 |
| | 587,209 |
| Common stock | | 12,865 |
| | 0 |
| | 133 |
| | 12,732 |
| Total available-for-sale securities | | $ | 594,837 |
| | $ | 11,137 |
| | $ | 6,033 |
| | $ | 599,941 |
|
The amortized cost and estimated fair value of fixed maturities at December 31, 2016, are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon stated maturity dates. 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. | | | | | | | | | | | | At December 31, 2016 | (in thousands) | | Amortized | | Estimated | | | cost | | fair value | Due in one year or less | | $ | 55,304 |
| | $ | 55,394 |
| Due after one year through five years | | 329,377 |
| | 331,617 |
| Due after five years through ten years | | 203,880 |
| | 207,358 |
| Due after ten years | | 113,842 |
| | 112,972 |
| Total fixed maturities | | $ | 702,403 |
| | $ | 707,341 |
|
Available-for-sale securities in a gross unrealized loss position are as follows. Data is provided by length of time for securities in a gross unrealized loss position. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | (dollars in thousands) | | Less than 12 months | | 12 months or longer | | Total | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | No. of | | | value | | losses | | value | | losses | | value | | losses | | holdings | Available-for-sale securities: | | | | | | | | | | | | | | | U.S. treasury | | $ | 5,031 |
| | $ | 62 |
| | $ | 0 |
| | $ | 0 |
| | $ | 5,031 |
| | $ | 62 |
| | 1 |
| States & political subdivisions | | 84,611 |
| | 2,293 |
| | 0 |
| | 0 |
| | 84,611 |
| | 2,293 |
| | 40 |
| Corporate debt securities | | 112,453 |
| | 987 |
| | 8,692 |
| | 399 |
| | 121,145 |
| | 1,386 |
| | 155 |
| Residential mortgage-backed securities | | 7,451 |
| | 60 |
| | 4,974 |
| | 131 |
| | 12,425 |
| | 191 |
| | 13 |
| Commercial mortgage-backed securities | | 26,509 |
| | 437 |
| | 4,319 |
| | 496 |
| | 30,828 |
| | 933 |
| | 28 |
| Collateralized debt obligations | | 27,470 |
| | 75 |
| | 4,208 |
| | 21 |
| | 31,678 |
| | 96 |
| | 15 |
| Total fixed maturities | | 263,525 |
| | 3,914 |
| | 22,193 |
| | 1,047 |
| | 285,718 |
| | 4,961 |
| | 252 |
| Common stock | | 5,950 |
| | 202 |
| | 0 |
| | 0 |
| | 5,950 |
| | 202 |
| | 1 |
| Total available-for-sale securities | | $ | 269,475 |
| | $ | 4,116 |
| | $ | 22,193 |
| | $ | 1,047 |
| | $ | 291,668 |
| | $ | 5,163 |
| | 253 |
| Quality breakdown of fixed maturities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Investment grade | | $ | 239,041 |
| | $ | 3,605 |
| | $ | 16,061 |
| | $ | 399 |
| | $ | 255,102 |
| | $ | 4,004 |
| | 136 |
| Non-investment grade | | 24,484 |
| | 309 |
| | 6,132 |
| | 648 |
| | 30,616 |
| | 957 |
| | 116 |
| Total fixed maturities | | $ | 263,525 |
| | $ | 3,914 |
| | $ | 22,193 |
| | $ | 1,047 |
| | $ | 285,718 |
| | $ | 4,961 |
| | 252 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | (dollars in thousands) | | Less than 12 months | | 12 months or longer | | Total | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | No. of | | | value | | losses | | value | | losses | | value | | losses | | holdings | Available-for-sale securities: | | | | | | | | | | | | | | | States & political subdivisions | | $ | 5,867 |
| | $ | 7 |
| | $ | 0 |
| | $ | 0 |
| | $ | 5,867 |
| | $ | 7 |
| | 3 |
| Corporate debt securities | | 172,831 |
| | 2,447 |
| | 19,086 |
| | 1,965 |
| | 191,917 |
| | 4,412 |
| | 349 |
| Residential mortgage-backed securities | | 9,827 |
| | 84 |
| | 936 |
| | 46 |
| | 10,763 |
| | 130 |
| | 9 |
| Commercial mortgage-backed securities | | 13,081 |
| | 68 |
| | 19,081 |
| | 1,021 |
| | 32,162 |
| | 1,089 |
| | 24 |
| Collateralized debt obligations | | 27,981 |
| | 103 |
| | 9,174 |
| | 118 |
| | 37,155 |
| | 221 |
| | 19 |
| Other debt securities | | 1,960 |
| | 40 |
| | 241 |
| | 1 |
| | 2,201 |
| | 41 |
| | 2 |
| Total fixed maturities | | 231,547 |
| | 2,749 |
| | 48,518 |
| | 3,151 |
| | 280,065 |
| | 5,900 |
| | 406 |
| Common stock | | 12,732 |
| | 133 |
| | 0 |
| | 0 |
| | 12,732 |
| | 133 |
| | 1 |
| Total available-for-sale securities | | $ | 244,279 |
| | $ | 2,882 |
| | $ | 48,518 |
| | $ | 3,151 |
| | $ | 292,797 |
| | $ | 6,033 |
| | 407 |
| Quality breakdown of fixed maturities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Investment grade | | $ | 174,723 |
| | $ | 1,296 |
| | $ | 38,369 |
| | $ | 1,256 |
| | $ | 213,092 |
| | $ | 2,552 |
| | 105 |
| Non-investment grade | | 56,824 |
| | 1,453 |
| | 10,149 |
| | 1,895 |
| | 66,973 |
| | 3,348 |
| | 301 |
| Total fixed maturities | | $ | 231,547 |
| | $ | 2,749 |
| | $ | 48,518 |
| | $ | 3,151 |
| | $ | 280,065 |
| | $ | 5,900 |
| | 406 |
|
The above securities have been evaluated and determined to be temporary impairments for which we expect to recover our entire principal plus interest. The primary components of this analysis include a general review of market conditions and financial performance of the issuer along with the extent and duration at which fair value is less than cost. Any securities that we intend to sell or will more likely than not be required to sell before recovery are included in other-than-temporary impairments with the impairment charges recognized in earnings.
Net investment income Interest and dividend income are recognized as earned and recorded to net investment income. Investment income, net of expenses, was generated from the following portfolios for the years ended December 31: | | | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | 2014 | Fixed maturities | | $ | 20,175 |
| | $ | 16,457 |
| | $ | 14,173 |
| Equity securities | | 171 |
| | 1,045 |
| | 1,550 |
| Cash equivalents and other | | 1,391 |
| | 1,174 |
| | 1,207 |
| Total investment income | | 21,737 |
| | 18,676 |
| | 16,930 |
| Less: investment expenses | | 1,190 |
| | 885 |
| | 394 |
| Investment income, net of expenses | | $ | 20,547 |
| | $ | 17,791 |
| | $ | 16,536 |
|
Realized investment gains (losses) Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. Realized gains (losses) on investments were as follows for the years ended December 31: | | | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | 2014 | Available-for-sale securities: | | | | | | | Fixed maturities: | | | | | | | Gross realized gains | | $ | 2,111 |
| | $ | 1,571 |
| | $ | 453 |
| Gross realized losses | | (2,113 | ) | | (1,764 | ) | | (333 | ) | Net realized (losses) gains | | (2 | ) | | (193 | ) | | 120 |
| Equity securities: | | |
| | |
| | | Gross realized gains | | 1 |
| | 759 |
| | 1,132 |
| Gross realized losses | | (34 | ) | | (74 | ) | | (195 | ) | Net realized (losses) gains | | (33 | ) | | 685 |
| | 937 |
| Trading securities: | | |
| | |
| | | Common stock: | | |
| | |
| | | Gross realized gains | | $ | 707 |
| | $ | 0 |
| | $ | 0 |
| Net realized gains | | 707 |
| | 0 |
| | 0 |
| Net realized investment gains | | $ | 672 |
| | $ | 492 |
| | $ | 1,057 |
|
The components of other-than-temporary impairments on investments are included below for the years ended December 31: | | | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | 2014 | Fixed maturities | | $ | (416 | ) | | $ | (1,558 | ) | | $ | (105 | ) | Total other-than-temporary impairments | | (416 | ) | | (1,558 | ) | | (105 | ) | Portion recognized in other comprehensive income | | 0 |
| | 0 |
| | 0 |
| Net impairment losses recognized in earnings | | $ | (416 | ) | | $ | (1,558 | ) | | $ | (105 | ) |
In considering if fixed maturity securities were credit-impaired, some of the factors considered include: potential for the default of interest and/or principal, level of subordination, collateral of the issue, compliance with financial covenants, credit ratings, and industry conditions. We have the intent to sell all credit-impaired fixed maturity securities; therefore, the entire amount of the impairment charges were included in earnings and no non-credit impairments were recognized in other comprehensive income. See also Note 2, "Significant Accounting Policies". Limited partnerships Limited partnership investments, excluding certain real estate limited partnerships recorded at fair value, are generally reported on a one-quarter lag; therefore, our year-to-date limited partnership results through December 31, 2016 are comprised of partnership financial results for the fourth quarter of 2015 and the first, second and third quarters of 2016. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the fourth quarter of 2016. Cash contributions made to and distributions received from the partnerships are recorded in the period in which the transaction occurs.
Amounts included in equity in earnings of limited partnerships by method of accounting are included below for the years ended December 31: | | | | | | | | | | | | | | (in thousands) | | 2016 | | 2015 | | 2014 | Equity in earnings of limited partnerships accounted for under the equity method | | $ | 6,273 |
| | $ | 16,545 |
| | $ | 8,517 |
| Change in fair value of limited partnerships accounted for under the fair value option | | 752 |
| | 438 |
| | 2,412 |
| Equity in earnings of limited partnerships | | $ | 7,025 |
| | $ | 16,983 |
| | $ | 10,929 |
|
The following table summarizes limited partnership investments by sector at December 31: | | | | | | | | | | (in thousands) | | 2016 | | 2015 | Private equity | | $ | 35,228 |
| | $ | 48,397 |
| Mezzanine debt | | 6,010 |
| | 12,701 |
| Real estate | | 12,509 |
| | 22,911 |
| Real estate - fair value option | | 4,412 |
| | 4,526 |
| Total limited partnerships | | $ | 58,159 |
| | $ | 88,535 |
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See also Note 15, "Commitments and Contingencies", for investment commitments related to limited partnerships.
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