(5)	Investments

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried at amortized cost without consideration to unrealized gains or losses. Investments classified as trading securities include debt and equity securities bought and held primarily for sale in the near term and are carried at fair value with unrealized holding gains and losses included in current period operations. Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments and are carried at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, namely “Other Comprehensive Income.”

Total investments increased $5.6 million, or 1.7%, to $336.4 million as of March 31, 2015, compared with $330.8 million as of December 31, 2014.

The debt and equity securities that are available-for-sale and carried at fair value represent 98% of total investments as of March 31, 2015 and December 31, 2014.

We did not hold any trading investment securities during the three months ended March 31, 2015.

The FASB issued guidance also addresses the determination as to when an investment is considered impaired, whether that impairment is other-than temporary, and the measurement of an impairment loss. The Company’s policy for the valuation of temporarily impaired securities is to determine impairment based on the analysis of the following factors.

rating downgrade or other credit event (eg., failure to pay interest when due);

length of time and the extent to which the fair value has been less than amortized cost;

financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology or discontinuance of a business segment;

prospects for the issuer’s industry segment;

intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value;

historical volatility of the fair value of the security.

Pursuant to FASB issued guidance, the Company records the unrealized losses, net of estimated income taxes that are associated with that part of our portfolio classified as available-for-sale through the shareholders' equity account titled “Other Comprehensive Income”. Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost either is other-than temporarily or permanently impaired. Factors used in such consideration include, but are not limited to, the extent and length of time over which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our ability and intent to keep the investment for a period sufficient to allow for an anticipated recovery in market value.

In reaching a conclusion that a security is either other-than-temporarily or permanently impaired we consider such factors as the timeliness and completeness of expected dividends, principal and interest payments, ratings from nationally recognized statistical rating organizations such as Standard and Poor’s (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), as well as information released via the general media channels. During the three months ended March 31, 2015 and the three months ended March 31, 2014, respectively, in connection with the process, we have not charged operations with investment losses.

As of March 31, 2015 and December 31, 2014, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of March 31, 2015 and December 31, 2014, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of March 31, 2015, 78% of our debt portfolio was in diverse industries and 22% was in United States government bonds. As of March 31, 2015, approximately 88% of our equity holdings were in equities related to diverse industries and 12% were in mutual funds. As of December 31, 2014, 77% of our debt portfolio was in diverse industries and 23% is in United States government bonds. As of December 31, 2014, approximately 88% of our equity holdings were in equities related to diverse industries and 12% were in mutual funds.

As of March 31, 2015 and December 31, 2014, we have classified $7.5 million and $7.4 million, respectively, of our bond portfolio as held-to-maturity. We classify bonds as held-to-maturity to support securitization of credit requirements.

During the three months ended March 31, 2015 and 2014, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity.

(A)

Debt and Equity Securities

The following table summarizes, by type, our investments as of March 31, 2015 and December 31, 2014.

	March 31, 2015					December 31, 2014
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	59,549		17.70	%	$	62,323		18.84	%
Obligations of states and political subdivisions		92,172		27.40	%		91,614		27.70	%
Corporate		125,021		37.18	%		119,024		35.99	%
International		11,451		3.40	%		11,138		3.37	%
		288,193		85.68	%		284,099		85.90	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,564		1.36	%		4,490		1.36	%
Corporate		2,701		0.80	%		2,681		0.81	%
International		197		0.06	%		246		0.07	%
		7,462		2.22	%		7,417		2.24	%
Total debt securities		295,655		87.90	%		291,516		88.14	%

Equity securities, at market:		40,726		12.10	%		39,247		11.86	%
Total investments	$	336,381		100.00	%	$	330,763		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended March 31, 2015 and 2014.

	Three Months Ended March 31,
	2015					2014
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)

Debt securities	$	515		$	34,860	$	135		$	9,668
Equity securities		1,395			3,084		1,610			4,815
Total realized gains		1,910			37,944		1,745			14,483

Debt securities		(103	)	$	15,072		(70	)		3,699
Equity securities		(103	)		459		(344	)		1,338
Total realized losses		(206	)		15,531		(414	)		5,037

Net realized gains on investments	$	1,704		$	53,475	$	1,331		$	19,520

Net realized investment gains totaled $1.7 million for the three months ended March 31, 2015, compared with $1.3 million during the three months ended March 31, 2014.

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at March 31, 2015 and December 31, 2014 is as follows.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)
March 31, 2015
Debt Securities - Available-For-Sale:
United States government obligations and authorities	$	58,136	$	1,466	$	53	$	59,549
Obligations of states and political subdivisions		91,125		1,102		55		92,172
Corporate		122,736		2,396		111		125,021
International		11,340		118		7		11,451
	$	283,337	$	5,082	$	226	$	288,193

Debt Securities - Held-To-Maturity:
United States government obligations and authorities	$	4,564	$	54	$	131	$	4,487
Corporate		2,701		52		1		2,752
International		197		3		-		200
	$	7,462	$	109	$	132	$	7,439

Equity securities - common stocks	$	31,200	$	10,231	$	705	$	40,726

December 31, 2014
Debt Securities - Available-For-Sale:
United States government obligations and authorities	$	61,376	$	1,022	$	75	$	62,323
Obligations of states and political subdivisions		90,728		956		70		91,614
Corporate		117,778		1,578		332		119,024
International		11,139		53		54		11,138
	$	281,021	$	3,609	$	531	$	284,099

Debt Securities - Held-To-Maturity:
United States government obligations and authorities	$	4,490	$	41	$	225	$	4,306
Corporate		2,681		31		5		2,707
International		246		1		1		246
	$	7,417	$	73	$	231	$	7,259

Equity securities - common stocks	$	29,908	$	9,836	$	497	$	39,247

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of March 31, 2015.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	54	$	49	$	5
Obligations of states and political subdivisions		55		55		-
Corporate		111		68		43
International		5		5		-
		225		177		48
Equity securities:
Common stocks		706		672		34

Total debt and equity securities	$	931	$	849	$	82

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of December 31, 2014.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	75	$	22	$	53
Obligations of states and political subdivisions		70		66		4
Corporate		332		260		72
International		54		54		-
		531		402		129
Equity securities:
Common stocks		497		461		36

Total debt and equity securities	$	1,028	$	863	$	165

Below is a summary of debt securities at March 31, 2015 and December 31, 2014, by contractual or expected maturity periods. 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.

	March 31, 2015				December 31, 2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)

Due in one year or less	$	17,357	$	17,355	$	16,777	$	16,797
Due after one through five years		169,008		170,974		173,236		174,273
Due after five through ten years		104,439		107,274		98,404		100,259
Due after ten years		26		33		26		33

Total	$	290,830	$	295,636	$	288,443	$	291,362

United States Treasury notes with a book value of $64,639 and $2,055,445, maturing in 2016 and 2022, and a certificate of deposit with a book value of $0.3 million, were on deposit with the Florida OIR as of March 31, 2015, as required by law for FNIC and Monarch Insurance, respectively, and are included with other investments held until maturity.

United States Treasury notes with a book value of $61,465 and $2,208,588, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2014, as required by law for FNIC, and are included with other investments held until maturity.

The table below sets forth investment results for the three months ended March 31, 2015 and 2014.

	Three Months Ended March 31,
	2015		2014
	(Dollars in Thousands)

Interest on debt securities	$	1,342	$	895
Dividends on equity securities		106		111
Interest on cash and cash equivalents		98		1

Total investment income	$	1,546	$	1,007

Net realized gains	$	1,704	$	1,331

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended March 31, 2015 and 2014, were approximately $56.3 million and $20.9 million, respectively.

The table below sets forth a summary of net realized investment gains during the three months ended March 31, 2015 and 2014.

	Three Months Ended March 31,
	2015		2014
	(Dollars in Thousands)
Net realized gains
Debt securities	$	412	$	65
Equity securities		1,292		1,266

Total	$	1,704	$	1,331

The table below sets forth a summary of net unrealized investment gains as of March 31, 2015 and December 31, 2014.

	Unrealized Gains
	March 31, 2015		December 31, 2014
	(Dollars in Thousands)
Net unrealized gains
Debt securities	$	4,856	$	3,078
Equity securities		9,526		9,339

Total	$	14,382	$	12,417