INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at September 30, 2014 and December 31, 2013:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2014
U.S. government and agency securities	$	123,666	$	101	$	822	$	122,945
Foreign government	3,278		41		—		3,319
States, municipalities and political subdivisions	80,077		1,477		227		81,327
Public utilities	9,059		229		41		9,247
Corporate securities	110,839		1,442		404		111,877
Redeemable preferred stocks	413		—		8		405
Total fixed maturities	327,332		3,290		1,502		329,120
Public utilities	996		62		8		1,050
Other common stocks	17,660		2,918		185		20,393
Non-redeemable preferred stocks	733		3		3		733
Total equity securities	19,389		2,983		196		22,176
Other long-term investments	300		—		—		300
Total investments	$	347,021	$	6,273	$	1,698	$	351,596

December 31, 2013
U.S. government and agency securities	$	98,621	$	28	$	1,169	$	97,480
Foreign government	3,287		—		60		3,227
States, municipalities and political subdivisions	45,556		654		433		45,777
Public utilities	9,103		122		92		9,133
Corporate securities	118,084		792		1,469		117,407
Total fixed maturities	274,651		1,596		3,223		273,024
Public utilities	804		23		20		807
Other common stocks	12,749		1,894		97		14,546
Non-redeemable preferred stocks	272		—		23		249
Total equity securities	13,825		1,917		140		15,602
Other long-term investments	300		—		—		300
Total investments	$	288,776	$	3,513	$	3,363	$	288,926

We classify all of our investments as available-for-sale. Our investments at September 30, 2014 and December 31, 2013 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions and securities of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by companies in the energy, consumer products, technology and industrial sectors.

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three and nine month periods ended September 30, 2014 and 2013:



	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Fixed maturities	$	2		$	333	$	2		$	6,007
Equity securities	2			44,024		—			—
Total realized gains	4			44,357		2			6,007
Fixed maturities	(73		)	2,270		(40		)	4,078
Equity securities	—			—		—			—
Total realized losses	(73		)	2,270		(40		)	4,078
Net realized investment losses	$	(69	)	$	46,627	$	(38	)	$	10,085

Nine Months Ended September 30,
Fixed maturities	$	23		$	1,453	$	30		$	20,134
Equity securities	174			111,075		31			155
Total realized gains	197			112,528		61			20,289
Fixed maturities	(150		)	4,823		(258		)	42,725
Equity securities	(71		)	1,013		(2		)	28
Total realized losses	(221		)	5,836		(260		)	42,753
Net realized investment losses	$	(24	)	$	118,364	$	(199	)	$	63,042

The table below summarizes our fixed maturities by their contractual due dates at September 30, 2014. We summarize our fixed maturities by their contractual due dates with the exception of our collateralized mortgage obligations which we summarize by their effective maturity dates. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.



	September 30, 2014
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	45,915	14.0	%	$	45,973	14.0	%
Due after one year through five years	160,295		49.0		160,318		48.7
Due after five years through ten years	113,271		34.6		114,693		34.8
Due after ten years	7,851		2.4		8,136		2.5
Total	$	327,332	100.0	%	$	329,120	100.0	%

The following table summarizes our net investment income by major investment category:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Fixed maturities	$	1,611		$	983		$	4,237		$	2,426
Equity securities	171			93			537			174
Cash, cash equivalents and short-term investments	2			8			7			28
Other investments	23			5			110			16
Investment income	1,807			1,089			4,891			2,644
Investment expenses	(79		)	(40		)	(227		)	(159		)
Net investment income	$	1,728		$	1,049		$	4,664		$	2,485

Portfolio monitoring

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed maturity and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed maturity security in an unrealized loss position, we determine if the loss is temporary or other-than-temporarily impaired. If our management decides to sell the security or determines that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity, contractual or regulatory purposes, then the security's decline in fair value is considered other-than-temporary and is recorded in earnings.

If we have not made the decision to sell the fixed maturity security and it is not more likely than not that we will be required to sell the fixed maturity security before recovery of its amortized cost basis, we evaluate whether we expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compare this to the cost or amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of the fixed maturity security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, if we have decided to sell an equity security whose fair value is less than its cost and we do not expect the fair value to fully recover before the expected time of the sale, then the equity security’s decline in fair value is considered other-than-temporary and is recorded in earnings.

Our portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its cost or amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in our evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other-than-temporary are: (1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; (2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and (3) the length of time and extent to which the fair value has been less than amortized cost or cost.

The following table presents an aging of our unrealized investment losses by investment class:



	Less Than Twelve Months					Twelve Months or More
	Number of Securities*	Gross Unrealized Losses		Fair Value		Number of Securities*	Gross Unrealized Losses		Fair Value
September 30, 2014
U.S. government and agency securities	51	$	355	$	110,191	19	$	467	$	16,797
States, municipalities and political subdivisions	20	120		20,131		9	107		11,817
Public utilities	—	—		—		1	41		1,012
Corporate securities	12	45		12,151		16	359		20,199
Redeemable preferred stocks	3	8		304		—	—		—
Total fixed maturities	86	528		142,777		45	974		49,825
Public utilities	8	7		301		1	1		28
Common stocks	55	165		3,822		1	20		285
Non-redeemable preferred stocks	2	2		200		1	1		128
Total equity securities	65	174		4,323		3	22		441
Total	151	$	702	$	147,100	48	$	996	$	50,266

December 31, 2013
U.S. government and agency securities	47	$	850	$	64,369	7	$	319	$	5,913
Foreign governments	4	60		3,227		—	—		—
States, municipalities and political subdivisions	23	433		27,106		—	—		—
Public utilities	4	92		3,830		—	—		—
Corporate securities	49	1,469		60,348		—	—		—
Total fixed maturities	127	2,904		158,880		7	319		5,913
Public utilities	5	20		357		—	—		—
Common stocks	15	97		1,626		—	—		—
Non-redeemable preferred stocks	1	6		125		1	17		125
Total equity securities	21	123		2,108		1	17		125
Total	148	$	3,027	$	160,988	8	$	336	$	6,038

* This amount represents the actual number of discrete securities, not the number of shares of those securities. The numbers are not presented in thousands.

During our quarterly evaluations of our securities for impairment, we determined that none of our investments in debt and equity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of our debt securities continue to make interest payments on a timely basis. We do not intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. All the issuers of the equity securities we own had near-term prospects that indicated we could recover our cost basis, and we also do not intend to sell these securities until their value equals or exceeds their cost.

During the three and nine months ended September 30, 2014 and 2013, we recorded no other-than-temporary impairment charges related to our equity positions. We have never recorded an OTTI charge on our fixed maturity investments.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2014 and December 31, 2013:



	Total		Level 1		Level 2
September 30, 2014
U.S. government and agency securities	$	122,945	$	—	$	122,945
Foreign governments	3,319		—		3,319
States, municipalities and political subdivisions	81,327		—		81,327
Public utilities	9,247		—		9,247
Corporate securities	111,877		—		111,877
Redeemable preferred stocks	405		405		—
Total fixed maturities	329,120		405		328,715
Public utilities	1,050		1,050		—
Common stocks	20,393		20,393		—
Non-redeemable preferred stocks	733		733		—
Total equity securities	22,176		22,176		—
Other long-term investments	300		300		—
Total investments	$	351,596	$	22,881	$	328,715

December 31, 2013
U.S. government and agency securities	$	97,480	$	—	$	97,480
Foreign government	3,227		—		3,227
States, municipalities and political subdivisions	45,777		—		45,777
Public utilities	9,133		—		9,133
Corporate securities	117,407		—		117,407
Total fixed maturities	273,024		—		273,024
Public utilities	807		807		—
Common stocks	14,546		14,546		—
Non-redeemable preferred stocks	249		249		—
Total equity securities	15,602		15,602		—
Other long-term investments	300		300		—
Total investments	$	288,926	$	15,902	$	273,024

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.

We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, NASDAQ, and NYSE MKT. For securities for which quoted prices in active markets are unavailable, we use observable inputs such as quoted prices in inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on September 30, 2014 and December 31, 2013, respectively. Changes in interest rates subsequent to September 30, 2014 may affect the fair value of our investments.

We are responsible for the determination of fair value and the supporting assumptions and methodologies. We gain assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.

We do not hold any available for sale investments that require unobservable inputs to determine their fair value. At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. We made no such transfers during the three and nine months ended September 30, 2014.

For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from Synovus Trust Company, NA, which uses a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs.

Limited partnerships

On September 27, 2013, we acquired an investment in RCH Mortgage Fund VII Investors, LP (RCH), a limited partnership, recorded in other assets, that is currently being accounted for at cost. Our total investment in RCH of $1,000,000, which has been reduced by our proportionate share of the partnership's losses, is currently bifurcated between a capital contribution of $460,000 and a note receivable plus accrued interest of $525,000 that will be utilized to fund our future capital contributions. We are not required to fund any additional amounts in excess of our initial $1,000,000 commitment. As RCH is still in the acquisition phase, the cost basis of our investment approximated its fair value of $985,000 at September 30, 2014.

On October 10, 2014, RCH issued a capital call notice and applied our $500,000 note receivable to our capital account to fully fund our obligation to the limited partnership. RCH also remitted the $25,000 of unpaid interest on the note receivable.

On September 25, 2012, we acquired an investment in DCR Mortgage Partners VI, LP (DCR), a limited partnership, recorded in other assets, that is currently being accounted for at cost. Our total investment in DCR is $750,000, which has been increased by our proportional share of the partnership income, and reduced by return of capital and tax distributions received during the nine months ended September 30, 2014 totaling $8,000, is currently bifurcated between capital contributions of $562,000 and a note receivable of $188,000 that will be utilized to fund our future capital contribution. We are not required to fund any additional amounts in excess of our initial investment. As DCR is still in the acquisition phase, the cost basis of our investment approximated its fair value of $750,000 at September 30, 2014.

On October 15, 2014, DCR issued a capital call notice and applied our $188,000 note receivable to our capital account to fully fund our obligation to the limited partnership.

Other investments

On October 31, 2013, we entered into a participation agreement with United Capital Funding (UC Funding), that was recorded in other assets, at cost. We invested $1,000,000 in cash with UC Funding which they utilized to factor receivables from another company. During the first quarter of 2014, UC Funding returned our investment and all interest earned as they were unable to fully utilize our investment.