INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at December 31, 2015 and 2014:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2015
U.S. government and agency securities	$	81,973	$	148	$	474	$	81,647
Foreign governments	2,038		37		—		2,075
States, municipalities and political subdivisions	154,004		2,391		490		155,905
Public utilities	8,398		128		33		8,493
Corporate securities	148,170		880		2,292		146,758
Redeemable preferred stocks	1,832		37		49		1,820
Total fixed maturities	396,415		3,621		3,338		396,698
Mutual Funds	26,357		—		14		26,343
Public utilities	1,342		44		34		1,352
Other common stocks	18,624		2,615		545		20,694
Nonredeemable preferred stocks	2,356		67		6		2,417
Total equity securities	48,679		2,726		599		50,806
Other investments	4,980		230		—		5,210
Total investments	$	450,074	$	6,577	$	3,937	$	452,714

December 31, 2014
U.S. government and agency securities	$	134,601	$	423	$	590	$	134,434
Foreign government	3,275		79		—		3,354
States, municipalities and political subdivisions	90,262		1,866		217		91,911
Public utilities	9,044		217		39		9,222
Corporate securities	111,787		1,409		580		112,616
Redeemable preferred stocks	1,094		9		10		1,093
Total fixed maturities	350,063		4,003		1,436		352,630
Public utilities	1,222		211		—		1,433
Other common stocks	19,560		3,738		250		23,048
Nonredeemable preferred stocks	1,496		17		7		1,506
Total equity securities	22,278		3,966		257		25,987
Other investments	2,749		261		—		3,010
Total investments	$	375,090	$	8,230	$	1,693	$	381,627

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 tables detail our realized gains (losses) by major investment category for the years ended December 31, 2015, 2014 and 2013:



	2015					2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Fixed maturities	$	727		$	87,141	$	92		$	5,598	$	103		$	23,187
Equity securities	1,895			7,790		298			111,325		31			155
Total realized gains	2,622			94,931		390			116,923		134			23,342
Fixed maturities	(595		)	38,485		(228		)	11,389		(261		)	43,751
Equity securities	(1,200		)	4,172		(182		)	1,529		(2		)	28
Total realized losses	(1,795		)	42,657		(410		)	12,918		(263		)	43,779
Net realized investment gains (losses)	$	827		$	137,588	$	(20	)	$	129,841	$	(129	)	$	67,121

The table below summarizes our fixed maturities at year end by contractual maturity periods. 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.



	December 31, 2015
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	50,080	12.6	%	$	50,135	12.6	%
Due after one year through five years	163,917		41.3	%	163,621		41.2	%
Due after five years through ten years	131,968		33.3	%	131,678		33.2	%
Due after ten years	50,450		12.8	%	51,264		13.0	%
Total	$	396,415	100.0	%	$	396,698	100.0	%

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



	Year Ended December 31,
	2015			2014			2013
Fixed maturities	$	8,092		$	5,866		$	3,512
Equity securities	859			734			280
Cash and cash equivalents	25			9			31
Other investments	222			166			48
Other assets	14			20			—
Investment income	$	9,212		$	6,795		$	3,871
Investment expenses	(267		)	(312		)	(206		)
Net investment income	$	8,945		$	6,483		$	3,665

Portfolio monitoring

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

For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-than-temporary. 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 income security and it is not more likely than not that we will be required to sell the fixed income 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 income 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, we consider various factors, including whether we have the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. If we lack the intent and ability to hold to recovery, or if we believe the recovery period is extended, 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
December 31, 2015
U.S. government and agency securities	73	$	265	$	44,786	21	$	209	$	11,250
States, municipalities and political subdivisions	61	463		56,971		5	27		7,620
Public utilities	8	4		1,961		1	29		1,015
Corporate securities	242	2,025		92,429		9	267		10,047
Redeemable preferred stocks	7	49		746		—	—		—
Total fixed maturities	391	2,806		196,893		36	532		29,932
Mutual Funds	1	14		26,343		—	—		—
Public utilities	4	34		697		—	—		—
Other common stocks	63	497		6,665		3	48		118
Nonredeemable preferred stocks	19	6		1,161		—	—		—
Total equity securities	87	551		34,866		3	48		118
Total	478	$	3,357	$	231,759	39	$	580	$	30,050

December 31, 2014
U.S. government and agency securities	32	$	285	$	36,081	20	$	305	$	16,947
States, municipalities and political subdivisions	24	100		22,272		11	117		14,310
Public utilities	1	1		1,274		1	38		1,014
Corporate securities	23	271		23,738		16	309		20,215
Redeemable preferred stocks	4	10		408		—	—		—
Total fixed maturities	84	667		83,773		48	769		52,486
Other common stocks	54	247		3,992		1	3		31
Nonredeemable preferred stocks	4	7		378		—	—		—
Total equity securities	58	254		4,370		1	3		31
Total	142	$	921	$	88,143	49	$	772	$	52,517

* 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 years ended December 31, 2015, 2014 and 2013, we recorded no other-than-temporary impairment charges related to our equity or debt securities.

Fair value measurement

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 Audited 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 a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on December 31, 2015 and 2014. Changes in interest rates subsequent to December 31, 2015 may affect the fair value of our investments.

The fair value for our fixed-maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources, and through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.

For our Level 3 assets, our internal pricing methods are primarily based on models using discounted cash flow methodologies that determine a single best estimate of fair value for individual financial instruments. In addition, our models use a discount rate and internally assigned credit ratings as inputs (which are generally consistent with any external ratings) and those we use to report our holdings by credit rating. Market related inputs used in these fair values, which we believe are representative of inputs other market participants would use to determine fair value of the same instruments include: interest rate yield curves, quoted market prices of comparable securities, credit spreads, and other applicable market data. As a result of the significance of non-market observable inputs, including internally assigned credit ratings as described above, judgment is required in developing these fair values. The fair value of these financial assets may differ from the amount actually received if we were to sell the asset. Moreover, the use of different valuation assumptions may have a material effect on the fair values on the financial assets.

Any change in the estimated fair value of our securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive income on our Consolidated Balance Sheets.

The carrying amounts for the following financial instrument categories approximate their fair values at December 31, 2015 and 2014 because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, and accounts payable and accrued expenses. The carrying amount of notes payable also approximates fair value as the interest rate is variable.

The following table presents the fair value measurements of our financial instruments on a recurring basis by level at December 31, 2015 and December 31, 2014:



December 31, 2015	Total		Level 1		Level 2		Level 3
U.S. government and agency securities	$	81,647	$	—	$	81,647	$	—
Foreign governments	2,075		—		2,075		—
States, municipalities and political subdivisions	155,905		—		155,905		—
Public utilities	8,493		—		8,493		—
Corporate securities	146,758		—		146,758		—
Redeemable preferred stocks	1,820		1,820		—		—
Total fixed maturities	396,698		1,820		394,878		—
Mutual Funds	26,343		26,343		—		—
Public utilities	1,352		1,352		—		—
Other common stocks	20,694		20,694		—		—
Nonredeemable preferred stocks	2,417		2,417		—		—
Total equity securities	50,806		50,806		—		—
Other investments	5,210		300		3,055		1,855
Total investments	$	452,714	$	52,926	$	397,933	$	1,855

December 31, 2014
U.S. government and agency securities	$	134,434	$	—	$	134,434	$	—
Foreign governments	3,354		—		3,354		—
States, municipalities and political subdivisions	91,911		—		91,911		—
Public utilities	9,222		—		9,222		—
Corporate securities	112,616		—		112,616		—
Redeemable preferred stocks	1,093		1,093		—		—
Total fixed maturities	352,630		1,093		351,537		—
Public utilities	1,433		1,433		—		—
Other common stocks	23,048		23,048		—		—
Nonredeemable preferred stocks	1,506		1,506		—		—
Total equity securities	25,987		25,987		—		—
Other investments	3,010		300		739		1,971
Total investments	$	381,627	$	27,380	$	352,276	$	1,971

The table below presents the rollforward of our Level 3 investments held at fair value during the year ended December 31, 2015:



	Other Investments
December 31, 2014	$	1,971
Transfers in	—
Partnership income	101
Return of capital	(186		)
Unrealized gains in accumulated other comprehensive income	(31		)
December 31, 2015	$	1,855

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.

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. During 2015, we transferred no investments between levels. We used unobservable inputs to derive our estimated fair value for Level 3 investments and the unobservable inputs are significant to the overall fair value measurement.

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.

Other investments

We acquired investments in limited partnerships, recorded in the other investments line of our Consolidated Balance Sheets, that are currently being accounted for at fair value utilizing a discounted cash flow methodology. The estimated fair value of our investments in the limited partnership interests was $4,910,000. We have fully funded our investments in DCR Mortgage Partners VI, L.P., DCR Mortgage Partners VII, L.P., and RCH Mortgage Fund VI Investors, LP; however, we are still obligated to fund an additional $995,000 and $950,000 for our investments in Kayne Anderson Senior Credit Fund II, L.P. (Kayne) and Blackstone Alternative Solutions 2015 Trust, respectively.

The information presented in the table below is as of December 31, 2015.



	Initial Investment		Book Value		Unrealized Gain		Fair Value
DCR Mortgage Partners VI, L.P.	$	627	$	660	$	208	$	868
RCH Mortgage Fund VI Investors, LP	1,000		965		22		987
Total Level 3 limited partnership investments	1,627		1,625		230		1,855
Kayne Senior Credit Fund II, L.P.	1,005		1,005		—		1,005
DCR Mortgage Partners VII, L.P.	2,000		2,000		—		2,000
Blackstone Alternative Solutions 2015 Trust	50		50		—		50
Total Level 2 limited partnership investments	3,055		3,055		—		3,055
Total limited partnership investments	$	4,682	$	4,680	$	230	$	4,910
Other short-term investments	300		300		—		300
Total other investments	$	4,982	$	4,980	$	230	$	5,210

On October 20, 2015, we acquired our investment in DCR Mortgage Partners VII, L.P. (DCR VII), a limited partnership, that is currently being accounted for at cost. Our total investment in the partnership is $2,000,000 and we are not required to fund any additional amounts in excess of our initial investment. When the funding for the partnership closes, DCR VII will acquire and manage performing, sub-performing, and non-performing loans secured by income-producing commercial real estate. As the limited partnership was still in the formation phase at December 31, 2015, the cost basis of our investment approximated its fair value.

In October 2015, we started funding our investment in Blackstone Alternatives Solution 2015 Trust (BTAS). BTAS is a private placement offered by The Blackstone Group, L.P. (NYSE: BX), a publicly traded investment firm with approximately $336 billion in assets under management. Blackstone is one of the largest independent alternative asset managers in the world providing a broad range of opportunities in four key alternative investment categories: private equity, real estate, credit and hedge funds.

BTAS is not a fund of funds and will generally participate directly in deals originated by Blackstone during its three year investment period. All deals will have been evaluated and approved by a Blackstone investment committee providing diversified exposure to private market investments across many of Blackstone’s alternative investment strategies. BTAS invests substantially all of its assets in investments in which other Blackstone investment vehicles, managed accounts or other Blackstone affiliates participate and also generally parallels the Blackstone annual employee investment program.

Our investment in BTAS is currently being accounted for at cost. Our total investment in the partnership is $50,000. We are obligated to fund an additional amount of $950,000 to reach our initial $1,000,000 commitment. As the limited partnership is still in the formation phase, the cost basis of our investment approximated its fair value at December 31, 2015.

In December 2014, we began funding our investment in the Kayne Anderson Senior Credit Fund II (KSCF). KSCF is a private placement offered by Kayne Anderson Capital Advisors, L.P., an S.E.C. registered investment advisor with approximately $25 billion in assets under management. KSCF will deploy its assets across a variety of loan types with three to five year maturities in senior secured positions to support acquisitions, growth, add-ons, recapitalizations, restructuring and bridge financing. KSCF’s investment strategies include upstream oil and gas companies, energy infrastructure, specialized real estate, middle market credit, growth private equity and distressed municipal opportunities.

On September 27, 2013, we acquired our investment in RCH Mortgage Fund VI Investors, LP (RCH). RCH is a limited partnership that acquires and manages performing, sub-performing, and non-performing loans secured by income-producing commercial real estate.

On September 25, 2012, we acquired our investment in DCR Mortgage Partners VI, L.P. (DCR VI). DCR VI is a limited partnership that acquires and manages performing, sub-performing, and non-performing loans secured by income-producing commercial real estate.

The following table summarizes the quantitative impact that the significant unobservable inputs used to estimate the fair value of our Level 3 investments has on the estimated fair value of our investments shown in the tables above. Due to Kayne, DCR VII, and Blackstone being carried at cost, we have excluded them from the table below. The DCR VI and RCH investments were valued using a duration of 60 months for both periods presented below.



	Fair Value			Valuation		Rate
	Impact			Technique	Unobservable Input	Adjustment
December 31, 2015
DCR VI	$	(88	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%
RCH	$	(341	)	Discounted cash flow	Discount rate based on D&B paydex scale	7.35%

December 31, 2014
DCR VI	$	(89	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%
RCH	$	(292	)	Discounted cash flow	Discount rate based on D&B paydex scale	6.10%