INVESTMENTS

The following table details fixed maturity and equity securities available for sale, by major investment category, at December 31, 2017 and 2016:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2017
U.S. government and agency securities	$	237,809	$	275	$	2,193	$	235,891
Foreign governments	2,022		14		—		2,036
States, municipalities and political subdivisions	200,706		1,929		1,123		201,512
Public utilities	20,215		127		85		20,257
Corporate securities	287,025		1,746		1,209		287,562
Asset-backed securities	14,902		23		20		14,905
Redeemable preferred stocks	755		11		74		692
Total fixed maturities	$	763,434	$	4,125	$	4,704	$	762,855

Mutual funds	29,079		2,845		—		31,924
Public utilities	1,343		359		—		1,702
Other common stocks	18,856		9,093		47		27,902
Nonredeemable preferred stocks	1,718		53		4		1,767
Total equity securities	$	50,996	$	12,350	$	51	$	63,295

December 31, 2016
U.S. government and agency securities	$	151,656	$	189	$	1,893	$	149,952
Foreign government	2,031		30		—		2,061
States, municipalities and political subdivisions	170,636		1,027		2,551		169,112
Public utilities	7,687		116		73		7,730
Corporate securities	164,424		1,238		1,126		164,536
Redeemable preferred stocks	1,182		5		62		1,125
Total fixed maturities	$	497,616	$	2,605	$	5,705	$	494,516

Public utilities	1,343		164		—		1,507
Other common stocks	19,815		4,552		319		24,048
Nonredeemable preferred stocks	2,916		10		83		2,843
Total equity securities	$	24,074	$	4,726	$	402	$	28,398

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, 2017, 2016 and 2015:



	2017					2016					2015
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Fixed maturities	$	268		$	35,248	$	1,811		$	56,484	$	727		$	87,141
Equity securities	847			2,209		64			13,253		1,895			7,790
Total realized gains	1,115			37,457		1,875			69,737		2,622			94,931
Fixed maturities	(890		)	53,194		(1,136		)	24,464		(595		)	38,485
Equity securities	(158		)	1,749		(192		)	37,790		(1,200		)	4,172
Total realized losses	(1,048		)	54,943		(1,328		)	62,254		(1,795		)	42,657
Net realized investment gains (losses)	$	67		$	92,400	$	547		$	131,991	$	827		$	137,588

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, 2017
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	66,969	8.8	%	$	66,739	8.7	%
Due after one year through five years	392,256		51.3	%	390,907		51.3	%
Due after five years through ten years	260,758		34.2	%	261,919		34.3	%
Due after ten years	28,549		3.7	%	28,385		3.7	%
Asset and mortgage-backed securities	14,902		2.0	%	14,905		2.0	%
Total	$	763,434	100.0	%	$	762,855	100.0	%

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



	Year Ended December 31,
	2017			2016			2015
Fixed maturities	$	14,942		$	9,170		$	8,092
Equity securities	1,277			996			859
Cash and cash equivalents	626			141			25
Other investments	937			352			222
Other assets	30			20			14
Investment income	$	17,812		$	10,679		$	9,212
Investment expenses	(686		)	(587		)	(267		)
Net investment income	$	17,126		$	10,092		$	8,945

Investment 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 needs, contractual or regulatory requirements, 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, 2017
U.S. government and agency securities	129	$	641	$	103,328	123	$	1,552	$	74,190
States, municipalities and political subdivisions	106	734		91,245		31	389		19,718
Public utilities	16	44		7,052		5	41		1,016
Corporate securities	263	871		134,755		52	338		16,476
Asset backed securities	18	20		11,682		—	—		—
Redeemable preferred stocks	—	—		—		3	74		303
Total fixed maturities	532	2,310		348,062		214	2,394		111,703
Mutual Funds	1	—		131		—	—		—
Other common stocks	5	47		748		—	—		—
Nonredeemable preferred stocks	4	4		87		—	—		—
Total equity securities	10	51		966		—	—		—
Total	542	$	2,361	$	349,028	214	$	2,394	$	111,703

December 31, 2016
U.S. government and agency securities	186	$	1,893	$	111,216	—	$	—	$	—
States, municipalities and political subdivisions	201	2,551		136,360		—	—		—
Public utilities	8	73		2,222		—	—		—
Corporate securities	215	1,100		88,605		1	26		1,021
Redeemable preferred stocks	7	62		764		—	—		—
Total fixed maturities	617	5,679		339,167		1	26		1,021
Other common stocks	16	140		2,450		17	179		1,732
Nonredeemable preferred stocks	12	52		1,830		7	31		369
Total equity securities	28	192		4,280		24	210		2,101
Other investments	1	$	27	$	987	—	$	—	$	—
Total	646	$	5,898	$	344,434	25	$	236	$	3,122

* 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 or limited partnership investments that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of debt securities held by us 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. The near-term prospects of all the issuers of the equity securities we own indicate we could recover our cost basis, and we also do not intend to sell these securities until their value equals or exceeds their cost. The limited partnership was in an unrealized loss position at December 31, 2016, but was continuing to make interest payments on a timely basis and we did not intend to sell at that time. The investment was liquidated in 2017 and we recovered our amortized cost.

During the years ended December 31, 2017, 2016 and 2015, we recorded no other-than-temporary impairment charges.

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 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, 2017 and 2016. Changes in interest rates subsequent to December 31, 2017 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, 2017 and 2016 because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration, the Branch Banking & Trust Corporation (BB&T), and our $150,000,000 senior notes payable approximate fair value as the interest rates are variable.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at December 31, 2017 and December 31, 2016:



December 31, 2017	Total		Level 1		Level 2		Level 3
U.S. government and agency securities	$	235,891	$	—	$	235,891	$	—
Foreign governments	2,036		—		2,036		—
States, municipalities and political subdivisions	201,512		—		201,512		—
Public utilities	20,257		—		20,257		—
Corporate securities	287,562		—		287,562		—
Asset backed securities	14,905		—		14,905		—
Redeemable preferred stocks	692		692		—		—
Total fixed maturities	762,855		692		762,163		—
Mutual Funds	31,924		31,924		—		—
Public utilities	1,702		1,702		—		—
Other common stocks	27,902		27,902		—		—
Nonredeemable preferred stocks	1,767		1,767		—		—
Total equity securities	63,295		63,295		—		—
Other investments	8,381		300		7,447		634
Total recurring investments	$	834,531	$	64,287	$	769,610	$	634

December 31, 2016
U.S. government and agency securities	$	149,952	$	—	$	149,952	$	—
Foreign governments	2,061		—		2,061		—
States, municipalities and political subdivisions	169,112		—		169,112		—
Public utilities	7,730		—		7,730		—
Corporate securities	164,536		—		164,536		—
Redeemable preferred stocks	1,125		1,125		—		—
Total fixed maturities	494,516		1,125		493,391		—
Public utilities	1,507		1,507		—		—
Other common stocks	24,048		24,048		—		—
Nonredeemable preferred stocks	2,843		2,843		—		—
Total equity securities	28,398		28,398		—		—
Other investments	5,733		300		3,735		1,698
Total recurring investments	$	528,647	$	29,823	$	497,126	$	1,698

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the fair value of our financial instruments measured on a non-recurring basis by level at December 31, 2017:



December 31, 2017	Total		Level 1		Level 2		Level 3
Portfolio loans	$	20,000	$	—	$	20,000	$	—

The table below presents the rollforward of our Level 3 investments held at fair value during the year ended December 31, 2017:



	Other Investments
December 31, 2016	$	1,698
Transfers in	—
Transfer out	(990		)
Partnership income	42
Return of capital	(200		)
Unrealized gains in accumulated other comprehensive income	84
December 31, 2017	$	634

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 2017, we transferred one investment from a Level 3 to a Level 2 investment, due to changes in the availability of market observable inputs. 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 our investment custodians which use 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 $8,081,000. We have fully funded two investments and are still obligated to fund an additional $1,365,000 for the remaining three investments.

The information presented in the table below is as of December 31, 2017.



	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
Limited partnership investments	$	7,757	$	324	$	—	$	8,081
Certificates of deposit	300		—		—		300
Total other investments	$	8,057	$	324	$	—	$	8,381

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. Those limited partnership investments being carried at cost are excluded from the table below. Our investment in DCR Mortgage Partners VI, L.P. (DCR VI) was valued using a duration of 60 months for both periods presented below. Our investment in RCH Mortgage Fund VI Investors, L.P. was valued using a duration of 60 months when held at December 31, 2016.



	Fair Value			Valuation		Rate
	Impact			Technique	Unobservable Input	Adjustment
December 31, 2017
DCR VI	$	(37	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

December 31, 2016
DCR VI	$	(56	)	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%

Portfolio Loans

At December 31, 2017, we held commercial portfolio loans of $20,000,000. We believe that making sound loans is a necessary and desirable means of employing funds available for investment. Recognizing our obligation to our stockholders, management is expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. These are short-term collateralized loans (less than one year), which we expect to be repaid primarily from cash flows of the borrowers.

We have not calculated an allowance for a loan loss at December 31, 2017. The allowance would represent an estimate of the amount of probable losses believed to be inherent in our portfolio. Due to the short-term nature of the loans, the projects being substantially complete and the fact that all loans are current with respect to their scheduled payments, we determined that an allowance for loan losses was not necessary, and therefore the related disclosures on the allowance for loan losses and past due loans have been omitted. We expect our loans to be repaid in full upon completion of the projects in March 2018.