INVESTMENTS

The following table details fixed maturity available-for-sale and equity securities, by major investment category, at March 31, 2018 and December 31, 2017:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2018
U.S. government and agency securities	$	247,505	$	71	$	5,317	$	242,259
Foreign government	2,020		—		8		2,012
States, municipalities and political subdivisions	187,419		657		2,208		185,868
Public utilities	24,587		26		444		24,169
Corporate securities	291,843		422		5,018		287,247
Asset backed securities	44,943		17		57		44,903
Redeemable preferred stocks	760		12		85		687
Total fixed maturities	$	799,077	$	1,205	$	13,137	$	787,145

Mutual funds	$	44,272	$	2,418	$	454	$	46,236
Public utilities	1,343		294		34		1,603
Other common stocks	19,967		7,841		231		27,577
Non-redeemable preferred stocks	1,718		38		17		1,739
Total equity securities	$	67,300	$	10,591	$	736	$	77,155

December 31, 2017
U.S. government and agency securities	$	237,809	$	275	$	2,193	$	235,891
Foreign government	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 fund	$	29,079	$	2,845	$	—	$	31,924
Public utilities	1,343		359		—		1,702
Other common stocks	18,856		9,093		47		27,902
Non-redeemable preferred stocks	1,718		53		4		1,767
Total equity securities	$	50,996	$	12,350	$	51	$	63,295

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 months ended March 31, 2018 and 2017:



	2018					2017
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended March 31,
Fixed maturities	$	42		$	3,445	$	99		$	12,586
Equity securities	450			1,408		—			—
Total realized gains	492			4,853		99			12,586
Fixed maturities	(281		)	32,228		(450		)	23,548
Equity securities	—			—		—			—
Total realized losses	(281		)	32,228		(450		)	23,548
Net realized investment gains (losses)	$	211		$	37,081	$	(351	)	$	36,134

The table below summarizes our fixed maturities at March 31, 2018 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 maturities of those obligations.



	March 31, 2018
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	61,999	7.8	%	$	61,715	7.8	%
Due after one year through five years	325,696		40.8	%	321,403		40.8	%
Due after five years through ten years	185,127		23.2	%	181,628		23.1	%
Due after ten years	15,800		2.0	%	15,459		2.0	%
Asset and mortgage backed securities	210,455		26.2	%	206,940		26.3	%
Total	$	799,077	100.0	%	$	787,145	100.0	%

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



	Three Months Ended March 31,
	2018			2017
Fixed maturities	$	4,812		$	2,498
Equity securities	463			220
Cash and cash equivalents	222			70
Other investments	182			152
Other assets	7			11
Investment income	5,686			2,951
Investment expenses	(243		)	(250		)
Net investment income	$	5,443		$	2,701

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 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.

Our portfolio monitoring process includes a quarterly review of all fixed-income securities to identify instances where the fair value of a security compared to its cost or amortized cost (for fixed income 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 information relevant to the collectability or recovery of the security that is reasonably available. 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⁽¹⁾	Gross Unrealized Losses		Fair Value		Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value
March 31, 2018
U.S. government and agency securities	177	$	3,252	$	163,624	120	$	2,065	$	69,114
Foreign governments	2	8		2,012		—	—		—
States, municipalities and political subdivisions	159	1,773		133,508		24	435		16,616
Public utilities	39	381		21,114		5	63		994
Corporate securities	500	4,406		240,811		52	612		17,182
Asset backed securities	31	57		31,532		—	—		—
Redeemable preferred stocks	1	4		121		3	81		302
Total fixed maturities	909	9,881		592,722		204	3,256		104,208
Mutual Fund	2	454		14,743		—	—		—
Public utilities	2	34		416		—	—		—
Other common stocks	23	202		3,236		1	29		97
Non-redeemable preferred stocks	13	17		604		—	—		—
Total equity securities	40	707		18,999		1	29		97
Total	949	$	10,588	$	611,721	205	$	3,285	$	104,305

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		—	—		—
Non-redeemable preferred stocks	4	4		87		—	—		—
Total equity securities	10	51		966		—	—		—
Total	542	$	2,361	$	349,028	214	$	2,394	$	111,703

⁽¹⁾ This amount represents the actual number of discrete securities, not the number of shares or units 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. Due to the adoption of ASU 2016-01, equity securities are reported at fair value with changes in fair value recognized in valuation of equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales.

During the three months ended March 31, 2018 and 2017, 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 our Unaudited 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 March 31, 2018 and December 31, 2017. Changes in interest rates subsequent to March 31, 2018 may affect the fair value of our investments.

The fair value of 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 fixed-income 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 Unaudited Consolidated Balance Sheet as of March 31, 2018.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at March 31, 2018 and December 31, 2017:



	Total		Level 1		Level 2		Level 3
March 31, 2018
U.S. government and agency securities	$	242,259	$	—	$	242,259	$	—
Foreign government	2,012		—		2,012		—
States, municipalities and political subdivisions	185,868		—		185,868		—
Public utilities	24,169		—		24,169		—
Corporate securities	287,247		—		287,247		—
Asset backed securities	44,903		—		44,903		—
Redeemable preferred stocks	687		687		—		—
Total fixed maturities	787,145		687		786,458		—
Mutual funds	46,236		46,236		—		—
Public utilities	1,603		1,603		—		—
Other common stocks	27,577		27,577		—		—
Non-redeemable preferred stocks	1,739		1,739		—		—
Total equity securities	77,155		77,155		—		—
Other long-term investments	8,144		300		7,190		654
Total investments	$	872,444	$	78,142	$	793,648	$	654

December 31, 2017
U.S. government and agency securities	$	235,891	$	—	$	235,891	$	—
Foreign government	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		—		—
Non-redeemable preferred stocks	1,767		1,767		—		—
Total equity securities	63,295		63,295		—		—
Other long-term investments	8,381		300		7,447		634
Total investments	$	834,531	$	64,287	$	769,610	$	634

The table below presents the rollforward of our Level 3 investments held at fair value during the three months ended March 31, 2018:



	Other Investments
December 31, 2017	$	634
Partnership income	53
Return of capital	(90		)
Unrealized gains in accumulated other comprehensive income	57
March 31, 2018	$	654

We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of 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 the first three months of 2018, we did not transfer any 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 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, and 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 its 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 and 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 at March 31, 2018 was $7,844,000. We have fully funded two investments and are still obligated to fund an additional $1,320,000 for the remaining three investments.

The information presented in the table below is as of March 31, 2018:



	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
Limited partnership investments	$	7,463	$	381	$	—	$	7,844
Certificates of deposit	300		—		—		300
Total other investments	$	7,763	$	381	$	—	$	8,144

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.



	Fair Value			Valuation		Rate
	Impact			Technique	Unobservable Input	Adjustment
March 31, 2018
DCR VI	$	(33	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

December 31, 2017
DCR VI	$	(37	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

Portfolio loans

At March 31, 2018, 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 March 31, 2018. 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. Our loans were repaid in full upon completion of the projects in April 2018.