INVESTMENTS

The following table details fixed maturity available-for-sale and equity securities, by major investment category, at September 30, 2018 and December 31, 2017:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2018
U.S. government and agency securities	$	104,822	$	—	$	2,093	$	102,729
Foreign government	2,998		—		32		2,966
States, municipalities and political subdivisions	154,195		389		2,718		151,866
Public utilities	24,898		19		775		24,142
Corporate securities	296,009		197		6,610		289,596
Mortgage-backed securities	211,288		—		6,298		204,990
Asset backed securities	59,145		5		252		58,898
Redeemable preferred stocks	1,285		3		85		1,203
Total fixed maturities	$	854,640	$	613	$	18,863	$	836,390

Mutual funds	$	44,589	$	6,506	$	—	$	51,095
Public utilities	2,045		331		19		2,357
Other common stocks	27,016		10,893		341		37,568
Non-redeemable preferred stocks	2,098		8		34		2,072
Total equity securities	$	75,748	$	17,738	$	394	$	93,092

December 31, 2017
U.S. government and agency securities	$	93,827	$	40	$	1,241	$	92,626
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
Mortgage-backed securities	143,982		235		952		143,265
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 and nine months ended September 30, 2018 and 2017:



	2018					2017
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Fixed maturities	$	12		$	4,864	$	123		$	11,368
Equity securities	8			411		1			156
Total realized gains	20			5,275		124			11,524
Fixed maturities	(441		)	46,268		(195		)	10,517
Equity securities	(26		)	387		—			—
Total realized losses	(467		)	46,655		(195		)	10,517
Net realized investment gains (losses)	$	(447	)	$	51,930	$	(71	)	$	22,041

Nine Months Ended September 30,
Fixed maturities	$	68		$	11,745	$	263		$	30,264
Equity securities	517			1,593		8			175
Total realized gains	585			13,338		271			30,439
Fixed maturities	(1,233		)	116,587		(815		)	47,913
Equity securities	(26		)	387		(10		)	100
Total realized losses	(1,259		)	116,974		(825		)	48,013
Net realized investment gains (losses)	$	(674	)	$	130,312	$	(554	)	$	78,452

The table below summarizes our fixed maturities at September 30, 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.



	September 30, 2018
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	70,131	8.2	%	$	69,785	8.3	%
Due after one year through five years	337,014		39.4	%	331,204		39.6	%
Due after five years through ten years	164,523		19.3	%	159,481		19.1	%
Due after ten years	12,539		1.5	%	12,032		1.4	%
Asset and mortgage backed securities	270,433		31.6	%	263,888		31.6	%
Total	$	854,640	100.0	%	$	836,390	100.0	%

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Fixed maturities	$	5,725		$	4,111		$	15,929		$	10,696
Equity securities	525			375			1,455			940
Cash and cash equivalents	588			285			1,427			445
Other investments	41			124			830			385
Other assets	9			6			24			23
Investment income	6,888			4,901			19,665			12,489
Investment expenses	(267		)	(213		)	(756		)	(482		)
Net investment income	$	6,621		$	4,688		$	18,909		$	12,007

Portfolio monitoring

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income 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 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 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
September 30, 2018
U.S. government and agency securities	83	$	580	$	48,600	56	$	1,513	$	54,114
Foreign governments	5	32		2,966		—	—		—
States, municipalities and political subdivisions	132	1,742		103,690		43	976		30,133
Public utilities	41	672		19,812		6	103		1,976
Corporate securities	481	4,752		217,405		90	1,858		49,688
Mortgage-backed securities	180	4,683		173,692		89	1,615		29,984
Asset backed securities	83	250		51,428		7	2		1,362
Redeemable preferred stocks	8	25		749		2	60		200
Total fixed maturities	1,013	12,736		618,342		293	6,127		167,457
Mutual Fund	1	—		56		—	—		—
Public utilities	8	19		672		—	—		—
Other common stocks	70	305		4,103		1	36		91
Non-redeemable preferred stocks	18	32		1,506		3	2		19
Total equity securities	97	356		6,337		4	38		110
Total	1,110	$	13,092	$	624,679	297	$	6,165	$	167,567

December 31, 2017
U.S. government and agency securities	40	$	166	$	26,979	73	$	1,075	$	58,980
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
Mortgage-backed securities	89	475		76,349		50	477		15,210
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 fixed-income 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 as of January 1, 2018, 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 and nine months ended September 30, 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 Condensed 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 American. 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 September 30, 2018 and December 31, 2017. Changes in interest rates subsequent to September 30, 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 method is primarily based on models using our share of the net asset value of the limited partnership interests as provided on the financial statements of the investee. In certain circumstances, management may adjust the net asset value when it has sufficient evidence to support applying such adjustments.

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 Condensed Consolidated Balance Sheet as of September 30, 2018.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2018 and December 31, 2017:



	Total		Level 1		Level 2		Level 3
September 30, 2018
U.S. government and agency securities	$	102,729	$	—	$	102,729	$	—
Foreign government	2,966		—		2,966		—
States, municipalities and political subdivisions	151,866		—		151,866		—
Public utilities	24,142		—		24,142		—
Corporate securities	289,596		—		289,596		—
Mortgage-backed securities	204,990		—		204,990		—
Asset-backed securities	58,898		—		58,898		—
Redeemable preferred stocks	1,203		821		382		—
Total fixed maturities	836,390		821		835,569		—
Mutual funds	51,095		51,095		—		—
Public utilities	2,357		2,357		—		—
Other common stocks	37,568		37,568		—		—
Non-redeemable preferred stocks	2,072		2,072		—		—
Total equity securities	93,092		93,092		—		—
Other long-term investments	8,330		300		2,173		5,857
Total investments	$	937,812	$	94,213	$	837,742	$	5,857

December 31, 2017
U.S. government and agency securities	$	92,626	$	—	$	92,626	$	—
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		—
Mortgage-backed securities	143,265		—		143,265		—
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 carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2018 and December 31, 2017, 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 senior notes approximate fair value as the interest rates and terms are variable.

The table below presents the rollforward of our Level 3 investments held at fair value during the nine months ended September 30, 2018:



	Other Investments
December 31, 2017	$	634
Transfers in	5,507
Partnership income	261
Return of capital	(482		)
Unrealized gains in accumulated other comprehensive income	(63		)
September 30, 2018	$	5,857

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 quarter ended September 30, 2018, we transferred two investments from Level 2 to Level 3 investments, 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, 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 Unaudited Condensed Consolidated Balance Sheets and these investments are currently being accounted for at fair value utilizing a net asset value per share equivalent methodology. The estimated fair value of our investments in the limited partnership interests at September 30, 2018 was $8,029,000. We have fully funded two investments and are still obligated to fund an additional $2,708,000 for the remaining four investments.

The information presented in the table below is as of September 30, 2018:



	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
Limited partnership investments	$	7,769	$	260	$	—	$	8,029
Certificates of deposit	300		—		—		300
Total other investments	$	8,069	$	260	$	—	$	8,329

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 were short-term collateralized loans (less than one year), which were repaid in full in April 2018, primarily from cash flows of the borrowers.