3) INVESTMENTS

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



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2018
U.S. government and agency securities	$	100,240	$	50	$	1,315	$	98,975
Foreign government	3,993		5		16		3,982
States, municipalities and political subdivisions	145,415		354		1,301		144,468
Public utilities	24,560		11		681		23,890
Corporate securities	307,875		272		6,159		301,988
Mortgage-backed securities	227,004		333		3,483		223,854
Asset-backed securities	64,071		105		139		64,037
Redeemable preferred stocks	1,287		3		139		1,151
Total fixed maturities	$	874,445	$	1,133	$	13,233	$	862,345

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

Equity securities are summarized as follows at:



	December 31, 2018				December 31, 2017
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total

Mutual funds	$	50,016	61.8	%	$	31,924	50.4	%
Public utilities	1,759		2.2	%	1,702		2.7
Other common stocks	27,198		33.6	%	27,902		44.1
Nonredeemable preferred stocks	2,005		2.4	%	1,767		2.8
Total equity securities	$	80,978	100.0	%	$	63,295	100.0	%

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 years ended December 31, 2018, 2017, and 2016:



	2018					2017					2016
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Fixed maturities	$	373		$	41,776	$	268		$	35,248	$	1,811		$	56,484
Equity securities	2,828			6,073		847			2,209		64			13,253
Total realized gains	3,201			47,849		1,115			37,457		1,875			69,737
Fixed maturities	(1,376		)	135,944		(890		)	53,194		(1,136		)	24,464
Equity securities	(170		)	995		(158		)	1,749		(192		)	37,790
Total realized losses	(1,546		)	136,939		(1,048		)	54,943		(1,328		)	62,254
Net realized investment gains	$	1,655		$	184,788	$	67		$	92,400	$	547		$	131,991

The table below summarizes our fixed maturities at December 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.



	December 31, 2018
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	73,378	8.4	%	$	73,030	8.5	%
Due after one year through five years	347,550		39.8	%	342,999		39.7	%
Due after five years through ten years	149,013		17.0	%	145,318		16.9	%
Due after ten years	13,429		1.5	%	13,107		1.5	%
Asset and mortgage backed securities	291,075		33.3	%	287,891		33.4	%
Total	$	874,445	100.0	%	$	862,345	100.0	%

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



	Year Ended December 31,
	2018			2017			2016
Fixed maturities	$	22,043		$	14,942		$	9,170
Equity securities	2,206			1,277			996
Cash and cash equivalents	1,953			626			141
Other investments	942			937			352
Other assets	57			30			20
Investment income	27,201			17,812			10,679
Investment expenses	(1,031		)	(686		)	(587		)
Net investment income	$	26,170		$	17,126		$	10,092

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 (loss).

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
December 31, 2018
U.S. government and agency securities	45	$	111	$	28,464	55	$	1,204	$	61,264
Foreign governments	5	16		2,978		—	—		—
States, municipalities and political subdivisions	49	272		38,469		91	1,029		68,115
Public utilities	30	374		13,685		19	307		7,805
Corporate securities	351	3,149		144,769		208	3,010		117,351
Mortgage-backed securities	87	1,303		88,754		135	2,180		70,510
Asset backed securities	67	136		41,871		7	3		1,372
Redeemable preferred stocks	8	62		711		2	77		8,377
Total fixed maturities	642	$	5,423	$	359,701	517	$	7,810	$	334,794

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

⁽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 years ended December 31, 2018, 2017, and 2016 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 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 December 31, 2018 and 2017. Changes in interest rates subsequent to December 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.

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 (loss) on our Consolidated Balance Sheet as of December 31, 2018.

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



	Total		Level 1		Level 2		Level 3
December 31, 2018
U.S. government and agency securities	$	98,975	$	—	$	98,975	$	—
Foreign government	3,982		—		3,982		—
States, municipalities and political subdivisions	144,468		—		144,468		—
Public utilities	23,890		—		23,890		—
Corporate securities	301,988		—		301,988		—
Mortgage-backed securities	223,854		—		223,854		—
Asset-backed securities	64,037		—		64,037		—
Redeemable preferred stocks	1,151		790		361		—
Total fixed maturities	862,345		790		861,555		—
Mutual funds	50,016		47,223		2,793		—
Public utilities	1,759		1,759		—		—
Other common stocks	27,198		27,198		—		—
Non-redeemable preferred stocks	2,005		2,005		—		—
Total equity securities	80,978		78,185		2,793		—
Other long-term investments ⁽¹⁾	300		300		—		—
Total investments	$	943,623	$	79,275	$	864,348	$	—

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

⁽¹⁾ Other long-term investments included in the fair value hierarchy exclude these other limited partnership interests that are measured at estimated fair value using the net asset value per share (or its equivalent) practical expedient.

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). There were no financial instruments measured on a non-recurring basis at December 31, 2018. The following table presents the fair value of our financial instruments measured on a non-recurring basis by level at December 31, 2017.



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

The carrying amounts for the following financial instrument categories approximate their fair values at December 31, 2018 and 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.

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 2018, we transferred no investments between levels.

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 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 December 31, 2018 was $8,213,000.

The information presented in the table below is as of December 31, 2018 and 2017:



	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
December 31, 2018
Limited partnership investments ⁽¹⁾	$	7,988	$	225	$	—	$	8,213
Certificates of deposit	300		—		—		300
Total other investments	$	8,288	$	225	$	—	$	8,513

December 31, 2017
Limited partnership investments ⁽¹⁾	$	7,757	$	324	$	—	$	8,081
Certificates of deposit	300		—		—		300
Total other investments	$	8,057	$	324	$	—	$	8,381

⁽¹⁾ Distributions will be generated from investment gains, from operating income, from underlying investments of the funds, and from liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next three months to 10 years.

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.

Restricted Cash

We are required to maintain assets on deposit with various regulatory authorities to support our insurance operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also use trust funds in certain reinsurance transactions.

The following table presents the components of restricted assets:



	December 31,
	2018		2017
Trust funds	$	70,208	$	45,791
Cash on deposit (regulatory deposits)	1,233		928
Total restricted cash	$	71,441	$	46,719