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Note 4. Investment Securities
 12 Months Ended
Dec. 31, 2016
Notes  
Note 4. Investment Securities

Note 4.                        Investment Securities

 

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of investment securities are as follows for the periods indicated (in thousands):

 

 

 

 

                                                   December 31, 2016

 

 

 

 

       GROSS

 

       GROSS

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

     FAIR

 

 

       COST

 

        GAINS

 

       LOSSES

 

   VALUE

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

         192,976

$

                  209

$

            (5,490)

$

     187,695

CMOs - residential (1)

 

             6,021

 

                      8

 

              (116) 

 

         5,913

U.S. Government obligations

 

           43,417

 

                  133

 

               (441)

 

       43,109

Agency MBS - residential (2)

 

                  22

 

                      1

 

                     - 

 

              23

GSEs (3)

 

           10,301

 

                      1

 

               (422)

 

         9,880

States and political subdivisions

 

         191,146

 

                  780

 

            (5,115)

 

     186,811

Foreign government obligations

 

             5,098

 

                    13

 

               (157)

 

         4,954

Redeemable preferred stocks

 

           11,454

 

                    96

 

               (448)

 

       11,102

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

         460,435

$

               1,241

$

          (12,189)

$

     449,487

 

EQUITY SECURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Common stocks

$

             1,612

$

                  178

$

                     - 

$

         1,790

Nonredeemable preferred stocks

 

             3,588

 

                    30

 

                 (75)

 

         3,543

 

 

 

 

 

 

 

 

 

Total equity securities

$

             5,200

$

                  208

$

                 (75)

$

         5,333

 

 

 

 

                                                   December 31, 2015

 

 

 

 

       GROSS

 

       GROSS

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

     FAIR

 

 

       COST

 

        GAINS

 

       LOSSES

 

   VALUE

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

         172,621

$

                    93

$

            (5,868)

$

     166,846

CMOs - residential (1)

 

             3,068

 

                      2

 

                 (14)

 

         3,056

CMOs - commercial

 

                899

 

                  296

 

                     - 

 

         1,195

U.S. Government obligations

 

           44,738

 

                  120

 

                 (64)

 

       44,794

Agency MBS - residential (2)

 

                  34

 

                      1

 

                     - 

 

              35

GSEs (3)

 

           11,814

 

                      2

 

               (254)

 

       11,562

States and political subdivisions

 

         194,364

 

               2,159

 

            (1,857)

 

     194,666

Foreign government obligations

 

             2,318

 

                    12

 

                   (6)

 

         2,324

Redeemable preferred stocks

 

             4,036

 

                  101

 

                 (14)

 

         4,123

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

         433,892

$

               2,786

$

            (8,077)

$

     428,601

 

EQUITY SECURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Common stocks

$

             4,926

$

                       -

$

               (142)

$

         4,784

Nonredeemable preferred stocks

 

             3,588

 

                    56

 

                   (2)

 

         3,642

 

 

 

 

 

 

 

 

 

Total equity securities

$

             8,514

$

                    56

$

               (144)

$

         8,426

 

(1)         Collateralized mortgage obligations (“CMOs”).

(2)         Mortgage-backed securities (“MBS”).

(3)         Government-sponsored enterprises (“GSEs’) are private enterprises established and chartered by the Federal Government or its various insurance and lease programs which carry the full faith and credit obligation of the U.S. Government.  

 

 

The amortized cost and fair value of fixed maturities available-for-sale at December 31, 2016, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. CMOs and MBSs are shown separately, as they are not due at a single maturity.

 

 

 

 

 

AMORTIZED

 

 

FAIR

 

 

 

COST

 

 

VALUE

 

 

 

 

 

 

 

Due in one year or less

 

$

4,634

 

$

4,639

Due after one year through five years

 

 

120,448

 

 

118,913

Due after five years through ten years

 

 

157,908

 

 

154,373

Due after ten years

 

 

161,122

 

 

155,747

CMOs and MBSs

 

 

16,323

 

 

15,815

 

 

 

 

 

 

 

 

 

$

460,435

 

$

449,487

 

 

 

The following tables summarize, for all available-for-sale securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position for the periods indicated (in thousands):

 

 

 

 

December 31,, 2016

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

145,205

 

$

       3,818

 

$

  19,841

 

$

       1,672

 

$

  165,046

$

       5,490

CMOs - residential

 

5,038

 

 

          116

 

 

            -

 

 

               -

 

 

      5,038

 

          116

U.S. Government obligations

 

28,406

 

 

          441

 

 

            -

 

 

               -

 

 

    28,406

 

          441

GSEs

 

3,640

 

 

          166

 

 

    6,220

 

 

          256

 

 

      9,860

 

          422

States and political subdivisions

 

144,357

 

 

       4,561

 

 

  18,132

 

 

          554

 

 

  162,489

 

       5,115

Foreign government obligations

 

3,738

 

 

          157

 

 

            -

 

 

               -

 

 

      3,738

 

          157

Redeemable preferred stocks

 

-

 

 

               -

 

 

    3,315

 

 

          448

 

 

      3,315

 

          448

   Total fixed maturities

 

330,384

 

 

       9,259

 

 

  47,508

 

 

       2,930

 

 

  377,892

 

     12,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonredeemable preferred stocks

 

826

 

 

            25

 

 

    1,277

 

 

            50

 

 

      2,103

 

            75

   Total equity securities

 

826

 

 

            25

 

 

    1,277

 

 

            50

 

 

      2,103

 

            75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       securities

$

331,210

 

$

       9,284

 

$

  48,785

 

$

       2,980

 

$

  379,995

$

     12,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of securities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   unrealized loss position

 

156

 

 

 

 

 

           23

 

 

 

 

 

         179

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

101,903

 

$

2,559

 

$

55,217

 

$

3,309

 

$

157,120

$

5,868

CMO’s - residential

 

2,867

 

 

14

 

 

-

 

 

-

 

 

2,867

 

14

U.S. Government obligations

 

19,809

 

 

64

 

 

-

 

 

-

 

 

19,809

 

64

GSEs

 

6,539

 

 

128

 

 

4,997

 

 

126

 

 

11,536

 

254

States and political subdivisions

 

68,898

 

 

780

 

 

31,351

 

 

1,077

 

 

100,249

 

1,857

Foreign government obligations

 

484

 

 

6

 

 

-

 

 

-

 

 

484

 

6

Redeemable preferred stocks

 

3,749

 

 

14

 

 

-

 

 

-

 

 

3,749

 

14

   Total fixed maturities

 

204,249

 

 

3,565

 

 

91,565

 

 

4,512

 

 

295,814

 

8,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

4,784

 

 

142

 

 

-

 

 

-

 

 

4,784

 

142

Nonredeemable preferred stocks

 

1,324

 

 

2

 

 

-

 

 

-

 

 

1,324

 

2

   Total equity securities

 

6,108

 

 

144

 

 

-

 

 

-

 

 

6,108

 

144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       securities

$

210,357

 

$

3,709

 

$

91,565

 

$

4,512

 

$

301,922

$

8,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of securities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   unrealized loss position

 

99

 

 

 

 

 

31

 

 

 

 

 

130

 

 

 

Substantially all of the unrealized losses on fixed maturities available-for-sale at December 31, 2016 and December 31, 2015 relate to investment grade securities and are attributable to changes in market interest rates. Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell such investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2016.

 

The following table summarizes the Company’s net investment income for the years indicated (in thousands):

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Fixed maturities

$

    14,960 

 

$

     15,364 

 

$

     18,504 

Equity securities

 

         676 

 

 

           845 

 

 

           943 

Cash, cash equivalents and other short-term investments

 

      1,088 

 

 

             66 

 

 

             74 

Equity method investments

 

            62 

 

 

           405 

 

 

       1,101 

Other

 

        (135)

 

 

           661 

 

 

       1,071 

 

 

 

 

 

 

 

 

 

Investment income, gross

 

    16,651 

 

 

     17,341 

 

 

     21,693 

Investment expenses

 

          (81)

 

 

         (104)

 

 

           (79)

 

 

 

 

 

 

 

 

 

Net investment income

$

    16,570 

 

$

     17,237 

 

$

     21,614 

 

 

The following table summarizes the Company’s net realized investment gains (losses) for the years indicated (in thousands):

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

   Fixed maturities

$

4,275 

 

$

3,533 

 

$

    7,642 

   Common stocks

 

263 

 

 

1,519 

 

 

           (5)

   Preferred stocks

 

- 

 

 

151 

 

 

             - 

      Total available-for-sale securities

 

4,538 

 

 

5,203 

 

 

    7,637 

 

 

 

 

 

 

 

 

 

Trading securities

 

(409)

 

 

(1,653)

 

 

        506 

      Total realized gains

 

4,129 

 

 

3,550 

 

 

    8,143 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on trading securities:

 

 

 

 

 

 

 

 

   Change in unrealized gains (losses) on trading securities

 

289

 

 

(452)

 

 

      (451)

      Total unrealized gains (losses) on trading securities

 

289

 

 

(452)

 

 

      (451)

 

 

 

 

 

 

 

 

 

Gains (losses) on other investments

 

84

 

 

           (4)

 

 

           (4)

 

 

 

 

 

 

 

 

 

Net realized investment gains

$

4,502 

 

$

3,094 

 

$

    7,688 

 

 

For the years ended December 31, 2016, 2015 and 2014, proceeds from sales of available-for-sale securities were $414,997,000, $640,902,000 and $355,740,000, respectively, and the company realized gross gains of $5,356,000, $6,412,000 and $9,289,000, respectively, and gross losses of $480,000, $805,000 and $741,000, respectively, on those sales.

 

We recognize other-than-temporary impairment losses in earnings in the period that we determine: 1) we intend to sell the security; 2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or 3) the security has a credit loss. Any non-credit portion of the other-than-temporary impairment loss is recognized in other comprehensive income (loss).

During the year ended December 31, 2016, the Company recognized an other-than-temporary impairment loss of $1,475,000 on certain fixed maturities available-for-sale. The Company determined that it is more likely than not that we will sell the securities before the recovery of their amortized cost basis. The Company recognized $228,000 of other-than-temporary impairment losses in earnings on equity securities available-for-sale during the year ended December 31, 2015 due to the length of time and extent an equity security was below cost. The Company did not recognize any other-than-temporary impairments on available-for-sale securities in 2014.

 

 

Credit losses were recognized on certain fixed maturities for which each security also had an impairment loss recognized in other comprehensive income (loss). The rollforward of these credit losses were as follows for the years indicated (in thousands):

 

 

 

 

2016

 

2015

 

2014

 

 

 

 

 

 

 

Balance at beginning of year

$

          473 

$

         473 

$

             473

Securities sold

 

         (473)

 

               - 

 

                   -

 

 

 

 

 

 

 

Balance at end of period

$

                - 

$

         473 

$

             473

 

 

The after-tax portion of other-than-temporary impairments included in accumulated other comprehensive income (loss) at December 31, 2016 and 2015 consists of $0 and $276,000, respectively, related to CMO securities.