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Investments
 6 Months Ended
Jun. 30, 2017
Investments [Abstract]  
Investments

4. Investments



The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Gross

 

Gross

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair

As of June 30, 2017

 

Cost

 

Gains

 

Losses

 

Value

U.S. Treasury securities and obligations of U.S. Government

 

$

 42,014 

 

$

 11 

 

$

 (14)

 

$

 42,011 

Corporate bonds

 

 

 252,093 

 

 

 1,735 

 

 

 (161)

 

 

 253,667 

Collateralized corporate bank loans

 

 

 123,523 

 

 

 575 

 

 

 (292)

 

 

 123,806 

Municipal bonds

 

 

 153,475 

 

 

 1,043 

 

 

 (701)

 

 

 153,817 

Mortgage-backed

 

 

 34,881 

 

 

 144 

 

 

 (252)

 

 

 34,773 



 

 

 

 

 

 

 

 

 

 

 

 

 Total debt securities

 

 

 605,986 

 

 

 3,508 

 

 

 (1,420)

 

 

 608,074 



 

 

 

 

 

 

 

 

 

 

 

 

      Total equity securities

 

 

 33,220 

 

 

 23,898 

 

 

 (641)

 

 

 56,477 



 

 

 

 

 

 

 

 

 

 

 

 

      Total other investments

 

 

 3,763 

 

 

 685 

 

 

 -

 

 

 4,448 



 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 642,969 

 

$

 28,091 

 

$

 (2,061)

 

$

 668,999 



 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

 41,976 

 

$

 66 

 

$

 (20)

 

$

 42,022 

Corporate bonds

 

 

 224,915 

 

 

 1,722 

 

 

 (575)

 

 

 226,062 

Collateralized corporate bank loans

 

 

 105,220 

 

 

 959 

 

 

 (170)

 

 

 106,009 

Municipal bonds

 

 

 165,900 

 

 

 956 

 

 

 (2,961)

 

 

 163,895 

Mortgage-backed

 

 

 59,773 

 

 

 49 

 

 

 (353)

 

 

 59,469 



 

 

 

 

 

 

 

 

 

 

 

 

 Total debt securities

 

 

 597,784 

 

 

 3,752 

 

 

 (4,079)

 

 

 597,457 



 

 

 

 

 

 

 

 

 

 

 

 

      Total equity securities

 

 

 31,449 

 

 

 21,052 

 

 

 (790)

 

 

 51,711 



 

 

 

 

 

 

 

 

 

 

 

 

      Total other investments

 

 

 3,763 

 

 

 1,188 

 

 

 -

 

 

 4,951 



 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 632,996 

 

$

 25,992 

 

$

 (4,869)

 

$

 654,119 

Major categories of net realized gains (losses) on investments are summarized as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

-

 

$

-

 

$

-

 

$

-

Corporate bonds

 

 

 (148)

 

 

 -

 

 

 (18)

 

 

 80 

Collateralized corporate bank loans

 

 

 20 

 

 

 (36)

 

 

 48 

 

 

 (18)

Municipal bonds

 

 

 101 

 

 

 (44)

 

 

 84 

 

 

 (68)

Mortgage-backed

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Equity securities

 

 

 17 

 

 

 490 

 

 

 2,377 

 

 

 490 

(Loss) gain on investments

 

 

 (10)

 

 

 410 

 

 

 2,491 

 

 

 484 

Change in unrealized losses on other investments

 

 

 (62)

 

 

 -

 

 

 (503)

 

 

 -

Other-than-temporary impairments

 

 

 (3,407)

 

 

 (2,587)

 

 

 (3,407)

 

 

 (2,888)

Net realized losses

 

$

 (3,479)

 

$

 (2,177)

 

$

 (1,419)

 

$

 (2,404)



We realized gross gains on investments of $0.4 million and $0.6 million during the three months ended June 30, 2017 and 2016, respectively, and $3.0 million and $0.7 million for the six months ended June 30, 2017 and 2016, respectively.  We realized gross losses on investments of $0.4 million and $0.2 million for the three months ended June 30, 2017 and 2016, respectively, and $0.5 million and $0.2 million for the six months ended June 30, 2017 and 2016, respectively. We recorded proceeds from the sale of investment securities of $0.1 million and $11.0 million during the three months ended June 30, 2017 and 2016, respectively, and $8.0 million and $15.9 million for the six months ended June 30, 2017 and 2016, respectively. Realized investment gains and losses are recognized in operations on the specific identification method.

 



The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2017 and December 31, 2016 (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30, 2017



 

12 months or less

 

Longer than 12 months

 

Total



 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized



 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

 36,947 

 

$

 (14)

 

$

 -

 

$

 -

 

$

 36,947 

 

$

 (14)

Corporate bonds

 

 

 72,355 

 

 

 (161)

 

 

 -

 

 

 -

 

 

 72,355 

 

 

 (161)

Collateralized corporate bank loans

 

 

 36,049 

 

 

 (150)

 

 

 2,408 

 

 

 (142)

 

 

 38,457 

 

 

 (292)

Municipal bonds

 

 

 42,718 

 

 

 (524)

 

 

 6,859 

 

 

 (177)

 

 

 49,577 

 

 

 (701)

Mortgage-backed

 

 

 12,781 

 

 

 (249)

 

 

 1,628 

 

 

 (3)

 

 

 14,409 

 

 

 (252)

    Total debt securities

 

 

 200,850 

 

 

 (1,098)

 

 

 10,895 

 

 

 (322)

 

 

 211,745 

 

 

 (1,420)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total equity securities

 

 

 5,653 

 

 

 (598)

 

 

 2,106 

 

 

 (43)

 

 

 7,759 

 

 

 (641)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total other investments

 

 

 614 

 

 

 -

 

 

 -

 

 

 -

 

 

 614 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 207,117 

 

$

 (1,696)

 

$

 13,001 

 

$

 (365)

 

$

 220,118 

 

$

 (2,061)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2016



 

12 months or less

 

Longer than 12 months

 

Total



 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized



 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

 7,037 

 

$

 (20)

 

$

 -

 

$

 -

 

$

 7,037 

 

$

 (20)

Corporate bonds

 

 

 86,592 

 

 

 (575)

 

 

 -

 

 

 -

 

 

 86,592 

 

 

 (575)

Collateralized corporate bank loans

 

 

 2,637 

 

 

 (7)

 

 

 8,314 

 

 

 (163)

 

 

 10,951 

 

 

 (170)

Municipal bonds

 

 

 70,633 

 

 

 (1,327)

 

 

 13,574 

 

 

 (1,634)

 

 

 84,207 

 

 

 (2,961)

Mortgage-backed

 

 

 29,475 

 

 

 (348)

 

 

 2,430 

 

 

 (5)

 

 

 31,905 

 

 

 (353)

    Total debt securities

 

 

 196,374 

 

 

 (2,277)

 

 

 24,318 

 

 

 (1,802)

 

 

 220,692 

 

 

 (4,079)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total equity securities

 

 

 4,109 

 

 

 (483)

 

 

 2,037 

 

 

 (307)

 

 

 6,146 

 

 

 (790)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total other investments

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 200,483 

 

$

 (2,760)

 

$

 26,355 

 

$

 (2,109)

 

$

 226,838 

 

$

 (4,869)



At June 30, 2017, the gross unrealized losses more than twelve months old were attributable to 15 debt security positions and one equity position.  At December 31, 2016, the gross unrealized losses more than twelve months old were attributable to 28 debt security positions and one equity position.  We consider these losses as a temporary decline in value as they are predominately on bonds that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis.  We see no other indications that the decline in values of these securities is other-than-temporary. We recognized $3.4 million of other-than-temporary impairments for the six months ended June 30, 2017 related to six municipal bond securities.



We complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary. All securities with an unrealized loss are reviewed.  We recognize an impairment loss when an investment's value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments, and it is determined that the decline is other-than-temporary. 



Debt Investments:   We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses.  For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors.  The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows.  The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.

 

Equity Investments:  Some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include: (1) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; (2) the recoverability of cost; (3) the length of time and extent to which the fair value has been less than cost; and (4) the financial condition and near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. When it is determined that an equity investment is other-than-temporarily impaired, the security is written down to fair value, and the amount of the impairment is included in earnings as a realized investment loss. The fair value then becomes the new cost basis of the investment, and any subsequent recoveries in fair value are recognized at disposition. We recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made. When we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale, the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made.



Details regarding the carrying value of the other investments portfolio as of June 30, 2017 and December 31, 2016 were as follows (in thousands):







 

 

 

 

 

 



 

June 30,

 

December 31,



 

2017

 

2016

Investment Type

 

 

 

 

 

 

Equity warrant

 

$

 4,448 

 

$

 4,951 

Total other investments

 

$

 4,448 

 

$

 4,951 



We acquired this warrant in an active market.  The warrant entitles us to buy the underlying common stock of a publicly traded company at a fixed price until the expiration date of January 19, 2021.



The amortized cost and estimated fair value of debt securities at June 30, 2017 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.







 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized

 

Fair



 

Cost

 

Value



 

(in thousands)

Due in one year or less

 

$

 153,323 

 

$

 153,486 

Due after one year through five years

 

 

 231,340 

 

 

 232,487 

Due after five years through ten years

 

 

 143,558 

 

 

 144,413 

Due after ten years

 

 

 42,884 

 

 

 42,915 

Mortgage-backed

 

 

 34,881 

 

 

 34,773 



 

$

 605,986 

 

$

 608,074