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Investments
 12 Months Ended
Dec. 31, 2017
Investments [Abstract]  
Investments



2.

Investments:

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







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

As of December 31, 2017

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

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

 

$

 50,088 

 

$

 7 

 

$

 (148)

 

$

 49,947 

Corporate bonds

 

 

 278,611 

 

 

 1,204 

 

 

 (742)

 

 

 279,073 

Collateralized corporate bank loans

 

 

 125,536 

 

 

 702 

 

 

 (301)

 

 

 125,937 

Municipal bonds

 

 

 134,052 

 

 

 709 

 

 

 (505)

 

 

 134,256 

Mortgage-backed

 

 

 16,712 

 

 

 37 

 

 

 (216)

 

 

 16,533 



 

 

 

 

 

 

 

 

 

 

 

 

Total debt securities

 

 

 604,999 

 

 

 2,659 

 

 

 (1,912)

 

 

 605,746 



 

 

 

 

 

 

 

 

 

 

 

 

Total equity securities

 

 

 30,253 

 

 

 23,014 

 

 

 (1,504)

 

 

 51,763 



 

 

 

 

 

 

 

 

 

 

 

 

Total other investments

 

 

 3,763 

 

 

 61 

 

 

 -

 

 

 3,824 



 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 639,015 

 

$

 25,734 

 

$

 (3,416)

 

$

 661,333 



 

 

 

 

 

 

 

 

 

 

 

 

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 investment income are summarized as follows (in thousands):







 

 

 

 

 

 

 

 

 



 

 



 

Twelve Months Ended December 31



 

2017

 

2016

 

2015

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

 

$

 566 

 

$

 594 

 

$

 670 

Corporate bonds

 

 

 7,839 

 

 

 5,573 

 

 

 1,435 

Collateralized corporate bank loans

 

 

 4,302 

 

 

 3,190 

 

 

 4,727 

Municipal bonds

 

 

 4,633 

 

 

 5,442 

 

 

 5,901 

Mortgage-backed

 

 

 1,049 

 

 

 1,320 

 

 

 1,288 

Equity securities

 

 

 871 

 

 

 638 

 

 

 673 

Other investments

 

 

 -

 

 

 -

 

 

 -

Cash and cash equivalents

 

 

 706 

 

 

 277 

 

 

 148 



 

 

 19,966 

 

 

 17,034 

 

 

 14,842 

Investment expenses

 

 

 (1,092)

 

 

 (692)

 

 

 (873)

Investment income, net of expenses

 

$

 18,874 

 

$

 16,342 

 

$

 13,969 



No investments in any entity or its affiliates exceeded 10% of stockholders’ equity at December 31, 2017 or 2016. 



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







 

 

 

 

 

 

 

 

 



 

 



 

Twelve Months Ended December 31



 

2017

 

2016

 

2015

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

 

$

-

 

$

-

 

$

-

Corporate bonds

 

 

 (468)

 

 

 (264)

 

 

 -

Collateralized corporate bank loans

 

 

 79 

 

 

 (86)

 

 

 126 

Municipal bonds

 

 

 195 

 

 

 (189)

 

 

 (83)

Mortgage-backed

 

 

 (9)

 

 

 (1)

 

 

 240 

Equity securities

 

 

 7,002 

 

 

 1,871 

 

 

 5,543 

Gain on investments

 

 

 6,799 

 

 

 1,331 

 

 

 5,826 

Unrealized (loss) gain on other investments

 

 

 (1,127)

 

 

 1,188 

 

 

 -

Other-than-temporary impairments

 

 

 (5,877)

 

 

 (2,888)

 

 

 (3,323)

Net realized (losses) gains

 

$

 (205)

 

$

 (369)

 

$

 2,503 



We realized gross gains on investments of $8.0 million,  $2.1 million, and $6.7 million during the years ended December 31, 2017, 2016 and 2015, respectively. We realized gross losses on investments of $1.2 million,  $0.8 million and $0.9 million during the years ended December 31, 2017, 2016 and 2015, respectively. We recorded proceeds from the sale of investment securities of $29.1 million, $28.5 million and $51.7 million during the years ended December 31, 2017, 2016 and 2015, respectively. Realized investment gains and losses are recognized in operations on the first in-first out 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 December 31, 2017 and December 31, 2016 (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2017



 

12 months or less

 

Longer than 12 months

 

Total



 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

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

 

$

 28,825 

 

$

 (145)

 

$

 1,997 

 

$

 (3)

 

$

 30,822 

 

$

 (148)

Corporate bonds

 

 

 176,061 

 

 

 (736)

 

 

 2,378 

 

 

 (6)

 

 

 178,439 

 

 

 (742)

Collateralized corporate bank loans

 

 

 30,008 

 

 

 (280)

 

 

 2,517 

 

 

 (21)

 

 

 32,525 

 

 

 (301)

Municipal bonds

 

 

 35,200 

 

 

 (370)

 

 

 8,917 

 

 

 (135)

 

 

 44,117 

 

 

 (505)

Mortgage-backed

 

 

 6,419 

 

 

 (127)

 

 

 1,415 

 

 

 (89)

 

 

 7,834 

 

 

 (216)

Total debt securities

 

 

 276,513 

 

 

 (1,658)

 

 

 17,224 

 

 

 (254)

 

 

 293,737 

 

 

 (1,912)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity securities

 

 

 8,375 

 

 

 (1,504)

 

 

 -

 

 

 -

 

 

 8,375 

 

 

 (1,504)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other investments

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

 284,888 

 

$

 (3,162)

 

$

 17,224 

 

$

 (254)

 

$

 302,112 

 

$

 (3,416)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2016



 

12 months or less

 

Longer than 12 months

 

Total



 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized 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 December 31, 2017, the gross unrealized losses more than twelve months old were attributable to 25 debt security positions. 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 securities 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. The gross unrealized losses on the debt security positions at December 31, 2017 were due predominately to normal market and interest rate fluctuations and we see no other indications that the decline in values of these securities is other-than-temporary.



Based on evidence gathered through our normal credit evaluation process, we presently expect that all debt securities held in our investment portfolio will be paid in accordance with their contractual terms. Nonetheless, it is at least reasonably possible that the performance of certain issuers of these debt securities will be worse than currently expected resulting in future write-downs within our portfolio of debt securities.



Also, as a result of the challenging market conditions, we expect the volatility in the valuation of our equity securities to continue in the foreseeable future. This volatility may lead to changes regarding retention strategies for certain equity 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. We recognized other-than-temporary losses on our debt securities portfolio of $5.9 million during 2017, all related to credit losses (none of the impairments were interest related) on certain senior and subordinated municipal bonds concentrated in Puerto Rico.   The fair value of the impaired securities was $4.4 million at December 31, 2017.



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 invested assets portfolio as of December 31, 2017 and 2016 were as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016

Investment Type

 

 

 

 

 

 

Equity warrant

 

$

 3,824 

 

$

 4,951 

Total other investments

 

$

 3,824 

 

$

 4,951 



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



















The amortized cost and estimated fair value of debt securities at December 31, 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 Cost

 

 

Fair Value



 

(in thousands)

Due in one year or less

 

$

 116,027 

 

$

 116,060 

Due after one year through five years

 

 

 308,477 

 

 

 308,829 

Due after five years through ten years

 

 

 123,518 

 

 

 124,168 

Due after ten years

 

 

 40,265 

 

 

 40,156 

Mortgage-backed

 

 

 16,712 

 

 

 16,533 



 

$

 604,999 

 

$

 605,746 



We have certain of our securities pledged for the benefit of various state insurance departments and reinsurers. These securities are included with our available-for-sale debt securities because we have the ability to trade these securities. We retain the interest earned on these securities. These securities had a carrying value of $26.2 million at December 31, 2017 and a carrying value of $21.1 million at December 31, 2016.