Note 5. Investments

Available-for-sale securities

The following table summarizes the cost and fair value of our available-for-sale securities:



	At June 30, 2016
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
States & political subdivisions	$	227,669	$	14,155	$	0	$	241,824
Corporate debt securities	288,887		2,361		1,220		290,028
Residential mortgage-backed securities	14,125		43		139		14,029
Commercial mortgage-backed securities	40,503		292		772		40,023
Collateralized debt obligations	56,761		104		232		56,633
Other debt securities	2,000		0		16		1,984
Total fixed maturities	629,945		16,955		2,379		644,521
Common stock	8,949		165		0		9,114
Total available-for-sale securities	$	638,894	$	17,120	$	2,379	$	653,635



	At December 31, 2015
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
States & political subdivisions	$	221,093	$	10,761	$	7	$	231,847
Corporate debt securities	254,464		281		4,412		250,333
Residential mortgage-backed securities	13,639		4		130		13,513
Commercial mortgage-backed securities	38,630		30		1,089		37,571
Collateralized debt obligations	51,905		61		221		51,745
Other debt securities	2,241		0		41		2,200
Total fixed maturities	581,972		11,137		5,900		587,209
Common stock	12,865		0		133		12,732
Total available-for-sale securities	$	594,837	$	11,137	$	6,033	$	599,941

The amortized cost and estimated fair value of fixed maturities at June 30, 2016 are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon their stated maturity dates. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	At June 30, 2016
(in thousands)	Amortized		Estimated
	cost		fair value
Due in one year or less	$	45,685	$	45,799
Due after one year through five years	296,550		300,336
Due after five years through ten years	188,270		195,896
Due after ten years	99,440		102,490
Total fixed maturities	$	629,945	$	644,521

Available-for-sale securities in a gross unrealized loss position are as follows. Data is provided by length of time for securities in a gross unrealized loss position.



	At June 30, 2016
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		No. of holdings
Available-for-sale securities:
Corporate debt securities	65,341		666		21,953		554		87,294		1,220		260
Residential mortgage-backed securities	5,051		18		2,599		121		7,650		139		7
Commercial mortgage-backed securities	1,283		7		17,931		765		19,214		772		18
Collateralized debt obligations	19,843		118		13,681		114		33,524		232		17
Other debt securities	0		0		1,984		16		1,984		16		1
Total fixed maturities	91,518		809		58,148		1,570		149,666		2,379		303
Total available-for-sale securities	$	91,518	$	809	$	58,148	$	1,570	$	149,666	$	2,379	303
Quality breakdown of fixed maturities:
Investment grade	$	42,174	$	170	$	47,584	$	1,069	$	89,758	$	1,239	56
Non-investment grade	49,344		639		10,564		501		59,908		1,140		247
Total fixed maturities	$	91,518	$	809	$	58,148	$	1,570	$	149,666	$	2,379	303



	At December 31, 2015
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		No. of holdings
Available-for-sale securities:
States & political subdivisions	$	5,867	$	7	$	0	$	0	$	5,867	$	7	3
Corporate debt securities	172,831		2,447		19,086		1,965		191,917		4,412		349
Residential mortgage-backed securities	9,827		84		936		46		10,763		130		9
Commercial mortgage-backed securities	13,081		68		19,081		1,021		32,162		1,089		24
Collateralized debt obligations	27,981		103		9,174		118		37,155		221		19
Other debt securities	1,960		40		241		1		2,201		41		2
Total fixed maturities	231,547		2,749		48,518		3,151		280,065		5,900		406
Common stock	12,732		133		0		0		12,732		133		1
Total available-for-sale securities	$	244,279	$	2,882	$	48,518	$	3,151	$	292,797	$	6,033	407
Quality breakdown of fixed maturities:
Investment grade	$	174,723	$	1,296	$	38,369	$	1,256	$	213,092	$	2,552	105
Non-investment grade	56,824		1,453		10,149		1,895		66,973		3,348		301
Total fixed maturities	$	231,547	$	2,749	$	48,518	$	3,151	$	280,065	$	5,900	406

The above securities have been evaluated and determined to be temporary impairments for which we expect to recover our entire principal plus interest. The primary components of this analysis include a general review of market conditions and financial performance of the issuer along with the extent and duration at which fair value is less than cost. Any securities that we intend to sell or will more likely than not be required to sell before recovery are included in other-than-temporary impairments with the impairment charges recognized in earnings.

Net investment income

Interest and dividend income are recognized as earned and recorded to net investment income. Investment income, net of expenses, was generated from the following portfolios:



(in thousands)	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Fixed maturities	$	4,858	$	4,150	$	9,384	$	8,229
Equity securities	47		240		82		500
Cash equivalents and other	321		281		645		575
Total investment income	5,226		4,671		10,111		9,304
Less: investment expenses	335		236		558		328
Net investment income	$	4,891	$	4,435	$	9,553	$	8,976

Realized investment gains (losses)

Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. Realized gains (losses) on investments were as follows:



(in thousands)	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$	438		$	340		$	572		$	371
Gross realized losses	(209		)	(104		)	(1,792		)	(375		)
Net realized gains (losses)	229			236			(1,220		)	(4		)
Equity securities:
Gross realized gains	0			362			0			362
Gross realized losses	0			0			(34		)	0
Net realized gains (losses)	0			362			(34		)	362
Trading securities:
Common stock:
Gross realized gains	586			0			586			0
Gross realized losses	0			0			0			0
Decreases in fair value⁽¹⁾	(416		)	0			(21		)	0
Net realized gains	170			0			565			0
Net realized investment gains (losses)	$	399		$	598		$	(689	)	$	358


(1)	The fair value of our common stocks is determined based upon exchange traded prices provided by a nationally recognized pricing service.

Net impairment losses

The components of other-than-temporary impairments on investments were as follows:



(in thousands)	Three months ended June 30,					Six months ended June 30,
	2016		2015			2016			2015
Fixed maturities	$	0	$	(35	)	$	(345	)	$	(155	)
Total other-than-temporary impairments	0		(35		)	(345		)	(155		)
Portion recognized in other comprehensive income	0		0			0			0
Net impairment losses recognized in earnings	$	0	$	(35	)	$	(345	)	$	(155	)

In considering if fixed maturity securities were credit-impaired, some of the factors considered include: potential for the default of interest and/or principal, level of subordination, collateral of the issue, compliance with financial covenants, credit ratings and industry conditions. We have the intent to sell all credit-impaired fixed maturity securities; therefore, the entire amount of the impairment charges were included in earnings and no non-credit impairments were recognized in other comprehensive income.

Limited partnerships

Limited partnership investments, excluding certain real estate limited partnerships recorded at fair value, are generally reported on a one-quarter lag; therefore, our year-to-date limited partnership results through June 30, 2016 are comprised of partnership financial results for the fourth quarter of 2015 and the first quarter of 2016. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the second quarter of 2016. Cash contributions made to and distributions received from the partnerships are recorded in the period in which the transaction occurs.

Amounts included in equity in earnings of limited partnerships by method of accounting are included below:



(in thousands)	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015

Equity in earnings of limited partnerships accounted for under the equity method	$	2,058	$	10,707	$	1,342	$	13,319
Change in fair value of limited partnerships accounted for under the fair value option	56		0		102		(254		)
Equity in earnings of limited partnerships	$	2,114	$	10,707	$	1,444	$	13,065

The following table summarizes limited partnership investments by sector:



(in thousands)	At June 30, 2016		At December 31, 2015
Private equity	$	39,917	$	48,397
Mezzanine debt	10,355		12,701
Real estate	16,772		22,911
Real estate - fair value option	3,908		4,526
Total limited partnerships	$	70,952	$	88,535

See also Note 13, "Commitments and Contingencies" for investment commitments related to limited partnerships.