Note 5. Investments

Available-for-sale securities

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



	At March 31, 2017
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
U.S. treasury	$	5,087	$	0	$	49	$	5,038
Government sponsored entities	2,001		3		0		2,004
States & political subdivisions	249,494		7,357		1,723		255,128
Corporate debt securities	323,975		3,196		1,002		326,169
Residential mortgage-backed securities	14,918		58		177		14,799
Commercial mortgage-backed securities	38,718		68		881		37,905
Collateralized debt obligations	70,461		453		82		70,832
Other debt securities	2,000		2		0		2,002
Total fixed maturities	706,654		11,137		3,914		713,877
Common stock	6,152		0		160		5,992
Total available-for-sale securities	$	712,806	$	11,137	$	4,074	$	719,869



	At December 31, 2016
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
U.S. treasury	$	5,093	$	0	$	62	$	5,031
Government sponsored entities	2,004		22		0		2,026
States & political subdivisions	249,312		6,113		2,293		253,132
Corporate debt securities	321,041		3,293		1,386		322,948
Residential mortgage-backed securities	16,232		61		191		16,102
Commercial mortgage-backed securities	37,723		59		933		36,849
Collateralized debt obligations	68,998		351		96		69,253
Other debt securities	2,000		0		0		2,000
Total fixed maturities	702,403		9,899		4,961		707,341
Common stock	6,152		0		202		5,950
Total available-for-sale securities	$	708,555	$	9,899	$	5,163	$	713,291

The amortized cost and estimated fair value of fixed maturities at March 31, 2017 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 March 31, 2017
(in thousands)	Amortized		Estimated
	cost		fair value
Due in one year or less	$	76,219	$	76,354
Due after one year through five years	305,334		308,833
Due after five years through ten years	216,377		220,453
Due after ten years	108,724		108,237
Total fixed maturities	$	706,654	$	713,877

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 March 31, 2017
(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:
U.S. treasury	$	5,038	$	49	$	0	$	0	$	5,038	$	49	1
States & political subdivisions	52,740		1,723		0		0		52,740		1,723		22
Corporate debt securities	114,334		780		9,337		222		123,671		1,002		159
Residential mortgage-backed securities	6,555		57		4,621		120		11,176		177		11
Commercial mortgage-backed securities	28,986		496		2,692		385		31,678		881		28
Collateralized debt obligations	21,331		71		1,105		11		22,436		82		10
Total fixed maturities	228,984		3,176		17,755		738		246,739		3,914		231
Common stock	5,992		160		0		0		5,992		160		1
Total available-for-sale securities	$	234,976	$	3,336	$	17,755	$	738	$	252,731	$	4,074	232
Quality breakdown of fixed maturities:
Investment grade	$	219,190	$	2,993	$	14,437	$	539	$	233,627	$	3,532	180
Non-investment grade	9,794		183		3,318		199		13,112		382		51
Total fixed maturities	$	228,984	$	3,176	$	17,755	$	738	$	246,739	$	3,914	231



	At December 31, 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:
U.S. treasury	$	5,031	$	62	$	0	$	0	$	5,031	$	62	1
States & political subdivisions	84,611		2,293		0		0		84,611		2,293		40
Corporate debt securities	112,453		987		8,692		399		121,145		1,386		155
Residential mortgage-backed securities	7,451		60		4,974		131		12,425		191		13
Commercial mortgage-backed securities	26,509		437		4,319		496		30,828		933		28
Collateralized debt obligations	27,470		75		4,208		21		31,678		96		15
Total fixed maturities	263,525		3,914		22,193		1,047		285,718		4,961		252
Common stock	5,950		202		0		0		5,950		202		1
Total available-for-sale securities	$	269,475	$	4,116	$	22,193	$	1,047	$	291,668	$	5,163	253
Quality breakdown of fixed maturities:
Investment grade	$	239,041	$	3,605	$	16,061	$	399	$	255,102	$	4,004	136
Non-investment grade	24,484		309		6,132		648		30,616		957		116
Total fixed maturities	$	263,525	$	3,914	$	22,193	$	1,047	$	285,718	$	4,961	252

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 March 31,
	2017		2016
Fixed maturities	$	5,904	$	4,526
Equity securities	32		35
Cash equivalents and other	521		324
Total investment income	6,457		4,885
Less: investment expenses	479		223
Net investment income	$	5,978	$	4,662

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 March 31,
	2017			2016
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$	580		$	134
Gross realized losses	(158		)	(1,583		)
Net realized gains (losses)	422			(1,449		)
Equity securities:
Gross realized losses	0			(34		)
Net realized losses	0			(34		)
Trading securities:
Common stock:
Increases in fair value⁽¹⁾	0			395
Net realized gains	0			395
Miscellaneous:
Gross realized gains	94			0
Gross realized losses	0			0
Net realized gains	94			0
Net realized investment gains (losses)	$	516		$	(1,088	)


(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 March 31,
	2017			2016
Fixed maturities	$	(121	)	$	(345	)
Total other-than-temporary impairments	(121		)	(345		)
Portion recognized in other comprehensive income	0			0
Net impairment losses recognized in earnings	$	(121	)	$	(345	)

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

The majority of our limited partnership holdings are considered investment companies where the general partners record assets at fair value. These limited partnerships are recorded using the equity method of accounting and are generally reported on a one-quarter lag; therefore, our year-to-date limited partnership results through March 31, 2017 are comprised of partnership financial results for the fourth quarter of 2016. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the first quarter of 2017. We also own some real estate limited partnerships that do not meet the criteria of an investment company. These partnerships prepare audited financial statements on a cost basis. We have elected to report these limited partnerships under the fair value option, which is based on the NAV from our partner's capital statement reflecting the general partner's estimate of fair value for the fund's underlying assets. Fair value provides consistency in the evaluation and financial reporting for these limited partnerships and limited partnerships accounted for under the equity method. 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 (losses) of limited partnerships by method of accounting are included below:



(in thousands)	Three months ended March 31,
	2017			2016

Equity in earnings (losses) of limited partnerships accounted for under the equity method	$	250		$	(716	)
Change in fair value of limited partnerships accounted for under the fair value option	(37		)	46
Equity in earnings (losses) of limited partnerships	$	213		$	(670	)

The following table summarizes limited partnership investments by sector:



(in thousands)	At March 31, 2017		At December 31, 2016
Private equity	$	35,510	$	35,228
Mezzanine debt	5,365		6,010
Real estate	9,206		12,509
Real estate - fair value option	4,376		4,412
Total limited partnership investments	$	54,457	$	58,159

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