Note 5. Investments

Available-for-sale securities

The following tables summarize the cost and fair value of our available-for-sale securities:



	At December 31, 2017
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
U.S. treasury	$	11,873	$	0	$	139	$	11,734
States & political subdivisions	254,533		5,351		620		259,264
Foreign government securities	501		2		0		503
Corporate debt securities	346,759		1,688		1,924		346,523
Residential mortgage-backed securities	25,324		371		124		25,571
Commercial mortgage-backed securities	33,475		26		697		32,804
Collateralized debt obligations	57,838		237		41		58,034
Other debt securities	11,496		32		0		11,528
Total fixed maturities	741,799		7,707		3,545		745,961
Nonredeemable preferred stock	12,837		15		100		12,752
Total available-for-sale securities	$	754,636	$	7,722	$	3,645	$	758,713



	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 December 31, 2017, are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon 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 December 31, 2017
(in thousands)	Amortized		Estimated
	cost		fair value
Due in one year or less	$	71,109	$	71,190
Due after one year through five years	313,305		315,436
Due after five years through ten years	240,614		242,739
Due after ten years	116,771		116,596
Total fixed maturities	$	741,799	$	745,961

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 December 31, 2017
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
	value		losses		value		losses		value		losses		holdings
Available-for-sale securities:
U.S. treasury	$	10,237	$	110	$	1,497	$	29	$	11,734	$	139	4
States & political subdivisions	52,553		288		14,361		332		66,914		620		33
Corporate debt securities	171,154		1,585		31,113		339		202,267		1,924		331
Residential mortgage-backed securities	4,156		29		7,064		95		11,220		124		11
Commercial mortgage-backed securities	10,836		85		11,984		612		22,820		697		19
Collateralized debt obligations	21,598		41		0		0		21,598		41		12
Other debt securities	1,499		0		0		0		1,499		0		1
Total fixed maturities	272,033		2,138		66,019		1,407		338,052		3,545		411
Nonredeemable preferred stock	10,737		100		0		0		10,737		100		6
Total available-for-sale securities	$	282,770	$	2,238	$	66,019	$	1,407	$	348,789	$	3,645	417
Quality breakdown of fixed maturities:
Investment grade	$	214,586	$	1,064	$	62,193	$	985	$	276,779	$	2,049	158
Non-investment grade	57,447		1,074		3,826		422		61,273		1,496		253
Total fixed maturities	$	272,033	$	2,138	$	66,019	$	1,407	$	338,052	$	3,545	411



	At December 31, 2016
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
	value		losses		value		losses		value		losses		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, which are recognized in earnings.

Net investment income

Investment income, net of expenses, was generated from the following portfolios for the years ended December 31:



(in thousands)	2017		2016		2015
Fixed maturities ⁽¹⁾	$	23,587	$	20,175	$	16,457
Equity securities	82		171		1,045
Cash equivalents and other	2,486		1,391		1,174
Total investment income	26,155		21,737		18,676
Less: investment expenses	1,547		1,190		885
Investment income, net of expenses	$	24,608	$	20,547	$	17,791


(1)	Includes interest earned on note receivable from EFL of $1.7 million in 2017, 2016 and 2015.

Realized investment gains (losses)

Realized gains (losses) on investments were as follows for the years ended December 31:



(in thousands)	2017			2016			2015
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$	2,996		$	2,111		$	1,571
Gross realized losses	(1,611		)	(2,113		)	(1,764		)
Net realized gains (losses)	1,385			(2		)	(193		)
Equity securities:
Gross realized gains	0			1			759
Gross realized losses	(145		)	(34		)	(74		)
Net realized (losses) gains	(145		)	(33		)	685
Trading securities:
Common stock:
Gross realized gains	0			707			0
Net realized gains	0			707			0
Miscellaneous
Gross realized gains	96			0			0
Gross realized losses	(2		)	0			0
Net realized gains	94			0			0
Net realized investment gains	$	1,334		$	672		$	492

Other-than-temporary impairments on fixed maturity investments recognized in earnings were $0.2 million, $0.4 million and $1.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. 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. See also Note 2, "Significant Accounting Policies".

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 December 31, 2017 are comprised of partnership financial results for the fourth quarter of 2016 and the first, second and third quarters of 2017. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the fourth 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 of limited partnerships by method of accounting are included below for the years ended December 31:



(in thousands)	2017		2016		2015
Equity in earnings of limited partnerships accounted for under the equity method	$	1,925	$	6,273	$	16,545
Change in fair value of limited partnerships accounted for under the fair value option	876		752		438
Equity in earnings of limited partnerships	$	2,801	$	7,025	$	16,983

The following table summarizes limited partnership investments by sector at December 31:



(in thousands)	2017		2016
Private equity	$	31,663	$	35,228
Mezzanine debt	3,516		6,010
Real estate	5,127		12,509
Real estate - fair value option	4,816		4,412
Total limited partnerships	$	45,122	$	58,159

See also Note 15, "Commitments and Contingencies", for investment commitments related to limited partnerships.