Note 3 — Investments

Available-for-Sale Securities

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At September 30, 2016 and December 31, 2015, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:


	Cost or Amortized		Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gain		Loss			Value
*As of September 30, 2016*
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	430	$	10	$	—		$	440
Corporate bonds		77,432		1,007		(1,191	)		77,248
State, municipalities, and political subdivisions		77,040		2,921		(194	)		79,767
Exchange-traded debt		12,084		300		(68	)		12,316
Redeemable preferred stock		237		8		—			245

Total		167,223		4,246		(1,453	)		170,016
Equity securities		46,323		5,487		(350	)		51,460

Total available-for-sale securities	$	213,546	$	9,733	$	(1,803	)	$	221,476

*As of December 31, 2015*
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	108	$	5	$	—		$	113
Corporate bonds		42,560		74		(4,815	)		37,819
State, municipalities, and political subdivisions		75,812		1,632		(120	)		77,324
Exchange-traded debt		9,817		177		(565	)		9,429
Redeemable preferred stock		317		8		(1	)		324

Total		128,614		1,896		(5,501	)		125,009
Equity securities		47,548		2,139		(1,450	)		48,237

Total available-for-sale securities	$	176,162	$	4,035	$	(6,951	)	$	173,246

In June 2016, the Company’s Alabama subsidiary, Homeowners Choice Assurance Company, Inc., voluntarily surrendered its certificate of authority to the Alabama Department of Insurance and formally terminated its plan to conduct business in the state of Alabama. As a result, a statutory deposit held in trust for the Treasurer of Alabama was released to the Company in July 2016. At December 31, 2015, there was $113 of U.S. Treasury securities held as a statutory deposit.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of September 30, 2016 and December 31, 2015 are as follows:


	Amortized Cost		Estimated Fair Value
*As of September 30, 2016*
Available-for-sale
Due in one year or less	$	4,624	$	4,642
Due after one year through five years		43,676		44,090
Due after five years through ten years		93,633		94,684
Due after ten years		25,290		26,600

	$	167,223	$	170,016


	Amortized Cost		Estimated Fair Value
*As of December 31, 2015*
Available-for-sale
Due in one year or less	$	3,282	$	3,292
Due after one year through five years		32,833		32,651
Due after five years through ten years		71,120		67,113
Due after ten years		21,379		21,953

	$	128,614	$	125,009

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and nine months ended September 30, 2016 and 2015 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended September 30, 2016
Fixed-maturity securities	$	3,891	$	196	$	—

Equity securities	$	5,000	$	491	$	(104	)

Three months ended September 30, 2015
Fixed-maturity securities	$	48,225	$	31	$	(436	)

Equity securities	$	6,117	$	515	$	(406	)

Nine months ended September 30, 2016
Fixed-maturity securities	$	37,415	$	579	$	—

Equity securities	$	14,155	$	850	$	(530	)

Nine months ended September 30, 2015
Fixed-maturity securities	$	51,510	$	90	$	(466	)

Equity securities	$	14,111	$	844	$	(1,031	)

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including-

•

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

•

the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

•

general market conditions, industry or sector specific factors and other qualitative factors;

•

nonpayment by the issuer of its contractually obligated interest and principal payments; and

•

the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

At September 30, 2016, one fixed-maturity security the Company intends to hold to maturity had a credit related loss. This compares with two fixed-maturity securities at December 31, 2015 that were other-than-temporarily impaired. In June 2016, the Company sold one other-than-temporarily impaired fixed-maturity security due to uncertainties surrounding the issuer’s restructuring plan. Prior to the sale, this security’s remaining $202 of impairment loss was reclassified from comprehensive income and recognized in total other-than-temporary impairment losses in the Company’s consolidated statement of income. For the three months ended September 30, 2016, the Company recorded $531 of impairment loss on one fixed-maturity security, of which $180 was considered other-than-temporarily impaired due to a credit related loss and recorded in the consolidated statement of income, with the remaining amount of $351 related to non-credit factors and recorded in other comprehensive income. For the nine months ended September 30, 2016, the Company recognized $675 of impairment losses in the consolidated statement of income, representing $206 of additional losses recorded during the period and the reclassification of $469 previously recorded in other comprehensive income. For the three and nine months ended September 30, 2015, the Company recorded $705 of impairment losses on two fixed-maturity securities, of which $109 was related to credit losses, with the remaining amount of $596 related to non-credit factors.

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairment losses recognized in income from available for sale fixed-maturity securities:


	2016			2015
Balance at January 1	$	111		$	—
Additional credit impairments on previously impaired securities		293			—

Balance at March 31		404			—
Credit impaired security fully disposed of for which there was no prior intent or requirement to sell		(385	)		—

Reduction due to increase in expected cash flows recognized over the remaining life of the previously impaired security		(19	)		—

Balance at June 30		—			—
Credit impairments on impaired securities		180			109

Balance at September 30	$	180		$	109

In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost, the length of time each security has been in an unrealized loss position, the extent of the decline and the near term prospect for recovery. At September 30, 2016 and December 31, 2015, the Company had 16 and 17 equity securities, respectively, that were other-than-temporarily impaired. The Company recognized impairment losses of $44 and $1,777, respectively, for the three months ended September 30, 2016 and 2015. For the nine months ended September 30, 2016 and 2015, the Company recognized impairment losses of $766 and $3,760, respectively.

Securities with gross unrealized loss positions at September 30, 2016 and December 31, 2015, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:


	Less Than Twelve Months					Twelve Months or Greater					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of September 30, 2016	Loss			Value		Loss			Value		Loss			Value
Fixed-maturity securities
Corporate bonds	$	(356	)	$	22,352	$	(835	)	$	8,363	$	(1,191	)	$	30,715
State, municipalities, and political subdivisions		(136	)		5,614		(58	)		2,527		(194	)		8,141
Exchange-traded debt		(21	)		2,033		(47	)		1,953		(68	)		3,986

Total fixed-maturity securities		(513	)		29,999		(940	)		12,843		(1,453	)		42,842
Equity securities		(196	)		4,500		(154	)		3,573		(350	)		8,073

Total available-for-sale securities	$	(709	)	$	34,499	$	(1,094	)	$	16,416	$	(1,803	)	$	50,915

At September 30, 2016, there were 75 securities in an unrealized loss position. Of these securities, 23 securities had been in an unrealized loss position for 12 months or greater. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or more included $351 of other-than-temporary impairment losses related to non-credit factors.


	Less Than Twelve Months					Twelve Months or Greater					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of December 31, 2015	Loss			Value		Loss			Value		Loss			Value
Fixed-maturity securities
Corporate bonds	$	(3,667	)	$	24,196	$	(1,148	)	$	3,278	$	(4,815	)	$	27,474
State, municipalities, and political subdivisions		(107	)		6,587		(13	)		184		(120	)		6,771
Exchange-traded debt		(565	)		5,559		—			—		(565	)		5,559
Redeemable preferred stock		(1	)		129		—			—		(1	)		129

Total fixed-maturity securities		(4,340	)		36,471		(1,161	)		3,462		(5,501	)		39,933
Equity securities		(1,350	)		15,748		(100	)		1,460		(1,450	)		17,208

Total available-for-sale securities	$	(5,690	)	$	52,219	$	(1,261	)	$	4,922	$	(6,951	)	$	57,141

At December 31, 2015, there were 101 securities in an unrealized loss position. Of these securities, 10 securities had been in an unrealized loss position for 12 months or greater. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or more included $581 of other-than-temporary impairment losses related to non-credit factors.

Limited Partnership Investments

The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make all decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. The following table provides information related to the Company’s investments in limited partnerships.


	September 30, 2016						December 31, 2015
	Carrying		Unfunded				Carrying		Unfunded
Investment Strategy	Value		Balance		(%)(a)		Value		Balance		(%)(a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	6,226	$	6,428		16.50	$	4,774	$	7,888		16.50
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		6,760		1,360		1.76		4,713		3,320		1.76
Maximum long-term capital appreciation through long and short positions in equity and/or debt securities of publicly traded U.S. and non-U.S. issuers, derivative instruments and certain other financial instruments. (f)		11,100		—		66.60		11,689		—		65.79
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(g)(h)		4,140		5,766		0.18		2,754		7,016		0.18

Total	$	28,226	$	13,554			$	23,930	$	18,224

(a)	Represents the Company’s percentage investment in the fund at each balance sheet date.

(b)	Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.

(c)	Expected to have a 10-year term and the capital commitment is expected to expire on September 3, 2019.

(d)	Expected to have a three-year term from the end of the capital commitment period, which is March 31, 2018.

(e)	At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.

(f)	Withdrawal is permitted upon at least 45 days’ written notice to the general partner.

(g)	Expected to have a 10-year term and the capital commitment is expected to expire on June 30, 2020.

(h)	With the consent of a super majority, the term of the fund may be extended for up to three additional one-year periods.

The following is the aggregated summarized unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. In applying the equity method of accounting, the Company uses the most recently available financial information provided by each general partner. The financial statements of these limited partnerships are audited annually.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Operating results:
Total income (loss)	$	166,374		$	82		$	143,305		$	(4,756	)
Total expenses		(54,577	)		(386	)		(184,598	)		(1,343	)

Net income (loss)	$	111,797		$	(304	)	$	(41,293	)	$	(6,099	)


	September 30, 2016		December 31, 2015
Balance Sheet:
Total assets	$	2,902,014	$	288,351
Total liabilities	$	581,615	$	28,105

For the three and nine months ended September 30, 2016, the Company recognized net investment income of $1,119 and $54, respectively, for these investments. For the three and nine months ended September 30, 2015, the Company recognized net investment losses of $2,400 and $2,862, respectively. At September 30, 2016 and December 31, 2015, the Company’s cumulative contributed capital to the partnerships totaled $31,946 and $27,276, respectively, and the Company’s maximum exposure to loss was $28,226 and $23,930, respectively. During the three months ended September 30, 2016, there was a $384 cash distribution from one of these investments. During the nine months ended September 30, 2016, the Company received total cash distributions of $428. There were no cash distributions received by the Company during the three and nine months ended September 30, 2015.

Investment in Unconsolidated Joint Venture

The Company has an equity investment in one real estate development project, FMKT Mel JV, which is a limited liability company treated as a joint venture under U.S. GAAP. In January 2016, FMKT Mel JV sold a portion of its outparcel land for gross proceeds of $829, of which $515 was used to repay a portion of the construction loan obtained for this project. FMKT Mel JV recognized a $404 gain on the outparcel sale of which $383 was allocated to the Company in accordance with the profit allocation specified in the operating agreement.

At September 30, 2016 and December 31, 2015, the Company’s maximum exposure to loss relating to the variable interest entity was $4,940 and $4,787, respectively, representing the carrying value of the investment. At September 30, 2016, there was an undistributed gain of $5 compared with an undistributed loss of $148 at December 31, 2015 from this equity method investment, the amounts of which were included in the Company’s consolidated retained income. FMKT Mel JV’s partners received no cash distributions during the nine months ended September 30, 2016 and 2015. The following tables provide FMKT Mel JV’s summarized unaudited financial results for the three and nine months ended September 30, 2016 and 2015 and its unaudited financial positions at September 30, 2016 and December 31, 2015:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Operating results:
Total revenues and gain	$	235		$	17		$	949		$	17
Total expenses		(318	)		(11	)		(801	)		(12	)

Net (loss) income	$	(83	)	$	6		$	148		$	5

The Company’s share of net (loss) income*	$	(75	)	$	5		$	153		$	4

*	Included in net investment income in the Company’s consolidated statements of income.


	September 30,		December 31,
	2016		2015
Balance Sheet:
Construction in progress - real estate	$	333	$	277
Property and equipment, net		11,901		11,806
Cash		722		570
Accounts receivable		76		3
Other		963		1,008

Total assets	$	13,995	$	13,664

Accounts payable	$	163	$	125
Construction loan		8,153		8,063
Other liabilities		208		157
Members’ capital		5,471		5,319

Total liabilities and members’ capital	$	13,995	$	13,664

Investment in unconsolidated joint venture, at equity**	$	4,940	$	4,787

**	Includes the 90% share of FMKT Mel JV’s operating results and the portion of profit split from the outparcel sale.

Real Estate Investments

Real estate investments include office and retail space that is leased to tenants, wet and dry boat storage, one restaurant, and fuel services with respect to marina clients and recreational boaters. Prior to August 16, 2016, there was one Acquisition, Development and Construction Loan Arrangement (see “ADC Arrangement” below). Real estate investments consist of the following as of September 30, 2016 and December 31, 2015.


	September 30,			December 31,
	2016			2015
Land	$	14,734		$	13,134
Land improvements		4,577			1,505
Buildings		10,272			3,116
Tenant and leasehold improvements		581			—
Construction in progress*		2,965			2,906
Other		2,418			1,523

Total, at cost		35,547			22,184
Less: accumulated depreciation and amortization		(1,739	)		(1,430	)

Real estate, net		33,808			20,754
ADC Arrangement classified as real estate investment		—			10,200

Real estate investments	$	33,808		$	30,954

*	The project is being developed by the Company’s consolidated variable interest entity.

Depreciation and amortization expense related to real estate investments was $126 and $87 for the three months ended September 30, 2016 and 2015, respectively, and $314 and $280 for the nine months ended September 30, 2016 and 2015, respectively.

ADC Arrangement

On August 16, 2016, the Company exercised the purchase option in its ADC Arrangement and acquired the retail shopping center and its appurtenant facilities. The transaction was accounted for as a business acquisition. See Note 5 — “Business Acquisition” for additional information. In addition, the Company received $10,200 plus accrued investment income of $74 in full settlement of the note receivable associated with the ADC Arrangement. At December 31, 2015, the Company’s maximum exposure to loss relating to this variable interest was $10,200, representing the carrying value of the ADC Arrangement. There was no credit loss allowance established as of December 31, 2015 as management believed the credit risk associated with the ADC Arrangement was mitigated by the collateral used to secure the loan.

Consolidated Variable Interest Entity

The Company has an ongoing real estate development project in Riverview, Florida through a joint venture in which the Company’s subsidiary has a controlling financial interest and, as a result, it is the primary beneficiary. The following table summarizes the assets and liabilities related to this variable interest entity which are included in the accompanying consolidated balance sheets.


	September 30,		December 31,
	2016		2015
Cash and cash equivalents	$	65	$	57
Construction in progress included in real estate investments	$	2,965	$	2,906
Accrued expenses	$	56	$	21
Other liabilities	$	26	$	—

Net Investment Income

Net investment income (loss), by source, is summarized as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Available-for-sale securities:
Fixed-maturity securities	$	1,170		$	1,120		$	3,400		$	2,994
Equity securities		811			914			2,546			2,710
Investment expense		(165	)		(199	)		(488	)		(511	)
Limited partnership investments		1,119			(2,400	)		54			(2,862	)
Real estate investments		(417	)		(135	)		(500	)		(155	)
(Loss) income from unconsolidated joint venture		(75	)		5			153			4
Cash and cash equivalents		285			161			755			461
Other		12			15			35			44

Net investment income (loss)	$	2,740		$	(519	)	$	5,955		$	2,685