3. Investments

Securities Available for Sale

The following table provides the amortized cost and fair value of debt and short-term investment securities available for sale as of the dates presented (in thousands):

	September 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	67,442	$	15	$	(1,459	)	$	65,998
Corporate bonds		415,600		532		(6,165	)		409,967
Mortgage-backed and asset-backed securities		275,128		23		(5,923	)		269,228
Municipal bonds		3,401		—		(123	)		3,278
Redeemable preferred stock		11,922		206		(191	)		11,937
Total	$	773,493	$	776	$	(13,861	)	$	760,408

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	60,481	$	—	$	(877	)	$	59,604
Corporate bonds		228,336		476		(1,308	)		227,504
Mortgage-backed and asset-backed securities		221,956		19		(2,523	)		219,452
Municipal bonds		120,883		599		(1,187	)		120,295
Redeemable preferred stock		12,059		485		(65	)		12,479
Short-term investments		10,000		—		—			10,000
Total	$	653,715	$	1,579	$	(5,960	)	$	649,334

The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):

	September 30, 2018					December 31, 2017 (1)
			% of Total					% of Total
Average Credit Ratings	Fair Value		Fair Value			Fair Value		Fair Value
AAA	$	344,801		45.3	%	$	317,313		48.9	%
AA		92,411		12.2	%		129,573		20.0	%
A		216,074		28.4	%		146,749		22.6	%
BBB		103,427		13.6	%		51,020		7.8	%
BB+ and Below		117		0.0	%		1,569		0.2	%
No Rating Available		3,578		0.5	%		3,110		0.5	%
Total	$	760,408		100.0	%	$	649,334		100.0	%

(1)

The credit ratings in the table above have been reclassified from the prior periods’ consolidated financial statements to conform to the current periods’ presentation.

The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc., Moody’s Investors Service,

Inc. and Fitch Ratings, Inc. The Company has presented the highest rating of the three rating agencies for each investment position.

The following table summarizes the amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):


	September 30, 2018				December 31, 2017
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Mortgage-backed Securities:
Agency	$	152,068	$	148,472	$	118,014	$	116,014
Non-agency		44,509		44,005		17,676		17,488
Asset-backed Securities:
Auto loan receivables		28,983		28,649		35,105		34,962
Credit card receivables		23,836		23,665		38,844		38,719
Other receivables		25,732		24,437		12,317		12,269
Total	$	275,128	$	269,228	$	221,956	$	219,452

The following table summarizes the fair value and gross unrealized losses on available-for-sale debt securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented (dollars in thousands):

	September 30, 2018
	Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses
Debt Securities:
U.S. government obligations and agencies		5	$	15,734	$	(313	)		11	$	40,389	$	(1,146	)
Corporate bonds		413		316,750		(4,599	)		66		51,245		(1,566	)
Mortgage-backed and asset-backed securities		86		135,530		(1,643	)		98		109,884		(4,280	)
Municipal bonds		6		3,278		(123	)		—		—		—
Redeemable preferred stock		98		4,739		(154	)		1		408		(37	)
Total		608	$	476,031	$	(6,832	)		176	$	201,926	$	(7,029	)

	December 31, 2017
	Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses
Debt Securities:
U.S. government obligations and agencies		7	$	35,464	$	(301	)		9	$	24,140	$	(576	)
Corporate bonds		159		142,208		(792	)		39		29,796		(516	)
Mortgage-backed and asset-backed securities		83		137,481		(955	)		37		70,218		(1,568	)
Municipal bonds		36		28,265		(246	)		30		48,370		(941	)
Redeemable preferred stock		21		2,464		(65	)		—		—		—
Total		306	$	345,882	$	(2,359	)		115	$	172,524	$	(3,601	)

Evaluating Investments for Other Than Temporary Impairment (“OTTI”)

As of September 30, 2018, the Company held available-for-sale debt securities that were in an unrealized loss position as presented in the table above. For available-for-sale debt securities with significant declines in value, the Company performs quarterly fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data. For available-for-sale debt securities, the Company considers whether it has the intent and ability to hold the available-for-sale debt securities for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the security’s decline in fair value is considered other than temporary and is recorded in earnings. Based on our analysis, our fixed income portfolio is of high quality and we believe that we will recover the amortized cost basis of our available-for-sale debt securities. We continually monitor the credit quality of our investments in available-for-sale debt securities to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. Additionally, the Company considers management’s intent and ability to hold the available-for-sale debt securities until recovery and its credit analysis of the individual issuers of the securities. Based on this process and analysis, management has no reason to believe the unrealized losses of the available-for-sale debt securities as of September 30, 2018 are other than temporary.

The following table presents the amortized cost and fair value of investments with contractual maturities as of the date presented (in thousands):

	September 30, 2018
	Amortized Cost		Fair Value
Due in one year or less	$	65,340	$	65,054
Due after one year through five years		246,639		242,313
Due after five years through ten years		158,771		156,385
Due after ten years		15,693		15,491
Mortgage-backed and asset-backed securities		275,128		269,228
Perpetual maturity securities		11,922		11,937
Total	$	773,493	$	760,408

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without penalty.

The following table provides certain information related to available-for-sale debt securities and equity securities during the periods presented (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	$	32,287		$	49,762		$	225,989		$	100,413
Equity securities	$	4,158		$	18,056		$	8,285		$	75,027
Gross realized gains on sale of securities:
Available-for-sale debt securities	$	1		$	302		$	318		$	330
Equity securities	$	413		$	547		$	714		$	2,332
Gross realized losses on sale of securities:
Available-for-sale debt securities	$	(11	)	$	(19	)	$	(3,125	)	$	(59	)
Equity securities	$	—		$	(27	)	$	—		$	(153	)

The following table presents the components of net investment income, comprised primarily of interest and dividends, for the periods presented (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Available-for-sale debt securities	$	4,595		$	2,977		$	12,390		$	8,893
Equity securities		722			348			2,016			1,068
Available-for-sale short-term investments		—			—			145			22
Other (1)		2,106			319			4,765			651
Total investment income		7,423			3,644			19,316			10,634
Less: Investment expenses (2)		(781	)		(559	)		(2,103	)		(1,622	)
Net investment (expense) income	$	6,642		$	3,085		$	17,213		$	9,012

(1)	Includes interest earned on cash and cash equivalents and restricted cash and cash equivalents. Also includes investment income earned on real estate investments.

(2)	Includes custodial fees, investment accounting, advisory fees and expenses associated with real estate investments.

Equity Securities

The following table provides details on the realized and unrealized gains and losses related to equity securities for the periods presented (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net gains and (losses) recognized during the period on equity securities	$	(2,060	)	$	520		$	(8,389	)	$	2,179
Less: Net (gains) and losses recognized during the period on equity securities sold during the period		(413	)		(520	)		(714	)		(2,179	)
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting period	$	(2,473	)	$	—		$	(9,103	)	$	—

Investment Real Estate

Investment real estate consisted of the following as of the dates presented (in thousands):

	September 30, 2018			December 31, 2017
Income Producing:
Investment real estate (1)	$	14,619		$	6,918
Less: Accumulated depreciation		(767	)		(460	)
		13,852			6,458
Non-Income Producing:
Properties under development (1)		9,868			12,016
Investment real estate, net	$	23,720		$	18,474

(1) During the nine months ended September 30, 2018, the Company transferred $7.4 million from properties under development to investment real estate.

Depreciation expense related to investment real estate for the periods presented (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Depreciation expense on investment real estate	$	103	$	45	$	307	$	134