AmTrust Financial Services
Amtrust Financial Services, Inc. (Form: 10-Q, Received: 08/09/2017 15:43:40)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
 
Commission file no. 001-33143
_______________________________

AFSIAMTRUSTFINANCIAL.JPG
_______________________________
AmTrust Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
04-3106389
(State or other jurisdiction of
 
(IRS Employer Identification No.)
incorporation or organization)
 
 
 
 
 
59 Maiden Lane, 43rd Floor, New York, New York
 
10038
(Address of principal executive offices)
 
(Zip Code)

(212) 220-7120
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x
 
Accelerated Filer o
 
Non-Accelerated Filer o
(Do not check if a smaller
reporting company)
 
Smaller Reporting Company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).Yes ¨ No x

As of August 1, 2017 , the Registrant had one class of Common Stock ($.01 par value), of which 195,805,323 shares were issued and outstanding.





INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except per share amounts.




PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMTRUST FINANCIAL SERVICES, INC.
Consolidated Balance Sheets (unaudited)
(In thousands, except par value)
 
June 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost $7,641,124; $7,315,041)
$
7,774,559

 
$
7,398,134

Fixed maturity securities, trading, at fair value (amortized cost $28,162; $29,081)
24,803

 
33,782

Equity securities, available-for-sale, at fair value (cost $81,478; $126,670)
108,830

 
137,162

Equity securities, trading, at fair value (cost $92,700; $76,163)
84,574

 
81,960

Short-term investments
239

 

Equity investment in unconsolidated subsidiaries – related party

 
151,332

Other investments (related party $71,057; $72,328)
139,661

 
152,187

Total investments
8,132,666

 
7,954,557

Cash and cash equivalents
891,591

 
567,771

Restricted cash and cash equivalents
855,672

 
713,338

Accrued interest and dividends
60,916

 
54,680

Premiums receivable, net
3,093,247

 
2,802,167

Reinsurance recoverable (related party $2,779,753; $2,452,242)
5,395,374

 
4,329,521

Prepaid reinsurance premium (related party $1,257,767; $1,133,485)
2,168,554

 
1,994,092

Other assets (related party $152,297; $189,223; recorded at fair value $396,782; $356,856)
1,798,475

 
1,712,165

Deferred policy acquisition costs
1,121,172

 
928,920

Property and equipment, net
462,343

 
314,332

Goodwill
808,208

 
686,565

Intangible assets
539,978

 
556,560

Total assets
$
25,328,196

 
$
22,614,668

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Loss and loss adjustment expense reserves
$
11,149,511

 
$
10,140,716

Unearned premiums
5,297,190

 
4,880,066

Ceded reinsurance premiums payable (related party $755,666; $633,638)
856,995

 
804,882

Funds held under reinsurance treaties
121,940

 
70,868

Note payable on collateral loan – related party
167,975

 
167,975

Securities sold but not yet purchased, at fair value
64,947

 
36,394

Securities sold under agreements to repurchase, at contract value
31,698

 
160,270

Accrued expenses and other liabilities (recorded at fair value $103,329; $76,840)
2,455,657

 
1,651,626

Debt (net of debt issuance cost of $15,611, $15,960)
1,284,629

 
1,234,900

Total liabilities
21,430,542

 
19,147,697

Commitments and contingencies


 


Redeemable non-controlling interest
1,180

 
1,358

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 500,000 shares authorized; 210,751 and 196,455 issued in 2017 and 2016, respectively; 195,787 and 170,508 outstanding in 2017 and 2016, respectively
2,108

 
1,965

Preferred stock, $0.01 par value; 10,000 shares authorized; 5,399 issued and outstanding; $913,750 aggregated liquidation preference in 2017 and 2016, respectively
913,750

 
913,750

Additional paid-in capital
1,625,974

 
1,384,922

Treasury stock at cost; 14,964 and 25,947 shares in 2017 and 2016, respectively
(243,669
)
 
(310,883
)
Accumulated other comprehensive loss, net of tax
(4,835
)
 
(125,722
)
Retained earnings
1,370,190

 
1,405,071

Total AmTrust Financial Services, Inc. equity
3,663,518

 
3,269,103

Non-controlling interest
232,956

 
196,510

Total stockholders’ equity
3,896,474

 
3,465,613

Total liabilities and stockholders’ equity
$
25,328,196

 
$
22,614,668


See accompanying notes to unaudited consolidated financial statements.

3


AMTRUST FINANCIAL SERVICES, INC.
Consolidated Statements of Income (unaudited)
(In thousands, except per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
( As restated)
 
 
 
( As restated)
Revenues:
 
 

 
 
 
 

 
 

Premium income:
 
 

 
 

 
 

 
 

Net written premium
 
$
1,371,902

 
$
1,268,436

 
$
2,715,968

 
$
2,489,115

Change in unearned premium
 
8,807

 
(86,684
)
 
(112,727
)
 
(233,081
)
Net earned premium
 
1,380,709

 
1,181,752

 
2,603,241

 
2,256,034

Service and fee income (related parties - three months $35,596; $21,608 and six months $55,931 and $41,771)
 
168,446

 
124,306

 
305,942

 
253,111

Net investment income
 
49,226

 
50,745

 
112,551

 
100,160

Net realized gain on investments
 
23,455

 
15,099

 
32,070

 
23,074

Total revenues
 
1,621,836

 
1,371,902

 
3,053,804

 
2,632,379

Expenses:
 
 

 
 

 
 

 
 

Loss and loss adjustment expense
 
1,024,478

 
784,393

 
1,864,812

 
1,499,466

Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $158,231; $145,610, and six months $311,933; $284,001)
 
373,195

 
294,477

 
701,410

 
566,945

Other
 
199,860

 
134,344

 
362,713

 
263,611

Total expenses
 
1,597,533

 
1,213,214

 
2,928,935

 
2,330,022

Income before other income (loss), (benefit) provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
24,303

 
158,688

 
124,869

 
302,357

Other income (loss):
 
 

 
 

 
 

 
 

Interest expense (net of interest income - related party - three months $1,160; $2,187 and six months $2,318 and $4,375)
 
(24,229
)
 
(17,912
)
 
(47,830
)
 
(33,786
)
(Loss) gain on investment in life settlement contracts net of profit commission
 
(1,261
)
 
12,676

 
7,349

 
23,406

Foreign currency loss
 
(58,948
)
 
(28,995
)
 
(76,916
)
 
(67,228
)
Gain on acquisition
 

 
39,097

 

 
48,775

Total other (loss) income
 
(84,438
)
 
4,866

 
(117,397
)
 
(28,833
)
(Loss) income before (benefit) provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
(60,135
)
 
163,554

 
7,472

 
273,524

(Benefit) provision for income taxes
 
(19,727
)
 
23,807

 
1,629

 
42,767

(Loss) income before equity in earnings of unconsolidated subsidiaries
 
(40,408
)
 
139,747

 
5,843

 
230,757

Equity in earnings of unconsolidated subsidiaries – related parties
 
69,531

 
4,802

 
73,488

 
10,578

Net income
 
$
29,123

 
$
144,549

 
$
79,331

 
$
241,335

Net income attributable to non-controlling interest and redeemable non-controlling interest of subsidiaries
 
(6,723
)
 
(5,817
)
 
(17,728
)
 
(9,834
)
Net income attributable to AmTrust Financial Services, Inc.
 
$
22,400

 
$
138,732

 
$
61,603

 
$
231,501

Dividends on preferred stock
 
(16,571
)
 
(11,576
)
 
(33,142
)
 
(20,367
)
Net income attributable to AmTrust common stockholders
 
$
5,829

 
$
127,156

 
$
28,461

 
$
211,134

Earnings per common share:
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.03

 
$
0.73

 
$
0.16

 
$
1.21

Diluted earnings per share
 
$
0.03

 
$
0.73

 
$
0.16

 
$
1.20

Dividends declared per common share
 
$
0.17

 
$
0.15

 
$
0.34

 
$
0.30

See accompanying notes to unaudited consolidated financial statements.

4


AMTRUST FINANCIAL SERVICES, INC.
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
(As restated)

 
 
 
(As restated)
Net income
$
29,123

 
$
144,549

 
$
79,331

 
$
241,335

Other comprehensive income, net of tax:
 
 
 
 
 

 
 

Foreign currency translation adjustments
62,663

 
(32,809
)
 
76,526

 
(80,003
)
Change in fair value of interest rate swap
28

 
168

 
120

 
287

Unrealized gain on securities:
 
 
 
 
 
 
 
Gross unrealized holding gain
66,029

 
170,466

 
98,060

 
298,119

Tax expense arising during period
16,521

 
62,093

 
22,961

 
106,772

Net unrealized holding gain
49,508

 
108,373

 
75,099

 
191,347

Reclassification adjustments for investment gain included in net income, net of tax:
 
 
 
 
 
 
 
Other-than-temporary impairment loss

 
(10,537
)
 

 
(10,537
)
Other net realized (gain) loss on investments
(19,228
)
 
2,920

 
(30,858
)
 
2,492

Reclassification adjustments for investment gain included in net income:
(19,228
)
 
(7,617
)
 
(30,858
)
 
(8,045
)
Other comprehensive income, net of tax
92,971

 
68,115

 
120,887

 
103,586

Comprehensive income
122,094

 
212,664

 
200,218

 
344,921

Less: Comprehensive income attributable to redeemable non-controlling interest and non-controlling interest
6,723

 
5,817

 
17,728

 
9,834

Comprehensive income attributable to AmTrust Financial Services, Inc.
$
115,371

 
$
206,847

 
$
182,490

 
$
335,087

 
See accompanying notes to unaudited consolidated financial statements.

5


AMTRUST FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
Six Months Ended June 30,
 
2017
 
2016
 
 
 
(As restated)
Cash flows from operating activities:
 

 
 

Net income
$
79,331

 
$
241,335

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation and amortization
81,503

 
59,865

Net amortization of bond premium or discount
10,841

 
9,707

Equity earnings on investment in unconsolidated subsidiaries  (1)
(73,488
)
 
(10,578
)
Gain on investment in life settlement contracts, net
(7,349
)
 
(23,406
)
Net realized gain on investments
(32,070
)
 
(40,030
)
Non-cash write-down of investments

 
16,956

Discount on notes payable
3,256

 
2,910

Stock based compensation
11,099

 
11,542

Bad debt expense
17,407

 
8,241

Foreign currency loss
76,916

 
67,228

Gain on acquisition

 
(48,775
)
Changes in assets - (increase) decrease:
 

 
 
Premiums and notes receivables
(188,177
)
 
(376,594
)
Reinsurance recoverable
(1,051,177
)
 
(174,241
)
Deferred policy acquisition costs
(184,328
)
 
(104,759
)
Prepaid reinsurance premiums
(172,816
)
 
(392,881
)
Other assets
(77,869
)
 
205,431

Changes in liabilities - increase (decrease):
 
 
 
Ceded reinsurance premium payable
102,322

 
185,275

Loss and loss adjustment expense reserve
685,405

 
780,599

Unearned premiums
304,162

 
383,135

Funds held under reinsurance treaties
46,751

 
(28,041
)
Accrued expenses and other liabilities
645,831

 
(124,170
)
Net cash provided by operating activities
277,550

 
648,749

Cash flows from investing activities:
 

 
 

Purchases of fixed maturities, available-for-sale
(1,112,415
)
 
(1,100,754
)
Purchases of equity securities, available-for-sale
(11,223
)
 
(20,424
)
Purchase of equity securities, trading
(312,912
)
 
(100,087
)
Purchase of other investments
(15,593
)
 
(11,345
)
Sales, maturities, paydowns of fixed maturities, available-for-sale
988,305

 
699,304

Sales of equity securities, available-for-sale
151,676

 
11,697

Sales of equity securities, trading
309,415

 
102,267

Sales of other investments
65,730

 
1,242

Net sale of short term investments
34

 
7,303

Net sale (purchase) of securities sold but not purchased
21,486

 
(17,448
)
Payment of life settlement contracts
(16,473
)
 

Receipt of life settlement contract proceeds
33,163

 
8,058

Acquisition of subsidiaries, net of cash received (2)
(97,786
)
 
(118,607
)
Sale of equity method investment (1)
211,290

 

Increase in restricted cash and cash equivalents
(129,264
)
 
(211,285
)
Purchase of property and equipment
(188,743
)
 
(84,094
)
Net cash used in investing activities
(103,310
)
 
(834,173
)
 
 
 
 
 
 
 
 
 
 
 
 

6


 
Six Months Ended June 30,
 
2017
 
2016
 
 
 
As restated
Cash flows from financing activities:
 
 
 

Repurchase agreements, net
(128,572
)
 
366,860

Secured loan agreements borrowings
105,559

 
39,361

Secured loan agreements payments
(7,488
)
 
(3,569
)
Promissory notes payments
(52,343
)
 

Financing fees
(154
)
 

Common stock issuance
298,747

 
276

Common stock repurchase

 
(103,509
)
Preferred stock issuance

 
139,070

Contingent consideration payments
(5,011
)
 
(23,446
)
Non-controlling interest capital contributions from consolidated subsidiaries, net
12,437

 
(5,301
)
Stock option exercise and other
(1,438
)
 
(7,084
)
Dividends distributed on common stock
(58,097
)
 
(52,624
)
Dividends distributed on preferred stock
(33,142
)
 
(20,367
)
Net cash provided by financing activities
130,498

 
329,667

Effect of exchange rate changes on cash
19,082

 
(20,613
)
Net increase in cash and cash equivalents
323,820

 
123,630

Cash and cash equivalents, beginning of the year
567,771

 
1,003,916

Cash and cash equivalents, end of the period
$
891,591

 
$
1,127,546

(1) 2017 amounts relate to the sale of shares of National General Holding Corp. See Note 10 for more information.
(2) Primarily relates to the acquisitions of AmeriHeath Casualty Insurance Company, PDP Group, Inc., and other immaterial subsidiaries. See Note 11 for more information.

See accompanying notes to unaudited consolidated financial statements.

7

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)



1.
  Basis of Reporting
  
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the AmTrust Financial Services, Inc. (“AmTrust” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2016 , previously filed with the Securities and Exchange Commission (“SEC”) on April 4, 2017 .
 
These interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
A detailed description of the Company’s significant accounting policies and management judgments is located in the audited consolidated financial statements for the year ended December 31, 2016 , included in the Company’s Annual Report on Form 10-K ("Form 10-K") filed with the SEC.
 
All material inter-company transactions and accounts have been eliminated in the consolidated financial statements.
 
To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

As previously disclosed, on March 14, 2017 , the Audit Committee of our Board of Directors, in consultation with management and our current and former independent registered public accounting firms, concluded that our previously issued Consolidated Financial Statements for fiscal years 2015 and 2014 , along with each of the four quarters included in fiscal year 2015 as well as the first three quarters of fiscal year 2016 , needed to be restated. Accordingly, within this report, we have included restated unaudited quarterly financial statements for the second quarter of 2016 . See our Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q/A for the period ended June 30, 2016 for more information.

2. Recent Accounting Pronouncements
 
With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2017 , as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 , that are of significance, or potential significance, to the Company.

Recent Accounting Standards, Adopted

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and accounting for forfeitures. The adoption of this guidance on January 1, 2017 did not have a material effect on the Company's results of operations, financial position or cash flows.

In March 2016, the FASB issued ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting , which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The guidance requires the equity method investor to add the cost of acquiring additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The Company adopted this guidance on a prospective basis. The adoption of this guidance on January 1, 2017 did not have a material effect on the Company's results of operations, financial position or cash flows.


8

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments , which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amended guidance in this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence prescribed by Topic 815. The Company adopted this guidance on a modified retrospective basis. The adoption of this guidance on January 1, 2017 did not have a material effect on the Company's results of operations, financial position or cash flows.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships , which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Company adopted this guidance on a modified retrospective basis. The adoption of this guidance on January 1, 2017 did not have a material effect on the Company's results of operations, financial position or cash flows.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance specifies that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted and prospective application is required. The Company early adopted this guidance effective January 1, 2017. The adoption of this guidance did not have a material impact on the Company's results of operations, financial position or cash flows.

Recent Accounting Standards, Not Yet Adopted

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities . The new guidance shortens the amortization period for the premium on callable debt securities to the earliest call date. The amortization period for the discount on callable debt securities is not changed by the new guidance, and continues to be amortized to maturity. The new guidance more closely aligns interest income recorded on debt securities held at a premium or a discount with the economics of the underlying instrument. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations , which improves the operability and understandability of the implementation guidance on principal versus agent considerations by clarifying that 1) an entity determines whether it is a principal or an agent for each specific good or service promised to the customer; 2) an entity determines the nature of each specific good or service; 3) when another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of (a) a good or another asset from the other party that it then transfers to the customer, (b) a right to a service that will be performed by another party, which gives the entity the ability to direct that party to provide the service to the customer on the entity's behalf, or (c) a good or service from the other party that is combined with other goods or services to provide the specific good or service to the customer; and 4) the purpose of the indicators in paragraph 606-10-55-39 in Topic 606 is to support or assist in the assessment of control. The effective date and transition requirement for this ASU are the same as the effective date and transition requirements of ASU 2014-09, which were deferred to the quarter ending March 31, 2018 by ASU 2015-14. Adoption of this ASU is not expected to have a material impact on the Company's insurance operations, but may have a material impact on the Company's non-insurance operations.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that an employer present service cost in the same line item or items as other current employee compensation costs, and present the remaining components of net benefit cost in one or more separate line items outside of income from operations (if that subtotal is presented). In addition, this ASU limits the components of net benefit cost eligible to be capitalized to service cost. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods. This standard is not expected to have a material impact on the Company's financial position, results of operations or cash flows.


9

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires lessees to put most leases on their balance sheets as a lease liability with a corresponding right-of-use asset, but continue to recognize the related leasing expense within net income. The definition of a lease was modified to exemplify the concept of control over an asset identified in the lease. Lease classification criteria remains substantially similar to criteria in current lease guidance. The guidance defines which payments can be used in determining lease classification. For short-term leases with a term of 12 months or less, lessees can make a policy election not to recognize lease assets and lease liabilities. Lessor accounting is largely unchanged. Leveraged leases that commenced before the effective date of the new guidance are grandfathered. New disclosures are required, and certain practical expedients are allowed upon adoption. This accounting and disclosure guidance will be effective for interim and annual reporting periods beginning after December 15, 2018 and should be implemented using the modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies. As a result, the new guidance will not apply to the derecognition of businesses, nonprofit activities, or financial assets (including equity method investments), or to revenue transactions (contracts with customers). The new guidance also clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. In addition, transfers of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity will be accounted for under ASC 610-20, removing specific guidance on such partial exchanges from ASC 845, Nonmonetary Transactions . As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 will be eliminated. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets. This guidance is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and
related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairment charges. Under the current guidance, if the fair value of a reporting unit is lower than its carrying amount, an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount. The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value. Under the new guidance, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value not to exceed the amount of goodwill allocated to that reporting unit. The guidance is effective in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is evaluating the requirements of this guidance and the potential impact on the Company’s financial position and results of operations.

10

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)




3.
Investments
 
(a) Available-for-Sale Securities
 
The cost or amortized cost, gross unrealized gains and losses, and estimated fair value of fixed maturity and equity securities classified as available-for-sale as of June 30, 2017 and December 31, 2016 , are presented below:

As of June 30, 2017
 
Cost or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
356,281

 
$
1,177

 
$
(1,711
)
 
$
355,747

U.S. government agencies
 
13,762

 
41

 
(7
)
 
13,796

Municipal bonds
 
925,039

 
15,092

 
(5,318
)
 
934,813

Foreign government
 
190,445

 
4,238

 
(1,113
)
 
193,570

Corporate bonds:
 
 

 
 

 
 

 
 

Finance
 
1,554,129

 
44,021

 
(3,080
)
 
1,595,070

Industrial
 
2,220,747

 
61,374

 
(8,288
)
 
2,273,833

Utilities
 
369,235

 
10,948

 
(1,430
)
 
378,753

Commercial mortgage-backed securities
 
474,262

 
4,594

 
(4,551
)
 
474,305

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

Agency backed
 
902,351

 
13,527

 
(6,099
)
 
909,779

Non-agency backed
 
4,326

 
2

 
(95
)
 
4,233

Collateralized loan / debt obligation
 
501,560

 
9,747

 
(385
)
 
510,922

Asset backed securities
 
128,987

 
878

 
(127
)
 
129,738

Total fixed maturity securities
 
$
7,641,124

 
$
165,639

 
$
(32,204
)
 
$
7,774,559

Equity Securities:
 
 
 
 
 
 
 
 
Preferred stock
 
$
756

 
$
21

 
$

 
$
777

Common stock
 
80,722

 
28,358

 
(1,027
)
 
108,053

Total equity securities
 
$
81,478

 
$
28,379

 
$
(1,027
)
 
$
108,830


11

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


 

As of December 31, 2016
 
Cost or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
 Fair value
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
331,036

 
$
1,235

 
$
(1,617
)
 
$
330,654

U.S. government agencies
 
63,467

 
282

 
(17
)
 
63,732

Municipal bonds
 
860,444

 
9,603

 
(15,877
)
 
854,170

Foreign government
 
149,365

 
4,237

 
(726
)
 
152,876

Corporate bonds:
 
 
 
 
 
 
 
 
Finance
 
1,535,606

 
38,404

 
(7,722
)
 
1,566,288

Industrial
 
2,222,843

 
62,133

 
(17,115
)
 
2,267,861

Utilities
 
195,607

 
4,433

 
(1,210
)
 
198,830

Commercial mortgage backed securities
 
178,092

 
2,464

 
(2,562
)
 
177,994

Residential mortgage backed securities:
 
 
 
 
 
 
 
 
Agency backed
 
1,210,229

 
13,685

 
(13,529
)
 
1,210,385

Non-agency backed
 
61,646

 
586

 
(1,003
)
 
61,229

Collateralized loan / debt obligations
 
476,767

 
8,389

 
(751
)
 
484,405

Asset backed securities
 
29,939

 
31

 
(260
)
 
29,710

Total fixed maturity securities
 
$
7,315,041

 
$
145,482

 
$
(62,389
)
 
$
7,398,134

Equity Securities:
 
 
 
 
 
 
 
 
Preferred stock
 
$
4,044

 
$

 
$
(59
)
 
$
3,985

Common stock
 
122,626

 
12,899

 
(2,348
)
 
133,177

Total equity securities
 
$
126,670

 
$
12,899

 
$
(2,407
)
 
$
137,162


Investments in foreign government securities include securities issued by national entities as well as instruments that are unconditionally guaranteed by such entities. As of June 30, 2017 , the Company's foreign government securities were issued or guaranteed primarily by governments in Europe, Canada and Israel.

Proceeds from the sale of investments in available-for-sale securities were approximately $623,177 and $585,894 , respectively, during the three months ended June 30, 2017 and 2016 , and were approximately $1,139,981 and $711,001 , respectively, for the six months ended June 30, 2017 and 2016 .

A summary of the Company’s available-for-sale fixed maturity securities as of June 30, 2017 and December 31, 2016 , by contractual maturity, is shown below. 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.
 
 
June 30, 2017
 
December 31, 2016
 
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
 Fair Value
Due in one year or less
 
$
265,819

 
$
266,562

 
$
319,275

 
$
319,882

Due after one through five years
 
3,152,712

 
3,216,906

 
2,956,429

 
2,998,711

Due after five through ten years
 
1,737,598

 
1,780,579

 
1,645,211

 
1,683,112

Due after ten years
 
473,509

 
481,535

 
437,452

 
432,702

Mortgage and asset backed securities
 
2,011,486

 
2,028,977

 
1,956,674

 
1,963,727

Total fixed maturity securities
 
$
7,641,124

 
$
7,774,559

 
$
7,315,041

 
$
7,398,134





12

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


The tables below summarize the gross unrealized losses of our fixed maturity and equity securities by length of time the security has continuously been in an unrealized loss position as of June 30, 2017 and December 31, 2016 :
 
 
 
Less Than 12 Months
12 Months or More
Total
As of June 30, 2017
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
296,565

 
$
(1,709
)
 
$
689

 
$
(2
)
 
$
297,254

 
$
(1,711
)
U.S. government agencies
 
4,261

 
(7
)
 

 

 
4,261

 
(7
)
Municipal bonds
 
382,730

 
(5,087
)
 
8,526

 
(231
)
 
391,256

 
(5,318
)
Foreign government
 
78,986

 
(1,046
)
 
1,933

 
(67
)
 
80,919

 
(1,113
)
Corporate bonds:
 
 
 
 
 
 
 
 
 
  

 
  

Finance
 
295,860

 
(3,068
)
 
4,032

 
(12
)
 
299,892

 
(3,080
)
Industrial
 
459,696

 
(8,024
)
 
11,821

 
(264
)
 
471,517

 
(8,288
)
Utilities
 
79,036

 
(1,429
)
 
507

 
(1
)
 
79,543

 
(1,430
)
Commercial mortgage-backed securities
 
254,002

 
(4,118
)
 
8,165

 
(433
)
 
262,167

 
(4,551
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
  

 
  

Agency backed
 
405,149

 
(6,038
)
 
2,488

 
(61
)
 
407,637

 
(6,099
)
Non-agency backed
 
1,569

 
(10
)
 
2,539

 
(85
)
 
4,108

 
(95
)
Collateralized loan / debt obligations
 
61,780

 
(379
)
 
800

 
(6
)
 
62,580

 
(385
)
Asset backed securities
 
21,888

 
(98
)
 
1,587

 
(29
)
 
23,475

 
(127
)
Total fixed maturity securities
 
$
2,341,522

 
$
(31,013
)
 
$
43,087

 
$
(1,191
)
 
$
2,384,609

 
$
(32,204
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
$
12,077

 
$
(1,027
)
 
$

 
$

 
$
12,077

 
$
(1,027
)
  
 
 
Less Than 12 Months
12 Months or More
Total
As of December 31, 2016
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
293,155

 
$
(1,613
)
 
$
22,989

 
$
(4
)
 
$
316,144

 
$
(1,617
)
U.S. government agencies
 
7,866

 
(17
)
 

 

 
7,866

 
(17
)
Municipal bonds
 
519,578

 
(15,207
)
 
15,742

 
(670
)
 
535,320

 
(15,877
)
Foreign government
 
128,863

 
(688
)
 
12,659

 
(38
)
 
141,522

 
(726
)
Corporate bonds:
 
 
 
 
 
 
 
 
 
  
 
  
Finance
 
1,071,982

 
(7,210
)
 
16,840

 
(512
)
 
1,088,822

 
(7,722
)
Industrial
 
1,200,129

 
(13,648
)
 
114,035

 
(3,467
)
 
1,314,164

 
(17,115
)
Utilities
 
119,488

 
(423
)
 
10,391

 
(787
)
 
129,879

 
(1,210
)
Commercial mortgage-backed securities
 
71,780

 
(1,654
)
 
10,910

 
(908
)
 
82,690

 
(2,562
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
  
 
  
Agency backed
 
718,098

 
(13,469
)
 
8,144

 
(60
)
 
726,242

 
(13,529
)
Non-agency backed
 
24,372

 
(869
)
 
4,462

 
(134
)
 
28,834

 
(1,003
)
Collateralized loan / debt obligations
 
97,923

 
(433
)
 
32,937

 
(318
)
 
130,860

 
(751
)
Asset backed securities
 
9,220

 
(124
)
 
4,926

 
(136
)
 
14,146

 
(260
)
Total fixed maturity securities
 
$
4,262,454

 
$
(55,355
)
 
$
254,035

 
$
(7,034
)
 
$
4,516,489

 
$
(62,389
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
$
529

 
$
(30
)
 
$

 
$
(29
)
 
$
529

 
$
(59
)
Common stock
 
46,254

 
(1,394
)
 
9,991

 
(954
)
 
56,245

 
(2,348
)
Total equity securities
 
$
46,783

 
$
(1,424
)
 
$
9,991

 
$
(983
)
 
$
56,774

 
$
(2,407
)


13

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


There are 1,695 and 2,125 securities at June 30, 2017 and December 31, 2016 , respectively, that account for the gross unrealized loss, none of which is deemed by the Company to be other-than-temporarily impaired ("OTTI"). At June 30, 2017 , the Company determined that the unrealized losses on fixed maturity securities were primarily due to market interest rate movements since their date of purchase. On a quarterly basis, the Company analyzes securities in an unrealized loss position for OTTI. The Company considers an investment to be impaired when it has been in an unrealized loss position greater than a de minimis threshold for over 12 months, excluding securities backed by the U.S. government (e.g., U.S. treasury securities or agency-backed residential mortgage-backed securities). Additionally, the Company reviews whether any of the impaired positions related to securities for which OTTI was previously recognized, and whether the Company intends to sell any of the securities in an unrealized loss position.

Once the Company completes the analysis described above, each security is further evaluated to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. The Company considers many factors in completing its quarterly review of securities with unrealized losses for OTTI. For equity securities, the Company considers the length of time and the extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer, including any specific events that may influence the operations of the issuer, and the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. For fixed maturity securities, the Company considers among other things, the length of time and the extent to which the fair value has been less than the amortized cost basis, adverse conditions and near-term prospects for improvement specifically related to the issuer, industry or geographic area, the historical and implied volatility of the fair value of the security, any information obtained from regulators and rating agencies, the issuer’s capital strength and the payment structure of the security and the likelihood the issuer will be able to make payments in the future (or the historical failure of the issuer to make scheduled interest or principal payments or payment of dividends).

For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturity securities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity security below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income (loss).

There were no credit-related OTTI charges for the three and six months ended June 30, 2017 .

14

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)



(b) Trading Securities

The original or amortized cost, estimated fair value and gross unrealized gains and losses of trading securities as of June 30, 2017 and December 31, 2016 are presented in the tables below:
As of June 30, 2017
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
 Fair value
Fixed Maturity Securities
 
 
 
 
 
 
 
 
Municipal bonds
 
$
837

 
$

 
$
(8
)
 
$
829

Corporate bonds:
 
 
 
 
 
 
 
 
   Industrial
 
27,325

 
140

 
(3,491
)
 
23,974

Total Fixed Maturity Securities
 
$
28,162

 
$
140

 
$
(3,499
)
 
$
24,803

Common stock
 
$
92,700

 
$
2,847

 
$
(10,973
)
 
$
84,574


As of December 31, 2016
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
 Fair value
Fixed Maturity Securities
 
 
 
 
 
 
 
 
Corporate bonds:
 
 
 
 
 
 
 
 
   Industrial
 
$
24,151

 
$
4,379

 
$

 
$
28,530

   Utilities
 
4,930

 
322

 

 
5,252

Total Fixed Maturity Securities
 
$
29,081

 
$
4,701

 
$

 
$
33,782

Common stock
 
$
76,163

 
$
9,842

 
$
(4,045
)
 
$
81,960


Proceeds from the sale of investments in trading securities were approximately $177,570 and $49,517 , respectively, during the three months ended June 30, 2017 and 2016 , and were approximately $309,415 and $102,267 , respectively, during the six months ended June 30, 2017 and 2016 .

The table below shows the portion of trading gains and losses for the period related to trading securities still held during the three and six months ended June 30, 2017 and 2016 :

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net gains and losses recognized during the period on trading securities
 
$
(11,980
)
 
$
(260
)
 
$
(15,240
)
 
$
2,496

Less: Net gains and losses recognized during the period on trading securities sold during the period
 
(2,065
)
 
1,014

 
651

 
7,387

Unrealized gains and losses recognized during the reporting period on trading securities still held at the reporting date
 
$
(9,915
)
 
$
(1,274
)
 
$
(15,891
)
 
$
(4,891
)


15

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


(c) Investment Income
 
Net investment income for the three and six months ended June 30, 2017 and 2016 was derived from the following sources:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2017
 
2016
 
2017
 
2016
Fixed maturity securities, available-for-sale
 
$
69,381

 
$
46,235

 
$
126,650

 
$
92,428

Equity securities, available-for-sale
 
169

 
4,098

 
1,569

 
6,462

Fixed maturity securities, trading
 

 

 
1,032

 

Equity securities, trading
 
2

 
(125
)
 
20

 
(278
)
Cash and short term investments
 
1,888

 
686

 
3,282

 
1,772

Other invested assets (1)
 
(19,240
)
 

 
(15,001
)
 

 
 
 
52,200

 
50,894

 
117,552

 
100,384

Less:
 
 
 

 
 

 
 

 
 

Investment expenses
 
 
(2,974
)
 
(149
)
 
(5,001
)
 
(224
)
 
 
 
$
49,226

 
$
50,745

 
$
112,551

 
$
100,160

 
 
 
 
 
 
 
 
 
 
(1)  Includes losses from equity method investments.

(d) Realized Gains and Losses

The tables below summarize the gross and net realized gains and (losses) for the three and six months ended June 30, 2017 and 2016 :
Three Months Ended June 30, 2017
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
14,136

 
$
(793
)
 
$
13,343

Equity securities, available-for-sale
 
7,288

 
(958
)
 
6,330

Fixed maturity securities, trading
 
2,819

 
(4,335
)
 
(1,516
)
Equity securities, trading
 
2,401

 
(12,865
)
 
(10,464
)
Other investments
 
15,762

 

 
15,762

 
 
$
42,406

 
$
(18,951
)
 
$
23,455

 
 
 
 
 
 
 
Three Months Ended June 30, 2016
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
35,008

 
$
(1,571
)
 
$
33,437

Equity securities, available-for-sale
 
608

 
(658
)
 
(50
)
Equity securities, trading
 
5,315

 
(5,575
)
 
(260
)
Other investments
 
4

 
(1,076
)
 
(1,072
)
Write-down of equity securities, available-for-sale
 

 
(16,956
)
 
(16,956
)
 
 
$
40,935

 
$
(25,836
)
 
$
15,099



16

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)


Six Months Ended June 30, 2017
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
22,447

 
$
(2,056
)
 
$
20,391

Equity securities, available-for-sale
 
12,511

 
(1,599
)
 
10,912

Fixed maturity securities, trading
 
5,193

 
(9,769
)
 
(4,576
)
Equity securities, trading
 
8,487

 
(19,151
)
 
(10,664
)
Other investments
 
16,027

 
(20
)
 
16,007

 
 
$
64,665

 
$
(32,595
)
 
$
32,070

 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
39,811

 
$
(1,617
)
 
$
38,194

Equity securities, available-for-sale
 
1,268

 
(799
)
 
469

Equity securities, trading
 
14,927

 
(12,431
)
 
2,496

Other investments
 
4

 
(1,133
)
 
(1,129
)
Write-down of equity securities, available-for-sale
 

 
(16,956
)
 
(16,956
)
 
 
$
56,010

 
$
(32,936
)
 
$
23,074


On June 9, 2017 , the Company announced that it entered into agreements to sell 10,586 common shares of National General Holdings Corp. (“NGHC”), a related party, at a price of $20.00 per share (representing a discount of 8.3% to NGHC's common stock closing market price on the Nasdaq Stock Exchange on June 8, 2017 ). The sale was completed through separate, privately negotiated purchase agreements with unaffiliated third parties and resulted in a $68,425 realized gain, which is reflected in the Equity in earnings of unconsolidated subsidiaries - related parties caption on the Consolidated Statements of Income.

(f) Restricted Cash and Investments
 
The Company, in order to conduct business in certain states, is required to maintain letters of credit or assets on deposit to support state mandated regulatory requirements and certain third party agreements. The Company also utilizes trust accounts to collateralize business with its reinsurance counterparties. These assets are primarily in the form of cash and certain high grade securities. The fair values of the Company's restricted assets as of June 30, 2017 and December 31, 2016 are as follows:

 
 
June 30, 2017
 
December 31, 2016
Restricted cash and cash equivalents
 
$
855,672

 
$
713,338

Restricted investments - fixed maturity at fair value
 
2,602,094

 
2,126,216

Total restricted cash, cash equivalents, and investments
 
$
3,457,766

 
$
2,839,554

 
(g) Other

Securities sold but not yet purchased are securities that the Company has sold, but does not own, in anticipation of a decline in the market value of the security. For more information related to these agreements, please see Note 4 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s liability for securities to be delivered is measured at their fair value and was $64,947 and $36,394 as of June 30, 2017 and December 31, 2016 , respectively.

From time to time, the Company enters into repurchase agreements that are subject to a master netting arrangement, which
are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or
securities that it invests or holds in short term or fixed income securities. As of June 30, 2017 , the Company had two outstanding repurchase agreements with one counter-party. The principal amount of these agreements totaled $31,698 , which approximates fair value. These repurchase agreements bore interest at a rate of 1.37% . The Company had approximately $33,149 of collateral pledged in support of these agreements. Interest expense associated with these repurchase agreements was $12 for the three and six months ended June 30, 2017. As of December 31, 2016, the Company had thirteen repurchase agreements with an outstanding principal amount of $160,270 , which approximates fair value, at interest rates between 0.75% and 0.90% . The Company had approximately $175,700 of collateral pledged in support of these agreements.


17

Notes to Consolidated Financial Statements (unaudited)
(In thousands, except per share data)



4.
Fair Value of Financial Instruments

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis as of June 30, 2017 and December 31, 2016 :
 
As of June 30, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
Financial Assets:
 
 

 
 

 
 

 
 

U.S. treasury securities
 
$
355,747

 
$
355,747

 
$

 
$

U.S. government agencies
 
13,796

 

 
13,796

 

Municipal bonds
 
935,642

 

 
935,642

 

Foreign government
 
193,570

 

 
191,359

 
2,211

Corporate bonds and other bonds:
 
 

 
 

 
 

 
 

Finance