AmTrust Financial Services
Amtrust Financial Services, Inc. (Form: 10-Q, Received: 11/09/2017 16:51:31)

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 September 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 November 3, 2017, the Registrant had one class of Common Stock ($0.01 par value), of which 196,026,575 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.


2


PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMTRUST FINANCIAL SERVICES, INC.
Consolidated Balance Sheets (unaudited)
(In thousands, except par value)
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost $7,483,972; $7,315,041)
$
7,621,536

 
$
7,398,134

Fixed maturity securities, trading, at fair value (amortized cost $34,300; $29,081)
32,174

 
33,782

Equity securities, available-for-sale, at fair value (cost $87,416; $126,670)
104,540

 
137,162

Equity securities, trading, at fair value (cost $88,746; $76,163)
81,112

 
81,960

Short-term investments
7,141

 

Equity investment in unconsolidated subsidiaries – related party

 
151,332

Other investments (related party $57,346; $72,328)
140,643

 
152,187

Total investments
7,987,146

 
7,954,557

Cash and cash equivalents
766,121

 
567,771

Restricted cash and cash equivalents
879,478

 
713,338

Accrued interest and dividends
63,797

 
54,680

Premiums receivable, net
2,920,325

 
2,802,167

Reinsurance recoverable (related party $2,606,929; $2,452,242)
6,062,987

 
4,329,521

Prepaid reinsurance premium (related party $1,227,769; $1,133,485)
2,181,851

 
1,994,092

Other assets (related party $275,116; $189,223; recorded at fair value $298,701; $356,856)
1,985,826

 
1,712,165

Deferred policy acquisition costs
1,192,417

 
928,920

Property and equipment, net
458,342

 
314,332

Goodwill
790,421

 
686,565

Intangible assets
538,648

 
556,560

Total assets
$
25,827,359

 
$
22,614,668

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Loss and loss adjustment expense reserves
$
12,086,644

 
$
10,140,716

Unearned premiums
5,322,203

 
4,880,066

Ceded reinsurance premiums payable (related party $366,215; $633,638)
799,659

 
804,882

Funds held under reinsurance treaties
122,983

 
70,868

Note payable on collateral loan – related party
167,975

 
167,975

Securities sold but not yet purchased, at fair value
56,181

 
36,394

Securities sold under agreements to repurchase, at contract value

 
160,270

Accrued expenses and other liabilities (recorded at fair value $146,628; $76,840)
1,950,971

 
1,651,626

Deferred gain on retroactive reinsurance
337,054

 

Debt (net of debt issuance cost of $15,323, $15,960)
1,287,744

 
1,234,900

Total liabilities
22,131,414

 
19,147,697

Commitments and contingencies


 


Redeemable non-controlling interest
1,484

 
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; 195,996 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
1,633,978

 
1,384,922

Treasury stock at cost; 14,755 and 25,947 shares in 2017 and 2016, respectively
(242,270
)
 
(310,883
)
Accumulated other comprehensive income (loss), net of tax
42,417

 
(125,722
)
Retained earnings
1,163,177

 
1,405,071

Total AmTrust Financial Services, Inc. equity
3,513,160

 
3,269,103

Non-controlling interest
181,301

 
196,510

Total stockholders’ equity
3,694,461

 
3,465,613

Total liabilities and stockholders’ equity
$
25,827,359

 
$
22,614,668


3

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


See accompanying notes to unaudited consolidated financial statements.

4


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

 
 
 
 

 
 

Premium income:
 
 

 
 

 
 

 
 

Net written premium
 
$
1,175,757

 
$
1,216,050

 
$
3,891,725

 
$
3,705,165

Change in unearned premium
 
17,120

 
(19,814
)
 
(95,607
)
 
(252,895
)
Net earned premium
 
1,192,877

 
1,196,236

 
3,796,118

 
3,452,270

Service and fee income (related parties - three months $55,931; $19,367 and nine months $81,221; $61,137)
 
180,505

 
133,857

 
486,447

 
386,968

Net investment income
 
61,103

 
59,919

 
173,654

 
160,079

Net realized gain on investments
 
24,520

 
8,230

 
56,590

 
31,304

Total revenues
 
1,459,005

 
1,398,242

 
4,512,809

 
4,030,621

Expenses:
 
 

 
 

 
 

 
 

Loss and loss adjustment expense
 
1,266,118

 
811,048

 
3,130,930

 
2,310,514

Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $136,316; $158,216 and nine months $448,249; $440,561)
 
337,086

 
303,992

 
1,038,496

 
870,937

Other
 
177,350

 
139,251

 
540,063

 
402,862

Total expenses
 
1,780,554

 
1,254,291

 
4,709,489

 
3,584,313

(Loss) income before other income (loss), (benefit) provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
(321,549
)
 
143,951

 
(196,680
)
 
446,308

Other income (loss):
 
 

 
 

 
 

 
 

Interest expense (net of interest income - related party - three months $1,169; $2,061 and nine months $3,487; $6,436)
 
(22,873
)
 
(22,124
)
 
(70,703
)
 
(55,910
)
(Loss) gain on investment in life settlement contracts net of profit commission
 
(924
)
 
5,485

 
6,425

 
28,891

Foreign currency loss
 
(62,819
)
 
(10,880
)
 
(139,735
)
 
(78,108
)
Gain on acquisition
 

 

 

 
48,775

Gain on sale of policy management system
 
186,755

 

 
186,755

 

Total other income (loss)
 
100,139

 
(27,519
)
 
(17,258
)
 
(56,352
)
(Loss) income before (benefit) provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
(221,410
)
 
116,432

 
(213,938
)
 
389,956

(Benefit) provision for income taxes
 
(62,588
)
 
23,185

 
(60,959
)
 
65,952

(Loss) income before equity in earnings of unconsolidated subsidiaries
 
(158,822
)
 
93,247

 
(152,979
)
 
324,004

Equity in earnings of unconsolidated subsidiaries – related parties
 

 
1,954

 
73,488

 
12,532

Net (loss) income
 
$
(158,822
)
 
$
95,201

 
$
(79,491
)
 
$
336,536

Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest of subsidiaries
 
718

 
(2,975
)
 
(17,010
)
 
(12,809
)
Net (loss) income attributable to AmTrust Financial Services, Inc.
 
$
(158,104
)
 
$
92,226

 
$
(96,501
)
 
$
323,727

Dividends on preferred stock
 
(16,571
)
 
(11,576
)
 
(49,713
)
 
(31,943
)
Net (loss) income attributable to AmTrust common stockholders
 
$
(174,675
)
 
$
80,650

 
$
(146,214
)
 
$
291,784

Earnings per common share:
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
(0.89
)
 
$
0.47

 
$
(0.80
)
 
$
1.68

Diluted earnings per share
 
$
(0.89
)
 
$
0.47

 
$
(0.80
)
 
$
1.67

Dividends declared per common share
 
$
0.17

 
$
0.17

 
$
0.51

 
$
0.47

See accompanying notes to unaudited consolidated financial statements.
AMTRUST FINANCIAL SERVICES, INC.
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
(As restated)

 
 
 
(As restated)
Net (loss) income
$
(158,822
)
 
$
95,201

 
$
(79,491
)
 
$
336,536

Other comprehensive income, net of tax:
 
 
 
 
 

 
 

Foreign currency translation adjustments
50,709

 
(30,145
)
 
127,235

 
(110,148
)
Change in fair value of interest rate swap
25

 
253

 
145

 
540

Unrealized gain on securities:
 
 
 
 
 
 
 
Gross unrealized holding gain
17,175

 
23,741

 
115,235

 
328,409

Tax (benefit) expense arising during period
(2,615
)
 
7,118

 
20,346

 
113,890

Net unrealized holding gain
19,790

 
16,623

 
94,889

 
214,519

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

 
5,989

 

 
16,526

Other net realized gain on investments
(23,272
)
 
(9,388
)
 
(54,130
)
 
(34,519
)
Total reclassification adjustments for investment gains included in net (loss) income, net of tax
(23,272
)
 
(3,399
)
 
(54,130
)
 
(17,993
)
Other comprehensive income (loss), net of tax
47,252

 
(16,668
)
 
168,139

 
86,918

Comprehensive (loss) income
(111,570
)
 
78,533

 
88,648

 
423,454

Less: Comprehensive (loss) income attributable to redeemable non-controlling interest and non-controlling interest
(718
)
 
2,975

 
17,010

 
12,809

Comprehensive (loss) income attributable to AmTrust Financial Services, Inc.
$
(110,852
)
 
$
75,558

 
$
71,638

 
$
410,645

 
See accompanying notes to unaudited consolidated financial statements.

5


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

 
 

Net (loss) income
$
(79,491
)
 
$
336,536

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 

 
 
Depreciation and amortization
118,687

 
97,314

Net amortization of bond premium or discount
13,296

 
21,983

Equity earnings on investment in unconsolidated subsidiaries  (1)
(73,488
)
 
(12,532
)
Gain on investment in life settlement contracts, net
(6,425
)
 
(28,891
)
Net realized gain on investments
(56,590
)
 
(57,721
)
Non-cash write-down of investments
19,303

 
26,417

Discount on notes payable
4,776

 
4,420

Stock based compensation
18,793

 
17,433

Bad debt expense
19,739

 
15,199

Foreign currency loss
139,735

 
78,108

Gain on sale of policy management system (3)
(186,755
)
 

Gain on acquisition

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

 
 
Premiums and notes receivables
(63,888
)
 
(299,778
)
Reinsurance recoverable
(1,685,050
)
 
(363,087
)
Deferred policy acquisition costs
(248,351
)
 
(229,289
)
Prepaid reinsurance premiums
(185,368
)
 
(486,506
)
Other assets
(166,903
)
 
307,499

Changes in liabilities - increase (decrease):
 
 
 
Ceded reinsurance premium payable
93,841

 
316,497

Loss and loss adjustment expense reserve
1,564,468

 
1,189,411

Unearned premiums
283,950

 
513,482

Funds held under reinsurance treaties
1,101

 
(7,487
)
Accrued expenses and other liabilities
400,378

 
(509,573
)
Net cash (used in) provided by operating activities
(74,242
)
 
880,660

Cash flows from investing activities:
 

 
 

Purchases of fixed maturities, available-for-sale
(1,603,933
)
 
(1,839,005
)
Purchases of equity securities, available-for-sale
(51,416
)
 
(129,716
)
Purchase of equity securities, trading
(386,561
)
 
(150,654
)
Purchase of other investments
(18,806
)
 
(15,391
)
Sales, maturities, paydowns of fixed maturities, available-for-sale
1,704,224

 
1,537,296

Sales of equity securities, available-for-sale
193,466

 
110,895

Sales of equity securities, trading
379,933

 
155,502

Sales of other investments
50,793

 
3,371

Net sale of short term investments
(7,336
)
 
(125,907
)
Net sale (purchase) of securities sold but not purchased
19,787

 
(14,848
)
Payment of life settlement contracts
(16,473
)
 
(15,880
)
Receipt of life settlement contract proceeds
48,714

 
38,247

Acquisition of subsidiaries, net of cash received (2)
(97,786
)
 
(139,038
)
Sale of equity method investment (1)
211,290

 

Change in restricted cash and cash equivalents
(156,138
)
 
(176,428
)
Purchase of property and equipment
(193,249
)
 
(111,708
)
Sale of life settlement contracts (4)
90,000

 

Sale of policy management system (3)
57,040

 

Net cash provided by (used in) investing activities
223,549

 
(873,264
)

6


 
Nine Months Ended September 30,
 
2017
 
2016
 
 
 
As restated
Cash flows from financing activities:
 
 
 

Repurchase agreements, net
(160,270
)
 

Secured loan agreements borrowings
108,234

 
45,809

Secured loan agreements payments
(9,272
)
 
(5,372
)
Promissory notes payments
(52,343
)
 

  Convertible senior notes settlement

 
(10
)
Financing fees
(197
)
 

Common stock issuance
298,747

 
276

Common stock repurchase

 
(152,395
)
Preferred stock issuance

 
417,264

Contingent consideration payments
(16,611
)
 
(34,839
)
Non-controlling interest capital contributions from consolidated subsidiaries, net
(31,398
)
 
(5,984
)
Stock option exercise and other
271

 
(6,819
)
Dividends distributed on common stock
(91,382
)
 
(78,501
)
Dividends distributed on preferred stock
(49,713
)
 
(31,943
)
Net cash (used in) provided by financing activities
(3,934
)
 
147,486

Effect of exchange rate changes on cash
52,977

 
(25,453
)
Net increase in cash and cash equivalents
198,350

 
129,429

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

 
1,003,916

Cash and cash equivalents, end of the period
$
766,121

 
$
1,133,345

(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.
(3) 2017 amounts relate to the sale of the personal lines policy management system to National General Holdings Corp. See Note 10 for more information.
(4) 2017 Amounts relate to the sale of life settlement contracts from Tiger Capital LLC's portfolio. See Note 5 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 ("Form 10-K").
 
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 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 three and nine months periods ended September 30, 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 September 30, 2016 for more information.
  
During the three months ended September 30, 2017, the Company identified and corrected errors that originated in prior periods primarily related to the misclassification of certain service and fee income as other underwriting expense and an overstatement of net earned premium with a corresponding overstatement of acquisition costs. In accordance with ASC 250, Accounting Changes and Error Correction s, and SEC guidance, the Company evaluated the materiality of the errors from both quantitative and qualitative perspectives. Based on this analysis, the Company concluded that the errors were immaterial to its financial position, results of operations and cash flows for any previously reported quarterly financial statements or for the current period in which they were corrected. As a result of these correction of errors for the three months ended September 30, 2017, service and fee income increased $37,895 , net earned premiums decreased $39,170 , acquisition costs and other underwriting expense decreased $3,622 , and other expenses were increased $7,740 . The errors had no impact on the Company's previously reported net income.

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 nine months ended September 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.



8

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


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.

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 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.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective on January 1, 2018, and may be applied retrospectively or through a cumulative effect adjustment to retained earnings at the date of adoption. The new guidance does not apply to insurance contracts, leases, financial instruments, and certain other agreements that are within the scope of other GAAP guidance. The Company is currently assessing its revenue streams to identify any contracts with customers that may be in-scope of the new standard. The Company has selected a sample of in-scope contracts for review (“key contracts”) to identify any potential impact on revenue recognition. The Company plans to identify and group the remaining contracts with customers with similar terms and features based on the conclusions developed in the review of the key contracts and to identify additional contracts with customers that may have unique terms and features that require a separate assessment. The Company is also assessing the impact on costs to obtain or fulfill contracts with customers, and which transition method to apply upon adoption on January 1, 2018. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.



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 September 30, 2017 and December 31, 2016 , are presented below:
As of September 30, 2017
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
319,333

 
$
1,080

 
$
(1,528
)
 
$
318,885

U.S. government agencies
 
48,605

 
26

 
(481
)
 
48,150

Municipal bonds
 
894,106

 
15,459

 
(3,772
)
 
905,793

Foreign government
 
184,507

 
4,013

 
(1,404
)
 
187,116

Corporate bonds:
 
 

 
 

 
 

 
 

Finance
 
1,579,758

 
45,733

 
(2,413
)
 
1,623,078

Industrial
 
2,184,009

 
60,640

 
(6,306
)
 
2,238,343

Utilities
 
365,563

 
10,140

 
(964
)
 
374,739

Commercial mortgage-backed securities
 
461,972

 
4,480

 
(5,461
)
 
460,991

Residential mortgage-backed securities:
 
 

 
 

 
 

 
 

Agency backed
 
801,586

 
13,362

 
(4,054
)
 
810,894

Non-agency backed
 
5,677

 
3

 
(31
)
 
5,649

Collateralized loan / debt obligation
 
617,392

 
9,323

 
(367
)
 
626,348

Asset backed securities
 
21,464

 
114

 
(28
)
 
21,550

Total fixed maturity securities
 
$
7,483,972

 
$
164,373

 
$
(26,809
)
 
$
7,621,536

Equity Securities:
 
 
 
 
 
 
 
 
Common stock
 
$
87,416

 
$
19,418

 
$
(2,294
)
 
$
104,540


11

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


 
As of December 31, 2016
 
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 September 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 $757,709 and $647,928 , respectively, during the three months ended September 30, 2017 and 2016 , and were approximately $1,897,690 and $1,648,193 , respectively, for the nine months ended September 30, 2017 and 2016 .

A summary of the Company’s available-for-sale fixed maturity securities as of September 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.
 
 
September 30, 2017
 
December 31, 2016
 
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
 Fair Value
Due in one year or less
 
$
185,841

 
$
186,532

 
$
319,275

 
$
319,882

Due after one through five years
 
1,748,551

 
1,788,962

 
2,956,429

 
2,998,711

Due after five through ten years
 
3,176,390

 
3,246,584

 
1,645,211

 
1,683,112

Due after ten years
 
465,099

 
474,026

 
437,452

 
432,702

Mortgage and asset backed securities
 
1,908,091

 
1,925,432

 
1,956,674

 
1,963,727

Total fixed maturity securities
 
$
7,483,972

 
$
7,621,536

 
$
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 available-for-sale fixed maturity and equity securities by length of time the security has continuously been in an unrealized loss position as of September 30, 2017 and December 31, 2016 :
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
As of September 30, 2017
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
257,511

 
$
(1,452
)
 
$
6,263

 
$
(76
)
 
$
263,774

 
$
(1,528
)
U.S. government agencies
 
43,352

 
(481
)
 

 

 
43,352

 
(481
)
Municipal bonds
 
291,908

 
(2,778
)
 
42,088

 
(994
)
 
333,996

 
(3,772
)
Foreign government
 
75,485

 
(1,315
)
 
9,258

 
(89
)
 
84,743

 
(1,404
)
Corporate bonds:
 
 
 
 
 
 
 
 
 
  

 
  

Finance
 
184,303

 
(1,589
)
 
65,061

 
(824
)
 
249,364

 
(2,413
)
Industrial
 
347,521

 
(4,169
)
 
86,507

 
(2,137
)
 
434,028

 
(6,306
)
Utilities
 
62,260

 
(494
)
 
23,913

 
(470
)
 
86,173

 
(964
)
Commercial mortgage-backed securities
 
252,831

 
(4,784
)
 
9,674

 
(677
)
 
262,505

 
(5,461
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
  

 
  

Agency backed
 
253,181

 
(3,998
)
 
2,264

 
(56
)
 
255,445

 
(4,054
)
Non-agency backed
 
3,206

 
(9
)
 
2,322

 
(22
)
 
5,528

 
(31
)
Collateralized loan / debt obligations
 
69,034

 
(367
)
 

 

 
69,034

 
(367
)
Asset backed securities
 
5,797

 
(6
)
 
1,008

 
(22
)
 
6,805

 
(28
)
Total fixed maturity securities
 
$
1,846,389

 
$
(21,442
)
 
$
248,358

 
$
(5,367
)
 
$
2,094,747

 
$
(26,809
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
$
16,245

 
$
(2,294
)
 
$

 
$

 
$
16,245

 
$
(2,294
)
  
 
 
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 1,499 and 2,125 securities at September 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 September 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 nine months ended September 30, 2017 .

14

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



(b) Trading Securities

The amortized cost, estimated fair value and gross unrealized gains and losses of trading securities as of September 30, 2017 and December 31, 2016 are presented in the tables below:
As of September 30, 2017
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
Fixed Maturity Securities
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
10,050

 
$

 
$
(140
)
 
$
9,910

Corporate bonds:
 
 
 
 
 
 
 
 
   Industrial
 
23,955

 
643

 
(2,699
)
 
21,899

   Utilities
 
295

 
70

 

 
365

Total Fixed Maturity Securities
 
$
34,300

 
$
713

 
$
(2,839
)
 
$
32,174

Common stock
 
$
88,746

 
$
3,960

 
$
(11,594
)
 
$
81,112


As of December 31, 2016
 
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 $70,518 and $47,177 , respectively, during the three months ended September 30, 2017 and 2016 , and were approximately $379,933 and $155,502 , respectively, during the nine months ended September 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 nine months ended September 30, 2017 and 2016 :

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net (losses) and gains recognized during the period on trading securities
 
$
(2,241
)
 
$
995

 
$
(17,481
)
 
$
3,428

Less: Net (losses) and gains recognized during the period on trading securities sold during the period
 
(1,584
)
 
812

 
(933
)
 
8,199

Unrealized (losses) and gains recognized during the reporting period on trading securities still held at the reporting date
 
$
(657
)
 
$
183

 
$
(16,548
)
 
$
(4,771
)


15

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


(c) Investment Income
 
Net investment income for the three and nine months ended September 30, 2017 and 2016 was derived from the following sources:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Fixed maturity securities, available-for-sale
 
$
60,478

 
$
59,712

 
$
187,128

 
$
152,140

Equity securities, available-for-sale
 
469

 
465

 
2,038

 
6,927

Fixed maturity securities, trading
 
473

 

 
1,505

 

Equity securities, trading
 
(141
)
 
(40
)
 
(121
)
 
(318
)
Cash and short term investments
 
5,695

 
410

 
8,977

 
2,182

Other invested assets (1)
 
(664
)
 

 
(15,665
)
 

 
 
66,310

 
60,547

 
183,862

 
160,931

Less:
 
 

 
 

 
 

 
 

Investment expenses
 
(5,207
)
 
(628
)
 
(10,208
)
 
(852
)
 
 
$
61,103

 
$
59,919

 
$
173,654

 
$
160,079

(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 nine months ended September 30, 2017 and 2016 :

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2017
 
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
15,577

 
$
(1,132
)
 
$
14,445

 
$
38,024

 
$
(3,188
)
 
$
34,836

Equity securities, available-for-sale
 
9,122

 
(295
)
 
8,827

 
21,633

 
(1,894
)
 
19,739

Fixed maturity securities, trading
 
1,723

 

 
1,723

 
6,695

 
(9,548
)
 
(2,853
)
Equity securities, trading
 
6,204

 
(10,168
)
 
(3,964
)
 
14,691

 
(29,319
)
 
(14,628
)
Other investments
 
3,489

 

 
3,489

 
19,516

 
(20
)
 
19,496

 
 
$
36,115

 
$
(11,595
)
 
$
24,520

 
$
100,559

 
$
(43,969
)
 
$
56,590

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2016
 
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities, available-for-sale
 
$
17,535

 
$
(2,582
)
 
$
14,953

 
$
57,346

 
$
(4,199
)
 
$
53,147

Equity securities, available-for-sale
 
553

 
(1,126
)
 
(573
)
 
1,821

 
(1,862
)
 
(41
)
Equity securities, trading
 
2,897

 
(1,902
)
 
995

 
17,824

 
(14,396
)
 
3,428

Other investments
 
3,449

 
(1,133
)
 
2,316

 
1,189

 
(2
)
 
1,187

Write-down of other invested assets
 

 
(6,440
)
 
(6,440
)
 

 
(19,977
)
 
(19,977
)
Write-down of equity securities, available-for-sale
 

 
(3,021
)
 
(3,021
)
 

 
(6,440
)
 
(6,440
)
 
 
$
24,434

 
$
(16,204
)
 
$
8,230

 
$
78,180

 
$
(46,876
)
 
$
31,304


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

16

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


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 investment grade securities. The fair values of the Company's restricted assets as of September 30, 2017 and December 31, 2016 are as follows:

 
 
September 30, 2017
 
December 31, 2016
Restricted cash and cash equivalents
 
$
879,478

 
$
713,338

Restricted investments - fixed maturity securities at fair value
 
2,861,413

 
2,126,216

Total restricted cash, cash equivalents, and investments
 
$
3,740,891

 
$
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 $56,181 and $36,394 as of September 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 September 30, 2017 , the Company had no outstanding repurchase agreements. 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 September 30, 2017 and December 31, 2016 :
 
As of September 30, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
Financial Assets:
 
 

 
 

 
 

 
 

U.S. treasury securities
 
$
328,795

 
$
328,795

 
$

 
$

U.S. government agencies
 
48,150

 

 
48,150