Atlas Financial Holdings, Inc. - 10-K filing on 2015-03-10

Investments

12 Months Ended

Dec. 31, 2014

INVESTMENTS

The amortized cost, gross unrealized gains and losses and fair value for Atlas’ investments in fixed maturities, equities and other investments are as follows (all amounts in '000s):



December 31, 2014			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed Income:
U.S.	Government		$	20,506	$	32	$	159	$	20,379
	Corporate
		Banking/financial services	15,551		215		31		15,735
		Consumer goods	3,478		50		13		3,515
		Capital goods	14,285		354		52		14,587
		Energy	2,829		—		84		2,745
		Telecommunications/utilities	5,297		67		8		5,356
		Health care	1,948		—		16		1,932
	Total Corporate		43,388		686		204		43,870
		Mortgage backed - agency	30,772		250		160		30,862
		Mortgage backed - commercial	16,774		79		269		16,584
	Total Mortgage Backed		47,546		329		429		47,446
	Other asset backed		15,261		20		27		15,254
Total Fixed Income			$	126,701	$	1,067	$	819	$	126,949
Equities			2,220		12		139		2,093
Other investments			14,366		—		—		14,366
Totals			$	143,287	$	1,079	$	958	$	143,408



December 31, 2013			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed Income:
U.S.	Government		$	22,067	$	36	$	620	$	21,483
	Corporate
		Banking/financial services	16,655		238		247		16,646
		Consumer goods	5,044		28		77		4,995
		Capital goods	12,951		208		180		12,979
		Energy	3,928		—		114		3,814
		Telecommunications/utilities	4,979		50		55		4,974
		Health care	2,025		—		87		1,938
	Total Corporate		45,582		524		760		45,346
		Mortgage backed - agency	28,877		120		910		28,087
		Mortgage backed - commercial	22,131		53		614		21,570
	Total Mortgage Backed		51,008		173		1,524		49,657
	Other asset backed		12,093		15		9		12,099
Total Fixed Income			$	130,750	$	748	$	2,913	$	128,585
Equities			258		—		—		258
Other investments			1,234		—		—		1,234
Totals			$	132,242	$	748	$	2,913	$	130,077

Atlas' other investments are comprised of various limited partnerships that invest in income-producing real estate, equities, or catastrophe bonds. Atlas' interest is not deemed minor and the investments are accounted for under the equity method of accounting. At December 31, 2014, the carrying value was approximately $14.4 million versus approximately $1.2 million at December 31, 2013. The carrying value of these investments is Atlas' share of the net book value for each limited partnership, an amount that approximates fair value. Atlas receives dividends on a routine basis which approximate the income earned on the limited partnership that invests in income-producing real estate.

The following tables summarize carrying amounts of fixed income securities by contractual maturity (all amounts in '000s). As certain securities and debentures have the right to call or prepay obligations, the actual settlement dates may differ from contractual maturity.



At December 31, 2014	One year or less			One to five years			Five to ten years			More than ten years			Total
Fixed income securities	$	1,875		$	54,349		$	23,166		$	47,559		$	126,949
Percentage of total	1.5		%	42.8		%	18.2		%	37.5		%	100.0		%



At December 31, 2013	One year or less			One to five years			Five to ten years			More than ten years			Total
Fixed income securities	$	7,571		$	43,693		$	28,080		$	49,241		$	128,585
Percentage of total	5.9		%	34.0		%	21.8		%	38.3		%	100.0		%

Management performs a quarterly analysis of Atlas’ investment holdings to determine if declines in fair value are other than temporary. The analysis includes some or all of the following procedures as deemed appropriate by management:


◦	identifying all security holdings in unrealized loss positions that have existed for at least six months or other circumstances that management believes may impact the recoverability of the security;


◦	obtaining a valuation analysis from third party investment managers regarding these holdings based on their knowledge, experience and other market based valuation techniques;


◦	reviewing the trading range of certain securities over the preceding calendar period;


◦	assessing if declines in market value are other than temporary for debt security holdings based on credit ratings from third party security rating agencies; and


◦	determining the necessary provision for declines in market value that are considered other than temporary based on the analyses performed.

The risks and uncertainties inherent in the assessment methodology utilized to determine declines in market value that are other than temporary include, but may not be limited to, the following:


◦	the opinion of professional investment managers could be incorrect;


◦	the past trading patterns of individual securities may not reflect future valuation trends;


◦	the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company’s financial situation; and


◦	the debt service pattern of non-investment grade securities may not reflect future debt service capabilities and may not reflect a company’s unknown underlying financial problems.

As a result of the above analysis performed by management to determine declines in fair value that may be other than temporary, there was an impairment related to an equity position that was recorded in 2013. The Company reduced the fair value of its equity position by $311,000 and recorded an adjustment through the Consolidated Statements of Income and Comprehensive Income to account for this other than temporary impairment.

As of December 31, 2014, a portion of Atlas' portfolio was in an unrealized loss position. This occurred primarily due to a rise in interest rates during the second half of 2013. Securities in an unrealized loss position for greater than twelve months as of December 31, 2014 were $235,000. There were no securities in an unrealized loss position for greater than twelve months as of December 31, 2013. The total fair value of the securities currently in an unrealized loss position were $63.5 million at December 31, 2014 with a total temporary impairment relating to unrealized losses of $958,000. Atlas has the ability and intent to hold these securities until their fair value is recovered. Therefore, Atlas does not expect the near term change in market value of these securities to be realized.

The following table summarizes the components of net investment income for the years ended December 31, 2014 and 2013 (all amounts in '000s):



		2014			2013
Total investment income
	Interest income	$	2,848		$	2,716
	Dividends	20			9
	Income (loss) from other investments	693			(84		)
Investment expenses		(451		)	(500		)
Net investment income		$	3,110		$	2,141

The following table summarizes the components of net investment realized gains for the years ended December 31, 2014 and 2013:



	2014		2013
Fixed income securities	$	376	$	351
Equities	6		178
Net investment realized gains	$	382	$	529

Collateral pledged:

At December 31, 2014 and 2013, bonds and term deposits with a fair value of $14.5 million were on deposit with state and provincial regulatory authorities. Also, from time to time, the Company pledges securities to third parties to collateralize liabilities incurred under its policies of insurance. At December 31, 2014, the amount of such pledged securities was $6.8 million versus $7.9 million at December 31, 2013. Collateral pledging transactions are conducted under terms that are common and customary to standard collateral pledging and are subject to the Company’s standard risk management controls. These assets and investment income related thereto remain the property of the Company while pledged. Neither the state and/or provincial regulatory authorities nor any other third party has the right to re-pledge or sell said securities held on deposit.