The amortized cost and estimated fair value of investments were as follows as of September 30, 2019 and December 31, 2018:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Other than temporary impairments recognized in AOCI (1)
As of September 30, 2019
Fixed maturities:
U.S. treasury and agency obligations	$	158,914	$	6,624	$	(56	)	$	165,482	$	—
Obligations of states and political subdivisions		54,905		1,146		(19	)		56,032		—
Mortgage-backed securities		202,699		3,855		(167	)		206,387		—
Asset-backed securities		182,502		1,267		(407	)		183,362		—
Commercial mortgage-backed securities		238,637		6,529		(313	)		244,853		—
Corporate bonds		265,244		9,613		(119	)		274,738		—
Foreign corporate bonds		101,083		2,510		(12	)		103,581		—
Total fixed maturities		1,203,984		31,544		(1,093	)		1,234,435		—
Equity Securities		262,367		—		—			262,367		—
Other invested assets		40,052		—		—			40,052		—
Total	$	1,506,403	$	31,544	$	(1,093	)	$	1,536,854	$	-

(1)	Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Other than temporary impairments recognized in AOCI (1)
As of December 31, 2018
Fixed maturities:
U.S. treasury and agency obligations	$	79,766	$	252	$	(1,163	)	$	78,855	$	—
Obligations of states and political subdivisions		95,629		322		(338	)		95,613		—
Mortgage-backed securities		119,327		313		(1,786	)		117,854		—
Asset-backed securities		185,430		336		(2,012	)		183,754		—
Commercial mortgage-backed securities		206,236		338		(3,852	)		202,722		—
Corporate bonds		452,692		243		(12,080	)		440,855		—
Foreign corporate bonds		118,750		44		(3,292	)		115,502		—
Total fixed maturities		1,257,830		1,848		(24,523	)		1,235,155		—
Common stock		124,747		—		—			124,747		—
Other invested assets		50,753		—		—			50,753		—
Total	$	1,433,330	$	1,848	$	(24,523	)	$	1,410,655	$	—

(1)	Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).

As of September 30, 2019, the Company’s investments in equity securities consist of $129.4 million of common stock, mutual funds that invest in fixed maturities of $79.3 million, and mutual funds that invest in common stocks of $53.6 million.

The Company evaluates its investments in mutual funds and limited partnerships on a quarterly basis to ensure that they are appropriately diversified. Excluding U.S. treasuries, agency bonds, mutual funds, and limited partnerships, the Company did not hold any debt or equity investments in a single issuer that was in excess of 3% of shareholders' equity at September 30, 2019 and December 31, 2018.

The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at September 30, 2019, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of September 30, 2019.

	Less than 12 months					12 months or longer (1)					Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. treasury and agency obligations	$	4,108	$	(23	)	$	13,006	$	(33	)	$	17,114	$	(56	)
Obligations of states and political subdivisions		8,947		(19	)		—		—			8,947		(19	)
Mortgage-backed securities		16,537		(141	)		3,331		(26	)		19,868		(167	)
Asset-backed securities		27,336		(110	)		34,135		(297	)		61,471		(407	)
Commercial mortgage-backed securities		23,225		(114	)		25,944		(199	)		49,169		(313	)
Corporate bonds		5,139		(50	)		8,616		(69	)		13,755		(119	)
Foreign corporate bonds		203		(1	)		7,750		(11	)		7,953		(12	)
Total fixed maturities	$	85,495	$	(458	)	$	92,782	$	(635	)	$	178,277	$	(1,093	)

(1)

Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. The Company has analyzed these securities and has determined that they are not other than temporarily impaired.

	Less than 12 months					12 months or longer (1)					Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. treasury and agency obligations	$	—	$	—		$	67,185	$	(1,163	)	$	67,185	$	(1,163	)
Obligations of states and political subdivisions		22,802		(57	)		28,179		(281	)		50,981		(338	)
Mortgage-backed securities		36,858		(408	)		60,838		(1,378	)		97,696		(1,786	)
Asset-backed securities		96,085		(1,342	)		50,506		(670	)		146,591		(2,012	)
Commercial mortgage-backed securities		44,596		(878	)		127,557		(2,974	)		172,153		(3,852	)
Corporate bonds		285,997		(8,791	)		115,052		(3,289	)		401,049		(12,080	)
Foreign corporate bonds		56,543		(1,795	)		47,494		(1,497	)		104,037		(3,292	)
Total fixed maturities	$	542,881	$	(13,271	)	$	496,811	$	(11,252	)	$	1,039,692	$	(24,523	)

(1)

The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each fixed maturity security in an unrealized loss position to assess whether the security has a credit loss. Specifically, the Company considers credit rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which the Company determines that a credit loss is likely are subjected to further analysis through discounted cash flow testing to estimate the credit loss to be recognized in earnings, if any. The specific methodologies and significant assumptions used by asset class are discussed below. Upon identification of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is considered other than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securities and the magnitude and length of time that the fair value of such securities is below cost.

For fixed maturities, the factors considered in reaching the conclusion that a decline below cost is other than temporary include, among others, whether:

(6) the investment has an unrealized loss and was identified by the Company’s investment manager as an investment to be sold before recovery or maturity; and

(7) the investment failed cash flow projection testing to determine if anticipated principal and interest payments will be realized.

According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recorded in other comprehensive income, net of taxes.

The following is a description, by asset type, of the methodology and significant inputs that the Company used to measure the amount of credit loss recognized in earnings, if any:

U.S. treasury and agency obligations – As of September 30, 2019, gross unrealized losses related to U.S. treasury and agency obligations were $0.056 million. Of this amount, $0.033 million have been in an unrealized loss position for twelve months or greater and are rated AA+. Macroeconomic and market analysis is conducted in evaluating these securities. Consideration is given to the interest rate environment, duration and yield curve management of the portfolio, sector allocation and security selection.

Mortgage-backed securities (“MBS”) – As of September 30, 2019, gross unrealized losses related to mortgage-backed securities were $0.167 million. Of this amount, $0.026 million have been in an unrealized loss position for twelve months or greater. All unrealized losses for twelve months or greater are related to securities rated AA+ or better. Mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not just national macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporated into the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan level within each deal. The model utilizes HPI-adjusted current LTV, payment history, loan terms, loan modification history, and borrower characteristics as inputs to generate expected cash flows and principal loss for each bond under various scenarios.

Asset backed securities (“ABS”) - As of September 30, 2019, gross unrealized losses related to asset backed securities were $0.407 million. Of this amount, $0.297 million have been in an unrealized loss position for twelve months or greater. 99.3% of the unrealized losses for twelve months or greater are related to securities rated A or better. The weighted average credit enhancement for the Company’s asset backed portfolio is 26.5. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. Every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes an in-depth credit analysis of the originator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate this ratio are loss severities, recovery lags, and no advances on principal and interest.

Commercial mortgage-backed securities (“CMBS”) - As of September 30, 2019, gross unrealized losses related to the CMBS portfolio were $0.313 million. Of this amount, $0.199 million have been in an unrealized loss position for twelve months or greater and are rated AA+ or better. The weighted average credit enhancement for the Company’s CMBS portfolio is 39.1. This represents the percentage of pool losses that can occur before a mortgage-backed security will incur its first dollar of principal loss. For the Company’s CMBS portfolio, a loan level analysis is utilized where every underlying CMBS loan is re-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. Each loan is analyzed over time using a series of tests to determine if a credit event will occur during the life of the loan. Inherent in this process are several economic scenarios and their corresponding rent/vacancy and capital market states. The five primary credit events that frame the analysis include loan modifications, term default, balloon default, extension, and ability to pay off at balloon. The resulting output is the expected loss adjusted cash flows for each bond under the base case and distressed scenarios.

Corporate bonds - As of September 30, 2019, gross unrealized losses related to corporate bonds were $0.119 million. Of this amount, $0.069 million have been in an unrealized loss position for twelve months or greater and are rated investment grade or better. The analysis for this asset class includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.

Foreign bonds – As of September 30, 2019, gross unrealized losses related to foreign bonds were $0.012 million. Of this amount, $0.011 million have been in an unrealized loss position for twelve months or greater and rated A- or better. For this asset class, detailed financial models are maintained that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.

The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the quarters and nine months ended September 30, 2019 and 2018:

The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quarters and nine months ended September 30, 2019 and 2018 for which a portion of the OTTI loss was recognized in other comprehensive income.

	Quarters Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2019		2018		2019		2018
Balance at beginning of period	$	13	$	13	$	13	$	13
Additions where no OTTI was previously recorded		—		—		—		—
Additions where an OTTI was previously recorded		—		—		—		—
Reductions for securities for which the company intends to sell or more likely than not will be required to sell before recovery		—		—		—		—
Reductions reflecting increases in expected cashflows to be collected		—		—		—		—
Reductions for securities sold during the period		—		—		—		—
Balance at end of period	$	13	$	13	$	13	$	13

Accumulated other comprehensive income, net of tax, as of September 30, 2019 and December 31, 2018 was as follows:

The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the quarters and nine months ended September 30, 2019 and 2018:

Quarter Ended September 30, 2019 (Dollars In Thousands)	Unrealized Gains and Losses on Available for Sale Securities			Foreign Currency Items			Accumulated Other Comprehensive Income
Beginning balance, net of tax	$	17,745		$	(1,203	)	$	16,542
Other comprehensive income before reclassification, before tax		10,767			200			10,967
Amounts reclassified from accumulated other comprehensive (income), before tax		(946	)		—			(946	)
Other comprehensive income, before tax		9,821			200			10,021
Income tax (expense)		(1,249	)		—			(1,249	)
Ending balance, net of tax	$	26,317		$	(1,003	)	$	25,314

Quarter Ended September 30, 2018 (Dollars In Thousands)	Unrealized Gains and Losses on Available for Sale Securities			Foreign Currency Items			Accumulated Other Comprehensive Income
Beginning balance, net of tax	$	(21,926	)	$	(549	)	$	(22,475	)
Other comprehensive (loss) before reclassification, before tax		(1,945	)		(454	)		(2,399	)
Amounts reclassified from accumulated other comprehensive loss, before tax		835			—			835
Other comprehensive (loss), before tax		(1,110	)		(454	)		(1,564	)
Income tax benefit		210			—			210
Ending balance, net of tax	$	(22,826	)	$	(1,003	)	$	(23,829	)

Nine Months Ended September 30, 2019 (Dollars In Thousands)	Unrealized Gains and Losses on Available for Sale Securities			Foreign Currency Items			Accumulated Other Comprehensive Income
Beginning balance, net of tax	$	(19,897	)	$	(1,334	)	$	(21,231	)
Other comprehensive income before reclassification, before tax		55,960			331			56,291
Amounts reclassified from accumulated other comprehensive (income), before tax		(2,834	)		—			(2,834	)
Other comprehensive income, before tax		53,126			331			53,457
Income tax (expense)		(6,912	)		—			(6,912	)
Ending balance, net of tax	$	26,317		$	(1,003	)	$	25,314

Nine Months Ended September 30, 2018 (Dollars In Thousands)	Unrealized Gains and Losses on Available for Sale Securities			Foreign Currency Items			Accumulated Other Comprehensive Income
Beginning balance, net of tax	$	8,272		$	711		$	8,983
Other comprehensive (loss) before reclassification, before tax		(25,928	)		(1,554	)		(27,482	)
Amounts reclassified from accumulated other comprehensive loss, before tax		1,660			—			1,660
Other comprehensive (loss), before tax		(24,268	)		(1,554	)		(25,822	)
Income tax benefit		3,038			—			3,038
Cumulative effect adjustment, net of tax		(9,868	)		(160	)		(10,028	)
Ending balance, net of tax	$	(22,826	)	$	(1,003	)	$	(23,829	)

The reclassifications out of accumulated other comprehensive income for the quarters and nine months ended September 30, 2019 and 2018 were as follows:

(Dollars in thousands)		Amounts Reclassified from Accumulated Other Comprehensive Income
		Quarters Ended September 30,
Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2019			2018
Unrealized gains and losses on available for sale securities	Other net realized investment (gains) losses	$	(946	)	$	811
	Other than temporary impairment losses on investments		—			24
	Total before tax		(946	)		835
	Income tax expense (benefit)		99			(118	)
	Unrealized gains and losses on available for sale securities, net of tax		(847	)		717
Foreign currency items	Other net realized investment (gains) losses		—			—
	Income tax expense		—			—
	Foreign currency items, net of tax		—			—
Total reclassifications	Total reclassifications, net of tax	$	(847	)	$	717

		Amounts Reclassified from Accumulated Other Comprehensive Income
(Dollars in thousands)		Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2019			2018
Unrealized gains and losses on available for sale securities	Other net realized investment (gains) losses	$	(4,731	)	$	1,265
	Other than temporary impairment losses on investments		1,897			395
	Total before tax		(2,834	)		1,660
	Income tax expense (benefit)		169			(257	)
	Unrealized gains and losses on available for sale securities, net of tax		(2,665	)		1,403
Foreign currency items	Other net realized investment (gains) losses		—			—
	Income tax expense		—			—
	Foreign currency items, net of tax		—			—
Total reclassifications	Total reclassifications, net of tax	$	(2,665	)	$	1,403

The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2019 and 2018 were as follows:

	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Fixed maturities:
Gross realized gains	$	1,054		$	329		$	5,765		$	373
Gross realized losses		(108	)		(1,164	)		(2,931	)		(2,033	)
Net realized gains (losses)		946			(835	)		2,834			(1,660	)
Equity Securities:
Gross realized gains		1,681			5,789			26,936			12,116
Gross realized losses		(3,146	)		(946	)		(9,076	)		(9,582	)
Net realized gains (losses)		(1,465	)		4,843			17,860			2,534
Derivatives:
Gross realized gains		341			1,690			341			8,457
Gross realized losses		(2,512	)		(379	)		(9,745	)		(1,498	)
Net realized gains (losses) (1)		(2,171	)		1,311			(9,404	)		6,959
Total net realized investment gains (losses)	$	(2,690	)	$	5,319		$	11,290		$	7,833

(1)	Includes periodic net interest settlements related to the derivatives of $0.3 million and $0.4 million for the quarters ended September 30, 2019 and 2018, respectively, and $0.7 million and $1.5 million for the nine months ended September 30, 2019 and 2018, respectively.

New accounting guidance regarding equity securities was implemented on January 1, 2018 which requires companies to disclose realized gains and losses for equity securities still held at period end and gains and losses from securities sold during the period. The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of September 30, 2019 and 2018:

The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the nine months ended September 30, 2019 and 2018 were as follows:

The sources of net investment income for the quarters and nine months ended September 30, 2019 and 2018 were as follows:

	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Fixed maturities	$	8,806		$	9,520		$	27,692		$	27,236
Equity securities		1,704			1,006			4,384			3,010
Cash and cash equivalents		372			285			1,242			814
Other invested assets		1,280			1,631			1,394			5,194
Total investment income		12,162			12,442			34,712			36,254
Investment expense		(814	)		(692	)		(2,319	)		(2,146	)
Net investment income	$	11,348		$	11,750		$	32,393		$	34,108

The Company’s total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2019 and 2018 were as follows:

	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Net investment income	$	11,348		$	11,750		$	32,393		$	34,108
Net realized investment gains (losses)		(2,690	)		5,319			11,290			7,833
Change in unrealized holding gains and losses		10,021			(1,564	)		53,457			(25,822	)
Net realized and unrealized investment returns		7,331			3,755			64,747			(17,989	)
Total investment return	$	18,679		$	15,505		$	97,140		$	16,119
Total investment return % ₍₁₎		1.2	%		1.0	%		6.2	%		1.1	%
Average investment portfolio ₍₂₎	$	1,585,165		$	1,541,975		$	1,562,177		$	1,533,825

(1)	Not annualized.

(2)	Average of total cash and invested assets, net of receivable/payable for securities purchased and sold, as of the beginning and end of the period.

As of September 30, 2019, the Company did not own fixed maturity securities that were non-income producing for the preceding twelve months. As of December 31, 2018, the Company owned fixed maturity securities with a market value of $0.4 million that were non-income producing for the preceding twelve months.

As of September 30, 2019, the Company held insurance enhanced collateralized mortgage obligations, commercial mortgage-backed and credit securities with a market value of approximately $49.1 million. Approximately 0.5 million of these securities were tax-free municipal bonds, which represented less than 0.1% of the Company’s total cash and invested assets, net of payable/ receivable for securities purchased and sold. These securities had an average rating of “AA.” None of these bonds are pre-refunded with U.S. treasury securities, nor would they have carried a lower credit rating had they not been insured.

A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including the pre-refunded bonds that are escrowed in U.S. government obligations, as of September 30, 2019, is as follows:

In addition to the tax-free municipal bonds, the Company held $48.6 million of insurance enhanced bonds, which represented approximately 3.0% of the Company’s total invested assets, net of receivable/payable for securities purchased and sold. The insurance enhanced bonds are comprised of $19.4 million of taxable municipal bonds, $29.1 million of commercial mortgage-backed securities, and $0.1 million of collateralized mortgage obligations. The financial guarantors of the Company’s $48.6 million of insurance enhanced commercial-mortgage-backed, taxable municipal securities, and collateralized mortgage obligations include Municipal Bond Insurance Association ($4.4 million), Assured Guaranty Corporation ($12.8 million), Federal Home Loan Mortgage Corporation ($29.1 million), Ambac Financial Group ($2.2 million) and Federal Deposit Insurance Corporation ($0.1 million).

The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by the Company at September 30, 2019.

Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of September 30, 2019 and December 31, 2018:

A Variable Interest Entity (VIE) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results.

The Company has variable interests in two VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments.

The fair value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $14.7 million and $17.9 million as of September 30, 2019 and December 31, 2018, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $28.9 million and $32.1 million at September 30, 2019 and December 31, 2018, respectively. The fair value of a second VIE that also invests in distressed securities and assets was $25.3 million and $32.9 million at September 30, 2019 and December 31, 2018, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $54.3 million and $53.4 million at September 30, 2019 and December 31, 2018, respectively.