
	Amortized		Allowance for		Gross Unrealized						Fair
March 31, 2020	Cost		Credit Losses ⁽¹⁾		Gains		Losses		Value
U.S. Treasury	$	56,656	$	—	$	4,398	$	—	$	61,054
Federal agencies	3,907		—		14		—		3,921
States and political subdivision bonds	292,734		—		8,931		(32)		301,633
Foreign government	1,762		—		—		(38)		1,724
Corporate bonds	1,922,412		(2,927)		35,738		(31,790)		1,923,433
Residential mortgage-backed securities	1,206,548		—		44,174		(1,416)		1,249,306
Commercial mortgage-backed securities	583,502		—		29,723		(1,856)		611,369
Asset-backed securities	48,993		—		261		(1,348)		47,906
Structured securities	209,680		—		—		(27,772)		181,908
Total	$	4,326,194	$	(2,927)	$	123,239	$	(64,252)	$	4,382,254
NGHC	$	4,014,997	$	(2,629)	$	115,574	$	(59,431)	$	4,068,511
Reciprocal Exchanges	311,197		(298)		7,665		(4,821)		313,743
Total	$	4,326,194	$	(2,927)	$	123,239	$	(64,252)	$	4,382,254


	Amortized		Gross Unrealized						Fair
December 31, 2019	Cost		Gains		Losses		Value
U.S. Treasury	$	65,037	$	1,992	$	(23)	$	67,006
Federal agencies	3,907		8		—		3,915
States and political subdivision bonds	298,345		4,778		(1,441)		301,682
Foreign government	1,762		40		—		1,802
Corporate bonds	1,859,736		59,184		(2,357)		1,916,563
Residential mortgage-backed securities	1,265,830		15,747		(4,117)		1,277,460
Commercial mortgage-backed securities	585,044		27,261		(112)		612,193
Asset-backed securities	74,465		1,194		(48)		75,611
Structured securities	222,565		226		(2,665)		220,126
Total	$	4,376,691	$	110,430	$	(10,763)	$	4,476,358
NGHC	$	4,057,501	$	104,951	$	(10,343)	$	4,152,109
Reciprocal Exchanges	319,190		5,479		(420)		324,249
Total	$	4,376,691	$	110,430	$	(10,763)	$	4,476,358

The amortized cost and fair value of available-for-sale debt securities held as of March 31, 2020, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	NGHC						Reciprocal Exchanges						Total
March 31, 2020	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	58,383	$	58,583	$	110	$	110	$	58,493	$	58,693
Due after one year through five years	1,002,735		1,006,418		127,214		128,065		1,129,949		1,134,483
Due after five years through ten years	983,649		977,567		79,997		78,303		1,063,646		1,055,870
Due after ten years	219,712		209,612		15,351		15,015		235,063		224,627
Mortgage-backed securities	1,750,518		1,816,331		88,525		92,250		1,839,043		1,908,581
Total	$	4,014,997	$	4,068,511	$	311,197	$	313,743	$	4,326,194	$	4,382,254


	Less Than 12 Months						12 Months or More						Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
States and political subdivision bonds	$	7,204	$	(28)	$	908	$	(4)	$	8,112	$	(32)
Foreign government	1,724		(38)		—		—		1,724		(38)
Corporate bonds	891,346		(31,790)		—		—		891,346		(31,790)
Residential mortgage-backed securities	41,121		(1,416)		—		—		41,121		(1,416)
Commercial mortgage-backed securities	55,768		(1,856)		—		—		55,768		(1,856)
Asset-backed securities	32,912		(1,326)		233		(22)		33,145		(1,348)
Structured securities	123,710		(14,710)		58,198		(13,062)		181,908		(27,772)
Total	$	1,153,785	$	(51,164)	$	59,339	$	(13,088)	$	1,213,124	$	(64,252)
NGHC	$	1,027,271	$	(46,838)	$	55,834	$	(12,593)	$	1,083,105	$	(59,431)
Reciprocal Exchanges	126,514		(4,326)		3,505		(495)		130,019		(4,821)
Total	$	1,153,785	$	(51,164)	$	59,339	$	(13,088)	$	1,213,124	$	(64,252)


	Less Than 12 Months						12 Months or More						Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury	$	19,903	$	(23)	$	500	$	—	$	20,403	$	(23)

States and political subdivision bonds	106,103		(1,415)		2,580		(26)		108,683		(1,441)

Corporate bonds	586,817		(2,253)		5,976		(104)		592,793		(2,357)
Residential mortgage-backed securities	410,484		(4,074)		3,983		(43)		414,467		(4,117)
Commercial mortgage-backed securities	18,250		(105)		748		(7)		18,998		(112)
Asset-backed securities	5,406		(29)		920		(19)		6,326		(48)
Structured securities	40,979		(94)		109,880		(2,571)		150,859		(2,665)
Total	$	1,187,942	$	(7,993)	$	124,587	$	(2,770)	$	1,312,529	$	(10,763)
NGHC	$	1,104,244	$	(7,654)	$	117,681	$	(2,689)	$	1,221,925	$	(10,343)
Reciprocal Exchanges	83,698		(339)		6,906		(81)		90,604		(420)
Total	$	1,187,942	$	(7,993)	$	124,587	$	(2,770)	$	1,312,529	$	(10,763)

The Company’s debt securities portfolio is sensitive to interest rate fluctuations, which impact the fair value of individual securities. Unrealized losses on debt securities reported above were primarily caused by the effects of the interest rate environment and the market impacts of COVID-19.

There were 1,663 and 1,337 individual security lots at March 31, 2020 and December 31, 2019, respectively, that accounted for the gross unrealized loss. As of March 31, 2020 and December 31, 2019, the unrealized losses for those securities in unrealized loss positions for a period of twelve or more consecutive months were not greater than or equal to 25% of their amortized cost. The Company recorded a credit loss allowance of $2,927 on seven securities related to the energy sector. Some of the factors considered in assessing credit loss and impairment of fixed maturities due to credit-related factors include: (1) the magnitude of the unrealized loss in relation to the amortized cost; (2) the credit rating of the issuing entity and market or issuer events that could impact the issuer’s ability to repay the debt security; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that the Company will be required to sell the investment prior to an anticipated recovery in value.


	Three Months Ended March 31,
	2020		2019
Cash and short-term investments	$	278	$	1,497
Debt securities	32,102		29,467
Other, net (related parties - $(2,525) and $254)	(768)		3,508
Investment income	$	31,612	$	34,472
Investment expenses	(1,369)		(1,027)
Net investment income	$	30,243	$	33,445
NGHC	$	28,060	$	31,275
Reciprocal Exchanges	2,183		2,170
Net investment income	$	30,243	$	33,445

The table below indicates realized gains and losses on investments. Other, net includes realized gains and losses from short-term and other investments and foreign exchange. Purchases and sales of investments are recorded on a trade date basis. Realized gains and losses are determined based on the specific identification method.


	Three Months Ended March 31,
	2020		2019
Debt securities, available-for-sale:
Gross gains	$	273	$	136
Gross losses	(9)		(256)
Credit allowance	(2,927)		—
Net realized loss on debt securities, available-for-sale	(2,663)		(120)
Other, net ⁽¹⁾	(4,198)		142
Net realized gain (loss) on investments	$	(6,861)	$	22
NGHC	$	(6,068)	$	766
Reciprocal Exchanges	(793)		(744)
Net realized gain (loss) on investments	$	(6,861)	$	22

The tables below summarize the credit quality of debt securities, as rated by Standard & Poor’s (“S&P”). If a security is not rated by S&P, an S&P equivalent is determined based on ratings from similar rating agencies. Securities that are not rated are included in the “BB+ and lower” category.


	NGHC										Reciprocal Exchanges
March 31, 2020	Amortized Cost		Fair Value		Percentage		Amortized Cost		Fair Value		Percentage
U.S. Treasury	$	43,695	$	47,084	1.2	%	$	12,961	$	13,970	4.5	%
AAA	528,158		543,778		13.4	%	20,845		21,169		6.7	%
AA, AA+, AA-	1,618,321		1,675,017		41.2	%	115,089		118,870		37.9	%
A, A+, A-	966,417		960,982		23.6	%	108,416		108,375		34.5	%
BBB, BBB+, BBB-	830,937		817,798		20.1	%	52,986		50,862		16.2	%
BB+ and lower	27,469		23,852		0.5	%	900		497		0.2	%
Total	$	4,014,997	$	4,068,511	100.0	%	$	311,197	$	313,743	100.0	%


	NGHC										Reciprocal Exchanges
December 31, 2019	Amortized Cost		Fair Value		Percentage		Amortized Cost		Fair Value		Percentage
U.S. Treasury	$	52,108	$	53,599	1.3	%	$	12,929	$	13,407	4.1	%
AAA	515,869		537,508		12.9	%	20,947		21,555		6.6	%
AA, AA+, AA-	1,677,787		1,697,220		40.9	%	120,113		121,720		37.5	%
A, A+, A-	954,312		976,468		23.5	%	116,747		119,041		36.7	%
BBB, BBB+, BBB-	795,594		823,239		19.8	%	48,021		48,093		14.8	%
BB+ and lower	61,831		64,075		1.6	%	433		433		0.3	%
Total	$	4,057,501	$	4,152,109	100.0	%	$	319,190	$	324,249	100.0	%


March 31, 2020	AAA		AA+, AA, AA-		A+,A,A-		BBB+, BBB, BBB-		BB+ or Lower		Fair Value		% of Corporate Bonds Portfolio
Financial Institutions	—	%	3.5	%	26.0	%	12.5	%	0.3	%	$	813,631	42.3	%
Industrials	0.7	%	2.6	%	22.5	%	29.3	%	0.3	%	1,065,463		55.4	%
Utilities/Other	—	%	—	%	1.0	%	1.3	%	—	%	44,339		2.3	%
Total	0.7	%	6.1	%	49.5	%	43.1	%	0.6	%	$	1,923,433	100.0	%
NGHC	0.3	%	4.9	%	43.9	%	40.5	%	0.6	%	$	1,734,990	90.2	%
Reciprocal Exchanges	0.4	%	1.2	%	5.6	%	2.6	%	—	%	188,443		9.8	%
Total	0.7	%	6.1	%	49.5	%	43.1	%	0.6	%	$	1,923,433	100.0	%


December 31, 2019	AAA		AA+, AA, AA-		A+,A,A-		BBB+, BBB, BBB-		BB+ or Lower		Fair Value		% of Corporate Bonds Portfolio
Financial Institutions	—	%	3.6	%	25.0	%	12.1	%	0.3	%	$	785,910	41.0	%
Industrials	0.7	%	2.7	%	24.1	%	29.0	%	0.1	%	1,083,959		56.6	%
Utilities/Other	—	%	—	%	1.0	%	1.4	%	—	%	46,694		2.4	%
Total	0.7	%	6.3	%	50.1	%	42.5	%	0.4	%	$	1,916,563	100.0	%
NGHC	0.3	%	5.1	%	44.0	%	40.0	%	0.4	%	$	1,720,962	89.8	%
Reciprocal Exchanges	0.4	%	1.2	%	6.1	%	2.5	%	—	%	195,601		10.2	%
Total	0.7	%	6.3	%	50.1	%	42.5	%	0.4	%	$	1,916,563	100.0	%

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 held primarily in the form of cash or certain high grade securities.


	March 31, 2020		December 31, 2019
Securities on deposit with state regulatory authorities	$	81,809	$	74,061
Restricted investments to trusts in certain reinsurance transactions	42,369		49,502
Total restricted investments	$	124,178	$	123,563


	March 31, 2020		December 31, 2019
Equity method investments (related parties - $105,839 and $109,612)	$	140,897	$	143,511
Notes receivable (related parties - $130,004 and $129,229)⁽¹⁾	130,067		129,299
Long-term Certificates of Deposit (CDs), at cost	150		20,150
Investments, at fair value	7,661		9,365
Investments, at cost or amortized cost	8,908		8,962
Total	$	287,683	$	311,287

Equity method investments represent limited liability companies and limited partnership investments in real estate. Investments at fair value include publicly traded equities and the Company’s right to receive the excess servicing spread related to servicing rights, for which the Company has elected the fair value option with changes in fair value recorded in earnings. Investments at cost or amortized cost, represent limited partnerships, loans and trusts. The Company believes its exposure to risk associated with these investments is generally limited to the investment carrying amounts.

Other than investments at fair value, the Company’s other investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

The Company holds a variable interest in the following entities but is not the VIE’s primary beneficiary. The Company accounts for these entities using the equity method of accounting. The Company believes its exposure to risk associated with these investments is generally limited to the investment carrying amounts.

The Company has a 50% ownership interest in an entity (the “LSC Entity”) initially formed to acquire life settlement contracts, with AmTrust owning the remaining 50%. The LSC Entity used the contributed capital to pay premiums and purchase policies. A life settlement contract is a contract between the owner of a life insurance policy and a third party who obtains the ownership and beneficiary rights of the underlying life insurance policy. The LSC Entity has a 30% noncontrolling equity interest in a limited partnership managed by a third party. As of March 31, 2020, the LSC Entity directly held one life settlement contract. The life settlement contract is accounted for using the fair value method.

The Company’s equity interest in the LSC Entity as of March 31, 2020 and December 31, 2019, was $45,291 and $49,477, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded equity in earnings (losses) from the LSC Entity of $(4,186) and $586, respectively.

The Company holds an investment in 800 Superior, LLC, a limited liability company that owns an office building in Cleveland, Ohio, with AmTrust. AmTrust has been appointed managing member of 800 Superior, LLC. The Company and AmTrust each have a 50% ownership interest in 800 Superior, LLC.

The Company’s equity interest in 800 Superior, LLC as of March 31, 2020 and December 31, 2019 was $9,487 and $9,365, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded equity in earnings (losses) from 800 Superior, LLC of $122 and $(293), respectively. The Company paid 800 Superior, LLC $761 and $742 in rent for the three months ended March 31, 2020 and 2019, respectively.

The Company holds an investment in North Dearborn Building Company, L.P. (“North Dearborn”), a limited partnership that owns an office building in Chicago, Illinois. AmTrust is also a limited partner in North Dearborn, and the general partner is NA Advisors GP LLC (“NA Advisors”), a related party, owned by Karfunkel family members which is managed by an unrelated third party. The Company and AmTrust each hold a 45% limited partnership interest in North Dearborn, while NA Advisors holds a 10% general partnership interest and a 10% profit interest, which NA Advisors pays to the unrelated third-party manager. North Dearborn appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building.

The Company’s equity interest in North Dearborn as of March 31, 2020 and December 31, 2019 was $5,702 and $5,317, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded equity in earnings (losses) from North Dearborn of $430 and $(28), respectively, and received distributions of $45 and $0, respectively.

The Company holds an investment in 4455 LBJ Freeway, LLC, a limited liability company that owns an office building in Dallas, Texas, with AmTrust. AmTrust has been appointed managing member of 4455 LBJ Freeway, LLC. The Company and AmTrust each have a 50% ownership interest in 4455 LBJ Freeway, LLC.

The Company’s equity interest in 4455 LBJ Freeway, LLC as of March 31, 2020 and December 31, 2019 was $1,234 and $1,074, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded equity in earnings (losses) from 4455 LBJ Freeway, LLC of $160 and $23, respectively. The Company paid 4455 LBJ Freeway, LLC $613 and $555 in rent for the three months ended March 31, 2020 and 2019, respectively.

The Company holds an investment in Illinois Center Building, L.P. (“Illinois Center”), a limited partnership that owns an office building in Chicago, Illinois. AmTrust and ACP Re are also limited partners in Illinois Center and the general partner is NA Advisors. The Company and AmTrust each hold a 37.5% limited partnership interest in Illinois Center, while ACP Re holds a 15.0% limited partnership interest. NA Advisors holds a 10.0% general partnership interest and a 10.0% profit interest, which NA Advisors pays to the unrelated third-party manager. Illinois Center appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building.

The Company’s equity interest in Illinois Center as of March 31, 2020 and December 31, 2019 was $44,125 and $44,379, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded equity in earnings (losses) from Illinois Center of $(254) and $(1,222), respectively.