
	Amortized		Allowance for		Gross Unrealized						Fair
June 30, 2020	Cost		Credit Losses ⁽¹⁾		Gains		Losses		Value
U.S. Treasury	$	56,667	$	—	$	4,356	$	(1)	$	61,022
Federal agencies	558		—		7		—		565
States and political subdivision bonds	290,985		—		14,483		(135)		305,333
Foreign government	1,763		—		82		—		1,845
Corporate bonds	2,039,050		(1,203)		136,824		(1,232)		2,173,439
Residential mortgage-backed securities	1,096,583		—		53,893		(14)		1,150,462
Commercial mortgage-backed securities	590,047		—		54,361		(989)		643,419
Asset-backed securities	43,015		—		961		(979)		42,997
Structured securities	210,398		—		52		(8,001)		202,449
Total	$	4,329,066	$	(1,203)	$	265,019	$	(11,351)	$	4,581,531
NGHC	$	4,024,349	$	(1,054)	$	248,284	$	(10,821)	$	4,260,758
Reciprocal Exchanges	304,717		(149)		16,735		(530)		320,773
Total	$	4,329,066	$	(1,203)	$	265,019	$	(11,351)	$	4,581,531


	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 June 30, 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
June 30, 2020	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	59,142	$	59,763	$	—	$	—	$	59,142	$	59,763
Due after one year through five years	1,071,646		1,135,486		133,703		140,137		1,205,349		1,275,623
Due after five years through ten years	919,621		984,263		72,474		77,260		992,095		1,061,523
Due after ten years	327,157		331,714		15,678		16,030		342,835		347,744
Mortgage-backed securities	1,646,783		1,749,532		82,862		87,346		1,729,645		1,836,878
Total	$	4,024,349	$	4,260,758	$	304,717	$	320,773	$	4,329,066	$	4,581,531


	Less Than 12 Months						12 Months or More						Total
June 30, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury	$	5,196	$	(1)	$	—	$	—	$	5,196	$	(1)
States and political subdivision bonds	23,423		(135)		—		—		23,423		(135)

Corporate bonds	44,373		(1,232)		—		—		44,373		(1,232)
Residential mortgage-backed securities	1,794		(14)		—		—		1,794		(14)
Commercial mortgage-backed securities	22,382		(989)		—		—		22,382		(989)
Asset-backed securities	6,911		(965)		183		(14)		7,094		(979)
Structured securities	130,046		(3,924)		66,928		(4,077)		196,974		(8,001)
Total	$	234,125	$	(7,260)	$	67,111	$	(4,091)	$	301,236	$	(11,351)
NGHC	$	224,513	$	(6,907)	$	63,288	$	(3,914)	$	287,801	$	(10,821)
Reciprocal Exchanges	9,612		(353)		3,823		(177)		13,435		(530)
Total	$	234,125	$	(7,260)	$	67,111	$	(4,091)	$	301,236	$	(11,351)


	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. There were 267 and 1,337 individual security lots at June 30, 2020, and December 31, 2019, respectively, that accounted for the gross unrealized loss. As of June 30, 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 in the energy sector as of March 31, 2020; however, market improvements have resulted in $1,724 of the allowance being reversed as of June 30, 2020. 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. The Company did not record any new credit loss during the three months ended June 30, 2020.


	Six Months Ended June 30, 2020
	Corporate bonds		Total
Balance, beginning of the period	$	—	$	—
Additions to the allowance for credit losses on securities not previously recorded ⁽¹⁾	2,927		2,927
Decreases to the allowance for credit losses ⁽¹⁾	(1,724)		(1,724)
Balance, end of the period	$	1,203	$	1,203


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Cash and short-term investments	$	30	$	847	$	308	$	2,344
Debt securities, available-for-sale	30,491		30,725		62,593		60,192
Other, net (related parties - three months - $1,042 and $1,919; six months - $(1,483) and $2,173)	1,709		4,733		941		8,241
Investment income	$	32,230	$	36,305	$	63,842	$	70,777
Investment expenses	(1,055)		(1,174)		(2,424)		(2,201)
Net investment income	$	31,175	$	35,131	$	61,418	$	68,576
NGHC	$	29,163	$	33,007	$	57,223	$	64,282
Reciprocal Exchanges	2,012		2,124		4,195		4,294
Net investment income	$	31,175	$	35,131	$	61,418	$	68,576

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Debt securities, available-for-sale:
Gross gains	$	1,773	$	187	$	2,046	$	323
Gross losses	(80)		(118)		(89)		(374)
Expected credit losses	1,724		—		(1,203)		—
Net realized gain (loss) on debt securities, available-for-sale	3,417		69		754		(51)
Other, net ⁽¹⁾	1,741		(5,299)		(2,457)		(5,157)
Net realized gain (loss) on investments	$	5,158	$	(5,230)	$	(1,703)	$	(5,208)
NGHC	$	5,511	$	(5,274)	$	(557)	$	(4,508)
Reciprocal Exchanges	(353)		44		(1,146)		(700)
Net realized gain (loss) on investments	$	5,158	$	(5,230)	$	(1,703)	$	(5,208)

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
June 30, 2020	Amortized Cost		Fair Value		Percentage		Amortized Cost		Fair Value		Percentage
U.S. Treasury	$	43,785	$	47,164	1.1	%	$	12,882	$	13,858	4.3	%
AAA	505,813		541,881		12.7	%	21,788		23,044		7.2	%
AA, AA+, AA-	1,558,195		1,644,162		38.7	%	105,625		110,717		34.6	%
A, A+, A-	1,034,029		1,090,822		25.6	%	100,935		107,450		33.5	%
BBB, BBB+, BBB-	858,991		913,538		21.4	%	62,587		64,944		20.2	%
BB+ and lower	23,536		23,191		0.5	%	900		760		0.2	%
Total	$	4,024,349	$	4,260,758	100.0	%	$	304,717	$	320,773	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	%


June 30, 2020	AAA		AA+, AA, AA-		A+,A,A-		BBB+, BBB, BBB-		BB+ or Lower		Fair Value		% of Corporate Bonds Portfolio
Financial Institutions	—	%	3.2	%	25.9	%	11.6	%	0.1	%	$	887,613	40.8	%
Industrials	0.6	%	3.5	%	22.0	%	29.8	%	0.4	%	1,221,976		56.3	%
Utilities/Other	—	%	—	%	1.6	%	1.3	%	—	%	63,850		2.9	%
Total	0.6	%	6.7	%	49.5	%	42.7	%	0.5	%	$	2,173,439	100.0	%
NGHC	0.3	%	5.7	%	44.6	%	39.7	%	0.5	%	$	1,973,551	90.8	%
Reciprocal Exchanges	0.3	%	1.0	%	4.9	%	3.0	%	—	%	199,888		9.2	%
Total	0.6	%	6.7	%	49.5	%	42.7	%	0.5	%	$	2,173,439	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.


	June 30, 2020		December 31, 2019
Equity method investments (related parties - $105,454 and $109,612)	$	139,890	$	143,511
Notes receivable (related parties - $130,004 and $129,229)⁽¹⁾	130,059		129,299
Long-term Certificates of Deposit (CDs), at cost	150		20,150
Investments, at fair value	8,732		9,365
Investments, at cost or amortized cost	8,904		8,962
Total	$	287,735	$	311,287

Equity method investments represent limited liability companies and limited partnership investments in real estate. Investments at fair value include publicly traded equity securities 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 net investment income. Investments at cost or amortized cost, represent limited partnerships, loans and trusts. The Company believes its exposure to risks associated with these investments is generally limited to the investment carrying amounts.

The Company holds a variable interest in the following entities but is not the primary beneficiary of such VIE’s. 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 June 30, 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 June 30, 2020, and December 31, 2019, was $46,048 and $49,477, respectively. For the three months ended June 30, 2020, and 2019, the Company recorded equity in earnings from the LSC Entity of $757 and $1,145, respectively. For the six months ended June 30, 2020, and 2019, the Company recorded equity in earnings (losses) from the LSC Entity of $(3,429) and $1,731, 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 June 30, 2020, and December 31, 2019, was $9,466 and $9,365, respectively. For the three months ended June 30, 2020, and 2019, the Company recorded equity in earnings (losses) from 800 Superior, LLC of $(21) and $309, respectively. For the six months ended June 30, 2020, and 2019, the Company recorded equity in earnings from 800 Superior, LLC of $101 and $16, 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 June 30, 2020, and December 31, 2019, was $5,882 and $5,317, respectively. For the three months ended June 30, 2020, and 2019, the Company recorded equity in earnings (losses) from North Dearborn of $405 and $(38), respectively, and received distributions of $225 and $270, respectively. For the six months ended June 30, 2020, and 2019, the Company recorded equity in earnings (losses) from North Dearborn of $835 and $(66), respectively, and received distributions of $270 in both periods.

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 June 30, 2020, and December 31, 2019, was $1,453 and $1,074, respectively. For the three months ended June 30, 2020, and 2019, the Company recorded equity in earnings from 4455 LBJ Freeway, LLC of $219 and $105, respectively. For the six months ended June 30, 2020, and 2019, the Company recorded equity in earnings from 4455 LBJ Freeway, LLC of $379 and $128, 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 June 30, 2020, and December 31, 2019, was $42,605 and $44,379, respectively. For the three months ended June 30, 2020, and 2019, the Company recorded equity in losses from Illinois Center of $(1,520) and $(790), respectively, and made contributions of $0 and $1,125, respectively. For the six months ended June 30, 2020, and 2019, the Company recorded equity in losses from Illinois Center of $(1,774) and $(2,012), respectively, and made contributions of $0 and $1,125, respectively.