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Investments (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

The following tables summarize the unrealized positions for available-for-sale debt securities, disaggregated by major security type.


	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

⁽¹⁾ Represents the amount of impairment that has resulted from credit-related factors recorded in net gain (loss) on investments.


	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

Available-for-Sale Debt Securities by Contractual Maturity

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

Gross Unrealized Losses

The tables below summarize the gross unrealized losses on debt securities classified as available-for-sale, by length of time the security has continuously been in an unrealized loss position.


	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)

Debt Securities, Available-for-sale, Allowance for Credit Loss

The following tables display the roll forward of the allowance for credit losses:


	Three Months Ended June 30, 2020
	Corporate bonds		Total
Balance, beginning of the period	$	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


	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

⁽¹⁾ Current period increases or decreases for expected losses are recorded in net gain (loss) on investments.

Investment Income

The components of net investment income consisted of the following:


	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

Net Realized Gains (Losses)

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)

⁽¹⁾ Includes gains and losses on publicly traded equity securities and foreign currency.

Credit Quality of Investments

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	%

The tables below summarize the investment quality of the corporate bond holdings and industry concentrations.


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	%

Cash, Cash Equivalents, Restricted Cash and Restricted Investments

Cash, cash equivalents, and restricted cash are as follows:


	June 30, 2020		December 31, 2019
Cash and cash equivalents	$	297,282	$	135,942
Restricted cash and cash equivalents	37,726		28,521
Total cash, cash equivalents and restricted cash	$	335,008	$	164,463

Restricted investments are as follows:


	June 30, 2020		December 31, 2019
Securities on deposit with state regulatory authorities	$	81,484	$	74,061
Restricted investments to trusts in certain reinsurance transactions	40,845		49,502
Total restricted investments	$	122,329	$	123,563

Other Investments

The table below summarizes the composition of other investments:


	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

⁽¹⁾See Note 15, “Related Party Transactions” for additional information.