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Investments
 6 Months Ended
Jun. 30, 2019
Investments [Abstract]  
Investments Investments
The Company’s available-for-sale fixed maturity securities are summarized as follows:
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(in thousands)
June 30, 2019
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

State and municipal
$
130,215

 
$
8,041

 
$
(6
)
 
$
138,250

Residential mortgage-backed
249,452

 
2,212

 
(1,906
)
 
249,758

Corporate
590,233

 
16,672

 
(631
)
 
606,274

Commercial mortgage and asset-backed
216,771

 
3,808

 
(503
)
 
220,076

U.S. Treasury securities and obligations guaranteed by the U.S. government
114,250

 
1,454

 
(71
)
 
115,633

Redeemable preferred stock
2,025

 
26

 
—

 
2,051

Total fixed maturity securities, available-for-sale
$
1,302,946


$
32,213


$
(3,117
)

$
1,332,042

December 31, 2018
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

State and municipal
$
147,160

 
$
3,422

 
$
(1,287
)
 
$
149,295

Residential mortgage-backed
208,869

 
577

 
(5,337
)
 
204,109

Corporate
534,024

 
1,516

 
(10,772
)
 
524,768

Commercial mortgage and asset-backed
199,528

 
310

 
(2,813
)
 
197,025

U.S. Treasury securities and obligations guaranteed by the U.S. government
107,803

 
235

 
(845
)
 
107,193

Redeemable preferred stock
2,025

 
—

 
(213
)
 
1,812

Total fixed maturity securities, available-for-sale
$
1,199,409


$
6,060


$
(21,267
)

$
1,184,202


The amortized cost and fair value of available-for-sale investments in fixed maturity securities at June 30, 2019 are summarized, by contractual maturity, as follows:
 
Cost or
Amortized
Cost
 
Fair
Value
 
(in thousands)
One year or less
$
46,982

 
$
47,016

After one year through five years
481,646

 
490,856

After five years through ten years
210,431

 
218,335

After ten years
95,639

 
103,950

Residential mortgage-backed
249,452

 
249,758

Commercial mortgage and asset-backed
216,771

 
220,076

Redeemable preferred stock
2,025

 
2,051

Total
$
1,302,946

 
$
1,332,042

 
Actual maturities may differ for some securities because borrowers have the right to call or prepay obligations with or without penalties.
The following table shows the Company’s gross unrealized losses and fair value for available-for-sale securities aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
(in thousands)
June 30, 2019
 

 
 

 
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

 
 

 
 

State and municipal
$
170

 
$
—

 
$
2,317

 
$
(6
)
 
$
2,487

 
$
(6
)
Residential mortgage-backed
8,983

 
(32
)
 
109,153

 
(1,874
)
 
118,136

 
(1,906
)
Corporate
3,988

 
(6
)
 
67,981

 
(625
)
 
71,969

 
(631
)
Commercial mortgage and asset-backed
21,557

 
(81
)
 
47,797

 
(422
)
 
69,354

 
(503
)
U.S. Treasury securities and obligations guaranteed by the U.S. government
—

 
—

 
19,775

 
(71
)
 
19,775

 
(71
)
Total fixed maturity securities, available-for-sale
$
34,698


$
(119
)

$
247,023


$
(2,998
)

$
281,721


$
(3,117
)
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

 
 

 
 

State and municipal
$
19,733

 
$
(284
)
 
$
47,018

 
$
(1,003
)
 
$
66,751

 
$
(1,287
)
Residential mortgage-backed
49,180

 
(743
)
 
105,778

 
(4,594
)
 
154,958

 
(5,337
)
Corporate
243,384

 
(5,089
)
 
155,902

 
(5,683
)
 
399,286

 
(10,772
)
Commercial mortgage and asset-backed
106,423

 
(1,229
)
 
51,805

 
(1,584
)
 
158,228

 
(2,813
)
U.S. Treasury securities and obligations guaranteed by the U.S. government
17,618

 
(51
)
 
54,201

 
(794
)
 
71,819

 
(845
)
Redeemable preferred stock
1,812

 
(213
)
 
—

 
—

 
1,812

 
(213
)
Total fixed maturity securities, available-for-sale
$
438,150


$
(7,609
)

$
414,704


$
(13,658
)

$
852,854


$
(21,267
)

 
The Company held securities of 77 issuers that were in an unrealized loss position at June 30, 2019 with a total fair value of $281.7 million and gross unrealized losses of $3.1 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.
At June 30, 2019, 99.6% of the Company’s fixed maturity security portfolio was rated “BBB-” or better (“investment grade”) by Standard & Poor’s or received an equivalent rating from another nationally recognized rating agency. Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized rating agency at June 30, 2019 had an aggregate fair value of $5.3 million and an aggregate net unrealized gain of $48,000.
At March 31, 2019, management concluded that three fixed maturity securities from one issuer that we intended to sell at a loss in the second quarter were impaired. The Company recorded impairment losses on these securities of $271,000 in the three months ended March 31, 2019. Management concluded that none of the fixed maturity securities with an unrealized loss at June 30, 2019 or December 31, 2018 had experienced an other-than-temporary impairment. For fixed maturity securities available-for-sale that are not other-than-temporarily impaired at June 30, 2019, management does not intend to sell the securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.
Management concluded that two loans from one issuer in the Company's bank loan portfolio were impaired at June 30, 2019. At June 30, 2019, the impaired loans had a carrying value of $3.4 million, unpaid principal of $3.6 million, and an allowance for credit losses of $231,000. Management concluded that none of the loans in the Company's bank loan portfolio were impaired at December 31, 2018. The aggregate allowance for credit losses on impaired loans was $1.2 million at June 30, 2018 and $3.2 million at December 31, 2017.
At December 31, 2017, the Company held a participation in a loan with unpaid principal of $807,000 issued by a company that produces and supplies power to Puerto Rico through a power purchase agreement with Puerto Rico Electric Power Authority, a public corporation and governmental agency of the Commonwealth of Puerto Rico. Management concluded that an allowance
for credit losses should be established on the loan at December 31, 2017 to reduce its carrying value to $0. In the first quarter of 2018, the full outstanding principal on the loan was repaid and the Company recognized a realized gain of $807,000 on the repayment.
Bank loan participations generally have a credit rating that is below investment grade (i.e. below “BBB-” for Standard & Poor’s) at the date of purchase. These bank loans are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized rating agency. These bank loans include assignments of, and participations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets. Bank loans consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and other similar loans and investments. Management believed that it was probable at the time that these loans were acquired that the Company would be able to collect all contractually required payments receivable.
Generally, the accrual of interest on a bank loan participation is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A bank loan participation may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. Generally, bank loan participations are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest received on nonaccrual loans generally is reported as investment income. There were no bank loans on nonaccrual status at June 30, 2019 or December 31, 2018.
The allowance for credit losses is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management’s periodic evaluation of the adequacy of the allowance is based on consultations and advice of the Company’s independent investment manager, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions, and other relevant factors. When an observable market price for a loan is available, the Company has recorded an allowance equal to the difference between the fair value and the amortized cost of bank loans that it has determined to be impaired as a practical expedient for an estimate of probable future cash flows to be collected on those bank loans. Bank loans are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The average recorded investment in impaired bank loans was $1.7 million and $3.7 million during the six months ended June 30, 2019 and 2018, respectively. Investment income of $0 and $65,000, respectively, was recognized during the time within those periods that the loans were impaired. The Company recorded net realized investment losses of $231,000 and $1.8 million in the three and six months ended June 30, 2019, respectively, for changes in the fair value of impaired bank loans (net realized investment losses of $896,000 and $893,000 in three and six months ended June 30, 2018 respectively).

The Company’s net realized and unrealized gains and losses on investments are summarized as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Fixed maturity securities:
 

 
 

 
 

 
 

Gross realized gains
$
411

 
$
360

 
$
588

 
$
382

Gross realized losses
(80
)
 
(252
)
 
(485
)
 
(475
)
 
331


108


103


(93
)
Bank loan participations:
 

 
 

 
 

 
 

Gross realized gains
137

 
360

 
150

 
1,580

Gross realized losses
(1,308
)
 
(1,006
)
 
(3,000
)
 
(1,106
)
 
(1,171
)

(646
)

(2,850
)

474

Equity securities:
 

 
 

 
 

 
 

Gross realized gains
—

 
—

 
—

 
—

Gross realized losses
—

 
(47
)
 
(18
)
 
(62
)
Changes in fair values of equity securities
1,900

 
521

 
5,449

 
(1,189
)
 
1,900


474


5,431


(1,251
)
Short-term investments and other:
 

 
 

 
 

 
 

Gross realized gains
3

 
—

 
4

 
—

Gross realized losses
—

 
—

 
—

 
(4
)
 
3


—


4


(4
)
Total
$
1,063


$
(64
)

$
2,688


$
(874
)

  
Realized investment gains or losses are determined on a specific identification basis. 
The Company invests selectively in private debt and equity opportunities. These investments, which together comprise the Company’s other invested assets, are primarily focused in renewable energy, limited partnerships, and bank holding companies.
 
Carrying Value
 
Investment Income
 
June 30,
 
December 31,
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Renewable energy LLCs (a)
$
30,449

 
$
29,795

 
$
(13
)
 
$
530

 
$
908

 
$
1,741

Renewable energy notes receivable (b)
8,750

 
8,750

 
328

 
328

 
656

 
625

Limited partnerships (c)
26,720

 
29,276

 
728

 
1,092

 
2,797

 
1,319

Bank holding companies (d)
4,500

 
4,500

 
86

 
86

 
172

 
172

Total other invested assets
$
70,419


$
72,321


$
1,129


$
2,036


$
4,533


$
3,857

 
(a)
The Company’s Corporate and Other segment owns equity interests ranging from 2.6% to 32.2% in various LLCs whose principal objective is capital appreciation and income generation from owning and operating renewable energy production facilities (wind and solar). The LLCs are managed by an entity for which two of our directors serve as officers, and the Company’s Non-Executive Chairman has invested in certain of these LLCs. The equity method is used to account for the Company’s LLC investments. Income for the LLCs primarily reflects adjustments to the carrying values of investments in renewable energy projects to their determined fair values. The fair value adjustments are included in revenues for the LLCs. Expenses for the LLCs are not significant and are comprised of administrative and interest expenses. The Company received cash distributions from these investments totaling $253,000 and $2.1 million in the six months ended June 30, 2019 and 2018, respectively.
(b)
The Company's Corporate and Other segment has invested in notes receivable for renewable energy projects. At June 30, 2019, the Company holds an $8.8 million note issued by an entity for which two of our directors serve as officers. Interest on the note, which matures in 2021, is fixed at 15.0%. Interest income on the note was $328,000 and $656,000 for the three and six
months ended June 30, 2019, respectively ($328,000 and $625,000 for the three and six months ended June 30, 2018, respectively).
(c)
The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly-traded small cap equities, loans of middle market private equity sponsored companies, equity tranches of collateralized loan obligations (“CLOs”), and tranches of distressed home loans. Income from the partnerships is recognized under the equity method of accounting. The Company’s Corporate and Other segment held an investment in a limited partnership with a carrying value of $3.6 million at June 30, 2019. The Company recognized investment income of $480,000 and $208,000 on the investment for the six months ended June 30, 2019 and 2018, respectively. The Company’s Excess and Surplus Lines segment holds investments in limited partnerships of $23.2 million at June 30, 2019. Investment income of $2.3 million and $1.1 million was recognized on the investments for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $625,000 in these limited partnerships.
(d)
The Company's Corporate and Other segment holds $4.5 million of subordinated notes issued by a bank holding company for which the Company’s Non-Executive Chairman was previously the Lead Independent Director and an investor and for which one of the Company’s directors was an investor and is currently a lender (the "Bank Holding Company"). Interest on the notes, which mature on August 12, 2023, is fixed at 7.6% per annum. Interest income on the notes was $172,000 in both the six months ended June 30, 2019 and 2018, respectively.
At June 30, 2019 and December 31, 2018, the Company held an investment in a CLO where one of the underlying loans was issued by the Bank Holding Company. The investment, with a carrying value of $3.4 million at June 30, 2019, is classified as an available-for-sale fixed maturity.