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Investments
 12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [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)
December 31, 2019
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

State and municipal
$
159,894

 
$
7,949

 
$
(742
)
 
$
167,101

Residential mortgage-backed
261,524

 
3,244

 
(622
)
 
264,146

Corporate
611,304

 
21,306

 
(389
)
 
632,221

Commercial mortgage and asset-backed
249,309

 
3,954

 
(806
)
 
252,457

U.S. Treasury securities and obligations guaranteed by the U.S. government
114,477

 
1,229

 
(39
)
 
115,667

Redeemable preferred stock
2,025

 
9

 
—

 
2,034

Total fixed maturity securities, available-for-sale
$
1,398,533

 
$
37,691

 
$
(2,598
)
 
$
1,433,626

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 December 31, 2019 are summarized, by contractual maturity, as follows:
 
Cost or
Amortized
Cost
 
Fair
Value
 
(in thousands)
One year or less
$
81,705

 
$
82,048

After one year through five years
456,076

 
466,952

After five years through ten years
219,717

 
228,596

After ten years
128,177

 
137,393

Residential mortgage-backed
261,524

 
264,146

Commercial mortgage and asset-backed
249,309

 
252,457

Redeemable preferred stock
2,025

 
2,034

Total
$
1,398,533

 
$
1,433,626

 
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)
December 31, 2019
 

 
 

 
 

 
 

 
 

 
 

Fixed maturity securities:
 

 
 

 
 

 
 

 
 

 
 

State and municipal
$
30,028

 
$
(741
)
 
$
667

 
$
(1
)
 
$
30,695

 
$
(742
)
Residential mortgage-backed
23,632

 
(78
)
 
37,363

 
(544
)
 
60,995

 
(622
)
Corporate
45,550

 
(365
)
 
9,933

 
(24
)
 
55,483

 
(389
)
Commercial mortgage and asset-backed
46,434

 
(406
)
 
56,720

 
(400
)
 
103,154

 
(806
)
U.S. Treasury securities and obligations guaranteed by the U.S. government
8,474

 
(22
)
 
7,168

 
(17
)
 
15,642

 
(39
)
Total fixed maturity securities, available-for-sale
$
154,118

 
$
(1,612
)
 
$
111,851

 
$
(986
)
 
$
265,969

 
$
(2,598
)
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 112 issuers that were in an unrealized loss position at December 31, 2019 with a total fair value of $266.0 million and gross unrealized losses of $2.6 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.
At December 31, 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.
Management concluded that none of the fixed maturity securities with an unrealized loss at December 31, 2019, 2018, and 2017 experienced an other-than-temporary impairment. Management does not intend to sell available-for-sale 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.
At December 31, 2017, management concluded that one equity security, based on the severity and duration of impairment, had experienced an other-than-temporary impairment. Accordingly, the Company recorded an impairment loss of $1.5 million in 2017. Management concluded that none of the other equity securities with an unrealized loss at December 31, 2017 had experienced an other-than-temporary impairment.
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.
Management concluded that seven loans from six issuers in the Company's bank loan portfolio were impaired at December 31, 2019. At December 31, 2019, the impaired loans had a carrying value of $6.9 million, unpaid principal of $14.3 million, and an allowance for credit losses of $7.2 million, $5.1 million of which related to two loans from one issuer who is experiencing liquidity concerns resulting from revenue declines and poor growth prospects in its most profitable segment.
Management concluded that none of the loans in the Company's bank loan portfolio were impaired as of December 31, 2018. At December 31, 2017, the aggregate allowance for credit losses was $3.2 million on five impaired loans with a total carrying value of $5.1 million and unpaid principal of $8.4 million. At December 31, 2017, impairments in the bank loan portfolio largely reflect the impact of declining energy prices on the market values of loans to oil and gas companies in the energy sector.
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. Management concluded that an allowance for credit losses should be established on the loan at December 31, 2017 to reduce its carrying value to zero. 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.
The average recorded investment in impaired bank loans was $3.5 million, $2.6 million, and $5.8 million during the years ended December 31, 2019, 2018, and 2017, respectively, and investment income of $293,000, $125,000, and $300,000 was recognized during the time that the loans were impaired. The Company recorded losses of $8.9 million, $858,000, and $2.4 million during the years ended December 31, 2019, 2018, and 2017, respectively, for changes in the fair value of impaired bank loans.
At December 31, 2019, unamortized discounts on bank loan participations were $2.4 million, and unamortized premiums were $4,000. At December 31, 2018, unamortized discounts on bank loan participations were $1.8 million, and unamortized premiums were $17,000.
Major categories of the Company’s net investment income are summarized as follows:
​
Year Ended December 31,
​
2019
 
2018
 
2017
​
(in thousands)
Fixed maturity securities
$
39,875

 
$
34,129

 
$
26,833

Bank loan participations
19,772

 
18,279

 
17,388

Equity securities
5,262

 
5,240

 
5,045

Other invested assets
6,254

 
5,165

 
14,079

Cash, cash equivalents, restricted cash equivalents, and short-term investments
9,210

 
2,677

 
1,704

Gross investment income
80,373

 
65,490

 
65,049

Investment expense
(4,721
)
 
(4,234
)
 
(3,930
)
Net investment income
$
75,652

 
$
61,256

 
$
61,119

 
The Company’s net realized and unrealized losses and gains on investments are summarized as follows:
​
Year Ended December 31,
​
2019
 
2018
 
2017
​
(in thousands)
Fixed maturity securities:
 
 
 
 
 
Gross realized gains
$
1,575

 
$
422

 
$
840

Gross realized losses
(494
)
 
(976
)
 
(512
)
​
1,081

 
(554
)
 
328

Equity securities:
 
 
 
 
 
Gross realized gains
11

 
—

 
429

Gross realized losses
(232
)
 
(62
)
 
(1,591
)
Changes in fair values of equity securities
6,257

 
(5,970
)
 
—

​
6,036

 
(6,032
)
 
(1,162
)
Bank loan participations:
 
 
 
 
 
Gross realized gains
846

 
2,279

 
2,407

Gross realized losses
(10,902
)
 
(1,166
)
 
(3,557
)
​
(10,056
)
 
1,113

 
(1,150
)
Short-term investments and other:
 
 
 
 
 
Gross realized gains
21

 
—

 
1

Gross realized losses
(1
)
 
(6
)
 
(6
)
​
20

 
(6
)
 
(5
)
Total
$
(2,919
)
 
$
(5,479
)
 
$
(1,989
)

The following table summarizes the change in the Company’s available-for-sale gross unrealized gains or losses by investment type:
​
Year Ended December 31,
​
2019
 
2018
 
2017
​
(in thousands)
Change in gross unrealized gains (losses):
 
 
 
 
 
Fixed maturity securities
$
50,300

 
$
(22,643
)
 
$
6,571

Equity securities
—

 
—

 
5,356

Total
$
50,300

 
$
(22,643
)
 
$
11,927

 
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
​
December 31,
 
Year Ended December 31,
​
2019
 
2018
 
2019
 
2018
 
2017
​
(in thousands)
 
(in thousands)
Renewable energy LLCs(a)
$
31,219

 
$
29,795

 
$
2,181

 
$
2,974

 
$
10,578

Renewable energy notes receivable(b)
8,750

 
8,750

 
1,313

 
1,282

 
526

Limited partnerships(c)
16,741

 
29,276

 
2,417

 
566

 
2,632

Bank holding companies(d)
4,500

 
4,500

 
343

 
343

 
343

Total other invested assets
$
61,210

 
$
72,321

 
$
6,254

 
$
5,165

 
$
14,079

(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 one of our directors and one of our recent former directors serve as officers, and the Company’s Executive Chairman and Chief Executive Officer 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 $757,000 and $5.8 million for the years ended December 31, 2019 and 2018, respectively.
​(b)
The Company's Corporate and Other segment has invested in notes receivable for renewable energy projects. At December 31, 2019 and 2018, the Company held one $8.8 million note issued by an entity for which one of our directors and one of our recent former directors serve as officers. Interest on the note, which matures in 2021, is fixed at 15%. Interest income on the note was $1.3 million, $1.3 million, and $526,000 for the years ended December 31, 2019, 2018, and 2017, 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 $3.4 million and $3.1 million at December 31, 2019 and 2018, and recognized investment income of $327,000, $70,000, and $394,000 for the years ended December 31, 2019, 2018 and 2017, respectively. The Company’s Excess and Surplus Lines segment holds investments in limited partnerships of $13.3 million and $26.2 million at December 31, 2019 and 2018, respectively. Investment income of $2.1 million, $496,000, and $2.2 million were recognized on these investments for the years ended December 31, 2019, 2018, and 2017, respectively. At December 31, 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 Executive Chairman and Chief Executive Officer 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 in 2023, is fixed at 7.6% per annum. Interest income on the notes was $343,000 in each of the years ended December 31, 2019, 2018 and 2017.
The Company previously held common shares issued by the Bank Holding Company. Realized gains of $409,000 were recognized on the sale of the common shares for the year ended December 31, 2017.
At December 31, 2019 and 2018, the Company held an investment in a collateralized loan obligation (CLO) where one of the underlying loans was issued by the Bank Holding Company. The investment, with a carrying value of $3.2 million and $4.2 million at December 31, 2019 and 2018, is classified as an available-for-sale fixed maturity.
The Company maintains fixed maturity securities, short-term investments, accrued investment income, and cash and cash equivalents amounting to $464.5 million at December 31, 2019 in trust accounts or on deposit as collateral for outstanding letters of credit issued as security to third-party reinsureds on reinsurance assumed by JRG Re.
At December 31, 2019 and 2018, cash and investments with a fair value of $36.6 million and $25.5 million, respectively, were on deposit with state insurance departments to satisfy regulatory requirements.
At December 31, 2019, the Company held no investments in securitizations of alternative-A mortgages or sub-prime mortgages.