7. Investments

Fixed income securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.

(a) A summary of the Company’s investment components is presented below:


	December 31
($ in thousands)	2019				2018
Fixed income securities, AFS (fair value):
U.S. Treasury securities	$	49,985	2.3	%	$	90,328	5.0	%
Government agency securities		6,531	0.3	%		-	‐	%
Corporate debt securities		1,338,812	61.8	%		1,192,430	66.3	%
Municipal debt obligations		79,815	3.7	%		6,085	0.3	%
ABS		73,582	3.4	%		83,581	4.7	%
CLO		179,549	8.3	%		156,913	8.7	%
CMBS		97,526	4.5	%		53,843	3.0	%
RMBS – non-agency		71,610	3.3	%		79,551	4.4	%
RMBS – agency		143,272	6.6	%		30,651	1.7	%
Total fixed income securities, AFS		2,040,682	94.2	%		1,693,382	94.1	%
Short-term investments		43,873	2.0	%		36,661	2.0	%
Commercial levered loans (amortized cost)		14,069	0.7	%		16,915	0.9	%
Limited partnerships and limited liability companies (fair value)		66,660	3.1	%		53,432	3.0	%
Total investments	$	2,165,284	100.0	%	$	1,800,390	100.0	%

At December 31, 2019 and 2018, 91.1% and 85.0% of the fair value of the Company’s fixed income portfolios were considered investment grade, respectively. The Company held approximately $181.0 million and $259.3 million in fixed income securities that were below investment grade as of December 31, 2019 and 2018, respectively.

(b) The gross unrealized gains and losses on AFS securities included in assets from continuing operations at December 31, 2019, are as follows:


	Cost/		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value
Fixed income securities:
U.S. Treasury securities	$	49,161	$	838	$	(14)	$	49,985
Government agency securities		6,522		23		(14)		6,531
Corporate debt securities		1,308,094		33,743		(3,025)		1,338,812
Municipal debt obligations		80,338		243		(766)		79,815
ABS		73,068		854		(340)		73,582
CLO		181,704		125		(2,280)		179,549
CMBS		95,810		1,863		(147)		97,526
RMBS - non-agency		62,343		9,458		(191)		71,610
RMBS - agency		142,363		1,256		(347)		143,272
Total fixed income securities	$	1,999,403	$	48,403	$	(7,124)	$	2,040,682

The gross unrealized gains and losses on AFS securities included in assets from continuing operations at December 31, 2018, are as follows:


	Cost/		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value
Fixed income securities:
U.S. Treasury securities	$	92,219	$	126	$	(2,017)	$	90,328
Corporate debt securities		1,231,352		1,216		(40,138)		1,192,430
Municipal debt obligations		6,238		—		(153)		6,085
ABS		82,603		1,095		(117)		83,581
CLO		161,421		160		(4,668)		156,913
CMBS		55,980		—		(2,137)		53,843
RMBS - non-agency		68,594		11,078		(121)		79,551
RMBS - agency		31,348		—		(697)		30,651
Total fixed income securities	$	1,729,755	$	13,675	$	(50,048)	$	1,693,382

(c) The following table summarizes all securities in an unrealized loss position at December 31, 2019, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:


	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	—	$	—	$	7,469	$	(14)	$	7,469	$	(14)
Government agency securities		3,192		(14)		—		—		3,192		(14)
Corporate debt securities		133,341		(2,509)		50,695		(516)		184,036		(3,025)
Municipal debt obligations		66,355		(766)		—		—		66,355		(766)
ABS		27,884		(175)		11,165		(165)		39,049		(340)
CLO		28,485		(338)		110,825		(1,942)		139,310		(2,280)
CMBS		18,307		(102)		6,053		(45)		24,360		(147)
RMBS - non-agency		2,173		(14)		2,418		(177)		4,591		(191)
RMBS - agency		10,450		(12)		12,367		(335)		22,817		(347)
Total	$	290,187	$	(3,930)	$	200,992	$	(3,194)	$	491,179	$	(7,124)

The following table summarizes all securities in an unrealized loss position at December 31, 2018, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:


	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	8,263	$	(82)	$	69,727	$	(1,935)	$	77,990	$	(2,017)
Corporate debt securities		393,931		(10,241)		710,482		(29,897)		1,104,413		(40,138)
Municipal debt obligations		—		—		6,085		(153)		6,085		(153)
ABS		25,258		(61)		4,249		(56)		29,507		(117)
CLO		146,004		(4,668)		—		—		146,004		(4,668)
CMBS		—		—		53,843		(2,137)		53,843		(2,137)
RMBS - non-agency		529		(13)		2,449		(108)		2,978		(121)
RMBS - agency		27,150		(513)		3,502		(184)		30,652		(697)
Total	$	601,135	$	(15,578)	$	850,337	$	(34,470)	$	1,451,472	$	(50,048)

The Company was holding 313 and 708 fixed income securities that were in an unrealized loss position at December 31, 2019 and 2018, respectively. The Company believes these unrealized losses are temporary, as they resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit risk related. OTTI charges are recognized as a realized loss to the extent that they are credit related, unless the Company has the intent to sell the security or it is more-likely-than not that the Company will be required to sell the security. In those circumstances, the security is written down to fair value with the entire amount of the write-down charged to earnings as a component of realized losses. The Company did not record any OTTI charges for the year ended December 31, 2019 and $1.5 million of OTTI charges for the year ended December 31, 2018, respectively, in the consolidated statements of operations.

(d) The amortized cost and fair value of fixed income securities, which excludes the Company’s structured securities portfolio, at December 31, 2019, by contractual maturity are shown below. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	December 31, 2019
	Amortized		Fair
($ in thousands)	Cost		Value
Due in one year or less	$	99,035	$	99,326
Due after one through five years		679,649		692,219
Due after five through ten years		507,803		523,276
Due after ten years		157,628		160,322
		1,444,115		1,475,143
Structured securities:
ABS		73,068		73,582
CLO		181,704		179,549
CMBS		95,810		97,526
RMBS - non-agency		62,343		71,610
RMBS - agency		142,363		143,272
Totals	$	1,999,403	$	2,040,682

The Company did not have any non-income producing fixed income investments for the years ended December 31, 2019 or 2018, respectively.

(e) The Company elected to account for its investments in limited partnership and limited liability companies of $66.7 million and $53.4 million at December 31, 2019 and 2018, respectively, at fair value. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income. The largest investment within the portfolio is the Pacific Investment Management Company LLC Tactical Opportunities fund, which is carried at $36.6 million at December 31, 2019.

The carrying values used for investment in limited partnerships and limited liability companies generally are established on the basis of the valuations provided monthly or quarterly by the managers of such investments. These valuations are determined based upon the valuation criteria established by the governing documents of such investments or utilized in the normal course of such manager’s business, which are reflective of fair value. Such valuations may differ significantly from the values that would have been used had available markets for these investments existed and the differences could be material.

The Company’s strategies for its investments in limited partnerships and limited liability companies include investments funds that employ diverse and fundamentally driven approach to investing which includes effective risk management, hedging strategies and leverage. The portfolio of investments in limited partnerships and limited liability companies consists of common stocks, real estate assets, options, swaps, derivative instruments and other structured products.

The limited partnerships and limited liability companies in which the Company invests sometimes impose limitations on the timing of withdrawals from the funds. The Company’s inability to withdraw its investment quickly from a particular limited partnership or a limited liability company that is performing poorly could result in losses and may affect liquidity. All of the Company’s limited partnerships and limited liability companies have timing limitations. Most limited partnerships and limited liability companies require a 90‑day notice period in order to withdraw funds. Some limited partnerships and limited liability companies may require a withdrawal only at the end of their fiscal year. The Company may also be subject to withdrawal fees in the event the limited partnerships and limited liability companies is sold within a minimum holding period, which may be up to one year. Many limited partnerships and limited liability companies have invoked gated provisions that allow the fund to disperse redemption proceeds to investors over an extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds from limited partnerships and limited liability companies.

(f) The Company invests in commercial loans, which are private placements. Loans are reported at the principal amount outstanding, reduced by unearned discounts, net deferred loan fees, and an allowance for loan losses. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. The allowance for loan losses related to impaired loans is determined based on the difference of the carrying value of loans and the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the loan’s observable market price. There was no allowance for loan losses at December 31, 2019 and 2018, respectively.

(g) Proceeds from sales and redemptions in AFS securities totaled $302.9 million, $255.2 million and $977.0 million for the years ended December 31, 2019, 2018 and 2017 respectively. Gross realized gains from sales and redemptions in AFS securities totaled $1.4 million, $0.6 million, and $5.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. Gross realized losses from sales and redemptions of AFS investments totaled $0.7 million, $2.2 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(h) Net investment income included in net income (loss) from continuing operations in the consolidated statements of operations from each major category of investments for the years ended December 31, 2019, 2018 and 2017, is as follows:


($ in thousands)	2019		2018		2017
Fixed income securities	$	66,975	$	55,765	$	33,467
Commercial levered loans		765		1,114		1,153
Net limited partnerships gains		3,101		1,081		3,240
Other		358		176		216
Total investment income		71,199		58,136		38,076
Less: investment income attributable to funds withheld liabilities		(655)		(912)		—
Less: expenses		(1,647)		(1,253)		(1,880)
Net investment income	$	68,897	$	55,971	$	36,196

(i) Included in investments at December 31, 2019 and 2018, are securities required to be held by the Company (or those that are on deposit) with various regulatory authorities as required by law with a fair value of $210.8 million and $188.6 million, respectively. Fair value and carrying value of assets in the amount of $367.1 million and $352.0 million, respectively, were on deposit in collateral agreements at December 31, 2019. Fair value and carrying value of assets in the amount of $358.5 million and $368.0 million, respectively, were on deposit in collateral agreements at December 31, 2018.

(j) The investment portfolio has exposure to market risks, which include the effect of adverse changes in interest rates, credit quality, limited partnership value and illiquid securities, including commercial loan values, on the portfolio. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Risks from investments in limited partnerships and limited liability companies and illiquid securities risks include the potential loss from the diminution in the value of the underlying investment of the limited partnerships and limited liability companies and the potential loss from changes in the fair value of commercial loans.