5. Investments

The Company’s investment portfolio consists of fixed maturity securities, commercial levered loans, limited partnerships and limited liability companies, non-redeemable preferred stock securities, and short-term investments. Fixed maturity securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), collateralized loan obligations (“CLO”), asset-backed securities (“ABS”) and corporate debt securities. Corporate debt securities may include investment grade and below investment grade bonds, bank loan investments and redeemable preferred stock securities. The Company has designated its investments in fixed maturity securities as available-for-sale (“AFS”) securities.

(a) The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at March 31, 2020, are as follows:


	Cost/				Gross		Gross
	Amortized		Credit Loss		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Allowance		Gains		Losses		Value
Fixed maturity securities:
U.S. Treasury securities	$	40,679	$	—	$	2,643	$	—	$	43,322
Government agency securities		27,998		—		591		—		28,589
Corporate debt securities		1,317,091		(293)		22,167		(37,278)		1,301,687
Municipal debt obligations		103,271		—		813		(3,443)		100,641
ABS		49,205		(1)		26		(3,210)		46,020
CLO		177,411		(6)		—		(19,842)		157,563
CMBS		94,816		—		1,603		(1,945)		94,474
RMBS - non-agency		92,189		(116)		3,411		(4,851)		90,633
RMBS - agency		135,809		—		3,738		(56)		139,491
Total fixed maturity securities	$	2,038,469	$	(416)	$	34,992	$	(70,625)	$	2,002,420

The gross unrealized gains and losses on fixed maturity 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 maturity 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 maturity securities	$	1,999,403	$	48,403	$	(7,124)	$	2,040,682

(b) The following table summarizes the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at March 31, 2020, grouped by asset class and by duration of time in a continuous unrealized 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
Corporate debt securities	$	495,656	$	(31,005)	$	83,577	$	(6,273)	$	579,233	$	(37,278)
Municipal debt obligations		66,579		(3,278)		5,584		(165)		72,163		(3,443)
ABS		33,474		(2,604)		8,425		(606)		41,899		(3,210)
CLO		59,491		(5,053)		98,072		(14,789)		157,563		(19,842)
CMBS		26,478		(1,935)		3,031		(10)		29,509		(1,945)
RMBS - non-agency		45,431		(3,042)		12,115		(1,809)		57,546		(4,851)
RMBS - agency		6,585		(55)		1		(1)		6,586		(56)
Total fixed maturity securities	$	733,694	$	(46,972)	$	210,805	$	(23,653)	$	944,499	$	(70,625)

The following table summarizes the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at December 31, 2019, grouped by asset class and by duration of time in a continuous unrealized 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 fixed maturity securities	$	290,187	$	(3,930)	$	200,992	$	(3,194)	$	491,179	$	(7,124)

(c) The Company was holding 500 and 313 fixed maturity securities that were in an unrealized loss position as of March 31, 2020 and December 31, 2019, respectively. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

The Company analyzes fixed maturity securities in an unrealized loss position for credit losses if they meet the following criteria: (i) they are trading in a significant loss position, (ii) there are principal or interest payment issues, (iii) there have been negative credit events with respect to the issuer, or (iv) there have been negative current events surrounding an issuer or the environment in which an issuer operates.

For fixed maturity securities in an unrealized loss position that require a credit loss analysis, the Company estimates a present value of expect cash flows. If the results of the cash flow analysis indicate that the Company will not recover the full amount of its amortized cost basis, the Company records a credit loss for the excess of amortized cost over the present value of expected cash flows, not to exceed the unrealized loss. Changes in the credit loss allowance are recognized through realized investment gains, net on the consolidated statements of operations. The credit loss allowance for fixed maturity securities was $0.4 million for the three months ended March 31, 2020.

The following table is a rollforward of the credit loss allowance for fixed maturity securities as of March 31, 2020:


	Beginning		Additions		Reduction		Reduction		Change in Securities		Ending
($ in thousands)	Balance		New Securities		Sales		Intent to Sell		with Previous Allowance		Balance
Fixed maturity securities:
Corporate debt securities	$	—	$	293	$	—	$	—	$	—	$	293
ABS		—		1		—		—		—		1
CLO		—		6		—		—		—		6
RMBS - non-agency		—		116		—		—		—		116
Total fixed maturity securities allowance	$	—	$	416	$	—	$	—	$	—	$	416

(d) The amortized cost and fair value of fixed maturity securities, excluding the Company’s structured securities portfolio, at March 31, 2020, 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.


	March 31, 2020
	Amortized		Fair
($ in thousands)	Cost		Value
Due in one year or less	$	103,407	$	103,498
Due after one through five years		659,203		657,184
Due after five through ten years		449,535		445,004
Due after ten years		248,896		239,964
		1,461,041		1,445,650
Structured securities:
Government agency securities		27,998		28,589
ABS		49,205		46,020
CLO		177,411		157,563
CMBS		94,816		94,474
RMBS - non-agency		92,189		90,633
RMBS - agency		135,809		139,491
Total fixed maturity securities	$	2,038,469	$	2,002,420

The Company did not have any non-income producing fixed maturity investments as of March 31, 2020 and December 31, 2019, respectively.

(e) The Company elected to account for its investments in limited partnerships and limited liability companies of $65.0 million and $66.7 million at March 31, 2020 and December 31, 2019, 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 $34.0 million at March 31, 2020.

The carrying values used for investment in limited partnerships and limited liability companies generally are established on the basis of the current valuations provided 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 investment funds that employ diverse and fundamentally driven approaches to investing which include 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 are 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 credit losses on loans. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. There was no allowance for credit losses on loan at March 31, 2020 and December 31, 2019, respectively.

(g) Proceeds from sales and redemptions in AFS securities totaled $152.8 million and $43.4 million for the three months ended March 31, 2020 and 2019, respectively. Gross realized gains from sales and redemptions in AFS securities totaled $1.0 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. Gross realized losses from sales and redemptions of AFS investments totaled $0.4 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

(h) Net investment income included in net income from continuing operations in the consolidated statements of operations from each major category of investments for the three months ended March 31, 2020 and 2019, is as follows:


	Three Months Ended March 31
($ in thousands)	2020		2019
Fixed maturity securities	$	16,282	$	16,119
Commercial levered loans		95		219
Net limited partnerships (losses) gains		(6,877)		1,251
Other		(10)		89
Gross investment income		9,490		17,678
Less: investment income attributable to funds withheld liabilities		136		142
Less: expenses		539		378
Net investment income	$	8,815	$	17,158

(i) Included in investments at March 31, 2020 and December 31, 2019, 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 $208.3 million and $210.8 million, respectively. Fair value and carrying value of assets in the amount of $376.9 million and $379.5 million, respectively, were on deposit in collateral agreements at March 31, 2020. 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.

(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.

(k) Non-redeemable preferred stock securities with readily determinable fair values are recorded at fair value. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income.

The change in fair value recognized in income on non-redeemable preferred stock securities for the three months ended March 31, 2020 was $0.3 million.