Investments

9 Months Ended

Sep. 30, 2020

Investments [Abstract]

Investments

5. Investments

The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):

			Gross		Gross
		Cost /	Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
As of September 30, 2020
U.S. Treasury securities and obligations of U.S. Government	$	60,332	$	671	$	(2)	$	61,001
Corporate bonds		235,469		5,291		(1,281)		239,479
Collateralized corporate bank loans		57,559		-		(2,225)		55,334
Municipal bonds		54,837		852		(51)		55,638
Mortgage-backed		6,000		122		(5)		6,117
Total debt securities		414,197		6,936		(3,564)		417,569
Total equity securities		25,735		2,989		(5,352)		23,372
Total other investments		3,763		—		(3,729)		34
Total investments	$	443,695	$	9,925	$	(12,645)	$	440,975
As of December 31, 2019
U.S. Treasury securities and obligations of U.S. Government	$	66,441	$	162	$	(3)	$	66,600
Corporate bonds		297,601		3,387		(163)		300,825
Collateralized corporate bank loans		115,669		556		(468)		115,757
Municipal bonds		81,787		1,531		(48)		83,270
Mortgage-backed		8,000		46		(219)		7,827
Total debt securities		569,498		5,682		(901)		574,279
Total equity securities		71,895		35,028		(7,708)		99,215
Total other investments		3,763		—		(1,594)		2,169
Total investments	$	645,156	$	40,710	$	(10,203)	$	675,663

Major categories of net investment gains (losses) on investments are summarized as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
U.S. Treasury securities and obligations of U.S. Government	$	(3)	$	—	$	(3)	$	—
Corporate bonds		352		154		766		171
Collateralized corporate bank loans		66		(103)		(19)		(65)
Municipal bonds		(25)		124		1,397		4,271
Mortgage-backed		—		—		—		(1)
Equity securities		—		—		3,471		—
Gain on investments		390		175		5,612		4,376
Unrealized gains (losses) on equity securities		937		(1,941)		(29,683)		11,175
Other-than-temporary impairments		(1,692)		—		(1,692)		—
Unrealized (losses) gains on other investments		(262)		424		(2,136)		1,861
Investment (losses) gains, net	$	(627)	$	(1,342)	$	(27,899)	$	17,412

We realized gross gains on investments of $0.5 million and $0.5 million during the three months ended September 30, 2020 and 2019, respectively and $22.4 million and $4.9 million for the nine months ended September 30, 2020 and 2019, respectively. We realized gross losses on investments of $0.1 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively and $16.8 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively. We recorded proceeds from the sale of investment securities of $47.4 million and $6.0 million during the three months ended September 30, 2020 and 2019 respectively, and $155.0 million and $13.0 million for the

nine months ended September 30, 2020 or 2019, respectively. Realized investment gains and losses are recognized in operations on the first in-first out method.

The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of September 30, 2020 and December 31, 2019 (in thousands):

	As of September 30, 2020
	12 months or less				Longer than 12 months				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities and obligations of U.S. Government	$	18,091	$	(2)	$	—	$	—	$	18,091	$	(2)
Corporate bonds		8,982		(1,035)		4,071		(246)		13,053		(1,281)
Collateralized corporate bank loans		49,558		(1,571)		5,638		(654)		55,196		(2,225)
Municipal bonds		2,550		(33)		1,379		(18)		3,929		(51)
Mortgage-backed		—		—		14		(5)		14		(5)
Total debt securities		79,181		(2,641)		11,102		(923)		90,283		(3,564)
Total equity securities		10,265		(4,187)		1,935		(1,165)		12,200		(5,352)
Total other investments		—		—		34		(3,729)		34		(3,729)
Total investments	$	89,446	$	(6,828)	$	13,071	$	(5,817)	$	102,517	$	(12,645)

	As of December 31, 2019
	12 months or less				Longer than 12 months				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities and obligations of U.S. Government	$	—	$	—	$	5,513	$	(3)	$	5,513	$	(3)
Corporate bonds		27,268		(144)		1,150		(19)		28,418		(163)
Collateralized corporate bank loans		9,000		(41)		10,228		(427)		19,228		(468)
Municipal bonds		4,808		(29)		1,618		(19)		6,426		(48)
Mortgage-backed		1,712		(101)		562		(118)		2,274		(219)
Total debt securities		42,788		(315)		19,071		(586)		61,859		(901)
Total equity securities		10,905		(2,363)		6,093		(5,345)		16,998		(7,708)
Total other investments		—		—		2,169		(1,594)		2,169		(1,594)
Total investments	$	53,693	$	(2,678)	$	27,333	$	(7,525)	$	81,026	$	(10,203)

We had a total of 84 debt securities with an unrealized loss, of which 68 were in an unrealized loss position for less than one year and 16 were in an unrealized loss position for a period of one year or greater, as of September 30, 2020.  We held a total of 61 debt securities with an unrealized loss, of which 41 were in an unrealized loss position for less than one year and 20 were in an unrealized loss position for a period of one year or greater, as of December 31, 2019. We consider these losses as a temporary decline in value as they are predominately on securities that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis. The gross unrealized losses on the debt security positions at September 30, 2020 were due predominately to market and interest rate fluctuations and we see no other indications that the decline in values of these securities is other-than-temporary.

Based on evidence gathered through our normal credit evaluation process, we presently expect that all debt securities held in our investment portfolio will be paid in accordance with their contractual terms. Nonetheless, it is at least reasonably possible that the performance of certain issuers of these debt securities will be worse than currently expected resulting in future write-downs within our portfolio of debt securities.

Also, as a result of the challenging market conditions, we expect the volatility in the valuation of our equity securities to continue in the foreseeable future. This volatility may lead to changes regarding retention strategies for certain equity securities.

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any debt security below cost is deemed other-than-temporary. All debt securities with an unrealized loss are reviewed. We recognize an impairment loss when a debt security’s value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary. We recognized $1.7 million of other-than-temporary impairment on debt securities during the nine months ended September 30, 2020.  We did not recognize any impairment loss on debt securities during the nine months ended September 30, 2019.

Debt Investments: We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income. During the nine months ended September 30, 2020 we did not dispose of any previously impaired securities. During the nine months ended September 30, 2019 we disposed of six previously impaired securities and recognized a realized gain of $4.1 million.

Equity Investments: On January 1, 2018, we adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825).” ASU 2016-01 requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income each reporting period.  As a result of this standard, equity securities with readily determinable fair values are not required to be evaluated for other-than-temporary-impairment.

Details regarding the carrying value of the other investments portfolio as of September 30, 2020 and December 31, 2019 are as follows (in thousands):

	2020		2019
Investment Type
Equity warrant	$	34	$	2,169
Total other investments	$	34	$	2,169

We acquired this warrant in an active market. The warrant entitles us to buy the underlying common stock of a publicly traded company at a fixed price until the expiration date of January 19, 2021.

The amortized cost and estimated fair value of debt securities at September 30, 2020 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	113,961	$	115,144
Due after one year through five years		248,003		250,693
Due after five years through ten years		32,766		31,560
Due after ten years		13,467		14,055
Mortgage-backed		6,000		6,117
	$	414,197	$	417,569