2. INVESTMENTS

Our investments are primarily composed of fixed income debt securities and common stock equity securities. As disclosed in our 2015 Annual Report on Form 10-K, we present all of our investments as available-for-sale, which are carried at fair value. When available, we obtain quoted market prices to determine fair value for our investments. If a quoted market price is not available, fair value is estimated using a secondary pricing source or using quoted market prices of similar securities. We have no investment securities for which fair value is determined using Level 3 inputs as defined in note 3 to the unaudited condensed consolidated interim financial statements, “Fair Value Measurements.”

Available-for-Sale Securities

The amortized cost and fair value of available-for-sale securities at September 30, 2016 and December 31, 2015 were as follows:


Available-for-sale
(in thousands)
	September 30, 2016
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	82,796	$	1,523	$	(6)	$	84,313
U.S. agency		11,493		807		-		12,300
Non-U.S. govt. & agency		6,037		153		(190)		6,000
Agency MBS		302,761		9,603		(279)		312,085
ABS/CMBS*		116,156		2,322		(242)		118,236
Corporate		563,045		22,093		(4,464)		580,674
Municipal		542,580		31,647		(230)		573,997
Total Fixed Income	$	1,624,868	$	68,148	$	(5,411)	$	1,687,605

Equity	$	200,595	$	182,616	$	(929)	$	382,282


Available-for-sale
(in thousands)
	December 31, 2015
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	43,597	$	58	$	(112)	$	43,543
U.S. agency		15,481		306		(47)		15,740
Non-U.S. govt. & agency		5,035		-		(557)		4,478
Agency MBS		250,060		6,451		(1,619)		254,892
ABS/CMBS*		91,559		995		(606)		91,948
Corporate		523,351		8,565		(14,807)		517,109
Municipal		589,073		21,375		(48)		610,400
Total Fixed Income	$	1,518,156	$	37,750	$	(17,796)	$	1,538,110

Equity	$	202,437	$	174,443	$	(1,456)	$	375,424

*Non-agency asset-backed and commercial mortgage-backed

The following table presents the amortized cost and fair value of available-for-sale debt securities by contractual maturity dates as of September 30, 2016:


	September 30, 2016
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	29,101	$	29,173
Due after one year through five years		357,543		365,930
Due after five years through 10 years		544,117		571,544
Due after 10 years		275,190		290,637
Mtge/ABS/CMBS*		418,917		430,321
Total available-for-sale	$	1,624,868	$	1,687,605

*Mortgage-backed, asset-backed and commercial mortgage-backed

Unrealized Losses

We conduct and document periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other-than-temporary. The following tables are used as part of our impairment analysis and illustrate the total value of securities that were in an unrealized loss position as of September 30, 2016 and December 31, 2015. The tables segregate the securities based on type, noting the fair value, cost (or amortized cost) and unrealized loss on each category of investment as well as in total. The tables further classify the securities based on the length of time they have been in an unrealized loss position. As of September 30, 2016 unrealized losses, as shown in the following tables, were 0.3 percent of total invested assets. Unrealized losses decreased in 2016, due largely to interest rates declines from the end of 2015, which increased the fair value of securities held in the fixed income portfolio.


	September 30, 2016						December 31, 2015
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total

U.S. Government
Fair value	$	2,021	$	—	$	2,021	$	36,000	$	—	$	36,000
Cost or amortized cost		2,027		—		2,027		36,112		—		36,112
Unrealized Loss	$	(6)	$	—	$	(6)	$	(112)	$	—	$	(112)

U.S. Agency
Fair value	$	—	$	—	$	—	$	8,070	$	—	$	8,070
Cost or amortized cost		—		—		—		8,117		—		8,117
Unrealized Loss	$	—	$	—	$	—	$	(47)	$	—	$	(47)

Non-U.S. government
Fair value	$	3,849	$	—	$	3,849	$	4,478	$	—	$	4,478
Cost or amortized cost		4,039		—		4,039		5,035		—		5,035
Unrealized Loss	$	(190)	$	—	$	(190)	$	(557)	$	—	$	(557)

Agency MBS
Fair value	$	42,710	$	9,028	$	51,738	$	100,424	$	18,520	$	118,944
Cost or amortized cost		42,789		9,228		52,017		101,473		19,090		120,563
Unrealized Loss	$	(79)	$	(200)	$	(279)	$	(1,049)	$	(570)	$	(1,619)

ABS/CMBS*
Fair value	$	31,680	$	6,540	$	38,220	$	51,091	$	8,364	$	59,455
Cost or amortized cost		31,848		6,614		38,462		51,562		8,499		60,061
Unrealized Loss	$	(168)	$	(74)	$	(242)	$	(471)	$	(135)	$	(606)

Corporate
Fair value	$	23,768	$	24,065	$	47,833	$	275,404	$	15,174	$	290,578
Cost or amortized cost		23,927		28,370		52,297		285,515		19,870		305,385
Unrealized Loss	$	(159)	$	(4,305)	$	(4,464)	$	(10,111)	$	(4,696)	$	(14,807)

Municipal
Fair value	$	30,266	$	—	$	30,266	$	8,462	$	2,418	$	10,880
Cost or amortized cost		30,496		—		30,496		8,504		2,424		10,928
Unrealized Loss	$	(230)	$	—	$	(230)	$	(42)	$	(6)	$	(48)

Subtotal, fixed income
Fair value	$	134,294	$	39,633	$	173,927	$	483,929	$	44,476	$	528,405
Cost or amortized cost		135,126		44,212		179,338		496,318		49,883		546,201
Unrealized Loss	$	(832)	$	(4,579)	$	(5,411)	$	(12,389)	$	(5,407)	$	(17,796)

Equity securities
Fair value	$	4,071	$	2,225	$	6,296	$	16,476	$	—	$	16,476
Cost or amortized cost		4,577		2,648		7,225		17,932		—		17,932
Unrealized Loss	$	(506)	$	(423)	$	(929)	$	(1,456)	$	—	$	(1,456)

Total
Fair value	$	138,365	$	41,858	$	180,223	$	500,405	$	44,476	$	544,881
Cost or amortized cost		139,703		46,860		186,563		514,250		49,883		564,133
Unrealized Loss	$	(1,338)	$	(5,002)	$	(6,340)	$	(13,845)	$	(5,407)	$	(19,252)

* Non-agency asset-backed and commercial mortgage-backed

The following table shows the composition of the fixed income securities in unrealized loss positions at September 30, 2016 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s.


	Equivalent	Equivalent	(dollars in thousands)
NAIC	S&P	Moody’s	Amortized				Unrealized		Percent
Rating	Rating	Rating	Cost		Fair Value		Loss		to Total

1	AAA/AA/A	Aaa/Aa/A	$	143,545	$	142,648	$	(897)	16.6	%
2	BBB	Baa		11,779		11,499		(280)	5.2	%
3	BB	Ba		1,796		1,719		(77)	1.4	%
4	B	B		17,186		14,594		(2,592)	47.9	%
5	CCC or lower	Caa or lower		5,032		3,467		(1,565)	28.9	%
6				—		—		—	—
		Total	$	179,338	$	173,927	$	(5,411)	100.0	%

Evaluating Investments for OTTI

The fixed income portfolio contained 130 securities in an unrealized loss position as of September 30, 2016. The $5.4 million in associated unrealized losses for these 130 securities represents 0.3 percent of the fixed income portfolio’s cost basis. Of these 130 securities, 58 have been in an unrealized loss position for 12 consecutive months or longer. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Any credit-related impairment related to fixed income securities we do not plan to sell and for which we are not more likely than not to be required to sell is recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. Based on our analysis, our fixed income portfolio is of high credit quality and we believe we will recover the amortized cost basis of our fixed income securities. We continually monitor the credit quality of our fixed income investments to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. In the third quarter of 2016, we recognized $0.1 million in other-than-temporary impairment (OTTI) charges in earnings on a fixed income security that we no longer had the intent to hold. Comparatively, we did not recognize any OTTI losses in earnings on the fixed income portfolio in 2015. There were no OTTI losses recognized in other comprehensive earnings on the fixed income portfolio for the periods presented.

As of September 30, 2016, we held three common stock securities that were in an unrealized loss position. The unrealized loss on these securities was $0.9 million. Based on our analysis, we believe each security will recover in a reasonable period of time and we have the intent and ability to hold them until recovery. One equity security has been in an unrealized loss position for 12 consecutive months or longer. There were no OTTI losses recognized in the periods presented on the equity portfolio.

Other Invested Assets

Other invested assets include investments in three low income housing tax credit partnerships (LIHTC), carried at amortized cost, membership in the Federal Home Loan Bank of Chicago (FHLBC), carried at cost, and an investment in a real estate fund, carried at cost. Due to the nature of the LIHTC and our membership in the FHLBC, their carrying amounts approximate fair value. Our LIHTC interests had a balance of $17.9 million at September 30, 2016, compared to $14.0 million at December 31, 2015 and recognized a total tax benefit of $0.4 million during the third quarter of 2016 compared to $0.3 million during the third quarter of 2015. For the nine-month periods ended September 30, 2016 and 2015, our LIHTC interests recognized a total tax benefit of $1.2 and $0.8, respectively. Our investment in FHLBC stock totaled $1.6 million at September 30, 2016 and December 31, 2015. Our investment in the real estate fund was carried at $5.0 million and had a fair value of $5.1 million at September 30, 2016, compared to a carrying value of $5.0 million, which approximated fair value, at December 31, 2015.

Cash and Short-term Investments

Cash consists of uninvested balances in bank accounts. We had a cash balance of $14.0 million at the end of the third quarter of 2016, compared to $11.1 million at the end of 2015. Short-term investments of $8.4 million and $6.3 million at September 30, 2016 and December 31, 2015, respectively, are carried at cost, which approximates fair value.