2. INVESTMENTS

Our investments are primarily composed of fixed income debt securities and common stock equity securities. We carry our equity securities at fair value and categorize all of our debt securities 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.”

Fixed Income Securities - Available-for-Sale

The amortized cost and fair value of available-for-sale securities at June 30, 2018 and December 31, 2017 were as follows:


Available-for-sale
(in thousands)
	June 30, 2018
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	151,446	$	96	$	(2,377)	$	149,165
U.S. agency		30,650		213		(607)		30,256
Non-U.S. govt. & agency		8,186		-		(291)		7,895
Agency MBS		364,298		1,685		(11,638)		354,345
ABS/CMBS*		101,075		152		(1,033)		100,194
Corporate		633,159		3,061		(11,534)		624,686
Municipal		438,261		8,198		(2,388)		444,071
Total Fixed Income	$	1,727,075	$	13,405	$	(29,868)	$	1,710,612


Available-for-sale
(in thousands)
	December 31, 2017
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	92,561	$	23	$	(895)	$	91,689
U.S. agency		18,541		347		(110)		18,778
Non-U.S. govt. & agency		7,501		143		(56)		7,588
Agency MBS		329,129		3,420		(4,078)		328,471
ABS/CMBS*		70,405		436		(315)		70,526
Corporate		508,128		12,575		(1,681)		519,022
Municipal		620,146		17,272		(1,253)		636,165
Total Fixed Income	$	1,646,411	$	34,216	$	(8,388)	$	1,672,239

*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 June 30, 2018:


	June 30, 2018
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	37,920	$	37,787
Due after one year through five years		349,532		349,582
Due after five years through 10 years		653,536		648,164
Due after 10 years		220,714		220,540
Mtge/ABS/CMBS*		465,373		454,539
Total available-for-sale	$	1,727,075	$	1,710,612

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

Unrealized Losses on Fixed Income Securities

We conduct and document periodic reviews of all fixed income 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 fixed income securities that were in an unrealized loss position as of June 30, 2018 and December 31, 2017. 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 June 30, 2018 unrealized losses on fixed income securities, as shown in the following tables, were 1.4 percent of total invested assets. Unrealized losses increased through the first half of 2018, as interest rates increased from the end of 2017, which decreased the fair value of securities held in the fixed income portfolio.


	June 30, 2018						December 31, 2017
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total

U.S. Government
Fair value	$	104,958	$	33,589	$	138,547	$	58,009	$	30,888	$	88,897
Cost or amortized cost		106,718		34,206		140,924		58,443		31,349		89,792
Unrealized Loss	$	(1,760)	$	(617)	$	(2,377)	$	(434)	$	(461)	$	(895)

U.S. Agency
Fair value	$	15,422	$	—	$	15,422	$	10,917	$	—	$	10,917
Cost or amortized cost		16,029		—		16,029		11,027		—		11,027
Unrealized Loss	$	(607)	$	—	$	(607)	$	(110)	$	—	$	(110)

Non-U.S. government
Fair value	$	6,208	$	1,687	$	7,895	$	—	$	1,840	$	1,840
Cost or amortized cost		6,289		1,897		8,186		—		1,896		1,896
Unrealized Loss	$	(81)	$	(210)	$	(291)	$	—	$	(56)	$	(56)

Agency MBS
Fair value	$	199,344	$	106,745	$	306,089	$	122,130	$	111,306	$	233,436
Cost or amortized cost		205,847		111,880		317,727		123,559		113,955		237,514
Unrealized Loss	$	(6,503)	$	(5,135)	$	(11,638)	$	(1,429)	$	(2,649)	$	(4,078)

ABS/CMBS*
Fair value	$	66,925	$	18,028	$	84,953	$	23,406	$	21,587	$	44,993
Cost or amortized cost		67,707		18,279		85,986		23,491		21,817		45,308
Unrealized Loss	$	(782)	$	(251)	$	(1,033)	$	(85)	$	(230)	$	(315)

Corporate
Fair value	$	391,379	$	34,255	$	425,634	$	86,946	$	28,600	$	115,546
Cost or amortized cost		400,716		36,452		437,168		87,736		29,491		117,227
Unrealized Loss	$	(9,337)	$	(2,197)	$	(11,534)	$	(790)	$	(891)	$	(1,681)

Municipal
Fair value	$	85,824	$	22,227	$	108,051	$	71,059	$	60,049	$	131,108
Cost or amortized cost		87,458		22,981		110,439		71,534		60,827		132,361
Unrealized Loss	$	(1,634)	$	(754)	$	(2,388)	$	(475)	$	(778)	$	(1,253)

Total fixed income
Fair value	$	870,060	$	216,531	$	1,086,591	$	372,467	$	254,270	$	626,737
Cost or amortized cost		890,764		225,695		1,116,459		375,790		259,335		635,125
Unrealized Loss	$	(20,704)	$	(9,164)	$	(29,868)	$	(3,323)	$	(5,065)	$	(8,388)

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

The following table shows the composition of the fixed income securities in unrealized loss positions at June 30, 2018 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	$	932,315	$	908,318	$	(23,997)	80.3	%
2	BBB	Baa		124,031		119,785		(4,246)	14.2	%
3	BB	Ba		36,317		35,400		(917)	3.1	%
4	B	B		21,826		21,267		(559)	1.9	%
5	CCC	Caa		1,354		1,243		(111)	0.4	%
6	CC or lower	Ca or lower		616		578		(38)	0.1	%
		Total	$	1,116,459	$	1,086,591	$	(29,868)	100.0	%

Evaluating Fixed Income Securities for OTTI

The fixed income portfolio contained 706 securities in an unrealized loss position as of June 30, 2018. The $29.9 million in associated unrealized losses for these 706 securities represents 1.7 percent of the fixed income portfolio’s cost basis. Of these 706 securities, 121 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 first six months of 2018, we recognized $0.1 million in other-than-temporary impairment (OTTI) charges in earnings on one fixed income security that we no longer had the intent to hold. Comparatively, we recognized $2.1 million in OTTI losses in earnings on two fixed income securities that we no longer had the intent to hold in same period in 2017. There were no OTTI losses recognized in other comprehensive earnings on the fixed income portfolio for the periods presented.

Unrealized Gains and Losses on Equity Securities

During the second quarter of 2018, net unrealized losses on equity securities included an unrealized gain of $9.1 million on securities held as of June 30, 2018. Net unrealized losses on equity securities for the first half of 2018 included an unrealized loss of $4.8 million on securities held as of June 30, 2018.

Other Invested Assets

We had $36.6 million of other invested assets at June 30, 2018, compared to $33.8 million at the end of 2017. Other invested assets include investments in low income housing tax credit partnerships (LIHTC), membership in the Federal Home Loan Bank of Chicago (FHLBC) and investments in private funds. Our LIHTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC and our membership in the FHLBC, their carrying amounts approximate fair value. The private funds are carried at fair value, using each investment’s net asset value.

Our LIHTC interests had a balance of $14.5 million at June 30, 2018, compared to $15.5 million at December 31, 2017 and recognized a total tax benefit of $0.6 million during the second quarter of 2018, the same as the prior year. For the six-month periods ended June 30, 2018 and 2017, our LIHTC interests recognized a total benefit of $1.1 million and $1.3 million, respectively. Our unfunded commitment for our LIHTC investments totaled $2.0 million at June 30, 2018 and will be paid out in installments through 2025.

As of June 30, 2018, $16.8 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides. As of and during the six month period ending June 30, 2018, there were no outstanding borrowings with the FHLBC.

We had $28.2 million of unfunded commitments related to our investments in private funds at June 30, 2018. Additionally, our interest in these investments is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities. An IPO would allow for the transfer of interest in some situations, while the timed dissolution of the partnership would trigger redemption in others.

Cash and Short-term Investments

Cash consists of uninvested balances in bank accounts. We had a cash balance of $34.1 million at June 30, 2018, compared to $24.3 million at the end of 2017. We did not have any short-term investments at June 30, 2018, but had $10.0 million of short-term investments that were carried at cost and approximated fair value at December 31, 2017.