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 September 30, 2018 and December 31, 2017 were as follows:


Available-for-sale
(in thousands)
	September 30, 2018
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	177,339	$	8	$	(3,560)	$	173,787
U.S. agency		30,647		111		(855)		29,903
Non-U.S. govt. & agency		8,178		-		(271)		7,907
Agency MBS		415,476		1,299		(14,749)		402,026
ABS/CMBS*		120,737		113		(1,283)		119,567
Corporate		675,731		2,862		(11,901)		666,692
Municipal		317,540		4,727		(2,532)		319,735
Total Fixed Income	$	1,745,648	$	9,120	$	(35,151)	$	1,719,617


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 September 30, 2018:


	September 30, 2018
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	41,952	$	42,115
Due after one year through five years		379,636		378,403
Due after five years through 10 years		611,198		602,738
Due after 10 years		176,649		174,768
Mtge/ABS/CMBS*		536,213		521,593
Total available-for-sale	$	1,745,648	$	1,719,617

*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 September 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 September 30, 2018, unrealized losses on fixed income securities, as shown in the following tables, were 1.6 percent of total invested assets. Unrealized losses increased through the first nine months of 2018, as interest rates increased from the end of 2017, which decreased the fair value of securities held in the fixed income portfolio.


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

U.S. Government
Fair value	$	72,347	$	99,558	$	171,905	$	58,009	$	30,888	$	88,897
Cost or amortized cost		72,981		102,484		175,465		58,443		31,349		89,792
Unrealized Loss	$	(634)	$	(2,926)	$	(3,560)	$	(434)	$	(461)	$	(895)

U.S. Agency
Fair value	$	17,408	$	10,384	$	27,792	$	10,917	$	—	$	10,917
Cost or amortized cost		17,622		11,025		28,647		11,027		—		11,027
Unrealized Loss	$	(214)	$	(641)	$	(855)	$	(110)	$	—	$	(110)

Non-U.S. government
Fair value	$	6,214	$	1,693	$	7,907	$	—	$	1,840	$	1,840
Cost or amortized cost		6,280		1,898		8,178		—		1,896		1,896
Unrealized Loss	$	(66)	$	(205)	$	(271)	$	—	$	(56)	$	(56)

Agency MBS
Fair value	$	152,341	$	206,541	$	358,882	$	122,130	$	111,306	$	233,436
Cost or amortized cost		155,615		218,016		373,631		123,559		113,955		237,514
Unrealized Loss	$	(3,274)	$	(11,475)	$	(14,749)	$	(1,429)	$	(2,649)	$	(4,078)

ABS/CMBS*
Fair value	$	82,967	$	28,580	$	111,547	$	23,406	$	21,587	$	44,993
Cost or amortized cost		83,647		29,183		112,830		23,491		21,817		45,308
Unrealized Loss	$	(680)	$	(603)	$	(1,283)	$	(85)	$	(230)	$	(315)

Corporate
Fair value	$	387,421	$	84,835	$	472,256	$	86,946	$	28,600	$	115,546
Cost or amortized cost		395,327		88,830		484,157		87,736		29,491		117,227
Unrealized Loss	$	(7,906)	$	(3,995)	$	(11,901)	$	(790)	$	(891)	$	(1,681)

Municipal
Fair value	$	56,839	$	43,287	$	100,126	$	71,059	$	60,049	$	131,108
Cost or amortized cost		57,586		45,072		102,658		71,534		60,827		132,361
Unrealized Loss	$	(747)	$	(1,785)	$	(2,532)	$	(475)	$	(778)	$	(1,253)

Total fixed income
Fair value	$	775,537	$	474,878	$	1,250,415	$	372,467	$	254,270	$	626,737
Cost or amortized cost		789,058		496,508		1,285,566		375,790		259,335		635,125
Unrealized Loss	$	(13,521)	$	(21,630)	$	(35,151)	$	(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 September 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	$	1,103,857	$	1,074,126	$	(29,731)	84.6	%
2	BBB	Baa		136,227		131,948		(4,279)	12.2	%
3	BB	Ba		29,221		28,491		(730)	2.1	%
4	B	B		14,712		14,386		(326)	0.9	%
5	CCC	Caa		1,549		1,464		(85)	0.2	%
6	CC or lower	Ca or lower		-		-		-	-	%
		Total	$	1,285,566	$	1,250,415	$	(35,151)	100.0	%

Evaluating Fixed Income Securities for OTTI

The fixed income portfolio contained 676 securities in an unrealized loss position as of September 30, 2018. The $35.2 million in associated unrealized losses for these 676 securities represents 2.0 percent of the fixed income portfolio’s cost basis. Of these 676 securities, 244 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 nine months of 2018, we recognized $0.2 million in other-than-temporary impairment (OTTI) charges in earnings on two fixed income securities. We no longer had the intent to hold one of the securities and a credit loss was taken on a second fixed income security that we do intend 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 the 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 third quarter of 2018, net unrealized gains (losses) on equity securities included an unrealized gain of $22.8 million on securities held as of September 30, 2018. Net unrealized gains on equity securities for the first nine months of 2018 included an unrealized gain of $18.2 million on securities held as of September 30, 2018.

Other Invested Assets

We had $38.8 million of other invested assets at September 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 $14.0 million at September 30, 2018, compared to $15.5 million at December 31, 2017 and recognized a total tax benefit of $0.6 million during the third quarter of 2018, the same period as the prior year. For the nine-month periods ended September 30, 2018 and 2017, our LIHTC interests recognized a total benefit of $1.7 million and $1.9 million, respectively. Our unfunded commitment for our LIHTC investments totaled $2.0 million at September 30, 2018 and will be paid out in installments through 2025.

As of September 30, 2018, $16.3 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 nine month period ending September 30, 2018, there were no outstanding borrowings with the FHLBC.

We had $25.2 million of unfunded commitments related to our investments in private funds at September 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 $59.5 million at September 30, 2018, compared to $24.3 million at the end of 2017. As of September 30, 2018, we had $18.5 million of short-term investments that were carried at cost and approximated fair value, compared to $10.0 million at December 31, 2017.