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 March 31, 2019 and December 31, 2018 were as follows:


Available-for-sale
(in thousands)
	March 31, 2019
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	192,148	$	2,964	$	(384)	$	194,728
U.S. agency		31,712		1,043		(17)		32,738
Non-U.S. govt. & agency		8,162		74		(293)		7,943
Agency MBS		396,248		3,211		(5,493)		393,966
ABS/CMBS*		146,164		983		(341)		146,806
Corporate		684,492		12,934		(3,910)		693,516
Municipal		313,171		10,664		(189)		323,646
Total Fixed Income	$	1,772,097	$	31,873	$	(10,627)	$	1,793,343

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


Available-for-sale
(in thousands)
	December 31, 2018
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	199,982	$	1,232	$	(985)	$	200,229
U.S. agency		31,716		403		(215)		31,904
Non-U.S. govt. & agency		8,170		-		(531)		7,639
Agency MBS		402,992		1,709		(9,448)		395,253
ABS/CMBS*		137,224		375		(876)		136,723
Corporate		681,909		2,894		(16,124)		668,679
Municipal		314,472		6,926		(1,310)		320,088
Total Fixed Income	$	1,776,465	$	13,539	$	(29,489)	$	1,760,515

*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 March 31, 2019:


	March 31, 2019
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	42,428	$	42,477
Due after one year through five years		390,764		395,761
Due after five years through 10 years		615,405		627,475
Due after 10 years		181,088		186,858
Mtge/ABS/CMBS*		542,412		540,772
Total available-for-sale	$	1,772,097	$	1,793,343

*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 March 31, 2019 and December 31, 2018. The tables segregate the securities based on type, noting the fair value, 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 March 31, 2019, unrealized losses on fixed income securities, as shown in the following tables, were 0.5 percent of total invested assets. Unrealized losses decreased through the first three months of 2019, as interest rates decreased from the end of 2018, increasing the fair value of securities held in the fixed income portfolio.


	March 31, 2019						December 31, 2018
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total

U.S. Government
Fair value	$	—	$	46,641	$	46,641	$	7,249	$	76,073	$	83,322
Amortized cost		—		47,025		47,025		7,270		77,037		84,307
Unrealized Loss	$	—	$	(384)	$	(384)	$	(21)	$	(964)	$	(985)

U.S. Agency
Fair value	$	—	$	3,988	$	3,988	$	—	$	8,843	$	8,843
Amortized cost		—		4,005		4,005		—		9,058		9,058
Unrealized Loss	$	—	$	(17)	$	(17)	$	—	$	(215)	$	(215)

Non-U.S. government
Fair value	$	—	$	3,669	$	3,669	$	5,432	$	2,207	$	7,639
Amortized cost		—		3,962		3,962		5,571		2,599		8,170
Unrealized Loss	$	—	$	(293)	$	(293)	$	(139)	$	(392)	$	(531)

Agency MBS
Fair value	$	1,388	$	239,998	$	241,386	$	25,345	$	261,325	$	286,670
Amortized cost		1,389		245,490		246,879		25,486		270,632		296,118
Unrealized Loss	$	(1)	$	(5,492)	$	(5,493)	$	(141)	$	(9,307)	$	(9,448)

ABS/CMBS*
Fair value	$	20,570	$	30,341	$	50,911	$	46,918	$	32,137	$	79,055
Amortized cost		20,689		30,563		51,252		47,146		32,785		79,931
Unrealized Loss	$	(119)	$	(222)	$	(341)	$	(228)	$	(648)	$	(876)

Corporate
Fair value	$	70,935	$	120,782	$	191,717	$	306,177	$	147,751	$	453,928
Amortized cost		72,528		123,099		195,627		315,428		154,624		470,052
Unrealized Loss	$	(1,593)	$	(2,317)	$	(3,910)	$	(9,251)	$	(6,873)	$	(16,124)

Municipal
Fair value	$	—	$	18,229	$	18,229	$	6,036	$	55,681	$	61,717
Amortized cost		—		18,418		18,418		6,052		56,975		63,027
Unrealized Loss	$	—	$	(189)	$	(189)	$	(16)	$	(1,294)	$	(1,310)

Total fixed income
Fair value	$	92,893	$	463,648	$	556,541	$	397,157	$	584,017	$	981,174
Amortized cost		94,606		472,562		567,168		406,953		603,710		1,010,663
Unrealized Loss	$	(1,713)	$	(8,914)	$	(10,627)	$	(9,796)	$	(19,693)	$	(29,489)

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

The following table shows the composition of the fixed income securities in unrealized loss positions at March 31, 2019 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	$	434,824	$	427,442	$	(7,382)	69.5	%
2	BBB	Baa		59,320		57,548		(1,772)	16.7	%
3	BB	Ba		34,925		34,375		(550)	5.2	%
4	B	B		36,178		35,408		(770)	7.2	%
5	CCC	Caa		1,921		1,768		(153)	1.4	%
6	CC or lower	Ca or lower		-		-		-	-	%
		Total	$	567,168	$	556,541	$	(10,627)	100.0	%

Evaluating Fixed Income Securities for OTTI

The fixed income portfolio contained 481 securities in an unrealized loss position as of March 31, 2019. The $10.6 million in associated unrealized losses for these 481 securities represents 0.6 percent of the fixed income portfolio’s cost basis. Of these 481 securities, 259 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. We did not recognize any other-than-temporary impairment (OTTI) losses in earnings on the fixed income portfolio in the first quarter of 2019. Comparatively, we recognized $0.1 million in OTTI losses in earnings on one fixed income security that we no longer had the intent to hold in the same period in 2018. 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

Unrealized gains recognized during the first quarter of 2019 on equity securities still held as of March 31, 2019 were $41.9 million. Unrealized losses recognized during the first quarter of 2018 on equity securities still held as of March 31, 2018 were $12.3 million.

Other Invested Assets

We had $54.3 million of other invested assets at March 31, 2019, compared to $51.5 million at the end of 2018. 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 $19.7 million at March 31, 2019, compared to $20.3 million at December 31, 2018 and recognized a total tax benefit of $0.6 million during the first quarter of 2019, the same as the prior year. Our unfunded commitment for our LIHTC investments totaled $7.0 million at March 31, 2019 and will be paid out in installments through 2025.

As of March 31, 2019, $16.0 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 three month period ending March 31, 2019, there were no outstanding borrowings with the FHLBC.

We had $15.1 million of unfunded commitments related to our investments in private funds at March 31, 2019. 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 $25.2 million at March 31, 2019, compared to $30.1 million at the end of 2018. As of March 31, 2019, we had $44.1 million of short-term investments that were carried at cost and approximated fair value, compared to $11.6 million at December 31, 2018.