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.

Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date. The following is a summary of the disposition of fixed income and equity securities for the six-month periods ended June 30, 2020 and 2019:

Assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 are summarized below:

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

As of June 30, 2020, we had $7.1 million of Regulation D private placement fixed income securities whose fair value was measured using significant unobservable inputs (Level 3). The following table summarizes changes in the balance of these Level 3 securities.


	Level 3
(in thousands)	Securities
Balance as of January 1, 2020	$	1,770
Net realized and unrealized gains (losses)
Included in net earnings as a part of:
Net investment income		(10)
Net realized gains (losses)		(96)
Included in other comprehensive earnings		(282)
Total net realized and unrealized gains (losses)	$	(388)
Purchases		5,677
Balance as of June 30, 2020	$	7,059

Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in net realized gains	$	(96)
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)	$	(282)

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of June 30, 2020 were as follows:


	June 30, 2020
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	75,077	$	75,888
Due after one year through five years		472,458		495,968
Due after five years through 10 years		526,480		571,103
Due after 10 years		279,538		304,460
Mtge/ABS/CMBS*		602,584		627,674
Total available-for-sale	$	1,956,137	$	2,075,093

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

The amortized cost and fair value of available-for-sale securities at June 30, 2020 and December 31, 2019 are presented in the tables below. Amortized cost does not include the $14.1 million and $13.5 million of accrued interest receivable as of June 30, 2020 and December 31, 2019, respectively.


Available-for-sale	June 30, 2020
(in thousands)	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
Asset Class	Cost		Losses		Gains		Losses		Value
U.S. government	$	171,174	$	-	$	15,664	$	-	$	186,838
U.S. agency		27,913		-		4,178		-		32,091
Non-U.S. govt. & agency		7,316		-		401		(25)		7,692
Agency MBS		388,036		-		21,208		(77)		409,167
ABS/CMBS*		214,548		(54)		5,218		(1,205)		218,507
Corporate		717,748		(931)		54,610		(6,302)		765,125
Municipal		429,402		-		26,341		(70)		455,673
Total Fixed Income	$	1,956,137	$	(985)	$	127,620	$	(7,679)	$	2,075,093

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


Available-for-sale	December 31, 2019
(in thousands)	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
Asset Class	Cost		Losses		Gains		Losses		Value
U.S. government	$	186,699	$	-	$	6,994	$	(32)	$	193,661
U.S. agency		36,535		-		2,362		(42)		38,855
Non-U.S. govt. & agency		7,333		-		295		-		7,628
Agency MBS		411,808		-		8,920		(563)		420,165
ABS/CMBS*		222,832		-		2,514		(476)		224,870
Corporate		659,640		-		33,245		(818)		692,067
Municipal		390,431		-		16,131		(722)		405,840
Total Fixed Income	$	1,915,278	$	-	$	70,461	$	(2,653)	$	1,983,086

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

Allowance for Credit Losses and Unrealized Losses on Fixed Income Securities

We adopted ASU 2016-13, Financial Instruments – Credit Losses, on January 1, 2020, which required the recognition of a reversible allowance for credit losses on available-for-sale fixed income securities. See note 1. B. for more information on the adoption of the ASU. Available-for-sale securities in the fixed income portfolio are subjected to several criteria to determine if those securities should be included in the allowance for expected credit loss evaluation, including:

●

Changes in technology that may impair the earnings potential of the investment,

●

The discontinuance of a segment of business that may affect future earnings potential,

●

Reduction of or non-payment of interest and/or principal,

●

Specific concerns related to the issuer’s industry or geographic area of operation,

●

Significant or recurring operating losses, poor cash flows and/or deteriorating liquidity ratios and

●

Downgrades in credit quality by a major rating agency.

If changes in interest rates and credit spreads do not reasonably explain the unrealized loss for an available-for-sale security or if any of the criteria above indicate a potential credit loss, the security is subjected to a discounted cash flow analysis. Inputs into the discounted cash flow analysis include prepayment assumptions for structured securities, default rates and recoverability rates based on credit rating. The allowance for any security is limited to the amount that the securities fair value is below amortized cost.

As of June 30, 2020, the discounted cash flow analysis resulted in an allowance for credit losses on 36 securities totaling $1.0 million. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Based on our analysis, we believe we will recover the amortized cost basis on the available-for-sale securities not included in the allowance for credit losses. We do not intend to sell the available-for-sale securities in an unrealized loss position and it is not more likely than not that we will be required to sell the investments before recovery of the amortized cost basis. 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.

Prior to the adoption of ASU 2016-13, we conducted reviews of fixed income securities with unrealized losses to evaluate whether an impairment was other-than-temporary. Any credit-related impairment on fixed income securities we did not plan to sell and for which we were not more likely than not to be required to sell were recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. We did not recognize any other-than-temporary impairment losses in earnings on the fixed income portfolio in the first six months of 2019.

As of June 30, 2020, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 249 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $7.7 million in associated unrealized losses represents 0.4 percent of the fixed income portfolio’s cost basis and 0.3 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first six months of 2020, as increased credit

spreads more than offset declines in interest rates during the period, primarily in the corporate portfolio. Of the total 285 securities, 32 have been in an unrealized loss position for 12 consecutive months or longer. The following table illustrates the total value of fixed income securities that were in an unrealized loss position as of June 30, 2020, after factoring in the allowance for credit losses, and December 31, 2019.


	June 30, 2020						December 31, 2019
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total

U.S. government
Fair value	$	—	$	—	$	—	$	2,505	$	8,463	$	10,968
Amortized cost		—		—		—		2,506		8,494		11,000
Unrealized Loss	$	—	$	—	$	—	$	(1)	$	(31)	$	(32)

U.S. agency
Fair value	$	—	$	—	$	—	$	6,794	$	—	$	6,794
Amortized cost		—		—		—		6,836		—		6,836
Unrealized Loss	$	—	$	—	$	—	$	(42)	$	—	$	(42)

Non-U.S. government
Fair value	$	1,995	$	—	$	1,995	$	—	$	—	$	—
Amortized cost		2,020		—		2,020		—		—		—
Unrealized Loss	$	(25)	$	—	$	(25)	$	—	$	—	$	—

Agency MBS
Fair value	$	22,294	$	468	$	22,762	$	21,548	$	41,718	$	63,266
Amortized cost		22,368		471		22,839		21,664		42,165		63,829
Unrealized Loss	$	(74)	$	(3)	$	(77)	$	(116)	$	(447)	$	(563)

ABS/CMBS*
Fair value	$	34,445	$	15,578	$	50,023	$	74,968	$	18,036	$	93,004
Amortized cost		35,297		15,931		51,228		75,332		18,148		93,480
Unrealized Loss	$	(852)	$	(353)	$	(1,205)	$	(364)	$	(112)	$	(476)

Corporate
Fair value	$	110,503	$	5,185	$	115,688	$	16,478	$	9,348	$	25,826
Amortized cost		116,140		5,850		121,990		16,950		9,694		26,644
Unrealized Loss	$	(5,637)	$	(665)	$	(6,302)	$	(472)	$	(346)	$	(818)

Municipal
Fair value	$	12,038	$	—	$	12,038	$	47,018	$	—	$	47,018
Amortized cost		12,108		—		12,108		47,740		—		47,740
Unrealized Loss	$	(70)	$	—	$	(70)	$	(722)	$	—	$	(722)

Total fixed income
Fair value	$	181,275	$	21,231	$	202,506	$	169,311	$	77,565	$	246,876
Amortized cost		187,933		22,252		210,185		171,028		78,501		249,529
Unrealized Loss	$	(6,658)	$	(1,021)	$	(7,679)	$	(1,717)	$	(936)	$	(2,653)

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

The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at June 30, 2020 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	$	100,257	$	98,089	$	(2,168)	28.2	%
2	BBB	Baa		10,076		9,860		(216)	2.8	%
3	BB	Ba		51,161		49,264		(1,897)	24.7	%
4	B	B		42,541		40,086		(2,455)	32.0	%
5	CCC	Caa		5,822		5,019		(803)	10.5	%
6	CC or lower	Ca or lower		328		188		(140)	1.8	%
		Total	$	210,185	$	202,506	$	(7,679)	100.0	%

Unrealized Gains and Losses on Equity Securities

Unrealized gains recognized on equity securities still held as of June 30, 2020 were $72.4 million during the second quarter, while unrealized losses were $42.9 million during the first half of 2020. Comparatively, unrealized gains recognized on equity securities still held as of June 30, 2019 were $12.9 million during the second quarter and $54.8 million during the first half of 2019.

Other Invested Assets

We had $63.4 million of other invested assets at June 30, 2020, compared to $70.4 million at the end of 2019. Other invested assets include investments in low income housing tax credit partnerships (LIHTC), membership in the Federal Home Loan Bank of Chicago (FHLBC), investments in private funds and investments in restricted stock. 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. Restricted stock is carried at quoted market prices, as the restrictions expire within one year.

Our LIHTC interests had a balance of $21.6 million at June 30, 2020, compared to $23.3 million at December 31, 2019 and recognized a total tax benefit of $0.9 million during the second quarter of 2020, compared to $0.6 million the prior year. For the six-month periods ended June 30, 2020 and 2019, our LIHTC interest recognized a total benefit of $1.8 million and $1.2 million, respectively. Our unfunded commitment for our LIHTC investments totaled $7.4 million at June 30, 2020 and will be paid out in installments through 2035.

As of June 30, 2020, $14.6 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 ended June 30, 2020, there were no outstanding borrowings with the FHLBC.

Our investments in private funds totaled $24.4 million at June 30, 2020, compared to $46.0 million at December 31, 2019, and we had $10.4 million of associated unfunded commitments at June 30, 2020. Our interest in private funds is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities. During the first quarter of 2020, one of the private funds transitioned into a publicly traded common stock. Short term restrictions, limiting our ability to sell without prior approval, were established and remain in place. Our investment in restricted stock was $15.8 million as of June 30, 2020. For our remaining investments in private funds, the timed dissolution of the partnerships would trigger redemption.

Cash

Cash consists of uninvested balances in bank accounts. We had a cash balance of $84.8 million at June 30, 2020, compared to $46.2 million at the end of 2019.