2. INVESTMENTS

Our investments include 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 March 31, 2016 and December 31, 2015 were as follows:


Available-for-sale
(in thousands)
	3/31/2016
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Asset Class	Cost		Gains		Losses		Value
U.S. government	$	86,872	$	1,333	$	-	$	88,205
U.S. agency		15,482		761		(1)		16,242
Non-U.S. govt. & agency		7,009		87		(317)		6,779
Agency MBS		242,377		8,736		(298)		250,815
ABS/CMBS*		89,522		1,899		(123)		91,298
Corporate		554,865		15,656		(10,532)		559,989
Municipal		516,679		26,962		(1)		543,640
Total Fixed Income	$	1,512,806	$	55,434	$	(11,272)	$	1,556,968

Equity	$	207,302	$	183,020	$	(771)	$	389,551


Available-for-sale
(in thousands)
	12/31/2015
	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 March 31, 2016:


	3/31/2016
Available-for-sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	22,792	$	22,975
Due after one year through five years		304,023		307,732
Due after five years through 10 years		567,054		585,434
Due after 10 years		287,038		298,714
Mtge/ABS/CMBS*		331,899		342,113
Total available-for-sale	$	1,512,806	$	1,556,968

*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 March 31, 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 March 31, 2016 unrealized losses, as shown in the following tables, were 0.6 percent of total invested assets. Unrealized losses decreased in 2016, due largely to interest rates declines during the first quarter.


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

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

U.S. Agency
Fair value	$	4,001	$	—	$	4,001	$	8,070	$	—	$	8,070
Cost or amortized cost		4,002		—		4,002		8,117		—		8,117
Unrealized Loss	$	(1)	$	—	$	(1)	$	(47)	$	—	$	(47)

Non-U.S. government
Fair value	$	3,737	$	—	$	3,737	$	4,478	$	—	$	4,478
Cost or amortized cost		4,054		—		4,054		5,035		—		5,035
Unrealized Loss	$	(317)	$	—	$	(317)	$	(557)	$	—	$	(557)

Agency MBS
Fair value	$	5,779	$	25,039	$	30,818	$	100,424	$	18,520	$	118,944
Cost or amortized cost		5,815		25,301		31,116		101,473		19,090		120,563
Unrealized Loss	$	(36)	$	(262)	$	(298)	$	(1,049)	$	(570)	$	(1,619)

ABS/CMBS*
Fair value	$	12,833	$	7,221	$	20,054	$	51,091	$	8,364	$	59,455
Cost or amortized cost		12,862		7,315		20,177		51,562		8,499		60,061
Unrealized Loss	$	(29)	$	(94)	$	(123)	$	(471)	$	(135)	$	(606)

Corporate
Fair value	$	101,587	$	47,606	$	149,193	$	275,404	$	15,174	$	290,578
Cost or amortized cost		105,798		53,927		159,725		285,515		19,870		305,385
Unrealized Loss	$	(4,211)	$	(6,321)	$	(10,532)	$	(10,111)	$	(4,696)	$	(14,807)

Municipal
Fair value	$	1,902	$	—	$	1,902	$	8,462	$	2,418	$	10,880
Cost or amortized cost		1,903		—		1,903		8,504		2,424		10,928
Unrealized Loss	$	(1)	$	—	$	(1)	$	(42)	$	(6)	$	(48)

Subtotal, fixed income
Fair value	$	129,839	$	79,866	$	209,705	$	483,929	$	44,476	$	528,405
Cost or amortized cost		134,434		86,543		220,977		496,318		49,883		546,201
Unrealized Loss	$	(4,595)	$	(6,677)	$	(11,272)	$	(12,389)	$	(5,407)	$	(17,796)

Equity securities
Fair value	$	8,624	$	—	$	8,624	$	16,476	$	—	$	16,476
Cost or amortized cost		9,395		—		9,395		17,932		—		17,932
Unrealized Loss	$	(771)	$	—	$	(771)	$	(1,456)	$	—	$	(1,456)

Total
Fair value	$	138,463	$	79,866	$	218,329	$	500,405	$	44,476	$	544,881
Cost or amortized cost		143,829		86,543		230,372		514,250		49,883		564,133
Unrealized Loss	$	(5,366)	$	(6,677)	$	(12,043)	$	(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 March 31, 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	$	102,457	$	101,196	$	(1,261)	11.2	%
2	BBB	Baa		58,657		55,757		(2,900)	25.7	%
3	BB	Ba		21,337		18,745		(2,592)	23.0	%
4	B	B		35,942		32,230		(3,712)	32.9	%
5	CCC or lower	Caa or lower		2,584		1,777		(807)	7.2	%
6				—		—		—	—
		Total	$	220,977	$	209,705	$	(11,272)	100.0	%

Evaluating Investments for OTTI

The fixed income portfolio contained 279 securities in an unrealized loss position as of March 31, 2016. The $11.3 million in associated unrealized losses for these 279 securities represents 0.7 percent of the fixed income portfolio’s cost basis. Of these 279 securities, 70 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. There were no other-than-temporary impairment (OTTI) losses recognized in net earnings or other comprehensive earnings in the periods presented on the fixed income portfolio.

As of March 31, 2016, we held four common stock securities that were in an unrealized loss position. The unrealized loss on these securities was $0.8 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. No equity securities have 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 other invested assets, their carrying amounts approximate fair value. Our LIHTC interests had a balance of $18.6 million at March 31, 2016, compared to $14.0 million at December 31, 2015 and recognized a total tax benefit of $0.4 million during the first quarter of 2016 compared to $0.3 million during the first quarter of 2015. Our investment in FHLBC stock totaled $1.6 million at March 31, 2016 and December 31, 2015. Our investment in the real estate fund totaled $5.0 million, the same amount as December 31, 2015.

Cash and Short-term Investments

Cash consists of uninvested balances in bank accounts. We had a cash balance of $14.6 million at the end of the first quarter of 2016, compared to $11.1 million at the end of 2015. Short-term investments are carried at cost, which approximates fair value. The balance at March 31, 2016 was $19.4 million, compared to $6.3 million at December 31, 2015.