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 nine-month periods ended September 30, 2022 and 2021:

Assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 are summarized below:

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

The following table summarizes changes in the balance of securities whose fair value was measured using significant unobservable inputs (Level 3).


(in thousands)	Level 3 Securities
Balance as of January 1, 2022	$	43,518
Net realized and unrealized gains (losses)
Included in net earnings as a part of:
Net investment income		(662)
Net realized gains		(433)
Included in other comprehensive earnings (loss)		(8,350)
Total net realized and unrealized gains (losses)	$	(9,445)
Purchases		21,461
Transfers out of Level 3		(1,097)
Balance as of September 30, 2022	$	54,437
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in net realized gains	$	(433)
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)	$	(8,350)

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of September 30, 2022 were as follows:


	September 30, 2022
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	206,921	$	206,327
Due after one year through five years		867,511		818,569
Due after five years through 10 years		515,276		457,011
Due after 10 years		526,093		411,591
ABS/CMBS/MBS*		637,830		558,541
Total available-for-sale	$	2,753,631	$	2,452,039

*	Asset-backed, commercial mortgage-backed and mortgage-backed securities

The amortized cost and fair value of available-for-sale securities at September 30, 2022 and December 31, 2021 are presented in the tables below. Amortized cost does not include the $18.4 million and $16.4 million of accrued interest receivable as of September 30, 2022 and December 31, 2021, respectively.


	September 30, 2022
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		Value
U.S. government	$	349,419	$	—	$	—	$	(8,977)	$	340,442
U.S. agency		59,048		—		9		(2,122)		56,935
Non-U.S. government & agency		6,798		—		—		(1,086)		5,712
Agency MBS		360,429		—		172		(43,572)		317,029
ABS/CMBS/MBS*		277,401		(9)		21		(35,901)		241,512
Corporate		1,067,473		(318)		47		(103,333)		963,869
Municipal		633,063		—		194		(106,717)		526,540
Total Fixed Income	$	2,753,631	$	(327)	$	443	$	(301,708)	$	2,452,039

	December 31, 2021
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		Value
U.S. government	$	127,752	$	—	$	6,846	$	(44)	$	134,554
U.S. agency		30,403		—		2,374		(17)		32,760
Non-U.S. government & agency		8,297		—		338		(154)		8,481
Agency MBS		362,861		—		9,277		(4,951)		367,187
ABS/CMBS/MBS*		264,273		—		2,120		(2,339)		264,054
Corporate		925,394		(441)		37,247		(5,105)		957,095
Municipal		627,287		—		22,750		(4,281)		645,756
Total Fixed Income	$	2,346,267	$	(441)	$	80,952	$	(16,891)	$	2,409,887

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

Allowance for Credit Losses and Unrealized Losses on Fixed Income Securities

A reversable allowance for credit losses is recognized on available-for-sale fixed income securities. Several criteria are reviewed to determine if securities in the fixed income portfolio 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 security’s fair value is below amortized cost. As of September 30, 2022, the discounted cash flow analysis resulted in an allowance for credit losses on 18 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Beginning balance	$	292	$	204	$	441	$	397
Increase to allowance from securities for which credit losses were not previously recorded		168		—		292		—
Reduction from securities sold during the period		(166)		—		(619)
Reductions from intent to sell securities		—		—		(17)		—
Net increase (decrease) from securities that had an allowance at the beginning of the period		33		22		230		(171)
Balance as of September 30,	$	327	$	226	$	327	$	226

During 2022, net realized gains included $0.1 million of losses on fixed income securities for which we no longer had the intent to hold until recovery and the cost basis was written down to fair value. No such losses were recognized during the first nine months of 2021.

As of September 30, 2022, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,543 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $301.7 million in associated unrealized losses represents 10.8 percent of the fixed income portfolio’s cost basis and 8.2 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first nine months of 2022, as interest rates increased during the period. Of the total 1,543 securities, 302 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 September 30, 2022 and December 31, 2021 after factoring in the allowance for credit losses. All fixed income securities continue to pay the expected coupon payments and we believe we will recover the amortized cost basis of available-for-sale securities that remain in an unrealized loss position.


	September 30, 2022						December 31, 2021
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total
U.S. government
Fair value	$	285,302	$	5,315	$	290,617	$	2,942	$	—	$	2,942
Amortized cost		293,829		5,765		299,594		2,986		—		2,986
Unrealized loss	$	(8,527)	$	(450)	$	(8,977)	$	(44)	$	—	$	(44)
U.S. agency
Fair value	$	30,089	$	—	$	30,089	$	1,498	$	—	$	1,498
Amortized cost		32,211		—		32,211		1,515		—		1,515
Unrealized loss	$	(2,122)	$	—	$	(2,122)	$	(17)	$	—	$	(17)
Non-U.S. government
Fair value	$	3,594	$	2,118	$	5,712	$	4,346	$	—	$	4,346
Amortized cost		3,798		3,000		6,798		4,500		—		4,500
Unrealized Loss	$	(204)	$	(882)	$	(1,086)	$	(154)	$	—	$	(154)
Agency MBS
Fair value	$	192,947	$	112,457	$	305,404	$	102,145	$	62,669	$	164,814
Amortized cost		210,448		138,528		348,976		104,336		65,429		169,765
Unrealized loss	$	(17,501)	$	(26,071)	$	(43,572)	$	(2,191)	$	(2,760)	$	(4,951)
ABS/CMBS/MBS*
Fair value	$	148,272	$	89,792	$	238,064	$	150,997	$	3,935	$	154,932
Amortized cost		165,163		108,802		273,965		153,235		4,036		157,271
Unrealized loss	$	(16,891)	$	(19,010)	$	(35,901)	$	(2,238)	$	(101)	$	(2,339)
Corporate
Fair value	$	773,433	$	184,317	$	957,750	$	217,791	$	53,818	$	271,609
Amortized cost		844,169		216,914		1,061,083		221,010		55,704		276,714
Unrealized loss	$	(70,736)	$	(32,597)	$	(103,333)	$	(3,219)	$	(1,886)	$	(5,105)
Municipal
Fair value	$	418,864	$	76,783	$	495,647	$	162,998	$	15,037	$	178,035
Amortized cost		493,485		108,879		602,364		166,602		15,714		182,316
Unrealized loss	$	(74,621)	$	(32,096)	$	(106,717)	$	(3,604)	$	(677)	$	(4,281)
Total fixed income
Fair value	$	1,852,501	$	470,782	$	2,323,283	$	642,717	$	135,459	$	778,176
Amortized cost		2,043,103		581,888		2,624,991		654,184		140,883		795,067
Unrealized loss	$	(190,602)	$	(111,106)	$	(301,708)	$	(11,467)	$	(5,424)	$	(16,891)

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

The following table shows the composition of the fixed income securities in unrealized loss positions, after factoring in the allowance for credit losses, at September 30, 2022 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	$	2,084,118	$	1,840,726	$	(243,392)	80.7	%
2	BBB	Baa		399,832		353,124		(46,708)	15.5	%
3	BB	Ba		75,146		67,738		(7,408)	2.5	%
4	B	B		65,238		61,152		(4,086)	1.3	%
5	CCC	Caa		657		543		(114)	0.0	%
6	CC or lower	Ca or lower		—		—		—	0.0	%
		Total	$	2,624,991	$	2,323,283	$	(301,708)	100.0	%

Other Invested Assets

We had $48.8 million of other invested assets at September 30, 2022, compared to $50.5 million at December 31, 2021. 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 $14.2 million at September 30, 2022, compared to $16.6 million at December 31, 2021, and recognized a total tax benefit of $0.9 million during the third quarters of 2022 and 2021. For the nine-months ended
September 30, 2022, our LIHTC interests recognized a total benefit of $2.6 million, compared to $2.7 million for the same period in 2021. Our unfunded commitment for our LIHTC investments totaled $1.3 million at September 30, 2022 and will be paid out in installments through 2035.

As of September 30, 2022, $60.2 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 September 30, 2022, $50.0 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $28.9 million at September 30, 2022, compared to $28.6 million at December 31, 2021, and we had $5.7 million of associated unfunded commitments at September 30, 2022. Our interest in private funds is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities, and the timed dissolution of the partnerships would trigger redemption.

Investments in Unconsolidated Investees

We had $58.1 million of investments in unconsolidated investees at September 30, 2022, compared to $171.3 million at December 31, 2021. Our investments accounted for under the equity method are primarily related to Maui Jim, Inc. (Maui Jim) and Prime Holdings Insurance Services, Inc. (Prime). On September 30, 2022, we completed the sale of our investment in Maui Jim. See note 8 for more information on the sale. At September 30, 2022, our investment in Prime was $46.9 million. Other investments in unconsolidated investees totaled $11.2 million at September 30, 2022 and had unfunded commitments of $7.7 million.

Cash

Cash consists of uninvested balances in bank accounts. We had a cash balance of $723.5 million at September 30, 2022, compared to $88.8 million at December 31, 2021. Cash balances increased due to the sale of our investment in Maui Jim which was completed on September 30, 2022.