Our investments are primarily composed of fixed income debt securities and common stock equity securities. All of our debt securities are classified as available-for-sale, which are carried at fair value. Our equity portfolio consists of common stocks and exchange traded funds (ETF), which are carried at fair value.

Pretax net realized gains (losses) and net changes in unrealized gains (losses) on investments for the years ended December 31 are summarized below.

The change in unrealized gain (loss) position was due to an increase in interest rates, decreasing the fair value of fixed income securities, as well as a decline in equity market returns during the year.

The following is a summary of the disposition of fixed income securities and equities for the years ended December 31, with separate presentations for sales and calls/maturities:

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

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


	2021
	Quoted in Active		Significant Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities - available-for-sale
U.S. government	$	—	$	134,554	$	—	$	134,554
U.S. agency		—		32,760		—		32,760
Non-U.S. government & agency		—		8,481		—		8,481
Agency MBS		—		367,187		—		367,187
ABS/CMBS/MBS*		—		264,054		—		264,054
Corporate		—		913,577		43,518		957,095
Municipal		—		645,756		—		645,756
Total fixed income securities - available-for-sale	$	—	$	2,366,369	$	43,518	$	2,409,887
Equity securities		613,712		64		—		613,776
Total	$	613,712	$	2,366,433	$	43,518	$	3,023,663

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

The following table summarizes changes in the balance of Regulation D private placement 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		(693)
Net realized gains		(432)
Included in other comprehensive earnings		(7,291)
Total net realized and unrealized gains (losses)	$	(8,416)
Purchases		21,261
Transfers out of Level 3		(1,097)
Balance as of December 31, 2022	$	55,266
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in net realized gains	$	(432)
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings	$	(7,291)

The amortized cost and estimated fair value of fixed income securities at December 31, 2022, by contractual maturity, are shown as follows:


(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	332,951	$	331,761
Due after one year through five years		916,676		873,530
Due after five years through 10 years		522,104		474,025
Due after 10 years		523,729		415,092
ABS/CMBS/MBS*		649,813		572,542
Total available-for-sale	$	2,945,273	$	2,666,950

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

Expected maturities may differ from contractual maturities due to call provisions on some existing securities.

The amortized cost and fair value of available-for-sale securities at December 31, 2022 and 2021 are presented in the tables below. Amortized cost does not include the $20.2 million and $16.4 million of accrued interest receivable as of December 31, 2022 and 2021, respectively.


	2022
			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized
(in thousands)	Cost		Losses		Gains		Losses		Fair Value
U.S. government	$	462,884	$	—	$	8	$	(8,871)	$	454,021
U.S. agency		75,074		—		26		(2,037)		73,063
Non-U.S. government & agency		6,798		—		—		(951)		5,847
Agency MBS		373,687		—		336		(42,217)		331,806
ABS/CMBS/MBS*		276,126		(8)		62		(35,444)		240,736
Corporate		1,122,097		(331)		541		(87,977)		1,034,330
Municipal		628,607		—		1,265		(102,725)		527,147
Total fixed income	$	2,945,273	$	(339)	$	2,238	$	(280,222)	$	2,666,950


	2021
			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized
(in thousands)	Cost		Losses		Gains		Losses		Fair 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

Asset-Backed, Commercial Mortgage-Backed and Mortgage-Backed Securities

Eighty-three percent of our collateralized securities carry the highest credit rating by one or more major rating agencies and continue to pay according to contractual terms.

For all fixed income securities at an unrealized loss at December 31, 2022, we believe it is probable that we will receive all contractual payments in the form of principal and interest. In addition, we are not required to, nor do we intend to, sell these investments prior to recovering the entire amortized cost basis of each security, which may be at maturity.

Municipal Bonds

As of December 31, 2022, approximately 46 percent of the municipal fixed income securities in the investment portfolio were general obligations of state and local governments and the remaining 54 percent were revenue based. Eighty-eight percent of our municipal fixed income securities were rated AA or better while 99 percent were rated A or better.

ALLOWANCE FOR CREDIT LOSSES AND UNREALIZED LOSSES ON FIXED INCOME SECURITIES

A reversible allowance for credit losses is required to be recognized on available-for-sale fixed income securities. 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 fair value is below amortized cost. As of December 31, 2022, the discounted cash flow analysis resulted in an allowance for credit losses on 14 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities:


(in thousands)	2022		2021
Beginning balance	$	441	$	397
Increase to allowance from securities for which credit losses were not previously recorded		337		4
Reduction from securities sold during the period		(671)		(4)
Net increase (decrease) from securities that had an allowance at the beginning of the period		232		44
Ending balance	$	339	$	441

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 for which the cost basis was written down to fair value. No such losses were recognized in 2021. All fixed income securities continue to pay the expected coupon payments. We believe we will recover the amortized cost basis of available-for-sale securities that remain in an unrealized loss position.

As of December 31, 2022, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,473 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $280.2 million in associated unrealized losses represents 9.5 percent of the fixed income portfolio’s cost basis and 8.6 percent of total invested assets. Isolated to these securities, unrealized losses at the end of 2022 increased compared to the previous year due to increasing interest rates which reduce the fair value of fixed income securities. Of the total 1,473 securities, 518 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 December 31, 2022 and 2021. 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.


	December 31, 2022						December 31, 2021
				12 Mos.						12 Mos.
(in thousands)	< 12 Mos.		& Greater		Total		< 12 Mos.		& Greater		Total
U.S. government
Fair value	$	399,361	$	8,828	$	408,189	$	2,942	$	—	$	2,942
Amortized cost		407,340		9,720		417,060		2,986		—		2,986
Unrealized loss	$	(7,979)	$	(892)	$	(8,871)	$	(44)	$	—	$	(44)
U.S. agency
Fair value	$	32,987	$	2,170	$	35,157	$	1,498	$	—	$	1,498
Amortized cost		34,627		2,567		37,194		1,515		—		1,515
Unrealized loss	$	(1,640)	$	(397)	$	(2,037)	$	(17)	$	—	$	(17)
Non-U.S. government & agency
Fair value	$	3,626	$	2,221	$	5,847	$	4,346	$	—	$	4,346
Amortized cost		3,798		3,000		6,798		4,500		—		4,500
Unrealized loss	$	(172)	$	(779)	$	(951)	$	(154)	$	—	$	(154)
Agency MBS
Fair value	$	197,252	$	117,851	$	315,103	$	102,145	$	62,669	$	164,814
Amortized cost		212,776		144,544		357,320		104,336		65,429		169,765
Unrealized loss	$	(15,524)	$	(26,693)	$	(42,217)	$	(2,191)	$	(2,760)	$	(4,951)
ABS/CMBS/MBS*
Fair value	$	96,754	$	136,149	$	232,903	$	150,997	$	3,935	$	154,932
Amortized cost		104,724		163,623		268,347		153,235		4,036		157,271
Unrealized loss	$	(7,970)	$	(27,474)	$	(35,444)	$	(2,238)	$	(101)	$	(2,339)
Corporate
Fair value	$	660,830	$	323,337	$	984,167	$	217,791	$	53,818	$	271,609
Amortized cost		697,437		374,707		1,072,144		221,010		55,704		276,714
Unrealized loss	$	(36,607)	$	(51,370)	$	(87,977)	$	(3,219)	$	(1,886)	$	(5,105)
Municipal
Fair value	$	228,827	$	204,324	$	433,151	$	162,998	$	15,037	$	178,035
Amortized cost		255,240		280,636		535,876		166,602		15,714		182,316
Unrealized loss	$	(26,413)	$	(76,312)	$	(102,725)	$	(3,604)	$	(677)	$	(4,281)
Total fixed income
Fair value	$	1,619,637	$	794,880	$	2,414,517	$	642,717	$	135,459	$	778,176
Amortized cost		1,715,942		978,797		2,694,739		654,184		140,883		795,067
Unrealized loss	$	(96,305)	$	(183,917)	$	(280,222)	$	(11,467)	$	(5,424)	$	(16,891)

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

OTHER INVESTED ASSETS

We had $47.9 million of other invested assets at December 31, 2022, compared to $50.5 million at the end of 2021. Other invested assets include investments in low-income housing tax credit (LIHTC) partnerships, membership stock 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 investments’ net asset value.

Our LIHTC interests had a balance of $13.5 million at December 31, 2022, compared to $16.6 million at December 31, 2021, and recognized a total tax benefit of $3.4 million during 2022, compared to $3.6 million during 2021 and $3.5 million during 2020. Our unfunded commitment for our LIHTC investments totaled $1.3 million at December 31, 2022 and will be paid out in installments through 2035.

Our investments in private funds totaled $28.4 million at December 31, 2022, compared to $28.6 million at December 31, 2021, and we had $4.9 million of associated unfunded commitments at December 31, 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.

Restricted Assets

As of December 31, 2022, $57.3 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of the FHLBC stock provides. On November 10, 2021 RLI Insurance Company borrowed $50.0 million from the FHLBC, which was outstanding as of December 31, 2022.

As of December 31, 2022, fixed income securities with a carrying value of $88.6 million were on deposit with regulatory authorities as required by law.