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 three-month periods ended March 31, 2023 and 2022:

Assets measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 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, 2023	$	55,266
Net realized and unrealized gains (losses)
Included in other comprehensive earnings (loss)		671
Sales / Calls / Maturities		(1,568)
Balance as of March 31, 2023	$	54,369
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)	$	671

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2023 were as follows:


	March 31, 2023
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	294,528	$	293,229
Due after one year through five years		904,163		865,507
Due after five years through 10 years		514,187		478,924
Due after 10 years		546,390		457,798
ABS/CMBS/MBS*		674,045		606,356
Total available-for-sale	$	2,933,313	$	2,701,814

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

The amortized cost and fair value of available-for-sale securities at March 31, 2023 and December 31, 2022 are presented in the tables below. Amortized cost does not include the $20 million of accrued interest receivable as of both March 31, 2023 and December 31, 2022.


	March 31, 2023
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		Value
U.S. government	$	391,336	$	—	$	130	$	(6,267)	$	385,199
U.S. agency		75,257		—		33		(1,631)		73,659
Non-U.S. government & agency		6,798		—		—		(846)		5,952
Agency MBS		395,736		—		547		(36,309)		359,974
ABS/CMBS/MBS*		278,309		(7)		145		(32,065)		246,382
Corporate		1,156,944		(458)		1,344		(74,330)		1,083,500
Municipal		628,933		—		2,441		(84,226)		547,148
Total Fixed Income	$	2,933,313	$	(465)	$	4,640	$	(235,674)	$	2,701,814

	December 31, 2022
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		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

*	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 March 31, 2023, 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 March 31,
(in thousands)	2023		2022
Beginning balance	$	339	$	441
Increase to allowance from securities for which credit losses were not previously recorded		54		131
Reductions from intent to sell securities		—		(17)
Net increase (decrease) from securities that had an allowance at the beginning of the period		72		39
Balance as of March 31,	$	465	$	594

During the first three months of 2023, net realized gains included $1.7 million of losses on fixed income securities for which the cost basis was written down to fair value due to a credit event and restructuring. We recognized $0.1 million of losses on securities for which we no longer had the intent to hold until recovery during the first quarter of 2022.

As of March 31, 2023, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,388 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $236 million in associated unrealized losses represents 8 percent of the fixed income portfolio’s cost basis and 7 percent of total invested assets. Isolated to these securities, unrealized losses decreased through the first three months of 2023, as interest rates declined during the period. Of the total 1,388 securities, 954 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 March 31, 2023 and December 31, 2022 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.


	March 31, 2023						December 31, 2022
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total
U.S. government
Fair value	$	258,557	$	60,288	$	318,845	$	399,361	$	8,828	$	408,189
Amortized cost		262,101		63,011		325,112		407,340		9,720		417,060
Unrealized loss	$	(3,544)	$	(2,723)	$	(6,267)	$	(7,979)	$	(892)	$	(8,871)
U.S. agency
Fair value	$	26,616	$	8,940	$	35,556	$	32,987	$	2,170	$	35,157
Amortized cost		27,208		9,979		37,187		34,627		2,567		37,194
Unrealized loss	$	(592)	$	(1,039)	$	(1,631)	$	(1,640)	$	(397)	$	(2,037)
Non-U.S. government
Fair value	$	2,631	$	3,322	$	5,953	$	3,626	$	2,221	$	5,847
Amortized cost		2,702		4,097		6,799		3,798		3,000		6,798
Unrealized Loss	$	(71)	$	(775)	$	(846)	$	(172)	$	(779)	$	(951)
Agency MBS
Fair value	$	88,920	$	227,228	$	316,148	$	197,252	$	117,851	$	315,103
Amortized cost		91,195		261,262		352,457		212,776		144,544		357,320
Unrealized loss	$	(2,275)	$	(34,034)	$	(36,309)	$	(15,524)	$	(26,693)	$	(42,217)
ABS/CMBS/MBS*
Fair value	$	25,033	$	212,917	$	237,950	$	96,754	$	136,149	$	232,903
Amortized cost		25,851		244,164		270,015		104,724		163,623		268,347
Unrealized loss	$	(818)	$	(31,247)	$	(32,065)	$	(7,970)	$	(27,474)	$	(35,444)
Corporate
Fair value	$	383,271	$	572,886	$	956,157	$	660,830	$	323,337	$	984,167
Amortized cost		393,475		637,012		1,030,487		697,437		374,707		1,072,144
Unrealized loss	$	(10,204)	$	(64,126)	$	(74,330)	$	(36,607)	$	(51,370)	$	(87,977)
Municipal
Fair value	$	56,404	$	364,970	$	421,374	$	228,827	$	204,324	$	433,151
Amortized cost		56,986		448,614		505,600		255,240		280,636		535,876
Unrealized loss	$	(582)	$	(83,644)	$	(84,226)	$	(26,413)	$	(76,312)	$	(102,725)
Total fixed income
Fair value	$	841,432	$	1,450,551	$	2,291,983	$	1,619,637	$	794,880	$	2,414,517
Amortized cost		859,518		1,668,139		2,527,657		1,715,942		978,797		2,694,739
Unrealized loss	$	(18,086)	$	(217,588)	$	(235,674)	$	(96,305)	$	(183,917)	$	(280,222)

*	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 March 31, 2023 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	$	2,031,998	$	1,837,626	$	(194,372)	82.5	%
2	BBB	Baa		396,016		360,851		(35,165)	14.9	%
3	BB	Ba		58,153		54,496		(3,657)	1.6	%
4	B	B		38,897		37,168		(1,729)	0.7	%
5	CCC	Caa		2,593		1,842		(751)	0.3	%
6	CC or lower	Ca or lower		—		—		—	0.0	%
		Total	$	2,527,657	$	2,291,983	$	(235,674)	100.0	%

Other Invested Assets

We had $64 million of other invested assets at March 31, 2023, compared to $48 million at December 31, 2022. Other invested assets include investments in low income housing tax credit partnerships (LIHTC) and historic tax credit partnerships (HTC), membership in the Federal Home Loan Bank of Chicago (FHLBC), and investments in private funds. Our LIHTC and

HTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC, HTC 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 $13 million at both March 31, 2023 and December 31, 2022, and recognized a total tax benefit of $0.8 million during the first quarter of 2023, compared to a total tax benefit of $0.9 million during the same period in 2022. Our unfunded commitment for our LIHTC investments totaled $1 million at March 31, 2023 and will be paid out in installments through 2035.

Our HTC investment had a balance of $16 million at March 31, 2023, compared to $11 million at December 31, 2022. Through 2022, the investment was accounted for as an investment in unconsolidated investee. Due to the adoption of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, the investment was reclassified as an other invested asset during 2023. A total tax benefit of $1.4 million was recognized from our HTC investment during the first quarter of 2023, compared to $1.3 million in the first quarter of 2022. Our unfunded commitment for our HTC investment totaled $7 million at March 31, 2023 and is expected be paid entirely during 2023.

As of March 31, 2023, $59 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 March 31, 2023, $50 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $28 million as of March 31, 2023 and December 31, 2022, and had $5 million of associated unfunded commitments at March 31, 2023. 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 $52 million of investments in unconsolidated investees at March 31, 2023, compared to $58 million at December 31, 2022. At March 31, 2023, our investment in Prime Holdings Insurance Services, Inc. (Prime) was $52 million and other investments in unconsolidated investees totaled less than $1 million. Through December 31, 2022, our $11 million HTC investment was accounted for as an unconsolidated investee, but was reclassified as an other invested asset during 2023 due to the adoption of ASU 2023-02.

Cash and Short-Term Investments

Cash consists of uninvested balances in bank accounts. Short-term investments consist of investments with original maturities of 90 days or less, primarily AAA-rated government money market funds. Short-term investments are carried at cost. We had a cash and short-term investment balance of $23 million and $116 million, respectively, at March 31, 2023, compared to $23 million and $36 million, respectively, at December 31, 2022.