Investments

3 Months Ended

Mar. 31, 2024

Investments Debt And Equity Securities [Abstract]

Investments

2. INVESTMENTS

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 the 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, 2024 and 2023:

Sales	Proceeds		Gross Realized				Net Realized
(in thousands)	From Sales		Gains		Losses		Gain (Loss)
2024
Fixed income securities - available-for-sale	$	11,819	$	289	$	(793)	$	(504)
Equity securities		15,910		7,234		(121)		7,113
2023
Fixed income securities - available-for-sale	$	3,790	$	35	$	(82)	$	(47)
Equity securities		3,501		2,417		(101)		2,316
Calls/Maturities			Gross Realized				Net Realized
(in thousands)	Proceeds		Gains		Losses		Gain (Loss)
2024
Fixed income securities - available-for-sale	$	72,423	$	33	$	(157)	$	(124)
2023
Fixed income securities - available-for-sale	$	190,305	$	35	$	(40)	$	(5)

FAIR VALUE MEASUREMENTS

Assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are summarized below:

	As of March 31, 2024
	Quoted Prices in		Significant Other		Significant
	Active 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	$	—	$	329,559	$	—	$	329,559
U.S. agency		—		58,455		—		58,455
Non-U.S. government & agency		—		3,844		—		3,844
Agency MBS		—		414,428		—		414,428
ABS/CMBS/MBS*		—		289,476		—		289,476
Corporate		—		1,158,487		62,560		1,221,047
Municipal		—		546,512		—		546,512
Total fixed income securities - available-for-sale	$	—	$	2,800,761	$	62,560	$	2,863,321
Equity securities		641,758		—		1,609		643,367
Total	$	641,758	$	2,800,761	$	64,169	$	3,506,688

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

	As of December 31, 2023
	Quoted Prices in		Significant Other		Significant
	Active 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	$	—	$	308,031	$	—	$	308,031
U.S. agency		—		59,826		—		59,826
Non-U.S. government & agency		—		3,882		—		3,882
Agency MBS		—		425,285		—		425,285
ABS/CMBS/MBS*		—		281,182		—		281,182
Corporate		—		1,164,548		60,471		1,225,019
Municipal		—		552,624		—		552,624
Total fixed income securities - available-for-sale	$	—	$	2,795,378	$	60,471	$	2,855,849
Equity securities		588,416		—		1,625		590,041
Total	$	588,416	$	2,795,378	$	62,096	$	3,445,890

* 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, 2024	$	62,096
Net realized and unrealized gains (losses)
Included in other comprehensive earnings (loss)		(271)
Purchases		2,735
Sales / Calls / Maturities		(391)
Balance as of March 31, 2024	$	64,169
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)	$	(271)

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2024 were as follows:

	March 31, 2024
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	188,801	$	186,550
Due after one year through five years		875,943		843,536
Due after five years through 10 years		696,813		669,310
Due after 10 years		548,944		460,021
ABS/CMBS/MBS*		771,772		703,904
Total available-for-sale	$	3,082,273	$	2,863,321

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

The amortized cost and fair value of available-for-sale securities at March 31, 2024 and December 31, 2023 are presented in the tables below. Amortized cost does not include the $24 million and $23 million of accrued interest receivable as of March 31, 2024 and December 31, 2023, respectively.

	March 31, 2024
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		Value
U.S. government	$	337,014	$	—	$	388	$	(7,843)	$	329,559
U.S. agency		59,956		—		444		(1,945)		58,455
Non-U.S. government & agency		4,800		—		—		(956)		3,844
Agency MBS		456,358		—		1,208		(43,138)		414,428
ABS/CMBS/MBS*		315,414		(2)		970		(26,906)		289,476
Corporate		1,277,258		(235)		4,732		(60,708)		1,221,047
Municipal		631,473		—		1,413		(86,374)		546,512
Total Fixed Income	$	3,082,273	$	(237)	$	9,155	$	(227,870)	$	2,863,321
	December 31, 2023
	Cost or		Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
(in thousands)	Cost		Losses		Gains		Losses		Value
U.S. government	$	312,632	$	—	$	1,257	$	(5,858)	$	308,031
U.S. agency		60,763		—		652		(1,589)		59,826
Non-U.S. government & agency		4,800		—		—		(918)		3,882
Agency MBS		460,551		—		2,636		(37,902)		425,285
ABS/CMBS/MBS*		308,458		(3)		611		(27,884)		281,182
Corporate		1,273,187		(303)		8,766		(56,631)		1,225,019
Municipal		634,000		—		2,238		(83,614)		552,624
Total Fixed Income	$	3,054,391	$	(306)	$	16,160	$	(214,396)	$	2,855,849

* 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, 2024, the discounted cash flow analysis resulted in an allowance for credit losses on 11 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)	2024		2023
Beginning balance	$	306	$	339
Increase to allowance from securities for which credit losses were not previously recorded		12		54
Reduction from securities sold during the period		(67)		—
Net increase (decrease) from securities that had an allowance at the beginning of the period		(14)		72
Balance as of March 31,	$	237	$	465

We recognized $2 million of losses on securities for which we no longer had the intent to hold until recovery during the first three months of 2023. No such losses were recognized during the first three months of 2024.

As of March 31, 2024, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,336 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $228 million in associated unrealized losses represents 7 percent of the fixed income portfolio’s cost basis and 6 percent of total invested assets. Isolated to these securities, unrealized losses increased slightly through the first three months of 2024, as interest rates increased during the period. Of the total 1,336 securities, 1,135 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, 2024 and December 31, 2023 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, 2024						December 31, 2023
(in thousands)	< 12 Mos.		12 Mos. & Greater		Total		< 12 Mos.		12 Mos. & Greater		Total
U.S. government
Fair value	$	78,413	$	203,962	$	282,375	$	37,718	$	204,556	$	242,274
Amortized cost		79,565		210,653		290,218		37,950		210,182		248,132
Unrealized loss	$	(1,152)	$	(6,691)	$	(7,843)	$	(232)	$	(5,626)	$	(5,858)
U.S. agency
Fair value	$	15,822	$	28,854	$	44,676	$	8,736	$	29,632	$	38,368
Amortized cost		15,995		30,626		46,621		8,790		31,167		39,957
Unrealized loss	$	(173)	$	(1,772)	$	(1,945)	$	(54)	$	(1,535)	$	(1,589)
Non-U.S. government
Fair value	$	—	$	3,844	$	3,844	$	—	$	3,882	$	3,882
Amortized cost		—		4,800		4,800		—		4,800		4,800
Unrealized Loss	$	—	$	(956)	$	(956)	$	—	$	(918)	$	(918)
Agency MBS
Fair value	$	55,007	$	288,704	$	343,711	$	61,196	$	275,707	$	336,903
Amortized cost		56,100		330,749		386,849		61,714		313,091		374,805
Unrealized loss	$	(1,093)	$	(42,045)	$	(43,138)	$	(518)	$	(37,384)	$	(37,902)
ABS/CMBS/MBS*
Fair value	$	25,663	$	182,583	$	208,246	$	12,240	$	211,436	$	223,676
Amortized cost		25,831		209,321		235,152		12,367		239,193		251,560
Unrealized loss	$	(168)	$	(26,738)	$	(26,906)	$	(127)	$	(27,757)	$	(27,884)
Corporate
Fair value	$	185,542	$	795,631	$	981,173	$	67,402	$	822,731	$	890,133
Amortized cost		188,580		853,301		1,041,881		68,345		878,419		946,764
Unrealized loss	$	(3,038)	$	(57,670)	$	(60,708)	$	(943)	$	(55,688)	$	(56,631)
Municipal
Fair value	$	74,207	$	418,819	$	493,026	$	61,218	$	391,361	$	452,579
Amortized cost		75,247		504,153		579,400		61,697		474,496		536,193
Unrealized loss	$	(1,040)	$	(85,334)	$	(86,374)	$	(479)	$	(83,135)	$	(83,614)
Total fixed income
Fair value	$	434,654	$	1,922,397	$	2,357,051	$	248,510	$	1,939,305	$	2,187,815
Amortized cost		441,318		2,143,603		2,584,921		250,863		2,151,348		2,402,211
Unrealized loss	$	(6,664)	$	(221,206)	$	(227,870)	$	(2,353)	$	(212,043)	$	(214,396)

* 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, 2024 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	$	2,137,898	$	1,941,077	$	(196,821)	86.4	%
2	BBB	Baa		397,220		369,097		(28,123)	12.3	%
3	BB	Ba		31,428		29,952		(1,476)	0.7	%
4	B	B		14,826		14,073		(753)	0.3	%
5	CCC	Caa		2,730		2,421		(309)	0.1	%
6	CC or lower	Ca or lower		819		431		(388)	0.2	%
		Total	$	2,584,921	$	2,357,051	$	(227,870)	100.0	%

Other Invested Assets

We had $59 million of other invested assets at March 31, 2024, compared to $59 million at December 31, 2023. 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 $9 million at March 31, 2024, compared to $10 million on December 31, 2023. Our LIHTC interests recognized amortization of $1 million as a component of income tax expense and a total tax benefit of $1 million during the first quarter of 2024 and 2023. Our unfunded commitment for our LIHTC investments was less than $1 million at March 31, 2024 and will be paid out in installments through 2035.

Our HTC investment had a balance of $12 million at March 31, 2024, compared to $13 million at December 31, 2023. Our HTC investment recognized $1 million of amortization as a component of income tax expense and a total tax benefit of $1 million during the first quarter of 2024 and 2023.

As of March 31, 2024, $57 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, 2024, $50 million of borrowings were outstanding with the FHLBC.

Our investments in private funds totaled $27 million as of March 31, 2024, down from $28 million as of December 31, 2023, and had $4 million of associated unfunded commitments at March 31, 2024. 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 $66 million of investments in unconsolidated investees at March 31, 2024, compared to $57 million at December 31, 2023. At March 31, 2024, our investment in Prime Holdings Insurance Services, Inc. (Prime) was $66 million and other investments in unconsolidated investees totaled less than $1 million.

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 $45 million and $147 million, respectively, at March 31, 2024, compared to $36 million and $135 million, respectively, at December 31, 2023.