Investments

3 Months Ended

Mar. 31, 2021

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 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, 2021 and 2020:

Sales	Proceeds		Gross Realized					Net Realized
(in thousands)	From Sales		Gains		Losses			Gain (Loss)
2021
Available-for-sale	$	21,273	$	1,003	$	(27	)	$	976
Equities		47,638		14,233		(1,150	)		13,083
2020
Available-for-sale	$	19,858	$	2,270	$	(102	)	$	2,168
Equities		38,042		17,792		(2,633	)		15,159

Calls/Maturities			Gross Realized					Net Realized
(in thousands)	Proceeds		Gains		Losses			Gain (Loss)
2021
Available-for-sale	$	96,285	$	255	$	(48	)	$	207
2020
Available-for-sale	$	54,890	$	145	$	(7	)	$	138

FAIR VALUE MEASUREMENTS

Assets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are summarized below:

	As of March 31, 2021
	Fair Value Measurements Using
		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		$	—	$	170,422	$	—	$	170,422
U.S. agency			—		31,666		—		31,666
Non-U.S. government & agency			—		8,555		—		8,555
Agency MBS			—		369,212		—		369,212
ABS/CMBS/MBS*			—		218,232		—		218,232
Corporate			—		810,751		22,452		833,203
Municipal			—		544,579		—		544,579
Total fixed income securities - available-for-sale		$	—	$	2,153,417	$	22,452	$	2,175,869
Equity securities			555,105		104		—		555,209
Other invested assets			—		—		—		—
Total		$	555,105	$	2,153,521	$	22,452	$	2,731,078

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

	As of December 31, 2020
	Fair Value Measurements Using
		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		$	—	$	183,357	$	—	$	183,357
U.S. agency			—		32,872		—		32,872
Non-U.S. government & agency			—		10,965		—		10,965
Agency MBS			—		402,071		—		402,071
ABS/CMBS/MBS*			—		218,373		—		218,373
Corporate			—		798,794		17,798		816,592
Municipal			—		532,396		—		532,396
Total fixed income securities - available-for-sale		$	—	$	2,178,828	$	17,798	$	2,196,626
Equity securities			523,923		83		—		524,006
Other invested assets			6,068		—		—		6,068
Total		$	529,991	$	2,178,911	$	17,798	$	2,726,700

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

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

(in thousands)	Level 3 Securities
Balance as of January 1, 2021	$	17,798
Net realized and unrealized gains (losses)
Included in net earnings as a part of:
Net investment income		(13	)
Net realized gains		(192	)
Included in other comprehensive earnings (loss)		(606	)
Total net realized and unrealized gains (losses)	$	(811	)
Purchases		5,465
Balance as of March 31, 2021	$	22,452
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in net realized gains	$	(192	)
Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings	$	(606	)

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2021 were as follows:

	March 31, 2021
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	105,159	$	106,340
Due after one year through five years		512,686		539,027
Due after five years through 10 years		522,850		552,085
Due after 10 years		382,756		390,973
ABS/CMBS/MBS*		573,401		587,444
Total available-for-sale	$	2,096,852	$	2,175,869

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

The amortized cost and fair value of available-for-sale securities at March 31, 2021 and December 31, 2020 are presented in the tables below. Amortized cost does not include the $14.9 million of accrued interest receivable as of March 31, 2021 and December 31, 2020.

	March 31, 2021
	Cost or		Allowance			Gross		Gross
	Amortized		for Credit			Unrealized		Unrealized			Fair
(in thousands)	Cost		Losses			Gains		Losses			Value
U.S. government	$	161,956	$	—		$	9,539	$	(1,073	)	$	170,422
U.S. agency		28,883		—			2,783		—			31,666
Non-U.S. government & agency		8,296		—			407		(148	)		8,555
Agency MBS		358,224		—			14,007		(3,019	)		369,212
ABS/CMBS/MBS*		215,177		—			3,713		(658	)		218,232
Corporate		796,042		(375	)		42,200		(4,664	)		833,203
Municipal		528,274		—			21,781		(5,476	)		544,579
Total Fixed Income	$	2,096,852	$	(375	)	$	94,430	$	(15,038	)	$	2,175,869

	December 31, 2020
	Cost or		Allowance			Gross		Gross
	Amortized		for Credit			Unrealized		Unrealized			Fair
(in thousands)	Cost		Losses			Gains		Losses			Value
U.S. government	$	170,110	$	—		$	13,504	$	(257	)	$	183,357
U.S. agency		28,902		—			3,970		—			32,872
Non-U.S. government & agency		10,298		—			667		—			10,965
Agency MBS		384,015		—			18,789		(733	)		402,071
ABS/CMBS/MBS*		213,223		(17	)		5,580		(413	)		218,373
Corporate		753,404		(380	)		64,501		(933	)		816,592
Municipal		501,515		—			31,099		(218	)		532,396
Total Fixed Income	$	2,061,467	$	(397	)	$	138,110	$	(2,554	)	$	2,196,626

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

Allowance for Credit Losses and Unrealized Losses on Fixed Income Securities

We adopted ASU 2016-13, Financial Instruments – Credit Losses, on January 1, 2020, which required the recognition of a reversable allowance for credit losses 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 securities fair value is below amortized cost. As of March 31, 2021, the discounted cash flow analysis resulted in an allowance for credit losses on 16 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)	2021			2020
Beginning balance	$	397		$	—
Adoption impact of ASU 2016-13		-			28
Increase to allowance from securities for which credit losses were not previously recorded		-			624
Net increase (decrease) from securities that had an allowance at the beginning of the period		(22	)		226
Balance as of March 31,	$	375		$	878

As of March 31, 2021, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 320 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $15.0 million in associated unrealized losses represents 0.7 percent of the fixed income portfolio’s cost basis and 0.5 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first three months of 2021, as interest rates increased during the period. Of the total 320 securities, 32 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, 2021 and December 31, 2020 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, 2021									December 31, 2020
(in thousands)	< 12 Mos.			12 Mos. & Greater			Total			< 12 Mos.			12 Mos. & Greater			Total
U.S. government
Fair value	$	4,864		$	—		$	4,864		$	5,680		$	—		$	5,680
Amortized cost		5,937			—			5,937			5,937			—			5,937
Unrealized loss	$	(1,073	)	$	—		$	(1,073	)	$	(257	)	$	—		$	(257	)
Non-U.S. government
Fair value	$	2,852		$	—		$	2,852		$	—		$	—		$	—
Amortized cost		3,000			—			3,000			—			—			—
Unrealized Loss	$	(148	)	$	—		$	(148	)	$	—		$	—		$	—
Agency MBS
Fair value	$	92,446		$	—		$	92,446		$	43,999		$	—		$	43,999
Amortized cost		95,465			—			95,465			44,732			—			44,732
Unrealized loss	$	(3,019	)	$	—		$	(3,019	)	$	(733	)	$	—		$	(733	)
ABS/CMBS/MBS*
Fair value	$	55,703		$	7,235		$	62,938		$	32,771		$	16,161		$	48,932
Amortized cost		56,341			7,255			63,596			33,094			16,251			49,345
Unrealized loss	$	(638	)	$	(20	)	$	(658	)	$	(323	)	$	(90	)	$	(413	)
Corporate
Fair value	$	165,717		$	14,193		$	179,910		$	52,655		$	6,235		$	58,890
Amortized cost		170,204			14,370			184,574			53,440			6,383			59,823
Unrealized loss	$	(4,487	)	$	(177	)	$	(4,664	)	$	(785	)	$	(148	)	$	(933	)
Municipal
Fair value	$	115,596		$	—		$	115,596		$	25,676		$	—		$	25,676
Amortized cost		121,072			—			121,072			25,894			—			25,894
Unrealized loss	$	(5,476	)	$	—		$	(5,476	)	$	(218	)	$	—		$	(218	)
Total fixed income
Fair value	$	437,178		$	21,428		$	458,606		$	160,781		$	22,396		$	183,177
Amortized cost		452,019			21,625			473,644			163,097			22,634			185,731
Unrealized loss	$	(14,841	)	$	(197	)	$	(15,038	)	$	(2,316	)	$	(238	)	$	(2,554	)

* 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, 2021 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	$	365,229	$	352,591	$	(12,638	)		84.1	%
2	BBB	Baa		55,575		54,161		(1,414	)		9.4	%
3	BB	Ba		23,838		23,455		(383	)		2.5	%
4	B	B		26,201		25,616		(585	)		3.9	%
5	CCC	Caa		2,801		2,783		(18	)		0.1	%
6	CC or lower	Ca or lower		-		-		-			0.0	%
		Total	$	473,644	$	458,606	$	(15,038	)		100.0	%

Unrealized Gains and Losses on Equity Securities

Unrealized gains recognized on equity securities still held as of March 31, 2021 were $41.2 million during the first quarter. Comparatively, unrealized losses recognized on equity securities still held as of March 31, 2020 were $115.2 million during the first quarter.

Other Invested Assets

We had $50.4 million of other invested assets at March 31, 2021, compared to $54.2 million at December 31, 2020. 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 $19.4 million at March 31, 2021, compared to $20.3 million at December 31, 2020 and recognized a total tax benefit of $0.9 million during the first quarters of 2021 and 2020. Our unfunded commitment for our LIHTC investments totaled $2.7 million at March 31, 2021 and will be paid out in installments through 2035.

As of March 31, 2021, $10.2 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 and during the three-month period ended March 31, 2021, there were no outstanding borrowings with the FHLBC.

Our investments in private funds totaled $27.8 million at March 31, 2021, compared to $32.1 million at December 31, 2020, and we had $6.5 million of associated unfunded commitments at March 31, 2021. 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. At December 31, 2020, we had a publicly traded common stock with short-term restrictions that limited our ability to sell the security without prior approval. During the first quarter of 2021, our investment in this security became unrestricted and the investment was included in our equity portfolio as of March 31, 2021.

Cash

Cash consists of uninvested balances in bank accounts. We had a cash balance of $94.9 million at March 31, 2021, compared to $62.2 million at December 31, 2020.