XML 21 R9.htm IDEA: XBRL DOCUMENT v3.22.1
Investments
 3 Months Ended
Mar. 31, 2022
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, 2022 and 2021:

 

 

Sales

 

Proceeds

 

 

Gross Realized

 

 

Net Realized

 

(in thousands)

 

From Sales

 

 

Gains

 

 

Losses

 

 

Gain (Loss)

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income securities - available-for-sale

 

$

8,832

 

 

$

117

 

 

$

(31

)

 

$

86

 

Equity securities

 

 

15,726

 

 

 

5,901

 

 

 

—

 

 

 

5,901

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income securities - available-for-sale

 

$

21,273

 

 

$

1,003

 

 

$

(27

)

 

$

976

 

Equity securities

 

 

47,638

 

 

 

14,233

 

 

 

(1,150

)

 

 

13,083

 

 

Calls/Maturities

 

 

 

 

 

Gross Realized

 

 

Net Realized

 

(in thousands)

 

Proceeds

 

 

Gains

 

 

Losses

 

 

Gain (Loss)

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income securities - available-for-sale

 

$

71,974

 

 

$

20

 

 

$

(13

)

 

$

7

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income securities - available-for-sale

 

$

96,285

 

 

$

255

 

 

$

(48

)

 

$

207

 

 

FAIR VALUE MEASUREMENTS

 

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

 

 

As of March 31, 2022

 

 

 

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

 

$

—

 

 

$

131,634

 

 

$

—

 

 

$

131,634

 

U.S. agency

 

 

—

 

 

 

30,885

 

 

 

—

 

 

 

30,885

 

Non-U.S. government & agency

 

 

—

 

 

 

6,585

 

 

 

—

 

 

 

6,585

 

Agency MBS

 

 

—

 

 

 

334,097

 

 

 

—

 

 

 

334,097

 

ABS/CMBS/MBS*

 

 

—

 

 

 

259,666

 

 

 

—

 

 

 

259,666

 

Corporate

 

 

—

 

 

 

882,197

 

 

 

48,139

 

 

 

930,336

 

Municipal

 

 

—

 

 

 

599,175

 

 

 

—

 

 

 

599,175

 

Total fixed income securities - available-for-sale

 

$

—

 

 

$

2,244,239

 

 

$

48,139

 

 

$

2,292,378

 

Equity securities

 

 

607,715

 

 

 

465

 

 

 

—

 

 

 

608,180

 

Total

 

$

607,715

 

 

$

2,244,704

 

 

$

48,139

 

 

$

2,900,558

 

 

 

As of December 31, 2021

 

 

 

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

 

$

—

 

 

$

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 fixed income 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

 

 

(33

)

Net realized gains

 

 

(411

)

Included in other comprehensive earnings (loss)

 

 

(3,067

)

Total net realized and unrealized gains (losses)

 

$

(3,511

)

Purchases

 

 

8,132

 

Balance as of March 31, 2022

 

$

48,139

 

Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in net realized gains

 

$

(411

)

Change in unrealized gains (losses) during the period for Level 3 assets held at period-end - included in other comprehensive earnings (loss)

 

$

(3,067

)

 

The amortized cost and fair value of available-for-sale fixed income securities by contractual maturity as of March 31, 2022 were as follows:

 

 

 

March 31, 2022

 

(in thousands)

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

44,732

 

 

$

45,069

 

Due after one year through five years

 

 

667,555

 

 

 

660,532

 

Due after five years through 10 years

 

 

533,651

 

 

 

521,300

 

Due after 10 years

 

 

506,651

 

 

 

471,714

 

ABS/CMBS/MBS*

 

 

621,667

 

 

 

593,763

 

Total available-for-sale

 

$

2,374,256

 

 

$

2,292,378

 

 

*

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

 

The amortized cost and fair value of available-for-sale securities at March 31, 2022 and December 31, 2021 are presented in the tables below. Amortized cost does not include the $16.5 million and $16.4 million of accrued interest receivable as of March 31, 2022 and December 31, 2021, respectively.

 

 

 

March 31, 2022

 

 

 

Cost or

 

 

Allowance

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

for Credit

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Losses

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. government

 

$

130,830

 

 

$

—

 

 

$

1,314

 

 

$

(510

)

 

$

131,634

 

U.S. agency

 

 

30,386

 

 

 

—

 

 

 

834

 

 

 

(335

)

 

 

30,885

 

Non-U.S. government & agency

 

 

6,797

 

 

 

—

 

 

 

135

 

 

 

(347

)

 

 

6,585

 

Agency MBS

 

 

348,318

 

 

 

—

 

 

 

1,471

 

 

 

(15,692

)

 

 

334,097

 

ABS/CMBS/MBS*

 

 

273,349

 

 

 

(9

)

 

 

177

 

 

 

(13,851

)

 

 

259,666

 

Corporate

 

 

953,353

 

 

 

(585

)

 

 

8,925

 

 

 

(31,357

)

 

 

930,336

 

Municipal

 

 

631,223

 

 

 

—

 

 

 

3,846

 

 

 

(35,894

)

 

 

599,175

 

Total Fixed Income

 

$

2,374,256

 

 

$

(594

)

 

$

16,702

 

 

$

(97,986

)

 

$

2,292,378

 

 

*

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

 

 

 

 

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 March 31, 2022, the discounted cash flow analysis resulted in an allowance for credit losses on 7 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)

 

2022

 

 

2021

 

Beginning balance

 

$

441

 

 

$

397

 

Increase to allowance from securities for which credit losses were not previously recorded

 

 

131

 

 

 

-

 

Reductions from intent to sell securities

 

 

(17

)

 

 

-

 

Net increase (decrease) from securities that had an allowance at the beginning of the period

 

 

39

 

 

 

(22

)

Balance as of March 31,

 

$

594

 

 

$

375

 

 

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 quarter of 2021.

 

As of March 31, 2022, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 988 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $98.0 million in associated unrealized losses represents 4.1 percent of the fixed income portfolio’s cost basis and 3.2 percent of total invested assets. Isolated to these securities, unrealized losses increased through the first three months of 2022, as interest rates

increased during the period. Of the total 988 securities, 117 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, 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.

 

 

 

March 31, 2022

 

 

December 31, 2021

 

(in thousands)

 

< 12 Mos.

 

 

12 Mos. &

Greater

 

 

Total

 

 

< 12 Mos.

 

 

12 Mos. &

Greater

 

 

Total

 

U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

35,025

 

 

$

—

 

 

$

35,025

 

 

$

2,942

 

 

$

—

 

 

$

2,942

 

Amortized cost

 

 

35,535

 

 

 

—

 

 

 

35,535

 

 

 

2,986

 

 

 

—

 

 

 

2,986

 

Unrealized loss

 

$

(510

)

 

$

—

 

 

$

(510

)

 

$

(44

)

 

$

—

 

 

$

(44

)

U.S. agency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

6,693

 

 

$

—

 

 

$

6,693

 

 

$

1,498

 

 

$

—

 

 

$

1,498

 

Amortized cost

 

 

7,028

 

 

 

—

 

 

 

7,028

 

 

 

1,515

 

 

 

—

 

 

 

1,515

 

Unrealized loss

 

$

(335

)

 

$

—

 

 

$

(335

)

 

$

(17

)

 

$

—

 

 

$

(17

)

Non-U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

—

 

 

$

2,653

 

 

$

2,653

 

 

$

4,346

 

 

$

—

 

 

$

4,346

 

Amortized cost

 

 

—

 

 

 

3,000

 

 

 

3,000

 

 

 

4,500

 

 

 

—

 

 

 

4,500

 

Unrealized Loss

 

$

—

 

 

$

(347

)

 

$

(347

)

 

$

(154

)

 

$

—

 

 

$

(154

)

Agency MBS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

190,950

 

 

$

59,572

 

 

$

250,522

 

 

$

102,145

 

 

$

62,669

 

 

$

164,814

 

Amortized cost

 

 

200,176

 

 

 

66,038

 

 

 

266,214

 

 

 

104,336

 

 

 

65,429

 

 

 

169,765

 

Unrealized loss

 

$

(9,226

)

 

$

(6,466

)

 

$

(15,692

)

 

$

(2,191

)

 

$

(2,760

)

 

$

(4,951

)

ABS/CMBS/MBS*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

218,189

 

 

$

19,448

 

 

$

237,637

 

 

$

150,997

 

 

$

3,935

 

 

$

154,932

 

Amortized cost

 

 

230,803

 

 

 

20,685

 

 

 

251,488

 

 

 

153,235

 

 

 

4,036

 

 

 

157,271

 

Unrealized loss

 

$

(12,614

)

 

$

(1,237

)

 

$

(13,851

)

 

$

(2,238

)

 

$

(101

)

 

$

(2,339

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

460,342

 

 

$

68,905

 

 

$

529,247

 

 

$

217,791

 

 

$

53,818

 

 

$

271,609

 

Amortized cost

 

 

485,129

 

 

 

75,475

 

 

 

560,604

 

 

 

221,010

 

 

 

55,704

 

 

 

276,714

 

Unrealized loss

 

$

(24,787

)

 

$

(6,570

)

 

$

(31,357

)

 

$

(3,219

)

 

$

(1,886

)

 

$

(5,105

)

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

350,366

 

 

$

32,880

 

 

$

383,246

 

 

$

162,998

 

 

$

15,037

 

 

$

178,035

 

Amortized cost

 

 

380,619

 

 

 

38,521

 

 

 

419,140

 

 

 

166,602

 

 

 

15,714

 

 

 

182,316

 

Unrealized loss

 

$

(30,253

)

 

$

(5,641

)

 

$

(35,894

)

 

$

(3,604

)

 

$

(677

)

 

$

(4,281

)

Total fixed income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

1,261,565

 

 

$

183,458

 

 

$

1,445,023

 

 

$

642,717

 

 

$

135,459

 

 

$

778,176

 

Amortized cost

 

 

1,339,290

 

 

 

203,719

 

 

 

1,543,009

 

 

 

654,184

 

 

 

140,883

 

 

 

795,067

 

Unrealized loss

 

$

(77,725

)

 

$

(20,261

)

 

$

(97,986

)

 

$

(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 March 31, 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

 

$

1,199,156

 

 

$

1,119,133

 

 

$

(80,023

)

 

 

81.7

 

%

2

 

BBB

 

Baa

 

 

232,808

 

 

 

217,951

 

 

 

(14,857

)

 

 

15.2

 

%

3

 

BB

 

Ba

 

 

64,217

 

 

 

62,216

 

 

 

(2,001

)

 

 

2.0

 

%

4

 

B

 

B

 

 

45,409

 

 

 

44,376

 

 

 

(1,033

)

 

 

1.0

 

%

5

 

CCC

 

Caa

 

 

1,419

 

 

 

1,347

 

 

 

(72

)

 

 

0.1

 

%

6

 

CC or lower

 

Ca or lower

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.0

 

%

 

 

 

 

Total

 

$

1,543,009

 

 

$

1,445,023

 

 

$

(97,986

)

 

 

100.0

 

%

 

Other Invested Assets

 

We had $52.4 million of other invested assets at March 31, 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 $15.8 million at March 31, 2022, compared to $16.6 million at December 31, 2021 and recognized a total tax benefit of $0.9 million during the first quarters of 2022 and 2021. Our unfunded commitment for our LIHTC investments totaled $1.4 million at March 31, 2022 and will be paid out in installments through 2035.

 

As of March 31, 2022, $59.1 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, 2022, $50.0 million of borrowings were outstanding with the FHLBC.

 

Our investments in private funds totaled $30.8 million at March 31, 2022, compared to $28.6 million at December 31, 2021, and we had $6.8 million of associated unfunded commitments at March 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.

 

Investments in Unconsolidated Investees

 

We had $179.4 million of investments in unconsolidated investees at March 31, 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). At March 31, 2022 our investment in Maui Jim was $119.4 million and our investment in Prime was $49.0 million. Other investments in unconsolidated investees totaled $10.9 million at March 31, 2022 and had unfunded commitments of $10.2 million.

 

Cash

 

Cash consists of uninvested balances in bank accounts. We had a cash balance of $72.1 million at March 31, 2022, compared to $88.8 million at December 31, 2021.