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Investments (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of Reconciliation of Cost to Fair Value of Available-For-Sale Securities

The following tables summarize the cost and fair value of our available-for-sale securities. See also Note 5, "Fair Value" for additional fair value disclosures.



	At June 30, 2019
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
U.S. Treasury ⁽¹⁾	$	150,171	$	923	$	0	$	151,094
States & political subdivisions ⁽¹⁾	3,354		6		0		3,360
Corporate debt securities ⁽¹⁾	356,899		1,706		1,949		356,656
Residential mortgage-backed securities	65,910		297		21		66,186
Commercial mortgage-backed securities	45,527		625		10		46,142
Collateralized debt obligations	57,710		16		381		57,345
Other debt securities	8,209		116		0		8,325
Total available-for-sale securities	$	687,780	$	3,689	$	2,361	$	689,108



	At December 31, 2018
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
U.S. Treasury⁽¹⁾	$	208,610	$	18	$	216	$	208,412
States & political subdivisions ⁽¹⁾	157,003		2,020		0		159,023
Corporate debt securities	259,362		139		9,554		249,947
Residential mortgage-backed securities	4,603		38		32		4,609
Commercial mortgage-backed securities	47,022		80		587		46,515
Collateralized debt obligations	65,039		30		830		64,239
Other debt securities	15,756		33		11		15,778
Total available-for-sale securities	$	757,395	$	2,358	$	11,230	$	748,523

(1)

In the fourth quarter of 2018, we began selling off our municipal bonds as part of a portfolio rebalancing. We have currently invested proceeds from these sales primarily in U.S. Treasuries and corporate debt securities.

Schedule of Amortized Cost and Estimated Fair Value of Available-For-Sale Securities by Remaining Contractual Term to Maturity

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2019 are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon stated maturity dates. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	At June 30, 2019
	Amortized		Estimated
(in thousands)	cost		fair value
Due in one year or less	$	62,962	$	63,031
Due after one year through five years	358,056		358,508
Due after five years through ten years	127,215		127,364
Due after ten years	139,547		140,205
Total available-for-sale securities	$	687,780	$	689,108

Schedule of Available-For-Sale Securities in a Gross Unrealized Loss Position by Length of Time

Available-for-sale securities in a gross unrealized loss position are as follows. Data is provided by length of time for securities in a gross unrealized loss position.



	At June 30, 2019
	Less than 12 months				12 months or longer				Total
(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		No. of holdings
Available-for-sale securities:
Corporate debt securities	104,809		844		58,666		1,105		163,475		1,949		334
Residential mortgage-backed securities	15,710		21		0		0		15,710		21		2
Commercial mortgage-backed securities	6,965		6		547		4		7,512		10		7
Collateralized debt obligations	40,402		165		14,842		216		55,244		381		41
Total available-for-sale securities	$	167,886	$	1,036	$	74,055	$	1,325	$	241,941	$	2,361	384
Quality breakdown of available-for-sale securities:
Investment grade	$	136,432	$	296	$	59,023	$	354	$	195,455	$	650	111
Non-investment grade	31,454		740		15,032		971		46,486		1,711		273
Total available-for-sale securities	$	167,886	$	1,036	$	74,055	$	1,325	$	241,941	$	2,361	384



	At December 31, 2018
	Less than 12 months				12 months or longer				Total
(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		No. of holdings
Available-for-sale securities:
U.S. Treasury	$	129,474	$	19	$	11,656	$	197	$	141,130	$	216	7
Corporate debt securities	157,300		6,866		86,586		2,688		243,886		9,554		635
Residential mortgage-backed securities	777		6		1,618		26		2,395		32		3
Commercial mortgage-backed securities	17,624		175		16,997		412		34,621		587		30
Collateralized debt obligations	55,246		826		1,248		4		56,494		830		39
Other debt securities	8,213		11		0		0		8,213		11		7
Total available-for-sale securities	$	368,634	$	7,903	$	118,105	$	3,327	$	486,739	$	11,230	721
Quality breakdown of available-for-sale securities:
Investment grade	$	242,821	$	1,295	$	98,118	$	1,641	$	340,939	$	2,936	147
Non-investment grade	125,813		6,608		19,987		1,686		145,800		8,294		574
Total available-for-sale securities	$	368,634	$	7,903	$	118,105	$	3,327	$	486,739	$	11,230	721

The above securities have been evaluated and determined to be temporary impairments for which we expect to recover our entire principal plus interest. The primary components of this analysis include a general review of market conditions and financial performance of the issuer along with the extent and duration at which fair value is less than cost. Any securities that we intend to sell or will more likely than not be required to sell before recovery are included in other-than-temporary impairments, which are recognized in earnings.

Schedule of Investment Income, Net of Expenses, from Portfolios

Investment income, net of expenses, was generated from the following portfolios:



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Fixed maturities ⁽¹⁾	$	5,488	$	6,263	$	11,649	$	12,373
Equity securities	141		142		282		284
Cash equivalents and other	2,660		1,026		5,125		2,034
Total investment income	8,289		7,431		17,056		14,691
Less: investment expenses	259		327		509		767
Investment income, net of expenses	$	8,030	$	7,104	$	16,547	$	13,924

(1)

Includes interest earned on note receivable from Erie Family Life Insurance Company of $0.4 million and $0.8 million for the three and six months ended June 30, 2018, respectively. The note was repaid in full in December 2018.

Schedule of Realized Gains and Losses on Investments and Net Unrealized Gains and Losses Recognized during the Reporting Period Related to Equity Securities Held at the Reporting Date

Realized gains (losses) on investments were as follows:



	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Available-for-sale securities:
Gross realized gains	$	2,062		$	235		$	4,320		$	575
Gross realized losses	(823		)	(301		)	(1,163		)	(986		)
Net realized gains (losses) on available-for-sale securities	1,239			(66		)	3,157			(411		)
Equity securities	63			(68		)	648			(188		)
Miscellaneous	0			102			0			102
Net realized investment gains (losses)	$	1,302		$	(32	)	$	3,805		$	(497	)

The portion of net unrealized gains and losses recognized during the reporting period, related to equity securities still held at the reporting date, is calculated as follows:



	Three months ended June 30,					Six months ended June 30,
(in thousands)	2019		2018			2019		2018
Equity securities:
Net gains (losses) recognized during the period	$	63	$	(68	)	$	648	$	(188	)
Less: net losses recognized on securities sold	0		0			0		(34		)
Net unrealized gains (losses) recognized on securities held at reporting date	$	63	$	(68	)	$	648	$	(154	)

Schedule of Limited Partnership Results, Generally Reported on a One Quarter Lag

Equity in earnings (losses) of limited partnerships by method of accounting were as follows:



	Three months ended June 30,					Six months ended June 30,
(in thousands)	2019		2018			2019			2018
Equity in earnings (losses) of limited partnerships - equity method	$	404	$	(216	)	$	(743	)	$	(21	)
Change in fair value of limited partnerships - fair value option	0		(3		)	0			(390		)
Equity in earnings (losses) of limited partnerships	$	404	$	(219	)	$	(743	)	$	(411	)

The following table summarizes limited partnership investments by sector:



(in thousands)	At June 30, 2019		At December 31, 2018
Private equity	$	26,793	$	28,271
Mezzanine debt	1,053		1,152
Real estate	2,498		2,192
Real estate - fair value option	0		3,206
Total limited partnership investments	$	30,344	$	34,821