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Investments (Tables)

9 Months Ended

Sep. 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 as of:



	September 30, 2019
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available-for-sale securities:
Corporate debt securities ⁽¹⁾	$	431,800	$	4,437	$	2,031	$	434,206
Residential mortgage-backed securities⁽¹⁾	106,401		889		55		107,235
Commercial mortgage-backed securities⁽¹⁾	61,940		1,263		21		63,182
Collateralized debt obligations	71,087		20		289		70,818
Other debt securities	5,108		92		8		5,192
Total available-for-sale securities	$	676,336	$	6,701	$	2,404	$	680,633



	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 and invested proceeds in short-term U.S. Treasuries. In 2019, proceeds from selling off the remaining municipal bond portfolio and short-term U.S. Treasuries were reinvested in corporate debt, structured, and equity 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 September 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.



	September 30, 2019
	Amortized		Estimated
(in thousands)	cost		fair value
Due in one year or less	$	32,875	$	32,842
Due after one year through five years	307,299		308,682
Due after five years through ten years	128,109		129,071
Due after ten years	208,053		210,038
Total available-for-sale securities	$	676,336	$	680,633

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

The following table presents available-for-sale securities based on length of time in a gross unrealized loss position as of:



	September 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	$	39,871	$	852	$	30,518	$	1,179	$	70,389	$	2,031	229
Residential mortgage-backed securities	20,440		55		0		0		20,440		55		7
Commercial mortgage-backed securities	7,325		19		538		2		7,863		21		10
Collateralized debt obligations	39,202		84		25,284		205		64,486		289		47
Other debt securities	1,581		8		0		0		1,581		8		1
Total available-for-sale securities	$	108,419	$	1,018	$	56,340	$	1,386	$	164,759	$	2,404	294
Quality breakdown of available-for-sale securities:
Investment grade	$	80,157	$	176	$	46,355	$	255	$	126,512	$	431	85
Non-investment grade	28,262		842		9,985		1,131		38,247		1,973		209
Total available-for-sale securities	$	108,419	$	1,018	$	56,340	$	1,386	$	164,759	$	2,404	294



	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

Schedule of Investment Income, Net of Expenses, from Portfolios

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



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2019		2018		2019		2018
Fixed maturities ⁽¹⁾	$	5,449	$	6,243	$	17,098	$	18,616
Equity securities	452		203		734		487
Cash equivalents and other	2,900		1,484		8,025		3,518
Total investment income	8,801		7,930		25,857		22,621
Less: investment expenses	149		271		658		1,038
Investment income, net of expenses	$	8,652	$	7,659	$	25,199	$	21,583

(1)

Includes interest earned on note receivable from Erie Family Life Insurance Company of $0.4 million and $1.3 million for the three and nine months ended September 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 September 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018
Available-for-sale securities:
Gross realized gains	$	1,320		$	525		$	5,640		$	1,100
Gross realized losses	(248		)	(526		)	(1,411		)	(1,512		)
Net realized gains (losses) on available-for-sale securities	1,072			(1		)	4,229			(412		)
Equity securities	624			(1		)	1,272			(189		)
Miscellaneous	0			2			0			104
Net realized investment gains (losses)	$	1,696		$	0		$	5,501		$	(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 September 30,					Nine months ended September 30,
(in thousands)	2019		2018			2019		2018
Equity securities:
Net gains (losses) recognized during the period	$	624	$	(1	)	$	1,272	$	(189	)
Less: net gains (losses) recognized on securities sold	47		(52		)	47		(86		)
Net unrealized gains (losses) recognized on securities held at reporting date	$	577	$	51		$	1,225	$	(103	)

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

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



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2019		2018		2019		2018
Equity in earnings of limited partnerships - equity method	$	3,289	$	645	$	2,546	$	624
Change in fair value of limited partnerships - fair value option	0		127		0		(263		)
Equity in earnings of limited partnerships	$	3,289	$	772	$	2,546	$	361

The following table summarizes limited partnership investments by sector as of:



(in thousands)	September 30, 2019		December 31, 2018
Private equity	$	29,938	$	28,271
Mezzanine debt	900		1,152
Real estate	1,333		2,192
Real estate - fair value option	0		3,206
Total limited partnership investments	$	32,171	$	34,821