Note 6 - Investments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Investment [Text Block]

NOTE 6 INVESTMENTS

The amortized cost, gross unrealized gains and losses, and estimated fair value of the Company's available-for-sale investments at September 30, 2021 and December 31, 2020 are summarized in the tables shown below:

(in thousands)	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. government, government agencies and authorities	$	15,207	$	49	$	9	$	15,247
States, municipalities and political subdivisions		1,580		4		—		1,584
Mortgage-backed		8,133		35		18		8,150
Asset-backed		253		—		—		253
Corporate		9,131		25		51		9,105
Total fixed maturities	$	34,304	$	113	$	78	$	34,339

(in thousands)	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. government, government agencies and authorities	$	9,999	$	105	$	—	$	10,104
States, municipalities and political subdivisions		1,447		7		—		1,454
Mortgage-backed		5,334		66		6		5,394
Corporate		3,708		56		—		3,764
Total fixed maturities	$	20,488	$	234	$	6	$	20,716

The table below summarizes the Company's fixed maturities at September 30, 2021 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of these obligations.

(in thousands)	September 30, 2021
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	7,059	$	7,096
Due after one year through five years		18,368		18,404
Due after five years through ten years		5,669		5,640
Due after ten years		3,208		3,199
Total	$	34,304	$	34,339

The following tables highlight the aggregate unrealized loss position, by security type, of available-for-sale investments in unrealized loss positions as of September 30, 2021 and December 31, 2020. The tables segregate the holdings based on the period of time the investments have been continuously held in unrealized loss positions.

(in thousands)	September 30, 2021
	Less than 12 Months				Greater than 12 Months				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Fixed maturities:
U.S. government, government agencies and authorities	$	7,334	$	9	$	—	$	—	$	7,334	$	9
States, municipalities and political subdivisions		100		—		—		—		100		—
Mortgage-backed		4,741		18		—		—		4,741		18
Asset-backed		128		—		—		—		128		—
Corporate		6,050		51		—		—		6,050		51
Total fixed maturities	$	18,353	$	78	$	—	$	—	$	18,353	$	78

(in thousands)	December 31, 2020
	Less than 12 Months				Greater than 12 Months				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Fixed maturities:
U.S. government, government agencies and authorities	$	511	$	—	$	—	$	—	$	511	$	—
Mortgage-backed		834		6		—		—		834		6
Total fixed maturities	$	1,345	$	6	$	—	$	—	$	1,345	$	6

There are approximately 104and 5 individual available-for-sale investments that were in unrealized loss positions as of September 30, 2021 and December 31, 2020, respectively. 

The establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates. The Company performs a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary. See the "Significant Accounting Policies and Critical Estimates" section of Management's Discussion and Analysis of Financial Condition included in the 2020 Annual Report for further information regarding the Company's detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment.

As a result of the analysis performed by the Company to determine declines in market value that are other-than-temporary, the Company did not record any write-downs for other-than-temporary impairment related to other investments for the three months ended September 30, 2021 and September 30, 2020 (zero year to date compared to $0.1 million prior year to date).

The Company has reviewed currently available information regarding investments with estimated fair values less than their carrying amounts and believes these unrealized losses are not other-than-temporary and are primarily due to temporary market and sector-related factors rather than to issuer-specific factors. The Company does not intend to sell those investments, and it is not likely it will be required to sell those investments before recovery of its amortized cost.

The Company does not have any exposure to subprime mortgage-backed investments.

Limited liability investments include investments in limited liability companies and limited partnerships. The Company's interests in these investments are not deemed minor and, therefore, are accounted for under the equity method of accounting. The most recently available financial statements are used in applying the equity method. The difference between the end of the reporting period of the limited liability entities and that of the Company is no more than three months. As of September 30, 2021 and December 31, 2020, the carrying value of limited liability investments totaled $3.2 million and $3.7 million, respectively. Income or loss from limited liability investments is recognized based on the Company's share of the earnings of the limited liability entities and is included in net investment income in the consolidated statements of operations. At September 30, 2021, the Company had no unfunded commitments related to limited liability investments.

Limited liability investments, at fair value represents the underlying investments of the Company’s consolidated entities Net Lease Investment Grade Portfolio LLC ("Net Lease") and Argo Holdings Fund I, LLC ("Argo Holdings"). As of September 30, 2021 and December 31, 2020, the carrying value of the Company's limited liability investments, at fair value was $18.2 million and $32.8 million, respectively.  The decrease in the carrying value is primarily attributable to the sale of two of Net Lease's investment properties during 2021, as further discussed below.  The Company recorded impairments related to limited liability investments, at fair value of less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2021, respectively ($0.1 million for the three and nine months ended September 30, 2020), which are included in gain on change in fair value of limited liability investments, at fair value in the consolidated statements of operations. At September 30, 2021, the Company had no unfunded commitments to fund limited liability investments, at fair value.

The Company consolidates the financial statements of Net Lease on a three-month lag. Net Lease owns investments in limited liability companies that hold investment properties.  During the second quarter of 2021, one of Net Lease’s limited liability companies sold their investment property for $14.3 million.  As a result of the three-month lag, the Company recorded this transaction in its third quarter 2021 financial statements.  A portion of the proceeds from the sale were distributed to Net Lease.  As a result of the distribution, Net Lease recorded a gain of $0.8 million related to its investment in the limited liability company, with an offsetting change in unrealized gain of $0.8 million, which collectively are included in net investment income in the consolidated statement of operations for the three months ended September 30, 2021.  During the fourth quarter of 2020, one of Net Lease's limited liability companies sold their investment property.  A portion of the proceeds from the sale were distributed to Net Lease who used them primarily to repay their $9.0 million mezzanine loan. As a result of the distribution, Net Lease recorded a gain of $1.2 million related to its investment in the limited liability company, with an offsetting change in unrealized gain of $1.2 million, which collectively are included in net investment income in the consolidated statement of operations for the nine months ended September 30, 2021.  

Investments in private companies consist of convertible preferred stocks and notes in privately owned companies and investments in limited liability companies in which the Company’s interests are deemed minor. The Company's investments in private companies do not have readily determinable fair values. The Company has elected to record investments in private companies at cost, adjusted for observable price changes and impairments. As of September 30, 2021 and December 31, 2020, the carrying value of the Company's investments in private companies totaled $0.8 million. For the three and nine months ended September 30, 2021 and September 30, 2020, the Company did not record any adjustments to the fair value of its investments in private companies for observable price changes.

The Company performs a quarterly impairment analysis of its investments in private companies.  As a result of the analysis performed, the Company did not record any impairments related to investments in private companies for the three and nine months ended September 30, 2021 (zero million and $0.7 million for the three and nine months ended September 30, 2020, respectively), which are included in net change in unrealized loss on private company investments in the consolidated statements of operations.  The impairments recorded for the three and nine months ended September 30, 2020 are a result of the impact of COVID-19 on the investments' underlying business.

The Company previously had issued promissory notes (the "Notes") to five former employees (the "Debtors"), which were recorded as other investments in the consolidated balance sheets prior to December 31, 2020.  During the third and fourth quarters of 2020, the Company agreed to accept partial payment from the Debtors as full satisfaction of the Debtors' obligations under the Notes and recognized a loss of $0.2 million for the year ended December 31, 2020. During the nine months ended September 30, 2020, the Company recorded a write-down of $0.1 million for other-than-temporary impairment related to the Notes for one of the Debtors.  The remaining principal amount outstanding on the Notes was zero as of September 30, 2021 and December 31, 2020.

Net investment income for the three and nine months ended September 30, 2021 and September 30, 2020 is comprised as follows:

(in thousands)	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Investment income:
Interest from fixed maturities	$	62		$	69		$	160		$	250
Dividends		31			34			94			121
(Loss) income from limited liability investments		(14	)		19			31			31
Income from limited liability investments, at fair value		25			234			106			702
Income from real estate investments		200			200			600			600
Other		94			88			274			365
Gross investment income		398			644			1,265			2,069
Investment expenses		(9	)		(19	)		(52	)		(44	)
Net investment income	$	389		$	625		$	1,213		$	2,025

Gross realized gains and losses on available-for-sale investments, limited liability investments, at fair value and investments in private companies for the three and nine months ended September 30, 2021 and September 30, 2020 are comprised as follows:

(in thousands)	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Gross realized gains	$	193		$	164		$	505		$	380
Gross realized losses		(34	)		(223	)		(108	)		(223	)
Net realized gains (losses)	$	159		$	(59	)	$	397		$	157

(Loss) gain on change in fair value of equity investments for the three and nine months ended September 30, 2021 and September 30, 2020 is comprised as follows:

(in thousands)	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Net gains recognized on equity investments sold during the period	$	—		$	1,505		$	13		$	1,505
Change in unrealized losses on equity investments held at end of the period		(39	)		(328	)		(248	)		(436	)
(Loss) gain on change in fair value of equity investments	$	(39	)	$	1,177		$	(235	)	$	1,069

Impact of COVID-19 on Investments

The Company continues to assess the impact that the COVID-19 pandemic may have on the value of its various investments, which could result in future material decreases in the underlying investment values. Such decreases may be considered temporary or could be deemed to be other-than-temporary, and management may be required to record write-downs of the related investments in future reporting periods.