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Investments
 12 Months Ended
Dec. 31, 2022
Investments, Debt and Equity Securities [Abstract]  
Investments
6.
Investments

The amortized cost and estimated fair value of the Company’s fixed maturities securities were as follows as of December 31, 2022 and 2021:

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Allowance for Expected Credit Losses

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

352,533

 

 

$

—

 

 

$

—

 

 

$

(8,430

)

 

$

344,103

 

Obligations of states and political subdivisions

 

 

33,471

 

 

 

—

 

 

 

—

 

 

 

(1,876

)

 

 

31,595

 

Mortgage-backed securities

 

 

67,560

 

 

 

—

 

 

 

165

 

 

 

(5,609

)

 

 

62,116

 

Asset-backed securities

 

 

198,161

 

 

 

—

 

 

 

390

 

 

 

(9,151

)

 

 

189,400

 

Commercial mortgage-backed securities

 

 

104,777

 

 

 

—

 

 

 

20

 

 

 

(6,133

)

 

 

98,664

 

Corporate bonds

 

 

353,622

 

 

 

—

 

 

 

16

 

 

 

(14,858

)

 

 

338,780

 

Foreign corporate bonds

 

 

191,599

 

 

 

—

 

 

 

—

 

 

 

(8,059

)

 

 

183,540

 

Total fixed maturities

 

$

1,301,723

 

 

$

—

 

 

$

591

 

 

$

(54,116

)

 

$

1,248,198

 

 

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Allowance for Expected Credit Losses

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

As of December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

149,934

 

 

$

—

 

 

$

603

 

 

$

(419

)

 

$

150,118

 

Agency obligations

 

 

5,697

 

 

 

—

 

 

 

1

 

 

 

(68

)

 

 

5,630

 

Obligations of states and political subdivisions

 

 

53,637

 

 

 

—

 

 

 

1,385

 

 

 

(301

)

 

 

54,721

 

Mortgage-backed securities

 

 

250,007

 

 

 

—

 

 

 

2,618

 

 

 

(2,284

)

 

 

250,341

 

Asset-backed securities

 

 

172,916

 

 

 

—

 

 

 

700

 

 

 

(974

)

 

 

172,642

 

Commercial mortgage-backed securities

 

 

135,017

 

 

 

—

 

 

 

2,503

 

 

 

(627

)

 

 

136,893

 

Corporate bonds

 

 

288,866

 

 

 

—

 

 

 

5,571

 

 

 

(2,054

)

 

 

292,383

 

Foreign corporate bonds

 

 

137,672

 

 

 

—

 

 

 

2,370

 

 

 

(904

)

 

 

139,138

 

Total fixed maturities

 

$

1,193,746

 

 

$

—

 

 

$

15,751

 

 

$

(7,631

)

 

$

1,201,866

 

 

As of December 31, 2022 and 2021, the Company’s investments in equity securities consist of the following:

 

 

 

December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

Common stock

 

$

1,271

 

 

$

75,987

 

Preferred stock

 

 

16,249

 

 

 

23,991

 

Total

 

$

17,520

 

 

$

99,978

 

 

Excluding U.S. treasuries, limited liability companies, and limited partnerships, the Company did not hold any debt or equity investments in a single issuer in excess of 2.4% and 2.0% of shareholders' equity at December 31, 2022 and 2021, respectively.

The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at December 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Estimated
Fair Value

 

Due in one year or less

 

$

114,555

 

 

$

113,491

 

Due in one year through five years

 

 

773,372

 

 

 

747,197

 

Due in five years through ten years

 

 

29,200

 

 

 

25,594

 

Due in ten years through fifteen years

 

 

202

 

 

 

198

 

Due after fifteen years

 

 

13,896

 

 

 

11,538

 

Mortgage-backed securities

 

 

67,560

 

 

 

62,116

 

Asset-backed securities

 

 

198,161

 

 

 

189,400

 

Commercial mortgage-backed securities

 

 

104,777

 

 

 

98,664

 

Total

 

$

1,301,723

 

 

$

1,248,198

 

 

The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2022. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 8.

 

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

(Dollars in thousands)

 

Fair Value

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Gross
Unrealized
Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

335,781

 

 

$

(7,518

)

 

$

8,322

 

 

$

(912

)

 

$

344,103

 

 

$

(8,430

)

Obligations of states and political subdivisions

 

 

27,772

 

 

 

(1,378

)

 

 

3,778

 

 

 

(498

)

 

 

31,550

 

 

 

(1,876

)

Mortgage-backed securities

 

 

51,517

 

 

 

(4,228

)

 

 

7,860

 

 

 

(1,381

)

 

 

59,377

 

 

 

(5,609

)

Asset-backed securities

 

 

97,857

 

 

 

(3,610

)

 

 

62,689

 

 

 

(5,541

)

 

 

160,546

 

 

 

(9,151

)

Commercial mortgage-backed securities

 

 

67,926

 

 

 

(4,072

)

 

 

27,907

 

 

 

(2,061

)

 

 

95,833

 

 

 

(6,133

)

Corporate bonds

 

 

261,123

 

 

 

(8,480

)

 

 

71,192

 

 

 

(6,378

)

 

 

332,315

 

 

 

(14,858

)

Foreign corporate bonds

 

 

150,308

 

 

 

(5,469

)

 

 

31,232

 

 

 

(2,590

)

 

 

181,540

 

 

 

(8,059

)

Total fixed maturities

 

$

992,284

 

 

$

(34,755

)

 

$

212,980

 

 

$

(19,361

)

 

$

1,205,264

 

 

$

(54,116

)

 

 

The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2021. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 8.

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

(Dollars in thousands)

 

Fair Value

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Gross
Unrealized
Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

114,894

 

 

$

(390

)

 

$

970

 

 

$

(29

)

 

$

115,864

 

 

$

(419

)

Agency obligations

 

 

5,380

 

 

 

(68

)

 

 

—

 

 

 

—

 

 

 

5,380

 

 

 

(68

)

Obligations of states and political subdivisions

 

 

13,346

 

 

 

(301

)

 

 

—

 

 

 

—

 

 

 

13,346

 

 

 

(301

)

Mortgage-backed securities

 

 

143,674

 

 

 

(2,222

)

 

 

3,009

 

 

 

(62

)

 

 

146,683

 

 

 

(2,284

)

Asset-backed securities

 

 

102,309

 

 

 

(703

)

 

 

10,662

 

 

 

(271

)

 

 

112,971

 

 

 

(974

)

Commercial mortgage-backed securities

 

 

50,448

 

 

 

(466

)

 

 

1,286

 

 

 

(161

)

 

 

51,734

 

 

 

(627

)

Corporate bonds

 

 

129,146

 

 

 

(1,954

)

 

 

2,633

 

 

 

(100

)

 

 

131,779

 

 

 

(2,054

)

Foreign corporate bonds

 

 

67,915

 

 

 

(893

)

 

 

412

 

 

 

(11

)

 

 

68,327

 

 

 

(904

)

Total fixed maturities

 

$

627,112

 

 

$

(6,997

)

 

$

18,972

 

 

$

(634

)

 

$

646,084

 

 

$

(7,631

)

 

 

Subject to the risks and uncertainties in evaluating the potential impairment of a security’s value, the impairment evaluation conducted by the Company as of December 31, 2022 concluded the unrealized losses discussed above are non-credit losses on securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. The impairment evaluation process is discussed in the “Investment” section of Note 5 (“Summary of Significant Accounting Policies”).

The following is a description, by asset type, of the methodology and significant inputs that the Company used to measure the amount of credit loss recognized in earnings, if any:

 

U.S. treasuries – As of December 31, 2022, gross unrealized losses related to U.S. treasuries were $8.430 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, macroeconomic and market analysis is conducted in evaluating these securities. Consideration is given to the interest rate environment, duration and yield curve management of the portfolio, sector allocation and security selection. Based on the analysis performed, the Company did not recognize a credit loss on U.S. treasuries during the period.

Obligations of states and political subdivisions – As of December 31, 2022, gross unrealized losses related to obligations of states and political subdivisions were $1.876 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, elements that may influence the performance of the municipal bond market are considered in evaluating these securities such as investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies. Based on the analysis performed, the Company did not recognize a credit loss on obligations of states and political subdivisions during the period.

 

Mortgage-backed securities (“MBS”) – As of December 31, 2022, gross unrealized losses related to mortgage-backed securities were $5.609 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not just national macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporated into the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan level within each deal. The model utilizes HPI-adjusted current loan to value, payment history, loan terms, loan modification history, and borrower characteristics as inputs to generate expected cash flows and principal loss for each bond under various scenarios. Based on the analysis performed, the Company did not recognize a credit loss on mortgage-backed securities during the period.

Asset backed securities (“ABS”) - As of December 31, 2022, gross unrealized losses related to asset backed securities were $9.151 million. The weighted average credit enhancement for the Company’s asset backed portfolio is 34.2. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes an in-depth credit analysis of the originator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate this ratio are loss severities, recovery lags, and no advances on principal and interest. Based on the analysis performed, the Company did not recognize a credit loss on asset backed securities during the period.

Commercial mortgage-backed securities (“CMBS”) - As of December 31, 2022, gross unrealized losses related to the CMBS portfolio were $6.133 million. The weighted average credit enhancement for the Company’s CMBS portfolio is 46.2. This represents the percentage of pool losses that can occur before a commercial mortgage-backed security will incur its first dollar of principal loss. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, a loan level analysis is utilized where every underlying CMBS loan is re-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. Each loan is analyzed over time using a series of tests to determine if a credit event will occur during the life of the loan. Inherent in this process are several economic scenarios and their corresponding rent/vacancy and capital market states. The five primary credit events that frame the analysis include loan modifications, term default, balloon default, extension, and ability to pay off at balloon. The resulting output is the expected loss adjusted cash flows for each bond under the base case and distressed scenarios. Based on the analysis performed, the Company did not recognize a credit loss on commercial mortgage-backed securities during the period.

Corporate bonds - As of December 31, 2022, gross unrealized losses related to corporate bonds were $14.858 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, analysis for this asset class includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default. Based on the analysis performed, the Company did not recognize a credit loss on corporate bonds during the period.

Foreign bonds – As of December 31, 2022, gross unrealized losses related to foreign bonds were $8.059 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, detailed financial models are maintained that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default. Based on the analysis performed, the Company did not recognize a credit loss on foreign bonds during the period.

 

The Company has evaluated its investment portfolio and has determined that an allowance for expected credit losses on its investments is not required.

The Company recorded the following impairments on its investment portfolio for the years ended December 31, 2022, 2021, and 2020 and are related to securities in an unrealized loss position where the Company had an intent to sell the securities:

 

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022 (1)

 

 

2021

 

 

2020

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

Impairment related to intent to sell

 

$

(26,205

)

 

$

—

 

 

$

(760

)

Total

 

$

(26,205

)

 

$

—

 

 

$

(760

)

 

(1) In response to a rising interest rate environment, the Company took action early in April 2022 to shorten the duration of its fixed maturities portfolio. In connection with these actions, the Company identified fixed maturities securities with a weighted average life of five years or greater as having an intent to sell, the majority of which were sold in the 2nd quarter of 2022. Most of the proceeds from the sale of these securities were reinvested into fixed income investments with maturities of approximately two years. As a result of these actions, book yield increased from 2.2% at December 31, 2021 to 3.5% at December 31, 2022.

 

Accumulated Other Comprehensive Income (Loss), Net of Tax

Accumulated other comprehensive income (loss), net of tax, as of December 31, 2022 and 2021 was as follows:

 

 

 

December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

Net unrealized gains (losses) from:

 

 

 

 

 

 

Fixed maturities

 

$

(53,525

)

 

$

8,120

 

Foreign currency fluctuations

 

 

(127

)

 

 

(145

)

Deferred taxes

 

 

10,594

 

 

 

(1,571

)

Accumulated other comprehensive income (loss), net of tax

 

$

(43,058

)

 

$

6,404

 

 

The following tables present the changes in accumulated other comprehensive income, net of tax, by components, for the years ended December 31, 2022 and 2021:

 

Year Ended December 31, 2022
(Dollars in thousands)

 

Unrealized Gains
and Losses on
Available for Sale
Securities

 

 

Foreign Currency
Items

 

 

Accumulated Other
Comprehensive
Income

 

Beginning balance, net of tax

 

$

6,519

 

 

$

(115

)

 

$

6,404

 

Other comprehensive income (loss) before reclassification, before tax

 

 

(101,255

)

 

 

18

 

 

 

(101,237

)

Amounts reclassified from accumulated other comprehensive income, before tax

 

 

39,610

 

 

 

—

 

 

 

39,610

 

Other comprehensive income (loss), before tax

 

 

(61,645

)

 

 

18

 

 

 

(61,627

)

Income tax benefit (expense)

 

 

12,168

 

 

 

(3

)

 

 

12,165

 

Ending balance, net of tax

 

$

(42,958

)

 

$

(100

)

 

$

(43,058

)

 

 

Year Ended December 31, 2021
(Dollars in thousands)

 

Unrealized Gains
and Losses on
Available for Sale
Securities

 

 

Foreign Currency
Items

 

 

Accumulated Other
Comprehensive
Income

 

Beginning balance, net of tax

 

$

34,181

 

 

$

127

 

 

$

34,308

 

Other comprehensive income (loss) before reclassification, before tax

 

 

(33,715

)

 

 

(306

)

 

 

(34,021

)

Amounts reclassified from accumulated other comprehensive income (loss), before tax

 

 

(342

)

 

 

—

 

 

 

(342

)

Other comprehensive income (loss), before tax

 

 

(34,057

)

 

 

(306

)

 

 

(34,363

)

Income tax benefit

 

 

6,395

 

 

 

64

 

 

 

6,459

 

Ending balance, net of tax

 

$

6,519

 

 

$

(115

)

 

$

6,404

 

 

The reclassifications out of accumulated other comprehensive income for the years ended December 31, 2022 and 2021 were as follows:

 

(Dollars in thousands)

 

 

 

Amounts Reclassified from
Accumulated Other
Comprehensive Income

 

 

 

 

 

Years Ended December 31,

 

Details about Accumulated Other
Comprehensive Income Components

 

Affected Line Item in the Consolidated Statements of Operations

 

2022

 

 

2021

 

Unrealized gains and losses on available for sale securities

 

Other net realized investment (gains) losses

 

$

39,610

 

 

$

(342

)

 

 

Income tax expense (benefit)

 

 

(7,357

)

 

 

64

 

 

 

Total reclassifications, net of tax

 

$

32,253

 

 

$

(278

)

 

Net Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the years ended December 31, 2022, 2021, and 2020 were as follows:

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

Gross realized gains

 

$

688

 

 

$

11,390

 

 

$

28,381

 

Gross realized losses

 

 

(40,298

)

 

 

(11,048

)

 

 

(5,537

)

Net realized gains (losses)

 

 

(39,610

)

 

 

342

 

 

 

22,844

 

Equity securities:

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

2,289

 

 

 

15,350

 

 

 

16,997

 

Gross realized losses

 

 

(5,681

)

 

 

(1,910

)

 

 

(32,247

)

Net realized gains (losses)

 

 

(3,392

)

 

 

13,440

 

 

 

(15,250

)

Derivatives:

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

12,844

 

 

 

8,035

 

 

 

19,460

 

Gross realized losses

 

 

(2,771

)

 

 

(5,930

)

 

 

(41,716

)

Net realized gains (losses) (1)

 

 

10,073

 

 

 

2,105

 

 

 

(22,256

)

Total net realized investment gains (losses)

 

$

(32,929

)

 

$

15,887

 

 

$

(14,662

)

 

(1)
Includes periodic net interest settlements related to the derivatives of $3.0 million, $5.6 million, and $4.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of December 31, 2022, 2021, and 2020:

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

Net gains (losses) recognized during the period on equity securities

 

$

(3,392

)

 

$

13,440

 

 

$

(15,250

)

Less: net gains (losses) recognized during the period on equity securities sold during the period

 

 

10,577

 

 

 

4,058

 

 

 

(103

)

Unrealized gains (losses) recognized during the reporting period on equity securities

 

$

(13,969

)

 

$

9,382

 

 

$

(15,147

)

 

The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the years ended December 31, 2022, 2021, and 2020 were as follows:

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

Fixed maturities

 

$

933,554

 

 

$

1,065,398

 

 

$

791,554

 

Equity securities

 

 

88,726

 

 

 

54,691

 

 

 

604,772

 

 

Net Investment Income

The sources of net investment income for the years ended December 31, 2022, 2021, and 2020 were as follows:

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

Fixed maturities

 

$

33,852

 

 

$

25,751

 

 

$

31,987

 

Equity securities

 

 

1,100

 

 

 

2,692

 

 

 

4,944

 

Cash and cash equivalents

 

 

790

 

 

 

363

 

 

 

784

 

Other invested assets

 

 

(5,966

)

 

 

10,856

 

 

 

(6,228

)

Total investment income

 

 

29,776

 

 

 

39,662

 

 

 

31,487

 

Investment expense

 

 

(2,149

)

 

 

(2,642

)

 

 

(3,095

)

Net investment income

 

$

27,627

 

 

$

37,020

 

 

$

28,392

 

 

 

As of December 31, 2022 and 2021, the Company did not own any fixed maturity securities that were non-income producing for the preceding twelve months.

 

The Company’s total investment return on a pre-tax basis for the years ended December 31, 2022, 2021, and 2020 were as follows:

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

Net investment income

 

$

27,627

 

 

$

37,020

 

 

$

28,392

 

Net realized investment gains (losses)

 

 

(32,929

)

 

 

15,887

 

 

 

(14,662

)

Change in unrealized holding gains (losses)

 

 

(61,627

)

 

 

(34,363

)

 

 

21,779

 

Net realized and unrealized investment returns

 

 

(94,556

)

 

 

(18,476

)

 

 

7,117

 

Total investment return

 

$

(66,929

)

 

$

18,544

 

 

$

35,509

 

Total investment return %

 

 

(4.7

%)

 

 

1.2

%

 

 

2.3

%

Average investment portfolio

 

$

1,437,327

 

 

$

1,490,933

 

 

$

1,528,425

 

 

 

Insurance Enhanced Asset-Backed and Credit Securities

 

As of December 31, 2022, the Company held insurance enhanced municipal bonds with a market value of approximately $6.8 million, which represented 0.5% of the Company’s total cash and invested assets, net of payable/receivable for securities purchased and sold. The financial guarantors of the Company’s $6.8 million municipal bonds include Assured Guaranty Corporation ($5.3 million) and Ambac Financial Group ($1.5 million).

The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by the Company at December 31, 2022.

Bonds Held on Deposit

Certain cash balances, cash equivalents, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral, or were held in trust. The fair values were as follows as of December 31, 2022 and 2021:

 

 

 

Estimated Fair Value

 

(Dollars in thousands)

 

December 31, 2022

 

 

December 31, 2021

 

On deposit with governmental authorities

 

$

19,290

 

 

$

26,093

 

Held in trust pursuant to third-party requirements

 

 

161,901

 

 

 

119,513

 

Letter of credit held for third-party requirements

 

 

—

 

 

 

2,512

 

Total

 

$

181,191

 

 

$

148,118

 

 

 

Variable Interest Entities

A Variable Interest Entity (“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results.

The Company has variable interests in two VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments.

The carrying value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $4.8 million and $8.6 million as of December 31, 2022 and 2021, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $19.0 million and $22.8 million as of December 31, 2022 and 2021, respectively. The carrying value and maximum exposure to loss of a second VIE that invests in Real Estate Investment Trust (“REIT”) qualifying assets was $9.8 million and $11.7 million as of December 31, 2022 and 2021, respectively. The Company’s investment in VIEs is included in other invested assets on the consolidated balance sheets with changes in carrying value recorded in the consolidated statements of operations.