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Investments
 3 Months Ended
Mar. 31, 2019
Investments Debt And Equity Securities [Abstract]  
Investments

NOTE 4.  INVESTMENTS

The following tables set forth our Company’s Available-For-Sale Investments as of March 31, 2019 and December 31, 2018 and include Other-Than-Temporary-Impairment (“OTTI”) securities recognized within Accumulated Other Comprehensive Income (“AOCI”):

 

 

 

March 31, 2019

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Cost or

 

 

 

Fair

 

 

Unrealized

 

 

Unrealized

 

 

Amortized

 

amounts in thousands

 

Value

 

 

Gains

 

 

(Losses)

 

 

Cost

 

Fixed Maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds, Agency Bonds and Foreign

   Government Bonds

 

$

226,093

 

 

$

1,334

 

 

$

(3,050

)

 

$

227,809

 

States, Municipalities and Political Subdivisions

 

 

698,980

 

 

 

21,932

 

 

 

(586

)

 

 

677,634

 

Mortgage-Backed and Asset-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Residential Mortgage-Backed Securities

 

 

329,582

 

 

 

1,106

 

 

 

(8,771

)

 

 

337,247

 

Residential Mortgage Obligations

 

 

154,149

 

 

 

1,538

 

 

 

(295

)

 

 

152,906

 

Asset-Backed Securities

 

 

532,027

 

 

 

1,746

 

 

 

(4,309

)

 

 

534,590

 

Commercial Mortgage-Backed Securities

 

 

199,450

 

 

 

2,089

 

 

 

(1,397

)

 

 

198,758

 

Subtotal

 

$

1,215,208

 

 

$

6,479

 

 

$

(14,772

)

 

$

1,223,501

 

Corporate Exposures (1)

 

 

1,019,527

 

 

 

12,910

 

 

 

(8,061

)

 

 

1,014,678

 

Total Fixed Maturities

 

$

3,159,808

 

 

$

42,655

 

 

$

(26,469

)

 

$

3,143,622

 

Short-Term Investments

 

 

7,287

 

 

 

—

 

 

 

(1

)

 

 

7,288

 

Total Available-For-Sale Investments

 

$

3,167,095

 

 

$

42,655

 

 

$

(26,470

)

 

$

3,150,910

 

 

(1) -

Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

 

 

 

December 31, 2018

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Cost or

 

 

 

Fair

 

 

Unrealized

 

 

Unrealized

 

 

Amortized

 

amounts in thousands

 

Value

 

 

Gains

 

 

(Losses)

 

 

Cost

 

Fixed Maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds, Agency Bonds and Foreign

   Government Bonds

 

$

239,776

 

 

$

901

 

 

$

(3,957

)

 

$

242,832

 

States, Municipalities and Political Subdivisions

 

 

646,551

 

 

 

10,734

 

 

 

(3,448

)

 

 

639,265

 

Mortgage-Backed and Asset-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Residential Mortgage-Backed Securities

 

 

335,542

 

 

 

843

 

 

 

(13,118

)

 

 

347,817

 

Residential Mortgage Obligations

 

 

138,373

 

 

 

604

 

 

 

(530

)

 

 

138,299

 

Asset-Backed Securities

 

 

531,991

 

 

 

1,018

 

 

 

(8,040

)

 

 

539,013

 

Commercial Mortgage-Backed Securities

 

 

188,201

 

 

 

858

 

 

 

(2,816

)

 

 

190,159

 

Subtotal

 

$

1,194,107

 

 

$

3,323

 

 

$

(24,504

)

 

$

1,215,288

 

Corporate Exposures (1)

 

 

1,002,489

 

 

 

3,101

 

 

 

(28,640

)

 

 

1,028,028

 

Total Fixed Maturities

 

$

3,082,923

 

 

$

18,059

 

 

$

(60,549

)

 

$

3,125,413

 

Short-Term Investments

 

 

10,233

 

 

 

—

 

 

 

(1

)

 

 

10,234

 

Total Available-For-Sale Investments

 

$

3,093,156

 

 

$

18,059

 

 

$

(60,550

)

 

$

3,135,647

 

 

(1) -

Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

 

 

The following table sets forth our Company’s Equity Securities at fair value as of March 31, 2019 and December 31, 2018:

 

 

 

As of March 31, 2019

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Unrealized

 

 

Cost

 

amounts in thousands

 

Value

 

 

Gains

 

 

(Losses)

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Common Stocks

 

$

181,512

 

 

$

11,495

 

 

$

(2,644

)

 

$

172,661

 

  Preferred Stocks

 

 

176,935

 

 

 

2,082

 

 

 

(5,694

)

 

 

180,547

 

Total Equity Securities

 

$

358,447

 

 

$

13,577

 

 

$

(8,338

)

 

$

353,208

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Unrealized

 

 

Cost

 

amounts in thousands

 

Value

 

 

Gains

 

 

(Losses)

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Common Stocks

 

$

166,353

 

 

$

4,738

 

 

$

(15,984

)

 

$

177,599

 

  Preferred Stocks

 

 

173,539

 

 

 

511

 

 

 

(10,791

)

 

 

183,819

 

Total Equity Securities

 

$

339,892

 

 

$

5,249

 

 

$

(26,775

)

 

$

361,418

 

 

Our Company made investments in certain companies, which are reported as Other Invested Assets on the Consolidated Balance Sheet and accounted for using the equity method.  In applying the equity method, these investments were initially recorded at cost and subsequently adjusted based on our Company’s proportionate share of the net income or loss of the investments. Our initial purchase price for these investments was $2.0 million with a current carrying value of $1.9 million at March 31, 2019 and December 31, 2018, as reflected on our Consolidated Balance Sheet.  

Other Invested Assets also includes overseas deposits with a fair value of $50.4 million at March 31, 2019 and $46.5 million at December 31, 2018.  The overseas deposits consist of investments in private funds which are managed centrally by The Corporation of Lloyd’s in support of all Lloyd’s market participants. The funds consist of fixed income securities, bank deposits, and cash invested in local markets which are intended to fulfill regulatory deposit requirements in worldwide jurisdictions. Our Company’s ability to withdraw from the funds is restricted by an annual and quarterly funding and release process managed by Lloyd’s in conjunction with Syndicate 1221’s capital requirements in various jurisdictions.

As of March 31, 2019 and December 31, 2018, our Company did not have a concentration of greater than 5% of invested assets in a single non-government backed issuer.

As of March 31, 2019 and December 31, 2018, Fixed Maturities for which Non-Credit OTTI was previously recognized and included in AOCI were in a Net Unrealized Gain position of $0.3 million.

The fair value of our Company’s Fixed Maturities investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, foreign exchange rates and credit spreads. Our Company does not have the intent to sell nor is it more likely than not that it will have to sell Fixed Maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell, and it is more likely than not that our Company will not be required to sell, these securities before the recovery of the amortized cost basis. Our Company may realize investment losses to the extent our liquidity needs require the disposition of Fixed Maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors our Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the Consolidated Financial Statements.

The contractual maturity dates for Fixed Maturities categorized by the number of years until maturity as of March 31, 2019 are shown in the following table:

 

 

 

March 31, 2019

 

 

 

Fair

 

 

Amortized

 

amounts in thousands

 

Value

 

 

Cost

 

Due in one year or less

 

$

145,022

 

 

$

145,859

 

Due after one year through five years

 

 

805,156

 

 

 

802,331

 

Due after five years through ten years

 

 

372,917

 

 

 

362,404

 

Due after ten years

 

 

621,505

 

 

 

609,527

 

Mortgage-Backed and Asset-Backed Securities

 

 

1,215,208

 

 

 

1,223,501

 

Total

 

$

3,159,808

 

 

$

3,143,622

 

 

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Prepayment assumptions associated with the Mortgage-Backed and Asset-Backed Securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective accounting method. Due to the periodic repayment of principal, our Mortgage-Backed and Asset-Backed Securities are estimated to have an effective maturity of approximately 5.1 years.

The following tables summarize all Available-For-Sale securities in a gross unrealized loss position as of March 31, 2019 and December 31, 2018, showing the aggregate fair value and gross unrealized loss by the length of time those securities have continuously been in a gross unrealized loss position:

 

 

 

March 31, 2019

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

amounts in thousands

 

Value

 

 

(Losses)

 

 

Value

 

 

(Losses)

 

 

Value

 

 

(Losses)

 

Fixed Maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds, Agency Bonds and Foreign

   Government Bonds

 

$

32,603

 

 

$

(377

)

 

$

121,784

 

 

$

(2,673

)

 

$

154,387

 

 

$

(3,050

)

States, Municipalities and Political Subdivisions

 

 

6,964

 

 

 

(4

)

 

 

76,493

 

 

 

(582

)

 

 

83,457

 

 

 

(586

)

Mortgage-Backed and Asset-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Residential Mortgage-Backed Securities

 

 

2,924

 

 

 

(19

)

 

 

291,576

 

 

 

(8,752

)

 

 

294,500

 

 

 

(8,771

)

Residential Mortgage Obligations

 

 

35,368

 

 

 

(36

)

 

 

14,258

 

 

 

(259

)

 

 

49,626

 

 

 

(295

)

Asset-Backed Securities

 

 

266,463

 

 

 

(3,490

)

 

 

96,222

 

 

 

(819

)

 

 

362,685

 

 

 

(4,309

)

Commercial Mortgage-Backed Securities

 

 

55,185

 

 

 

(141

)

 

 

42,717

 

 

 

(1,256

)

 

 

97,902

 

 

 

(1,397

)

Subtotal

 

$

359,940

 

 

$

(3,686

)

 

$

444,773

 

 

$

(11,086

)

 

$

804,713

 

 

$

(14,772

)

Corporate Exposures (1)

 

 

35,038

 

 

 

(461

)

 

 

438,306

 

 

 

(7,600

)

 

 

473,344

 

 

 

(8,061

)

Total Fixed Maturities

 

$

434,545

 

 

$

(4,528

)

 

$

1,081,356

 

 

$

(21,941

)

 

$

1,515,901

 

 

$

(26,469

)

 

(1) -

Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

 

 

 

December 31, 2018

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

amounts in thousands

 

Value

 

 

(Losses)

 

 

Value

 

 

(Losses)

 

 

Value

 

 

(Losses)

 

Fixed Maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds, Agency Bonds and Foreign

   Government Bonds

 

$

101,395

 

 

$

(2,486

)

 

$

112,195

 

 

$

(1,471

)

 

$

213,590

 

 

$

(3,957

)

States, Municipalities and Political Subdivisions

 

 

123,479

 

 

 

(1,274

)

 

 

105,405

 

 

 

(2,174

)

 

 

228,884

 

 

 

(3,448

)

Mortgage-Backed and Asset-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Residential Mortgage-Backed Securities

 

 

34,819

 

 

 

(814

)

 

 

270,997

 

 

 

(12,304

)

 

 

305,816

 

 

 

(13,118

)

Residential Mortgage Obligations

 

 

70,965

 

 

 

(249

)

 

 

10,110

 

 

 

(281

)

 

 

81,075

 

 

 

(530

)

Asset-Backed Securities

 

 

345,437

 

 

 

(6,950

)

 

 

77,362

 

 

 

(1,090

)

 

 

422,799

 

 

 

(8,040

)

Commercial Mortgage-Backed Securities

 

 

58,877

 

 

 

(282

)

 

 

41,477

 

 

 

(2,534

)

 

 

100,354

 

 

 

(2,816

)

Subtotal

 

$

510,098

 

 

$

(8,295

)

 

$

399,946

 

 

$

(16,209

)

 

$

910,044

 

 

$

(24,504

)

Corporate Exposures (1)

 

 

481,057

 

 

 

(15,456

)

 

 

300,113

 

 

 

(13,184

)

 

 

781,170

 

 

 

(28,640

)

Total Fixed Maturities

 

$

1,216,029

 

 

$

(27,511

)

 

$

917,659

 

 

$

(33,038

)

 

$

2,133,688

 

 

$

(60,549

)

 

 

(1) -

Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

Our Company analyzes impaired securities quarterly to determine if any impairments are other-than-temporary.  The above securities with unrealized losses are deemed to be temporarily impaired based on our evaluation.

 

As of March 31, 2019, there were 511 Fixed Maturities in an unrealized loss position. The gross unrealized losses for the greater than 12 months category consists primarily of Agency Mortgage-Backed Securities and Corporate Bonds due to an increase in interest rates.  The gross unrealized losses for the less than 12 months category consists primarily of Asset-Backed Securities due to a lower demand for floating rate securities. At December 31, 2018, there were 808 Fixed Maturities in an unrealized loss position. In the above table, the gross unrealized loss for the greater than 12 months category consists primarily of Agency Residential Mortgage-Backed Securities and Hybrid bonds and Redeemable Preferred stocks, which are reported in Corporate Exposures, and is mostly due to an increase in interest rates and spread widening.  The gross unrealized loss for the less than 12 months category consists primarily of Hybrid bonds and Redeemable Preferred stocks, which are reported in Corporate Exposures, and Asset-Backed Securities mainly due to spread widening.      

As of March 31, 2019 and December 31, 2018, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $1.8 million and $3.7 million, respectively.

Our Company’s ability to hold securities is supported by sufficient cash flow from our operations and from maturities within our investment portfolio in order to meet our claims payments and other disbursement obligations arising from our underwriting operations without selling such investments.  With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss.  Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.  

Our Company did not have any credit related OTTI losses during the three months ended March 31, 2019 and 2018.  

As of March 31, 2019 and 2018, the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on Fixed Maturities was $2.3 million and $2.4 million, respectively.    

 

 

 

Our Company’s Net Investment Income was derived from the following sources:

 

 

 

Three Months Ended March 31,

 

amounts in thousands

 

2019

 

 

2018

 

Fixed Maturities

 

$

25,015

 

 

$

21,052

 

Equity Securities

 

 

3,155

 

 

 

2,925

 

Short-Term Investments, Cash & Cash Equivalents

 

 

570

 

 

 

227

 

Other Invested Assets

 

 

228

 

 

 

186

 

Total Investment Income

 

$

28,968

 

 

$

24,390

 

Investment Expenses

 

 

(749

)

 

 

(688

)

Net Investment Income

 

$

28,219

 

 

$

23,702

 

 

Realized Gains and Losses on Investments Sold, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

 

 

 

Three Months Ended March 31,

 

amounts in thousands

 

2019

 

 

2018

 

Fixed Maturities:

 

 

 

 

 

 

 

 

Gains

 

$

784

 

 

$

1,806

 

Losses

 

 

(265

)

 

 

(275

)

Fixed Maturities, Net

 

$

519

 

 

$

1,531

 

 

 

 

 

 

 

 

 

 

Short-Term Investments, Cash & Cash Equivalents:

 

 

 

 

 

 

 

 

Gains

 

$

—

 

 

$

18

 

Losses

 

 

(17

)

 

 

(174

)

Short-Term, Net

 

$

(17

)

 

$

(156

)

 

 

 

 

 

 

 

 

 

Other Invested Assets:

 

 

 

 

 

 

 

 

Gains

 

$

134

 

 

$

50

 

Losses

 

 

—

 

 

 

(41

)

Other Invested Assets, Net

 

$

134

 

 

$

9

 

 

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

Gains

 

$

3

 

 

$

—

 

Losses

 

 

(246

)

 

 

(215

)

Equity Securities, Net

 

$

(243

)

 

$

(215

)

Net Realized Gains on Investments Sold

 

$

393

 

 

$

1,169

 

 

 

The following table presents the portion of Net Unrealized Gains (Losses) that relates to Equity Securities recognized during the three months ended March 31, 2018 and 2019:

 

 

 

Three Months Ended March 31,

 

amounts in thousands

 

2019

 

 

2018

 

Equity Securities:

 

 

 

 

 

 

 

 

Total Net Realized and Unrealized Gains (Losses) recognized

 

$

26,526

 

 

$

(3,396

)

Less: Net Realized Losses on Investments Sold

 

 

(243

)

 

 

(215

)

Net Unrealized Gains (Losses) recognized

 

$

26,769

 

 

$

(3,181

)