| Investments | INVESTMENTS The following table details fixed-maturity available-for-sale securities, by major investment category, at March 31, 2023 and December 31, 2022: Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 31, 2023 U.S. government and agency securities $ 3,491 $ — $ 82 $ 3,409 Foreign government 1,000 — 9 991 States, municipalities and political subdivisions 31,924 15 3,357 28,582 Public utilities 8,913 — 1,093 7,820 Corporate securities 99,324 58 13,659 85,723 Mortgage-backed securities 64,285 — 8,283 56,002 Asset-backed securities 30,536 36 2,366 28,206 Total fixed maturities $ 239,473 $ 109 $ 28,849 $ 210,733 December 31, 2022 U.S. government and agency securities $ 2,490 $ — $ 105 $ 2,385 Foreign government 1,000 — 9 991 States, municipalities and political subdivisions 30,958 2 4,065 26,895 Public utilities 8,936 — 1,242 7,694 Corporate securities 99,062 20 15,739 83,343 Mortgage-backed securities 65,251 — 9,136 56,115 Asset-backed securities 30,038 9 2,788 27,259 Total fixed maturities $ 237,735 $ 31 $ 33,084 $ 204,682 Equity securities are summarized as follows: March 31, 2023 December 31, 2022 Estimated Fair Value Percent of Total Estimated Fair Value Percent of Total Mutual funds $ 16,181 100.0 % $ 15,657 100.0 % When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three months ended March 31, 2023 and 2022, respectively: 2023 2022 Gains Fair Value at Sale Gains Fair Value at Sale Three Months Ended March 31, Fixed maturities $ 4 $ 5,292 $ 41 $ 12,192 Equity securities — — — — Short-term investments — 126 — — Total realized gains 4 5,418 41 12,192 Fixed maturities (87) (41) (4) 251 Equity securities — — — — Short-term investments — — — — Total realized losses (87) (41) (4) 251 Net realized investment gains (losses) $ (83) $ 5,377 $ 37 $ 12,443 The table below summarizes our fixed maturities at March 31, 2023 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 maturities of those obligations. March 31, 2023 Cost or Amortized Cost Percent of Total Fair Value Percent of Total Due in one year or less $ 7,097 3.0 % $ 7,016 3.3 % Due after one year through five years 50,754 21.2 46,402 22.0 Due after five years through ten years 82,508 34.5 69,386 32.9 Due after ten years 4,293 1.8 3,721 1.8 Asset and mortgage-backed securities 94,821 39.5 84,208 40.0 Total $ 239,473 100.0 % $ 210,733 100.0 % The following table summarizes our net investment income by major investment category: Three Months Ended March 31, 2023 2022 Fixed maturities $ 1,272 $ 1,431 Equity securities 81 66 Cash and cash equivalents 1,304 22 Other investments 6 55 Other assets — — Investment income 2,663 1,574 Investment expenses (74) (170) Net investment income $ 2,589 $ 1,404 Portfolio monitoring We have a quarterly portfolio monitoring process to identify and evaluate each fixed-income security whose carrying value may be impaired as the result of a credit loss. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security's entire decline in fair value is recorded in earnings. If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive loss. During the three months ended March 31, 2023, we determined that none of our fixed-income securities shown in the table below that are in an unrealized loss position have declines in fair value that are reflected as a result of credit losses. Therefore, no credit loss allowance was recorded at March 31, 2023. The issuers of our debt security investments continue to make interest payments on a timely basis. We do not intend to sell, nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. Equity securities are reported at fair value with changes in fair value recognized in the valuation of equity investments. The following table presents an aging of our unrealized investment losses by investment class: Less Than Twelve Months Twelve Months or More Number of Securities (1) Gross Unrealized Losses Fair Value Number of Securities (1) Gross Unrealized Losses Fair Value March 31, 2023 U.S. government and agency securities 1 $ 9 $ 990 2 $ 73 $ 1,421 Foreign governments 1 9 991 — — — States, municipalities and political subdivisions 8 49 3,732 45 3,308 23,324 Public utilities — — — 12 1,093 7,819 Corporate securities 35 547 10,964 115 13,112 71,582 Mortgage-backed securities 12 248 3,749 116 8,035 52,254 Asset-backed securities 7 36 3,013 54 2,330 22,632 Total fixed maturities 64 $ 898 $ 23,439 344 $ 27,951 $ 179,032 December 31, 2022 U.S. government and agency securities 3 $ 105 $ 2,385 — $ — $ — Foreign governments 1 9 991 — — — States, municipalities and political subdivisions 21 540 7,306 31 3,525 18,853 Public utilities 8 193 2,286 4 1,049 5,408 Corporate securities 78 2,279 24,594 77 13,460 57,765 Mortgage-backed securities 48 1,282 15,259 80 7,854 40,856 Asset-backed securities 16 795 6,397 46 1,993 19,028 Total fixed maturities 175 $ 5,203 $ 59,218 238 $ 27,881 $ 141,910 (1) This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not presented in thousands. Fair value measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Condensed Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access. Level 2: Assets and liabilities whose values are based on the following: (a) Quoted prices for similar assets or liabilities in active markets; (b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or (c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities. We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on March 31, 2023 and December 31, 2022. Changes in interest rates subsequent to March 31, 2023 may affect the fair value of our investments. The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. Any change in the estimated fair value of our fixed-income securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive loss on our Unaudited Condensed Consolidated Balance Sheet as of March 31, 2023. The following table presents the fair value of our financial instruments measured on a recurring basis by level at March 31, 2023 and December 31, 2022: Total Level 1 Level 2 Level 3 March 31, 2023 U.S. government and agency securities $ 3,409 $ — $ 3,409 $ — Foreign government 991 — 991 — States, municipalities and political subdivisions 28,582 — 28,582 — Public utilities 7,820 — 7,820 — Corporate securities 85,723 — 85,723 — Mortgage-backed securities 56,002 — 56,002 — Asset-backed securities 28,206 — 28,206 — Total fixed maturities 210,733 — 210,733 — Mutual funds 16,181 16,181 — — Total investments $ 226,914 $ 16,181 $ 210,733 $ — December 31, 2022 U.S. government and agency securities $ 2,385 $ — $ 2,385 $ — Foreign government 991 — 991 — States, municipalities and political subdivisions 26,895 — 26,895 — Public utilities 7,694 — 7,694 — Corporate securities 83,343 — 83,343 — Mortgage-backed securities 56,115 — 56,115 — Asset-backed securities 27,259 — 27,259 — Total fixed maturities 204,682 — 204,682 — Mutual Funds 15,657 15,657 — — Total equity securities 15,657 15,657 — — Other investments (1) 125 — 125 — Total investments $ 220,464 $ 15,657 $ 204,807 $ — (1) Other investments included in the fair value hierarchy exclude these limited partnership interests that are measured at estimated fair value using the net asset value per share (or its equivalent) practical expedient. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). There were no financial instruments measured on a non-recurring basis at March 31, 2023 and December 31, 2022. The carrying amounts for the following financial instrument categories approximate their fair values at March 31, 2023 and December 31, 2022, because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of our senior notes approximate fair value as the interest rates and terms are variable. We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the quarter ended March 31, 2023, we transferred no investments between levels. For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment custodians, which use a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, and adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in its calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs. Other investments We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Condensed Consolidated Balance Sheets, and these investments are currently being measured at estimated fair value utilizing a net asset value per share (or its equivalent) practical expedient. The information presented in the table below is as of March 31, 2023: Book Value Unrealized Gain Unrealized Loss Fair Value March 31, 2023 Limited partnership investments (1) $ 2,917 $ 633 $ — $ 3,550 (1) Distributions will be generated from investment gains, from operating income, from underlying investments of funds, and from liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next few months to five years. Restricted Cash We are required to maintain assets on deposit with various regulatory authorities to support our insurance operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also use trust funds in certain reinsurance transactions. The following table presents the components of restricted assets: March 31, 2023 December 31, 2022 Trust funds $ 49,046 $ 45,364 Cash on deposit (regulatory deposits) 625 624 Total restricted cash $ 49,671 $ 45,988 In addition to the cash held on deposit described above, we also have securities on deposit with regulators, which are presented within our Fixed Maturities or Other Investments lines on the Unaudited Condensed Balance Sheets, dependent upon if they are short-term or long-term in nature. The table below shows the carrying value of those securities held on deposit with regulators. March 31, 2023 December 31, 2022 Invested assets on deposit (regulatory deposits) $ 2,491 $ 2,616 |
