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Investments | 3 Months Ended
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Mar. 31, 2023
Investments Debt And Equity Securities [Abstract] |
Investments | 3. Investments The amortized cost and estimated fair value of the Company’s fixed maturities securities were as follows as of March 31, 2023 and December 31, 2022:
(Dollars in thousands) |  | Amortized Cost |  |  | Allowance for Expected Credit Losses |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Estimated Fair Value |
As of March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | 337,865 |  |  | $ | — |  |  | $ | 102 |  |  | $ | (5,661 | ) |  | $ | 332,306 |
Obligations of states and political subdivisions |  |  | 33,386 |  |  |  | — |  |  |  | — |  |  |  | (1,513 | ) |  |  | 31,873 |
Mortgage-backed securities |  |  | 66,799 |  |  |  | — |  |  |  | 421 |  |  |  | (4,738 | ) |  |  | 62,482 |
Asset-backed securities |  |  | 214,005 |  |  |  | — |  |  |  | 695 |  |  |  | (6,995 | ) |  |  | 207,705 |
Commercial mortgage-backed securities |  |  | 104,788 |  |  |  | — |  |  |  | 22 |  |  |  | (5,723 | ) |  |  | 99,087 |
Corporate bonds |  |  | 353,329 |  |  |  | — |  |  |  | 68 |  |  |  | (12,237 | ) |  |  | 341,160 |
Foreign corporate bonds |  |  | 189,976 |  |  |  | — |  |  |  | 5 |  |  |  | (7,237 | ) |  |  | 182,744 |
Total fixed maturities |  | $ | 1,300,148 |  |  | $ | — |  |  | $ | 1,313 |  |  | $ | (44,104 | ) |  | $ | 1,257,357 |
(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 |
As of March 31, 2023 and December 31, 2022, the Company’s investments in equity securities consist of the following:
(Dollars in thousands) |  | March 31, 2023 |  |  | December 31, 2022 |
Common stock |  | $ | 1,230 |  |  | $ | 1,271 |
Preferred stock |  |  | 16,112 |  |  |  | 16,249 |
Total |  | $ | 17,342 |  |  | $ | 17,520 |
Excluding U.S. treasuries and limited partnerships, the Company did not hold any debt or equity investments in a single issuer in excess of 2.4% of shareholders' equity at March 31, 2023 and December 31, 2022, respectively. The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at March 31, 2023, 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 |  | $ | 323,345 |  |  | $ | 318,732 |
Due in one year through five years |  |  | 556,218 |  |  |  | 538,542 |
Due in five years through ten years |  |  | 22,295 |  |  |  | 19,921 |
Due after fifteen years |  |  | 12,698 |  |  |  | 10,888 |
Mortgage-backed securities |  |  | 66,799 |  |  |  | 62,482 |
Asset-backed securities |  |  | 214,005 |  |  |  | 207,705 |
Commercial mortgage-backed securities |  |  | 104,788 |  |  |  | 99,087 |
Total |  | $ | 1,300,148 |  |  | $ | 1,257,357 |
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 March 31, 2023. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 5.
|  | 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 |  | $ | 298,152 |  |  | $ | (4,692 | ) |  | $ | 12,768 |  |  | $ | (969 | ) |  | $ | 310,920 |  |  | $ | (5,661 | )
Obligations of states and political subdivisions |  |  | 16,216 |  |  |  | (285 | ) |  |  | 15,657 |  |  |  | (1,228 | ) |  |  | 31,873 |  |  |  | (1,513 | )
Mortgage-backed securities |  |  | 25,678 |  |  |  | (1,788 | ) |  |  | 25,407 |  |  |  | (2,950 | ) |  |  | 51,085 |  |  |  | (4,738 | )
Asset-backed securities |  |  | 57,761 |  |  |  | (1,230 | ) |  |  | 94,079 |  |  |  | (5,765 | ) |  |  | 151,840 |  |  |  | (6,995 | )
Commercial mortgage-backed securities |  |  | 19,425 |  |  |  | (811 | ) |  |  | 76,881 |  |  |  | (4,912 | ) |  |  | 96,306 |  |  |  | (5,723 | )
Corporate bonds |  |  | 201,660 |  |  |  | (3,963 | ) |  |  | 124,030 |  |  |  | (8,274 | ) |  |  | 325,690 |  |  |  | (12,237 | )
Foreign corporate bonds |  |  | 112,509 |  |  |  | (1,719 | ) |  |  | 66,293 |  |  |  | (5,518 | ) |  |  | 178,802 |  |  |  | (7,237 | )
Total fixed maturities |  | $ | 731,401 |  |  | $ | (14,488 | ) |  | $ | 415,115 |  |  | $ | (29,616 | ) |  | $ | 1,146,516 |  |  | $ | (44,104 | )
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 5.
|  | 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 Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each available for sale debt security in an unrealized loss position to assess whether the decline in fair value below amortized cost basis has resulted from a credit loss or other factors. In assessing whether a credit loss exists, the Company compares the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for expected credit losses is recorded. Subsequent changes in the allowances are recorded in the period of change as either credit loss expense or reversal of credit loss expense. Any impairments related to factors other than credit losses and the intent to sell are recorded through other comprehensive income, net of taxes. For fixed maturities, the factors considered in reaching the conclusion that a credit loss exists include, among others, whether: (1) the extent to which the fair value is less than the amortized cost basis; (2) the issuer is in financial distress; (3) the investment is secured; (4) a significant credit rating action occurred; (5) scheduled interest payments were delayed or missed; (6) changes in laws or regulations have affected an issuer or industry; (7) the investment has an unrealized loss and was identified by the Company’s investment manager as an investment to be sold before recovery or maturity; (8) the investment failed cash flow projection testing to determine if anticipated principal and interest payments will be realized; and (9) changes in US Treasury rates and/or credit spreads since original purchase to identify whether the unrealized loss is simply due to interest rate movement. According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met, any allowance for expected credit losses is written off and the amortized cost basis is written down to the fair value of the fixed maturity security with any incremental impairment reported in earnings. That new amortized cost basis shall not be adjusted for subsequent recoveries in fair value. The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available for sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance with other assets on the Company’s consolidated statements of financial position. Accrued interest receivable related to fixed maturities was $7.0 million and $8.4 million as of March 31, 2023 and December 31, 2022, respectively. 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 March 31, 2023, gross unrealized losses related to U.S. treasuries were $5.661 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 March 31, 2023, gross unrealized losses related to obligations of states and political subdivisions were $1.513 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 March 31, 2023, gross unrealized losses related to mortgage-backed securities were $4.738 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 March 31, 2023, gross unrealized losses related to asset backed securities were $6.995 million. The weighted average credit enhancement for the Company’s asset backed portfolio is 34.1. 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 March 31, 2023, gross unrealized losses related to the CMBS portfolio were $5.723 million. The weighted average credit enhancement for the Company’s CMBS portfolio is 46.5. 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 March 31, 2023, gross unrealized losses related to corporate bonds were $12.237 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 March 31, 2023, gross unrealized losses related to foreign bonds were $7.237 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 quarters ended March 31, 2023 and 2022 and are related to securities in an unrealized loss position where the Company had an intent to sell the securities:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 (1) |
Fixed maturities: |  |  |  |  |  |
Impairment related to intent to sell |  |  | — |  |  |  | (25,525 | )
Total |  | $ | — |  |  | $ | (25,525 | )
(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 resulting in other-than-temporary impairment losses. 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 two years. As a result of these actions, book yield increased from 2.2% at December 31, 2021 to 3.6% at March 31, 2023. Accumulated Other Comprehensive Income (Loss), Net of Tax Accumulated other comprehensive income, net of tax, as of March 31, 2023 and December 31, 2022 was as follows:
(Dollars in thousands) |  | March 31, 2023 |  |  | December 31, 2022 |
Net unrealized gains (losses) from: |  |  |  |  |  |
Fixed maturities |  | $ | (42,791 | ) |  | $ | (53,525 | )
Foreign currency fluctuations |  |  | (381 | ) |  |  | (127 | )
Deferred taxes |  |  | 8,557 |  |  |  | 10,594 |
Accumulated other comprehensive income (loss), net of tax |  | $ | (34,615 | ) |  | $ | (43,058 | )
The following tables present the changes in accumulated other comprehensive income, net of tax, by components, for the quarters ended March 31, 2023 and 2022:
Quarter Ended March 31, 2023 (Dollars in thousands) |  | Unrealized Gains and Losses on Available for Sale Securities |  |  | Foreign Currency Items |  |  | Accumulated Other Comprehensive Income (Loss) |
Beginning balance, net of tax |  | $ | (42,958 | ) |  | $ | (100 | ) |  | $ | (43,058 | )
Other comprehensive income (loss) before reclassification, before tax |  |  | 10,128 |  |  |  | (254 | ) |  |  | 9,874 |
Amounts reclassified from accumulated other comprehensive income, before tax |  |  | 606 |  |  |  | — |  |  |  | 606 |
Other comprehensive income (loss), before tax |  |  | 10,734 |  |  |  | (254 | ) |  |  | 10,480 |
Income tax benefit |  |  | (2,090 | ) |  |  | 53 |  |  |  | (2,037 | )
Ending balance, net of tax |  | $ | (34,314 | ) |  | $ | (301 | ) |  | $ | (34,615 | )
Quarter Ended March 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 |  |  | (52,749 | ) |  |  | 141 |  |  |  | (52,608 | )
Amounts reclassified from accumulated other comprehensive income, before tax |  |  | 28,764 |  |  |  | — |  |  |  | 28,764 |
Other comprehensive income (loss), before tax |  |  | (23,985 | ) |  |  | 141 |  |  |  | (23,844 | )
Income tax benefit |  |  | 4,697 |  |  |  | (29 | ) |  |  | 4,668 |
Ending balance, net of tax |  | $ | (12,769 | ) |  | $ | (3 | ) |  | $ | (12,772 | )
The reclassifications out of accumulated other comprehensive income for the quarters ended March 31, 2023 and 2022 were as follows:
|  |  |  | Amounts Reclassified from Accumulated Other Comprehensive Income |
(Dollars in thousands) |  |  |  | Quarters Ended March 31, |
Details about Accumulated Other Comprehensive Income Components |  | Affected Line Item in the Consolidated Statements of Operations |  | 2023 |  |  | 2022 |
Unrealized gains and losses on available for sale securities |  | Other net realized investment (gains) losses |  | $ | 606 |  |  | $ | 28,764 |
|  | Income tax expense (benefit) |  |  | (119 | ) |  |  | (5,679 | )
|  | Total reclassifications, net of tax |  | $ | 487 |  |  | $ | 23,085 |
Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the quarters ended March 31, 2023 and 2022 were as follows:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 |
Fixed maturities: |  |  |  |  |  |
Gross realized gains |  | $ | 5 |  |  | $ | 206 |
Gross realized losses |  |  | (611 | ) |  |  | (28,970 | )
Net realized gains (losses) |  |  | (606 | ) |  |  | (28,764 | )
Equity securities: |  |  |  |  |  |
Gross realized gains |  |  | 627 |  |  |  | 1,806 |
Gross realized losses |  |  | (1,541 | ) |  |  | (3,151 | )
Net realized gains (losses) |  |  | (914 | ) |  |  | (1,345 | )
Derivatives: |  |  |  |  |  |
Gross realized gains |  |  | — |  |  |  | 6,088 |
Gross realized losses |  |  | — |  |  |  | (1,364 | )
Net realized gains (losses) (1) |  |  | — |  |  |  | 4,724 |
Total net realized investment gains (losses) |  | $ | (1,520 | ) |  | $ | (25,385 | )
(1) Includes periodic net interest settlements related to the derivatives of $1.4 million for the quarter ended March 31, 2022. The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of March 31, 2023 and 2022:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 |
Net gains (losses) recognized during the period on equity securities |  | $ | (914 | ) |  | $ | (1,345 | )
Less: net gains (losses) recognized during the period on equity securities sold during the period |  |  | 18 |  |  |  | 11,114 |
Unrealized gains (losses) recognized during the reporting period on equity securities |  | $ | (932 | ) |  | $ | (12,459 | )
The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized inv estment gains (losses) for the quarters ended March 31, 2023 and 2022 were as follows:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 |
Fixed maturities |  | $ | 44,381 |  |  | $ | 140,150 |
Equity securities |  |  | — |  |  |  | 86,173 |
Net Investment Income The sources of net investment income for the quarters ended March 31, 2023 and 2022 were as follows:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 |
Fixed maturities |  | $ | 11,460 |  |  | $ | 6,404 |
Equity securities |  |  | 190 |  |  |  | 334 |
Cash and cash equivalents |  |  | 263 |  |  |  | 32 |
Other invested assets |  |  | 467 |  |  |  | 426 |
Total investment income |  |  | 12,380 |  |  |  | 7,196 |
Investment expense |  |  | (372 | ) |  |  | (604 | )
Net investment income |  | $ | 12,008 |  |  | $ | 6,592 |
The Company’s total investment return on a pre-tax basis for the quarters ended March 31, 2023 and 2022 were as follows:
|  | Quarters Ended March 31, |
(Dollars in thousands) |  | 2023 |  |  | 2022 |
Net investment income |  | $ | 12,008 |  |  | $ | 6,592 |
Net realized investment gains (losses) |  |  | (1,520 | ) |  |  | (25,385 | )
Change in unrealized holding gains (losses) |  |  | 10,480 |  |  |  | (23,844 | )
Net realized and unrealized investment returns |  |  | 8,960 |  |  |  | (49,229 | )
Total investment return |  | $ | 20,968 |  |  | $ | (42,637 | )
Total investment return % (1) |  |  | 1.6 | % |  |  | (2.8 | %)
Average investment portfolio (2) |  | $ | 1,344,886 |  |  | $ | 1,498,272 |
(1) Not annualized. (2) Average of total cash and invested assets, net of receivable/payable for securities purchased and sold, as of the beginning and end of the period. As of March 31, 2023 and December 31, 2022, the Compa ny did no t own any fixed maturity securities that were non-income producing for the preceding twelve months. Insurance Enhanced Asset-Backed and Credit Securities As of March 31, 2023, 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 March 31, 2023. Bonds Held on Deposit Certain cash and 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 March 31, 2023 and December 31, 2022:
|  | Estimated Fair Value |
(Dollars in thousands) |  | March 31, 2023 |  |  | December 31, 2022 |
On deposit with governmental authorities |  | $ | 19,476 |  |  | $ | 19,290 |
Held in trust pursuant to third party requirements |  |  | 164,429 |  |  |  | 161,901 |
Total (1) |  | $ | 183,905 |  |  | $ | 181,191 |
(1) Includes cash and cash equivalents of $4.1 million and $3.7 million at March 31, 2023 and December 31, 2022, respectively, with the remainder related to bonds available for sale. 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 $4.6 million and $4.8 million as of March 31, 2023 and December 31, 2022, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $18.8 million and $19.0 million at March 31, 2023 and December 31, 2022, 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 as of March 31, 2023 and December 31, 2022, respectively. The Company’s investment in VIEs is included i n other invested assets on the consolidated balance sheets with changes in carrying value recorded in the consolidated statements of operations.

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