● the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, including a termination of the Merger Agreement under circumstances that could require us to pay a termination fee;
● increased costs as a result of operating as a public company, and time our management will be required to devote to new compliance initiatives;
Underwriting (loss) income is calculated by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums.
Underwriting income, adjusted operating income, adjusted loss and LAE ratio, adjusted expense ratio, adjusted combined ratio and adjusted operating return on equity are non-generally accepted accounting principles (“GAAP”) financial measures. See “- Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to underwriting income and adjusted operating income. See “- Factors Affecting Our Results of Operations - The WAQS” for additional detail on the impact of the WAQS on our results of operations.
Adjusted operating income was $40.3 million for the year ended December 31, 2020, a decrease of $17.3 million, or 30.0% from the adjusted operating income of  $57.6 million for the year ended December 31, 2019, primarily due to the reduction in underwriting income partially offset by increased net investment income.
We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. For a detailed discussion of our accounting policies, see Note 2. Summary of Significant Accounting Policies in Item 8. Financial Statement and Supplementary Data on this Annual Report on Form 10-K.
Level 3 - Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market.
The cost of fixed maturity securities is adjusted for the amortization of any purchase premiums and the accretion of purchase discounts from the time of purchase of the security to its sale or maturity. This amortization of premium and accretion of discount is recorded in net investment income in the consolidated statements of operations. Any realized gains or losses resulting from the sale of securities are recognized in realized investment gains (losses), net in the consolidated statements of operations.
The Company adopted ASU 2016-02 in the first quarter of 2020, and as part of its implementation, elected the modified retrospective method approach at the beginning of the period of adoption and did not retrospectively adjust prior periods presented. The Company elected to not separate lease components from non-lease components (such as office cleanings, security and maintenance services provided by the Company’s lessors for certain of its leases). The Company also elected the package of practical expedients under the transition guidance, which allowed the Company to not reevaluate existing lease classifications, among others. As of January 1, 2020, the Company’s adoption of this guidance resulted in recognition of a right-of-use asset of $5.6 million and a corresponding lease liability of $6.3 million in continuing operations, and a right-of-use asset of $2.5 million and a corresponding lease liability of $3.0 million in discontinued operations. The adoption of this guidance did not have a material impact on the Company’s retained earnings. See Note 15. Leases for further information on the Company’s leases.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition away from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Companies can elect to adopt ASU 2020-04 as of the beginning of the interim period that includes March 2020, or any date thereafter through December 31, 2022. The Company is currently evaluating the impact of this guidance on its financial condition and results of operations.
At December 31, 2020 and 2019, 91.7% and 91.1% of the fair value of the Company’s fixed maturity portfolios were considered investment grade, respectively. The Company held approximately $187.9 million and $181.0 million in fixed maturity securities that were below investment grade as of December 31, 2020 and 2019, respectively.
(iv) Non-employee Director RSUs: In 2020, 106,460 RSUs with a fair value of $0.9 million were granted to non-employee directors. In 2019, 33,839 RSUs, 26,399 of which were granted on July 25, 2019 and 7,440 of which were granted on November 15, 2019, with a fair value of $0.5 million were granted to non-employee directors. These awards were fully vested on grant date.
Stock-based compensation expense was $8.9 million, $8.6 million and $0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. The tax benefit recognized for the same was $1.9 million, $1.8 million and $0.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table provides a summary of the Company’s gross written premiums by customer segments within our Specialty Insurance segment. “Other” includes gross written premiums from: (i) primary and excess workers’ compensation coverage for exited Self-Insured Groups; (ii) niches exited prior to 2018, many with a concentration in commercial auto; (iii) participation in industry pools; and (iv) emerging new business.