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Investments | 12 Months Ended
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Dec. 31, 2017
Investments [Abstract] |
Investments |
Note 5 | Investments
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
|  | Amortized cost |  | Gross unrealized |  | Fair value
($ in millions) |  |  | Gains |  | Losses |
December 31, 2017 |  |  |  |  |  |  |  |
U.S. government and agencies |  | $ | 3,580 |  |  | $ | 56 |  |  | $ | (20 | ) |  | $ | 3,616 |
Municipal |  | 8,053 |  |  | 311 |  |  | (36 | ) |  | 8,328 |
Corporate |  | 42,996 |  |  | 1,234 |  |  | (204 | ) |  | 44,026 |
Foreign government |  | 1,005 |  |  | 27 |  |  | (11 | ) |  | 1,021 |
ABS |  | 1,266 |  |  | 13 |  |  | (7 | ) |  | 1,272 |
RMBS |  | 480 |  |  | 101 |  |  | (3 | ) |  | 578 |
CMBS |  | 124 |  |  | 6 |  |  | (2 | ) |  | 128 |
Redeemable preferred stock |  | 21 |  |  | 2 |  |  | — |  |  | 23 |
Total fixed income securities |  | $ | 57,525 |  |  | $ | 1,750 |  |  | $ | (283 | ) |  | $ | 58,992 |
December 31, 2016 |  |  |  |  |  |  |  |
U.S. government and agencies |  | $ | 3,572 |  |  | $ | 74 |  |  | $ | (9 | ) |  | $ | 3,637 |
Municipal |  | 7,116 |  |  | 304 |  |  | (87 | ) |  | 7,333 |
Corporate |  | 42,742 |  |  | 1,178 |  |  | (319 | ) |  | 43,601 |
Foreign government |  | 1,043 |  |  | 36 |  |  | (4 | ) |  | 1,075 |
ABS |  | 1,169 |  |  | 13 |  |  | (11 | ) |  | 1,171 |
RMBS |  | 651 |  |  | 85 |  |  | (8 | ) |  | 728 |
CMBS |  | 262 |  |  | 17 |  |  | (9 | ) |  | 270 |
Redeemable preferred stock |  | 21 |  |  | 3 |  |  | — |  |  | 24 |
Total fixed income securities |  | $ | 56,576 |  |  | $ | 1,710 |  |  | $ | (447 | ) |  | $ | 57,839 |
Scheduled maturities for fixed Income securities
|  | As of December 31, 2017
($ in millions) |  | Amortized cost |  | Fair value
Due in one year or less |  | $ | 4,771 |  |  | $ | 4,783 |
Due after one year through five years |  | 28,736 |  |  | 29,080 |
Due after five years through ten years |  | 16,956 |  |  | 17,278 |
Due after ten years |  | 5,192 |  |  | 5,873 |
|  | 55,655 |  |  | 57,014 |
ABS, RMBS and CMBS |  | 1,870 |  |  | 1,978 |
Total |  | $ | 57,525 |  |  | $ | 58,992 |
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.
Net investment income
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Fixed income securities |  | $ | 2,078 |  |  | $ | 2,060 |  |  | $ | 2,218 |
Equity securities |  | 174 |  |  | 137 |  |  | 110 |
Mortgage loans |  | 206 |  |  | 217 |  |  | 228 |
Limited partnership interests |  | 889 |  |  | 561 |  |  | 549 |
Short-term investments |  | 30 |  |  | 16 |  |  | 9 |
Other |  | 236 |  |  | 222 |  |  | 192 |
Investment income, before expense |  | 3,613 |  |  | 3,213 |  |  | 3,306 |
Investment expense |  | (212 | ) |  | (171 | ) |  | (150 | )
Net investment income |  | $ | 3,401 |  |  | $ | 3,042 |  |  | $ | 3,156 |
Realized capital gains and losses by asset type
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Fixed income securities |  | $ | 94 |  |  | $ | (91 | ) |  | $ | 212 |
Equity securities |  | 255 |  |  | 23 |  |  | (50 | )
Mortgage loans |  | 1 |  |  | — |  |  | 6 |
Limited partnership interests |  | 132 |  |  | (21 | ) |  | (93 | )
Derivatives |  | (46 | ) |  | 3 |  |  | (21 | )
Other |  | 9 |  |  | (4 | ) |  | (24 | )
Realized capital gains and losses |  | $ | 445 |  |  | $ | (90 | ) |  | $ | 30 |
Realized capital gains and losses by transaction type
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Impairment write-downs |  | $ | (102 | ) |  | $ | (234 | ) |  | $ | (195 | )
Change in intent write-downs |  | (48 | ) |  | (69 | ) |  | (221 | )
Net other-than-temporary impairment losses recognized in earnings |  | (150 | ) |  | (303 | ) |  | (416 | )
Sales and other |  | 641 |  |  | 213 |  |  | 470 |
Valuation and settlements of derivative instruments |  | (46 | ) |  | — |  |  | (24 | )
Realized capital gains and losses |  | $ | 445 |  |  | $ | (90 | ) |  | $ | 30 |
Gross gains of $737 million, $631 million and $915 million and gross losses of $276 million, $461 million and $399 million were realized on sales of fixed income and equity securities during 2017, 2016 and 2015, respectively.
Other-than-temporary impairment losses by asset type
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
|  | Gross |  | Included in OCI |  | Net |  | Gross |  | Included in OCI |  | Net |  | Gross |  | Included in OCI |  | Net
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | (1 | ) |  | $ | (3 | ) |  | $ | (4 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (17 | ) |  | $ | 4 |  |  | $ | (13 | )
Corporate |  | (9 | ) |  | 3 |  |  | (6 | ) |  | (33 | ) |  | 9 |  |  | (24 | ) |  | (61 | ) |  | 11 |  |  | (50 | )
ABS |  | (1 | ) |  | (2 | ) |  | (3 | ) |  | (6 | ) |  | — |  |  | (6 | ) |  | (33 | ) |  | 22 |  |  | (11 | )
RMBS |  | (2 | ) |  | (3 | ) |  | (5 | ) |  | — |  |  | (1 | ) |  | (1 | ) |  | 1 |  |  | (1 | ) |  | — |
CMBS |  | (9 | ) |  | 1 |  |  | (8 | ) |  | (15 | ) |  | 2 |  |  | (13 | ) |  | (1 | ) |  | — |  |  | (1 | )
Total fixed income securities |  | (22 | ) |  | (4 | ) |  | (26 | ) |  | (54 | ) |  | 10 |  |  | (44 | ) |  | (111 | ) |  | 36 |  |  | (75 | )
Equity securities |  | (86 | ) |  | — |  |  | (86 | ) |  | (194 | ) |  | — |  |  | (194 | ) |  | (279 | ) |  | — |  |  | (279 | )
Mortgage loans |  | (1 | ) |  | — |  |  | (1 | ) |  | — |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | 4 |
Limited partnership interests |  | (32 | ) |  | — |  |  | (32 | ) |  | (56 | ) |  | — |  |  | (56 | ) |  | (51 | ) |  | — |  |  | (51 | )
Other |  | (5 | ) |  | — |  |  | (5 | ) |  | (9 | ) |  | — |  |  | (9 | ) |  | (15 | ) |  | — |  |  | (15 | )
Other-than-temporary impairment losses |  | $ | (146 | ) |  | $ | (4 | ) |  | $ | (150 | ) |  | $ | (313 | ) |  | $ | 10 |  |  | $ | (303 | ) |  | $ | (452 | ) |  | $ | 36 |  |  | $ | (416 | )
OTTI losses included in AOCI at the time of impairment for fixed income securities
($ in millions) |  | December 31, 2017 |  | December 31, 2016
Municipal |  | $ | (5 | ) |  | $ | (8 | )
Corporate |  | — |  |  | (7 | )
ABS |  | (15 | ) |  | (21 | )
RMBS |  | (77 | ) |  | (90 | )
CMBS |  | (4 | ) |  | (7 | )
Total |  | $ | (101 | ) |  | $ | (133 | )
The amounts exclude $208 million and $221 million as of December 31, 2017 and 2016, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
Rollforward of the cumulative credit losses recognized in earnings for fixed income securities held
|  | As of December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Beginning balance |  | $ | (318 | ) |  | $ | (392 | ) |  | $ | (380 | )
Additional credit loss for securities previously other-than-temporarily impaired |  | (18 | ) |  | (21 | ) |  | (30 | )
Additional credit loss for securities not previously other-than-temporarily impaired |  | (8 | ) |  | (23 | ) |  | (45 | )
Reduction in credit loss for securities disposed or collected |  | 116 |  |  | 117 |  |  | 60 |
Change in credit loss due to accretion of increase in cash flows |  | 2 |  |  | 1 |  |  | 3 |
Ending balance |  | $ | (226 | ) |  | $ | (318 | ) |  | $ | (392 | )
The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
Unrealized net capital gains and losses included in AOCI
($ in millions) |  | Fair value |  | Gross unrealized |  | Unrealized net gains (losses)
December 31, 2017 |  |  | Gains |  | Losses |
Fixed income securities |  | $ | 58,992 |  |  | $ | 1,750 |  |  | $ | (283 | ) |  | $ | 1,467 |
Equity securities (1) |  | 6,621 |  |  | 1,172 |  |  | (12 | ) |  | 1,160 |
Short-term investments |  | 1,944 |  |  | — |  |  | — |  |  | — |
Derivative instruments (2) |  | 2 |  |  | 2 |  |  | (3 | ) |  | (1 | )
EMA limited partnerships (3) |  |  |  |  |  |  |  | 1 |
Unrealized net capital gains and losses, pre-tax |  |  |  |  |  |  |  | 2,627 |
Amounts recognized for: |  |  |  |  |  |  |  |
Insurance reserves (4) |  |  |  |  |  |  |  | (315 | )
DAC and DSI (5) |  |  |  |  |  |  |  | (196 | )
Amounts recognized |  |  |  |  |  |  |  | (511 | )
Deferred income taxes (6) |  |  |  |  |  |  |  | (454 | )
Unrealized net capital gains and losses, after-tax |  |  |  |  |  |  |  | $ | 1,662 |
(1) | Beginning January 1, 2018, due to the adoption of the new accounting standard for the recognition and measurement of financial assets and liabilities, equity securities will be measured at fair value with changes in fair value recognized in net income. The existing unrealized net capital gains and losses, after-tax, will be reclassified to retained income through a cumulative effect adjustment. See Note 2 for additional details on the new accounting standard.
(2) | Included in the fair value of derivative instruments is $2 million classified as liabilities.
(3) | Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross unrealized gains and losses are not applicable.
(4) | The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuities).
(5) | The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.
(6) | Unrealized net capital gains and losses were reduced by deferred income taxes at the newly enacted 21% U.S. corporate tax rate.
Unrealized net capital gains and losses included in AOCI
($ in millions) |  | Fair value |  | Gross unrealized |  | Unrealized net gains (losses)
December 31, 2016 |  |  | Gains |  | Losses |
Fixed income securities |  | $ | 57,839 |  |  | $ | 1,710 |  |  | $ | (447 | ) |  | $ | 1,263 |
Equity securities |  | 5,666 |  |  | 594 |  |  | (85 | ) |  | 509 |
Short-term investments |  | 4,288 |  |  | — |  |  | — |  |  | — |
Derivative instruments (1) |  | 5 |  |  | 5 |  |  | (3 | ) |  | 2 |
EMA limited partnerships |  |  |  |  |  |  |  | (4 | )
Unrealized net capital gains and losses, pre-tax |  |  |  |  |  |  |  | 1,770 |
Amounts recognized for: |  |  |  |  |  |  |  |
Insurance reserves |  |  |  |  |  |  |  | — |
DAC and DSI |  |  |  |  |  |  |  | (146 | )
Amounts recognized |  |  |  |  |  |  |  | (146 | )
Deferred income taxes (2) |  |  |  |  |  |  |  | (571 | )
Unrealized net capital gains and losses, after-tax |  |  |  |  |  |  |  | $ | 1,053 |
(1) | Included in the fair value of derivative instruments is $5 million classified as assets.
(2) | Unrealized net capital gains and losses were reduced by deferred income taxes at the 35% corporate tax rate.
Change in unrealized net capital gains and losses
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Fixed income securities |  | $ | 204 |  |  | $ | 516 |  |  | $ | (2,021 | )
Equity securities |  | 651 |  |  | 233 |  |  | (136 | )
Derivative instruments |  | (3 | ) |  | (4 | ) |  | 8 |
EMA limited partnerships |  | 5 |  |  | — |  |  | 1 |
Total |  | 857 |  |  | 745 |  |  | (2,148 | )
Amounts recognized for: |  |  |  |  |  |
Insurance reserves |  | (315 | ) |  | — |  |  | 28 |
DAC and DSI |  | (50 | ) |  | (79 | ) |  | 112 |
Amounts recognized |  | (365 | ) |  | (79 | ) |  | 140 |
Deferred income taxes |  | 117 |  |  | (233 | ) |  | 702 |
Increase (decrease) in unrealized net capital gains and losses, after-tax |  | $ | 609 |  |  | $ | 433 |  |  | $ | (1,306 | )
Portfolio monitoring The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired. For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings. If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income. For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings. For fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings. The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.
Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
($ in millions) |  | Less than 12 months |  | 12 months or more |  |
|  | Number of issues |  | Fair value |  | Unrealized losses |  | Number of issues |  | Fair value |  | Unrealized losses |  | Total unrealized losses
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and agencies |  | 66 |  |  | $ | 2,829 |  |  | $ | (18 | ) |  | 18 |  |  | $ | 182 |  |  | $ | (2 | ) |  | $ | (20 | )
Municipal |  | 1,756 |  |  | 3,143 |  |  | (24 | ) |  | 165 |  |  | 349 |  |  | (12 | ) |  | (36 | )
Corporate |  | 781 |  |  | 11,616 |  |  | (102 | ) |  | 208 |  |  | 3,289 |  |  | (102 | ) |  | (204 | )
Foreign government |  | 45 |  |  | 580 |  |  | (10 | ) |  | 5 |  |  | 44 |  |  | (1 | ) |  | (11 | )
ABS |  | 57 |  |  | 476 |  |  | (3 | ) |  | 9 |  |  | 34 |  |  | (4 | ) |  | (7 | )
RMBS |  | 118 |  |  | 35 |  |  | (1 | ) |  | 181 |  |  | 50 |  |  | (2 | ) |  | (3 | )
CMBS |  | 2 |  |  | 1 |  |  | — |  |  | 6 |  |  | 23 |  |  | (2 | ) |  | (2 | )
Redeemable preferred stock |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total fixed income securities |  | 2,826 |  |  | 18,680 |  |  | (158 | ) |  | 592 |  |  | 3,971 |  |  | (125 | ) |  | (283 | )
Equity securities |  | 127 |  |  | 369 |  |  | (12 | ) |  | 2 |  |  | — |  |  | — |  |  | (12 | )
Total fixed income and equity securities |  | 2,953 |  |  | $ | 19,049 |  |  | $ | (170 | ) |  | 594 |  |  | $ | 3,971 |  |  | $ | (125 | ) |  | $ | (295 | )
Investment grade fixed income securities |  | 2,706 |  |  | $ | 17,668 |  |  | $ | (134 | ) |  | 535 |  |  | $ | 3,751 |  |  | $ | (98 | ) |  | $ | (232 | )
Below investment grade fixed income securities |  | 120 |  |  | 1,012 |  |  | (24 | ) |  | 57 |  |  | 220 |  |  | (27 | ) |  | (51 | )
Total fixed income securities |  | 2,826 |  |  | $ | 18,680 |  |  | $ | (158 | ) |  | 592 |  |  | $ | 3,971 |  |  | $ | (125 | ) |  | $ | (283 | )
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and agencies |  | 46 |  |  | $ | 943 |  |  | $ | (9 | ) |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | (9 | )
Municipal |  | 1,310 |  |  | 3,073 |  |  | (76 | ) |  | 8 |  |  | 29 |  |  | (11 | ) |  | (87 | )
Corporate |  | 862 |  |  | 13,343 |  |  | (256 | ) |  | 83 |  |  | 678 |  |  | (63 | ) |  | (319 | )
Foreign government |  | 41 |  |  | 225 |  |  | (4 | ) |  | — |  |  | — |  |  | — |  |  | (4 | )
ABS |  | 31 |  |  | 222 |  |  | (1 | ) |  | 14 |  |  | 109 |  |  | (10 | ) |  | (11 | )
RMBS |  | 89 |  |  | 53 |  |  | (1 | ) |  | 179 |  |  | 91 |  |  | (7 | ) |  | (8 | )
CMBS |  | 15 |  |  | 59 |  |  | (4 | ) |  | 4 |  |  | 15 |  |  | (5 | ) |  | (9 | )
Redeemable preferred stock |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total fixed income securities |  | 2,395 |  |  | 17,918 |  |  | (351 | ) |  | 288 |  |  | 922 |  |  | (96 | ) |  | (447 | )
Equity securities |  | 195 |  |  | 654 |  |  | (56 | ) |  | 46 |  |  | 165 |  |  | (29 | ) |  | (85 | )
Total fixed income and equity securities |  | 2,590 |  |  | $ | 18,572 |  |  | $ | (407 | ) |  | 334 |  |  | $ | 1,087 |  |  | $ | (125 | ) |  | $ | (532 | )
Investment grade fixed income securities |  | 2,202 |  |  | $ | 15,678 |  |  | $ | (293 | ) |  | 201 |  |  | $ | 493 |  |  | $ | (51 | ) |  | $ | (344 | )
Below investment grade fixed income securities |  | 193 |  |  | 2,240 |  |  | (58 | ) |  | 87 |  |  | 429 |  |  | (45 | ) |  | (103 | )
Total fixed income securities |  | 2,395 |  |  | $ | 17,918 |  |  | $ | (351 | ) |  | 288 |  |  | $ | 922 |  |  | $ | (96 | ) |  | $ | (447 | )
As of December 31, 2017, $269 million of the $295 million unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $269 million, $219 million are related to unrealized losses on investment grade fixed income securities and $11 million are related to equity securities. Of the remaining $39 million, $22 million have been in an unrealized loss position for less than 12 months. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. As of December 31, 2017, the remaining $26 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising $13 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $26 million, $12 million are related to below investment grade fixed income securities and $1 million are related to equity securities. Of these amounts, $2 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of December 31, 2017. ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover. As of December 31, 2017, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. As of December 31, 2017, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover. Limited partnerships As of December 31, 2017 and 2016, the carrying value of equity method limited partnerships totaled $5.41 billion and $4.53 billion, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. As of December 31, 2017 and 2016, the carrying value for cost method limited partnerships was $1.33 billion and $1.28 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital. Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value. Mortgage loans The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation allowance, $4.53 billion and $4.49 billion as of December 31, 2017 and 2016, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.
Principal geographic distribution of commercial real estate exceeding 5% of the mortgage loans portfolio
|  | As of December 31,
(% of mortgage loan portfolio carrying value) |  | 2017 |  | 2016
California |  | 19.9 | % |  | 19.3 | %
Texas |  | 13.0 |  |  | 10.5 |
New Jersey |  | 7.6 |  |  | 8.2 |
Illinois |  | 7.1 |  |  | 6.7 |
Florida |  | 6.4 |  |  | 5.4 |
Types of properties collateralizing the mortgage loan portfolio
|  | As of December 31,
(% of mortgage loan portfolio carrying value) |  | 2017 |  | 2016
Apartment complex |  | 30.9 | % |  | 27.6 | %
Office buildings |  | 23.8 |  |  | 23.9 |
Retail |  | 18.0 |  |  | 20.4 |
Warehouse |  | 15.7 |  |  | 17.0 |
Other |  | 11.6 |  |  | 11.1 |
Total |  | 100.0 | % |  | 100.0 | %
Contractual maturities of the mortgage loan portfolio
|  | As of December 31, 2017
($ in millions) |  | Number of loans |  | Carrying value |  | Percent
2018 |  | 17 |  |  | $ | 169 |  |  | 3.7 | %
2019 |  | 10 |  |  | 268 |  |  | 5.9 |
2020 |  | 14 |  |  | 192 |  |  | 4.2 |
2021 |  | 43 |  |  | 625 |  |  | 13.8 |
Thereafter |  | 201 |  |  | 3,280 |  |  | 72.4 |
Total |  | 285 |  |  | $ | 4,534 |  |  | 100.0 | %
Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan’s expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2017. Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value. Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
Carrying value of non-impaired mortgage loans summarized by debt service coverage ratio distribution
|  | As of December 31,
($ in millions) |  | 2017 |  | 2016
Debt Service Coverage Ratio Distribution |  | Fixed rate mortgage loans |  | Variable rate mortgage loans |  | Total |  | Fixed rate mortgage loans |  | Variable rate mortgage loans |  | Total
Below 1.0 |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 60 |  |  | $ | — |  |  | $ | 60 |
1.0 - 1.25 |  | 345 |  |  | — |  |  | 345 |  |  | 324 |  |  | — |  |  | 324 |
1.26 - 1.50 |  | 1,141 |  |  | 30 |  |  | 1,171 |  |  | 1,293 |  |  | — |  |  | 1,293 |
Above 1.50 |  | 2,949 |  |  | 62 |  |  | 3,011 |  |  | 2,765 |  |  | 39 |  |  | 2,804 |
Total non-impaired mortgage loans |  | $ | 4,438 |  |  | $ | 92 |  |  | $ | 4,530 |  |  | $ | 4,442 |  |  | $ | 39 |  |  | $ | 4,481 |
Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.
Net carrying value of impaired mortgage loans
|  | As of December 31,
($ in millions) |  | 2017 |  | 2016
Impaired mortgage loans with a valuation allowance |  | $ | 4 |  |  | $ | 5 |
Impaired mortgage loans without a valuation allowance |  | — |  |  | — |
Total impaired mortgage loans |  | $ | 4 |  |  | $ | 5 |
Valuation allowance on impaired mortgage loans |  | $ | 3 |  |  | $ | 3 |
The average balance of impaired loans was $7 million, $6 million and $11 million during 2017, 2016 and 2015, respectively.
Rollforward of the valuation allowance on impaired mortgage loans
|  | For the years ended December 31,
($ in millions) |  | 2017 |  | 2016 |  | 2015
Beginning balance |  | $ | 3 |  |  | $ | 3 |  |  | $ | 8 |
Net increase (decrease) in valuation allowance |  | 1 |  |  | — |  |  | (4 | )
Charge offs |  | (1 | ) |  | — |  |  | (1 | )
Ending balance |  | $ | 3 |  |  | $ | 3 |  |  | $ | 3 |
Payments on all mortgage loans were current as of December 31, 2017, 2016 and 2015. Municipal bonds The Company maintains a diversified portfolio of municipal bonds.
Principal geographic distribution of municipal bond issuers exceeding 5% of the portfolio
|  | As of December 31,
(% of municipal bond portfolio carrying value) |  | 2017 |  | 2016
Texas |  | 9.6 | % |  | 10.0 | %
California |  | 7.0 |  |  | 7.2 |
New York |  | 6.9 |  |  | 6.8 |
Florida |  | 6.5 |  |  | 5.7 |
Washington |  | 5.4 |  |  | 5.6 |
Michigan |  | 4.2 |  |  | 5.4 |
Concentration of credit risk As of December 31, 2017, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholders’ equity, other than the U.S. government and its agencies. Securities loaned The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2017 and 2016, fixed income and equity securities with a carrying value of $1.09 billion and $1.08 billion, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $7 million, $6 million and $2 million in 2017, 2016 and 2015, respectively. Other investment information Included in fixed income securities are below investment grade assets totaling $7.57 billion and $8.62 billion as of December 31, 2017 and 2016, respectively. As of December 31, 2017, fixed income securities and short-term investments with a carrying value of $154 million were on deposit with regulatory authorities as required by law. As of December 31, 2017, the carrying value of fixed income securities and other investments that were non-income producing was $51 million.

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