Note 5. Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2011, 2010, and 2009:

($ in thousands)		2011	2010	2009
AFS securities:
Fixed maturity securities	$	130,517	56,754	19,413
Equity securities		13,529	11,597	15,874
Total AFS securities		144,046	68,351	35,287

HTM securities:
Fixed maturity securities		5,566	14,523	9,849
Total HTM securities		5,566	14,523	9,849

Total net unrealized gains		149,612	82,874	45,136
Deferred income tax expense		(52,364)	(29,006)	(15,797)
Net unrealized gains, net of deferred income tax	$	97,248	53,868	29,339
Unrealized adjustments not in OCI:
Cumulative effect adjustment due to adoption of OTTI accounting
guidance, net of deferred income tax		-	-	2,380
Net unrealized gains, in OCI, net of deferred income tax	$	97,248	53,868	31,719

Increase in net unrealized gains in OCI, net of deferred income tax	$	43,380	24,529	86,554

(b) The carrying value, unrecognized holding gains and losses, and fair values of HTM fixed maturity securities were as follows:

December 31, 2011

Net

Unrealized

Unrecognized

Amortized

Gains

Carrying

Holding

Fair

($ in thousands)

Cost

(Losses)

Value

Gains

Losses

Value

Foreign government

5,292

292

5,584

(88)

5,496

Obligations of state and political

subdivisions

614,118

11,894

626,012

31,529

(156)

657,385

Corporate securities

64,840

(2,189)

62,651

6,887

69,538

ABS

8,077

(1,469)

6,608

1,353

(7)

7,954

CMBS

14,455

(2,962)

11,493

6,177

17,670

Total HTM fixed maturity securities

706,782

5,566

712,348

45,946

(251)

758,043

December 31, 2010			Net
			Unrealized		Unrecognized	Unrecognized
		Amortized	Gains	Carrying	Holding	Holding	Fair
($ in thousands)		Cost	(Losses)	Value	Gains	Losses	Value
U.S. government and government agencies	$	93,411	4,695	98,106	5,023	-	103,129
Foreign government		5,292	368	5,660	-	(30)	5,630
Obligations of states and political
subdivisions		874,388	22,183	896,571	16,845	(1,132)	912,284
Corporate securities		76,663	(3,990)	72,673	9,705	(313)	82,065
ABS		12,947	(2,422)	10,525	1,847	(444)	11,928
CMBS¹		54,909	(7,354)	47,555	7,483	(109)	54,929
RMBS²		82,191	1,043	83,234	3,095	-	86,329
Total HTM fixed maturity securities	$	1,199,801	14,523	1,214,324	43,998	(2,028)	1,256,294

¹CMBS includes government guaranteed agency securities with a carrying value $8.9 million at December 31, 2010.
²RMBS includes government guaranteed agency securities with a carrying value $4.0 million at December 31, 2010.

Unrecognized holding gains/losses of HTM securities are not reflected in the consolidated financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security, through the date of the balance sheet. Our HTM securities had an average duration of 2.9 years as of December 31, 2011.

During 2011, 105 securities with a carrying value of $323.1 million in a net unrecognized gain position of $18.7 million were reclassified from the HTM category to AFS due to credit rating downgrades that occurred by either Moody's Investors Service ("Moody's"), Standard and Poor's Financial Services ("S&P"), or Fitch Ratings ("Fitch"). These unexpected rating downgrades raised significant concerns about the issuers' credit worthiness, which changed our intention to hold these securities to maturity. In addition to the transfer activity, redemptions and maturities of HTM securities in 2011 amounted to $177.4 million.

December 31, 2011
		Cost/
		Amortized	Unrealized	Unrealized	Fair
($ in thousands)		Cost	Gains	Losses	Value
U.S. government and government agencies¹	$	333,504	20,292	-	353,796
Foreign government		33,687	1,042	(556)	34,173
Obligations of states and political subdivisions		578,214	44,491	(46)	622,659
Corporate securities		1,168,439	50,167	(5,296)	1,213,310
ABS		77,706	1,289	(46)	78,949
CMBS²		107,838	6,427	(1,667)	112,598
RMBS³		467,468	16,187	(1,767)	481,888
AFS fixed maturity securities		2,766,856	139,895	(9,378)	2,897,373
AFS equity securities		143,826	13,617	(88)	157,355
Total AFS securities	$	2,910,682	153,512	(9,466)	3,054,728

December 31, 2010
		Cost/
		Amortized	Unrealized	Unrealized	Fair
($ in thousands)		Cost	Gains	Losses	Value
U.S. government and government agencies¹	$	312,384	8,292	(147)	320,529
Foreign government		19,035	280	(349)	18,966
Obligations of states and political subdivisions		512,013	22,534	(650)	533,897
Corporate securities		973,835	28,674	(8,784)	993,725
ABS		48,558	514	(339)	48,733
CMBS²		103,374	4,024	(2,923)	104,475
RMBS³		316,789	7,871	(2,243)	322,417
AFS fixed maturity securities		2,285,988	72,189	(15,435)	2,342,742
AFS equity securities		58,039	11,597	-	69,636
Total AFS securities	$	2,344,027	83,786	(15,435)	2,412,378

¹ U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation ("FDIC") with a fair value of $76.5 million at December 31, 2011 and $121.0 million at December 31, 2010.
²CMBS includes government guaranteed agency securities with a fair value of $72.9 million at December 31, 2011 and $71.9 million at December 31, 2010.
³RMBS includes government guaranteed agency securities with a fair value of $98.2 million at December 31, 2011 and $91.1 million at December 31, 2010.

Unrealized gains/losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in AOCI on the Consolidated Balance Sheets.

(d) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at December 31, 2011 and December 31, 2010, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:


December 31, 2011		Less than 12 months		12 months or longer
($ in thousands)		Fair Value	Unrealized Losses¹	Fair Value	Unrealized Losses¹
AFS securities:
Foreign government	$	8,299	(556)	-	-
Obligations of states and political subdivisions		517	(1)	1,740	(45)
Corporate securities		157,510	(4,415)	14,084	(881)
ABS		15,808	(14)	702	(32)
CMBS		4,822	(48)	14,564	(1,619)
RMBS		29,803	(625)	15,007	(1,142)
Total fixed maturity securities		216,759	(5,659)	46,097	(3,719)
Equity securities		743	(88)	-	-
Subtotal	$	217,502	(5,747)	46,097	(3,719)

Less than 12 months

12 months or longer

($ in thousands)

Fair

Value

Unrealized

Losses¹

Unrecognized

Gains²

Fair

Value

Unrealized

Losses¹

Unrecognized

Gains²

HTM securities

Obligations of states and political

subdivisions

7,244

(94)

9,419

(519)

324

ABS

2,816

(1,009)

737

CMBS

2,794

(1,447)

761

Subtotal

7,244

(94)

15,029

(2,975)

1,822

Total AFS and HTM

224,746

(5,841)

61,126

(6,694)

1,822


December 31, 2010		Less than 12 months		12 months or longer
($ in thousands)		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS securities
U.S. government and government agencies³	$	3,956	(147)		-	-
Foreign government		10,776	(349)		-	-
Obligations of states and political subdivisions		40,410	(650)		-	-
Corporate securities		362,502	(8,784)		-	-
ABS		30,297	(273)		880	(66)
CMBS		5,453	(271)		11,115	(2,652)
RMBS		70,934	(1,098)		20,910	(1,145)
Total fixed maturity securities		524,328	(11,572)		32,905	(3,863)
Equity securities		-	-		-	-
Subtotal	$	524,328	(11,572)		32,905	(3,863)


		Less than 12 months			12 months or longer
($ in thousands)		Fair Value	Unrealized (Losses) Gains¹	Unrecognized Gains (Losses)²	Fair Value	Unrealized Losses¹	Unrecognized Gains²
HTM securities
Obligations of states and political
subdivisions	$	21,036	(381)	45	27,855	(1,969)	670
Corporate securities		1,985	(434)	420	-	-	-
ABS		507	(546)	(440)	2,931	(1,095)	747
CMBS		3,621	15	(17)	5,745	(3,933)	833
RMBS		-	-	-	95	(38)	1
Subtotal	$	27,149	(1,346)	8	36,626	(7,035)	2,251

Total AFS and HTM	$	551,477	(12,918)	8	69,531	(10,898)	2,251

¹	Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.


²	Unrecognized holding gains/(losses) represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.
³	U.S. government includes corporate securities fully guaranteed by the FDIC.

As evidenced by the table below, our unrealized/unrecognized loss positions improved by $10.9 million as of December 31, 2011 compared to last year as follows:


($ in thousands) December 31, 2011				December 31, 2010
Number of Issues	% of Market/Book		Unrealized Unrecognized Loss	Number of Issues	% of Market/Book		Unrealized Unrecognized Loss
140	80% - 99%	$	10,166	193	80% - 99%	$	16,310
-	60% - 79%		-	2	60% - 79%		1,125
1	40% - 59%		469	2	40% - 59%		2,160
-	20% - 39%		-	1	20% - 39%		986
-	0% - 19%		-	1	0% - 19%		976
		$	10,635			$	21,557

We have reviewed the securities in the tables above in accordance with our OTTI policy, as described in Note 2. "Summary of Significant Accounting Policies" of this Form 10-K.

At December 31, 2011, we had 141 securities in an aggregate unrealized/unrecognized loss position of $10.6 million, $4.9 million of which have been in a loss position for more than 12 months. Non-credit OTTI impairments comprised $2.1 million of the $4.9 million balance, with the remainder related to securities that were on average 6% impaired compared to their amortized cost.

At December 31, 2010, unrealized/unrecognized losses on securities that were in a loss position for more than 12 months amounted to $8.6 million, primarily driven by $5.8 million in our CMBS portfolio. This was comprised of: (i) $3.7 million of unrealized/unrecognized losses primarily driven by non-credit OTTI charges recognized in AOCI that were generated concurrently with credit-related charges; and (ii) $2.1 million on securities with an average decline in fair value of 17% of their amortized cost. The remaining $2.8 million of unrealized/unrecognized losses were comprised of 37 securities, 21 of which were municipal securities and 16 of which were either RMBS or ABS. Declines in the fair value of these municipal securities, RMBS, and ABS averaged 5% of their amortized cost.

We do not have the intent to sell any securities in an unrealized/unrecognized loss position nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of December 31, 2011. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods.

(e) Fixed-maturity securities at December 31, 2011, by contractual maturity are shown below. MBS are included in the maturity tables using the estimated average life of each security. 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.

Listed below are HTM fixed maturity securities at December 31, 2011:

($ in thousands)		Carrying Value	Fair Value
Due in one year or less	$	97,103	102,405
Due after one year through five years		503,283	529,548
Due after five years through 10 years		104,918	117,703
Due after 10 years		7,044	8,387
Total HTM fixed maturity securities	$	712,348	758,043

Listed below are AFS fixed maturity securities at December 31, 2011:

($ in thousands)		Fair Value
Due in one year or less	$	285,717
Due after one year through five years		1,851,439
Due after five years through 10 years		750,368
Due after 10 years		9,849
Total AFS fixed maturity securities	$	2,897,373

(f) The following table outlines a summary of our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:


Other Investments		Carrying Value		2011
		December 31,	December 31,	Remaining
($ in thousands)		2011	2010	Commitment
Alternative Investments
Secondary private equity	$	30,114	26,709	9,507
Energy/power generation		25,913	35,560	10,608
Private equity		21,736	21,601	5,368
Distressed debt		16,953	20,432	3,136
Real estate		13,767	14,192	10,569
Mezzanine financing		8,817	10,230	15,256
Venture capital		7,248	6,386	900
Total alternative investments		124,548	135,110	55,344
Other securities		3,753	2,755	1,521
Total other investments	$	128,301	137,865	56,865

The carrying value of our other investments decreased by $9.6 million as of year-end 2011 compared to year end 2010. The carrying value was primarily impacted by distributions of $45.8 million, partially offset by income of $20.5 million, and additional contributions of $16.1 million under our commitments.

The following is a description of our alternative investment strategies:

Energy/Power Generation

This strategy invests primarily in cash flow generating assets in the coal, natural gas, power generation, and electric and gas transmission and distribution industries.

Private Equity

This strategy makes private equity investments, primarily in established large and middle market companies across diverse industries in North America, Europe, and Asia.

Secondary Private Equity

This strategy purchases seasoned private equity funds from investors desiring liquidity prior to normal fund termination. Investments are made across all sectors of the private equity market, including leveraged buyouts, venture capital, distressed securities, mezzanine financing, real estate, and infrastructure.

Mezzanine Financing

This strategy provides privately negotiated fixed income securities, generally with an equity component, to leveraged buyout ("LBO") firms and private and publicly traded large, mid and small-cap companies to finance LBOs, recapitalizations, and acquisitions.

Real Estate

This strategy invests opportunistically in real estate in North America, Europe, and Asia via direct property ownership, joint ventures, mortgages, and investments in equity and debt instruments.

Venture Capital

In general, these investments are venture capital investments made principally by investing in equity securities of privately held corporations, for long-term capital appreciation. This strategy also makes private equity investments in growth equity and buyout partnerships.

Distressed Debt

This strategy makes direct and indirect investments in debt and equity securities of companies that are experiencing financial and/or operational distress. Investments include buying indebtedness of bankrupt or financially troubled companies, small balance loan portfolios, special situations and capital structure arbitrage trades, commercial real estate mortgages and similar non-U.S. securities and debt obligations. This strategy also includes a fund of funds component.

The fund of funds component of our distressed debt strategy, which makes up approximately $9.6 million of our distressed debt strategy, encompasses a number of strategies that generally fall into one of the following broad categories:

Distressed Debt Funds – Trading-Focused

These funds focus on buying and selling debt of distressed companies ("Distressed Debt").

Distressed Debt Funds – Restructuring-Focused

These funds focus on acquiring Distressed Debt with the intent of converting it into equity in a restructuring and taking control of the company.

Special Situations Funds

These funds pursue strategies that seek to take advantage of dislocations or opportunities in the market that are often related to, or are derivatives of, distressed investing. Special situations are often event-driven and characterized by complexity, market inefficiency, and excess risk premiums.

Private Equity Funds – Turnaround-Focused

These funds are a subset of private equity funds focused on investing in under-performing or distressed companies. These funds generally create value by acquiring the equity of these companies, in certain cases out of bankruptcy, and effecting operational turnarounds or financial restructuring.

Our seven alternative investment strategies employ low or moderate levels of leverage and generally use hedging only to reduce foreign exchange or interest rate volatility. At this time, our alternative investment strategies do not include hedge funds. We cannot redeem our investments with the general partners of these investments; however, occasionally these partnerships do trade on the secondary market. Once liquidation is triggered by clauses within the limited partnership agreements or at the funds' stated end date, we will receive our final allocation of capital and any earned appreciation of the underlying investments, assuming we have not divested ourselves of our partnership interests prior to that time. We currently receive distributions from these alternative investments through the realization of the underlying investments in the limited partnerships. We anticipate that the general partners of these alternative investments will liquidate their underlying investment portfolios through 2022.

The following tables set forth summarized financial information for our investments that are accounted for under the equity method, which are primarily alternative investments. This information is presented in the aggregate for our other investment portfolio. Since the majority of these investments report results to us on a quarter lag, the summarized financial statement information is as of, and for the 12-month period ended, September 30:

Balance Sheet Information
September 30,

($ in millions)		2011	2010
Investments	$	13,553	18,278
Total assets		14,253	19,230
Total liabilities		1,105	864
Partners' capital		13,148	18,366

Income Statement Information
12 months ended September 30,

($ in millions)		2011	2010	2009
Net investment income	$	564	563	472
Realized gains (losses)		893	(358)	(499)
Net change in unrealized appreciation (depreciation)		1,485	2,250	(3,063)
Net income (loss)	$	2,942	2,455	(3,090)

Insurance Subsidiaries net income (loss)	$	21	20	(22)

(g) At December 31, 2011, we had 26 fixed maturity securities, with a carrying value of $64.6 million, that were pledged as collateral for our outstanding borrowing with the FHLBI. We increased our outstanding borrowing with the FHLBI from $13.0 million to $58.0 million in the fourth quarter of 2011 to borrow funds at favorable interest rates in connection with our year-end acquisition of MUSIC. This outstanding borrowing is included in "Notes payable" on our Consolidated Balance Sheets. In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding these securities, which are included in the "U.S. government and government agencies," "RMBS," and "CMBS" classifications of our AFS fixed maturity securities portfolio.

(h) The components of net investment income earned were as follows:

($ in thousands)		2011	2010	2009
Fixed maturity securities	$	129,710	130,990	141,882
Equity securities, dividend income		4,535	2,238	2,348
Trading securities, change in fair value		-	-	262
Short-term investments		160	437	1,273
Other investments		20,539	20,313	(21,726)
Miscellaneous income		133	139	343
Investment expenses		(7,634)	(8,409)	(5,911)
Net investment income earned	$	147,443	145,708	118,471

While net investment income remained relatively flat in 2011 compared to 2010, its components reflect increased dividend income from the high dividend yield equities strategy that we implemented during the year partially offset by lower yields on our fixed maturity securities. In 2011, bonds that matured or were sold, valued at $481.9 million, had yields that averaged 3.8%, pre-tax, while new purchases of $490.8 million had an average yield of 2.7%.

Income from our other investments, specifically our alternative investment portfolio, was the primary driver of the increase in investment income during 2010 when compared to 2009. This increase reflects the improved equity and credit markets in 2010 compared to the prior year. Partially offsetting these improved returns was a $10.9 million reduction in income on our fixed maturity securities portfolio reflecting the interest rate environment. As higher-yielding securities either matured or were sold, they were replaced with lower yielding securities that were available in the market. In 2010, bonds that matured or were sold, valued at $808.3 million, had average pre-tax yields of 3.8%, while new purchases of $1.0 billion had an average yield of 2.8%.

(i) The following tables summarize OTTI by asset type for the periods indicated:

2011				Recognized in
($ in thousands)		Gross	Included in OCI	Earnings
Fixed maturity securities
Obligations of state and political
subdivisions	$	17	-	17
Corporate securities		244	-	244
ABS		175	(546)	721
CMBS		(149)	(843)	694
RMBS		346	201	145
Total fixed maturity securities		633	(1,188)	1,821
Equity securities		11,365	-	11,365
OTTI losses	$	11,998	(1,188)	13,186

2010				Recognized in
($ in thousands)		Gross	Included in OCI	Earnings
Fixed maturity securities
Obligations of state and political
subdivisions	$	197	-	197
ABS		(20)	(179)	159
CMBS		5,552	(863)	6,415
RMBS		7,953	(391)	8,344
Total fixed maturity securities		13,682	(1,433)	15,115
Equity securities		2,543	-	2,543
OTTI losses	$	16,225	(1,433)	17,658

2009				Recognized in
($ in thousands)		Gross	Included in OCI	Earnings
Fixed maturity securities
Corporate securities	$	1,271	-	1,271
ABS		1,190	(1,292)	2,482
CMBS		18,865	7,088	11,777
RMBS		40,751	2,972	37,779
Total fixed maturity securities		62,077	8,768	53,309
Equity securities		2,107	-	2,107
OTTI losses	$	64,184	8,768	55,416

OTTI losses in 2011 were primarily comprised of charges on our equity portfolio. Of these equity charges, $8.5 million related to securities that we do not believe will recover in the near term and $2.9 million related to securities for which we have the intent to sell.

The following is a discussion surrounding the OTTI charges that were recognized in earnings during 2010:

$8.3 million of RMBS credit OTTI charges were largely driven by impairments on two securities in the first quarter of 2010 that we intended to sell. We sold these securities in the second quarter of 2010. The remaining charges related to securities that experienced declines in the related cash flows of their underlying collateral. Based on our analysis, we did not believe it was probable that we would receive all contractual cash flows for these securities.

$6.4 million of CMBS credit OTTI charges. These charges were due to reductions in the related cash flows of the underlying collateral of these securities. These charges were primarily associated with securities that had been previously impaired but, over time, had shown little, if any, improvement in valuations, poor net operating income performance of the underlying properties, and, in some cases, an increase in over 60-day delinquency rates. These securities had, on average, unrealized/unrecognized loss positions of more than 60% of their amortized cost. Based on our DCF analysis, we did not believe it was probable that we would receive all contractual cash flows for these securities.

The following is a discussion surrounding the credit-related OTTI charges taken during 2009 as outlined in the table above:

$37.8 million of RMBS credit OTTI charges related to securities that had experienced reductions in the cash flows of their underlying collateral. These securities, on average, showed signs of loss at conditional default rates of 0.33 and had declines in fair value of 65% as compared to their amortized cost. As a result, we did not believe it was probable that we would receive all contractual cash flows for these securities.

$11.8 million of CMBS credit OTTI charges related to reductions in the cash flows of the underlying collateral of these securities. These securities, on average, showed signs of loss at conditional default rates between 2.5 to 3.0 and had declines in fair value of 77% as compared to their amortized cost. As a result, we did not believe it was probable that we would receive all contractual cash flows for these securities.

The following tables sets forth, for the periods indicated, credit loss impairments on fixed maturity securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:

($ in thousands)		2011	2010	2009
Balance, beginning of year	$	17,723	22,189	-
Credit losses remaining in retained earnings after adoption of OTTI accounting guidance		-	-	9,719
Addition for the amount related to credit loss for which an OTTI was not previously recognized		-	2,326	10,579
Reductions for securities sold during the period		-	(2,990)	-
Reductions for securities for which the amount previously recognized in OCI was recognized in
earnings because of intention or potential requirement to sell before recovery of amortized cost		-	-	-
Reductions for securities for which the entire amount previously recognized in OCI was recognized in
earnings due to a decrease in cash flows expected		(11,672)	(8,143)	(693)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized		551	4,341	2,584
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected
to be collected		-	-	-
Balance, end of year	$	6,602	17,723	22,189

(j) The components of net realized gains (losses), excluding OTTI charges, were as follows:

($ in thousands)		2011	2010	2009
HTM fixed maturity securities
Gains	$	4	569	225
Losses		(564)	(894)	(1,049)
AFS fixed maturity securities
Gains		9,385	8,161	20,899
Losses		(70)	(7,619)	(13,889)
AFS equity securities
Gains		6,671	16,698	33,355
Losses		-	(1,156)	(28,056)
Other investments
Gains		-	-	-
Losses		-	(5,184)	(2,039)
Total other net realized investment gains		15,426	10,575	9,446
Total OTTI charges recognized in earnings		(13,186)	(17,658)	(55,416)
Total net realized gains (losses)	$	2,240	(7,083)	(45,970)

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. Proceeds from the sale of AFS securities were $206.5 million in 2011, $288.5 million during 2010, and $676.0 million during 2009. Net realized gains in 2011, excluding OTTI charges, were driven by: (i) calls and maturities; (ii) the sale of AFS fixed maturity securities, primarily corporate, municipal, and government holdings; and (iii) the sale of AFS equity securities to facilitate the reallocation of the equity portfolio to a high-dividend yield strategy.

Realized gains in 2010 were driven by: (i) the sale of energy-focused AFS equity securities to mitigate portfolio risk and sector exposure; and (ii) the sale of AFS fixed maturity and equity securities associated with tax planning strategies. These gains were largely offset by realized losses on certain AFS fixed maturity securities that we sold in the second quarter of 2010 following an initial review of the portfolio by our newly hired external investment managers. The managers' sale recommendations were due to ongoing credit concerns of the underlying investments coupled with strategically positioning the portfolio to generate maximum yield while balancing risk objectives. Realized losses in our other investment portfolio was due to the fourth quarter 2010 sale of certain limited partnerships in the secondary market, which reduced our exposure in the mezzanine financing, private equity, secondary private equity, and real estate sectors of our alternative investment portfolio.

Realized gains and losses in 2009 from AFS securities were attributable to the sale of: (i) securities on which we had previously taken OTTI charges, as we had the intent to sell such securities; and (ii) certain securities for financial and tax planning strategies. Additional sales of AFS fixed maturity securities that resulted in realized losses were also driven by further declines in the issuers' credit worthiness and liquidity.

In addition to calls and maturities on HTM securities, we sold one HTM security with a carrying value of $6.0 million for a loss of $0.2 million during the second quarter of 2009. This security had experienced significant deterioration in the issuer's credit worthiness. We sold equity securities during 2009 with realized gains of $33.4 million and realized losses of $28.1 million. This activity included the following:

The sale of certain equity securities in the first quarter of 2009, resulting in a net realized loss of approximately $0.6 million, comprised of $19.7 million in realized gains and $19.1 million in realized losses, in an effort to reduce overall portfolio risk. The decision to sell these equity positions was in response to an overall year-to-date market decline of approximately 24% by the end of the first week of March. In addition, the Parent's market capitalization at that time had decreased more than 50% since the latter part of January 2009, which we believed to be partially due to investment community views of our equity and equity-like investments. Our equity-like investments include alternative investments, many of which report results to us on a one quarter lag. Consequently, we believed the investment community would wait to evaluate our results based on the knowledge they had of the previous quarter's general market conditions. As a result, we determined it was prudent to mitigate a portion of our overall equity exposure. In determining which securities were to be sold, we contemplated, among other things, security-specific considerations with respect to downward earnings trends corroborated by recent analyst reports, primarily in the energy, commodity, and pharmaceutical sectors.

The sale of certain equity securities in the second quarter of 2009. A.M. Best changed our ratings outlook from "Stable" to "Negative" due, in part, to concerns over the risk in our investment portfolio. To reduce this risk, we sold $31.1 million of equity securities for a net loss of $0.6 million, which included gross gains of $7.7 million and gross losses of $8.3 million.