Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2014, 2013, and 2012:



($ in thousands)	2014			2013		2012
AFS securities:
Fixed income securities	$	90,336		39,559		165,330
Equity securities	32,389			37,421		18,941
Total AFS securities	122,725			76,980		184,271

HTM securities:
Fixed income securities	958			2,257		3,926
Total HTM securities	958			2,257		3,926

Total net unrealized gains	123,683			79,237		188,197
Deferred income tax expense	(43,289		)	(27,733	)	(65,869	)
Net unrealized gains, net of deferred income tax	80,394			51,504		122,328

Increase (decrease) in net unrealized gains in OCI, net of deferred income tax	$	28,890		(70,824	)	25,080

(b) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of HTM fixed income securities were as follows:



December 31, 2014			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding	Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses	Value
Foreign government	$	5,292	47		5,339	55	—	5,394
Obligations of state and political subdivisions	285,301		2,071		287,372	11,760	—	299,132
Corporate securities	18,899		(273	)	18,626	2,796	—	21,422
ABS	2,818		(455	)	2,363	460	—	2,823
CMBS	4,869		(432	)	4,437	753	—	5,190
Total HTM fixed income securities	$	317,179	958		318,137	15,824	—	333,961



December 31, 2013			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding	Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses	Value
Foreign government	$	5,292	131		5,423	168	—	5,591
Obligations of state and political subdivisions	348,109		4,013		352,122	17,634	—	369,756
Corporate securities	28,174		(346	)	27,828	2,446	—	30,274
ABS	3,413		(655	)	2,758	657	—	3,415
CMBS	5,634		(886	)	4,748	3,197	—	7,945
Total HTM fixed income securities	$	390,622	2,257		392,879	24,102	—	416,981

Unrecognized holding gains and losses of HTM securities are not reflected in the 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 1.7 years as of December 31, 2014.



December 31, 2014
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
U.S. government and government agencies	$	116,666	7,592	(128	)	124,130
Foreign government	27,035		796	—		27,831
Obligations of states and political subdivisions	1,208,776		38,217	(729	)	1,246,264
Corporate securities	1,763,427		42,188	(5,809	)	1,799,806
ABS	176,837		760	(373	)	177,224
CMBS¹	177,932		2,438	(777	)	179,593
RMBS²	505,113		8,587	(2,426	)	511,274
AFS fixed income securities	3,975,786		100,578	(10,242	)	4,066,122
AFS equity securities	159,011		32,721	(332	)	191,400
Total AFS securities	$	4,134,797	133,299	(10,574	)	4,257,522



December 31, 2013
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
U.S. government and government agencies	$	163,218	10,661	(504	)	173,375
Foreign government	29,781		906	(72	)	30,615
Obligations of states and political subdivisions	946,455		25,194	(20,025	)	951,624
Corporate securities	1,707,928		44,004	(17,049	)	1,734,883
ABS	140,430		934	(468	)	140,896
CMBS¹	172,288		2,462	(3,466	)	171,284
RMBS²	515,877		7,273	(10,291	)	512,859
AFS fixed income securities	3,675,977		91,434	(51,875	)	3,715,536
AFS equity securities	155,350		37,517	(96	)	192,771
Total AFS securities	$	3,831,327	128,951	(51,971	)	3,908,307

¹CMBS includes government guaranteed agency securities with a fair value of $13.2 million at December 31, 2014 and $30.0 million at December 31, 2013.

² RMBS includes government guaranteed agency securities with a fair value of $32.4 million at December 31, 2014 and $55.2 million at December 31, 2013.

Unrealized gains and 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, 2014 and December 31, 2013, the fair value and 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, 2014	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 agencies	$	7,567	(13	)	10,866	(115	)
Obligations of states and political subdivisions	47,510		(105	)	64,018	(624	)
Corporate securities	276,648		(1,734	)	153,613	(4,075	)
ABS	113,202		(178	)	15,618	(195	)
CMBS	12,799		(34	)	59,219	(743	)
RMBS	3,399		(8	)	138,724	(2,418	)
Total fixed income securities	461,125		(2,072	)	442,058	(8,170	)
Equity securities	5,262		(336	)	—	—
Subtotal	$	466,387	(2,408	)	442,058	(8,170	)



	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	$	196	(3	)	1	—	—		—
ABS	—		—		—	2,235	(455	)	439
Subtotal	$	196	(3	)	1	2,235	(455	)	439
Total AFS and HTM	$	466,583	(2,411	)	1	444,293	(8,625	)	439



December 31, 2013	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 agencies	$	16,955	(500	)	507	(4	)
Foreign government	2,029		(30	)	2,955	(42	)
Obligations of states and political subdivisions	442,531		(19,120	)	13,530	(905	)
Corporate securities	511,100		(15,911	)	14,771	(1,138	)
ABS	68,725		(468	)	—	—
CMBS	100,396		(2,950	)	6,298	(516	)
RMBS	268,943		(10,031	)	2,670	(260	)
Total fixed income securities	1,410,679		(49,010	)	40,731	(2,865	)
Equity securities	1,124		(96	)	—	—
Subtotal	$	1,411,803	(49,106	)	40,731	(2,865	)



	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	$	65	(5	)	5	441	(20	)	14
ABS	—		—		—	2,490	(655	)	621
Subtotal	$	65	(5	)	5	2,931	(675	)	635
Total AFS and HTM	$	1,411,868	(49,111	)	5	43,662	(3,540	)	635

¹Gross 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 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.

The table below provides our net unrealized/unrecognized loss positions by impairment severity as of December 31, 2014 compared to the prior year:



($ in thousands)
December 31, 2014				December 31, 2013
Number of Issues	% of Market/Book	Unrealized/Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
350	80% - 99%	$	10,596	556	80% - 99%	$	51,835
—	60% - 79%	—		1	60% - 79%	176
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	10,596			$	52,011

At December 31, 2014, we had 350 securities in an aggregate unrealized/unrecognized loss position of $10.6 million, compared to 557 securities in an aggregate unrealized/unrecognized loss position of $52.0 million at December 31, 2013. This improvement was mainly driven by a lower interest rate environment. Fixed income security pricing in the marketplace has improved reflecting the 86 basis point decrease in the 10-year U.S. Treasury Note during 2014. At December 31, 2014, $8.2 million of the aggregate unrealized/unrecognized losses related to securities that have been in a loss position for more than 12 months, while at December 31, 2013, these losses amounted to $2.9 million. Included in the $8.2 million was one security that experienced a rating downgrade during 2014. The impairment severity on this security deteriorated from 9% at December 31, 2013 to 13%, or $1.1 million, at December 31, 2014. Given the close proximity of amortized cost and market value, we have concluded that this security is not other-than-temporarily impaired. Excluding this one security, the nature of the unrealized/unrecognized losses over 12 months is interest-rate related as opposed to credit-related concerns, as evidenced by the fact that the severity of impairment on these securities improved from an average of 6% of amortized cost at December 31, 2013 to an average of 2% of amortized cost at December 31, 2014.

For a discussion regarding the sensitivity of interest rate movements and the related impacts on the fixed income securities portfolio, refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-K.

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. In addition, we do not intend 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, 2014. 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 income securities at December 31, 2014, by contractual maturity are shown below. Mortgage-backed securities ("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 income securities at December 31, 2014:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	113,266	114,795
Due after one year through five years	193,983		206,188
Due after five years through 10 years	10,888		12,978
Total HTM fixed income securities	$	318,137	$	333,961

Listed below are AFS fixed income securities at December 31, 2014:



($ in thousands)	Fair Value
Due in one year or less	$	435,190
Due after one year through five years	1,961,179
Due after five years through 10 years	1,593,287
Due after 10 years	76,466
Total AFS fixed income securities	$	4,066,122

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



Other Investments	Carrying Value			2014
	December 31,		December 31,	Remaining
($ in thousands)	2014		2013	Commitment
Alternative Investments
Secondary private equity	$	21,807	25,618	7,001
Private equity	20,126		20,192	8,890
Energy/power generation	14,445		17,361	21,905
Real estate	11,452		11,698	10,051
Mezzanine financing	9,853		12,738	13,541
Distressed debt	8,679		11,579	2,982
Venture capital	6,606		7,025	350
Total alternative investments	92,968		106,211	64,720
Other securities	6,235		1,664	3,711
Total other investments	$	99,203	107,875	68,431

The following is a description of our alternative investment strategies:

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 ("LBO"), venture capital, distressed securities, mezzanine financing, real estate, and infrastructure.

Private Equity

This strategy makes private equity investments, primarily in established large and middle market companies across diverse industries globally.

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.

Mezzanine Financing

This strategy provides privately negotiated fixed income securities, generally with an equity component, to 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.

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 includes a fund of funds component.

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 makes private equity investments in growth equity and buyout partnerships.

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 can be traded 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 2028.

The following tables set forth summarized financial information for our other investments portfolio, including the portion not owned by us. The investments are carried under the equity method of accounting. The last line in the income statement information table below reflects our share of the aggregate income, which is the portion included in our Financial Statements. As the majority of these investments report results to us on a one 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)	2014		2013
Investments	$	10,096	11,020
Total assets	10,695		11,727
Total liabilities	545		573
Partners’ capital	10,150		11,154



Income Statement Information
12 months ended September 30,
($ in millions)	2014		2013	2012
Net investment income	$	226	406	226
Realized gains	581		913	1,015
Net change in unrealized appreciation (depreciation)	1,098		382	(100	)
Net income	$	1,905	1,701	1,141

Insurance Subsidiaries' other investments income	13.6		15.2	9.0

(g) We have pledged certain AFS fixed income securities as collateral related to: (i) our outstanding borrowing of $45 million with the Federal Home Loan Bank of Indianapolis ("FHLBI"); (ii) our reinsurance obligations related to our 2011 acquisition of our E&S book of business; and (iii) our compliance with insurance laws by placing certain securities on deposit with various state and regulatory agencies. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at December 31, 2014:



($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.7	—	25.3	33.0
Obligations of states and political subdivisions	—		5.7	—	5.7
Corporate securities	—		5.3	—	5.3
ABS	—		1.1	—	1.1
CMBS	2.2		—	—	2.2
RMBS	50.8		2.3	—	53.1
Total pledged as collateral	$	60.7	14.4	25.3	100.4

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



($ in thousands)	2014			2013		2012
Fixed income securities	$	126,489		121,582		124,687
Equity securities, dividend income	7,449			6,140		6,215
Short-term investments	66			117		151
Other investments	13,580			15,208		8,996
Investment expenses	(8,876		)	(8,404	)	(8,172	)
Net investment income earned	$	138,708		134,643		131,877

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



2014				Recognized in
($ in thousands)	Gross		Included in OCI	Earnings
AFS fixed income securities:
RMBS	$	7	—	7
Total AFS fixed income securities	7		—	7
Equity securities	10,517		—	10,517
Total AFS securities	10,524		—	10,524
Other investments	580		—	580
OTTI losses	$	11,104	—	11,104



2013						Recognized in
($ in thousands)	Gross			Included in OCI		Earnings
HTM fixed income securities:
ABS	$	(44	)	(47	)	3
Total HTM fixed income securities	(44		)	(47	)	3
AFS fixed income securities:
RMBS	16			(30	)	46
Total AFS fixed income securities	16			(30	)	46
Equity securities	3,747			—		3,747
Total AFS securities	3,763			(30	)	3,793
Other investments	1,847			—		1,847
OTTI losses	$	5,566		(77	)	5,643



2012						Recognized in
($ in thousands)	Gross			Included in OCI		Earnings
AFS fixed income securities:
ABS	$	98		—		98
CMBS	(1,525		)	(2,335	)	810
RMBS	(35		)	(218	)	183
Total AFS fixed income securities	(1,462		)	(2,553	)	1,091
Equity securities	3,173			—		3,173
OTTI losses	$	1,711		(2,553	)	4,264

The majority of the OTTI charges in 2014, 2013, and 2012 were comprised of charges on our equity portfolio. In 2014, $9.0 million related to securities for which we had the intent to sell in relation to a change in our high-dividend yield strategy. In 2013, $2.0 million related to securities that we did not believe would recover in the near term and $1.7 million related to securities for which we had the intent to sell. Contributing to the OTTI charges in 2013 were $1.8 million of charges that relate to an investment in a limited liability company within our other investments portfolio that has sustained significant losses for which we do not anticipate recovery. In 2012, $1.0 million related to securities that we did not believe would recover in the near term and $2.2 million related to securities for which we had the intent to sell.

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



($ in thousands)	2014			2013	2012
Balance, beginning of year	$	7,488		7,477	6,602
Addition for the amount related to credit loss for which an OTTI was not previously recognized	—			—	—
Reductions for securities sold during the period	(2,044		)	—	—
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	—			—	—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	—			11	875
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	—			—	—
Balance, end of year	$	5,444		7,488	7,477

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



($ in thousands)	2014			2013		2012
HTM fixed income securities
Gains	$	2		195		194
Losses	(20		)	(95	)	(217	)
AFS fixed income securities
Gains	1,945			3,340		4,452
Losses	(392		)	(373	)	(472	)
AFS equity securities
Gains	36,871			24,776		10,901
Losses	(704		)	(408	)	(1,205	)
Short-term investments
Losses	—			—		(2	)
Other investments
Gains	1			—		1
Losses	—			(1,060	)	(400	)
Total other net realized investment gains	$	37,703		26,375		13,252

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 $259.0 million in 2014, $135.9 million in 2013, and $205.3 million in 2012. Net realized gains in 2014, 2013, and 2012, excluding OTTI charges, were driven by the sale of AFS equity securities due to the rebalancing of our high-dividend yield strategy holdings within our equity portfolio. In addition, $9.2 million of the 2014 gains on our equity portfolio related to a change in our strategy for this portfolio.