Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2015, 2014, and 2013:



($ in thousands)	2015			2014		2013
AFS securities:
Fixed income securities	$	55,689		90,336		39,559
Equity securities	13,235			32,389		37,421
Total AFS securities	68,924			122,725		76,980

HTM securities:
Fixed income securities	300			958		2,257
Total HTM securities	300			958		2,257

Total net unrealized gains	69,224			123,683		79,237
Deferred income tax expense	(24,228		)	(43,289	)	(27,733	)
Net unrealized gains, net of deferred income tax	44,996			80,394		51,504

(Decrease) increase in net unrealized gains in OCI, net of deferred income tax	$	(35,398	)	28,890		(70,824	)

(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, 2015			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding	Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses	Value
Obligations of state and political subdivisions	$	175,269	848		176,117	5,763	—	181,880
Corporate securities	20,228		(185	)	20,043	1,972	—	22,015
ABS	1,030		(120	)	910	118	—	1,028
CMBS	4,527		(243	)	4,284	337	—	4,621
Total HTM fixed income securities	$	201,054	300		201,354	8,190	—	209,544



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

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 either through purchase or transfer from AFS; 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 1.5 years as of December 31, 2015.



December 31, 2015
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	99,485	4,721	(91	)	104,115
Foreign government	14,885		298	(2	)	15,181
Obligations of states and political subdivisions	1,314,779		44,523	(160	)	1,359,142
Corporate securities	1,892,296		23,407	(15,521	)	1,900,182
ABS	244,541		531	(918	)	244,154
CMBS¹	245,252		750	(2,410	)	243,592
RMBS²	541,276		4,274	(3,713	)	541,837
Total AFS fixed income securities	4,352,514		78,504	(22,815	)	4,408,203
AFS equity securities:
Common stock	181,991		14,796	(1,998	)	194,789
Preferred stock	11,825		477	(40	)	12,262
Total AFS equity securities	193,816		15,273	(2,038	)	207,051
Total AFS securities	$	4,546,330	93,777	(24,853	)	4,615,254



December 31, 2014
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
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
Total AFS fixed income securities	3,975,786		100,578	(10,242	)	4,066,122
AFS equity securities:
Common stock	159,011		32,721	(332	)	191,400
Total AFS equity securities	159,011		32,721	(332	)	191,400
Total AFS securities	$	4,134,797	133,299	(10,574	)	4,257,522

¹CMBS includes government guaranteed agency securities with a fair value of $4.5 million at December 31, 2015 and $13.2 million at December 31, 2014.

² RMBS includes government guaranteed agency securities with a fair value of $19.7 million at December 31, 2015 and $32.4 million at December 31, 2014.

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, 2015 and December 31, 2014, 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, 2015	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	16,006	(87	)	396	(4	)
Foreign government	1,067		(2	)	—	—
Obligations of states and political subdivisions	28,617		(160	)	—	—
Corporate securities	761,479		(12,671	)	50,382	(2,850	)
ABS	197,477		(807	)	12,022	(111	)
CMBS	146,944		(2,196	)	15,385	(214	)
RMBS	264,914		(1,992	)	63,395	(1,721	)
Total AFS fixed income securities	1,416,504		(17,915	)	141,580	(4,900	)
AFS equity securities:
Common stock	31,148		(1,998	)	—	—
Preferred stock	1,531		(40	)	—	—
Total AFS equity securities	32,679		(2,038	)	—	—
Subtotal	$	1,449,183	(19,953	)	141,580	(4,900	)



	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Unrecognized Gains²	Fair Value	Unrealized Losses¹		Unrecognized Gains²
HTM securities:
ABS	$	—	—		—	805	(122	)	116
Subtotal	—		—		—	805	(122	)	116
Total AFS and HTM	$	1,449,183	(19,953	)	—	142,385	(5,022	)	116



December 31, 2014	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income 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 AFS fixed income securities	461,125		(2,072	)	442,058	(8,170	)
AFS equity securities:
Common stock	5,262		(336	)	—	—
Total AFS 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

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, 2015 compared to the prior year:



($ in thousands)
December 31, 2015				December 31, 2014
Number of Issues	% of Market/Book	Unrealized/Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
606	80% - 99%	$	22,971	350	80% - 99%	$	10,596
3	60% - 79%	1,888		—	60% - 79%	—
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	24,859			$	10,596

At December 31, 2015, we had 609 securities in an aggregate unrealized/unrecognized loss position of $24.9 million, compared to 350 securities in an aggregate unrealized/unrecognized loss position of $10.6 million at December 31, 2014. Although the number of issues increased, the severity of impairment on these securities remained consistent at an average of 2% of amortized cost at December 31, 2015 and December 31, 2014. The primary driver behind the increase in the unrealized/unrecognized loss balance was our corporate fixed income securities portfolio, which was impacted by widening credit spreads.

We do not intend to sell any of the securities in the table above, nor do we believe we will be required to sell any of these securities. Additionally, we have reviewed these securities in accordance with our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” of this Form 10-K and have concluded that they are temporarily impaired as of December 31, 2015. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the 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, 2015, 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 income securities at December 31, 2015:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	98,601	99,872
Due after one year through five years	89,231		94,358
Due after five years through 10 years	13,522		15,314
Total HTM fixed income securities	$	201,354	209,544

Listed below are AFS fixed income securities at December 31, 2015:



($ in thousands)	Fair Value
Due in one year or less	$	472,331
Due after one year through five years	2,135,301
Due after five years through 10 years	1,733,858
Due after 10 years	66,713
Total AFS fixed income securities	$	4,408,203

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



Other Investments	Carrying Value			2015
	December 31,		December 31,	Remaining
($ in thousands)	2015		2014	Commitment
Alternative Investments
Private equity	$	35,088	48,538	30,204
Private credit	13,246		18,533	15,129
Real assets	19,500		25,897	25,820
Total alternative investments	67,834		92,968	71,153
Other securities	10,008		6,235	3,200
Total other investments	$	77,842	99,203	74,353

The following is a description of our alternative investment strategies:

Our private equity strategy includes the following:


•	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.


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


•	Venture Capital: In general, these investments are 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 private credit strategy includes the following:


•	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.

•

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.

Our real assets strategy includes the following:

•

Energy & Power Generation: This strategy makes energy and power generation investments in cash flow generating infrastructure assets. Energy investments are made in a variety of industries including oil, natural gas, and coal. These investments are diversified across the energy supply chain and include assets in the exploration and production, pipeline, and refining sectors. Power generation includes investments in: (i) conventional power, such as natural gas and oil; (ii) renewable power, such as wind and solar; and (iii) electric transmission and distribution.


•	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.

Our 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)	2015		2014
Investments	$	7,527	10,096
Total assets	8,515		10,695
Total liabilities	316		545
Total partners’ capital	8,199		10,150



Income Statement Information
12 months ended September 30,
($ in millions)	2015			2014	2013
Net investment income	$	129		226	406
Realized gains	1,187			581	913
Net change in unrealized (depreciation) appreciation	(1,364		)	1,098	382
Net income	$	(48	)	1,905	1,701

Insurance Subsidiaries' other investments income	(1.9		)	13.6	15.2

(g) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholder's equity, other than certain U.S. government agencies, as of December 31, 2015 or December 31, 2014.

(h) We have pledged certain AFS fixed income securities as collateral related to: (i) our outstanding borrowing of $$60 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, 2015:



($ in millions)	FHLBI Collateral		Reinsurance Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.5	—	24.0	31.5
Obligations of states and political subdivisions	—		5.0	—	5.0
Corporate securities	—		4.7	—	4.7
CMBS	1.2		—	—	1.2
RMBS	55.0		1.8	—	56.8
Total pledged as collateral	$	63.7	11.5	24.0	99.2

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



($ in thousands)	2015			2014		2013
Fixed income securities	$	123,230		126,489		121,582
Equity securities, dividend income	9,161			7,449		6,140
Short-term investments	112			66		117
Other investments	(1,890		)	13,580		15,208
Investment expenses	(9,297		)	(8,876	)	(8,404	)
Net investment income earned	$	121,316		138,708		134,643

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



2015				Recognized in
($ in thousands)	Gross		Included in OCI	Earnings
AFS fixed income securities:
Corporate securities	$	2,188	—	2,188
RMBS	1		—	1
Total AFS fixed income securities	2,189		—	2,189
AFS equity securities:
Common stock	15,996		—	15,996
Preferred stock	181		—	181
Total AFS equity securities	16,177		—	16,177
Total OTTI losses	$	18,366	—	18,366



2014				Recognized in
($ in thousands)	Gross		Included in OCI	Earnings
AFS fixed income securities:
RMBS	$	7	—	7
Total AFS fixed income securities	7		—	7
AFS equity securities:
Common stock	10,517		—	10,517
Total AFS equity securities	10,517		—	10,517
Other investments	580		—	580
Total 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
AFS equity securities:
Common stock	3,747			—		3,747
Total AFS equity securities	3,747			—		3,747
Other investments	1,847			—		1,847
Total OTTI losses	$	5,566		(77	)	5,643

The majority of the OTTI charges in 2015, 2014, and 2013 were comprised of charges on our equity portfolio. A significant portion of these charges relate to securities for which we had the intent to sell in relation to a change in our high dividend yield strategy and the remaining equity charges relate to securities that we did not believe would recover in the near term.

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



($ in thousands)	2015			2014		2013
HTM fixed income securities
Gains	$	5		2		195
Losses	(1		)	(20	)	(95	)
AFS fixed income securities
Gains	4,515			1,945		3,340
Losses	(312		)	(392	)	(373	)
AFS equity securities
Gains	29,168			36,871		24,776
Losses	(1,347		)	(704	)	(408	)
Other investments
Gains	162			1		—
Losses	(653		)	—		(1,060	)
Total other net realized investment gains	$	31,537		37,703		26,375

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 $234.1 million in 2015, $259.0 million in 2014, and $135.9 million in 2013. Net realized gains in 2015, excluding OTTI charges, were driven by the sale of AFS securities due to a change in our dividend equity strategy from a quantitative, model-driven stock selection strategy to a fundamentally-based stock selection approach that incorporates an assessment of the sustainability and growth rate of a company's dividends and future cash flow. Net realized gains in 2014 and 2013, excluding OTTI charges, were driven by the sale of AFS equity securities due to the quantitative rebalancing of our dividend yield strategy holdings within our equity portfolio.