Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2016, 2015, and 2014:



($ in thousands)	2016			2015		2014
AFS securities:
Fixed income securities	$	38,781		55,689		90,336
Equity securities	25,864			13,235		32,389
Total AFS securities	64,645			68,924		122,725

HTM securities:
Fixed income securities	159			300		958
Total HTM securities	159			300		958

Total net unrealized gains	64,804			69,224		123,683
Deferred income tax expense	(22,681		)	(24,228	)	(43,289	)
Net unrealized gains, net of deferred income tax	42,123			44,996		80,394

(Decrease) increase in net unrealized gains in OCI, net of deferred income tax	$	(2,873	)	(35,398	)	28,890

(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, 2016			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding		Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses		Value
Obligations of state and political subdivisions	$	77,466	317		77,783	2,133	—		79,916
Corporate securities	22,711		(143	)	22,568	1,665	(158	)	24,075
CMBS	1,220		(15	)	1,205	15	—		1,220
Total HTM fixed income securities	$	101,397	159		101,556	3,813	(158	)	105,211



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
CLO and other 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

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.



December 31, 2016
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	75,139	2,230	(36	)	77,333
Foreign government	26,559		322	(16	)	26,865
Obligations of states and political subdivisions	1,366,287		18,610	(5,304	)	1,379,593
Corporate securities	1,976,556		27,057	(5,860	)	1,997,753
CLO and other ABS	527,876		1,439	(355	)	528,960
CMBS	256,356		1,514	(1,028	)	256,842
RMBS	524,986		3,006	(2,798	)	525,194
Total AFS fixed income securities	4,753,759		54,178	(15,397	)	4,792,540
AFS equity securities:
Common stock	104,663		26,250	(305	)	130,608
Preferred stock	16,226		274	(355	)	16,145
Total AFS equity securities	120,889		26,524	(660	)	146,753
Total AFS securities	$	4,874,648	80,702	(16,057	)	4,939,293



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
CLO and other ABS	244,541		531	(918	)	244,154
CMBS	245,252		750	(2,410	)	243,592
RMBS	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

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 table below provides our net unrealized/unrecognized loss positions by impairment severity for both AFS and HTM securities as of December 31, 2016 compared to the prior year:



($ in thousands)
December 31, 2016				December 31, 2015
Number of Issues	% of Market/Book	Unrealized/Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
456	80% - 99%	$	16,215	606	80% - 99%	$	22,971
—	60% - 79%	—		3	60% - 79%	1,888
—	40% - 59%	—		—	40% - 59%	—
—	20% - 39%	—		—	20% - 39%	—
—	0% - 19%	—		—	0% - 19%	—
		$	16,215			$	24,859

The severity of impairment on the securities in the table above averaged 1% of amortized cost at December 31, 2016 and December 31, 2015. The decrease in the unrealized/unrecognized loss balance during 2016 was primarily from our AFS corporate fixed income securities portfolio, which was positively impacted by tightening credit spreads.

Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had $0.2 million in unrealized/unrecognized losses at December 31, 2016 and no unrealized/unrecognized losses at December 31, 2015.



December 31, 2016	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies	$	6,419	(36	)	—	—		6,419	(36	)
Foreign government	13,075		(16	)	—	—		13,075	(16	)
Obligations of states and political subdivisions	306,509		(5,304	)	—	—		306,509	(5,304	)
Corporate securities	462,902		(5,771	)	4,913	(89	)	467,815	(5,860	)
CLO and other ABS	189,795		(354	)	319	(1	)	190,114	(355	)
CMBS	82,492		(1,021	)	1,645	(7	)	84,137	(1,028	)
RMBS	279,480		(2,489	)	8,749	(309	)	288,229	(2,798	)
Total AFS fixed income securities	1,340,672		(14,991	)	15,626	(406	)	1,356,298	(15,397	)
AFS equity securities:
Common stock	11,271		(305	)	—	—		11,271	(305	)
Preferred stock	6,168		(355	)	—	—		6,168	(355	)
Total AFS equity securities	17,439		(660	)	—	—		17,439	(660	)
Total AFS securities	$	1,358,111	(15,651	)	15,626	(406	)	1,373,737	(16,057	)



December 31, 2015	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value		Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies	$	16,006	(87	)	396	(4	)	$	16,402	$	(91	)
Foreign government	1,067		(2	)	—	—		1,067		(2		)
Obligations of states and political subdivisions	28,617		(160	)	—	—		28,617		(160		)
Corporate securities	761,479		(12,671	)	50,382	(2,850	)	811,861		(15,521		)
CLO and other ABS	197,477		(807	)	12,022	(111	)	209,499		(918		)
CMBS	146,944		(2,196	)	15,385	(214	)	162,329		(2,410		)
RMBS	264,914		(1,992	)	63,395	(1,721	)	328,309		(3,713		)
Total AFS fixed income securities	1,416,504		(17,915	)	141,580	(4,900	)	1,558,084		(22,815		)
AFS equity securities:
Common stock	31,148		(1,998	)	—	—		31,148		(1,998		)
Preferred stock	1,531		(40	)	—	—		1,531		(40		)
Total AFS equity securities	32,679		(2,038	)	—	—		32,679		(2,038		)
Total AFS securities	$	1,449,183	(19,953	)	141,580	(4,900	)	$	1,590,763	$	(24,853	)

We do not intend to sell any of the securities in the tables 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. 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, 2016, 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, 2016:



($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	55,505	56,249
Due after one year through five years	37,536		39,853
Due after five years through 10 years	8,515		9,109
Total HTM fixed income securities	$	101,556	105,211

Listed below are AFS fixed income securities at December 31, 2016:



($ in thousands)	Fair Value
Due in one year or less	$	374,080
Due after one year through five years	2,141,596
Due after five years through 10 years	2,090,677
Due after 10 years	186,187
Total AFS fixed income securities	$	4,792,540

(f) We evaluate the alternative investments and tax credit investments included in our other investments portfolio to determine whether those investments are VIEs and if so, whether consolidation is required. A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest or lack sufficient funds to finance its own activities without financial support provided by other entities. We consider several significant factors in determining if our investments are VIEs and if we are the primary beneficiary, including whether we have: (i) the power to direct activities of the VIE; (ii) the ability to remove the decision maker of the VIE; (iii) the ability to participate in making decisions that are significant to the VIE; and (iv) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We have determined that the investments in our other investment portfolio are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required.

The following table summarizes our other investment portfolio by strategy:



Other Investments	December 31, 2016				December 31, 2015
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	41,135	76,774	117,909	35,088	30,204	65,292
Private credit	28,193		40,613	68,806	13,246	15,129	28,375
Real assets	14,486		22,899	37,385	19,500	25,820	45,320
Total alternative investments	83,814		140,286	224,100	67,834	71,153	138,987
Other securities	18,583		3,400	21,983	10,008	3,200	13,208
Total other investments	$	102,397	143,686	246,083	77,842	74,353	152,195

¹The maximum exposure to loss includes both the carry value of these investments and the related unfunded commitments. In addition, tax credits that have been previously recognized in Other securities are subject to the risk of recapture, which we do not consider significant.

The following is a description of our alternative investment strategies:

Our private equity strategy includes the following:


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


•	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.


•	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:


•	Middle Market Lending: This strategy provides privately negotiated loans to U.S. middle market companies. Typically, these are floating rate, senior secured loans diversified across industries. Loans can be made to private equity sponsor-backed companies or non-sponsored companies to finance LBOs, recapitalizations, and acquisitions.


•	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 generally employ low or moderate levels of leverage and 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 2030.

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)	2016		2015
Investments	$	11,244	7,527
Total assets	12,075		8,515
Total liabilities	1,802		316
Total partners’ capital	10,273		8,199



Income Statement Information
12 months ended September 30,
($ in millions)	2016			2015		2014
Net investment income	$	(44	)	129		226
Realized gains	1,374			1,187		581
Net change in unrealized (depreciation) appreciation	(719		)	(1,364	)	1,098
Net income	$	611		(48	)	1,905

Insurance Subsidiaries' alternative investments income	3.1			(1.9	)	13.6

(g) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than certain U.S. government agencies, as of December 31, 2016 or December 31, 2015.

(h) We have pledged certain AFS fixed income securities as collateral related to our relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, certain securities were on deposit with various state and regulatory agencies at December 31, 2016 to comply with insurance laws. We retain all rights regarding securities pledged as collateral.

The following table summarizes the market value of these securities at December 31, 2016:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	7.4	—	24.8	32.2
CMBS	0.5		—	—	0.5
RMBS	59.6		58.2	—	117.8
Total pledged as collateral	$	67.5	58.2	24.8	150.5

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



($ in thousands)	2016			2015		2014
Fixed income securities	$	129,306		123,230		126,489
Equity securities	7,368			9,161		7,449
Short-term investments	686			112		66
Other investments	2,940			(1,890	)	13,580
Investment expenses	(9,546		)	(9,297	)	(8,876	)
Net investment income earned	$	130,754		121,316		138,708

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



2016				Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Obligations of states and political subdivisions	$	2,797	—	2,797
Corporate securities	1,880		—	1,880
CLO and other ABS	19		—	19
CMBS	220		—	220
RMBS	275		10	265
Total AFS fixed income securities	5,191		10	5,181
AFS equity securities:
Common stock	3,316		—	3,316
Preferred stock	2		—	2
Total AFS equity securities	3,318		—	3,318
Total OTTI losses	$	8,509	10	8,499



2015				Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in 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 Earnings
($ in thousands)	Gross		Included in OCI	Recognized in 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

The majority of the OTTI charges in 2016 were on securities for which we had the intent to sell to facilitate our fixed income strategy change to more actively manage the portfolio to maximize after-tax income and total return, while maintaining a similar level of credit quality and duration risk. Charges in 2015 and 2014 related to equity securities for which we had the intent to sell in relation to a change in our high-dividend yield strategy, with the remaining charges relating 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)	2016			2015		2014
HTM fixed income securities
Gains	$	3		5		2
Losses	(1		)	(1	)	(20	)
AFS fixed income securities
Gains	7,741			4,515		1,945
Losses	(11,411		)	(312	)	(392	)
AFS equity securities
Gains	8,108			29,168		36,871
Losses	(864		)	(1,347	)	(704	)
Short-term investments
Gains	—			—		—
Losses	(13		)	—		—
Other investments
Gains	3			162		1
Losses	(4		)	(653	)	—
Total net realized investment gains	$	3,562		31,537		37,703

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 $1,046.1 million in 2016, $234.1 million in 2015, and $259.0 million in 2014.

Net realized gains in the table above were driven by the following:


•	2016: A repositioning of our equity portfolio partially offset by net losses in our AFS fixed income portfolio related to the change in our strategy to more actively manage this portfolio.


•	2015: A change in our dividend 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.


•	2014: A quantitative rebalancing of our dividend yield strategy holdings within our equity portfolio.