Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2017, 2016, and 2015:



($ in thousands)	2017			2016		2015
AFS securities:
Fixed income securities	$	85,806		38,781		55,689
Equity securities	38,894			25,864		13,235
Total AFS securities	124,700			64,645		68,924

HTM securities:
Fixed income securities	(21		)	159		300
Total HTM securities	(21		)	159		300

Total net unrealized gains	124,679			64,804		69,224
Deferred income tax	(44,103		)	(22,681	)	(24,228	)
Net unrealized gains, net of deferred income tax	80,576			42,123		44,996

Increase (decrease) in net unrealized gains in OCI, net of deferred income tax	$	38,453		(2,873	)	(35,398	)

(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, 2017			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding		Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses		Value
Obligations of state and political subdivisions	$	25,154	84		25,238	1,023	—		26,261
Corporate securities	16,996		(105	)	16,891	1,003	(55	)	17,839
Total HTM fixed income securities	$	42,150	(21	)	42,129	2,026	(55	)	44,100



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

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, 2017
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	49,326	647	(233	)	49,740
Foreign government	18,040		526	(11	)	18,555
Obligations of states and political subdivisions	1,539,307		44,245	(582	)	1,582,970
Corporate securities	1,588,339		30,891	(1,762	)	1,617,468
CLO and other ABS	789,152		6,508	(202	)	795,458
CMBS	382,727		1,563	(841	)	383,449
RMBS	709,825		6,487	(1,430	)	714,882
Total AFS fixed income securities	5,076,716		90,867	(5,061	)	5,162,522
AFS equity securities:
Common stock	129,696		38,287	(226	)	167,757
Preferred stock	14,115		904	(71	)	14,948
Total AFS equity securities	143,811		39,191	(297	)	182,705
Total AFS securities	$	5,220,527	130,058	(5,358	)	5,345,227



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

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 severity of impairment on the securities in an unrealized/unrecognized loss position averaged 1% of amortized cost at December 31, 2017 and December 31, 2016. Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had $0.1 million in unrealized/unrecognized losses at December 31, 2017 and no unrealized/unrecognized losses at December 31, 2016.



December 31, 2017	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	$	23,516	(233	)	250	—		23,766	(233	)
Foreign government	1,481		(11	)	—	—		1,481	(11	)
Obligations of states and political subdivisions	107,514		(422	)	14,139	(160	)	121,653	(582	)
Corporate securities	238,326		(1,744	)	3,228	(18	)	241,554	(1,762	)
CLO and other ABS	74,977		(196	)	1,655	(6	)	76,632	(202	)
CMBS	154,267		(773	)	5,214	(68	)	159,481	(841	)
RMBS	269,485		(1,285	)	11,200	(145	)	280,685	(1,430	)
Total AFS fixed income securities	869,566		(4,664	)	35,686	(397	)	905,252	(5,061	)
AFS equity securities:
Common stock	4,727		(226	)	—	—		4,727	(226	)
Preferred stock	3,833		(71	)	—	—		3,833	(71	)
Total AFS equity securities	8,560		(297	)	—	—		8,560	(297	)
Total AFS securities	$	878,126	(4,961	)	35,686	(397	)	913,812	(5,358	)



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	)

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, 2017, 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 the contractual maturities of fixed income securities at December 31, 2017:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	315,857	10,997	11,168
Due after one year through five years	2,099,529		23,035	24,235
Due after five years through 10 years	2,510,294		8,097	8,697
Due after 10 years	236,842		—	—
Total fixed income securities	$	5,162,522	42,129	44,100

(f) The following table summarizes our other investment portfolio by strategy:



Other Investments	December 31, 2017				December 31, 2016
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	52,251	99,026	151,277	41,135	76,774	117,909
Private credit	37,743		94,959	132,702	28,193	40,613	68,806
Real assets	25,379		27,014	52,393	14,486	22,899	37,385
Total alternative investments	115,373		220,999	336,372	83,814	140,286	224,100
Other securities²	16,895		—	16,895	18,583	3,400	21,983
Total other investments	$	132,268	220,999	353,267	102,397	143,686	246,083

¹The maximum exposure to loss includes both the carrying 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.

² Other securities primarily consists of tax credit investments.

We have reviewed various investments included in the table above and have concluded that they are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required. We do not have a future obligation to fund losses or debts on behalf of these investments; however, we are contractually committed to make additional investments up to the remaining commitment outlined above. We have not provided any non-contractual financial support at any time during 2017 or 2016.

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 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 2032.

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)	2017		2016
Investments	$	21,046	11,244
Total assets	22,357		12,075
Total liabilities	4,767		1,802
Total partners’ capital	17,590		10,273



Income Statement Information
12 months ended September 30,
($ in millions)	2017			2016		2015
Net investment (loss) income	$	(143	)	(44	)	129
Realized gains	325			1,374		1,187
Net change in unrealized appreciation (depreciation)	2,894			(719	)	(1,364	)
Net income	$	3,076		611		(48	)

Insurance Subsidiaries' alternative investments income (loss)	12.7			3.1		(1.9	)

(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, 2017 or December 31, 2016.

(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, 2017 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, 2017:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	3.0	—	22.6	25.6
Obligations of states and political subdivisions	—		—	3.1	3.1
CMBS	6.2		14.1	—	20.3
RMBS	56.3		59.6	—	115.9
Total pledged as collateral	$	65.5	73.7	25.7	164.9

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



($ in thousands)	2017			2016		2015
Fixed income securities	$	153,230		129,306		123,230
Equity securities	6,442			7,368		9,161
Short-term investments	1,526			686		112
Other investments	12,871			2,940		(1,890	)
Investment expenses	(12,187		)	(9,546	)	(9,297	)
Net investment income earned	$	161,882		130,754		121,316

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



2017					Recognized in Earnings
($ in thousands)	Gross		Included in OCI		Recognized in Earnings
AFS fixed income securities:
U.S. government and government agencies	$	36	—		36
Obligations of states and political subdivisions	612		—		612
Corporate securities	587		—		587
CLO and other ABS	96		—		96
CMBS	670		—		670
RMBS	1,183		(36	)	1,219
Total AFS fixed income securities	3,184		(36	)	3,220
AFS equity securities:
Common stock	1,435		—		1,435
Total AFS equity securities	1,435		—		1,435
Other investments	$	190	—		190
Total OTTI losses	$	4,809	(36	)	4,845



2016				Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Obligations of states and political subdivisons	$	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

The majority of the OTTI charges in both 2017 and 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 related to equity securities for which we had the intent to sell in relation to 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)	2017			2016		2015
HTM fixed income securities
Gains	$	44		3		5
Losses	(1		)	(1	)	(1	)
AFS fixed income securities
Gains	10,193			7,741		4,515
Losses	(3,292		)	(11,411	)	(312	)
AFS equity securities
Gains	5,829			8,108		29,168
Losses	(1,200		)	(864	)	(1,347	)
Short-term investments
Gains	2			—		—
Losses	(6		)	(13	)	—
Other investments
Gains	494			3		162
Losses	(859		)	(4	)	(653	)
Total net realized investment gains	$	11,204		3,562		31,537

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 $1,235.9 million in 2017, $1,046.1 million in 2016, and $234.1 million in 2015.

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


•	2017: A higher trading volume in our fixed income securities portfolio related to a more active external investment management approach and opportunistic sales in our equity portfolio.


•	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.