Investments

(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2018, 2017, and 2016:



($ in thousands)	2018			2017		2016
AFS securities:
Fixed income securities	$	2,302		85,806		38,781
Equity securities	—			38,894		25,864
Total AFS securities	2,302			124,700		64,645

HTM securities:
Fixed income securities	89			(21	)	159
Total HTM securities	89			(21	)	159

Total net unrealized gains	2,391			124,679		64,804
Deferred income tax	(502		)	(44,103	)	(22,681	)
Net unrealized gains, net of deferred income tax	1,889			80,576		42,123

Cumulative effect adjustment due to accounting change for equity unrealized¹	30,726			—		—
Cumulative effect adjustment due to accounting changes due to accounting change for stranded tax assets¹	(17,920		)	—		—
Increase (decrease) in net unrealized gains in OCI, net of deferred income tax	$	(65,881	)	38,453		(2,873	)

¹Upon adoption of ASU 2016-01, we recognized a $30.7 million cumulative-effect adjustment to the opening balance of AOCI, which represents the after-tax net unrealized gain on our equity portfolio as of December 31, 2017. Additionally, upon adoption of ASU 2018-02, we recognized a one-time reclassification from AOCI to retained earnings for $17.9 million representing the stranded tax assets related to our investment portfolio that were created in AOCI from the enactment of Tax Reform. See Note 3. "Adoption of Accounting Pronouncements" above for additional information.

(b) Information regarding our HTM fixed income securities as of December 31, 2018 and December 31, 2017 was as follows:



December 31, 2018			Net
			Unrealized		Unrecognized	Unrecognized
	Amortized		Gains	Carrying	Holding	Holding		Fair
($ in thousands)	Cost		(Losses)	Value	Gains	Losses		Value
Obligations of state and political subdivisions	$	17,431	39	17,470	504	(5	)	17,969
Corporate securities	19,590		50	19,640	855	(147	)	20,348
Total HTM fixed income securities	$	37,021	89	37,110	1,359	(152	)	38,317



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

Unrecognized holding gains and losses of HTM securities are not reflected in the Financial Statements, as they represent fair value fluctuations from the date a security is designated as HTM through the date of the balance sheet.



December 31, 2018
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	120,092	1,810	(592	)	121,310
Foreign government	23,202		36	(107	)	23,131
Obligations of states and political subdivisions	1,121,615		19,485	(2,631	)	1,138,469
Corporate securities	1,639,852		5,521	(27,965	)	1,617,408
CLO and other ABS	720,193		4,112	(6,943	)	717,362
CMBS	527,409		3,417	(3,748	)	527,078
RMBS	1,118,435		12,988	(3,081	)	1,128,342
Total AFS fixed income securities	$	5,270,798	47,369	(45,067	)	5,273,100



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

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. As of the first quarter of 2018, equity securities are no longer required to be included in the table above under new accounting guidance that provides that unrealized gains and losses on equity securities should no longer be recognized in AOCI, but instead recognized though income. Refer to Note 3. "Adoption of Accounting Pronouncements" for additional information regarding the adoption of ASU 2016-01.

(d) The severity of impairment on the securities in an unrealized/unrecognized loss position averaged approximately 2% of amortized cost at December 31, 2018 and approximately 1% at December 31, 2017. 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, 2018 and $0.1 million in unrealized/unrecognized losses at December 31, 2017.



December 31, 2018	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	$	6,693	(174	)	23,163	(418	)	29,856	(592	)
Foreign government	12,208		(93	)	1,482	(14	)	13,690	(107	)
Obligations of states and political subdivisions	196,798		(2,074	)	42,821	(557	)	239,619	(2,631	)
Corporate securities	1,041,952		(23,649	)	78,953	(4,316	)	1,120,905	(27,965	)
CLO and other ABS	516,106		(6,750	)	16,800	(193	)	532,906	(6,943	)
CMBS	229,338		(2,548	)	66,294	(1,200	)	295,632	(3,748	)
RMBS	139,338		(1,660	)	45,661	(1,421	)	184,999	(3,081	)
Total AFS fixed income securities	$	2,142,433	(36,948	)	275,174	(8,119	)	2,417,607	(45,067	)



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	)

The increase in the less than 12 months unrealized loss position was due to higher interest rates, with a 60-basis point increase in the 2-year U.S. Treasury Note yields and a 28-point basis increase in the 10-year U.S. Treasury Note yields during 2018. We do not currently intend to sell any of the securities in the tables above, nor will we be required to sell any of these securities. Considering these factors and our review of these securities under our OTTI policy as described in Note 2,“Summary of Significant Accounting Policies” of this Form 10-K, we have concluded that they are temporarily impaired as we believe: (i) they will mature at par value; (ii) they have not incurred a credit impairment; and (iii) future values of these securities will fluctuate with changes in interest rates. 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.

(e) Fixed income securities at December 31, 2018, by contractual maturity are shown below. Mortgage-backed securities 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, 2018:



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	188,309	13,502	13,693
Due after one year through five years	2,040,395		17,308	18,260
Due after five years through 10 years	2,863,528		6,300	6,364
Due after 10 years	180,868		—	—
Total fixed income securities	$	5,273,100	37,110	38,317

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



Other Investments	December 31, 2018				December 31, 2017
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	84,352	93,688	178,040	52,251	99,026	151,277
Private credit	41,682		81,453	123,135	37,743	94,959	132,702
Real assets	27,862		27,129	54,991	25,379	27,014	52,393
Total alternative investments	153,896		202,270	356,166	115,373	220,999	336,372
Other securities²	25,042		—	25,042	16,895	—	16,895
Total other investments	$	178,938	202,270	381,208	132,268	220,999	353,267

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.

²Other 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 2018 or 2017.

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 may use hedging to reduce foreign exchange or interest rate volatility. At this time, our alternative investment strategies do not include hedge funds. We typically 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 or income generated in the limited partnerships.

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)	2018		2017
Investments	$	28,292	21,046
Total assets	30,377		22,357
Total liabilities	4,532		4,767
Total partners’ capital	25,845		17,590



Income Statement Information
12 months ended September 30,
($ in millions)	2018		2017		2016
Net investment income (loss)	$	134	(143	)	(44	)
Realized gains	1,981		325		1,374
Net change in unrealized appreciation (depreciation)	1,303		2,894		(719	)
Net income	$	3,418	3,076		611

Insurance Subsidiaries' alternative investments income (loss)	17.6		12.7		3.1

(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, 2018 or December 31, 2017.

(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, 2018 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at December 31, 2018:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	—	—	22.5	22.5
Obligations of states and political subdivisions	—		—	3.9	3.9
Corporate securities	—		—	0.3	0.3
CMBS	7.2		18.1	—	25.3
RMBS	58.0		45.5	—	103.5
Total pledged as collateral	$	65.2	63.6	26.7	155.5

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



($ in thousands)	2018			2017		2016
Fixed income securities	$	178,104		153,230		129,306
Equity securities	7,764			6,442		7,368
Short-term investments	3,472			1,526		686
Other investments	17,799			12,871		2,940
Investment expenses	(11,803		)	(12,187	)	(9,546	)
Net investment income earned	$	195,336		161,882		130,754

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



2018				Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Corporate securities	$	1,783	—	1,783
RMBS	2,903		—	2,903
Total AFS fixed income securities	4,686		—	4,686
Other investments	1,893		—	1,893
Total OTTI losses	$	6,579	—	6,579



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 subdivisons	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
CLO and other ABS	19		—	19
Corporate securities	1,880		—	1,880
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

(k) Net realized and unrealized gains and losses included the following:



($ in thousands)	2018			2017		2016
Net realized (losses) gains on the disposals of securities:
Fixed income securities	$	(34,953	)	6,944		(3,668	)
Equity securities	18,695			4,629		7,244
Short-term investments	(3		)	(4	)	(13	)
Other investments	(2,714		)	(365	)	(1	)
Net realized (losses) gains on the disposal of securities	(18,975		)	11,204		3,562
OTTI charges	(6,579		)	(4,845	)	(8,499	)
Net realized (losses) gains	(25,554		)	6,359		(4,937	)
Unrealized (losses) recognized in income on equity securities¹	(29,369		)	—		—
Total net realized and unrealized investment (losses) gains	$	(54,923	)	6,359		(4,937	)

¹Includes unrealized holding gains (losses) of: (i) $(3.1) million on equity securities remaining in our portfolio as of December 31, 2018; and (ii) $(26.3) million on equity securities sold in 2018.

The components of net realized (losses) gains on disposals were as follows:



($ in thousands)	2018			2017		2016
HTM fixed income securities
Gains	$	2		44		3
Losses	—			(1	)	(1	)
AFS fixed income securities
Gains	5,460			10,193		7,741
Losses	(40,415		)	(3,292	)	(11,411	)
Equity securities
Gains	23,203			5,829		8,108
Losses	(4,508		)	(1,200	)	(864	)
Short-term investments
Gains	7			2		—
Losses	(10		)	(6	)	(13	)
Other investments
Gains	—			494		3
Losses	(2,714		)	(859	)	(4	)
Total net realized investment (losses) gains	$	(18,975	)	11,204		3,562

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 fixed income securities were $2,030.7 million, $1,197.9 million, and $926.5 million in 2018, 2017, and 2016, respectively. Proceeds from sale of equity securities were $113.3 million, $38.0 million, and $119.6 million in 2018, 2017, and 2016, respectively.

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


•	2018: Higher trading volume driven by opportunistic sales in both our fixed income securities and equity portfolios.


•	2017: 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.