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Investments | 9 Months Ended
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Sep. 30, 2021
Investments [Abstract] |
Investments | Investments (a) Information about our AFS securities as of September 30, 2021, and December 31, 2020, was as follows:
September 30, 2021 |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Allowance for Credit Losses |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
AFS fixed income securities: |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 128,415 |  |  | — |  |  | 3,600 |  |  | (957) |  |  | 131,058 |
Foreign government |  | 14,567 |  |  | (47) |  |  | 695 |  |  | (75) |  |  | 15,140 |
Obligations of states and political subdivisions |  | 1,094,619 |  |  | (99) |  |  | 71,507 |  |  | (103) |  |  | 1,165,924 |
Corporate securities |  | 2,420,904 |  |  | (4,719) |  |  | 131,442 |  |  | (3,101) |  |  | 2,544,526 |
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS") |  | 1,326,348 |  |  | (926) |  |  | 18,896 |  |  | (4,517) |  |  | 1,339,801 |
Residential mortgage-backed securities ("RMBS") |  | 785,840 |  |  | (1,363) |  |  | 33,361 |  |  | (1,056) |  |  | 816,782 |
Commercial mortgage-backed securities ("CMBS") |  | 630,474 |  |  | (15) |  |  | 34,465 |  |  | (1,085) |  |  | 663,839 |
Total AFS fixed income securities |  | $ | 6,401,167 |  |  | (7,169) |  |  | 293,966 |  |  | (10,894) |  |  | 6,677,070 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Allowance for Credit Losses |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
AFS fixed income securities: |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 110,038 |  |  | — |  |  | 6,239 |  |  | (137) |  |  | 116,140 |
Foreign government |  | 16,801 |  |  | (1) |  |  | 1,569 |  |  | (3) |  |  | 18,366 |
Obligations of states and political subdivisions |  | 1,159,588 |  |  | (4) |  |  | 87,564 |  |  | (11) |  |  | 1,247,137 |
Corporate securities |  | 2,152,203 |  |  | (2,782) |  |  | 180,971 |  |  | (2,340) |  |  | 2,328,052 |
CLO and other ABS |  | 1,014,820 |  |  | (592) |  |  | 20,166 |  |  | (7,843) |  |  | 1,026,551 |
RMBS |  | 999,485 |  |  | (561) |  |  | 53,065 |  |  | (201) |  |  | 1,051,788 |
CMBS |  | 620,582 |  |  | (29) |  |  | 48,348 |  |  | (1,007) |  |  | 667,894 |
Total AFS fixed income securities |  | $ | 6,073,517 |  |  | (3,969) |  |  | 397,922 |  |  | (11,542) |  |  | 6,455,928 |
The following tables provide a roll forward of the allowance for credit losses on our AFS fixed income securities for the periods indicated:
Quarter ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Beginning Balance |  | Current Provision for Securities without Prior Allowance |  | Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities |  | Reductions for Securities Sold |  | Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period |  | Ending Balance
Foreign government |  | $ | 49 |  |  | — |  |  | (2) |  |  | — |  |  | — |  |  | 47 |
Obligations of states and political subdivisions |  | 38 |  |  | 61 |  |  | — |  |  | — |  |  | — |  |  | 99 |
Corporate securities |  | 3,477 |  |  | 1,307 |  |  | 64 |  |  | (49) |  |  | (80) |  |  | 4,719 |
CLO and other ABS |  | 1,399 |  |  | 46 |  |  | (517) |  |  | (2) |  |  | — |  |  | 926 |
RMBS |  | 1,034 |  |  | 248 |  |  | 125 |  |  | (44) |  |  | — |  |  | 1,363 |
CMBS |  | 14 |  |  | 4 |  |  | (3) |  |  | — |  |  | — |  |  | 15 |
Total AFS fixed income securities |  | $ | 6,011 |  |  | 1,666 |  |  | (333) |  |  | (95) |  |  | (80) |  |  | 7,169 |
Quarter ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Beginning Balance |  | Current Provision for Securities without Prior Allowance |  | Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities |  | Reductions for Securities Sold |  | Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period |  | Ending Balance
Foreign government |  | $ | 28 |  |  | — |  |  | (2) |  |  | (19) |  |  | — |  |  | 7 |
Obligations of states and political subdivisions |  | 17 |  |  | 9 |  |  | (11) |  |  | — |  |  | — |  |  | 15 |
Corporate securities |  | 8,077 |  |  | 1,016 |  |  | (3,455) |  |  | (265) |  |  | (15) |  |  | 5,358 |
CLO and other ABS |  | 1,389 |  |  | — |  |  | (210) |  |  | (51) |  |  | (7) |  |  | 1,121 |
RMBS |  | 831 |  |  | — |  |  | (157) |  |  | (27) |  |  | — |  |  | 647 |
CMBS |  | 53 |  |  | — |  |  | (21) |  |  | — |  |  | — |  |  | 32 |
Total AFS fixed income securities |  | $ | 10,395 |  |  | 1,025 |  |  | (3,856) |  |  | (362) |  |  | (22) |  |  | 7,180 |
Nine Months ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Beginning Balance |  | Current Provision for Securities without Prior Allowance |  | Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities |  | Reductions for Securities Sold |  | Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period |  | Ending Balance
Foreign government |  | $ | 1 |  |  | 47 |  |  | (1) |  |  | — |  |  | — |  |  | 47 |
Obligations of states and political subdivisions |  | 4 |  |  | 84 |  |  | 11 |  |  | — |  |  | — |  |  | 99 |
Corporate securities |  | 2,782 |  |  | 3,413 |  |  | (765) |  |  | (570) |  |  | (141) |  |  | 4,719 |
CLO and other ABS |  | 592 |  |  | 573 |  |  | (219) |  |  | (20) |  |  | — |  |  | 926 |
RMBS |  | 561 |  |  | 1,018 |  |  | (95) |  |  | (121) |  |  | — |  |  | 1,363 |
CMBS |  | 29 |  |  | 4 |  |  | (18) |  |  | — |  |  | — |  |  | 15 |
Total AFS fixed income securities |  | $ | 3,969 |  |  | 5,139 |  |  | (1,087) |  |  | (711) |  |  | (141) |  |  | 7,169 |
Nine Months ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Beginning Balance |  | Current Provision for Securities without Prior Allowance |  | Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities |  | Reductions for Securities Sold |  | Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period |  | Ending Balance
Foreign government |  | $ | — |  |  | 26 |  |  | — |  |  | (19) |  |  | — |  |  | 7 |
Obligations of states and political subdivisions |  | — |  |  | 15 |  |  | — |  |  | — |  |  | — |  |  | 15 |
Corporate securities |  | — |  |  | 6,100 |  |  | — |  |  | (659) |  |  | (83) |  |  | 5,358 |
CLO and other ABS |  | — |  |  | 1,237 |  |  | — |  |  | (109) |  |  | (7) |  |  | 1,121 |
RMBS |  | — |  |  | 690 |  |  | — |  |  | (43) |  |  | — |  |  | 647 |
CMBS |  | — |  |  | 32 |  |  | — |  |  | — |  |  | — |  |  | 32 |
Total AFS fixed income securities |  | $ | — |  |  | 8,100 |  |  | — |  |  | (830) |  |  | (90) |  |  | 7,180 |
For information on our methodology and significant inputs used to measure expected credit losses, our accounting policy for recognizing write-offs of uncollectible amounts, and our treatment of accrued interest, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2020 Annual Report. Accrued interest on AFS securities was $44.9 million as of September 30, 2021, and $43.8 million as of December 31, 2020. We did not record any material write-offs during 2021 or 2020. (b) Quantitative information about unrealized losses on our AFS portfolio is provided below.
September 30, 2021 |  | Less than 12 months |  | 12 months or longer |  | Total
($ in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
AFS fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 34,717 |  |  | (940) |  |  | 156 |  |  | (17) |  |  | 34,873 |  |  | (957) |
Foreign government |  | 3,114 |  |  | (75) |  |  | — |  |  | — |  |  | 3,114 |  |  | (75) |
Obligations of states and political subdivisions |  | 7,936 |  |  | (103) |  |  | — |  |  | — |  |  | 7,936 |  |  | (103) |
Corporate securities |  | 236,164 |  |  | (3,067) |  |  | 2,412 |  |  | (34) |  |  | 238,576 |  |  | (3,101) |
CLO and other ABS |  | 515,458 |  |  | (3,723) |  |  | 57,153 |  |  | (794) |  |  | 572,611 |  |  | (4,517) |
RMBS |  | 111,648 |  |  | (1,055) |  |  | 20 |  |  | (1) |  |  | 111,668 |  |  | (1,056) |
CMBS |  | 75,714 |  |  | (941) |  |  | 8,286 |  |  | (144) |  |  | 84,000 |  |  | (1,085) |
Total AFS fixed income securities |  | $ | 984,751 |  |  | (9,904) |  |  | 68,027 |  |  | (990) |  |  | 1,052,778 |  |  | (10,894) |
December 31, 2020 |  | 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 |  | $ | 11,519 |  |  | (137) |  |  | — |  |  | — |  |  | 11,519 |  |  | (137) |
Foreign government |  | 1,122 |  |  | (3) |  |  | — |  |  | — |  |  | 1,122 |  |  | (3) |
Obligations of states and political subdivisions |  | 2,223 |  |  | (11) |  |  | — |  |  | — |  |  | 2,223 |  |  | (11) |
Corporate securities |  | 65,187 |  |  | (2,152) |  |  | 2,400 |  |  | (188) |  |  | 67,587 |  |  | (2,340) |
CLO and other ABS |  | 261,746 |  |  | (2,995) |  |  | 165,661 |  |  | (4,848) |  |  | 427,407 |  |  | (7,843) |
RMBS |  | 18,227 |  |  | (194) |  |  | 1,181 |  |  | (7) |  |  | 19,408 |  |  | (201) |
CMBS |  | 55,482 |  |  | (616) |  |  | 16,093 |  |  | (391) |  |  | 71,575 |  |  | (1,007) |
Total AFS fixed income securities |  | $ | 415,506 |  |  | (6,108) |  |  | 185,335 |  |  | (5,434) |  |  | 600,841 |  |  | (11,542) |
We do not currently intend to sell any of the securities reflected in the tables above, nor do we expect that we will be required to sell any of these securities. The decrease in gross unrealized losses during Nine Months 2021 was driven by a tightening of credit spreads, partially offset by an increase in longer-dated benchmark United States Treasury rates. Considering these factors and our review of these securities under our credit loss policy as described in Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2020 Annual Report, we have concluded that no allowance for credit loss is required on these balances. This conclusion reflects our current judgment about the financial position and future prospects of the entity that issued the investment security and underlying collateral. (c) Fixed income securities at September 30, 2021 are summarized below by contractual maturity. Mortgage-backed securities are reflected in the table 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.
|  | AFS |  | HTM
($ in thousands) |  | Fair Value |  | Carrying Value |  | Fair Value
Due in one year or less |  | $ | 511,751 |  |  | 32 |  |  | 33 |
Due after one year through five years |  | 3,389,351 |  |  | 14,548 |  |  | 15,340 |
Due after five years through 10 years |  | 2,101,275 |  |  | 10,672 |  |  | 10,664 |
Due after 10 years |  | 674,693 |  |  | — |  |  | — |
Total fixed income securities |  | $ | 6,677,070 |  |  | 25,252 |  |  | 26,037 |
(d) The following table summarizes our other investment portfolio by strategy:
Other Investments |  | September 30, 2021 |  | December 31, 2020
($ in thousands) |  | Carrying Value |  | Remaining Commitment |  | Maximum Exposure to Loss 1 |  | Carrying Value |  | Remaining Commitment |  | Maximum Exposure to Loss 1
Alternative Investments |  |  |  |  |  |  |  |  |  |  |  |
Private equity |  | $ | 257,160 |  |  | 103,792 |  |  | 360,952 |  |  | 157,276 |  |  | 100,905 |  |  | 258,181 |
Private credit |  | 62,462 |  |  | 91,991 |  |  | 154,453 |  |  | 54,017 |  |  | 98,330 |  |  | 152,347 |
Real assets |  | 22,870 |  |  | 23,466 |  |  | 46,336 |  |  | 19,659 |  |  | 16,493 |  |  | 36,152 |
Total alternative investments |  | 342,492 |  |  | 219,249 |  |  | 561,741 |  |  | 230,952 |  |  | 215,728 |  |  | 446,680 |
Other securities |  | 50,296 |  |  | — |  |  | 50,296 |  |  | 35,370 |  |  | — |  |  | 35,370 |
Total other investments |  | $ | 392,788 |  |  | 219,249 |  |  | 612,037 |  |  | 266,322 |  |  | 215,728 |  |  | 482,050 |
1 The maximum exposure to loss includes both the carry value of these investments and the related remaining 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. We are contractually committed to make additional investments up to the remaining commitments stated above. We have not provided any non-contractual financial support at any time during 2021 or 2020. The following table shows gross summarized financial information for our other investments portfolio, including the portion we do not own. The majority of these investments are carried under the equity method of accounting and report results to us on a one-quarter lag. The following table provides (i) the gross summarized financial statement information for these investments for the three and nine-months ended June 30, and (ii) the portion of these results included in our Third Quarter and Nine Months results:
Income Statement Information |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net investment income |  | $ | 60.4 |  |  | 83.4 |  |  | $ | 550.3 |  |  | 92.9 |
Realized gains |  | 1,857.6 |  |  | 731.3 |  |  | 4,026.2 |  |  | 1,075.0 |
Net change in unrealized appreciation |  | 11,188.2 |  |  | 2,230.4 |  |  | 20,767.9 |  |  | 571.6 |
Net income |  | $ | 13,106.2 |  |  | 3,045.1 |  |  | $ | 25,344.4 |  |  | 1,739.5 |
Alternative investment income included in "Net investment income earned" on our Consolidated Statements of Income |  | $ | 42.8 |  |  | 18.7 |  |  | $ | 92.9 |  |  | 8.9 |
(e) Certain of our insurance subsidiaries, as members of the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"), have pledged certain AFS fixed income securities as collateral. Additionally, to comply with insurance laws, certain of our insurance subsidiaries have deposited certain securities with various state and regulatory agencies at September 30, 2021. We retain all rights regarding all securities pledged as collateral. The following table summarizes the market value of these securities at September 30, 2021:
($ in millions) |  | FHLBI Collateral |  | FHLBNY Collateral |  |  |  | State and Regulatory Deposits |  | Total
U.S. government and government agencies |  | $ | — |  |  | — |  |  |  |  | 22.1 |  |  | 22.1 |
Obligations of states and political subdivisions |  | — |  |  | — |  |  |  |  | 4.0 |  |  | 4.0 |
RMBS |  | 67.8 |  |  | 44.8 |  |  |  |  | — |  |  | 112.6 |
CMBS |  | 6.6 |  |  | 14.6 |  |  |  |  | — |  |  | 21.2 |
Total pledged as collateral |  | $ | 74.4 |  |  | 59.4 |  |  |  |  | 26.1 |  |  | 159.9 |
(f) 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-backed investments, as of September 30, 2021, or December 31, 2020. (g) The components of pre-tax net investment income earned were as follows:
|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed income securities |  | $ | 51,683 |  |  | 51,285 |  |  | $ | 157,114 |  |  | 152,617 |
Commercial mortgage loans ("CMLs") |  | 683 |  |  | 245 |  |  | 1,892 |  |  | 463 |
Equity securities |  | 2,955 |  |  | 1,948 |  |  | 8,425 |  |  | 5,523 |
Short-term investments |  | 64 |  |  | 244 |  |  | 204 |  |  | 1,830 |
Other investments |  | 42,865 |  |  | 18,671 |  |  | 93,158 |  |  | 9,167 |
Investment expenses |  | (5,218) |  |  | (4,208) |  |  | (14,314) |  |  | (11,004) |
Net investment income earned |  | $ | 93,032 |  |  | 68,185 |  |  | $ | 246,479 |  |  | 158,596 |
The increases in net investment income earned in Third Quarter and Nine Months 2021 compared to the prior year periods were driven by the alternative investments in our other investments portfolio. The results principally reflect unrealized gains on our private equity holdings that benefited from the upward movement in private market valuations in the three and nine-month periods ending June 30, 2021, as our results on these holdings are recorded on a one-quarter lag. (h) The following table summarizes net realized and unrealized gains and losses for the periods indicated:
|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Gross gains on sales |  | $ | 7,151 |  |  | 2,975 |  |  | $ | 12,906 |  |  | 15,129 |
Gross losses on sales |  | (2,505) |  |  | (2,402) |  |  | (8,787) |  |  | (7,841) |
Net realized gains on disposals |  | 4,646 |  |  | 573 |  |  | 4,119 |  |  | 7,288 |
Net unrealized (losses) gains on equity securities |  | (3,111) |  |  | 4,338 |  |  | 15,830 |  |  | (7,098) |
Net credit loss (expense) benefit on fixed income securities, AFS |  | (1,334) |  |  | 2,853 |  |  | (4,059) |  |  | (8,011) |
Net credit loss benefit (expense) on fixed income securities, HTM |  | 6 |  |  | 3 |  |  | (54) |  |  | 4 |
Net credit loss benefit (expense) on CMLs |  | — |  |  | (2) |  |  | — |  |  | (220) |
Losses on securities for which we have the intent to sell |  | (30) |  |  | (44) |  |  | (483) |  |  | (16,259) |
Net realized and unrealized gains (losses) |  | $ | 177 |  |  | 7,721 |  |  | $ | 15,353 |  |  | (24,296) |
Unrealized gains (losses) recognized in income on equity securities, as reflected in the table above, include the following:
|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Unrealized gains (losses) recognized in income on equity securities: |  |  |  |  |  |  |  |
On securities remaining in our portfolio at period end |  | $ | 269 |  |  | 4,338 |  |  | $ | 14,767 |  |  | (7,101) |
On securities sold during period |  | (3,380) |  |  | — |  |  | 1,063 |  |  | 3 |
Total unrealized (losses) gains recognized in income on equity securities |  | $ | (3,111) |  |  | 4,338 |  |  | $ | 15,830 |  |  | (7,098) |
The improvement in net realized and unrealized gains in Nine Months 2021 compared to Nine Months 2020 was primarily driven by (i) unrealized gains on our equity securities compared to unrealized losses last year, driven by COVID-19-related market disruption, and (ii) lower intent-to-sell losses given the significant trading flexibility we allowed our investment managers given last year's market conditions.

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