3.	Investments

Composition of Invested Assets

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investments as of December 31 were as follows:

December 31, 2016
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities
U.S. Governments	$	275.1	$	0.6	$	4.5	$	271.2
Foreign Governments		244.2		1.1		8.0		237.3
Obligations of states and political subdivisions		375.7		8.9		1.8		382.8
Corporate bonds		1,316.9		23.3		19.5		1,320.7
Commercial mortgage-backed securities		154.9		0.4		1.6		153.7
Residential mortgage-backed securities		174.8		3.7		1.7		176.8
Asset-backed securities		127.6		0.1		2.1		125.6
Collateralized loan obligations		269.6		3.8		9.1		264.3
Total fixed maturities		2,938.8		41.9		48.3		2,932.4
Equity securities		335.2		117.9		5.7		447.4
Other investments		531.6		7.5		0.1		539.0
Short-term investments		405.5		—		—		405.5
Total investments	$	4,211.1	$	167.3	$	54.1	$	4,324.3

December 31, 2015
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities
U.S. Governments	$	207.9	$	0.7	$	0.7	$	207.9
Foreign Governments		263.1		0.8		20.8		243.1
Obligations of states and political subdivisions		467.6		20.7		0.3		488.0
Corporate bonds		1,355.1		13.6		48.8		1,319.9
Commercial mortgage-backed securities		151.5		0.3		1.6		150.2
Residential mortgage-backed securities		167.8		5.8		0.5		173.1
Asset-backed securities		131.1		0.3		2.9		128.5
Collateralized loan obligations		226.9		0.9		11.2		216.6
Total fixed maturities		2,971.0		43.1		86.8		2,927.3
Equity securities		349.7		131.5		17.3		463.9
Other investments		506.9		6.9		0.1		513.7
Short-term investments		211.2		—		0.4		210.8
Total investments	$	4,038.8	$	181.5	$	104.6	$	4,115.7

Included in “Total investments” in our Consolidated Balance Sheets at December 31, 2016 and 2015 is $131.9 million and $95.3 million, respectively, of assets managed on behalf of the trade capital providers, who are third-party participants that provide underwriting capital to our Syndicate 1200 segment.

Contractual Maturity

The amortized cost and fair values of fixed maturity investments as of December 31, 2016, by contractual maturity, were as follows:

(in millions)	Amortized Cost		Fair Value
Due in one year or less	$	266.9	$	262.1
Due after one year through five years		1,237.9		1,239.9
Due after five years through ten years		545.9		547.0
Thereafter		161.2		163.0
Structured securities		726.9		720.4
Total	$	2,938.8	$	2,932.4

The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.

Other Invested Assets

Details regarding the carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of December 31, 2016 and 2015 were as follows:

December 31, 2016
(in millions)	Carrying Value		Unfunded Commitments
Investment Type
Hedge funds	$	180.9	$	—
Private equity		179.0		93.4
Long only funds		170.7		—
Other investments		8.4		—
Total other invested assets	$	539.0	$	93.4

December 31, 2015
(in millions)	Carrying Value		Unfunded Commitments
Investment Type
Hedge funds	$	146.9	$	—
Private equity		144.1		90.2
Long only funds		211.0		—
Other investments		11.7		—
Total other invested assets	$	513.7	$	90.2

The following describes each investment type:

•

Hedge funds: Hedge funds include funds that primarily buy and sell stocks including short sales, multi-strategy credit, relative value credit and distressed credit.

•

Private equity: Private equity includes buyout funds, real asset/infrastructure funds, credit special situations funds, mezzanine lending funds and direct investments and strategic non-controlling minority investments in private companies that are principally accounted for using the equity method of accounting.

•

Long only funds: Our long only funds include a fund that primarily owns international stocks and funds that primarily own investment-grade corporate and sovereign fixed income securities. For 2015, long-only funds also included a fund that owned high-yield fixed income securities.

•

Other investments: Other investments include participation in investment pools, foreign exchange currency forward contracts to manage our foreign currency exposure and a portfolio of foreign exchange currency forward contracts that are actively traded by an external currency manager for a total return strategy.

Unrealized Losses and Other-than-temporary Impairments

An aging of unrealized losses on our investments in fixed maturities, equity securities, other investments and short-term investments is presented below:

December 31, 2016	Less Than One Year				One Year or Greater				Total
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities
U.S. Governments	$	183.4	$	4.5	$	—	$	—	$	183.4	$	4.5
Foreign Governments		201.2		8.0		—		—		201.2		8.0
Obligations of states and political subdivisions		72.6		1.7		1.8		0.1		74.4		1.8
Corporate bonds		490.5		17.7		50.6		1.8		541.1		19.5
Commercial mortgage-backed securities		70.6		1.5		7.1		0.1		77.7		1.6
Residential mortgage-backed securities⁽²⁾		87.5		1.7		4.4		—		91.9		1.7
Asset-backed securities		69.7		1.4		8.2		0.7		77.9		2.1
Collateralized loan obligations		122.5		8.6		16.9		0.5		139.4		9.1
Total fixed maturities		1,298.0		45.1		89.0		3.2		1,387.0		48.3
Equity securities		62.1		5.7		—		—		62.1		5.7
Other investments		0.3		0.1		—		—		0.3		0.1
Short-term investments⁽¹⁾		4.8		—		—		—		4.8		—
Total	$	1,365.2	$	50.9	$	89.0	$	3.2	$	1,454.2	$	54.1

December 31, 2015	Less Than One Year				One Year or Greater				Total
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities
U.S. Governments ⁽²⁾	$	138.3	$	0.7	$	0.4	$	—	$	138.7	$	0.7
Foreign Governments		217.6		20.7		2.5		0.1		220.1		20.8
Obligations of states and political subdivisions⁽¹⁾		9.3		—		8.8		0.3		18.1		0.3
Corporate bonds		844.7		41.1		77.8		7.7		922.5		48.8
Commercial mortgage-backed securities		108.1		1.3		9.8		0.3		117.9		1.6
Residential mortgage-backed securities ⁽²⁾		52.1		0.5		1.5		—		53.6		0.5
Asset-backed securities		108.2		2.6		6.9		0.3		115.1		2.9
Collateralized loan obligations		183.4		10.7		13.1		0.5		196.5		11.2
Total fixed maturities		1,661.7		77.6		120.8		9.2		1,782.5		86.8
Equity securities		112.4		17.3		—		—		112.4		17.3
Other investments		0.3		0.1		—		—		0.3		0.1
Short-term investments		5.8		0.4		—		—		5.8		0.4
Total	$	1,780.2	$	95.4	$	120.8	$	9.2	$	1,901.0	$	104.6

⁽¹⁾	Unrealized losses less than one year are less than $0.1 million.

⁽²⁾	Unrealized losses one year or greater are less than $0.1 million.

We regularly evaluate our investments for other than temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. For equity securities and other investments, the length of time and the amount of decline in fair value are the principal factors in determining other-than-temporary impairment. We also recognize other-than-temporary losses on fixed maturity securities that we intend to sell.

We hold a total of 7,401 securities, of which 2,194 were in an unrealized loss position for less than one year and 182 were in an unrealized loss position for a period one year or greater as of December 31, 2016. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral as well. In considering whether an investment is other-then-temporarily impaired or not, we also considered that we do not intend to sell the investment and it is unlikely that we will be required to sell the investment before recovery of its amortized cost bases, which may be maturity. In situations where we did not recognize other-than-temporary losses on investments in our equity portfolio, we have evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment and based on that evaluation, have the ability and intent to hold these investments until a recovery of the cost basis. We do not consider these investments to be other-than-temporarily impaired at December 31, 2016.

We recognized other-than-temporary losses on our fixed maturities and equity portfolios as follows:

	For the Years Ended December 31,
(in millions)	2016			2015			2014
Other-than-temporary impairment:
Obligations of states and political subdivisions	$	—		$	—		$	(0.6	)
Corporate bonds		(1.7	)		(2.2	)		(0.6	)
Equity securities		(8.5	)		(9.7	)		(1.1	)
Other-than-temporary impairment losses	$	(10.2	)	$	(11.9	)	$	(2.3	)

Net Investment Income and Realized Gains and Losses

Investment income and expenses were as follows:

	For the Years Ended December 31,
(in millions)	2016			2015			2014
Investment income:
Interest on fixed maturities	$	88.9		$	78.2		$	76.3
Dividends on equity securities		15.6			16.3			15.8
Income on alternative investments		29.9			10.0			24.5
Income on short-term and other investments		0.4			0.2			0.3
Other		—			—			4.2
Investment income		134.8			104.7			121.1
Investment expenses		(19.7	)		(16.1	)		(15.0	)
Net investment income	$	115.1		$	88.6		$	106.1

The following table presents our gross realized investment gains (losses) and other:

	For the Years Ended December 31,
(in millions)	2016			2015			2014
Realized gains
Fixed maturities	$	21.5		$	12.3		$	17.0
Equity securities		57.5			40.5			29.2
Other investments		47.5			37.6			16.9
Short-term investments		0.5			1.2			0.1
Other assets		1.2			—			2.0
Gain on sale of real estate holdings		—			0.3			43.3
Gross realized investment and other gains		128.2			91.9			108.5
Realized losses
Fixed maturities		(35.9	)		(23.5	)		(12.2	)
Equity securities		(9.7	)		(6.6	)		(0.6	)
Other investments		(46.0	)		(24.0	)		(13.4	)
Short-term investments		(0.3	)		(1.8	)		(0.9	)
Other assets		—			—			(4.6	)
Other-than-temporary impairment losses on fixed maturities		(1.7	)		(2.2	)		(1.2	)
Other-than-temporary impairment losses on equity securities		(8.5	)		(9.7	)		(1.1	)
Gross realized investment and other losses		(102.1	)		(67.8	)		(34.0	)
Net realized investment and other gains before income taxes		26.1			24.1			74.5
Income tax expense		(11.6	)		(10.0	)		(27.8	)
Net realized investment and other gains, net of income taxes	$	14.5		$	14.1		$	46.7

Changes in unrealized appreciation (depreciation) related to investments are summarized as follows:

	For the Years Ended December 31,
(in millions)	2016			2015			2014
Change in unrealized gains (losses)
Fixed maturities	$	36.5		$	(65.3	)	$	(30.5	)
Equity securities		(2.6	)		(64.1	)		(8.4	)
Other investments		0.6			1.5			2.5
Short-term investments		0.4			(0.4	)		—
Net unrealized investment and other gains (losses) before income taxes		34.9			(128.3	)		(36.4	)
Income tax benefit		(2.4	)		37.6			3.1
Net unrealized investment and other gains (losses), net of income taxes	$	32.5		$	(90.7	)	$	(33.3	)

Foreign Currency Exchange Forward Contracts

We entered into foreign currency exchange forward contracts to manage operational currency exposure on our Canadian dollar (“CAD”) investment portfolio, minimize negative impacts to investment portfolio returns, and gain exposure to a total return strategy which invests in multiple currencies. The currency forward contracts are carried at fair value in our Consolidated Balance Sheets in “Other investments”. The gains and losses are included in “Net realized investment and other gains” in our Consolidated Statements of Income.

The fair value of our foreign currency exchange forward contracts as of December 31 was as follows:

(in millions)	December 31, 2016		December 31, 2015
Operational currency exposure⁽¹⁾	$	—	$	5.2
Asset manager investment exposure		0.7		2.9
Total return strategy		3.3		(0.8	)
	$	4.0	$	7.3

⁽¹⁾	CAD currency exposure less than $0.1 million.

The following table presents our gross investment realized gains and losses on our foreign currency exchange forward contracts:

	For the Years Ended December 31,
(in millions)	2016			2015			2014
Realized gains
Global catastrophe⁽¹⁾	$	—		$	0.5		$	4.6
Operational currency exposure		10.9			26.1			4.6
Asset manager investment exposure		9.0			8.5			6.0
Total return strategy		25.6			1.4			—
Gross realized investment gains		45.5			36.5			15.2
Realized losses
Global catastrophe		—			(2.3	)		(4.9	)
Operational currency exposure		(18.0	)		(12.9	)		(2.2	)
Asset manager investment exposure		(4.5	)		(2.3	)		(2.4	)
Total return strategy		(21.0	)		(3.8	)		—
Gross realized investment losses		(43.5	)		(21.3	)		(9.5	)
Net realized investment gains on foreign currency exchange forward contracts	$	2.0		$	15.2		$	5.7
⁽¹⁾ Global Catastrophe program ended 2015

Regulatory Deposits, Pledged Securities and Letters of Credit

We are required to maintain assets on deposit with various regulatory authorities to support our insurance and reinsurance operations. We maintain assets pledged as collateral in support of irrevocable letters of credit issued under the terms of certain reinsurance agreements for reported loss and loss expense reserves. The following table presents our components of restricted assets at December 31, 2016

(in millions)	December 31, 2016		December 31, 2015
Securities on deposit for regulatory and other purposes	$	168.7	$	192.8
Securities pledged as collateral for letters of credit		35.9		35.0
Securities on deposit supporting Lloyd’s business		161.8		202.5
Total restricted investments	$	366.4	$	430.3

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.

Valuation techniques consistent with the market and income approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels.

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.

•

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.

•

Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of December 31, 2016 and 2015. A description of the valuation techniques we use to measure assets at fair value is as follows:

Fixed Maturities (Available-for-Sale) Levels 1 and 2:

•

United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.

•

United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated government and credit securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.

•

Asset and mortgage-backed securities and collateralized loan obligations are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Fixed Maturities Level 3:

•

We own a $2.0 million term loan that is valued using unobservable inputs.

Equity Securities Level 1: Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.

Equity Securities Level 2: We own interests in a mutual fund that is reported at fair value using Level 2 inputs. The valuation is based on the funds’ net asset value per share, at the end of each month. The underlying assets in the funds are valued primarily on the basis of closing market quotations or official closing prices on each valuation day.

Equity Securities Level 3: We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:

•

Fair value measurements are obtained from the National Association of Insurance Commissioners’ Security Valuation Office at the reporting date.

•

Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.

Other Investments Level 2: Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon values obtained from Lloyd’s. Foreign currency future contracts are valued by our counterparty using market driven foreign currency exchange rates and are considered Level 2 investments.

Short-term Investments: Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate and governmental bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.

Transfers Between Level 1 and Level 2 Securities: There were no transfers between Level 1 and Level 2 securities during 2016 or 2015.

Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis have been categorized as follows:

			Fair Value Measurements at Reporting Date Using
(in millions)	December 31, 2016		Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)
Fixed maturities
U.S. Governments	$	271.2	$	228.0	$	43.2	$	—
Foreign Governments		237.3		—		237.3		—
Obligations of states and political subdivisions		382.8		—		382.8		—
Corporate bonds		1,320.7		—		1,318.7		2.0
Commercial mortgage-backed securities		153.7		—		153.7		—
Residential mortgage-backed securities		176.8		—		176.8		—
Asset-backed securities		125.6		—		125.6		—
Collateralized loan obligations		264.3		—		264.3		—
Total fixed maturities		2,932.4		228.0		2,702.4		2.0
Equity securities		447.4		444.9		2.1		0.4
Other investments		95.5		—		95.5		—
Short-term investments		405.5		375.1		30.4		—
	$	3,880.8	$	1,048.0	$	2,830.4	$	2.4

^(a)	Quoted prices in active markets for identical assets

^(b)	Significant other observable inputs

^(c)	Significant unobservable inputs

			Fair Value Measurements at Reporting Date Using
(in millions)	December 31, 2015		Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)
Fixed maturities
U.S. Governments	$	207.9	$	150.4	$	57.5	$	—
Foreign Governments		243.1		—		243.1		—
Obligations of states and political subdivisions		488.0		—		488.0		—
Corporate bonds		1,319.9		—		1,319.9		—
Commercial mortgage-backed securities		150.2		—		150.2		—
Residential mortgage-backed securities		173.1		—		173.1		—
Asset-backed securities		128.5		—		128.5		—
Collateralized loan obligations		216.6		—		216.6		—
Total fixed maturities		2,927.3		150.4		2,776.9		—
Equity securities		463.9		457.6		5.6		0.7
Other investments		97.2		—		97.2		—
Short-term investments		210.8		203.6		7.2		—
	$	3,699.2	$	811.6	$	2,886.9	$	0.7

^(a)	Quoted prices in active markets for identical assets

^(b)	Significant other observable inputs

^(c)	Significant unobservable inputs

The fair value measurements in the tables above do not equal “Total investments” on our Consolidated Balance Sheets as they exclude certain other investments that are accounted for under the equity-method of accounting.

A reconciliation of the beginning and ending balances for the investments categorized as Level 3 are as follows:

Fair Value Measurements Using Observable Inputs (Level 3)

(in millions)	Credit Financial		Equity Securities			Total
Beginning balance, January 1, 2016	$	—	$	0.7		$	0.7
Transfers into Level 3		—		—			—
Transfers out of Level 3		—		—			—
Total gains or losses (realized/unrealized):
Included in net income (loss)		—		—			—
Included in other comprehensive income (loss)		—		—			—
Purchases, issuances, sales, and settlements:
Purchases		2.0		—			2.0
Issuances		—		—			—
Sales		—		(0.3	)		(0.3	)
Settlements		—		—			—
Ending balance, December 31, 2016	$	2.0	$	0.4		$	2.4
Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2016	$	—	$	—		$	—

(in millions)	Credit Financial		Equity Securities			Total
Beginning balance, January 1, 2015	$	—	$	0.9		$	0.9
Transfers into Level 3		—		—			—
Transfers out of Level 3		—		—			—
Total gains or losses (realized/unrealized):
Included in net income (loss)		—		—			—
Included in other comprehensive income (loss)		—		—			—
Purchases, issuances, sales, and settlements:
Purchases		—		—			—
Issuances		—		—			—
Sales		—		(0.2	)		(0.2	)
Settlements		—		—			—
Ending balance, December 31, 2015	$	—	$	0.7		$	0.7
Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2015	$	—	$	—		$	—

At December 31, 2016 and 2015, we did not have any financial assets or financial liabilities measured at fair value on a nonrecurring basis or any financial liabilities on a recurring basis.