INVESTMENTS IN VARIABLE INTEREST ENTITIES

We have concluded that we are the primary beneficiary with respect to certain VIEs, which are consolidated in our financial statements. In consolidating the VIEs, we consistently use the financial information most recently distributed to investors in the VIE.

All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of corporate loans and other permitted investments. The assets held by the trusts are legally isolated and not available to the Company. The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts, not from the assets of the Company. The Company has no financial obligation to the VIEs beyond its investment in each VIE.

Certain of our insurance subsidiaries are noteholders of the VIEs. Another subsidiary of the Company is the investment manager for the VIEs. As such, it has the power to direct the most significant activities of the VIEs which materially impacts the economic performance of the VIEs.

The following tables provide supplemental information about the assets and liabilities of the VIEs which have been consolidated in accordance with authoritative guidance (dollars in millions):



	September 30, 2016
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,794.4	$	—		$	1,794.4
Notes receivable of VIEs held by insurance subsidiaries	—		(194.2		)	(194.2		)
Cash and cash equivalents held by variable interest entities	147.7		—			147.7
Accrued investment income	3.8		(.1		)	3.7
Income tax assets, net	9.5		(1.2		)	8.3
Other assets	3.9		(3.0		)	.9
Total assets	$	1,959.3	$	(198.5	)	$	1,760.8
Liabilities:
Other liabilities	$	92.7	$	(6.8	)	$	85.9
Borrowings related to variable interest entities	1,690.2		—			1,690.2
Notes payable of VIEs held by insurance subsidiaries	193.9		(193.9		)	—
Total liabilities	$	1,976.8	$	(200.7	)	$	1,776.1



	December 31, 2015
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,633.6	$	—		$	1,633.6
Notes receivable of VIEs held by insurance subsidiaries	—		(204.3		)	(204.3		)
Cash and cash equivalents held by variable interest entities	364.4		—			364.4
Accrued investment income	3.3		—			3.3
Income tax assets, net	26.0		(1.9		)	24.1
Other assets	1.4		(1.5		)	(.1		)
Total assets	$	2,028.7	$	(207.7	)	$	1,821.0
Liabilities:
Other liabilities	$	196.6	$	(7.2	)	$	189.4
Borrowings related to variable interest entities	1,676.4		—			1,676.4
Notes payable of VIEs held by insurance subsidiaries	204.0		(204.0		)	—
Total liabilities	$	2,077.0	$	(211.2	)	$	1,865.8

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below-investment grade. At September 30, 2016, such loans had an amortized cost of $1,788.2 million; gross unrealized gains of $12.0 million; gross unrealized losses of $5.8 million; and an estimated fair value of $1,794.4 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at September 30, 2016, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	2.2	$	2.2
Due after one year through five years	976.4		977.3
Due after five years through ten years	809.6		814.9
Total	$	1,788.2	$	1,794.4

During the first nine months of 2016, the VIEs recognized net realized investment losses of $13.3 million, which were comprised of $12.1 million of net losses from the sales of fixed maturities, and $1.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During the first nine months of 2015, the VIEs recognized net realized investment losses of $4.3 million, which were comprised of $.7 million of net losses from the sales of fixed maturities, and $3.6 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

At September 30, 2016, there was one investment held by the VIEs in default or considered nonperforming with an amortized cost and carrying value of $.7 million and $.7 million, respectively.

During the first nine months of 2016, $186.6 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $20.3 million. During the first nine months of 2015, $47.3 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $1.1 million.

At September 30, 2016, the VIEs held: (i) investments with a fair value of $142.8 million and gross unrealized losses of $.7 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $278.9 million and gross unrealized losses of $5.1 million that had been in an unrealized loss position for greater than twelve months.

At December 31, 2015, the VIEs held: (i) investments with a fair value of $1,178.7 million and gross unrealized losses of $23.9 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $294.3 million and gross unrealized losses of $22.3 million that had been in an unrealized loss position for greater than twelve months.

The investments held by the VIEs are evaluated for other-than-temporary declines in fair value in a manner that is consistent with the Company's fixed maturities, available for sale.

In addition, the Company, in the normal course of business, makes passive investments in structured securities issued by VIEs for which the Company is not the investment manager. These structured securities include asset-backed securities, collateralized debt obligations, commercial mortgage-backed securities, residential mortgage-backed securities and collateralized mortgage obligations. Our maximum exposure to loss on these securities is limited to our cost basis in the investment. We have determined that we are not the primary beneficiary of these structured securities due to the relative size of our investment in comparison to the total principal amount of the individual structured securities and the level of credit subordination which reduces our obligation to absorb gains or losses.

At September 30, 2016, we held investments in various limited partnerships, in which we are not the primary beneficiary, totaling $272.2 million (classified as other invested assets). At September 30, 2016, we had unfunded commitments to these partnerships of $234.7 million. Our maximum exposure to loss on these investments is limited to the amount of our investment.