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Investments
 6 Months Ended
Jun. 30, 2020
Investments [Abstract]  
Investments Investments
(a) Information regarding our AFS securities as of June 30, 2020 and December 31, 2019 was as follows:
June 30, 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
 
$
112,341

 
—

 
7,382

 
—

 
119,723

Foreign government
 
16,936

 
(28
)
 
1,118

 
(104
)
 
17,922

Obligations of states and political subdivisions
 
1,131,597

 
(17
)
 
72,034

 
(200
)
 
1,203,414

Corporate securities
 
2,131,707

 
(8,077
)
 
142,677

 
(10,302
)
 
2,256,005

Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")
 
853,470

 
(1,389
)
 
11,946

 
(24,506
)
 
839,521

Residential mortgage-backed securities ("RMBS")
 
1,254,472

 
(831
)
 
65,745

 
(1,008
)
 
1,318,378

Commercial mortgage-backed securities ("CMBS")
 
565,031

 
(53
)
 
41,999

 
(3,784
)
 
603,193

Total AFS fixed income securities
 
$
6,065,554

 
(10,395
)
 
342,901

 
(39,904
)
 
6,358,156

 
December 31, 2019
 
 
 
 
 
 
 
 
($ in thousands)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
AFS fixed income securities:
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
112,680

 
3,506

 
—

 
116,186

Foreign government
 
18,011

 
533

 
(2
)
 
18,542

Obligations of states and political subdivisions
 
1,168,185

 
62,175

 
(270
)
 
1,230,090

Corporate securities
 
1,866,881

 
81,906

 
(1,310
)
 
1,947,477

CLO and other ABS
 
790,517

 
7,929

 
(5,434
)
 
793,012

RMBS
 
1,409,003

 
43,421

 
(455
)
 
1,451,969

CMBS
 
514,709

 
23,902

 
(267
)
 
538,344

Total AFS fixed income securities
 
$
5,879,986

 
223,372

 
(7,738
)
 
6,095,620



The following tables provide a rollforward of the allowance for credit losses on our AFS fixed income securities for the periods indicated:
Quarter ended June 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
 
$
21

 
—

 
7

 
—

 
—

 
28

Obligations of states and political subdivisions
 
29

 
15

 
(27
)
 
—

 
—

 
17

Corporate securities
 
13,412

 
813

 
(5,686
)
 
(395
)
 
(67
)
 
8,077

CLO and other ABS
 
1,565

 
27

 
(145
)
 
(58
)
 
—

 
1,389

RMBS
 
722

 
—

 
124

 
(15
)
 
—

 
831

CMBS
 
38

 
8

 
7

 
—

 
—

 
53

Total AFS fixed income securities
 
$
15,787

 
863

 
(5,720
)
 
(468
)
 
(67
)
 
10,395


Six Months ended June 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

 
—

 
—

 
—

 
28

Obligations of states and political subdivisions
 
—

 
17

 
—

 
—

 
—

 
17

Corporate securities
 
—

 
8,539

 
—

 
(395
)
 
(67
)
 
8,077

CLO and other ABS
 
—

 
1,447

 
—

 
(58
)
 
—

 
1,389

RMBS
 
—

 
846

 
—

 
(15
)
 
—

 
831

CMBS
 
—

 
53

 
—

 
—

 
—

 
53

Total AFS fixed income securities
 
$
—

 
10,930

 
—

 
(468
)
 
(67
)
 
10,395



During 2020, we did not experience any write-offs or recoveries of our AFS fixed income securities, nor did we purchase any assets with credit deterioration, therefore these items are not included in the table above.

As disclosed in Note 1. "Basis of Presentation and Accounting Policies," we do not evaluate accrued interest on our AFS securities for credit impairment as we write-off these balances in a timely manner. As of June 30, 2020, accrued interest on AFS securities amounted to $44.7 million and we did not record any write-offs of accrued interest during 2020.

(b) Quantitative information about unrealized losses on our AFS portfolio is provided below.
June 30, 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:
 
 

 
 

 
 

 
 

 
 
 
 
Foreign government
 
$
1,673

 
(104
)
 
—

 
—

 
1,673

 
(104
)
Obligations of states and political subdivisions
 
9,141

 
(200
)
 
—

 
—

 
9,141

 
(200
)
Corporate securities
 
175,595

 
(9,852
)
 
3,216

 
(450
)
 
178,811

 
(10,302
)
CLO and other ABS
 
373,896

 
(16,109
)
 
142,759

 
(8,397
)
 
516,655

 
(24,506
)
RMBS
 
39,176

 
(975
)
 
1,352

 
(33
)
 
40,528

 
(1,008
)
CMBS
 
86,573

 
(3,128
)
 
11,739

 
(656
)
 
98,312

 
(3,784
)
Total AFS fixed income securities
 
$
686,054

 
(30,368
)
 
159,066

 
(9,536
)
 
845,120

 
(39,904
)

December 31, 2019
 
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:
 
 

 
 

 
 

 
 

 
 
 
 
Foreign government
 
$
1,416

 
(2
)
 
—

 
—

 
1,416

 
(2
)
Obligations of states and political subdivisions
 
35,838

 
(270
)
 
—

 
—

 
35,838

 
(270
)
Corporate securities
 
84,832

 
(480
)
 
20,182

 
(830
)
 
105,014

 
(1,310
)
CLO and other ABS
 
205,191

 
(1,938
)
 
204,385

 
(3,496
)
 
409,576

 
(5,434
)
RMBS
 
126,089

 
(425
)
 
5,375

 
(30
)
 
131,464

 
(455
)
CMBS
 
62,893

 
(264
)
 
828

 
(3
)
 
63,721

 
(267
)
Total AFS fixed income securities
 
$
516,259

 
(3,379
)
 
230,770

 
(4,359
)
 
747,029

 
(7,738
)


We do not currently intend to sell any of the securities in the tables above, nor is it likely we will be required to sell any of the securities in the table above. Considering these factors and our review of these securities under our methodology for analyzing OTTI, 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.

The COVID-19-related governmental orders have caused uncertainty and volatility in the financial markets. While market conditions improved during Second Quarter 2020, gross unrealized losses on our AFS fixed income securities portfolio increased to $39.9 million at June 30, 2020, from $7.7 million at December 31, 2019. This increase was driven by widening credit spreads as a result of the uncertainty in the marketplace, and was partially offset by a significant decline in benchmark risk-free rates.
(c) Fixed income securities at June 30, 2020, are shown below by contractual maturity. 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. 
 
 
AFS
 
HTM
($ in thousands)
 
Fair Value
 
Carrying Value
 
Fair Value
Due in one year or less
 
$
315,316

 
440

 
448

Due after one year through five years
 
3,639,491

 
16,591

 
17,843

Due after five years through 10 years
 
2,053,058

 
2,511

 
2,436

Due after 10 years
 
350,291

 
—

 
—

Total fixed income securities
 
$
6,358,156

 
19,542

 
20,727



(d) The following table summarizes our other investment portfolio by strategy:
Other Investments
 
June 30, 2020
 
December 31, 2019
($ in thousands)
 
Carrying Value
 
Remaining Commitment
 
Maximum Exposure to Loss1
 
Carrying Value
 
Remaining Commitment
 
Maximum Exposure to Loss1
Alternative Investments
 
 

 
 

 
 
 
 
 
 
 
 
   Private equity
 
$
126,780

 
111,284

 
238,064

 
118,352

 
93,138

 
211,490

   Private credit
 
40,239

 
99,039

 
139,278

 
42,532

 
105,340

 
147,872

   Real assets
 
21,178

 
19,384

 
40,562

 
23,256

 
20,741

 
43,997

Total alternative investments
 
188,197

 
229,707

 
417,904

 
184,140

 
219,219

 
403,359

Other securities
 
42,323

 
—

 
42,323

 
32,667

 
—

 
32,667

Total other investments
 
$
230,520

 
229,707

 
460,227

 
216,807

 
219,219

 
436,026


1The 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 outlined above; however, we do not have a future obligation to fund losses or debts on behalf of these investments. We have not provided any non-contractual financial support at any time during 2020 or 2019.

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. The last line of the table below reflects our share of the aggregate income or loss, 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 for the three-month period ended March 31 is included in our Second Quarter results. This information is as follows:
Income Statement Information
 
Quarter ended June 30,
 
Six Months ended June 30,
($ in millions)
 
2020
 
2019
 
2020
 
2019
Net investment (loss) income
 
$
(3.1
)

174.1

 
9.6

 
24.1

Realized (losses) gains
 
179.0


106.0

 
343.8

 
249.3

Net change in unrealized appreciation (depreciation)
 
(2,862.9
)

2,223.7

 
(1,658.9
)
 
2,778.0

Net income
 
$
(2,687.0
)

2,503.8

 
(1,305.5
)
 
3,051.4

Insurance Subsidiaries’ alternative investments income
 
$
(16.0
)
 
7.3

 
(9.7
)
 
7.9



As noted above, the majority of our alternative investments report their results to us on a one-quarter lag, and therefore the $16.0 million of losses in the table above for Second Quarter 2020 reflects the significant COVID-19-related financial market volatility that existed during the first quarter of 2020.
(e) Certain Insurance Subsidiaries have pledged certain AFS fixed income securities as collateral as members of the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, we had certain securities deposited with various state and regulatory agencies at June 30, 2020, to comply with insurance laws. We retain all rights regarding all securities pledged as collateral. The following table summarizes the market value of these securities at June 30, 2020:
($ in millions)
 
FHLBI Collateral
 
FHLBNY Collateral
 
State and Regulatory Deposits
 
Total
U.S. government and government agencies
 
$
—

 
—

 
23.3

 
23.3

Obligations of states and political subdivisions
 
—

 
—

 
4.1

 
4.1

Corporate securities
 
—

 
—

 
0.3

 
0.3

RMBS
 
130.0

 
224.0

 
—

 
354.0

CMBS
 
7.2

 
28.2

 
—

 
35.4

Total pledged as collateral
 
$
137.2

 
252.2

 
27.7


417.1



(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 June 30, 2020, or December 31, 2019.

(g) The components of pre-tax net investment income earned were as follows:
 
 
Quarter ended June 30,
 
Six Months ended June 30,
($ in thousands)
 
2020
 
2019
 
2020
 
2019
Fixed income securities
 
$
51,079


50,907

 
101,332

 
99,940

CMLs
 
156

 
—

 
218

 
—

Equity securities
 
2,023


1,740

 
3,575

 
3,380

Short-term investments
 
420


1,759

 
1,586

 
3,803

Other investments
 
(15,846
)

7,494

 
(9,504
)
 
8,154

Investment expenses
 
(3,388
)

(3,395
)
 
(6,796
)
 
(6,154
)
Net investment income earned
 
$
34,444

 
58,505

 
90,411

 
109,123



As previously noted, the significant financial market volatility that existed during the first quarter of 2020 due to COVID-19 resulted in losses on the alternative investments within our other investments portfolio during Second Quarter 2020.

(h) The following table summarizes OTTI by asset type for the periods indicated:
 
 
Quarter ended June 30,
 
 
2020
 
2019
($ in thousands)
 
Credit Loss Expense (Benefit)
 
Other Impairment Expense
 
Recognized in Earnings
 
Recognized in Earnings
HTM fixed income securities:
 
 
 
 
 
 
 
 
Corporate securities
 
$
(1
)
 
—

 
(1
)
 
—

Total HTM fixed income securities
 
(1
)
 
—

 
(1
)
 
—

AFS fixed income securities:
 
 
 
 
 
 
 
 
Foreign government
 
7

 
—

 
7

 
—

Obligations of states and political subdivisions
 
(12
)
 
—

 
(12
)
 
—

Corporate securities
 
(4,940
)
 
500

 
(4,440
)
 
774

CLO and other ABS
 
(118
)
 
93

 
(25
)
 
—

RMBS
 
125

 
20

 
145

 
—

CMBS
 
15

 
—

 
15

 
—

Total AFS fixed income securities
 
(4,923
)
 
613

 
(4,310
)
 
774

CMLs
 
(22
)
 
—

 
(22
)
 
—

Other Investments
 
—

 
—

 
—

 
197

Total OTTI (benefit) expense
 
$
(4,946
)
 
613

 
(4,333
)
 
971

 
 
Six Months ended June 30,
 
 
2020
 
2019
($ in thousands)
 
Credit Loss Expense (Benefit)
 
Other Impairment Expense
 
Recognized in Earnings
 
Recognized in Earnings
HTM fixed income securities:
 
 
 
 
 
 
 
 
Corporate securities
 
$
(1
)
 
—

 
(1
)
 
—

Total HTM fixed income securities
 
(1
)
 
—

 
(1
)
 
—

AFS fixed income securities:
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
—

 
14

 
14

 
—

Foreign government
 
28

 
—

 
28

 
—

Obligations of states and political subdivisions
 
17

 
62

 
79

 
65

Corporate securities
 
8,472

 
12,103

 
20,575

 
774

CLO and other ABS
 
1,447

 
2,093

 
3,540

 
—

RMBS
 
847

 
91

 
938

 
—

CMBS
 
53

 
1,852

 
1,905

 
—

Total AFS fixed income securities
 
10,864

 
16,215

 
27,079

 
839

CMLs
 
218

 
—

 
218

 
—

Other Investments
 
—

 
—

 
—

 
236

Total OTTI expense
 
$
11,081

 
16,215

 
27,296

 
1,075



OTTI amounted to $27.3 million in Six Months 2020 and included $16.2 million of impairments on securities we intend to sell to provide our investment managers flexibility to trade and optimize our investment portfolio in the COVID-19-related market volatility and uncertainty. The remainder of the OTTI in Six Months 2020 of $11.1 million related to our allowance for credit losses, and included a reduction in this allowance of approximately $4.9 million in Second Quarter 2020 reflecting the improvement in market conditions during the quarter as compared to March 31, 2020.

(i) Net realized and unrealized gains and losses (excluding OTTI) for Second Quarter 2020 and 2019 included the following:
 
 
Quarter ended June 30,
 
Six Months ended June 30,
($ in thousands)
 
2020
 
2019
 
2020
 
2019
Net realized gains (losses) on the disposals of securities:
 
 
 
 
 
 
 
 
Fixed income securities
 
$
2,300

 
2,061

 
6,576

 
3,204

CMLs
 
1

 
—

 
1

 
—

Equity securities
 
—

 
851

 
(3
)
 
3,131

Short-term investments
 
314

 
1

 
146

 
15

Other investments
 
—

 
(30
)
 
(5
)
 
(23
)
Net realized gains (losses) on the disposal of securities
 
2,615

 
2,883

 
6,715

 
6,327

OTTI benefit (expense)
 
4,333

 
(971
)
 
(27,296
)
 
(1,075
)
Net realized gains (losses)
 
6,948

 
1,912

 
(20,581
)
 
5,252

Unrealized gains (losses) recognized in income on equity securities
 
5,701

 
2,115

 
(11,436
)
 
12,226

Total net realized and unrealized investment gains (losses)
 
$
12,649

 
4,027

 
$
(32,017
)
 
17,478



During Second Quarter 2020, the $8.6 million increase in net realized and unrealized investment gains was primarily driven by the improvements in the allowance for credit losses on our AFS fixed income securities as discussed above.

For Six Months 2020, net realized and unrealized investment losses were $32.0 million, compared to net gains of $17.5 million for Six Months 2019. This fluctuation was driven by the increase in OTTI expense discussed above, coupled with the impact of unrealized losses on our equity securities portfolio in Six Months 2020 resulting from the COVID-19-related financial market disruption during the first six months of 2020.

Unrealized (losses) recognized in income on equity securities, as reflected in the table above, include the following:
 
 
Quarter ended June 30,
 
Six Months ended June 30,
($ in thousands)
 
2020
 
2019
 
2020
 
2019
Unrealized (losses) gains recognized in income on equity securities:
 
 
 
 
 
 
 
 
On securities remaining in our portfolio at June 30, 2020
 
$
5,701

 
2,394

 
(11,439
)
 
11,817

On securities sold in each respective period
 
—

 
(279
)
 
3

 
409

Total unrealized (losses) gains recognized in income on equity securities
 
$
5,701

 
2,115

 
(11,436
)

12,226



The components of net realized gains on disposals of securities for the periods indicated were as follows:
 
 
Quarter ended June 30,
 
Six Months ended June 30,
($ in thousands)
 
2020
 
2019
 
2020
 
2019
HTM fixed income securities
 
 
 
 
 
 
 
 
Gains
 
$
—

 
1

 
1

 
1

Losses
 
—

 
(15
)
 
—

 
(15
)
AFS fixed income securities
 
 

 
 

 
 
 
 
Gains
 
6,162

 
2,643

 
11,815

 
4,487

Losses
 
(3,862
)
 
(568
)
 
(5,240
)
 
(1,269
)
CMLs
 
 
 
 
 
 
 
 
Gains
 
1

 
—

 
1

 
—

Losses
 
—

 
—

 
—

 
—

Equity securities
 
 

 
 

 
 
 
 
Gains
 
—

 
958

 
—

 
3,238

Losses
 
—

 
(107
)
 
(3
)
 
(107
)
Short-term investments
 
 
 
 
 
 
 
 
Gains
 
315

 
2

 
337

 
16

Losses
 
(1
)
 
(1
)
 
(191
)
 
(1
)
Other investments
 
 
 
 
 
 
 
 
Gains
 
—

 
—

 
—

 
7

Losses
 
—

 
(30
)
 
(5
)
 
(30
)
Total net realized gains on disposals of securities
 
$
2,615

 
2,883

 
6,715

 
6,327



Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold.