| 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.
|