The following tables present the amortized cost or cost and the fair value of AFS securities as of December 31, 2019 and 2018:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	($ in millions)
As of December 31, 2019
Debt securities:
U.S. Government obligations	$	1,198.5	$	19.3	$	(2.8	)	$	1,215.0
Municipal bonds		2,190.5		118.7		(1.3	)		2,307.9
Foreign government obligations		675.9		16.4		(1.6	)		690.7
U.S. corporate bonds		3,206.2		155.1		(2.3	)		3,359.0
Foreign corporate bonds		1,348.1		32.2		(2.9	)		1,377.4
Mortgage and asset-backed securities:
RMBS		1,785.1		56.1		(0.8	)		1,840.4
CMBS		849.9		23.2		(1.4	)		871.7
Other asset-backed securities⁽¹⁾		2,544.5		24.8		(19.7	)		2,549.6
Total debt securities		13,798.7		445.8		(32.8	)		14,211.7
Short-term investments		914.8		—		—			914.8
Total investments	$	14,713.5	$	445.8	$	(32.8	)	$	15,126.5

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	($ in millions)
As of December 31, 2018
Debt securities:
U.S. Government obligations	$	1,042.4	$	2.4	$	(22.4	)	$	1,022.4
Municipal bonds		2,177.5		44.4		(7.2	)		2,214.7
Foreign government obligations		939.0		12.3		(3.4	)		947.9
U.S. corporate bonds		2,431.4		13.2		(59.3	)		2,385.3
Foreign corporate bonds		1,363.0		9.1		(18.8	)		1,353.3
Mortgage and asset-backed securities:
RMBS		1,392.4		10.3		(14.8	)		1,387.9
CMBS		536.9		2.8		(6.4	)		533.3
Other asset-backed securities⁽¹⁾		2,013.3		4.4		(38.5	)		1,979.2
Total debt securities		11,895.9		98.9		(170.8	)		11,824.0
Short-term investments		893.8		—		—			893.8
Total investments	$	12,789.7	$	98.9	$	(170.8	)	$	12,717.8

The following table presents the amortized cost or cost and estimated fair value of debt securities by contractual maturity as of December 31, 2019. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	($ in millions)
As of December 31, 2019
Short-term investments due in one year or less	$	914.8	$	914.8
Mortgage and asset-backed securities⁽¹⁾		5,179.5		5,261.7
Debt securities with maturity dates:
One year or less		597.2		598.9
Over one through five years		3,416.0		3,489.9
Over five through ten years		2,592.4		2,705.1
Over ten years		2,013.6		2,156.1
Total debt securities	$	13,798.7	$	14,211.7

	Year Ended December 31,
	2019			2018			2017
	($ in millions)
Interest income	$	499.5		$	420.8		$	412.1
Dividend income		37.9			78.5			47.4
Investment expenses		(28.9	)		(31.5	)		(28.1	)
Pillar Investments⁽¹⁾		15.0			(6.5	)		(1.7	)
Limited partnership interests in certain subsidiaries of Ares⁽¹⁾		—			20.2			3.3
Other investment results		26.7			19.0			18.0
Total	$	550.2		$	500.5		$	451.0

As of December 31, 2019, non-income producing invested assets were insignificant.

In the first quarter of 2018, Alleghany adopted new investment accounting guidance, which requires changes in the fair value of equity securities, except those accounted for under the equity method, to be recognized in net earnings. In earlier periods, equity securities were considered to be AFS and were included in the analysis of OTTI. See Note 1(r) for additional information regarding Alleghany’s adoption of this new guidance.

The following table presents increases (decreases) in the fair value of equity securities for 2019 and 2018:

The proceeds from sales of debt and equity securities were $5.9 billion, $5.3 billion and $8.3 billion for 2019, 2018 and 2017, respectively.

On July 18, 2019, AIHL purchased an exchange-traded equity derivative index put option (the “Put Option”) for $38.4 million to hedge the downside equity market risk on approximately $1.0 billion of Alleghany’s equity portfolio. The Put Option did not qualify for hedge accounting. The Put Option expired worthless on December 31, 2019, and the resulting $38.4 million decline in value of the Put Option was recorded as a reduction to net realized capital gains.

Net realized capital losses in 2019 primarily reflect the $38.4 million decline in value of the Put Option and a $13.6 million loss from the December 2019 sale of a privately held investment accounted for under the equity method, partially offset by net realized capital gains from the sale of debt securities.

Net realized capital losses in 2018 primarily reflect a $35.4 million capital loss due to an impairment charge from the write-down of certain SORC assets in 2018 arising from a decline in energy prices as of December 31, 2018, as well as losses on the sale of debt securities, partially offset by a $45.7 million gain on AIHL’s conversion of its limited partnership interests in certain subsidiaries of Ares into Ares common units in 2018. See Note 4(i) for additional information on this conversion.

Net realized capital gains in 2017 primarily reflect sales of certain exchange-traded funds, sales of certain equity securities resulting from a partial restructuring of the equity portfolio, an $8.4 million pre-tax gain realized on the sale of PacificComp on December 31, 2017 and a $20.9 million realized gain on a bulk settlement of certain contingent consideration liabilities by Alleghany Capital, partially offset by a $4.8 million loss realized on the from the sale of a SORC legacy oil field on December 29, 2017 and a $7.9 million write-down of certain reinsurance segment assets.

The following table presents the amounts of gross realized capital gains and gross realized capital losses for 2019, 2018 and 2017:

Alleghany holds its debt securities as AFS and, as such, these securities are recorded at fair value. Alleghany continually monitors the difference between amortized cost and the estimated fair value of its debt investments, which involves uncertainty as to whether declines in value are temporary in nature. The analysis of a security’s decline in value is performed in its functional currency. If the decline is deemed temporary, Alleghany records the decline as an unrealized loss in stockholders’ equity. If the decline is deemed to be other than temporary, Alleghany writes its amortized cost basis down to the fair value of the security and records an OTTI loss on its statement of earnings. In addition, any portion of such decline related to a debt security that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than charged against earnings.

Debt securities in an unrealized loss position are evaluated for OTTI if they meet any of the following criteria: (i) they are trading at a discount of at least 20 percent to amortized cost for an extended period of time (nine consecutive months or more); (ii) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.

If Alleghany intends to sell, or it is more likely than not that Alleghany will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in earnings. To the extent that a debt security that is in an unrealized loss position is not impaired based on the preceding, Alleghany will consider a debt security to be impaired when it believes it to be probable that Alleghany will not be able to collect the entire amortized cost basis. For debt securities in an unrealized loss position as of the end of each quarter, Alleghany develops a best estimate of the present value of expected cash flows. If the results of the cash flow analysis indicate that Alleghany will not recover the full amount of its amortized cost basis in the debt security, Alleghany records an OTTI loss in earnings equal to the difference between the present value of expected cash flows and the amortized cost basis of the debt security. If applicable, the difference between the total unrealized loss position on the debt security and the OTTI loss recognized in earnings is the non-credit related portion, which is recorded as a component of other comprehensive income.

In developing the cash flow analyses for debt securities, Alleghany considers various factors for the different categories of debt securities. For municipal bonds, Alleghany takes into account the taxing power of the issuer, source of revenue, credit risk and enhancements and pre-refunding. For mortgage and asset-backed securities, Alleghany discounts its best estimate of future cash flows at an effective rate equal to the original effective yield of the security or, in the case of floating rate securities, at the current coupon. Alleghany’s models include assumptions about prepayment speeds, default and delinquency rates, underlying collateral (if any), credit ratings, credit enhancements and other observable market data. For corporate bonds, Alleghany reviews business prospects, credit ratings and available information from asset managers and rating agencies for individual securities.

OTTI losses in 2019 reflect $19.7 million of unrealized losses on debt securities, primarily related to the energy sector, that were deemed to be other than temporary and, as such, were required to be charged against earnings. The determination that unrealized losses on these debt securities were other than temporary was primarily due to the deterioration of creditworthiness of the issuers in the domestic energy sector. In addition, certain foreign bonds were impaired in 2019 due to a significant decline in fair value.

OTTI losses in 2018 reflect $1.3 million of unrealized losses on debt securities, primarily in the energy and industrial sectors, that were deemed to be other than temporary and, as such, were required to be charged against earnings. The determination that unrealized losses on debt securities were other than temporary was primarily due to the deterioration of creditworthiness of the issuer.

OTTI losses in 2017 reflect $16.9 million of unrealized losses that were deemed to be other than temporary and, as such, were required to be charged against earnings. Of the $16.9 million of OTTI losses, $15.1 million related to equity securities, primarily in the retail sector, and $1.8 million related to debt securities. The determination that unrealized losses on equity and debt securities were other than temporary was primarily due to the duration of the decline in the fair value of equity and debt securities relative to their costs.

Upon the ultimate disposition of the securities for which OTTI losses have been recorded, a portion of the loss may be recoverable depending on market conditions at the time of disposition. After adjusting the amortized cost basis of securities for the recognition of OTTI losses, the remaining gross unrealized investment losses for debt securities as of December 31, 2019 were deemed to be temporary, based on, among other factors: (i) the duration of time and the relative magnitude to which the fair value of these investments had been below cost were not indicative of an OTTI loss; (ii) the absence of compelling evidence that would cause Alleghany to call into question the financial condition or near-term business prospects of the issuer of the security; and (iii) Alleghany’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery.

Alleghany may ultimately record a realized loss after having originally concluded that the decline in value was temporary. Risks and uncertainties are inherent in the methodology. Alleghany’s methodology for assessing other than temporary declines in value contains inherent risks and uncertainties which could include, but are not limited to, incorrect assumptions about financial condition, liquidity or future prospects, inadequacy of any underlying collateral and unfavorable changes in economic conditions or social trends, interest rates or credit ratings.

The following tables present gross unrealized losses and related fair values for Alleghany’s AFS securities, grouped by duration of time in a continuous unrealized loss position, as of December 31, 2019 and 2018:

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of December 31, 2019
Debt securities:
U.S. Government obligations	$	120.3	$	2.0	$	99.7	$	0.8	$	220.0	$	2.8
Municipal bonds		90.2		1.3		4.3		—		94.5		1.3
Foreign government obligations		198.5		1.2		33.8		0.4		232.3		1.6
U.S. corporate bonds		113.8		1.6		27.6		0.7		141.4		2.3
Foreign corporate bonds		212.0		2.3		66.9		0.6		278.9		2.9
Mortgage and asset-backed securities:
RMBS		48.7		0.3		48.6		0.5		97.3		0.8
CMBS		126.8		1.4		1.2		—		128.0		1.4
Other asset-backed securities		422.9		2.7		715.9		17.0		1,138.8		19.7
Total temporarily impaired securities	$	1,333.2	$	12.8	$	998.0	$	20.0	$	2,331.2	$	32.8

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of December 31, 2018
Debt securities:
U.S. Government obligations	$	78.5	$	0.9	$	690.5	$	21.5	$	769.0	$	22.4
Municipal bonds		312.4		2.5		202.5		4.7		514.9		7.2
Foreign government obligations		60.7		0.1		186.7		3.3		247.4		3.4
U.S. corporate bonds		1,187.9		39.4		379.7		19.9		1,567.6		59.3
Foreign corporate bonds		501.5		9.7		349.1		9.1		850.6		18.8
Mortgage and asset-backed securities:
RMBS		397.7		6.4		225.9		8.4		623.6		14.8
CMBS		199.1		1.3		109.5		5.1		308.6		6.4
Other asset-backed securities		1,442.8		36.7		121.6		1.8		1,564.4		38.5
Total temporarily impaired securities	$	4,180.6	$	97.0	$	2,265.5	$	73.8	$	6,446.1	$	170.8

As of December 31, 2019, Alleghany held a total of 860 debt securities that were in an unrealized loss position, of which 280 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these debt securities consisted of losses related primarily to other asset-backed securities, U.S. corporate bonds, U.S. Government obligations and RMBS.

As of December 31, 2019, the vast majority of Alleghany’s debt securities were rated investment grade, with 3.6 percent of debt securities having issuer credit ratings that were below investment grade or not rated, compared with 4.4 percent as of December 31, 2018.

Investments with fair values of approximately $2.3 billion as of December 31, 2019, the substantial majority of which were debt securities and equity securities, were deposited with governmental authorities as required by law.

In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings Limited (“Pillar Holdings”), a Bermuda- based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe invested $175.0 million and AIHL invested $25.0 million in limited partnership funds managed by Pillar Holdings (the “Funds”). The objective of the Funds is to create portfolios with attractive risk-reward characteristics and low correlation with other asset classes, using the extensive reinsurance and capital market experience of the principals of Pillar Holdings. Alleghany has concluded that both Pillar Holdings and the Funds (collectively, the “Pillar Investments”) represent variable interest entities and that Alleghany is not the primary beneficiary, as it does not have the ability to direct the activities that most significantly impact each entity’s economic performance. Therefore, the Pillar Investments are not consolidated and are accounted for under the equity method of accounting. Alleghany’s potential maximum loss in the Pillar Investments is limited to its cumulative net investment. As of December 31, 2019, Alleghany’s carrying value in the Pillar Investments, as determined under the equity method of accounting, was $205.5 million, which is net of returns of capital received from the Pillar Investments.

In July 2013, AIHL invested $250.0 million in Ares, an asset manager, in exchange for a 6.25 percent equity stake in Ares, with an agreement to engage Ares to manage up to $1.0 billion in certain investment strategies. In May 2014, Ares completed an initial public offering of its common units. Upon completion of the initial public offering, Alleghany’s equity investment in Ares converted into limited partnership interests in certain Ares subsidiaries that were convertible into Ares common units. On March 15, 2018, most of AIHL’s limited partnership interests were converted into Ares common units. As a result of the conversion and with respect to the limited partnership interests that were converted into Ares common units, AIHL: (i) reclassified its converted interests from other invested assets to equity securities; (ii) increased its carrying value to $208.2 million to reflect the fair value of Ares common units; and (iii) recorded the $45.7 million increase in carrying value as a realized capital gain as of March 15, 2018. As a result of the conversion and with respect to the unconverted limited partnership interests, AIHL: (i) changed its accounting method from the equity method to fair value; (ii) increased its carrying value to $58.7 million to reflect the fair value of Ares limited partnership interests; and (iii) recorded the $12.9 million increase in carrying value as a component of net investment income as of March 15, 2018. On September 24, 2018, AIHL’s remaining Ares limited partnership interests were converted into Ares common units and, as a result, AIHL reclassified the remaining $56.9 million of its converted interests from other invested assets to equity securities. In the second quarter of 2019, AIHL sold all of its remaining holdings of Ares common units.

As of December 31, 2019, the carrying value of Alleghany’s commercial mortgage loan portfolio was $686.2 million, representing the unpaid principal balance on the loans. As of December 31, 2019, there was no allowance for loan losses. The commercial mortgage loan portfolio consists primarily of first mortgages on commercial properties in major metropolitan areas in the U.S. The loans earn interest at fixed- and floating-rates, mature in two to ten years from loan origination and the principal amounts of the loans were no more than approximately two-thirds of the property’s appraised value at the time the loans were made. The estimated fair value of the commercial mortgage loan portfolio approximated carrying value as of December 31, 2019 and 2018.