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Investments
 12 Months Ended
Dec. 31, 2016
Investments [Abstract]  
Investments
Investments
Fair values
The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
($ in millions)
Amortized
cost
 
Gross unrealized
 
Fair
value
 
 
Gains
 
Losses
 
December 31, 2016
 
 
 
 
 
 
 
U.S. government and agencies
$
3,572

 
$
74

 
$
(9
)
 
$
3,637

Municipal
7,116

 
304

 
(87
)
 
7,333

Corporate
42,742

 
1,178

 
(319
)
 
43,601

Foreign government
1,043

 
36

 
(4
)
 
1,075

ABS
1,169

 
13

 
(11
)
 
1,171

RMBS
651

 
85

 
(8
)
 
728

CMBS
262

 
17

 
(9
)
 
270

Redeemable preferred stock
21

 
3

 
—

 
24

Total fixed income securities
$
56,576

 
$
1,710

 
$
(447
)
 
$
57,839

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
U.S. government and agencies
$
3,836

 
$
90

 
$
(4
)
 
$
3,922

Municipal
7,032

 
389

 
(20
)
 
7,401

Corporate
41,674

 
1,032

 
(879
)
 
41,827

Foreign government
983

 
50

 
—

 
1,033

ABS
2,359

 
11

 
(43
)
 
2,327

RMBS
857

 
100

 
(10
)
 
947

CMBS
438

 
32

 
(4
)
 
466

Redeemable preferred stock
22

 
3

 
—

 
25

Total fixed income securities
$
57,201

 
$
1,707

 
$
(960
)
 
$
57,948


Scheduled maturities
The scheduled maturities for fixed income securities are as follows as of December 31, 2016:
($ in millions)
Amortized
cost
 
Fair
value
Due in one year or less
$
4,873

 
$
4,898

Due after one year through five years
27,836

 
28,307

Due after five years through ten years
16,448

 
16,612

Due after ten years
5,337

 
5,853

 
54,494

 
55,670

ABS, RMBS and CMBS
2,082

 
2,169

Total
$
56,576

 
$
57,839


Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.
Net investment income
Net investment income for the years ended December 31 is as follows:
($ in millions)
2016
 
2015
 
2014
Fixed income securities
$
2,060

 
$
2,218

 
$
2,447

Equity securities
137

 
110

 
117

Mortgage loans
217

 
228

 
265

Limited partnership interests
561

 
549

 
614

Short-term investments
16

 
9

 
7

Other
222

 
192

 
170

Investment income, before expense
3,213

 
3,306

 
3,620

Investment expense
(171
)
 
(150
)
 
(161
)
Net investment income
$
3,042

 
$
3,156

 
$
3,459



Realized capital gains and losses
Realized capital gains and losses by asset type for the years ended December 31 are as follows:
($ in millions)
2016
 
2015
 
2014
Fixed income securities
$
(91
)
 
$
212

 
$
130

Equity securities
23

 
(50
)
 
582

Mortgage loans
—

 
6

 
2

Limited partnership interests
(21
)
 
(93
)
 
13

Derivatives
3

 
(21
)
 
(38
)
Other
(4
)
 
(24
)
 
5

Realized capital gains and losses
$
(90
)
 
$
30

 
$
694


Realized capital gains and losses by transaction type for the years ended December 31 are as follows:
($ in millions)
2016
 
2015
 
2014
Impairment write-downs
$
(234
)
 
$
(195
)
 
$
(32
)
Change in intent write-downs
(69
)
 
(221
)
 
(213
)
Net other-than-temporary impairment losses recognized in earnings
(303
)
 
(416
)
 
(245
)
Sales and other
213

 
470

 
975

Valuation and settlements of derivative instruments
—

 
(24
)
 
(36
)
Realized capital gains and losses
$
(90
)
 
$
30

 
$
694


Gross gains of $631 million, $915 million and $1.10 billion and gross losses of $461 million, $399 million and $169 million were realized on sales of fixed income and equity securities during 2016, 2015 and 2014, respectively.
Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:
($ in millions)
2016
 
2015
 
2014
 
Gross
 
Included in OCI
 
Net
 
Gross
 
Included in OCI
 
Net
 
Gross
 
Included in OCI
 
Net
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal
$
—

 
$
—

 
$
—

 
$
(17
)
 
$
4

 
$
(13
)
 
$
(10
)
 
$
—

 
$
(10
)
Corporate
(33
)
 
9

 
(24
)
 
(61
)
 
11

 
(50
)
 
(7
)
 
—

 
(7
)
ABS
(6
)
 
—

 
(6
)
 
(33
)
 
22

 
(11
)
 
(12
)
 
1

 
(11
)
RMBS
—

 
(1
)
 
(1
)
 
1

 
(1
)
 
—

 
6

 
(4
)
 
2

CMBS
(15
)
 
2

 
(13
)
 
(1
)
 
—

 
(1
)
 
(1
)
 
—

 
(1
)
Total fixed income securities
(54
)
 
10

 
(44
)
 
(111
)
 
36

 
(75
)
 
(24
)
 
(3
)
 
(27
)
Equity securities
(194
)
 
—

 
(194
)
 
(279
)
 
—

 
(279
)
 
(196
)
 
—

 
(196
)
Mortgage loans
—

 
—

 
—

 
4

 
—

 
4

 
5

 
—

 
5

Limited partnership interests
(56
)
 
—

 
(56
)
 
(51
)
 
—

 
(51
)
 
(27
)
 
—

 
(27
)
Other
(9
)
 
—

 
(9
)
 
(15
)
 
—

 
(15
)
 
—

 
—

 
—

Other-than-temporary impairment losses
$
(313
)

$
10


$
(303
)

$
(452
)

$
36


$
(416
)

$
(242
)

$
(3
)

$
(245
)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amount excludes $221 million and $233 million as of December 31, 2016 and 2015, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
($ in millions)
December 31,
2016
 
December 31,
2015
Municipal
$
(8
)
 
$
(9
)
Corporate
(7
)
 
(7
)
ABS
(21
)
 
(23
)
RMBS
(90
)
 
(102
)
CMBS
(7
)
 
(6
)
Total
$
(133
)
 
$
(147
)



Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:
($ in millions)
2016
 
2015
 
2014
Beginning balance
$
(392
)
 
$
(380
)
 
$
(513
)
Additional credit loss for securities previously other-than-temporarily impaired
(21
)
 
(30
)
 
(6
)
Additional credit loss for securities not previously other-than-temporarily impaired
(23
)
 
(45
)
 
(18
)
Reduction in credit loss for securities disposed or collected
117

 
60

 
95

Change in credit loss due to accretion of increase in cash flows
1

 
3

 
3

Reduction in credit loss for securities sold in LBL disposition
—

 
—

 
59

Ending balance
$
(318
)

$
(392
)

$
(380
)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
Unrealized net capital gains and losses
Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:
($ in millions)
Fair
value
 
Gross unrealized
 
Unrealized net gains (losses)
December 31, 2016
 
Gains
 
Losses
 
Fixed income securities
$
57,839

 
$
1,710

 
$
(447
)
 
$
1,263

Equity securities
5,666

 
594

 
(85
)
 
509

Short-term investments
4,288

 
—

 
—

 
—

Derivative instruments (1)
5

 
5

 
(3
)
 
2

EMA limited partnerships (2)
 
 
 
 
 
 
(4
)
Unrealized net capital gains and losses, pre-tax
 
 
 
 
 
 
1,770

Amounts recognized for:
 
 
 
 
 
 
 
Insurance reserves (3)
 
 
 
 
 
 
—

DAC and DSI (4)
 
 
 
 
 
 
(146
)
Amounts recognized
 
 
 
 
 
 
(146
)
Deferred income taxes
 
 
 
 
 
 
(571
)
Unrealized net capital gains and losses, after-tax
 
 
 
 
 
 
$
1,053

______________________________
(1) 
Included in the fair value of derivative instruments is $5 million classified as assets.
(2) 
Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross unrealized gains and losses are not applicable.
(3) 
The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment, if any, primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.
(4) 
The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.
($ in millions)
Fair
value
 
Gross unrealized
 
Unrealized net gains (losses)
December 31, 2015
 
Gains
 
Losses
 
Fixed income securities
$
57,948

 
$
1,707

 
$
(960
)
 
$
747

Equity securities
5,082

 
415

 
(139
)
 
276

Short-term investments
2,122

 
—

 
—

 
—

Derivative instruments (1)
10

 
10

 
(4
)
 
6

EMA limited partnerships
 
 
 
 
 
 
(4
)
Unrealized net capital gains and losses, pre-tax
 
 
 
 
 
 
1,025

Amounts recognized for:
 
 
 
 
 
 
 
Insurance reserves
 
 
 
 
 
 
—

DAC and DSI
 
 
 
 
 
 
(67
)
Amounts recognized
 
 
 
 
 
 
(67
)
Deferred income taxes
 
 
 
 
 
 
(338
)
Unrealized net capital gains and losses, after-tax
 
 
 
 
 
 
$
620

______________________________
(1) 
Included in the fair value of derivative instruments are $6 million classified as assets and $(4) million classified as liabilities.
Change in unrealized net capital gains and losses
The change in unrealized net capital gains and losses for the years ended December 31 is as follows:
($ in millions)
2016
 
2015
 
2014
Fixed income securities
$
516

 
$
(2,021
)
 
$
866

Equity securities
233

 
(136
)
 
(212
)
Derivative instruments
(4
)
 
8

 
16

EMA limited partnerships
—

 
1

 
(2
)
Investments classified as held for sale
—

 
—

 
(190
)
Total
745

 
(2,148
)
 
478

Amounts recognized for:
 
 
 
 
 
Insurance reserves
—

 
28

 
(28
)
DAC and DSI
(79
)
 
112

 
(21
)
Amounts recognized
(79
)
 
140

 
(49
)
Deferred income taxes
(233
)
 
702

 
(149
)
Increase (decrease) in unrealized net capital gains and losses, after-tax
$
433


$
(1,306
)

$
280


Portfolio monitoring
The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.
For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings.
For fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.
The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.
($ in millions)
Less than 12 months
 
12 months or more
 
 
 
Number of issues
 
Fair value
 
Unrealized losses
 
Number of issues
 
Fair value
 
Unrealized losses
 
Total unrealized losses
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
46

 
$
943

 
$
(9
)
 
—

 
$
—

 
$
—

 
$
(9
)
Municipal
1,310

 
3,073

 
(76
)
 
8

 
29

 
(11
)
 
(87
)
Corporate
862

 
13,343

 
(256
)
 
83

 
678

 
(63
)
 
(319
)
Foreign government
41

 
225

 
(4
)
 
—

 
—

 
—

 
(4
)
ABS
31

 
222

 
(1
)
 
14

 
109

 
(10
)
 
(11
)
RMBS
89

 
53

 
(1
)
 
179

 
91

 
(7
)
 
(8
)
CMBS
15

 
59

 
(4
)
 
4

 
15

 
(5
)
 
(9
)
Redeemable preferred stock
1

 
—

 
—

 
—

 
—

 
—

 
—

Total fixed income securities
2,395

 
17,918

 
(351
)
 
288

 
922

 
(96
)
 
(447
)
Equity securities
195

 
654

 
(56
)
 
46

 
165

 
(29
)
 
(85
)
Total fixed income and equity securities
2,590

 
$
18,572

 
$
(407
)
 
334

 
$
1,087

 
$
(125
)
 
$
(532
)
Investment grade fixed income securities
2,202

 
$
15,678

 
$
(293
)
 
201

 
$
493

 
$
(51
)
 
$
(344
)
Below investment grade fixed income securities
193

 
2,240

 
(58
)
 
87

 
429

 
(45
)
 
(103
)
Total fixed income securities
2,395

 
$
17,918

 
$
(351
)
 
288

 
$
922

 
$
(96
)
 
$
(447
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
53

 
$
1,874

 
$
(4
)
 
—

 
$
—

 
$
—

 
$
(4
)
Municipal
222

 
810

 
(6
)
 
9

 
36

 
(14
)
 
(20
)
Corporate
1,361

 
17,915

 
(696
)
 
111

 
1,024

 
(183
)
 
(879
)
Foreign government
9

 
44

 
—

 
—

 
—

 
—

 
—

ABS
133

 
1,733

 
(24
)
 
20

 
324

 
(19
)
 
(43
)
RMBS
88

 
69

 
—

 
176

 
125

 
(10
)
 
(10
)
CMBS
13

 
75

 
(2
)
 
1

 
2

 
(2
)
 
(4
)
Total fixed income securities
1,879


22,520


(732
)

317


1,511


(228
)

(960
)
Equity securities
265

 
1,397

 
(107
)
 
37

 
143

 
(32
)
 
(139
)
Total fixed income and equity securities
2,144


$
23,917


$
(839
)

354


$
1,654


$
(260
)

$
(1,099
)
Investment grade fixed income securities
1,405

 
$
17,521

 
$
(362
)
 
225

 
$
972

 
$
(105
)
 
$
(467
)
Below investment grade fixed income securities
474

 
4,999

 
(370
)
 
92

 
539

 
(123
)
 
(493
)
Total fixed income securities
1,879


$
22,520


$
(732
)

317


$
1,511


$
(228
)

$
(960
)

As of December 31, 2016, $444 million of the $532 million unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $444 million, $318 million are related to unrealized losses on investment grade fixed income securities and $55 million are related to equity securities. Of the remaining $71 million, $47 million have been in an unrealized loss position for less than 12 months. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase.
As of December 31, 2016, the remaining $88 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising $26 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $88 million, $32 million are related to below investment grade fixed income securities and $30 million are related to equity securities. Of these amounts, $14 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of December 31, 2016.
ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for ABS and RMBS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.
As of December 31, 2016, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. As of December 31, 2016, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.
Limited partnerships
As of December 31, 2016 and 2015, the carrying value of equity method limited partnerships totaled $4.53 billion and $3.72 billion, respectively. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.
As of December 31, 2016 and 2015, the carrying value for cost method limited partnerships was $1.28 billion and $1.15 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital. Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value.
Mortgage loans
The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation allowance, $4.49 billion and $4.34 billion as of December 31, 2016 and 2015, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.
The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.
(% of mortgage loan portfolio carrying value)
2016
 
2015
California
19.3
%
 
21.3
%
Texas
10.5

 
9.7

New Jersey
8.2

 
8.7

Illinois
6.7

 
7.1

Florida
5.4

 
5.3


The types of properties collateralizing the mortgage loans as of December 31 are as follows:
(% of mortgage loan portfolio carrying value)
2016
 
2015
Apartment complex
27.6
%
 
26.4
%
Office buildings
23.9

 
22.7

Retail
20.4

 
21.3

Warehouse
17.0

 
18.4

Other
11.1

 
11.2

Total
100.0
%
 
100.0
%

The contractual maturities of the mortgage loan portfolio as of December 31, 2016 are as follows:
($ in millions)
Number of loans
 
Carrying value
 
Percent
2017
28

 
$
295

 
6.6
%
2018
29

 
336

 
7.5

2019
10

 
267

 
6.0

2020
14

 
190

 
4.2

Thereafter
222

 
3,398

 
75.7

Total
303

 
$
4,486

 
100.0
%

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan’s expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2016.
Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.
Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution as of December 31:
($ in millions)
2016
 
2015
Debt service coverage ratio distribution
Fixed rate mortgage loans
 
Variable rate mortgage loans
 
Total
 
Fixed rate mortgage loans
 
Variable rate mortgage loans
 
Total
Below 1.0
$
60

 
$
—

 
$
60

 
$
64

 
$
—

 
$
64

1.0 - 1.25
324

 
—

 
324

 
382

 
—

 
382

1.26 - 1.50
1,293

 
—

 
1,293

 
1,219

 
—

 
1,219

Above 1.50
2,765

 
39

 
2,804

 
2,667

 
—

 
2,667

Total non-impaired mortgage loans
$
4,442

 
$
39

 
$
4,481

 
$
4,332

 
$
—

 
$
4,332


Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.
The net carrying value of impaired mortgage loans as of December 31 is as follows:
($ in millions)
2016
 
2015
Impaired mortgage loans with a valuation allowance
$
5

 
$
6

Impaired mortgage loans without a valuation allowance
—

 
—

Total impaired mortgage loans
$
5

 
$
6

Valuation allowance on impaired mortgage loans
$
3

 
$
3


The average balance of impaired loans was $6 million, $11 million and $27 million during 2016, 2015 and 2014, respectively.
The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:
($ in millions)
2016
 
2015
 
2014
Beginning balance
$
3

 
$
8

 
$
21

Net decrease in valuation allowance
—

 
(4
)
 
(5
)
Charge offs
—

 
(1
)
 
(8
)
Ending balance
$
3

 
$
3

 
$
8


Payments on all mortgage loans were current as of December 31, 2016 and 2015.
Municipal bonds
The Company maintains a diversified portfolio of municipal bonds. The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31. No other state represents more than 5% of the portfolio.
(% of municipal bond portfolio carrying value)
2016
 
2015
Texas
10.0
%
 
9.2
%
California
7.2

 
6.3

New York
6.8

 
7.7

Florida
5.7

 
5.6

Washington
5.6

 
5.6

Michigan
5.4

 
3.9


Concentration of credit risk
As of December 31, 2016, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholders’ equity, other than the U.S. government and its agencies.
Securities loaned
The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2016 and 2015, fixed income and equity securities with a carrying value of $1.08 billion and $798 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $6 million in 2016 and $2 million in each of 2015 and 2014.

Other investment information
Included in fixed income securities are below investment grade assets totaling $8.62 billion and $8.64 billion as of December 31, 2016 and 2015, respectively.
As of December 31, 2016, fixed income securities and short-term investments with a carrying value of $168 million were on deposit with regulatory authorities as required by law.
As of December 31, 2016, the carrying value of fixed income securities and other investments that were non-income producing was $70 million.