5. Investments

A. Fixed maturities and equity securities

The amortized cost and fair value of available-for-sale fixed maturities and the cost and fair value of equity securities were as follows:



	June 30, 2016
	Amortized		Gross		Gross				OTTI
	Cost or		Unrealized		Unrealized				Unrealized
(in millions)	Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	364.9	$	11.6	$	-	$	376.5	$	-
Foreign government		229.4		7.2		-		236.6		-
Municipal		1,084.6		76.2		0.9		1,159.9		-
Corporate		3,728.8		182.7		28.8		3,882.7		18.6
Residential mortgage-backed		849.0		26.1		0.9		874.2		0.3
Commercial mortgage-backed		507.5		25.5		0.1		532.9		-
Asset-backed		78.6		0.9		0.3		79.2		-
Total fixed maturities	$	6,842.8	$	330.2	$	31.0	$	7,142.0	$	18.9
Equity securities	$	507.8	$	76.8	$	1.9	$	582.7	$	-



	December 31, 2015
	Amortized		Gross		Gross				OTTI
	Cost or		Unrealized		Unrealized				Unrealized
(in millions)	Cost		Gains		Losses		Fair Value		Losses
Fixed maturities:
U.S. Treasury and government agencies	$	447.1	$	5.5	$	3.5	$	449.1	$	-
Foreign government		244.7		2.6		1.5		245.8		-
Municipal		1,074.5		50.0		4.2		1,120.3		-
Corporate		3,699.9		86.8		95.7		3,691.0		27.5
Residential mortgage-backed		887.6		13.4		4.9		896.1		0.3
Commercial mortgage-backed		499.6		5.8		4.3		501.1		-
Asset-backed		80.6		0.2		0.8		80.0		-
Total fixed maturities	$	6,934.0	$	164.3	$	114.9	$	6,983.4	$	27.8
Equity securities	$	528.5	$	55.7	$	7.6	$	576.6	$	-

Other-than-temporary impairments (“OTTI”) unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $18.9 million and $1.1 million as of June 30, 2016 and December 31, 2015, respectively.

The amortized cost and fair value by maturity periods for fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or the Company may have the right to put or sell the obligations back to the issuers.



	June 30, 2016
	Amortized		Fair
(in millions)	Cost		Value
Due in one year or less	$	433.1	$	437.9
Due after one year through five years		2,499.2		2,607.8
Due after five years through ten years		2,026.6		2,123.4
Due after ten years		448.8		486.6
		5,407.7		5,655.7
Mortgage-backed and asset-backed securities		1,435.1		1,486.3
Total fixed maturities	$	6,842.8	$	7,142.0

B. Securities in an unrealized loss position

The following tables provide information about the Company’s fixed maturities and equity securities that were in an unrealized loss position at June 30, 2016 and December 31, 2015 including the length of time the securities have been in an unrealized loss position:



	June 30, 2016
	12 months or less				Greater than 12 months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(in millions)	Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	-	$	5.0	$	-	$	-	$	-	$	5.0
Foreign governments		-		4.1		-		1.2		-		5.3
Municipal		0.2		12.8		0.7		33.0		0.9		45.8
Corporate		1.4		51.6		6.2		113.9		7.6		165.5
Residential mortgage-backed		0.2		25.1		0.7		35.6		0.9		60.7
Commercial mortgage-backed		-		8.1		0.1		9.3		0.1		17.4
Asset-backed		0.2		5.8		0.1		4.3		0.3		10.1
Total investment grade		2.0		112.5		7.8		197.3		9.8		309.8
Below investment grade:
Corporate		5.0		81.3		16.2		98.1		21.2		179.4
Total fixed maturities		7.0		193.8		24.0		295.4		31.0		489.2
Equity securities		1.9		76.2		-		-		1.9		76.2
Total	$	8.9	$	270.0	$	24.0	$	295.4	$	32.9	$	565.4



	December 31, 2015
	12 months or less				Greater than 12 months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(in millions)	Losses		Value		Losses		Value		Losses		Value
Fixed maturities:
Investment grade:
U.S. Treasury and government agencies	$	1.5	$	139.0	$	2.0	$	77.2	$	3.5	$	216.2
Foreign governments		0.8		63.6		0.7		8.4		1.5		72.0
Municipal		2.3		143.0		1.9		57.4		4.2		200.4
Corporate		30.7		1,138.3		18.9		122.3		49.6		1,260.6
Residential mortgage-backed		3.0		334.5		1.9		47.0		4.9		381.5
Commercial mortgage-backed		4.2		293.8		0.1		9.7		4.3		303.5
Asset-backed		0.8		56.6		-		1.4		0.8		58.0
Total investment grade		43.3		2,168.8		25.5		323.4		68.8		2,492.2
Below investment grade:
Corporate		19.6		165.5		26.5		63.2		46.1		228.7
Total fixed maturities		62.9		2,334.3		52.0		386.6		114.9		2,720.9
Equity securities		7.6		166.8		-		-		7.6		166.8
Total	$	70.5	$	2,501.1	$	52.0	$	386.6	$	122.5	$	2,887.7

The Company views gross unrealized losses on fixed maturities and equity securities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities or cost for equity securities. In determining OTTI of fixed maturity and equity securities, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends, dividend payments and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the length of time and the degree to which the fair value of an issuer’s securities remains below the Company’s cost. With respect to fixed maturity investments, the Company considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security. With respect to equity securities, the Company considers its ability and intent to hold the investment for a period of time to allow for a recovery in value.

C. Other investments

In accordance with Lloyd’s operating guidelines, the Company deposits funds at Lloyd’s to support underwriting operations. These funds are available only to fund claim obligations. These assets consisted of approximately $503 million of fixed maturities and $12 million of cash and cash equivalents as of June 30, 2016. The Company also deposits funds with various state and governmental authorities in the U.S. For a discussion of the Company’s deposits with state and governmental authorities, see also Note 3 – “Investments” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015.

D. Proceeds from sales

The proceeds from sales of available-for-sale securities and gross realized gains and losses on those sales, were as follows:



	Three Months Ended June 30,
	2016						2015
	Proceeds from		Gross		Gross		Proceeds from		Gross		Gross
(in millions)	Sales		Gains		Losses		Sales		Gains		Losses
Fixed maturities	$	145.4	$	3.5	$	0.9	$	594.4	$	10.6	$	1.4
Equity securities	$	84.5	$	1.7	$	0.8	$	83.1	$	7.7	$	-



	Six Months Ended June 30,
	2016						2015
	Proceeds from		Gross		Gross		Proceeds from		Gross		Gross
(in millions)	Sales		Gains		Losses		Sales		Gains		Losses
Fixed maturities	$	307.9	$	5.9	$	4.2	$	824.7	$	12.9	$	4.7
Equity securities	$	173.4	$	26.4	$	1.7	$	167.8	$	20.1	$	-

E. Other-than-temporary impairments

For the three months ended June 30, 2016, total OTTI was $2.8 million, consisting primarily of equity securities. Of this amount, $5.0 million was recognized in earnings, including $2.2 million which was transferred from unrealized losses in accumulated other comprehensive income (“AOCI”). For the six months ended June 30, 2016, total OTTI was $19.2 million, consisting primarily of fixed maturities and, to a lesser extent, equity securities. Of this amount, $25.9 million was recognized in earnings, including $6.7 million which was transferred from unrealized losses in AOCI.

For the three months ended June 30, 2015, total OTTI of fixed maturities was $5.1 million. Of this amount, $1.9 million was recognized in earnings and the remaining $3.2 million was recorded as unrealized losses in AOCI. For the six months ended June 30, 2015, total OTTI of fixed maturities and equity securities was $11.4 million. Of this amount, $4.6 million was recognized in earnings and the remaining $6.8 million was recorded as unrealized losses in AOCI.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2016 and 2015 were as follows:

Corporate bonds – the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating, loss-given-default factors based on security type and position in the capital structure and asset duration. These factors are based on historical data provided by an independent third-party rating agency.

The following table provides rollforwards of the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on fixed maturity securities for which the non-credit portion of the loss is included in other comprehensive income.



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2016		2015		2016		2015
Credit losses at beginning of period	$	13.4	$	4.5	$	18.0	$	4.2
Credit losses for which an OTTI was not previously recognized		0.7		1.7		5.2		2.7
Additional credit losses on securities for which an
OTTI was previously recognized		0.4		-		2.1		-
Reductions for securities sold, matured or called		(1.6)		(0.1)		(1.6)		(0.8)
Reductions for securities reclassified as intended to sell		(1.2)		-		(12.0)		-
Credit losses at end of period	$	11.7	$	6.1	$	11.7	$	6.1