4. Investments

A. Fixed maturities

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

	March 31, 2018
			Gross		Gross				OTTI
	Amortized		Unrealized		Unrealized				Unrealized
(in millions)	Cost		Gains		Losses		Fair Value		Losses
U.S. Treasury and government agencies	$	546.7	$	2.0	$	12.7	$	536.0	$	—
Foreign government		244.7		2.3		2.2		244.8		—
Municipal		1,045.3		21.8		12.0		1,055.1		—
Corporate		4,279.0		49.8		78.1		4,250.7		6.6
Residential mortgage-backed		1,025.6		3.6		26.8		1,002.4		—
Commercial mortgage-backed		611.0		1.7		9.4		603.3		—
Asset-backed		67.0		—		1.0		66.0		—
Total fixed maturities	$	7,819.3	$	81.2	$	142.2	$	7,758.3	$	6.6

	December 31, 2017
			Gross		Gross				OTTI
	Amortized		Unrealized		Unrealized				Unrealized
(in millions)	Cost		Gains		Losses		Fair Value		Losses
U.S. Treasury and government agencies	$	513.6	$	3.4	$	5.6	$	511.4		—
Foreign government		240.8		3.2		1.3		242.7		—
Municipal		1,053.3		29.8		7.1		1,076.0		—
Corporate		4,238.9		95.0		26.4		4,307.5		6.9
Residential mortgage-backed		990.6		6.5		11.1		986.0		—
Commercial mortgage-backed		591.7		7.2		2.5		596.4		—
Asset-backed		59.9		0.1		0.3		59.7		—
Total fixed maturities	$	7,688.8	$	145.2	$	54.3	$	7,779.7		6.9

Other-than-temporary impairments (“OTTI”) unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income (“AOCI”). 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 $9.1 million and $11.5 million as of March 31, 2018 and December 31, 2017, respectively.

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 $528.9 million of fixed maturities and $5.3 million of cash and cash equivalents as of March 31, 2018. 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, 2017.

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.

	March 31, 2018
	Amortized		Fair
(in millions)	Cost		Value
Due in one year or less	$	413.2	$	414.4
Due after one year through five years		2,827.8		2,838.6
Due after five years through ten years		2,545.3		2,496.9
Due after ten years		329.4		336.7
		6,115.7		6,086.6
Mortgage-backed and asset-backed securities		1,703.6		1,671.7
Total fixed maturities	$	7,819.3	$	7,758.3

B. Fixed maturity securities in an unrealized loss position

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at March 31, 2018 and December 31, 2017 including the length of time the securities have been in an unrealized loss position:

	March 31, 2018
	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
Investment grade:
U.S. Treasury and government agencies	$	7.1	$	356.4	$	5.6	$	105.3	$	12.7	$	461.7
Foreign governments		1.8		139.1		0.4		22.0		2.2		161.1
Municipal		5.8		351.7		6.2		130.5		12.0		482.2
Corporate		40.5		2,106.7		27.5		487.8		68.0		2,594.5
Residential mortgage-backed		10.6		507.4		16.2		351.5		26.8		858.9
Commercial mortgage-backed		6.8		405.0		2.6		61.6		9.4		466.6
Asset-backed		1.0		50.3		—		2.3		1.0		52.6
Total investment grade		73.6		3,916.6		58.5		1,161.0		132.1		5,077.6
Below investment grade:
Municipal		—		1.0		—		—		—		1.0
Corporate		3.7		97.7		6.4		39.0		10.1		136.7
Total below investment grade		3.7		98.7		6.4		39.0		10.1		137.7
Total fixed maturities	$	77.3	$	4,015.3	$	64.9	$	1,200.0	$	142.2	$	5,215.3

	December 31, 2017
	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
Investment grade:
U.S. Treasury and government agencies	$	2.1	$	282.1	$	3.5	$	103.1	$	5.6	$	385.2
Foreign governments		0.9		99.4		0.4		22.8		1.3		122.2
Municipal		2.1		257.5		5.0		133.1		7.1		390.6
Corporate		5.6		799.6		12.3		481.3		17.9		1,280.9
Residential mortgage-backed		2.0		272.9		9.1		362.4		11.1		635.3
Commercial mortgage-backed		0.9		139.3		1.6		63.2		2.5		202.5
Asset-backed		0.3		34.5		—		2.5		0.3		37.0
Total investment grade		13.9		1,885.3		31.9		1,168.4		45.8		3,053.7
Below investment grade:
Corporate		1.7		53.2		6.8		43.5		8.5		96.7
Total fixed maturities	$	15.6	$	1,938.5	$	38.7	$	1,211.9	$	54.3	$	3,150.4

The Company views gross unrealized losses on fixed maturities 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. In determining OTTI, 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 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 amortized cost. The Company also 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.

C. Proceeds from sales

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

	Three Months Ended March 31,
	2018						2017
	Proceeds from		Gross		Gross		Proceeds from		Gross		Gross
(in millions)	Sales		Gains		Losses		Sales		Gains		Losses
Fixed maturities	$	127.8	$	0.6	$	2.3	$	97.6	$	2.1	$	1.0

D. Other-than-temporary impairments

For the three months ended March 31, 2018, total OTTI on fixed maturities was $1.0 million, of which $0.7 million was recognized in earnings and the remaining $0.3 million was recorded as unrealized losses in AOCI.

For the three months ended March 31, 2017, total OTTI was $1.4 million, which was recognized in earnings. This was primarily related to other investments.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2018 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 and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency. In addition, other market data relevant to the realizability of contractual cash flows may be considered.

There were no credit impairments for the three months ended March 31, 2017.

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 March 31,
(in millions)	2018			2017
Credit losses at beginning of period	$	3.9		$	10.0
Credit losses on securities for which an OTTI was not previously recognized		0.2			—
Reductions for securities called, sold, or matured		(0.8	)		(0.1	)
Credit losses at end of period	$	3.3		$	9.9

E. Equity securities

Equity securities are carried at fair value. Effective January 1, 2018, all increases or decreases in fair value on equity securities are reported in net realized and unrealized investment gains (losses) on the Consolidated Statements of Income. Previously, equity securities were categorized as available-for sale and unrealized gains and losses were reported in AOCI, a separate component of shareholders’ equity. As of December 31, 2017, we held equity securities with a fair value of $576.5 million and a cost of $433.7 million. On January 1, 2018, the Company recorded a cumulative effect adjustment which included the reclassification of net unrealized gains on equities of $142.8 million, pre-tax, from AOCI to retained earnings.

The following table provides pre-tax realized and unrealized gains (losses) on equity securities recognized in net income during the three months ended March 31, 2018:

(in millions)
Net losses recognized during the period	$	(23.0	)
Less: net gains recognized on equity securities sold during the period		0.5
Net unrealized losses recognized during the period on equity securities still held	$	(23.5	)

During the three months ended March 31, 2017, there were net unrealized gains on equity securities of $21.5 million recognized in AOCI and net realized gains from sales of equity securities of $2.4 million recognized in earnings. Proceeds from the sale of equities for the three months ended March 31, 2017 were $13.6 million.