DERIVATIVES

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are summarized as follows (dollars in millions):



	Fair value
	2016			2015
Assets:
Other invested assets:
Fixed index call options	$	111.9		$	41.0
Interest rate futures	—			.1
Reinsurance receivables	(4.2		)	(5.0		)
Total assets	$	107.7		$	36.1
Liabilities:
Future policy benefits:
Fixed index products	$	1,092.3		$	1,057.1
Total liabilities	$	1,092.3		$	1,057.1

The activity associated with freestanding derivative instruments is measured as either the notional or the number of contracts. The activity associated with the fixed index annuity embedded derivatives are shown by the number of policies. The following table represents activity associated with derivative instruments as of the dates indicated:



	Measurement	December 31, 2015		Additions		Maturities/terminations			December 31, 2016
Interest futures	Contracts	264		378		(642		)	—
Fixed index annuities - embedded derivative	Policies	96,660		11,237		(7,085		)	100,812
Fixed index call options	Notional (a)	$	2,379.7	$	2,452.5	$	(2,377.1	)	$	2,455.1

_________________

(a) Dollars in millions.

We are required to establish an embedded derivative related to a modified coinsurance agreement pursuant to which we assume the risks of a block of health insurance business. The embedded derivative represents the mark-to-market adjustment for approximately $135 million in underlying investments held by the ceding reinsurer.

The following table provides the pre-tax gains (losses) recognized in net income for derivative instruments, which are not designated as hedges for the periods indicated (dollars in millions):



	2016			2015			2014
Net investment income from policyholder and reinsurer accounts and other special-purpose portfolios:
Fixed index call options	$	29.2		$	(36.2	)	$	69.5
Embedded derivative related to reinsurance contract	—			—			(1.4		)
Total	29.2			(36.2		)	68.1
Net realized gains (losses):
Interest rate futures	(1.1		)	(2.7		)	(7.0		)
Embedded derivative related to modified coinsurance agreement	.8			(7.0		)	2.0
Total	(.3		)	(9.7		)	(5.0		)
Insurance policy benefits:
Embedded derivative related to fixed index annuities	60.8			36.3			(73.5		)
Total	$	89.7		$	(9.6	)	$	(10.4	)

Derivative Counterparty Risk

If the counterparties to the call options fail to meet their obligations, we may recognize a loss. We limit our exposure to such a loss by diversifying among several counterparties believed to be strong and creditworthy. At December 31, 2016, all of our counterparties were rated "A-" or higher by S&P.

From time to time, we enter into exchange-traded interest rate future contracts. The contracts are marked to market and margined on a daily basis. The Company has minimal exposure to credit-related losses in the event of nonperformance.

The Company and its subsidiaries are parties to master netting arrangements with its counterparties related to entering into various derivative contracts. Exchange-traded derivatives require margin accounts which we offset.

Repurchase agreements

We may enter into agreements under which we sell securities subject to an obligation to repurchase the same securities. These repurchase agreements are accounted for as collateralized financing arrangements and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as investment borrowings in the Company's consolidated balance sheet, while the securities underlying the repurchase agreements remain in the respective investment asset accounts. There is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Company does not currently have any outstanding reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.

The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Company be in default under the agreement (e.g., fails to make an interest payment to the counterparty). If the counterparty were to default (e.g., declare bankruptcy), the Company could cancel the repurchase agreement (i.e., cease payment of principal and interest), and attempt collection on the amount of collateral value in excess of the repurchase agreement fair value. The collateral is held by a third party financial institution in the counterparty's custodial account. The counterparty has the right to sell or repledge the investment securities. There were no repurchase agreements outstanding at December 31, 2016 and 2015.

The following table summarizes information related to derivatives with master netting arrangements or collateral as of December 31, 2016 and 2015 (dollars in millions):



								Gross amounts not offset in the balance sheet
		Gross amounts recognized		Gross amounts offset in the balance sheet		Net amounts of assets presented in the balance sheet		Financial instruments		Cash collateral received		Net amount
December 31, 2016:
	Fixed index call options	$	111.9	$	—	$	111.9	$	—	$	—	$	111.9
	Interest rate futures	—		—		—		—		—		—
December 31, 2015:
	Fixed index call options	41.0		—		41.0		—		—		41.0
	Interest rate futures	.1		1.5		1.6		—		—		1.6