INVESTMENTS IN VARIABLE INTEREST ENTITIES

We have concluded that we are the primary beneficiary with respect to certain VIEs, which are consolidated in our financial statements. In consolidating the VIEs, we consistently use the financial information most recently distributed to investors in the VIE.

All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of corporate loans and other permitted investments. The assets held by the trusts are legally isolated and not available to the Company. The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts, not from the assets of the Company. During 2016 and 2015, VIEs that were required to be consolidated were dissolved. We recognized a loss of $7.3 million during 2016 and a gain of $11.3 million during 2015, representing the difference between the borrowings of such VIEs and the contractual distributions required following the liquidation of the underlying assets. The scheduled repayment of the remaining principal balance of the borrowings related to the VIEs are as follows: $16.8 million in 2017; $.7 million in 2018; $.8 million in 2019; $.2 million in 2020; $150.2 million in 2022; $381.8 million in 2024; $326.9 million in 2026; $276.3 million in 2027; and $539.9 million in 2028. The Company has no financial obligation to the VIEs beyond its investment in each VIE.

Certain of our insurance subsidiaries are noteholders of the VIEs. Another subsidiary of the Company is the investment manager for the VIEs. As such, it has the power to direct the most significant activities of the VIEs which materially impacts the economic performance of the VIEs.

The following table provides supplemental information about the assets and liabilities of the VIEs which have been consolidated (dollars in millions):



	December 31, 2016
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,724.3	$	—		$	1,724.3
Notes receivable of VIEs held by insurance subsidiaries	—		(204.2		)	(204.2		)
Cash and cash equivalents held by variable interest entities	189.3		—			189.3
Accrued investment income	3.0		(.1		)	2.9
Income tax assets, net	6.4		(1.3		)	5.1
Other assets	13.1		(1.8		)	11.3
Total assets	$	1,936.1	$	(207.4	)	$	1,728.7
Liabilities:
Other liabilities	$	81.8	$	(6.4	)	$	75.4
Borrowings related to variable interest entities	1,662.8		—			1,662.8
Notes payable of VIEs held by insurance subsidiaries	203.3		(203.3		)	—
Total liabilities	$	1,947.9	$	(209.7	)	$	1,738.2



	December 31, 2015
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,633.6	$	—		$	1,633.6
Notes receivable of VIEs held by insurance subsidiaries	—		(204.3		)	(204.3		)
Cash and cash equivalents held by variable interest entities	364.4		—			364.4
Accrued investment income	3.3		—			3.3
Income tax assets, net	26.0		(1.9		)	24.1
Other assets	1.4		(1.5		)	(.1		)
Total assets	$	2,028.7	$	(207.7	)	$	1,821.0
Liabilities:
Other liabilities	$	196.6	$	(7.2	)	$	189.4
Borrowings related to variable interest entities	1,676.4		—			1,676.4
Notes payable of VIEs held by insurance subsidiaries	204.0		(204.0		)	—
Total liabilities	$	2,077.0	$	(211.2	)	$	1,865.8

The following table provides supplemental information about the revenues and expenses of the VIEs which have been consolidated in accordance with authoritative guidance, after giving effect to the elimination of our investment in the VIEs and investment management fees earned by a subsidiary of the Company (dollars in millions):



	2016			2015			2014
Revenues:
Net investment income – policyholder and reinsurer accounts and other special-purpose portfolios	$	78.9		$	62.1		$	47.2
Fee revenue and other income	6.4			1.6			1.1
Total revenues	85.3			63.7			48.3
Expenses:
Interest expense	53.1			38.8			30.1
Other operating expenses	1.5			2.0			1.2
Total expenses	54.6			40.8			31.3
Income before net realized investment losses and income taxes	30.7			22.9			17.0
Net realized investment losses	(20.4		)	(6.4		)	(2.2		)
Income before income taxes	$	10.3		$	16.5		$	14.8

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below-investment grade. At December 31, 2016, such loans had an amortized cost of $1,708.6 million; gross unrealized gains of $19.5 million; gross unrealized losses of $3.8 million; and an estimated fair value of $1,724.3 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2016, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	20.5	$	20.0
Due after one year through five years	846.5		853.1
Due after five years through ten years	841.6		851.2
Total	$	1,708.6	$	1,724.3

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at December 31, 2016, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	10.5	$	9.9
Due after one year through five years	175.2		172.5
Due after five years through ten years	55.8		55.3
Total	$	241.5	$	237.7

During 2016, the VIEs recognized net realized investment losses of $20.4 million, which were comprised of: (i) $11.9 million of net losses from the sales of fixed maturities; (ii) a $7.3 million loss on the dissolution of a VIE; and (iii) $1.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During 2015, the VIEs recognized net realized investment losses of $6.4 million which were comprised of: (i) $1.3 million of net losses from the sales of fixed maturities; (ii) an $11.3 million gain on the dissolution of a VIE; and (iii) $16.4 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During 2014, the VIEs recognized net realized investment losses of $2.2 million from the sales of fixed maturities.

At December 31, 2016, there were no investments held by the VIEs that were in default.

During 2016, $192.2 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $20.3 million. During 2015, $46.1 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $1.8 million. During 2014, $38.7 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $2.4 million.

At December 31, 2016, the VIEs held: (i) investments with a fair value of $93.8 million and gross unrealized losses of $.9 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $143.9 million and gross unrealized losses of $2.9 million that had been in an unrealized loss position for greater than twelve months.

At December 31, 2015, the VIEs held: (i) investments with a fair value of $1,178.7 million and gross unrealized losses of $23.9 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $294.3 million and gross unrealized losses of $22.3 million that had been in an unrealized loss position for greater than twelve months.

The investments held by the VIEs are evaluated for other-than-temporary declines in fair value in a manner that is consistent with the Company's fixed maturities, available for sale.