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Investments and Cash
 6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments and Cash
Investments and Cash
 
Net Investment Income and Realized Gains (Losses)

Net investment income is a function of the yield that the Company earns on invested assets and the size of the portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the invested assets. Accrued investment income, which is recorded in Other Assets, was $89 million and $99 million as of June 30, 2016 and December 31, 2015, respectively.
 
Net Investment Income
 
 
Second Quarter
 
Six Months
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Income from fixed-maturity securities managed by third parties
$
77

 
$
85

 
$
156

 
$
167

Income from internally managed securities:
 
 
 
 
 
 
 
Fixed maturities
22

 
14

 
39

 
29

Other
1

 
1

 
6

 
7

Gross investment income
100

 
100

 
201

 
203

Investment expenses
(2
)
 
(2
)
 
(4
)
 
(4
)
Net investment income
$
98

 
$
98

 
$
197

 
$
199




Net Realized Investment Gains (Losses)
 
 
Second Quarter
 
Six Months
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Gross realized gains on available-for-sale securities
$
14

 
$
8

 
$
20

 
$
32

Gross realized losses on available-for-sale securities
0

 
(6
)
 
(2
)
 
(7
)
Net realized gains (losses) on other invested assets
1

 
1

 
0

 
1

Other-than-temporary impairment
(5
)
 
(12
)
 
(21
)
 
(19
)
Net realized investment gains (losses)
$
10

 
$
(9
)
 
$
(3
)
 
$
7


 

The following table presents the roll-forward of the credit losses of fixed-maturity securities for which the Company has recognized an other-than-temporary-impairment and where the portion of the fair value adjustment related to other factors was recognized in other comprehensive income ("OCI").
 
Roll Forward of Credit Losses
in the Investment Portfolio

 
Second Quarter
 
Six Months
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Balance, beginning of period
$
107

 
$
106

 
$
108

 
$
124

Additions for credit losses on securities for which an other-than-temporary-impairment was not previously recognized
0

 
0

 
2

 
0

Reductions for securities sold and other settlement during the period
(2
)
 
(7
)
 
(4
)
 
(28
)
Additions for credit losses on securities for which an other-than-temporary-impairment was previously recognized
3

 
5

 
2

 
8

Balance, end of period
$
108

 
$
104

 
$
108

 
$
104




Investment Portfolio

Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of June 30, 2016

Investment Category
 
Percent
of
Total(1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI(2)
Gain
(Loss) on
Securities
with
Other-Than-Temporary Impairment
 
Weighted
Average
Credit
Rating
 (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
52
%
 
$
5,143

 
$
461

 
$
(1
)
 
$
5,603

 
$
17

 
 AA-
U.S. government and agencies
 
3

 
299

 
27

 
0

 
326

 
—

 
 AA+
Corporate securities
 
14

 
1,402

 
79

 
(38
)
 
1,443

 
(29
)
 
 A-
Mortgage-backed securities(4):
 
0

 
 
 
 
 
 

 
 
 
 

 
 
RMBS
 
10

 
1,037

 
44

 
(19
)
 
1,062

 
(9
)
 
 A
CMBS
 
5

 
505

 
34

 
0

 
539

 
—

 
 AAA
Asset-backed securities
 
7

 
745

 
2

 
(17
)
 
730

 
(15
)
 
 B+
Foreign government securities
 
3

 
270

 
5

 
(18
)
 
257

 
—

 
 AA
Total fixed-maturity securities
 
94

 
9,401

 
652

 
(93
)
 
9,960

 
(36
)
 
A+
Short-term investments
 
6

 
585

 
0

 
0

 
585

 
—

 
AAA
Total investment portfolio
 
100
%
 
$
9,986

 
$
652

 
$
(93
)
 
$
10,545

 
$
(36
)
 
A+


Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of December 31, 2015 

Investment Category
 
Percent
of
Total(1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI
Gain
(Loss) on
Securities
with
Other-Than-Temporary Impairment
 
Weighted
Average
Credit
Rating
 (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
52
%
 
$
5,528

 
$
323

 
$
(10
)
 
$
5,841

 
$
5

 
AA
U.S. government and agencies
 
3

 
377

 
23

 
0

 
400

 
—

 
AA+
Corporate securities
 
14

 
1,505

 
38

 
(23
)
 
1,520

 
(13
)
 
A-
Mortgage-backed securities(4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 
RMBS
 
11

 
1,238

 
29

 
(22
)
 
1,245

 
(7
)
 
A
CMBS
 
5

 
506

 
9

 
(2
)
 
513

 
—

 
AAA
Asset-backed securities
 
8

 
831

 
4

 
(10
)
 
825

 
(6
)
 
B+
Foreign government securities
 
3

 
290

 
4

 
(11
)
 
283

 
—

 
AA+
Total fixed-maturity securities
 
96

 
10,275

 
430

 
(78
)
 
10,627

 
(21
)
 
A+
Short-term investments
 
4

 
396

 
0

 
0

 
396

 
—

 
AA-
Total investment portfolio
 
100
%
 
$
10,671

 
$
430

 
$
(78
)
 
$
11,023

 
$
(21
)
 
A+
____________________
(1)
Based on amortized cost.
 
(2)
Accumulated OCI. See also Note 17, Shareholders' Equity for additional information as applicable.
 
(3)
Ratings in the tables above represent the lower of the Moody’s and S&P classifications except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio consists primarily of high-quality, liquid instruments.
 
(4)
Government-agency obligations were approximately 47% of mortgage backed securities as of June 30, 2016 and 54% as of December 31, 2015 based on fair value.

The Company’s investment portfolio in tax-exempt and taxable municipal securities includes issuances by a wide number of municipal authorities across the U.S. and its territories. Under the Company's investment guidelines, securities rated lower than A-/A3 by S&P or Moody’s are typically not purchased for the Company’s portfolio unless acquired for loss mitigation or risk management strategies.
 
The majority of the investment portfolio is managed by four outside managers. The Company has established detailed guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.
 
The following tables summarize, for all fixed-maturity securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.
 
Fixed-Maturity Securities
Gross Unrealized Loss by Length of Time
As of June 30, 2016
 
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(dollars in millions)
Obligations of state and political subdivisions
$
25

 
$
0

 
$
10

 
$
(1
)
 
$
35

 
$
(1
)
U.S. government and agencies
10

 
0

 
—

 
—

 
10

 
0

Corporate securities
54

 
(5
)
 
81

 
(33
)
 
135

 
(38
)
Mortgage-backed securities:
 
 
 
 
 
 
 

 


 


RMBS
47

 
(5
)
 
115

 
(14
)
 
162

 
(19
)
CMBS
7

 
0

 
—

 
—

 
7

 
0

Asset-backed securities
543

 
(17
)
 
—

 
—

 
543

 
(17
)
Foreign government securities
84

 
(9
)
 
52

 
(9
)
 
136

 
(18
)
Total
$
770

 
$
(36
)
 
$
258

 
$
(57
)
 
$
1,028

 
$
(93
)
Number of securities (1)
 

 
68

 
 

 
53

 
 

 
113

Number of securities with other-than-temporary impairment (1)
 

 
8

 
 

 
7

 
 

 
14

 
Fixed-Maturity Securities
Gross Unrealized Loss by Length of Time
As of December 31, 2015

 
Less than 12 months
 
12 months or more
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(dollars in millions)
Obligations of state and political subdivisions
$
316

 
$
(10
)
 
$
7

 
$
0

 
$
323

 
$
(10
)
U.S. government and agencies
77

 
0

 
—

 
—

 
77

 
0

Corporate securities
381

 
(8
)
 
95

 
(15
)
 
476

 
(23
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 


 


RMBS
438

 
(8
)
 
90

 
(14
)
 
528

 
(22
)
CMBS
140

 
(2
)
 
2

 
0

 
142

 
(2
)
Asset-backed securities
517

 
(10
)
 
—

 
—

 
517

 
(10
)
Foreign government securities
97

 
(4
)
 
82

 
(7
)
 
179

 
(11
)
Total
$
1,966

 
$
(42
)
 
$
276

 
$
(36
)
 
$
2,242

 
$
(78
)
Number of securities (1)
 

 
335

 
 

 
71

 
 

 
396

Number of securities with other-than-temporary impairment
 

 
9

 
 

 
4

 
 

 
13


___________________
(1)
The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

Of the securities in an unrealized loss position for 12 months or more as of June 30, 2016, 26 securities had unrealized losses greater than 10% of book value. The total unrealized loss for these securities as of June 30, 2016 was $55 million. As of December 31, 2015, of the securities in an unrealized loss position for 12 months or more, nine securities had unrealized losses greater than 10% of book value with unrealized loss amount of $26 million. The Company has determined that the unrealized losses recorded as of June 30, 2016 and December 31, 2015 were yield related and not the result of other-than-temporary-impairment.
 
The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of June 30, 2016 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Distribution of Fixed-Maturity Securities
by Contractual Maturity
As of June 30, 2016
 
 
Amortized
Cost
 
Estimated
Fair Value
 
(in millions)
Due within one year
$
482

 
$
484

Due after one year through five years
1,484

 
1,536

Due after five years through 10 years
1,926

 
2,066

Due after 10 years
3,967

 
4,273

Mortgage-backed securities:
 

 
 

RMBS
1,037

 
1,062

CMBS
505

 
539

Total
$
9,401

 
$
9,960


 
The investment portfolio contains securities and cash that are either held in trust for the benefit of third party reinsurers in accordance with statutory requirements, invested in a guaranteed investment contract for future claims payments, placed on deposit to fulfill state licensing requirements, or otherwise restricted in the amount of $300 million and $283 million as of June 30, 2016 and December 31, 2015, respectively, based on fair value. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,561 million and $1,411 million as of June 30, 2016 and December 31, 2015, respectively, based on fair value.

The fair value of the Company’s pledged securities to secure its obligations under its CDS exposure totaled $216 million and $305 million as of June 30, 2016 and December 31, 2015, respectively.
 
No material investments of the Company were non-income producing for Six Months 2016 and Six Months 2015, respectively.
 
Internally Managed Portfolio

The investment portfolio tables shown above include both assets managed externally and internally. In the table below, more detailed information is provided for the component of the total investment portfolio that is internally managed (excluding short-term investments). The internally managed portfolio, as defined below, represents approximately 13% and 13% of the investment portfolio, on a fair value basis as of June 30, 2016 and December 31, 2015, respectively. The internally managed portfolio consists primarily of the Company's investments in securities for (i) loss mitigation purposes, (ii) other risk management purposes and (iii) where the Company believes a particular security presents an attractive investment opportunity.
    
One of the Company's strategies for mitigating losses has been to purchase securities it has insured that have expected losses, at discounted prices (assets purchased for loss mitigation purposes). In addition, the Company holds other invested assets that were obtained or purchased as part of negotiated settlements with insured counterparties or under the terms of our financial guaranties (other risk management assets).

Internally Managed Portfolio
Carrying Value

 
As of
June 30, 2016
 
As of
December 31, 2015
 
(in millions)
Assets purchased for loss mitigation and other risk management purposes:
 
 
 
Fixed-maturity securities, at fair value
$
1,208

 
$
1,266

Other invested assets
113

 
114

Other
58

 
55

Total
$
1,379

 
$
1,435