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Investments and Cash
 3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments and Cash Investments and Cash

Accounting Policy

Refer to Note 1, Business and Basis of Presentation for a description of new accounting guidance adopted as of January 1, 2020 related to the credit impairment of financial assets.

Investment Portfolio

As of March 31, 2020, the majority of the investment portfolio is managed by six outside managers (including Wasmer, Schroeder & Company LLC, in which the Company has a minority interest). The Company has established detailed guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector. The externally managed portfolio must maintain a minimum average rating of A+ by S&P or A1 by Moody's.

The investment portfolio tables shown below include assets managed both externally and internally. The internally managed portfolio primarily consists of the Company's investments in securities for (i) loss mitigation purposes, (ii) other risk management purposes and (iii) other alternative investments that the Company believes present an attractive investment opportunity.
    
One of the Company's strategies for mitigating losses has been to purchase loss mitigation securities at discounted prices. The Company also holds other invested assets that were obtained or purchased as part of negotiated settlements with insured counterparties or under the terms of the financial guaranties (other risk management assets).

Alternative investments include investing in both equity and debt securities, and include investments in Assured Investment Management funds, additional amounts in other accounts managed in the Assured Investment Management platform, and alternative investments not managed in the Assured Investment Management platform. The insurance subsidiaries currently intend to invest $500 million in Assured Investment Management funds. As of March 31, 2020, the Insurance segment had committed capital to the three consolidated Assured Investment Management funds, of which $192 million has been drawn by the respective Assured Investment Management funds, and which had a fair value of $179 million as of March 31, 2020. The remaining outstanding commitment to the Assured Investment Management funds was $78 million as of March 31, 2020. The undrawn portion is reflected in short-term investments in the table below. All of the Assured Investment Management funds in which the insurance subsidiaries invest were consolidated as of March 31, 2020 and December 31, 2019. See Note 12, Variable Interest Entities. The Company has agreed to purchase up to $100 million of limited partnership interests in a fund that
invests in the equity of private equity managers of which $86 million of the commitment was not funded as of March 31, 2020. The Company has also invested in a limited liability company that owns fuel cells.

Investment Portfolio
Carrying Value

 
As of
March 31, 2020
 
As of
December 31, 2019
 
(in millions)
Fixed-maturity securities (1):
 
 
 
Externally managed
$
7,826

 
$
7,978

Internally managed
742

 
876

Short-term investments
933

 
1,268

Other invested assets
 
 
 
Equity method investments
108

 
111

Other
13

 
7

Total
$
9,622

 
$
10,240

____________________
(1)
7.6% and 8.6% of fixed-maturity securities are rated BIG as of March 31, 2020 and December 31, 2019, respectively.

Accrued investment income, which is recorded in other assets, was $83 million and $79 million as of March 31, 2020 and December 31, 2019, respectively. In First Quarter 2020, the Company did not write off any accrued investment income.

Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of March 31, 2020

Security Type
 
Percent
of
Total (1)
 
Amortized
Cost
 
Allowance for Credit Losses
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI (2)
Pre-tax Gain
(Loss) on
Securities
with
Credit Loss
 
Weighted
Average
Credit
Rating (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
42
%
 
$
3,952

 
$
(11
)
 
$
269

 
$
(6
)
 
$
4,204

 
$
(2
)
 
AA-
U.S. government and agencies
 
2

 
160

 
—

 
15

 
—

 
175

 
—

 
AA+
Corporate securities
 
25

 
2,292

 
(39
)
 
58

 
(78
)
 
2,233

 
(36
)
 
A
Mortgage-backed securities (4):
 
0

 
 
 
 
 
 
 
 

 
—

 
 

 
 
RMBS
 
8

 
737

 
(16
)
 
39

 
(43
)
 
717

 
(39
)
 
A
CMBS
 
4

 
399

 
—

 
15

 
—

 
414

 
—

 
AAA
Asset-backed securities
 
7

 
687

 
(7
)
 
9

 
(36
)
 
653

 
(6
)
 
BBB-
Non-U.S. government securities
 
2

 
183

 
—

 
1

 
(12
)
 
172

 
—

 
AA
Total fixed-maturity securities
 
90

 
8,410

 
(73
)
 
406

 
(175
)
 
8,568

 
(83
)
 
A+
Short-term investments
 
10

 
933

 
—

 
1

 
(1
)
 
933

 
—

 
AAA
Total
 
100
%
 
$
9,343

 
$
(73
)
 
$
407

 
$
(176
)
 
$
9,501

 
$
(83
)
 
AA-
Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of December 31, 2019 

Security Type
 
Percent
of
Total (1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI
Pre-tax
Gain
(Loss) on
Securities
with
OTTI
 
Weighted
Average
Credit
Rating (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
42
%
 
$
4,036

 
$
305

 
$
(1
)
 
$
4,340

 
$
40

 
AA-
U.S. government and agencies
 
1

 
137

 
10

 
—

 
147

 
—

 
AA+
Corporate securities
 
23

 
2,137

 
103

 
(19
)
 
2,221

 
(8
)
 
A
Mortgage-backed securities (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 
RMBS
 
8

 
745

 
37

 
(7
)
 
775

 
8

 
A-
CMBS
 
4

 
402

 
17

 
—

 
419

 
—

 
AAA
Asset-backed securities
 
7

 
684

 
38

 
(2
)
 
720

 
16

 
BB+
Non-U.S. government securities
 
2

 
230

 
7

 
(5
)
 
232

 
3

 
AA
Total fixed-maturity securities
 
87

 
8,371

 
517

 
(34
)
 
8,854

 
59

 
A+
Short-term investments
 
13

 
1,268

 
—

 
—

 
1,268

 
—

 
AAA
Total
 
100
%
 
$
9,639

 
$
517

 
$
(34
)
 
$
10,122

 
$
59

 
AA-
____________________
(1)
Based on amortized cost.
 
(2)
Accumulated OCI (AOCI).

(3)
Ratings 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 primarily consists of high-quality, liquid instruments.
 
(4)
U.S. government-agency obligations were approximately 44% of mortgage backed securities as of March 31, 2020 and 42% as of December 31, 2019 based on fair value.

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
For Which an Allowance for Credit Loss was Not Recorded
As of March 31, 2020
 
 
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
$
104

 
$
(4
)
 
$
—

 
$
—

 
$
104

 
$
(4
)
Corporate securities
679

 
(29
)
 
68

 
(13
)
 
747

 
(42
)
Mortgage-backed securities:
 
 
 
 
 
 
 

 
 
 
 
RMBS
42

 
(4
)
 
5

 
—

 
47

 
(4
)
CMBS
36

 
—

 
3

 
—

 
39

 
—

Asset-backed securities
434

 
(22
)
 
132

 
(8
)
 
566

 
(30
)
Non-U.S. government securities
95

 
(3
)
 
52

 
(9
)
 
147

 
(12
)
Total
$
1,390

 
$
(62
)
 
$
260

 
$
(30
)
 
$
1,650

 
$
(92
)
Number of securities (1)
 

 
376

 
 

 
79

 
 

 
430

 

Fixed-Maturity Securities
Gross Unrealized Loss by Length of Time
As of December 31, 2019

 
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
$
45

 
$
(1
)
 
$
—

 
$
—

 
$
45

 
$
(1
)
U.S. government and agencies
5

 
—

 
5

 
—

 
10

 
—

Corporate securities
61

 
—

 
119

 
(19
)
 
180

 
(19
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 
 
 
 
RMBS
10

 
—

 
75

 
(7
)
 
85

 
(7
)
CMBS
—

 
—

 
4

 
—

 
4

 
—

Asset-backed securities
24

 
—

 
183

 
(2
)
 
207

 
(2
)
Non-U.S. government securities
—

 
—

 
56

 
(5
)
 
56

 
(5
)
Total
$
145

 
$
(1
)
 
$
442

 
$
(33
)
 
$
587

 
$
(34
)
Number of securities
 

 
57

 
 

 
119

 
 

 
176

Number of securities with OTTI
 

 
1

 
 

 
7

 
 

 
8

___________________
(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 as of March 31, 2020, 57 securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was $33 million as of March 31, 2020. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses
recorded as of March 31, 2020 were not related to credit quality. In addition, the Company currently does not intend to and is not required to sell investments in an unrealized loss position prior to expected recovery in value.

Of the securities in an unrealized loss position for 12 months or more as of December 31, 2019, 19 securities had unrealized losses greater than 10% of book value. The total unrealized loss for these securities was $25 million as of December 31, 2019. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company determined that the unrealized losses recorded as of December 31, 2019 were not related to credit quality.
 
The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of March 31, 2020 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 March 31, 2020
 
 
Amortized
Cost
 
Estimated
Fair Value
 
(in millions)
Due within one year
$
300

 
$
300

Due after one year through five years
1,691

 
1,694

Due after five years through 10 years
2,028

 
2,037

Due after 10 years
3,255

 
3,406

Mortgage-backed securities:
 

 
 

RMBS
737

 
717

CMBS
399

 
414

Total
$
8,410

 
$
8,568

 
Based on fair value, investments and restricted assets that are either held in trust for the benefit of third party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted totaled $277 million and $280 million, as of March 31, 2020 and December 31, 2019, respectively. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,365 million and $1,502 million, based on fair value as of March 31, 2020 and December 31, 2019, respectively.

Net Investment Income

Net investment income is a function of the yield that the Company earns on invested assets and the size of the portfolio. Net investment income includes the income earned on fixed-maturity securities, short-term investments and other invested assets, other than investments accounted for under the equity method, which are recorded in equity in earnings of investees. 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.
Net Investment Income
 
 
First Quarter
 
2020
 
2019
 
(in millions)
Interest income:
 
 
 
Externally managed
$
62

 
$
72

Internally managed
20

 
28

Interest income
82

 
100

Investment expenses
(2
)
 
(2
)
Net investment income
$
80

 
$
98



Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.

Net Realized Investment Gains (Losses)
 
 
First Quarter
 
2020
 
2019
 
(in millions)
Gross realized gains on available-for-sale securities
$
7

 
$
6

Gross realized losses on available-for-sale securities
(1
)
 
(2
)
Credit impairments (1)
(11
)
 
(16
)
Net realized investment gains (losses) (2)
$
(5
)
 
$
(12
)

____________________
(1)
Credit impairment in First Quarter 2020 related primarily to an increase in the allowance for credit loss on loss mitigation securities. Shut-downs due to COVID-19 pandemic restrictions contributed to the increase in the allowance for credit loss in First Quarter 2020. Credit impairment in First Quarter 2019 was primarily attributable to OTTI on loss mitigation securities and foreign exchange losses.

(2)
Includes foreign currency gains of $3 million and $1 million for First Quarter 2020 and First Quarter 2019, respectively.


The proceeds from sales of fixed-maturity securities classified as available-for-sale were $86 million in First Quarter 2020 and $471 million in First Quarter 2019.

The following table presents the roll-forward of the credit losses on fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2020 or an OTTI and for which unrealized loss was recognized in OCI for 2019.

Roll Forward of Credit Losses
in the Investment Portfolio

 
First Quarter
 
2020
 
2019
 
(in millions)
 
 
Balance, beginning of period
$
—

 
$
185

Effect of adoption of accounting guidance on credit losses on January 1, 2020
62

 
 
Additions for credit losses on securities for which credit impairments were not previously recognized
2

 
—

Additions (reductions) for credit losses on securities for which credit impairments were previously recognized
9

 
12

Balance, end of period
$
73

 
$
197