OneBeacon's net investment income is comprised primarily of interest income associated with OneBeacon's fixed maturity investments, dividend income from its equity investments and interest income from its short-term investments. Net investment income for the years ended December 31, 2011, 2010 and 2009 consisted of the following:

	Year ended December 31,

	2011			2010			2009
	($ in millions)
Investment income:
Fixed maturity investments	$	69.7		$	94.5		$	124.2
Short-term investments		0.1			0.8			2.4
Common equity securities		5.3			4.2			1.9
Convertible fixed maturity investments		3.5			5.2			6.7
Other investments		(0.3	)		0.8			1.2

Gross investment income		78.3			105.5			136.4
Less investment expenses		(6.9	)		(8.9	)		(10.9	)

Net investment income, pre-tax	$	71.4		$	96.6		$	125.5

The composition of net realized investment gains (losses), a component of net realized and unrealized investment gains (losses), consisted of the following:

	Year ended December 31,

	2011			2010			2009
	($ in millions)
Fixed maturity investments	$	32.1		$	56.2		$	(6.8	)
Short-term investments		—			—			0.2
Common equity securities		16.7			4.2			(31.5	)
Convertible fixed maturity investments		(0.4	)		16.2			12.3
Other investments		8.4			5.3			5.3

Net realized investment gains (losses), pre-tax		56.8			81.9			(20.5	)
Income taxes		(19.9	)		(28.7	)		7.2

Net realized investment gains (losses), after tax	$	36.9		$	53.2		$	(13.3	)

OneBeacon recognized gross realized investment gains of $77.9 million, $101.0 million and $85.4 million and gross realized investment losses of $21.1 million, $19.1 million and $105.9 million on sales and other-than-temporary impairment charges on investment securities during the years ended December 31, 2011, 2010 and 2009, respectively.

As of December 31, 2011 and 2010, OneBeacon reported $22.7 million and $14.1 million, respectively, in accounts payable on unsettled investment purchases and $0.5 million and $5.4 million, respectively, in accounts receivable on unsettled investment sales.

The net changes in fair value for the years ended December 31, 2011, 2010 and 2009 are as follows:

	Year ended December 31, 2011

	Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)
	($ in millions)
Fixed maturity investments	$	(18.7	)	$	(0.1	)	$	(18.8	)
Short-term investments		—			0.1			0.1
Common equity securities		(22.1	)		(0.1	)		(22.2	)
Convertible fixed maturity investments		(8.4	)		—			(8.4	)
Other investments		3.1			—			3.1

Total	$	(46.1	)	$	(0.1	)	$	(46.2	)

	Year ended December 31, 2010

	Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)			Total net changes in fair value reflected in revenues(1)
	($ in millions)
Fixed maturity investments	$	(40.9	)	$	(1.5	)	$	(42.4	)
Short-term investments		—			(0.9	)		(0.9	)
Common equity securities		36.6			0.1			36.7
Convertible fixed maturity investments		(4.7	)		—			(4.7	)
Other investments		4.0			—			4.0

Total	$	(5.0	)	$	(2.3	)	$	(7.3	)

	Year ended December 31, 2009

	Changes in net unrealized gains and losses(1)			Changes in net foreign currency translation gains and losses(1)		Total net changes in fair value reflected in revenues(1)
	($ in millions)
Fixed maturity investments	$	185.7		$	20.0	$	205.7
Short-term investments		(0.2	)		1.5		1.3
Common equity securities		19.1			0.1		19.2
Convertible fixed maturity investments		30.3			—		30.3
Other investments(2)		12.6			—		12.6

Total	$	247.5		$	21.6	$	269.1

The components of OneBeacon's ending net unrealized investment gains and losses, excluding the impact of net unrealized foreign currency translation gains and losses, on its trading investment portfolio as of December 31, 2011 and 2010 were as follows:

	December 31,

	2011			2010
	($ in millions)
Investment securities:
Gross unrealized investment gains	$	123.5		$	162.8
Gross unrealized investment losses		(21.6	)		(20.0	)

Net unrealized gains from investment securities		101.9			142.8
Income taxes		(33.9	)		(50.0	)

Total net unrealized investment gains, after tax	$	68.0		$	92.8

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency losses and carrying values of OneBeacon's fixed maturity investments as of December 31, 2011 and 2010 were as follows:

	December 31, 2011(1)

	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency losses			Carrying value
	($ in millions)
U.S. Government and agency obligations	$	213.6	$	1.8	$	—		$	—		$	215.4
Debt securities issued by industrial corporations		725.8		34.9		(1.9	)		(0.1	)		758.7
Municipal obligations		2.2		—		—			—			2.2
Asset-backed securities		928.5		10.6		(0.8	)		—			938.3
Foreign government obligations		7.7		0.5		(0.1	)		—			8.1
Preferred stocks		78.3		3.2		(6.2	)		—			75.3

Total fixed maturity investments	$	1,956.1	$	51.0	$	(9.0	)	$	(0.1	)	$	1,998.0

	December 31, 2010

	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
U.S. Government and agency obligations	$	241.7	$	9.0	$	—		$	—	$	250.7
Debt securities issued by industrial corporations		908.5		46.5		(6.4	)		—		948.6
Municipal obligations		2.1		—		—			—		2.1
Asset-backed securities		1,117.2		9.1		(8.9	)		—		1,117.4
Foreign government obligations		12.7		0.6		—			—		13.3
Preferred stocks		77.5		5.9		—			—		83.4

Total fixed maturity investments	$	2,359.7	$	71.1	$	(15.3	)	$	—	$	2,415.5

The cost or amortized cost and carrying value of OneBeacon's fixed maturity investments and convertible fixed maturity investments at December 31, 2011 is presented below by contractual maturity. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

	December 31, 2011(1)

	Cost or amortized cost		Carrying value
	($ in millions)
Due in one year or less	$	107.2	$	108.9
Due after one year through five years		739.4		764.4
Due after five years through ten years		161.4		171.7
Due after ten years		17.6		19.2
Asset-backed securities		928.5		938.3
Preferred stocks		78.3		75.3

Total	$	2,032.4	$	2,077.8

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and carrying values of OneBeacon's common equity securities, convertible fixed maturity investments and other investments as of December 31, 2011 and 2010 were as follows:

Sales and maturities of investments, excluding short-term investments and other investments, totaled $2,032.1 million, $2,470.3 million and $1,622.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. There were no non-cash exchanges or involuntary sales of investment securities during the years ended December 31, 2011, 2010 and 2009.

OneBeacon's consolidated insurance operations are required to maintain deposits with certain insurance regulatory agencies in order to maintain their insurance licenses. The fair value of such deposits totaled $182.7 million and $222.4 million, respectively, as of December 31, 2011 and 2010.

As of December 31, 2011 and 2010, investments of $62.0 million and $33.5 million, respectively, were held in trusts required to be maintained in relation to various reinsurance agreements. Trust balances as of December 31, 2011 and 2010 include $20.8 million and $29.0 million, respectively, related to investments held in a trust established in conjunction with the Personal Lines Transaction. As of December 31, 2011, the trust balance also includes $34.3 million related to investments held in a trust established in conjunction with White Mountains' sale of Esurance Holdings, Inc. ("Esurance Holdings") and its subsidiaries (collectively, "Esurance Insurance"). See Note 15.

As of December 31, 2011 and 2010, approximately 93% and 91%, respectively, of the investment portfolio recorded at fair value was priced based upon observable inputs.

The fair values of OneBeacon's investments in hedge funds and private equity funds have been classified as Level 3 under the fair value hierarchy since the fund managers do not provide sufficient information to independently evaluate the pricing inputs and methods for each underlying investment, and therefore the inputs are considered to be unobservable. At December 31, 2011 and 2010, OneBeacon did not record a liquidity adjustment to the net asset value related to its investments in hedge funds or private equity funds.

As of both December 31, 2011 and 2010, other investments reported at fair value represented approximately 5% of the investment portfolio recorded at fair value. Other investments accounted for at fair value as of December 31, 2011 and 2010 were comprised of $53.5 million and $63.4 million, respectively, in hedge funds, $65.7 million and $72.7 million, respectively, in private equity funds and $14.1 million for both periods of an investment in a community reinvestment vehicle. At December 31, 2011 and 2010, OneBeacon held investments in 9 and 10 hedge funds, respectively, and 14 and 15 private equity funds, respectively. The largest investment in a single fund was $13.7 million and $24.6 million, respectively, at December 31, 2011 and 2010. As of December 31, 2011 and 2010, other investments also included $21.8 million and $21.2 million, respectively, of an investment in a tax advantaged federal affordable housing development fund which is accounted for using the equity method.

The fair value measurements at December 31, 2011 and 2010 and their related inputs are as follows:

	Fair value at December 31, 2011(2)		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs

	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	215.4	$	215.4	$	—	$	—
Debt securities issued by corporations:				—
Consumer		299.7		—		299.7		—
Industrial		140.1		—		140.1		—
Financial		66.4		—		66.4		—
Communications		53.3		—		53.3		—
Energy		60.5		—		60.5		—
Basic materials		81.5		—		81.5		—
Utilities		42.5		—		42.5		—
Technology		14.7		—		14.7		—

Debt securities issued by corporations		758.7		—		758.7		—
Municipal obligations		2.2		—		2.2		—
Asset-backed securities		938.3		—		936.0		2.3
Foreign government obligations		8.1		7.4		0.7		—
Preferred stocks		75.3		—		11.5		63.8

Fixed maturity investments		1,998.0		222.8		1,709.1		66.1

Short-term investments		320.0		320.0		—		—
Common equity securities:
Financials		69.9		69.1		—		0.8
Basic Materials		56.2		56.2		—		—
Consumer		71.3		71.2		0.1		—
Energy		32.5		32.5		—		—
Utilities		17.9		17.9		—		—
Other		18.7		18.7		—		—

Common equity securities		266.5		265.6		0.1		0.8

Convertible fixed maturity investments		79.8		—		79.8		—
Other investments(1)		133.3		—		—		133.3

Total(1)	$	2,797.6	$	808.4	$	1,789.0	$	200.2

	Fair value at December 31, 2010		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs

	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	250.7	$	250.7	$	—	$	—
Debt securities issued by corporations:				—
Consumer		330.4		—		330.4		—
Industrial		227.9		—		227.9		—
Financial		90.5		—		90.5		—
Communications		84.7		—		84.7		—
Energy		60.7		—		60.7		—
Basic materials		78.9		—		78.9		—
Utilities		61.0		—		61.0		—
Technology		14.5		—		14.5		—

Debt securities issued by corporations		948.6		—		948.6		—
Municipal obligations		2.1		—		2.1		—
Asset-backed securities		1,117.4		—		1,089.7		27.7
Foreign government obligations		13.3		12.6		0.7		—
Preferred stocks		83.4		—		12.0		71.4

Fixed maturity investments		2,415.5		263.3		2,053.1		99.1

Short-term investments		300.0		300.0		—		—
Common equity securities:
Financials		104.1		66.7		—		37.4
Basic Materials		57.0		57.0		—		—
Consumer		50.0		49.9		0.1		—
Energy		36.0		33.7		—		2.3
Utilities		22.4		22.4		—		—
Other		15.8		15.7		0.1		—

Common equity securities		285.3		245.4		0.2		39.7

Convertible fixed maturity investments		93.8		—		93.8		—
Other investments(1)		150.2		—		—		150.2

Total(1)	$	3,244.8	$	808.7	$	2,147.1	$	289.0

At December 31, 2011 and 2010, OneBeacon held one private preferred stock that represented approximately 85% and 86%, respectively, of its preferred stock portfolio. OneBeacon used quoted market prices for similar securities that were adjusted to reflect management's best estimate of fair value; this security is classified as a Level 3 measurement.

In addition to the investment portfolio described above, OneBeacon had $36.9 million and $41.3 million, respectively, of liabilities recorded at fair value and included in other liabilities as of December 31, 2011 and 2010. These liabilities relate to securities that have been sold short by a limited partnership that OneBeacon invests in and is required to consolidate in accordance with GAAP. As of December 31, 2011 and 2010, all of the liabilities included in the $36.9 million and $41.3 million, respectively, have been classified as Level 1 measurements.

The following table summarizes the ratings of OneBeacon's corporate debt securities as of December 31, 2011 and 2010:

The changes in Level 1 fair value measurements for the year ended December 31, 2011 are as follows:

	Fixed maturity investments			Common equity securities			Convertible fixed maturity investments		Other investments		Total(1)

	($ in millions)
Balance at January 1, 2011	$	263.3		$	245.4		$	—	$	—	$	508.7
Amortization/accretion		1.4			—			—		—		1.4
Total net realized and unrealized gains (losses)		1.8			(4.2	)		—		—		(2.4	)
Purchases		189.7			94.3			—		—		284.0
Sales		(233.4	)		(69.9	)		—		—		(303.3	)
Transfers in		—			—			—		—		—
Transfers out		—			—			—		—		—

Balance at December 31, 2011	$	222.8		$	265.6		$	—	$	—	$	488.4

The changes in Level 2 fair value measurements for the year ended December 31, 2011 are as follows:

	Fixed maturity investments			Common equity securities			Convertible fixed maturity investments			Other investments		Total

	($ in millions)
Balance at January 1, 2011	$	2,053.1		$	0.2		$	93.8		$	—	$	2,147.1
Amortization/accretion		(16.4	)		—			1.2			—		(15.2	)
Total net realized and unrealized gains (losses)		18.9			(0.1	)		(9.1	)		—		9.7
Purchases		1,614.3			—			38.0			—		1,652.3
Sales		(2,069.2	)		—			(45.5	)		—		(2,114.7	)
Transfers in		109.8			—			1.4			—		111.2
Transfers out		(1.4	)		—			—			—		(1.4	)

Balance at December 31, 2011	$	1,709.1		$	0.1		$	79.8		$	—	$	1,789.0

The changes in Level 3 fair value measurements for the year ended December 31, 2011 are as follows:

	Fixed maturity investments			Common equity securities			Convertible fixed maturity investments		Other investments(1)			Total(1)

	($ in millions)
Balance at January 1, 2011	$	99.1		$	39.7		$	—	$	150.2		$	289.0
Amortization/accretion		—			—			—		—			—
Total net realized and unrealized gains (losses)		(8.2	)		(3.5	)		—		11.6			(0.1	)
Purchases		85.0			3.9			—		3.8			92.7
Sales		—			(39.3	)		—		(32.3	)		(71.6	)
Transfers in		—			—			—		—			—
Transfers out		(109.8	)		—			—		—			(109.8	)

Balance at December 31, 2011	$	66.1		$	0.8		$	—	$	133.3		$	200.2

"Transfers out" of Level 3 fixed maturity investments of $109.8 million for the year ended December 31, 2011 were comprised of securities which had been previously classified as a Level 3 measurement and were recategorized as a Level 2 measurement when quoted market prices for similar securities that were considered reliable and could be validated against an alternative source became available.

The following table summarizes the change in net unrealized gains or losses for assets designated as Level 3 for the years ended December 31, 2011, 2010 and 2009:

	Year ended December 31,

	2011			2010		2009
	($ in millions)
Fixed maturity investments	$	(7.5	)	$	1.3	$	20.8
Short-term investments		—			—		—
Common equity securities		—			6.3		4.8
Convertible fixed maturity investments		—			—		—
Other investments		3.1			4.0		5.5

Total	$	(4.4	)	$	11.6	$	31.1

OneBeacon purchases commercial and residential mortgage-backed securities to maximize its risk adjusted returns in the context of a diversified portfolio. OneBeacon's non-agency commercial mortgage-backed portfolio ("CMBS") is generally short tenor and structurally senior, with more than 20 points of subordination on average for fixed rate CMBS and approximately 50 points of subordination on average for floating rate CMBS as of December 31, 2011. In general, subordination represents the percentage of principal loss on the underlying collateral that would have to occur before the security incurs a loss. These collateral losses, instead, are first absorbed by other securities lower in the capital structure. OneBeacon believes this structural protection mitigates the risk of loss tied to refinancing challenges facing the commercial real estate market. As of December 31, 2011, on average approximately 2% of the underlying loans were reported as non-performing for all CMBS held by OneBeacon. OneBeacon is not an originator of residential mortgage loans and did not hold any residential mortgage-backed securities ("RMBS") categorized as sub-prime as of December 31, 2011. OneBeacon's investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities as of December 31, 2011. OneBeacon considers sub-prime mortgage-backed securities to be those that have underlying loan pools that exhibit weak credit characteristics or are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., OneBeacon considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics).

There are also mortgage backed securities that OneBeacon categorizes as "non-prime" (also called "Alt A" or "A-") that are backed by collateral that has overall credit quality between prime and sub-prime, as determined based on OneBeacon's review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. As of December 31, 2011, OneBeacon held $2.3 million of mortgage-backed securities that were classified as non-prime. OneBeacon's non-agency residential mortgage-backed portfolio is generally of moderate average life, fixed rate and structurally senior. OneBeacon does not own any collateralized debt obligations, including residential mortgage-backed collateralized debt obligations.

The following table summarizes the carrying value of OneBeacon's asset-backed securities as of December 31, 2011 and 2010:

	December 31,

	2011						2010
	Fair Value		Level 2		Level 3		Fair Value		Level 2		Level 3
	($ in millions)
Mortgage-backed securities:
Agency:
GNMA	$	631.0	$	631.0	$	—	$	684.7	$	663.4	$	21.3
FNMA		166.8		166.8		—		143.0		143.0		—
FHLMC		4.9		4.9		—		19.0		19.0		—

Total agency(1)		802.7		802.7		—		846.7		825.4		21.3
Non-agency:
Residential		13.7		11.4		2.3		6.4		—		6.4
Commercial		68.4		68.4		—		36.3		36.3		—

Total Non-agency		82.1		79.8		2.3		42.7		36.3		6.4
Total mortgage-backed securities		884.8		882.5		2.3		889.4		861.7		27.7
Other asset-backed securities:
Credit card receivables		48.2		48.2		—		97.5		97.5		—
Vehicle receivables		5.3		5.3		—		130.5		130.5		—

Total other asset-backed securities		53.5		53.5		—		228.0		228.0		—

Total asset-backed securities	$	938.3	$	936.0	$	2.3	$	1,117.4	$	1,089.7	$	27.7

The security issuance years of OneBeacon's investments in non-agency RMBS and non-agency CMBS securities as of December 31, 2011 are as follows:

The classification of the underlying collateral quality and the tranche levels of OneBeacon's non-agency RMBS securities are as follows as of December 31, 2011:

The amount of fixed and floating rate securities and their tranche levels are as follows as of December 31, 2011:

OneBeacon holds investments in hedge funds and private equity funds which are included in other investments. The fair value of these investments has been estimated using the net asset value of the funds. The decrease in the fair value of hedge funds and private equity funds is due to net redemptions during the period. The following table summarizes investments in hedge funds and private equity funds at December 31, 2011 and 2010:

	December 31, 2011				December 31, 2010

	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
	($ in millions)
Hedge funds
Long/short credit and distressed	$	15.1	$	—	$	15.1	$	—
Long bank loan		0.2		—		2.0		—
Long/short equity		36.1		—		39.8		—
Long/short equity activist		2.1		—		6.5		—

Total hedge funds		53.5		—		63.4		—

Private equity funds
Insurance		3.3		0.1		3.5		0.1
Distressed residential real estate		13.7		—		24.6		—
Energy infrastructure and services		16.3		4.6		13.6		5.2
Healthcare		1.1		3.5		0.8		4.0
Multi-sector		19.3		5.2		19.1		6.3
Private equity secondaries		7.6		2.6		6.9		2.9
Real estate		4.4		0.1		4.2		0.7

Total private equity funds		65.7		16.1		72.7		19.2

Total hedge funds and private equity funds(1)	$	119.2	$	16.1	$	136.1	$	19.2

Redemptions of investments in certain funds are subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the December 31, 2011 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:

Certain of the hedge fund investments are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund's underlying investments are liquidated. At December 31, 2011, $1.6 million of hedge funds were in liquidation. The actual amount of the final distribution is subject to market fluctuations. The date at which such distributions will be received is not determinable at December 31, 2011.

OneBeacon has also submitted redemption requests for certain of its investments in active hedge funds. At December 31, 2011, redemptions of $2.2 million were outstanding. The date at which such redemptions will be received is not determinable at December 31, 2011. Redemptions are recorded as receivables when approved by the hedge funds and when no longer subject to market fluctuations.

Investments in private equity funds are generally subject to "lock-up" periods during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund's underlying investment. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. At December 31, 2011, investments in private equity funds were subject to lock-up periods as follows:

During the year ended December 31, 2009, OneBeacon exited its securities lending program. As of December 31, 2011, all loaned securities under the OneBeacon program had been returned except for two illiquid instruments for which OneBeacon holds $1.7 million in collateral.