Investment Securities

OneBeacon's invested assets are comprised of securities and other investments held for general investment purposes. Refer to the Company's 2013 Annual Report on Form 10-K for a complete discussion.

OneBeacon classifies its portfolio of fixed maturity investments and common equity securities, including convertible fixed maturity investments, held for general investment purposes as trading securities. Trading securities are reported at fair value as of the balance sheet date as determined by quoted market prices when available. Realized and change in unrealized investment gains on trading securities are reported in total revenues as net realized and unrealized investment gains in revenues on a pre-tax basis.

Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year. Short-term investments are carried at amortized cost, which approximates fair value.

Other investments primarily include hedge funds and private equity funds. OneBeacon measures its investments in hedge funds and private equity funds at fair value with changes therein reported in total revenues as net realized and change in unrealized investment gains. Other investments also include an investment in a community reinvestment vehicle which is accounted for at fair value and a tax advantaged federal affordable housing development fund which is accounted for under the equity method.

OneBeacon's net investment income is comprised primarily of interest income associated with fixed maturity investments, dividend income from its equity investments, and interest income from its short-term investments. Other investments primarily include hedge funds and private equity funds. Net investment income for the three months ended March 31, 2014, and 2013 consisted of the following:



		Three months ended March 31,
		2014			2013
	($ in millions)
Fixed maturity investments		$	10.3		$	9.9
Common equity securities		1.7			1.3
Convertible fixed maturity investments		—			0.4
Other investments		(0.3		)	(0.3		)
Gross investment income		11.7			11.3
Less investment expenses		(1.7		)	(1.9		)
Net investment income		$	10.0		$	9.4

The composition of net realized investment gains consisted of the following:



		Three months ended March 31,
		2014		2013
	($ in millions)
Fixed maturity investments		$	0.8	$	3.9
Common equity securities		5.4		16.7
Convertible fixed maturity investments		1.1		1.5
Other investments		—		1.8
Net realized investment gains		$	7.3	$	23.9

Accounts payable on unsettled investment purchases as of March 31, 2014 and December 31, 2013 were $25.6 million and $11.6 million, respectively, and accounts receivable on unsettled investment sales were $6.7 million and $3.3 million, respectively.

The net changes in fair value for the three months ended March 31, 2014, and 2013 are as follows:



		Three months ended March 31, 2014
		Changes in net unrealized investment gains⁽¹⁾		Changes in net foreign currency translation gains (losses)⁽¹⁾		Total net changes in fair value reflected in revenues⁽¹⁾
	($ in millions)
Fixed maturity investments		$	4.7	$	—	$	4.7
Common equity securities		3.1		—		3.1
Convertible fixed maturity investments		0.7		—		0.7
Other investments		3.1		—		3.1
Net change in fair value		$	11.6	$	—	$	11.6



		Three months ended March 31, 2013
		Changes in net unrealized investment gains ⁽¹⁾			Changes in net foreign currency translation gains (losses)⁽¹⁾		Total net changes in fair value reflected in revenues⁽¹⁾
	($ in millions)
Fixed maturity investments		$	(4.4	)	$	—	$	(4.4	)
Common equity securities		7.9			—		7.9
Convertible fixed maturity investments		(0.9		)	—		(0.9		)
Other investments		1.9			—		1.9
Net change in fair value		$	4.5		$	—	$	4.5

_______________________________________________________________________________


⁽¹⁾	Includes pre-tax changes in net deferred gains and losses on sales of investments between OneBeacon and entities under White Mountains' common control of $(0.1) million for the three months ended March 31, 2013, with none recorded in the 2014 period.

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 investment portfolio as of March 31, 2014 and December 31, 2013 were as follows:



	March 31, 2014			December 31, 2013
	($ in millions)
Investment securities:
Gross unrealized investment gains	$	142.7		$	133.7
Gross unrealized investment losses	(6.7		)	(9.3		)
Total net unrealized investment gains, pre-tax	136.0			124.4
Income taxes	(37.3		)	(33.8		)
Total net unrealized investment gains, after tax	$	98.7		$	90.6

The cost or amortized cost, gross unrealized pre-tax investment gains and losses, net foreign currency losses and carrying values of fixed maturity investments as of March 31, 2014 and December 31, 2013 were as follows:



	March 31, 2014⁽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	$	209.9	$	0.2	$	—		$	—	$	210.1
Debt securities issued by corporations	741.2		14.8		(0.3		)	—		755.7
Municipal obligations	32.1		0.2		(0.2		)	—		32.1
Mortgage-backed and asset-backed securities	881.8		1.7		(2.2		)	—		881.3
Foreign government obligations	2.0		0.3		—			—		2.3
Preferred stocks	78.3		6.0		—			—		84.3
Total fixed maturity investments	$	1,945.3	$	23.2	$	(2.7	)	$	—	$	1,965.8



	December 31, 2013⁽¹⁾
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
U.S. Government and agency obligations	$	131.0	$	0.2	$	(0.1	)	$	—	$	131.1
Debt securities issued by corporations	741.7		14.1		(1.3		)	—		754.5
Municipal obligations	16.9		—		(0.4		)	—		16.5
Mortgage-backed and asset-backed securities	951.5		1.2		(3.2		)	—		949.5
Foreign government obligations	2.0		0.3		—			—		2.3
Preferred stocks	78.3		5.0		—			—		83.3
Total fixed maturity investments	$	1,921.4	$	20.8	$	(5.0	)	$	—	$	1,937.2

_______________________________________________________________________________


⁽¹⁾	Includes carrying value of $222.2 million and $236.3 million of fixed maturity investments reclassified to assets held for sale in the consolidated balance sheets as part of the Runoff Transaction as of March 31, 2014 and December 31, 2013, respectively.

The cost or amortized cost, gross unrealized pre-tax investment gains and losses, net foreign currency gains and carrying values of common equity securities, convertible fixed maturity investments and other investments as of March 31, 2014 and December 31, 2013 were as follows:



	March 31, 2014
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	274.4	$	73.5	$	(1.0	)	$	0.2	$	347.1
Convertible fixed maturity investments	24.3		5.2		(0.2		)	—		29.3
Other investments	105.0		40.8		(2.8		)	—		143.0
Total common equity securities, convertible fixed maturity investments and other investments	$	403.7	$	119.5	$	(4.0	)	$	0.2	$	519.4



	December 31, 2013
	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Net foreign currency gains		Carrying value
	($ in millions)
Common equity securities	$	267.2	$	70.4	$	(0.9	)	$	0.2	$	336.9
Convertible fixed maturity investments	26.3		4.5		(0.3		)	—		30.5
Other investments	104.7		38.0		(3.1		)	—		139.6
Total common equity securities, convertible fixed maturity investments and other investments	$	398.2	$	112.9	$	(4.3	)	$	0.2	$	507.0

As of March 31, 2014 and December 31, 2013, the Company held unrestricted collateral from its customers, which is included in cash and invested assets, relating to its surety business of $64.3 million and $63.3 million, respectively. The obligation to return these funds is included in other liabilities in the consolidated balance sheets.

Fair value measurements

As of both March 31, 2014 and December 31, 2013, approximately 92% 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 March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013 were comprised of $51.9 million and $49.4 million, respectively, in hedge funds, $57.2 million and $56.1 million, respectively, in private equity funds, and $14.4 million for both periods in an investment in a community reinvestment vehicle. Additionally, other investments accounted for at fair value as of March 31, 2014 included $0.2 million in trust certificates issued upon dissolution of a private equity fund, with no such investments held as of December 31, 2013. As of March 31, 2014 and December 31, 2013, OneBeacon held investments in 9 and 8 hedge funds, respectively, and 18 and 19 private equity funds, respectively. The largest investment in a single fund was $15.1 million and $14.9 million at March 31, 2014 and December 31, 2013, respectively. As of March 31, 2014 and December 31, 2013, other investments also included $19.3 million and $19.7 million, respectively, of an investment in a tax advantaged federal affordable housing development fund which is accounted for using the equity method.

The following tables summarize the Company's fair value measurements for investments at March 31, 2014 and December 31, 2013 by level:



	Fair value at March 31, 2014⁽²⁾		Level 1		Level 2		Level 3
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	210.1	$	210.1	$	—	$	—
Debt securities issued by corporations:
Consumer	220.9		—		220.9		—
Financial	147.1		—		147.1		—
Communications	100.0		—		100.0		—
Industrial	97.4		—		97.4		—
Energy	62.6		—		62.6		—
Basic materials	55.6		—		55.6		—
Utilities	43.1		—		43.1		—
Technology	29.0		—		29.0		—
Debt securities issued by corporations	755.7		—		755.7		—
Mortgage-backed and asset-backed securities	881.3		—		862.9		18.4
Preferred stocks	84.3		—		13.0		71.3
Municipal obligations	32.1		—		32.1		—
Foreign government obligations	2.3		1.6		0.7		—
Fixed maturity investments	1,965.8		211.7		1,664.4		89.7
Short-term investments	152.7		152.7		—		—
Common equity securities:
Consumer	123.3		123.3		—		—
Financials	83.0		82.9		—		0.1
Energy	35.9		35.9		—		—
Basic Materials	20.9		20.9		—		—
Utilities	9.6		9.6		—		—
Other	74.4		74.4		—		—
Common equity securities	347.1		347.0		—		0.1
Convertible fixed maturity investments	29.3		—		29.3		—
Other investments⁽¹⁾	123.7		—		—		123.7
Total⁽¹⁾	$	2,618.6	$	711.4	$	1,693.7	$	213.5

_______________________________________________________________________________


⁽¹⁾	Excludes the carrying value of $19.3 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of March 31, 2014.


⁽²⁾	Fair value includes $222.2 million of fixed maturity investments reclassified to assets held for sale in the March 31, 2014 consolidated balance sheets as part of the Runoff Transaction.



	Fair value at December 31, 2013⁽²⁾		Level 1		Level 2		Level 3
	($ in millions)
Fixed maturity investments:
U.S. Government and agency obligations	$	131.1	$	131.1	$	—	$	—
Debt securities issued by corporations:
Consumer	239.6		—		239.6		—
Financial	145.5		—		145.5		—
Industrial	106.0		—		106.0		—
Communications	91.5		—		91.5		—
Basic materials	64.4		—		64.4		—
Energy	40.5		—		40.5		—
Utilities	38.0		—		38.0		—
Technology	29.0		—		29.0		—
Debt securities issued by corporations	754.5		—		754.5		—
Mortgage-backed and asset-backed securities	949.5		—		938.6		10.9
Preferred stocks	83.3		—		12.3		71.0
Municipal obligations	16.5		—		16.5		—
Foreign government obligations	2.3		1.6		0.7		—
Fixed maturity investments	1,937.2		132.7		1,722.6		81.9
Short-term investments	157.0		155.9		1.1		—
Common equity securities:
Consumer	122.6		122.6		—		—
Financials	83.3		83.2		—		0.1
Energy	34.7		34.7		—		—
Basic Materials	20.3		20.3		—		—
Utilities	8.3		8.3		—		—
Other	67.7		67.7		—		—
Common equity securities	336.9		336.8		—		0.1
Convertible fixed maturity investments	30.5		—		30.5		—
Other investments⁽¹⁾	119.9		—		—		119.9
Total⁽¹⁾	$	2,581.5	$	625.4	$	1,754.2	$	201.9

_______________________________________________________________________________


⁽¹⁾	Excludes the carrying value of $19.7 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of December 31, 2013.


⁽²⁾	Fair value includes $236.3 million of fixed maturity investments reclassified to assets held for sale in the December 31, 2013 consolidated balance sheets as part of the Runoff Transaction.

At both March 31, 2014 and December 31, 2013, OneBeacon held one private preferred stock that represented approximately 85% of its preferred stock portfolio. OneBeacon calculated its fair value using projected discounted cash flows based on a discount yield. The discounted yield was determined with inputs from quoted market yields for similar securities and adjusted for liquidity based on management’s best estimate of market conditions; this security is classified as a Level 3 measurement.

The following table summarizes the ratings of OneBeacon's corporate debt securities as of March 31, 2014 and December 31, 2013:



	March 31, 2014		December 31, 2013
	($ in millions)
AA	$	47.1	$	51.2
A	352.2		357.9
BBB	355.6		345.4
BB	—		—
Other	0.8		—
Debt securities issued by corporations⁽¹⁾	$	755.7	$	754.5

_______________________________________________________________________________

⁽¹⁾Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor’s Financial Services LLC (“Standard and Poor’s”) and 2) Moody’s Investor Service (“Moody’s”).

Rollforwards of Fair Value Measurements by Level

The changes in Level 1 fair value measurements for the three months ended March 31, 2014 are as follows:



	Fixed maturity investments			Common equity securities			Convertible fixed maturity investments		Other investments		Total⁽¹⁾
	($ in millions)
Balance at January 1, 2014	$	132.7		$	336.8		$	—	$	—	$	469.5
Amortization/accretion	—			—			—		—		—
Net realized and unrealized gains (losses)	0.1			8.5			—		—		8.6
Purchases	114.6			26.0			—		—		140.6
Sales	(35.7		)	(24.3		)	—		—		(60.0		)
Transfers in	—			—			—		—		—
Transfers out	—			—			—		—		—
Balance at March 31, 2014	$	211.7		$	347.0		$	—	$	—	$	558.7

_______________________________________________________________________________


⁽¹⁾	Excludes short-term investments which are deemed to have a Level 1 designation.

The changes in Level 2 fair value measurements for the three months ended March 31, 2014 are as follows:



	Fixed maturity investments			Common equity securities		Convertible fixed maturity investments			Other investments		Total
	($ in millions)
Balance at January 1, 2014	$	1,722.6		$	—	$	30.5		$	—	$	1,753.1
Amortization/accretion	(2.6		)	—		(0.1		)	—		(2.7		)
Net realized and unrealized gains (losses)	5.0			—		1.9			—		6.9
Purchases	344.0			—		3.8			—		347.8
Sales	(404.6		)	—		(6.8		)	—		(411.4		)
Transfers in	—			—		—			—		—
Transfer out	—			—		—			—		—
Balance at March 31, 2014	$	1,664.4		$	—	$	29.3		$	—	$	1,693.7

The changes in Level 3 fair value measurements for the three months ended March 31, 2014 and 2013 are as follows:



	Fixed maturity investments		Common equity securities		Convertible fixed maturity investments		Other investments⁽¹⁾			Total⁽¹⁾
	($ in millions)
Balance at January 1, 2014	$	81.9	$	0.1	$	—	$	119.9		$	201.9
Amortization/accretion	—		—		—		—			—
Net realized and unrealized gains (losses)	0.3		—		—		3.1			3.4
Purchases	7.5		—		—		2.3			9.8
Sales	—		—		—		(1.6		)	(1.6		)
Transfers in	—		—		—		—			—
Transfers out	—		—		—		—			—
Balance at March 31, 2014	$	89.7	$	0.1	$	—	$	123.7		$	213.5



	Fixed maturity investments		Common equity securities		Convertible fixed maturity investments		Other investments⁽¹⁾			Total⁽¹⁾
	($ in millions)
Balance at January 1, 2013	$	76.1	$	0.1	$	—	$	122.7		$	198.9
Amortization/accretion	—		—		—		—			—
Net realized and unrealized gains (losses)	0.1		—		—		3.7			3.8
Purchases	1.8		—		—		1.8			3.6
Sales	—		—		—		(4.5		)	(4.5		)
Transfers in	—		—		—		—			—
Transfers out	—		—		—		—			—
Balance at March 31, 2013	$	78.0	$	0.1	$	—	$	123.7		$	201.8

_______________________________________________________________________________


⁽¹⁾	Excludes the carrying value of $19.3 million and $20.6 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of March 31, 2014 and 2013, respectively.

There were no “Transfers in” to Level 3 or "Transfers out" of Level 3 for the three months ended March 31, 2014 and 2013.

Significant Unobservable Inputs

As previously described, in certain circumstances, OneBeacon estimates the fair value of investments using industry standard pricing models and both observable and unobservable inputs.

The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3, other than hedge funds and private equity funds, at March 31, 2014. The fair value of investments in hedge funds and private equity funds, which are classified within Level 3, are estimated using the net asset value of the funds.

Description⁽¹⁾

Fair Value

Rating⁽²⁾

Valuation Technique

Unobservable Inputs

Range

Non-agency commercial mortgage-backed securities

6.4

AAA

Broker indication

Prepayment/Default Rate

Discount Spread over Swap

0 CPY/0 CDR
0.8%

Non-agency commercial mortgage-backed securities

1.1

BBB-

Broker pricing

Broker quote

N/A

Other asset-backed securities

10.9

AA+

Broker pricing

Broker quote

N/A

Preferred stock

71.3

N/R

Discounted cash flow

Discount yield

6.9%

_________________________________________________________________________


⁽¹⁾	As of March 31, 2014, each asset type consists of one security.


⁽²⁾	Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor's and 2) Moody's

The assumed prepayment rate is a significant unobservable input used to estimate the fair value of investments in agency commercial mortgage-backed securities. Generally for bonds priced at a premium, increases in prepayment speeds will result in a lower fair value, while decreases in prepayment speed may result in a higher fair value, with the inverse for bonds priced at a discount.

The following table summarizes the change in net unrealized gains or losses for assets designated as Level 3 for the three months ended March 31, 2014 and 2013:



		Three months ended March 31,
		2014		2013
	($ in millions)
Fixed maturity investments		$	0.3	$	0.1
Short-term investments		—		—
Common equity securities		—		—
Convertible fixed maturity investments		—		—
Other investments		3.1		1.9
Total		$	3.4	$	2.0

Mortgage-backed Securities

OneBeacon purchases commercial mortgage-backed securities ("CMBS") and residential mortgage-backed securities ("RMBS") to maximize its risk adjusted returns in the context of a diversified portfolio. OneBeacon's non-agency CMBS are generally short tenor and structurally senior, with approximately 30 points of subordination on average for fixed rate and floating rate CMBS as of March 31, 2014. 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 March 31, 2014, on average less than 1% of the underlying loans were reported as non-performing for both agency and non-agency CMBS held by OneBeacon. OneBeacon is not an originator of residential mortgage loans. OneBeacon did not hold any RMBS categorized as sub-prime as of March 31, 2014. OneBeacon's investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities as of March 31, 2014. 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 March 31, 2014, OneBeacon held one mortgage-backed security with a market value of $6.4 million that was 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 mortgage-backed and asset-backed securities as of March 31, 2014 and December 31, 2013:



	March 31, 2014						December 31, 2013
	Fair Value		Level 2		Level 3		Fair Value		Level 2		Level 3
	($ in millions)
Mortgage-backed securities:
Agency:
GNMA	$	305.9	$	305.9	$	—	$	321.8	$	321.8	$	—
FNMA	64.8		64.8		—		36.5		36.5		—
FHLMC	23.0		23.0		—		24.3		24.3		—
Total agency⁽¹⁾	393.7		393.7		—		382.6		382.6		—
Non-agency:
Residential	54.0		54.0		—		51.5		51.5		—
Commercial	169.2		161.7		7.5		155.0		155.0		—
Total Non-agency	223.2		215.7		7.5		206.5		206.5		—
Total mortgage-backed securities	616.9		609.4		7.5		589.1		589.1		—
Other asset-backed securities:
Credit card receivables	101.8		90.9		10.9		124.2		113.3		10.9
Vehicle receivables	115.8		115.8		—		189.3		189.3		—
Other	46.8		46.8		—		46.9		46.9		—
Total other asset-backed securities	264.4		253.5		10.9		360.4		349.5		10.9
Total mortgage-backed and asset-backed securities	$	881.3	$	862.9	$	18.4	$	949.5	$	938.6	$	10.9

_______________________________________________________________________________


⁽¹⁾	Represents publicly traded mortgage-backed securities which carry the full faith and credit guaranty of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC).

Non-agency Mortgage-backed Securities

The security issuance years of OneBeacon's investments in non-agency RMBS and non-agency CMBS securities as of March 31, 2014 are as follows:



	Fair Value		Security Issuance Year
	Fair Value		2004		2005		2006		2007		2008		2009		2010		2011		2012		2013		2014
	($ in millions)
Total non-agency RMBS	$	54.0	$	6.5	$	5.7	$	5.5	$	—	$	6.5	$	—	$	6.4	$	—	$	—	$	17.4	$	6.0
Total non-agency CMBS	169.2		—		—		—		1.3		15.0		—		7.2		13.1		86.3		38.8		7.5
Total non-agency	$	223.2	$	6.5	$	5.7	$	5.5	$	1.3	$	21.5	$	—	$	13.6	$	13.1	$	86.3	$	56.2	$	13.5

Non-agency Residential Mortgage-backed Securities

The classification of the underlying collateral quality and the tranche levels of OneBeacon's non-agency RMBS securities are as follows as of March 31, 2014:



	Fair Value		Super Senior⁽¹⁾		Senior⁽²⁾		Subordinate⁽³⁾
	($ in millions)
Prime	$	47.6	$	24.9	$	22.7	$	—
Non-prime	6.4		—		6.4		—
Total non-agency RMBS	$	54.0	$	24.9	$	29.1	$	—

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⁽¹⁾	At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch Ratings ("Fitch") and were senior to other AAA or Aaa bonds.


⁽²⁾	At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were senior to non-AAA or non-Aaa bonds.


⁽³⁾	At issuance, Subordinate were not rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were junior to other bonds.

Non-agency Commercial Mortgage-backed Securities

The amount of fixed and floating rate securities and their tranche levels are as follows as of March 31, 2014:



	Fair Value		Super Senior⁽¹⁾		Senior⁽²⁾		Subordinate⁽³⁾
	($ in millions)
Fixed rate CMBS	$	127.9	$	86.4	$	32.6	$	8.9
Floating rate CMBS	41.3		1.3		15.0		25.0
Total non-agency CMBS	$	169.2	$	87.7	$	47.6	$	33.9

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⁽¹⁾	At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's or AAA by Fitch and were senior to other AAA or Aaa bonds.


⁽²⁾	At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were senior to non-AAA or non-Aaa bonds.


⁽³⁾	At issuance, Subordinate were not rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were junior to other bonds.

Other Investments

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 following table summarizes investments in hedge funds and private equity funds at March 31, 2014 and December 31, 2013:



	March 31, 2014				December 31, 2013
	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
	($ in millions)
Hedge funds
Long/short equity	$	41.3	$	—	$	39.1	$	—
Long/short credit and distressed	8.3		—		8.1		—
Long/short equity activist	2.2		—		2.1		—
Long bank loan	0.1		—		0.1		—
Total hedge funds	51.9		—		49.4		—
Private equity funds
Energy infrastructure and services	26.3		5.7		26.0		5.9
Multi-sector	14.9		2.5		14.5		2.5
Private equity secondaries	6.2		2.1		6.4		2.1
Healthcare	3.9		1.4		2.8		1.4
Real estate	3.5		0.1		3.9		0.1
Insurance	2.4		0.1		2.3		0.1
Distressed residential real estate	—		—		0.2		—
Total private equity funds	57.2		11.9		56.1		12.1
Total hedge funds and private equity funds⁽¹⁾	$	109.1	$	11.9	$	105.5	$	12.1

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⁽¹⁾

Excluded from the above table as of March 31, 2014 and December 31, 2013 are other investments, which include an investment in a community reinvestment vehicle of $14.4 million for both periods and an investment in a tax advantaged federal affordable housing development fund of $19.3 million and $19.7 million, respectively. Additionally, other investments includes trust certificates issued upon dissolution of a private equity fund of $0.2 million as of March 31, 2014, with no such investment held as of December 31, 2013.

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 March 31, 2014 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:



	Hedge Funds—Active Funds
	30 - 59 days notice		60 - 89 days notice		90 - 119 days notice		120+ days notice		Total
	($ in millions)
Redemption frequency
Monthly	$	2.0	$	—	$	—	$	5.5	$	7.5
Quarterly	27.5		8.3		6.4		—		42.2
Annual	—		—		2.1		0.1		2.2
Total hedge funds	$	29.5	$	8.3	$	8.5	$	5.6	$	51.9

Certain 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 March 31, 2014, $0.9 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 March 31, 2014.

OneBeacon has also submitted redemption requests for certain of its investments in active hedge funds. At March 31, 2014, redemptions of $2.2 million were outstanding. The date at which all these redemptions will be received is not determinable at March 31, 2014. Redemptions are recorded as receivables when the investment is 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 March 31, 2014, investments in private equity funds were subject to lock-up periods as follows:



	1 - 3 years		3 - 5 years		5 - 10 years		>10 years		Total
	($ in millions)
Private Equity Funds—expected lock-up period remaining	$	2.4	$	19.3	$	35.5	$	—	$	57.2