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Investments
 12 Months Ended
Dec. 31, 2018
Investments [Abstract]  
Investments
Investments
Fair values
The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
($ in millions)
Amortized cost
 
Gross unrealized
 
Fair value
 
 
Gains
 
Losses
 
December 31, 2018
 

 
 

 
 

 
 

U.S. government and agencies
$
740

 
$
33

 
$
—

 
$
773

Municipal
1,997

 
202

 
(4
)
 
2,195

Corporate
17,521

 
433

 
(381
)
 
17,573

Foreign government
170

 
9

 
—

 
179

ABS
429

 
3

 
(3
)
 
429

RMBS
154

 
44

 
(1
)
 
197

CMBS
33

 
7

 
—

 
40

Redeemable preferred stock
13

 
1

 
—

 
14

Total fixed income securities
$
21,057

 
$
732

 
$
(389
)
 
$
21,400

 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

U.S. government and agencies
$
768

 
$
38

 
$
(2
)
 
$
804

Municipal
2,001

 
275

 
(3
)
 
2,273

Corporate
18,262

 
960

 
(86
)
 
19,136

Foreign government
279

 
20

 
—

 
299

ABS
383

 
6

 
(4
)
 
385

RMBS
205

 
49

 
(1
)
 
253

CMBS
93

 
6

 
(2
)
 
97

Redeemable preferred stock
13

 
1

 
—

 
14

Total fixed income securities
$
22,004

 
$
1,355

 
$
(98
)
 
$
23,261


 
Scheduled maturities
The scheduled maturities for fixed income securities are as follows as of December 31, 2018:
($ in millions)
Amortized
cost
 
Fair
value
Due in one year or less
$
1,193

 
$
1,205

Due after one year through five years
8,135

 
8,207

Due after five years through ten years
7,220

 
7,132

Due after ten years
3,893

 
4,190

 
20,441

 
20,734

ABS, RMBS and CMBS
616

 
666

Total
$
21,057

 
$
21,400


Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.
Net investment income
Net investment income for the years ended December 31 is as follows:
($ in millions)
2018
 
2017
 
2016
Fixed income securities
$
991

 
$
1,058

 
$
1,078

Mortgage loans
188

 
182

 
193

Equity securities
39

 
48

 
40

Limited partnership interests (1)(2)
327

 
457

 
292

Short-term investments
21

 
9

 
5

Policy loans
31

 
31

 
32

Other
91

 
79

 
90

Investment income, before expense
1,688

 
1,864

 
1,730

Investment expense
(103
)
 
(87
)
 
(71
)
Net investment income
$
1,585

 
$
1,777

 
$
1,659

_______________
(1) 
 Due to the adoption of the recognition and measurement accounting standard on January 1, 2018, limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net investment income.
(2) 
Includes net investment income of $213 million for EMA limited partnership interests and $114 million for limited partnership interests carried at fair value for 2018.
Realized capital gains and losses
Realized capital gains (losses) by asset type for the years ended December 31 are as follows:
($ in millions)
2018
 
2017
 
2016
Fixed income securities
$
(40
)
 
$
(6
)
 
$
(59
)
Mortgage loans
2

 
1

 
—

Equity securities
(124
)
 
21

 
(22
)
Limited partnership interests
(22
)
 
46

 
(5
)
Derivatives
10

 
(16
)
 
8

Other
(1
)
 
3

 
1

Realized capital gains (losses)
$
(175
)
 
$
49

 
$
(77
)
Realized capital gains (losses) by transaction type for the years ended December 31 are as follows:
($ in millions)
2018
 
2017
 
2016
Impairment write-downs (1)
$
(9
)
 
$
(41
)
 
$
(101
)
Change in intent write-downs (1)
—

 
(4
)
 
(12
)
Net OTTI losses recognized in earnings
(9
)
 
(45
)
 
(113
)
Sales (1)
(27
)
 
110

 
31

Valuation of equity investments (1)(2)
(146
)
 
—

 
—

Valuation and settlements of derivative instruments
7

 
(16
)
 
5

Realized capital gains (losses)
$
(175
)
 
$
49

 
$
(77
)
_______________
 
(1) 
Due to the adoption of the recognition and measurement accounting standard, equity securities are reported at fair value with changes in fair value recognized in valuation of equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales.
(2) 
Includes valuation of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.
Gross gains of $34 million and gross losses of $66 million were realized on sales of fixed income securities during 2018. Gross gains of $134 million and $184 million and gross losses of $86 million and $171 million were realized on sales of fixed income and equity securities during 2017 and 2016, respectively.
The following table presents the net pre-tax appreciation (decline) during 2018 of equity securities and limited partnership interests carried at fair value still held as of December 31, 2018, recognized in net income.
 
 
For the year ended
($ in millions)
 
December 31, 2018
Equity securities
 
$
(78
)
Limited partnership interests carried at fair value
 
113

Total
 
$
35

OTTI losses by asset type for the years ended December 31 are as follows:
($ in millions)
2018
 
2017
 
2016
 
Gross
 
Included
in OCI
 
Net
 
Gross
 
Included
in OCI
 
Net
 
Gross
 
Included
in OCI
 
Net
Fixed income securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Municipal
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
 
$
—

 
$
—

 
$
—

Corporate
(1
)
 
—

 
(1
)
 
(7
)
 
3

 
(4
)
 
(23
)
 
6

 
(17
)
ABS
—

 
(1
)
 
(1
)
 
(1
)
 
(1
)
 
(2
)
 
(4
)
 
—

 
(4
)
RMBS
(1
)
 
—

 
(1
)
 
—

 
(2
)
 
(2
)
 
—

 
(1
)
 
(1
)
CMBS
(4
)
 
(1
)
 
(5
)
 
(9
)
 
1

 
(8
)
 
(15
)
 
2

 
(13
)
Total fixed income securities
(6
)
 
(2
)
 
(8
)
 
(18
)
 
1

 
(17
)
 
(42
)
 
7

 
(35
)
Mortgage loans
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
—

 
—

Equity securities (1)
—

 
—

 
—

 
(16
)
 
—

 
(16
)
 
(59
)
 
—

 
(59
)
Limited partnership interests (1)
—

 
—

 
—

 
(9
)
 
—

 
(9
)
 
(15
)
 
—

 
(15
)
Other
(1
)
 
—

 
(1
)
 
(2
)
 
—

 
(2
)
 
(4
)
 
—

 
(4
)
OTTI losses
$
(7
)
 
$
(2
)
 
$
(9
)
 
$
(46
)
 
$
1

 
$
(45
)
 
$
(120
)
 
$
7

 
$
(113
)
______________
(1) 
Due to the adoption of the recognition and measurement accounting standard on January 1, 2018, equity securities and limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net income and are no longer included in the table above.
The total amount of OTTI losses included in AOCI at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amounts exclude $101 million and $113 million as of December 31, 2018 and 2017, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
($ in millions)
December 31, 2018
 
December 31, 2017
Municipal
$
(4
)
 
$
(4
)
Corporate
(1
)
 
—

ABS
(5
)
 
(8
)
RMBS
(32
)
 
(37
)
CMBS
(2
)
 
(4
)
Total
$
(44
)
 
$
(53
)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:
($ in millions)
2018
 
2017
 
2016
Beginning balance
$
(138
)
 
$
(176
)
 
$
(200
)
Additional credit loss for securities previously other-than-temporarily impaired
(7
)
 
(9
)
 
(16
)
Additional credit loss for securities not previously other-than-temporarily impaired
(1
)
 
(8
)
 
(19
)
Reduction in credit loss for securities disposed or collected
22

 
54

 
58

Change in credit loss due to accretion of increase in cash flows
1

 
1

 
1

Ending balance 
$
(123
)
 
$
(138
)
 
$
(176
)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an OTTI for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
Unrealized net capital gains and losses
Unrealized net capital gains and losses included in AOCI are as follows:
($ in millions)
Fair value
 
Gross unrealized
 
Unrealized net gains (losses)
December 31, 2018
 
Gains
 
Losses
 
Fixed income securities
$
21,400

 
$
732

 
$
(389
)
 
$
343

Short-term investments 
810

 
—

 
—

 
—

Derivative instruments
—

 
—

 
—

 
—

EMA limited partnerships (1)
 

 
 

 
 

 
—

Unrealized net capital gains and losses, pre-tax
 

 
 

 
 

 
343

Amounts recognized for:
 

 
 

 
 

 
 

Insurance reserves (2)
 

 
 

 
 

 
—

DAC and DSI (3)
 

 
 

 
 

 
(35
)
Amounts recognized
 

 
 

 
 

 
(35
)
Deferred income taxes
 

 
 

 
 

 
(65
)
Unrealized net capital gains and losses, after-tax
 

 
 

 
 

 
$
243

____________
(1) 
Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross unrealized gains and losses are not applicable.
(2) 
The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuities).
(3) 
The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.
($ in millions)
Fair value
 
Gross unrealized
 
Unrealized net gains (losses)
December 31, 2017
 
Gains
 
Losses
 
Fixed income securities
$
23,261

 
$
1,355

 
$
(98
)
 
$
1,257

Equity securities
1,614

 
311

 
(3
)
 
308

Short-term investments
725

 
—

 
—

 
—

Derivative instruments (1)
2

 
2

 
—

 
2

EMA limited partnerships
 

 
 

 
 

 
1

Unrealized net capital gains and losses, pre-tax
 

 
 

 
 

 
1,568

Amounts recognized for:
 

 
 

 
 

 
 

Insurance reserves
 

 
 

 
 

 
(315
)
DAC and DSI
 

 
 

 
 

 
(189
)
Amounts recognized
 

 
 

 
 

 
(504
)
Deferred income taxes
 

 
 

 
 

 
(229
)
Unrealized net capital gains and losses, after-tax
 

 
 

 
 

 
$
835

____________
(1) 
Included in the fair value of derivative instruments is $2 million classified as liabilities.
Change in unrealized net capital gains and losses
The change in unrealized net capital gains and losses for the years ended December 31 is as follows:
($ in millions)
2018
 
2017
 
2016
Fixed income securities
$
(914
)
 
$
147

 
$
251

Equity securities (1)
—

 
226

 
66

Derivative instruments
(2
)
 
(3
)
 
(5
)
EMA limited partnerships
(1
)
 
3

 
—

Total
(917
)
 
373

 
312

Amounts recognized for:
 

 
 

 
 

Insurance reserves
315

 
(315
)
 
—

DAC and DSI
154

 
(49
)
 
(78
)
Amounts recognized
469

 
(364
)
 
(78
)
Deferred income taxes
94

 
145

 
(81
)
(Decrease) increase in unrealized net capital gains and losses, after-tax
$
(354
)
 
$
154

 
$
153

_______________
(1) 
Upon adoption of the recognition and measurement accounting standard on January 1, 2018, $308 million of pre-tax unrealized net capital gains for equity securities were reclassified from AOCI to retained income. See Note 2 for further details.
Portfolio monitoring
The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential OTTI using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of OTTI for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost.


The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.
($ in millions)
Less than 12 months
 
12 months or more
 
Total unrealized losses
 
Number
of issues
 
Fair
value
 
Unrealized losses
 
Number
of issues
 
Fair
value
 
Unrealized losses
 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed income securities
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and agencies
2

 
$
6

 
$
—

 
1

 
$
1

 
$
—

 
$
—

Municipal
38

 
98

 
(1
)
 
5

 
26

 
(3
)
 
(4
)
Corporate
1,260

 
6,799

 
(218
)
 
370

 
2,633

 
(163
)
 
(381
)
ABS
30

 
167

 
(1
)
 
11

 
31

 
(2
)
 
(3
)
RMBS
124

 
11

 
—

 
47

 
10

 
(1
)
 
(1
)
CMBS
3

 
7

 
—

 
2

 
—

 
—

 
—

Redeemable preferred stock
1

 
—

 
—

 
—

 
—

 
—

 
—

Total fixed income securities
1,458

 
$
7,088

 
$
(220
)
 
436

 
$
2,701

 
$
(169
)
 
$
(389
)
Investment grade fixed income securities
948

 
$
5,255

 
$
(121
)
 
388

 
$
2,551

 
$
(147
)
 
$
(268
)
Below investment grade fixed income securities
510

 
1,833

 
(99
)
 
48

 
150

 
(22
)
 
(121
)
Total fixed income securities
1,458

 
$
7,088

 
$
(220
)
 
436

 
$
2,701

 
$
(169
)
 
$
(389
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed income securities
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and agencies
17

 
$
443

 
$
(2
)
 
2

 
$
25

 
$
—

 
$
(2
)
Municipal
4

 
14

 
—

 
1

 
11

 
(3
)
 
(3
)
Corporate
456

 
2,899

 
(28
)
 
144

 
1,324

 
(58
)
 
(86
)
ABS
33

 
170

 
(1
)
 
8

 
24

 
(3
)
 
(4
)
RMBS
70

 
3

 
—

 
56

 
18

 
(1
)
 
(1
)
CMBS
2

 
1

 
—

 
6

 
23

 
(2
)
 
(2
)
Redeemable preferred stock
1

 
—

 
—

 
—

 
—

 
—

 
—

Total fixed income securities
583

 
3,530

 
(31
)
 
217

 
1,425

 
(67
)
 
(98
)
Equity securities
87

 
66

 
(3
)
 
1

 
—

 
—

 
(3
)
Total fixed income and equity securities
670

 
$
3,596

 
$
(34
)
 
218

 
$
1,425

 
$
(67
)
 
$
(101
)
Investment grade fixed income securities
472

 
$
3,192

 
$
(22
)
 
181

 
$
1,320

 
$
(52
)
 
$
(74
)
Below investment grade fixed income securities
111

 
338

 
(9
)
 
36

 
105

 
(15
)
 
(24
)
Total fixed income securities
583

 
$
3,530

 
$
(31
)
 
217

 
$
1,425

 
$
(67
)
 
$
(98
)
As of December 31, 2018, $358 million of the $389 million unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $358 million, $252 million are related to unrealized losses on investment grade fixed income securities. Of the remaining $106 million, $93 million have been in an unrealized loss position for less than 12 months. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.
As of December 31, 2018, the remaining $31 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost. Investment grade fixed income securities comprising $16 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $31 million, $15 million are related to below investment grade fixed income securities. Of these amounts, $2 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of December 31, 2018.
ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.
As of December 31, 2018, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.
Limited partnerships
Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. As of December 31, 2018 and December 31, 2017 the carrying value of EMA limited partnerships totaled $2.51 billion and $2.54 billion, respectively, and limited partnerships carried at fair value as of December 31, 2018, while at cost method as of December 31, 2017, totaled $787 million and $611 million, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. For equity method limited partnerships, the Company recognizes an impairment loss when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. Changes in fair value limited partnerships are recorded through net investment income and therefore are not tested for impairment.
Mortgage loans
The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation allowance, $4.00 billion and $3.88 billion as of December 31, 2018 and 2017, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.
The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.
(% of mortgage loan portfolio carrying value)
2018
 
2017
Texas
15.6
%
 
13.0
%
California
15.2

 
19.6

Illinois
8.5

 
8.2

New Jersey
7.2

 
8.0

Florida
6.4

 
6.7

The types of properties collateralizing the mortgage loans as of December 31 are as follows:
(% of mortgage loan portfolio carrying value)
2018
 
2017
Apartment complex
33.5
%
 
29.2
%
Office buildings
23.9

 
23.8

Warehouse
15.9

 
15.5

Retail
15.0

 
19.2

Other
11.7

 
12.3

Total
100.0
%
 
100.0
%
The contractual maturities of the mortgage loan portfolio as of December 31, 2018 are as follows:
($ in millions)
Number
of loans
 
Carrying
value
 
Percent
2019
5

 
$
108

 
2.7
%
2020
13

 
110

 
2.8

2021
39

 
428

 
10.7

2022
28

 
401

 
10.0

Thereafter
178

 
2,948

 
73.8

Total
263

 
$
3,995

 
100.0
%
Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan’s expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2018.
Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.
Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
The following table reflects the carrying value of non-impaired mortgage loans summarized by debt service coverage ratio distribution as of December 31.
($ in millions)
2018
 
2017
Debt service coverage ratio distribution
Fixed rate mortgage loans
 
Variable rate mortgage loans
 
Total
 
Fixed rate mortgage loans
 
Variable rate mortgage loans
 
Total
Below 1.0
$
6

 
$
15

 
$
21

 
$
3

 
$
—

 
$
3

1.0 - 1.25
221

 
—

 
221

 
326

 
—

 
326

1.26 - 1.50
1,048

 
—

 
1,048

 
1,033

 
15

 
1,048

Above 1.50
2,659

 
42

 
2,701

 
2,482

 
13

 
2,495

Total non-impaired mortgage loans
$
3,934

 
$
57

 
$
3,991

 
$
3,844

 
$
28

 
$
3,872


Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.
The net carrying value of impaired mortgage loans as of December 31 is as follows:
($ in millions)
2018
 
2017
Impaired mortgage loans with a valuation allowance
$
4

 
$
4

Impaired mortgage loans without a valuation allowance
—

 
—

Total impaired mortgage loans
$
4

 
$
4

Valuation allowance on impaired mortgage loans
$
3

 
$
3


The average balance of impaired loans was $4 million, $7 million and $6 million during 2018, 2017 and 2016, respectively.
The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:
($ in millions)
2018
 
2017
 
2016
Beginning balance
$
3

 
$
3

 
$
3

Net increase in valuation allowance
—

 
1

 
—

Charge offs
—

 
(1
)
 
—

Ending balance
$
3

 
$
3

 
$
3

Payments on all mortgage loans were current as of December 31, 2018, 2017 and 2016.







Municipal bonds
The Company maintains a diversified portfolio of municipal bonds which totaled $2.20 billion and $2.27 billion as of December 31, 2018 and 2017, respectively. The municipal bond portfolio includes general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest). The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31. No other state represents more than 5% of the portfolio.
(% of municipal bond portfolio carrying value)
2018
 
2017
Texas
17.6
%
 
16.9
%
California
15.0

 
15.1

Oregon
9.8

 
9.4

New York
5.7

 
5.2

Short-term investments
Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of December 31, 2018 and 2017, the fair value of short-term investments totaled $810 million and $725 million, respectively.
Policy loans
Policy loans are carried at unpaid principal balances. As of both December 30, 2018 and 2017, the carrying value of policy loans totaled $561 million.
Other investments
Other investments primarily consist of agent loans, bank loans, real estate and derivatives. Agent loans are loans issued to exclusive Allstate agents and are carried at unpaid principal balances, net of valuation allowances and unamortized deferred fees or costs. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. Real estate is carried at cost less accumulated depreciation. Derivatives are carried at fair value. The following table summarizes other investments by asset type.
($ in millions)
 
December 31, 2018
 
December 31, 2017
Agent loans
 
$
620

 
$
538

Bank loans
 
422

 
437

Real estate
 
228

 
157

Derivatives and other
 
30

 
122

Total
 
$
1,300

 
$
1,254

Concentration of credit risk
As of December 31, 2018, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholder’s equity, other than the U.S. government and its agencies.
Securities loaned
The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2018 and 2017, fixed income and equity securities with a carrying value of $502 million and $524 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $1 million, $1 million and $2 million in 2018, 2017 and 2016, respectively.
Other investment information
Included in fixed income securities are below investment grade assets totaling $2.57 billion and $2.91 billion as of December 31, 2018 and 2017, respectively.
As of December 31, 2018, fixed income securities and short-term investments with a carrying value of $21 million were on deposit with regulatory authorities as required by law.
As of December 31, 2018, the carrying value of fixed income securities and other investments that were non-income producing was $63 million.