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Investments
 9 Months Ended
Sep. 30, 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
 
Gross unrealized
 
Fair
 
cost
 
Gains
 
Losses
 
value
September 30, 2018
 

 
 

 
 

 
 

U.S. government and agencies
$
592

 
$
24

 
$
(2
)
 
$
614

Municipal
2,002

 
190

 
(6
)
 
2,186

Corporate
17,982

 
488

 
(297
)
 
18,173

Foreign government
169

 
8

 
—

 
177

Asset-backed securities (“ABS”)
324

 
4

 
(3
)
 
325

Residential mortgage-backed securities (“RMBS”)
166

 
48

 
—

 
214

Commercial mortgage-backed securities (“CMBS”)
43

 
7

 
(1
)
 
49

Redeemable preferred stock
13

 
1

 
—

 
14

Total fixed income securities
$
21,291

 
$
770

 
$
(309
)
 
$
21,752

 
 
 
 
 
 
 
 
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 September 30, 2018:
($ in millions)
Amortized cost
 
Fair value
Due in one year or less
$
1,161

 
$
1,170

Due after one year through five years
8,322

 
8,420

Due after five years through ten years
7,251

 
7,212

Due after ten years
4,024

 
4,362

 
20,758

 
21,164

ABS, RMBS and CMBS
533

 
588

Total
$
21,291

 
$
21,752


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 is as follows:
($ in millions)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Fixed income securities
$
247

 
$
263

 
$
745

 
$
800

Mortgage loans
44

 
46

 
141

 
140

Equity securities
7

 
9

 
30

 
38

Limited partnership interests (1) (2)
74

 
115

 
262

 
315

Short-term investments
7

 
3

 
16

 
6

Policy loans
8

 
8

 
23

 
23

Other
23

 
17

 
68

 
57

Investment income, before expense
410

 
461

 
1,285

 
1,379

Investment expense
(25
)
 
(22
)
 
(74
)
 
(63
)
Net investment income
$
385

 
$
439

 
$
1,211

 
$
1,316

_______________
 
(1) 
Due to the adoption of the recognition and measurement accounting standard, 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 $39 million and $179 million for EMA limited partnership interests and $35 million and $83 million for limited partnership interests carried at fair value for the three months and nine months ended September 30, 2018, respectively.
Realized capital gains and losses
Realized capital gains and losses by asset type are as follows:
($ in millions)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Fixed income securities
$
(8
)
 
$
4

 
$
(26
)
 
$
(9
)
Mortgage loans
—

 
1

 
2

 
1

Equity securities
56

 
7

 
50

 
3

Limited partnership interests
(4
)
 
11

 
(12
)
 
34

Derivatives
4

 
(4
)
 
11

 
(13
)
Other
—

 
—

 
(1
)
 
(2
)
Realized capital gains and losses
$
48

 
$
19

 
$
24

 
$
14


Realized capital gains and losses by transaction type are as follows:
($ in millions)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Impairment write-downs (1)
$
(4
)
 
$
(6
)
 
$
(7
)
 
$
(39
)
Change in intent write-downs (1)
—

 
—

 
—

 
(4
)
Net OTTI losses recognized in earnings
(4
)
 
(6
)
 
(7
)
 
(43
)
Sales (1)
(2
)
 
29

 
(14
)
 
70

Valuation of equity investments (1)

50

 
—

 
37

 
—

Valuation and settlements of derivative instruments
4

 
(4
)
 
8

 
(13
)
Realized capital gains and losses
$
48

 
$
19

 
$
24

 
$
14

_______________
 
(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.
Gross gains of $5 million and $22 million and gross losses of $9 million and $8 million were realized on sales of fixed income securities during the three months ended September 30, 2018 and 2017, respectively. Gross gains of $25 million and $77 million and gross losses of $45 million and $52 million were realized on sales of fixed income and equity securities during the nine months ended September 30, 2018 and 2017, respectively.
Valuation changes included in net income for investments still held as of September 30, 2018 are as follows:
($ in millions)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2018
Equity securities (1)
$
51

 
$
71

Limited partnership interests carried at fair value (1)
35

 
84

Total valuation changes
$
86

 
$
155


______________
 
(1) 
Investments held at the end of a prior quarter that were sold in the current quarter are not included in the year-to-date amounts shown in the table above; therefore, the sum of the quarterly amounts may not equal the year-to-date amount.
OTTI losses by asset type are as follows:
($ in millions)
Three months ended September 30, 2018
 
Three months ended September 30, 2017
 
Gross
 
Included
in OCI
 
Net
 
Gross
 
Included
in OCI
 
Net
Fixed income securities:
 

 
 

 
 

 
 

 
 

 
 

Municipal
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

ABS
—

 
(1
)
 
(1
)
 
(1
)
 
—

 
(1
)
RMBS
—

 
—

 
—

 
—

 
—

 
—

CMBS
(3
)
 
—

 
(3
)
 
1

 
(2
)
 
(1
)
Total fixed income securities
(3
)
 
(1
)
 
(4
)
 
—

 
(2
)
 
(2
)
Mortgage loans
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Equity securities (1)
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Limited partnership interests (1)
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Other
—

 
—

 
—

 
—

 
—

 
—

OTTI losses
$
(3
)
 
$
(1
)
 
$
(4
)
 
$
(4
)
 
$
(2
)
 
$
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018
 
Nine months ended September 30, 2017
 
Gross
 
Included
in OCI
 
Net
 
Gross
 
Included
in OCI
 
Net
Fixed income securities:
 

 
 

 
 

 
 

 
 

 
 

Municipal
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
Corporate
—

 
—

 
—

 
(7
)
 
3

 
(4
)
ABS
—

 
(1
)
 
(1
)
 
(1
)
 
—

 
(1
)
RMBS
(1
)
 
—

 
(1
)
 
—

 
(2
)
 
(2
)
CMBS
(3
)
 
(1
)
 
(4
)
 
(8
)
 
1

 
(7
)
Total fixed income securities
(4
)
 
(2
)
 
(6
)
 
(17
)
 
2

 
(15
)
Mortgage loans
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Equity securities (1)
—

 
—

 
—

 
(16
)
 
—

 
(16
)
Limited partnership interests (1)
—

 
—

 
—

 
(9
)
 
—

 
(9
)
Other
(1
)
 
—

 
(1
)
 
(2
)
 
—

 
(2
)
OTTI losses
$
(5
)
 
$
(2
)
 
$
(7
)
 
$
(45
)
 
$
2

 
$
(43
)
_______________
 
(1) 
Due to the adoption of the recognition and measurement accounting standard, 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 $110 million and $113 million as of September 30, 2018 and December 31, 2017, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
($ in millions)
September 30, 2018
 
December 31, 2017
Municipal
$
(4
)
 
$
(4
)
Corporate
—

 
—

ABS
(6
)
 
(8
)
RMBS
(33
)
 
(37
)
CMBS
(3
)
 
(4
)
Total
$
(46
)
 
$
(53
)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:
($ in millions)
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Beginning balance
$
(124
)
 
$
(160
)
 
$
(138
)
 
$
(176
)
Additional credit loss for securities previously other-than-temporarily impaired
(3
)
 
(2
)
 
(5
)
 
(7
)
Additional credit loss for securities not previously other-than-temporarily impaired
(1
)
 
—

 
(1
)
 
(8
)
Reduction in credit loss for securities disposed or collected
2

 
13

 
18

 
42

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

 
—

 
1

 
—

Ending balance
$
(125
)
 
$
(149
)
 
$
(125
)
 
$
(149
)

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)
September 30, 2018
 
Gains
 
Losses
 
Fixed income securities
$
21,752

 
$
770

 
$
(309
)
 
$
461

Short-term investments
926

 
—

 
—

 
—

EMA limited partnerships (1)
 

 
 

 
 

 
1

Unrealized net capital gains and losses, pre-tax
 

 
 

 
 

 
462

Amounts recognized for:
 

 
 

 
 

 
 

Insurance reserves (2)
 

 
 

 
 

 
—

DAC and DSI (3)
 

 
 

 
 

 
(61
)
Amounts recognized
 

 
 

 
 

 
(61
)
Deferred income taxes
 

 
 

 
 

 
(84
)
Unrealized net capital gains and losses, after-tax
 

 
 

 
 

 
$
317

_______________
(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 $2 million classified as liabilities.
Change in unrealized net capital gains and losses
The change in unrealized net capital gains and losses for the nine months ended September 30, 2018 is as follows:
($ in millions)
 

Fixed income securities
$
(796
)
Equity securities (1)
—

Derivative instruments
(2
)
Total
(798
)
Amounts recognized for:
 

Insurance reserves
315

DAC and DSI
128

Amounts recognized
443

Deferred income taxes
75

Decrease in unrealized net capital gains and losses, after-tax
$
(280
)
______________
 
(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 1 of the condensed consolidated financial statements.
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.
For fixed income securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.
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 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
 
 
 
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Fixed income securities
 

 
 

 
 

 
 

 
 

 
 

 
 

 
U.S. government and agencies
22

 
$
311

 
$
(2
)
 
1

 
$
—

 
$
—

 
$
(2
)
 
Municipal
79

 
148

 
(3
)
 
2

 
17

 
(3
)
 
(6
)
 
Corporate
1,202

 
7,487

 
(179
)
 
198

 
1,626

 
(118
)
 
(297
)
 
Foreign government
—

 
—

 
—

 
—

 
—

 
—

 
—

 
ABS
39

 
161

 
(1
)
 
7

 
15

 
(2
)
 
(3
)
 
RMBS
60

 
4

 
—

 
39

 
10

 
—

 
—

 
CMBS
6

 
18

 
—

 
2

 
—

 
(1
)
 
(1
)
 
Redeemable preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Total fixed income securities
1,408

 
$
8,129

 
$
(185
)
 
249

 
$
1,668

 
$
(124
)
 
$
(309
)
 
Investment grade fixed income securities
1,097

 
$
6,971

 
$
(156
)
 
213

 
$
1,552

 
$
(110
)
 
$
(266
)
 
Below investment grade fixed income securities
311

 
1,158

 
(29
)
 
36

 
116

 
(14
)
 
(43
)
 
Total fixed income securities
1,408

 
$
8,129

 
$
(185
)
 
249

 
$
1,668

 
$
(124
)
 
$
(309
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2018, $294 million of the $309 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 $294 million, $254 million are related to unrealized losses on investment grade fixed income securities. Of the remaining $40 million, $30 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 September 30, 2018, the remaining $15 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 $12 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 $15 million, $3 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 September 30, 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 September 30, 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 September 30, 2018 and December 31, 2017, the carrying value of EMA limited partnerships totaled $2.63 billion and $2.54 billion, respectively, and limited partnerships carried at fair value as of September 30, 2018, while at cost method as of December 31, 2017, totaled $761 million and $611 million, respectively.
Mortgage loans
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 September 30, 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.
($ in millions)
 
September 30, 2018
 
December 31, 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
 
$
2

 
$
15

 
$
17

 
$
3

 
$
—

 
$
3

1.0 - 1.25
 
190

 
—

 
190

 
326

 
—

 
326

1.26 - 1.50
 
1,083

 
—

 
1,083

 
1,033

 
15

 
1,048

Above 1.50
 
2,587

 
42

 
2,629

 
2,482

 
13

 
2,495

Total non-impaired mortgage loans
 
$
3,862

 
$
57

 
$
3,919

 
$
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 is as follows:
($ in millions)
September 30, 2018
 
December 31, 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 valuation allowance on impaired mortgage loans had no activity for the three months and nine months ended September 30, 2018 and 2017. The average balance of impaired loans was $4 million and $8 million for the nine months ended September 30, 2018 and 2017, respectively.
Payments on all mortgage loans were current as of September 30, 2018 and December 31, 2017.
Short-term investments
Short-term investments, including commercial paper, U.S. Treasury bills, money market funds and other short-term investments, are carried at fair value. As of September 30, 2018 and December 31, 2017, the fair value of short-term investments totaled $926 million and $725 million, respectively.
Policy loans
Policy loans are carried at unpaid principal balances. As of September 30, 2018 and December 31, 2017, the carrying value of policy loans totaled $564 million and $561 million, respectively.
Other investments
Other investments primarily consist of agent loans, bank loans, real estate and derivatives. Agent loans are loans issued to exclusive Allstate agents and are carried at unpaid principal balances, net of valuation allowances and unamortized deferred fees or costs. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. Real estate is carried at cost less accumulated depreciation. Derivatives are carried at fair value. The following table summarizes other investments.
($ in millions)
 
September 30, 2018
 
December 31, 2017
Agent loans
 
$
597

 
$
538

Bank loans
 
422

 
437

Real estate
 
217

 
157

Derivatives and other
 
107

 
122

Total
 
$
1,343

 
$
1,254