Investments

6 Months Ended

12 Months Ended

Jun. 30, 2016

Dec. 31, 2015

Investments

(4) Investments

(a) Fixed-Maturity Securities and Equity Securities

At June 30, 2016 and December 31, 2015, the amortized cost or cost, gross unrealized gains, gross unrealized losses, and fair values of available-for-sale and held-to-maturity securities are as shown in the following tables:

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
June 30, 2016:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,313,602		99,522		—		1,413,124		8,799
Agencies not backed by the full faith and credit of the U.S. government		8,771		598		—		9,369		—
States and political subdivisions		8,992,624		1,331,766		5,345		10,319,045		—
Foreign government		282,710		19,103		1,062		300,751		—
Corporate securities		59,342,004		5,777,333		430,123		64,689,214		51,930
Mortgage-backed securities		11,549,258		564,982		3,773		12,110,467		—
Collateralized mortgage obligations		129,002		4,632		—		133,634		—
CDOs		9,748		12,073		—		21,821		11,857
Total fixed-maturity securities, available-for-sale		81,627,719		7,810,009		440,303		88,997,425		72,586
Fixed-maturity securities, held-to-maturity:
Corporate securities		28		5		—		33		—
CDOs		—		5,090		—		5,090		—
Total fixed-maturity securities held-to-maturity		28		5,095		—		5,123		—
Equity securities, available-for-sale:
Common stock		330,832		23,786		—		354,618		—
Total available-for-sale and held-to-maturity securities	$	81,958,579		7,838,890		440,303		89,357,166		72,586

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
December 31, 2015:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,682,642		78,089		5,407		1,755,324		653
Agencies not backed by the full faith and credit of the U.S. government		10,474		91		51		10,514		—
States and political subdivisions		8,533,503		514,459		49,428		8,998,534		—
Foreign government		269,608		9,675		7,116		272,167		—
Corporate securities		56,402,323		2,756,065		1,989,705		57,168,683		(4,451	)
Mortgage-backed securities		12,263,037		296,408		61,646		12,497,799		—
Collateralized mortgage obligations		9,208		1,075		—		10,283		—
CDOs		9,738		11,573		147		21,164		11,572
Total fixed-maturity securities, available-for-sale		79,180,533		3,667,435		2,113,500		80,734,468		7,774
Fixed-maturity securities, held-to-maturity:
Corporate securities		55		10		—		65		—
CDOs		—		5,214		—		5,214		—
Total fixed-maturity securities held-to-maturity		55		5,224		—		5,279		—
Equity securities, available-for-sale:
Common stock		71,005		—		2,394		68,611		—
Total available-for-sale and held-to-maturity securities	$	79,251,593		3,672,659		2,115,894		80,808,358		7,774

(1) The amount represents the subsequent changes in net unrealized gain or loss on other-than-temporarily impaired (OTTI) securities.

The net unrealized gains on available-for-sale securities, held-for-sale securities and effective portion of cash flow hedges consist of the following as of June 30, 2016 and December 31, 2015:

	June 30, 2016			December 31, 2015
Available-for-sale securities:
Fixed maturity	$	7,369,706			1,553,935
Equity		23,786			(2,394	)
Held-for-sale securities		1,071			798
Cash flow hedges		18,581			16,013
Adjustments for:
Shadow adjustments		(3,899,321	)		(825,607	)
Deferred taxes		(1,229,838	)		(259,961	)
Net unrealized gains	$	2,283,985			482,784

The amortized cost and fair value of available-for-sale fixed-maturity securities at June 30, 2016, by contractual maturity, are shown below:

	Amortized cost		Fair value
Available-for-sale fixed-maturity securities:
Due in one year or less	$	707,081		713,203
Due after one year through five years		12,253,043		13,159,114
Due after five years through ten years		20,180,084		21,405,406
Due after ten years		36,809,251		41,475,601
Mortgage-backed securities and collateralized mortgage obligations		11,678,260		12,244,101
Total available-for-sale fixed-maturity securities	$	81,627,719		88,997,425

The amortized cost and fair value of held-to-maturity fixed-maturity securities at June 30, 2016, by contractual maturity, are shown below:

	Amortized cost		Fair value
Held-to-maturity fixed-maturity securities:
Due after one year through five years	$	28		33
Due after ten years		—		5,090
Total held-to-maturity fixed-maturity securities	$	28		5,123

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Proceeds from sales of available-for-sale securities for the six month periods ended June 30 are presented in the following table:

	2016		2015
Available-for-sale:
Fixed-maturity securities:
Proceeds from sales	$	1,011,930		158,801
Equity securities:
Proceeds from sales	$	—		58,858

At June 30, 2016 and December 31, 2015, investments with a fair value of $48,654 and $45,393, respectively, were held on deposit with various insurance departments and in other trusts as required by statutory regulations.

The Company’s available-for-sale and trading fixed-maturity security portfolios include mortgage-backed securities and collateralized mortgage obligations. Due to the high quality of these investments and the lack of subprime loans within the securities, the Company does not have a material exposure to subprime mortgages.

(b) Unrealized Investment Losses

Unrealized losses on available-for-sale securities and the related fair value as of June 30, 2016 and December 31, 2015 are shown below:

	12 months or less				Greater than 12 months				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
June 30, 2016:
Fixed-maturity securities, available-for-sale:
States and political subdivisions	$	—		—		124,457		5,345		124,457		5,345
Foreign government		—		—		11,488		1,062		11,488		1,062
Corporate securities		1,397,507		62,813		3,717,317		367,310		5,114,824		430,123
Mortgage-backed securities		75,329		1,315		59,885		2,458		135,214		3,773
Total temporarily impaired securities	$	1,472,836		64,128		3,913,147		376,175		5,385,983		440,303

	12 months or less				Greater than 12 months				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
December 31, 2015:
Fixed-maturity securities, available-for-sale:
U.S. government	$	600,970		5,395		4,959		12		605,929		5,407
U.S. government agency		4,536		51		—		—		4,536		51
States and political subdivisions		1,873,125		48,306		28,015		1,122		1,901,140		49,428
Foreign government		42,338		1,787		32,219		5,329		74,557		7,116
Corporate securities		17,688,481		1,315,632		1,659,827		674,073		19,348,308		1,989,705
Mortgage-backed securities		3,066,569		61,030		15,433		616		3,082,002		61,646
CDOs		—		—		730		147		730		147
Total temporarily impaired securities	$	23,276,019		1,432,201		1,741,183		681,299		25,017,202		2,113,500

As of June 30, 2016 and December 31, 2015, there were 310 and 1,294 available-for-sale fixed-maturity security holdings that were in an unrealized loss position.

As of June 30, 2016 and December 31, 2015, of the total amount of unrealized losses, $247,501 or 56.2% and $1,773,647 or 83.9%, respectively, are related to unrealized losses on investment grade securities. Investment grade is defined as a security having a credit rating of Aaa, Aa, A, or Baa from Moody’s or a rating of AAA, AA, A, or BBB from Standards and Poor’s (S&P), or a Securities Valuation Office of the National Association of Insurance Commissioners (NAIC) rating of 1 or 2 if a Moody’s or S&P rating is not available. Unrealized losses on securities are principally related to changes in interest rates or changes in sector spreads from the date of purchase. As contractual payments continue to be met, management continues to expect all contractual cash flows to be received. The Company reviews these securities regularly to determine whether or not declines in the fair value are other than temporary. Further, the Company neither has an intention to sell, nor does it expect to be required to sell the securities outlined above, the Company did not consider these investments to be other-than-temporarily impaired.

(c) OTTI Losses

The Company had no credit losses recognized in earnings on fixed-maturity securities still held for which a portion of the OTTI loss was recognized in other comprehensive income for the six month periods ended June 30, 2016 and 2015.

(d) Realized Investment (Losses) Gains

Gross and net realized investment (losses) gains for the six month periods ended June 30, are summarized as follows:

	2016			2015
Available-for-sale:
Fixed-maturity securities:
Gross gains on sales and exchanges	$	107,887			14,077
Gross losses on sales and exchanges		(56,002	)		(1,278	)
OTTI		(105,418	)		(21,286	)
Net losses on fixed-maturity securities		(53,533	)		(8,487	)
Equity securities:
Gross gains on sales		—			2
Gross losses on sales		—			(2	)
Net losses on available-for-sale securities		(53,533	)		(8,487	)
Held-to-maturity:
Gross gains on exchanges		—			33,559
Gross losses on exchanges		(11	)		(11	)
Net (losses) gains on held-to-maturity securities		(11	)		33,548
Provision for mortgage loans on real estate		(5,800	)		—
Gain on real estate sales		—			5,929
Net gains on sales of acquired loans		365			18,081
Gain on equity method investments		446			—
Other		—			(4	)
Realized investment (losses) gains, net	$	(58,533	)		49,067

In 2016, the mortgage loan allowance increased primarily due to the increase in mortgage loan balance. The 2015 realized gain on real estate sales is related to the recognition of a contingent gain as part of the terms of the 2011 sale of the Company’s real estate portfolio. The gross gain in held-to-maturity securities relates primarily to the impact of consolidating a CDO investment in 2015. See further details relating to the transaction at the end of note 4(h).

(e) Interest and Similar Income

Major categories of interest and similar income, net, for the respective six month periods ended June 30 are shown below:

	2016		2015
Interest and similar income:
Available-for-sale fixed-maturity securities	$	1,897,797		1,863,246
Mortgage loans on real estate		227,595		196,178
Interest on acquired loans		13,216		13,345
Investment income on trading securities		2,108		4,986
Policy loans		5,023		4,852
Short-term securities, includes cash and cash equivalents		6,245		4,062
Held-to-maturity fixed-maturity securities		326		3,958
Interest rate swaps		4,745		2,011
Other invested assets		4,793		835
Interest on assets held by reinsurers		1,257		1,344
Interest on loans to affiliates		165		179
Total		2,163,270		2,094,996
Less investment expenses		38,011		31,554
Total interest and similar income, net	$	2,125,259		2,063,442

(f) Mortgage Loans

The Company’s investment in mortgage loans on real estate at June 30, 2016 and December 31, 2015 is summarized as follows:

	June 30, 2016			December 31, 2015
Mortgage loans on real estate:
Mortgage loans	$	9,715,469			8,825,418
Valuation allowances		(43,200	)		(37,400	)
Total mortgage loans on real estate	$	9,672,269			8,788,018

At June 30, 2016, mortgage loans on real estate in California and Illinois exceeded the 10% concentration levels by state with a concentration of 28.9% or $2,803,795 and 11.0% or $1,071,245, respectively. At December 31, 2015, mortgage loans on real estate in California and Illinois exceeded the 10% concentration levels by state with a concentration of 27.7% or $2,448,008 and 11.6% or $1,025,605, respectively.

During 2016, interest rates on investments in new mortgage loans ranged from a minimum of 3.5% to a maximum of 4.5%.

The valuation allowances on mortgage loans on real estate are discussed further at note 7.

(g) Securities Lending

The Company had fair value of securities on loan of $2,387,383 and $2,392,657, in fixed-maturity securities, on the Consolidated Balance Sheets, and held collateral in the amounts of $2,472,468 and $2,480,996, as of June 30, 2016 and December 31, 2015, respectively. The collateral is recorded in Cash and cash equivalents on the Consolidated Balance Sheets. The corresponding liability is recorded in Other liabilities on the Consolidated Balance Sheets.

The securities lent and related collateral received by type were as follows:

	June 30, 2016				December 31, 2015
	Collateral		Market Value		Collateral		Market Value
	Open (1)				Open (1)
Cash collateral liability by loaned security type:
Cash and cash equivalents		10,200		9,999		—		—
U.S. treasury		19,506		18,919		2,038		1,994
Foreign government		13,512		12,881		13,984		13,344
U.S. corporate		2,429,250		2,345,584		2,464,974		2,377,319
Total		2,472,468		2,387,383		2,480,996		2,392,657

(1) The related loaned security could be returned to the Company no later than five business days after notice if received by the counterparty. Therefore, the Company would have five days to return the collateral.

(h) Variable Interest Entities

In 2015, the triggering event for consolidation occurred when the Company entered into an agreement with the collateral manager to liquidate some or all of the collateral underlying several classes of notes within one of the CDOs. Creditors of the consolidated VIE do not have any recourse on the Company. The Company does not have any implicit or explicit arrangements to provide financial support to the consolidated VIE. Upon initial consolidation, the Company recorded a gain of $33,559 in Realized investment (losses) gains, net on the Consolidated Statements of Operations.

The consolidated CDO had net assets of approximately $158,804 as of June 30, 2015. In October 2015, at the Company’s direction, the collateral manager liquidated $163,389 of assets at auction, of which $96,046 were purchased by the Company. The assets purchased at auction are reported at amortized cost as Acquired loans and at fair value as Fixed-maturity securities, Available-for-sale on the Consolidated Balance Sheets. As of June 30, 2016 and December 31, 2015, the Company held $44,115 and $44,527, respectively as Acquired loans and $11,361 and $12,611, respectively as Fixed-maturity securities, Available-for-sale. As of June 30, 2016 and December 31, 2015, the Company also held $24,088 and $26,941, respectively of consolidated assets that are reported at fair value as Fixed-maturity securities, Available-for-sale on the Consolidated Balance Sheets.

(i) Redeemable Preferred Stock

AZL PF Investments, Inc. (AZLPF), a wholly owned subsidiary of the Company, issued redeemable preferred stock as a result of a prepaid forward agreement settled in 2012. The preferred stock liability of $32,195 was recorded at June 30, 2016 and December 31, 2015 and is reported in Other liabilities on the Consolidated Balance Sheets. The preferred stock is mandatorily redeemable on January 9, 2017.

(4) Investments

(a) Fixed-Maturity Securities and Equity Securities

At December 31, 2015 and 2014, the amortized cost or cost, gross unrealized gains, gross unrealized losses, and fair values of available-for-sale and held-to-maturity securities are as shown in the following tables:

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
2015:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,682,642		78,089		5,407		1,755,324		653
Agencies not backed by the full faith and credit of the U.S. government		10,474		91		51		10,514		—
States and political subdivisions		8,533,503		514,459		49,428		8,998,534		—
Foreign government		269,608		9,675		7,116		272,167		—
Public utilities		5,798,475		480,099		56,376		6,222,198		189
Corporate securities		50,603,848		2,275,966		1,933,329		50,946,485		(4,640	)
Mortgage-backed securities		12,263,037		296,408		61,646		12,497,799		—
Collateralized mortgage obligations		9,208		1,075		—		10,283		—
Collateralized debt obligations		9,738		11,573		147		21,164		11,572
Total fixed-maturity securities, available-for-sale		79,180,533		3,667,435		2,113,500		80,734,468		7,774
Fixed-maturity securities, held-to-maturity:
Corporate securities		55		10		—		65		—
CDOs		—		5,214		—		5,214		—
Total fixed-maturity securities held-to-maturity		55		5,224		—		5,279		—
Equity securities, available-for-sale:
Common stock		71,005		—		2,394		68,611		—
Total available-for-sale and held-to-maturity securities	$	79,251,593		3,672,659		2,115,894		80,808,358		7,774

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
2014:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,127,783		105,433		262		1,232,954		—
Agencies not backed by the full faith and credit of the U.S. government		130,703		14,671		24		145,350		—
States and political subdivisions		6,718,229		824,806		2,093		7,540,942		—
Foreign government		308,633		13,505		10,463		311,675		—
Public utilities		5,482,698		851,165		5,614		6,328,249		484
Corporate securities		45,725,053		4,067,245		294,841		49,497,457		2,579
Mortgage-backed securities		13,415,946		682,880		929		14,097,897		—
Collateralized mortgage obligations		10,697		1,335		—		12,032		—
Collateralized debt obligations		33,637		11,745		153		45,229		11,719
Total fixed-maturity securities, available-for-sale		72,953,379		6,572,785		314,379		79,211,785		14,782
Fixed-maturity securities, held-to-maturity:
Corporate securities		82		15		—		97		—
CDOs		180,316		24,076		—		204,392		—
Total fixed-maturity securities held-to-maturity		180,398		24,091		—		204,489		—
Equity securities, available-for-sale:
Common stock		6,180		46		—		6,226		—
Total available-for-sale and held-to-maturity securities	$	73,139,957		6,596,922		314,379		79,422,500		14,782

(1) The amount represents the subsequent changes in net unrealized gain or loss on other-than-temporarily impaired securities. It includes the portion of OTTI losses in accumulated other comprehensive income, which was not included in earnings.

The net unrealized gains on available-for-sale securities, held-for-sale securities and effective portion of cash flow hedges consist of the following at December 31:

	2015			2014			2013
Available-for-sale securities:
Fixed maturity	$	1,553,935			6,258,406			3,697,314
Equity		(2,394	)		46			—
Held-for-sale securities		798			—			—
Cash flow hedges		16,013			2,269			1,570
Adjustments for:
Shadow adjustments		(825,607	)		(3,542,160	)		(2,174,866	)
Deferred taxes		(259,961	)		(951,480	)		(533,407	)
Net unrealized gains	$	482,784			1,767,081			990,611

The unrealized gain on held-for-sale securities relates to fixed maturity securities that were transferred from available-for-sale due to the expected sale of a subsidiary. See note 2 for further details.

The amortized cost and fair value of available-for-sale fixed-maturity securities at December 31, 2015, by contractual maturity, are shown below:

	Amortized cost		Fair value
Available-for-sale fixed-maturity securities:
Due in one year or less	$	1,686,024		1,714,562
Due after one year through five years		12,759,691		13,454,444
Due after five years through ten years		19,854,889		19,656,047
Due after ten years		32,607,684		33,401,333
Mortgage-backed securities and collateralized mortgage obligations		12,272,245		12,508,082
Total available-for-sale fixed-maturity securities	$	79,180,533		80,734,468

The amortized cost and fair value of held-to-maturity fixed-maturity securities at December 31, 2015, by contractual maturity, are shown below:

	Amortized cost		Fair value
Held-to-maturity fixed-maturity securities:
Due after one year through five years	$	55		65
Due after ten years		—		5,214
Total held-to-maturity fixed-maturity securities	$	55		5,279

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost of fixed-maturity securities with rights to call or prepay without penalty is $26,148,167 as of December 31, 2015.

Proceeds from sales of available-for-sale for the years ended December 31 are presented in the following table:

	2015		2014		2013
Available-for-sale:
Fixed-maturity securities:
Proceeds from sales	$	996,801		1,479,188		2,503,974
Equity securities:
Proceeds from sales		58,858		29,209		134,400

As of December 31, 2015 and 2014, investments with a fair value of $45,393 and $52,027, respectively, were held on deposit with various insurance departments and in other trusts as required by statutory regulations.

The Company’s available-for-sale and trading fixed-maturity security portfolios include mortgage-backed securities and collateralized mortgage obligations. Due to the high quality of these investments and the lack of subprime loans within the securities, the Company does not have a material exposure to subprime mortgages.

(b) Unrealized Investment Losses

Unrealized losses on available-for-sale securities and the related fair value for the respective years ended December 31 are shown below:

	12 months or less				Greater than 12 months				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
2015:
Fixed-maturity securities, available-for-sale:
U.S. government	$	600,970		5,395		4,959		12		605,929		5,407
U.S. government agency		4,536		51		—		—		4,536		51
States and political subdivisions		1,873,125		48,306		28,015		1,122		1,901,140		49,428
Foreign government		42,338		1,787		32,219		5,329		74,557		7,116
Public utilities		1,319,479		50,552		20,454		5,824		1,339,933		56,376
Corporate securities		16,369,002		1,265,080		1,639,373		668,249		18,008,375		1,933,329
Mortgage-backed securities		3,066,569		61,030		15,433		616		3,082,002		61,646
CDOs		—		—		730		147		730		147
Total temporarily impaired securities	$	23,276,019		1,432,201		1,741,183		681,299		25,017,202		2,113,500
	12 months or less				Greater than 12 months				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
2014:
Fixed-maturity securities, available-for-sale:
U.S. government	$	23,411		51		23,481		211		46,892		262
U.S. government agency		3,342		24		—		—		3,342		24
States and political subdivisions		51,483		599		146,339		1,494		197,822		2,093
Foreign government		66,859		10,463		—		—		66,859		10,463
Public utilities		129,018		3,589		35,919		2,025		164,937		5,614
Corporate securities		4,101,602		211,776		1,198,903		83,065		5,300,505		294,841
Mortgage-backed securities		102,104		491		19,724		438		121,828		929
CDOs		4,176		67		19,792		86		23,968		153
Total temporarily impaired securities	$	4,481,995		227,060		1,444,158		87,319		5,926,153		314,379

As of December 31, 2015 and 2014, there were 1,294 and 356 available-for-sale fixed-maturity security holdings that were in an unrealized loss position.

As of December 31, 2015 and 2014, of the total amount of unrealized losses, $1,773,647 or 83.9% and $267,015 or 84.9%, respectively, are related to unrealized losses on investment grade securities. Investment grade is defined as a security having a credit rating of Aaa, Aa, A, or Baa from Moody’s or a rating of AAA, AA, A, or BBB from Standards and Poor’s (S&P), or a NAIC rating of 1 or 2 if a Moody’s or S&P rating is not available. Unrealized losses on securities are principally related to changes in interest rates or changes in sector spreads from the date of purchase. As contractual payments continue to be met, management continues to expect all contractual cash flows to be received. As mentioned in note 2, the Company reviews these securities regularly to determine whether or not declines in fair value are other than temporary. Further, as the Company neither has an intention to sell, nor does it expect to be required to sell the securities outlined above, the Company did not consider these investments to be other-than-temporarily impaired.

(c) OTTI Losses

The following table presents a rollforward of the Company’s cumulative credit impairments on fixed-maturity securities held at December 31:

	2015			2014
Balance as of January 1	$	36,948			45,722
Additions for credit impariments recognized on (1):
Securities not previously impaired		536			—
Securities previously impaired		1,086			4,391
Securities that the Company intends to sell or more likely than not be required to sell before recovery (interest)		57,353			2,054
Reductions for credit impairments previously on:
Securities that matured, were sold, or were liquidated during the period		(36,558	)		(15,219	)
Balance as of December 31	$	59,365			36,948

(1) There were $58,975 and $6,445 of additions included in the net OTTI losses recognized in Realized investment gains, net in the Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively.

(d) Realized Investment Gains (Losses)

Gross and net realized investment gains (losses) for the years ended December 31, are summarized as follows:

	2015			2014			2013
Available-for-sale:
Fixed-maturity securities:
Gross gains on sales and exchanges	$	108,094			96,698			160,091
Gross losses on sales and exchanges		(15,272	)		(11,114	)		(36,798	)
OTTI		(57,598	)		(6,445	)		(14,957	)
Net gains on fixed-maturity securities		35,224			79,139			108,336
Equity securities:
Gross gains on sales		2			113			—
Gross losses on sales		(184	)		(1	)		—
Net (losses) gains on equity securities		(182	)		112			—
Net gains on available-for-sale securities		35,042			79,251			108,336
Held-to-maturity:
Gross gains on exchanges		31,832			—			44,179
Gross losses on exchanges		(11	)		(84	)		(11	)
OTTI		—			—			(91	)
Net (losses) gains on held-to-maturity securities		31,821			(84	)		44,077
(Provision) benefit for mortgage loans on real estate		(2,400	)		5,000			18,500
Gains for mortgage loans on real estate		—			—			4,929
Investment in affiliates		—			(6,500	)		11,810
Gain (loss) on real estate sales		5,929			—			(29	)
Net gains on sales of acquired loans		24,027			95			674
Other		(6	)		—			—
Net realized investment gains	$	94,413			77,762			188,297

The 2015 realized gain on real estate sales is related to the recognition of a contingent gain as part of the terms of the 2011 sale of the Company’s real estate portfolio. The $31,832 gross gain in held-to-maturity securities relates to the impact of consolidating a CDO investment. See further details relating to the transaction at the end of note 4. The 2014 realized loss and 2013 realized gain on investment in affiliates is related to the disposal of an affiliate investment and subsidiary, respectively. The 2013 realized gain for mortgage loans on real estate is a result of the sale of certain loans to two subsidiary companies of AZOA.

(e) Interest and Similar Income

Major categories of interest and similar income, net, for the respective years ended December 31 are shown below:

	2015		2014		2013
Interest and similar income:
Available-for-sale fixed-maturity securities	$	3,752,867		3,552,896		3,185,680
Mortgage loans on real estate		413,103		377,917		367,196
Interest on acquired loans		28,122		27,548		27,817
Investment income on trading securities		16,472		11,645		9,735
Policy loans		9,834		9,981		10,461
Short-term securities		8,761		7,864		5,575
Held-to-maturity fixed-maturity securities		5,746		15,894		26,781
Interest rate swaps		5,197		1,867		697
Other invested assets		3,286		2,083		196
Interest on assets held by reinsurers		2,626		2,798		2,915
Interest on loans to affiliates		516		980		1,549
Rental income on real estate		—		—		1,462
Total		4,246,530		4,011,473		3,640,064
Less investment expenses		66,427		54,175		47,947
Total interest and similar income, net	$	4,180,103		3,957,298		3,592,117

(f) Mortgage Loans

The Company’s investment in mortgage loans on real estate at December 31 is summarized as follows:

	2015			2014
Mortgage loans on real estate:
Mortgage loans	$	8,825,418			7,217,169
Valuation allowances		(37,400	)		(35,000	)
Total mortgage loans on real estate	$	8,788,018			7,182,169

At December 31, 2015, mortgage loans on real estate in California and Illinois exceeded the 10% concentration levels by state with a concentration of 27.7% or $2,448,008 and 11.6% or $1,025,605, respectively. At December 31, 2014, mortgage loans on real estate in California, Texas and Illinois exceeded the 10% concentration levels by state with a concentration of 29.2% or $2,108,890, 10.1% or $729,761 and 10.0% or $722,225, respectively.

Interest rates on investments in new mortgage loans ranged from a minimum of 3.3% to a maximum of 4.8%.

The valuation allowances on mortgage loans on real estate at December 31 and the changes in the allowance for the years then ended are summarized as follows:

	2015		2014			2013
Balance, beginning of year	$	35,000		66,750			85,250
Release due to discounted payoff		—		(26,750	)		—
Provision (benefit) charged to operations		2,400		(5,000	)		(18,500	)
Balance, end of year	$	37,400		35,000			66,750

In 2015, the Company reevaluated the allowance related to the remainder of the mortgage loan portfolio, resulting in an increase of the provision of $2,400.

In 2014, the decrease to the valuation allowance on mortgage loans is a result of the Company releasing a specific reserve of $26,750 on one mortgage loan that was paid-off. The Company also reevaluated the allowance related to the remainder of the mortgage loan portfolio, resulting in a reduction of the provision of $5,000.

In 2013, the decrease to the valuation allowance on mortgage loans is a result of the Company reducing a specific reserve on one mortgage loan in the amount of $13,500 related to a change in the estimate of realizable value of the underlying collateral. The Company also reevaluated the allowance related to the remainder of the mortgage loan portfolio during 2013, which resulted in a reduction of the provision of $5,000.

(g) Securities Lending

The Company had fair value of securities on loan of $2,392,657 and $2,280,442, in fixed-maturity securities, on the Consolidated Balance Sheets, and held collateral in the amounts of $2,480,996 and $2,361,952, as of December 31, 2015 and 2014, respectively. The collateral is recorded in Cash and cash equivalents and Loans to affiliates on the Consolidated Balance Sheets. The corresponding liability is recorded in Other liabilities on the Consolidated Balance Sheets.

(h) Variable Interest Entities

In the normal course of business, the Company enters into relationships with various entities that are deemed to be a VIE. A VIE is an entity that either (1) has equity investors that lack certain essential characteristics of a controlling financial interest (including the ability to control activities of the entity, the obligation to absorb the entity’s expected losses, and the right to receive the entity’s expected residual returns) or (2) lacks sufficient equity to finance its own activities without financial support provided by other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE.

The Company’s held-to-maturity CDOs were purchased in 2009 and represent interests in VIEs. The CDOs exist for the sole purpose of acquiring and managing a diversified portfolio of asset-backed and synthetic securities and are funded by the issuance of several tranches of funding notes. The CDOs, which are primarily the highest ranking debt tranches of each respective deal, contain similar features. There are several classes of notes, which include a structure that subordinates one note to another. Priorities of payment provide that the most senior classes of notes are paid first. Each CDO trust holds investments in eligible assets, which generally include credit asset-backed securities, mortgage-backed securities, default swaps/synthetic CDOs, other CDOs, and other asset-backed securities. These assets have a concentration in subprime mortgage-backed securities. Each CDO also contains tests, which, if failed, will result in cash payments that would normally be directed to a junior class of note holders, be redirected to the most senior class of note holders. The CDOs contain call features that may be exercised if requested by the appropriate class of note and if other criteria required by the CDO documents are met.

In addition, the Company invests in structured securities including VIEs. These structured securities typically invest in fixed-income investments managed by third parties and include mortgage-backed securities, collateralized mortgage obligations, and other CDOs.

The Company has carefully analyzed the VIEs to determine whether the Company is the primary beneficiary, taking into consideration whether the Company, or the Company together with its affiliates, has the power to direct the activities of the VIE, that most affect its economic performance and whether the Company has the right to benefits from the VIE. Based on that analysis, the Company has concluded that it is not the primary beneficiary for all but one of the Company’s VIEs and, as such, only one VIE was consolidated in the Consolidated Financial Statements.

The non-consolidated CDO is classified as Fixed-maturity securities, held-to-maturity on the Consolidated Balance Sheets and reported at amortized cost. The other non-consolidated structured securities are classified as Fixed-maturity securities, available-for-sale on the Consolidated Balance Sheets and reported at fair value, or Acquired loans and reported at amortized cost. The Company’s maximum exposure to loss from these entities is limited to their carrying value. The Company has not provided, and has no obligation to provide, material, financial, or other support that was not previously contractually required to these entities. The Company had no liabilities recorded as of December 31, 2015 or 2014, related to these entities.

Due to the ability to influence returns of the collateral manager, the Company determined in 2015, that consolidation is required for one VIE. The triggering event for consolidation occurred when the Company entered into an agreement with the collateral manager to liquidate some or all of the collateral underlying several classes of notes within one of the CDOs. Creditors of the consolidated VIE do not have any recourse on the Company. The Company does not have any implicit or explicit arrangements to provide financial support to the consolidated VIE. Upon initial consolidation, the Company recorded a gain of $31,832 in Realized investment gains, net on the Consolidated Statements of Operations.

The consolidated CDO had net assets of approximately $158,804 as of June 30, 2015. At the Company’s direction, the collateral manager liquidated $163,389 of assets at auction, of which. $96,046 were purchased by the Company. The assets purchased at auction are reported at amortized cost as Acquired loans and at fair value as Fixed-maturity securities, Available-for-sale on the Consolidated Balance Sheets. As of December 31, 2015, the Company held $44,527 as Acquired loans and $12,611 as Fixed-maturity securities, Available-for-sale. As of December 31, 2015, the Company also held $26,941 of previously consolidated assets that are reported at fair value as Fixed-maturity securities, Available-for-sale on the Consolidated Balance Sheets.

The Company has $2,789 in liabilities recorded as of December 31, 2015, related to this entity representing its obligation to pay junior tranche noteholders expected discounted future payments in accordance with the contractual priority of payments. The liability is reported in Other liabilities on the Consolidated Balance Sheets.

During 2013, the Company issued an acceleration direction to the trustee of one of the Company’s CDOs. The trustee then issued a notice of acceleration to the noteholders and beneficial owners notifying them that the principal and all accrued and unpaid interest on the notes are immediately due and repayable. As a result of this acceleration the underlying collateral was sold at auction. The Company received cash of $253,125 for securities with a book value of $208,946 resulting in a realized gain of $44,179.

(i) Redeemable Preferred Stock

AZL PF Investments, Inc. (AZLPF), a wholly owned subsidiary of the Company, issued redeemable preferred stock as a result of a prepaid forward agreement settled in 2012. The preferred stock liability of $32,195 was recorded at December 31, 2015 and 2014 and is reported in Other liabilities on the Consolidated Balance Sheets. The preferred stock is mandatorily redeemable on January 9, 2017.