INVESTMENTS

The following tables show the cost or amortized cost, gross unrealized gains and losses, fair value and OTTI included within AOCI of the Company's fixed maturity securities as of the dates indicated:



	December 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI in AOCI (1)
Fixed maturity securities:
U.S. government and government agencies and authorities	$	0.6	$	0.1	$	—		$	0.7	$	—
States, municipalities and political subdivisions	13.0		1.9		—			14.9		—
Foreign governments	8.4		2.4		—			10.8		—
Asset-backed	102.1		0.7		(0.4		)	102.4		—
Commercial mortgage-backed	5.0		—		—			5.0		—
Residential mortgage-backed	31.8		2.1		—			33.9		0.6
U.S. corporate	491.3		154.8		—			646.1		11.6
Foreign corporate	108.6		34.3		—			142.9		—
Total fixed maturity securities	$	760.8	$	196.3	$	(0.4	)	$	956.7	$	12.2



	December 31, 2018
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI in AOCI (1)
Fixed maturity securities:
U.S. government and government agencies and authorities	$	10.8	$	0.1	$	—		$	10.9	$	—
States, municipalities and political subdivisions	13.0		0.9		—			13.9		—
Foreign governments	8.4		1.2		—			9.6		—
Asset-backed	80.4		0.1		(1.8		)	78.7		—
Commercial mortgage-backed	3.5		—		(0.2		)	3.3		—
Residential mortgage-backed	37.0		1.6		(0.4		)	38.2		1.0
U.S. corporate	497.8		91.1		(1.9		)	587.0		10.0
Foreign corporate	123.1		19.5		(0.3		)	142.3		—
Total fixed maturity securities	$	774.0	$	114.5	$	(4.6	)	$	883.9	$	11.0

(1) Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The Company's state, municipalities and political subdivisions holdings are highly diversified across the United States, with no individual state, municipality or political subdivision exposure (including both general obligation and revenue securities) exceeding 0.6% of the overall investment portfolio as of December 31, 2019 and 2018. As of December 31, 2019 and 2018, revenue bonds account for 82% of the holdings, respectively. The activities supporting the income streams of the Company's revenue bonds are across a broad range of sectors, primarily airport, marina and specifically pledged tax revenues.

The Company has European investment exposure in its corporate fixed maturity of $69.7 million with a net unrealized gain of $17.0 million as of December 31, 2019 and $67.8 million with a net unrealized gain of $8.0 million as of December 31, 2018. Approximately 26% and 23% of the corporate European exposure is held in the financial industry at December 31, 2019 and 2018, respectively. The Company's largest European country exposure (the United Kingdom) represented approximately 4% of the fair value of the Company's corporate fixed maturity securities as of both December 31, 2019 and 2018. The Company's international investments are managed as part of the overall portfolio with same approach to risk management and focus on diversification.

The cost or amortized cost and fair value of fixed maturity securities at December 31, 2019 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.



	Cost or Amortized Cost		Fair Value
Due in one year or less	$	11.2	$	11.5
Due after one year through five years	32.5		35.2
Due after five years through ten years	118.8		147.3
Due after ten years	459.4		621.4
Total	621.9		815.4
Asset-backed	102.1		102.4
Commercial mortgage-backed	5.0		5.0
Residential mortgage-backed	31.8		33.9
Total	$	760.8	$	956.7

Major categories of net investment income were as follows for the periods indicated:



	Years Ended December 31,
	2019			2018			2017
Fixed maturity securities	$	47.5		$	49.7		$	52.4
Equity securities	4.6			5.1			5.4
Commercial mortgage loans on real estate	2.9			3.8			5.6
Policy loans	0.3			0.4			0.4
Other investments	5.3			7.0			2.5
Cash and cash equivalents	0.1			0.1			—
Total investment income	60.7			66.1			66.3
Investment expenses	(1.4		)	(1.5		)	(2.1		)
Net investment income	$	59.3		$	64.6		$	64.2

No material investments of the Company were non-income producing for the years ended December 31, 2019, 2018 and 2017.

The following table summarizes the proceeds from sales of available-for-sale fixed maturities (and equity securities from 2017 prior to the previously described fair value change in accounting) and gross realized gains and gross realized losses that have been recognized in the statement of operations as a result of those sales for the periods indicated:



	For the Years Ended December 31,
	2019			2018			2017
Proceeds from sales	$	93.7		$	177.7		$	218.7

Gross realized gains	$	3.5		$	6.9		$	7.7
Gross realized losses	(0.9		)	(2.6		)	(0.4		)
Net realized gains	$	2.6		$	4.3		$	7.3

For securities sold at a loss during the year ended December 31, 2019, the average period of time these securities were trading continuously at a price below book value was approximately 5 months.

The following table sets forth the net realized gains (losses), including OTTI, recognized in the statement of operations for the periods indicated:



	Years Ended December 31,
	2019			2018			2017
Net realized gains (losses) related to sales and other:
Fixed maturity securities	$	2.6		$	4.3		$	6.1
Equity securities	8.3			(6.1		)	0.2
Commercial mortgage loans on real estate	—			0.4			1.3
Other investments	(1.5		)	—			2.2
Total net realized gains (losses) related to sales and other	9.4			(1.4		)	9.8
Net realized losses related to other-than-temporary impairments:
Fixed maturity securities	—			—			(0.1		)
Total net realized losses related to other-than-temporary impairments	—			—			(0.1		)
Total net realized gains (losses)	$	9.4		$	(1.4	)	$	9.7

The following table sets forth the portion of unrealized gains (losses) related to equity securities for the year ended December 31, 2019:



	Years Ended December 31,
	2019		2018
Net gains (losses) recognized on equity securities	$	8.3	$	(6.1	)
Less: Net realized gains related to sales of equity securities	1.7		0.4
Total net unrealized gains (losses) on equity securities (1)	$	6.6	$	(6.5	)

(1) Net unrealized gains (losses) for the years ended December 31, 2019 and 2018 are required to be reported through the income statement in accordance with the 2018 accounting guidance on financial instruments.

Other-Than-Temporary Impairments

The Company follows the OTTI guidance, which requires entities to separate an OTTI of a debt security into two components when there are credit related losses associated with the impaired debt security for which the Company asserts that it does not have the intent to sell, and it is more likely than not that it will not be required to sell before recovery of its cost basis. Under the OTTI guidance, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other, non-credit factors (e.g., interest rates, market conditions, etc.) is recorded as a component of other comprehensive income. In instances where no credit loss exists but the Company intends to sell the security or it is more likely than not that the Company will have to sell the debt security prior to the anticipated recovery, the decline in market value below amortized cost is recognized as an OTTI in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. For debt securities for which OTTI was recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income.

The following table sets forth the amount of credit loss impairments recognized within the results of operations on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts:



	Years Ended December 31,
	2019			2018			2017
Balance, beginning of year	$	10.4		$	10.7		$	11.1
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	(0.4		)	(0.3		)	(0.3		)
Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	—			—			(0.1		)
Balance, end of year	$	10.0		$	10.4		$	10.7

The Company regularly monitors its investment portfolio to ensure investments that may be other-than-temporarily impaired are timely identified, properly valued, and charged against earnings in the proper period. The determination that a security has incurred an other-than-temporary decline in value requires the judgment of management. Assessment factors include, but are not limited to, the length of time and the extent to which the market value has been less than cost, the financial condition and rating of the issuer, whether any collateral is held, the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery and the intent to sell or whether it is more likely than not that the Company will be required to sell its fixed maturity securities. Inherently, there are risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, a more pronounced economic downturn or unforeseen events which affect one or more companies, industry sectors, or countries could result in additional impairments in future periods for other-than-temporary declines in value. The impairment of a fixed maturity security that the Company has the intent to sell or that it is more likely than not that the Company will be required to sell is deemed other-than-temporary and is written down to its market value at the balance sheet date with the amount of the impairment reported as a realized loss in that period. For all other-than-temporarily impaired fixed maturity securities that do not meet either of these two criteria, the Company is required to analyze its ability to recover the amortized cost of the security by calculating the net present value of projected future cash flows. For these other-than-temporarily impaired fixed maturity securities, the net amount recognized in earnings is equal to the difference between the amortized cost of the fixed maturity security and its net present value.

The Company considers different factors to determine the amount of projected future cash flows and discounting methods for corporate debt and residential and commercial mortgage-backed or asset-backed securities. For corporate debt securities, the split between the credit and non-credit losses is driven principally by assumptions regarding the amount and timing of projected future cash flows. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the security at the date of acquisition. For residential and commercial mortgage-backed and asset-backed securities, cash flow estimates, including prepayment assumptions, are based on data from widely accepted third party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral including default rates, recoveries and changes in value. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security prior to impairment at the balance sheet date. The discounted cash flows become the new amortized cost basis of the fixed maturity security.

In periods subsequent to the recognition of an OTTI, the Company generally accretes the discount (or amortizes the reduced premium) into net investment income, up to the non-discounted amount of projected future cash flows, resulting from the reduction in cost basis, based upon the amount and timing of the expected future cash flows over the estimated period of cash flows.

The investment category and duration of the Company's gross unrealized losses on fixed maturity securities and equity securities, as applicable, as of December 31, 2019 and 2018 were as follows:



	December 31, 2019
	Less than 12 months				12 Months or More					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed maturity securities:
Asset-backed	$	—	$	—	$	21.1	$	(0.4	)	$	21.1	$	(0.4	)
Total fixed maturity securities	$	—	$	—	$	21.1	$	(0.4	)	$	21.1	$	(0.4	)



	December 31, 2018
	Less than 12 months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed maturity securities:
Asset-backed	$	63.2	$	(1.8	)	$	—	$	—		$	63.2	$	(1.8	)
Commercial mortgage-backed	$	—	$	—		$	3.3	$	(0.2	)	$	3.3	$	(0.2	)
Residential mortgage-backed	—		—			8.2		(0.4		)	$	8.2	(0.4		)
U.S. corporate	40.5		(1.5		)	2.5		(0.4		)	$	43.0	(1.9		)
Foreign corporate	5.7		(0.3		)	—		—			$	5.7	(0.3		)
Total fixed maturity securities	$	109.4	$	(3.6	)	$	14.0	$	(1.0	)	$	123.4	$	(4.6	)

Total gross unrealized losses represent approximately 1% and 3% of the aggregate fair value of the related securities at December 31, 2019 and 2018, respectively. Approximately 79% of these gross unrealized losses have been in a continuous loss position for less than twelve months as of December 31, 2018. The total gross unrealized losses are comprised of 11 and 81 individual securities at December 31, 2019 and 2018, respectively. In accordance with its policy described above, the Company concluded that for these securities, other-than-temporary impairments of the gross unrealized losses was not warranted at December 31, 2019 and 2018.

The cost or amortized cost and fair value of available-for-sale fixed maturity securities in an unrealized loss position at December 31, 2019 is shown below:



	Cost or Amortized Cost		Fair Value
Asset-backed	$	21.4	$	21.0

The Company has entered into commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the United States. As of December 31, 2019, approximately 48% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, Alabama and Utah. Although the Company has a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of its debtors to repay their loans. The outstanding balance of commercial mortgage loans range in size from $0.2 million to $8.0 million as of December 31, 2019 and from $0.1 million to $8.2 million as of December 31, 2018.

Credit quality indicators for commercial mortgage loans are loan-to-value and debt-service coverage ratios. Loan-to-value and debt-service coverage ratios are measures commonly used to assess the credit quality of commercial mortgage loans. The loan-to-value ratio compares the principal amount of the loan to the fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. The debt-service coverage ratio compares a property's net operating income to its debt-service payments and is commonly expressed as a ratio. The loan-to-value and debt-service coverage ratios are updated annually.

The following summarizes the carrying value and average debt-service coverage ratio for the Company’s mortgage loans that had loan-to-value ratios falling within the stated ranges as of the dates indicated:



	December 31, 2019
Loan-to-Value	Carrying Value		% of Gross Mortgage Loans		Debt- Service Coverage Ratio
70% and less	$	47.4	100.0	%	2.37



	December 31, 2018
Loan-to-Value	Carrying Value		% of Gross Mortgage Loans		Debt- Service Coverage Ratio
70% and less	$	54.6	100.0	%	1.96

All commercial mortgage loans that are individually impaired have an established mortgage loan valuation allowance for losses. An additional valuation allowance is established for incurred, but not specifically identified impairments. Changing economic conditions affect the Company’s valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that the Company performs for monitored loans and may contribute to the establishment of (or an increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, the Company monitors the mortgage loan portfolio to identify risk. Areas of emphasis are properties that have deteriorating credits or have experienced a reduction in debt-service coverage ratio.

The Company had fixed maturity securities of $6.5 million and $6.8 million as of December 31, 2019 and 2018, respectively, on deposit with various governmental authorities as required by law.

Variable Interest Entities A VIE is a legal entity which does not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest. The Company's investments in VIEs include real estate joint ventures and other limited partnerships. These investments are generally accounted for under the equity method and are included within other investments in the balance sheets. The Company's maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported. As of December 31, 2019, the Company’s maximum exposure to loss is $24.4 million in recorded carrying value.