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Investments
 12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments Investments
Net Investment Income
The components of net investment income for the following periods were:
($ in thousands)
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Fixed maturity securities
 
$
283,228

 
$
353,303

 
$
354,290

Equity securities
 
4,923

 
6,017

 
6,411

Limited partnership interests
 
25,694

 
15,406

 
12,555

Short-term and other investments
 
60,703

 
11,981

 
10,214

Total investment income
 
374,548

 
386,707

 
383,470

Investment expenses
 
(9,484
)
 
(10,200
)
 
(9,840
)
Net investment income
 
$
365,064

 
$
376,507

 
$
373,630



Net Investment Gains (Losses)
Net investment gains (losses) for the following periods were:
($ in thousands)
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Fixed maturity securities (1)
 
$
141,448

 
$
(5,713
)
 
$
(8,867
)
Equity securities
 
15,975

 
(10,649
)
 
4,003

Short-term investments and other
 
(4,083
)
 
3,819

 
1,458

Net investment gains (losses)
 
$
153,340

 
$
(12,543
)
 
$
(3,406
)

(1) 
Net investment gains realized on fixed maturity securities include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Notes 6 and 17 for further information.

The Company, from time to time, sells invested assets subsequent to the reporting date that were considered temporarily impaired at the reporting date. Such sales are due to issuer specific events occurring subsequent to the reporting date that result in a change in the Company's intent or ability to hold an invested asset. The types of events that may result in a sale include significant changes in the economic facts and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.
Net Investment Gains (Losses) by Transaction Type
The following table reconciles net investment gains (losses) by transaction type:
($ in thousands)
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Impairment write-downs
 
$
(1,105
)
 
$
—

 
$
(1,778
)
Change in intent write-downs
 
(275
)
 
(1,530
)
 
(10,842
)
Net OTTI losses recognized in earnings
 
(1,380
)
 
(1,530
)
 
(12,620
)
Sales and other, net
 
151,495

 
3,491

 
7,756

Change in fair value - equity securities (1)
 
7,308

 
(18,323
)
 
—

Change in fair value and gains (losses) realized
on settlements - derivatives
 
(4,083
)
 
3,819

 
1,458

Net investment gains (losses)
 
$
153,340

 
$
(12,543
)
 
$
(3,406
)
(1) 
Effective January 1, 2018, with the adoption of new accounting guidance for recognition and measurement of financial instruments, equity securities are reported at fair value with changes in fair value recognized in Net investment gains (losses) and are no longer included in impairment write-downs or change in intent write-downs.

Fixed Maturity Securities
The Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:
($ in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
December 31, 2019
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations: (1)
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
684,543

 
$
41,263

 
$
1,487

 
$
724,319

Other, including U.S. Treasury securities
 
436,665

 
22,824

 
621

 
458,868

Municipal bonds
 
1,545,787

 
141,996

 
1,580

 
1,686,203

Foreign government bonds
 
42,801

 
2,569

 
—

 
45,370

Corporate bonds
 
1,464,444

 
118,775

 
1,795

 
1,581,424

Other mortgage-backed securities
 
1,282,740

 
20,883

 
8,131

 
1,295,492

Totals
 
$
5,456,980

 
$
348,310

 
$
13,614

 
$
5,791,676

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations: (1)
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
778,038

 
$
22,724

 
$
13,321

 
$
787,441

Other, including U.S. Treasury securities
 
835,096

 
16,127

 
17,681

 
833,542

Municipal bonds
 
1,884,313

 
133,150

 
13,494

 
2,003,969

Foreign government bonds
 
83,343

 
2,321

 
760

 
84,904

Corporate bonds
 
2,054,105

 
64,296

 
38,891

 
2,079,510

Other mortgage-backed securities
 
1,739,016

 
10,467

 
23,531

 
1,725,952

Totals
 
$
7,373,911

 
$
249,085

 
$
107,678

 
$
7,515,318


(1) 
Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $405.1 million and $441.3 million; Federal Home Loan Mortgage Corporation (FHLMC) of $283.1 million and $417.3 million; and Government National Mortgage Association (GNMA) of $147.4 million and $96.5 million as of December 31, 2019 and 2018, respectively.
The following table presents the fair value and gross unrealized losses securities in an unrealized loss position at December 31, 2019 and 2018, respectively. The Company views the decrease in fair value of all of the securities with unrealized losses at December 31, 2019 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition — as temporary. As of December 31, 2019, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed maturity securities with unrealized losses before recovery of the amortized cost basis. Therefore, it was determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of December 31, 2019.
($ in thousands)
 
12 months or less
 
More than 12 months
 
Total
 
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
72,422

 
$
1,282

 
$
2,620

 
$
205

 
$
75,042

 
$
1,487

Other
 
38,341

 
619

 
1,527

 
2

 
39,868

 
621

Municipal bonds
 
91,195

 
977

 
9,160

 
603

 
100,355

 
1,580

Foreign government bonds
 
—

 
—

 
—

 
—

 
—

 
—

Corporate bonds
 
58,198

 
886

 
16,622

 
909

 
74,820

 
1,795

Other mortgage-backed securities
 
218,710

 
1,970

 
442,791

 
6,161

 
661,501

 
8,131

Total
 
$
478,866

 
$
5,734

 
$
472,720

 
$
7,880

 
$
951,586

 
$
13,614

 
 
 
 
 
 
 
 
 
 
 
 
 
Number of positions with a
gross unrealized loss
 
330

 
 
 
137

 
 
 
467

 
 
Fair value as a percentage of total fixed
maturities securities fair value
 
8.3
%
 
 
 
8.2
%
 
 
 
16.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and federally
sponsored agency obligations:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
193,447

 
$
5,026

 
$
157,295

 
$
8,295

 
$
350,742

 
$
13,321

Other
 
263,497

 
6,746

 
246,213

 
10,935

 
509,710

 
17,681

Municipal bonds
 
291,869

 
7,603

 
95,297

 
5,891

 
387,166

 
13,494

Foreign government bonds
 
16,250

 
760

 
—

 
—

 
16,250

 
760

Corporate bonds
 
818,519

 
27,429

 
99,171

 
11,462

 
917,690

 
38,891

Other mortgage-backed securities
 
913,858

 
16,076

 
291,442

 
7,455

 
1,205,300

 
23,531

Total
 
$
2,497,440

 
$
63,640

 
$
889,418

 
$
44,038

 
$
3,386,858

 
$
107,678

 
 
 
 
 
 
 
 
 
 
 
 
 
Number of positions with a
gross unrealized loss
 
1,052

 
 
 
359

 
 
 
1,411

 
 
Fair value as a percentage of total fixed
maturities and equity securities fair value
 
32.7
%
 
 
 
11.7
%
 
 
 
44.4
%
 
 


Fixed maturity securities with an investment grade rating represented 93.9% of the gross unrealized losses as of December 31, 2019. With respect to fixed maturity securities involving securitized financial assets, the underlying collateral cash flows were stress tested to determine there was no adverse change in the present value of cash flows below the amortized cost basis.


Credit Losses
The following table summarizes the cumulative amounts related to the Company's credit loss component of OTTI losses on fixed maturity securities held as of December 31, 2019 and 2018 that the Company did not intend to sell as of those dates, and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of the amortized cost basis, for which the non-credit portions of OTTI losses were recognized in OCI:
($ in thousands)
 
Year Ended December 31,
 
 
2019
 
2018
Cumulative credit loss (1)
 
 
 
 
Beginning of period
 
$
1,529

 
$
3,825

New credit losses
 
—

 
—

Increases to previously recognized credit losses
 
—

 
246

Losses related to securities sold or paid down during the period
 
—

 
(2,542
)
End of period
 
$
1,529

 
$
1,529

(1) 
The cumulative credit loss amounts exclude OTTI losses on securities held as of the periods indicated that the Company intended to sell or it was more likely than not that the Company would be required to sell the security before the recovery of the amortized cost basis.
Maturities of Fixed Maturity Securities
The following table presents the distribution of the Company's fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, including mortgage-backed securities and other asset-backed securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.
($ in thousands)
 
December 31, 2019
 
 
Amortized
Cost
 
Fair
Value
 
Percent of
Total Fair
Value
Estimated expected maturity:
 
 
 
 
 
 
Due in 1 year or less
 
$
205,798

 
$
211,420

 
3.6
%
Due after 1 year through 5 years
 
1,541,749

 
1,587,300

 
27.4
%
Due after 5 years through 10 years
 
1,613,539

 
1,712,236

 
29.6
%
Due after 10 years through 20 years
 
1,393,503

 
1,512,769

 
26.1
%
Due after 20 years
 
702,391

 
767,951

 
13.3
%
Total
 
$
5,456,980

 
$
5,791,676

 
100.0
%
 
 
 
 
 
 
 
Average option-adjusted duration, in years
 
6.0

 
 
 
 

Sales of Fixed Maturity and Equity Securities
Proceeds received from sales of fixed maturity and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each year were:
($ in thousands)
 
Year Ended December 31,
 
 
2019 (1)
 
2018
 
2017
Fixed maturity securities
 
 
 
 
 
 
Proceeds received
 
$
805,887

 
$
625,527

 
$
500,760

Gross gains realized
 
150,852

 
10,536

 
13,570

Gross losses realized
 
(7,807
)
 
(14,932
)
 
(11,842
)
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
Proceeds received
 
$
29,863

 
$
25,498

 
$
50,113

Gross gains realized
 
9,193

 
8,592

 
7,753

Gross losses realized
 
(788
)
 
(917
)
 
(1,972
)

(1) 
Gross gains realized presented above include a $135.3 million realized investment gain associated with a transfer of investments to a reinsurer as consideration paid during the second quarter of 2019 in connection with the reinsurance of a $2.9 billion block of in force fixed and variable annuity business. See Notes 6 and 17 for further information.
Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities
Net unrealized investment gains (losses) on securities are computed as the difference between fair value and amortized cost for fixed maturity securities or cost for equity securities. The following table reconciles the net unrealized investment gains (losses) on securities, net of tax, included in AOCI, before the impact on DAC:
($ in thousands)
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Net unrealized investment gains (losses) on fixed maturity
securities, net of tax
 
 
 
 
 
 
Beginning of period
 
$
111,712

 
$
286,176

 
$
202,941

Change in unrealized investment gains (losses)
on fixed maturity securities
 
277,062

 
(172,350
)
 
80,073

Reclassification of net investment (gains)
losses on securities to net income
 
(124,364
)
 
12,927

 
3,162

Cumulative effect of change in accounting principle (1)
 
—

 
(15,041
)
 
—

End of period
 
$
264,410

 
$
111,712

 
$
286,176


(1) 
Effective January 1, 2018, with the adoption of new accounting guidance for recognition and measurement of financial instruments, available for sale equity securities were reclassified to equity securities at fair value and the related net unrealized gains were reclassified from AOCI to Retained earnings.
Limited Partnership Interests
As of December 31, 2019 and 2018, the carrying value of equity method limited partnerships totaled $383.7 million and $328.5 million, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.
Investment in Entities Exceeding 10% of Shareholders' Equity
At December 31, 2019 and 2018, there were no investments which exceeded 10% of total shareholders' equity in entities other than obligations of the U.S. Government and federally sponsored government agencies and authorities.
Offsetting of Assets and Liabilities
The Company's derivatives (call options) are subject to enforceable master netting arrangements. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge cash collateral in the event minimum thresholds have been reached.
The following table presents the instruments that were subject to a master netting arrangement for the Company.
($ in thousands)
 
 
 
Gross
Amounts
Offset in the
 
Net Amounts
of Assets/
Liabilities
Presented
in the
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
 
 
 
 
Gross
Amounts
 
Consolidated
Balance
Sheets
 
Consolidated
Balance
Sheets
 
Financial
Instruments
 
Cash
Collateral
Received
 
Net
Amount
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Asset derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Free-standing derivatives
 
$
13,239

 
$
—

 
$
13,239

 
$
7,687

 
$
6,640

 
$
(1,088
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Asset derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Free-standing derivatives
 
2,647

 
—

 
2,647

 
—

 
1,868

 
779


Deposits
At December 31, 2019 and 2018, fixed maturity securities with a fair value of $26.0 million and $17.7 million, respectively, were on deposit with governmental agencies as required by law in various states in which the insurance subsidiaries of the Company conduct business. In addition, at December 31, 2019 and 2018, fixed maturity securities with a fair value of $594.2 million and $740.0 million, respectively, were on deposit with FHLB as collateral for amounts subject to funding agreements, advances and borrowings that were equal to $545.0 million and $675.0 million at the respective dates. The deposited securities are included in Fixed maturity securities on the Company's Consolidated Balance Sheets.