THG 2018 Annual Report

4. INVESTMENT INCOME AND GAINS AND LOSSES A. NET INVESTMENT INCOME The components of net investment income from continuing operations were as follows: YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Fixed maturities $ 217.7 $ 205.8 $ 202.1 Limited partnerships 24.1 15.3 8.0 Equity securities 17.0 18.0 18.6 Mortgage loans 14.0 11.4 9.1 Other investments 4.8 3.4 3.4 Gross investment income 277.6 253.9 241.2 Less investment expenses (10.2) (10.0) (9.6) Net investment income $ 267.4 $ 243.9 $ 231.6 Effective January 1, 2018, with the implementation of ASC No. 2016-01, the change in fair value of limited partnerships previously reported using the cost method are reported in net investment income, of which $5.3 million relates to holding gains on securities still owned at December 31, 2018. The carrying values of fixed maturity securities on non-accrual status at December 31, 2018 and 2017 were not material. The effects of non-accruals for the years ended December 31, 2018, 2017 and 2016, compared with amounts of net investment income that would have been recognized in accordance with the original terms of the fixed maturities were also not material. B. NET REALIZED AND UNREALIZED INVESTMENT GAINS AND LOSSES Net realized and unrealized gains (losses) on investments from continuing operations, including OTTI, were as follows: YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Equity securities $ (43.4) $ 19.8 $ 25.4 Fixed maturities (5.8) 3.6 (15.5) Other investments (1.5) (2.3) 0.3 Net realized and unrealized investment gains (losses) $ (50.7) $ 21.1 $ 10.2 Effective January 1, 2018, as a result of the implementation of ASC No. 2016-01, net realized and unrealized investment losses include changes in the fair value of equity securities. Previously, equity securities were categorized as available-for-sale and unrealized gains DQG ORVVHV ZHUH UHSRUWHG LQ $2&, D VHSDUDWH FRPSRQHQW RI VKDUHKROGHUV¶ HTXLW\ The following table provides pre-tax net realized and unrealized losses on equity securities from continuing operations: YEAR ENDED DECEMBER 31 2018 (in millions) Net losses recognized during the period $ (43.4) Less: net losses recognized on equity securities sold during the period (3.9) Net unrealized losses recognized during the period on equity securities still held $ (39.5) For the years ended December 31, 2017 and 2016, there were net unrealized gains on equity securities of $56.8 million and $37.8 million, respectively, recognized in AOCI. Other-than-temporary-impairments Included in the net realized and unrealized investment gains (losses) were OTTI of investment securities totaling $4.6 million, $5.6 million and $27.4 million in 2018, 2017 and 2016, respectively. For 2018, total OTTI from continuing operations was $5.4 million. Of this amount, $4.6 million was recognized in earnings and the remaining $0.8 million was recorded as unrealized losses in AOCI. The $4.6 million of OTTI recognized in earnings relates to $2.6 million of fixed maturity securities and $2.0 million of other invested assets. 95 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP