UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
(Mark One)
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2010
or
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 1-9518
THE PROGRESSIVE CORPORATION
(Exact name of registrant as specified in its charter)
| Ohio | 34-0963169 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 6300 Wilson Mills Road, Mayfield Village, Ohio | 44143 | |
| (Address of principal executive offices) | (Zip Code) | |
(440) 461-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | x | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common Shares, $1.00 par value: 663,350,123 outstanding at September 30, 2010
PART I - FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
The Progressive Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
| Three Months | Nine Months | |||||||||||||||||||||||
| Periods Ended September 30, |
2010 | 2009 | % Change |
2010 | 2009 | % Change |
||||||||||||||||||
| (millions - except per share amounts) | ||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Net premiums earned |
$ | 3,599.9 | $ | 3,445.4 | 4 | $ | 10,691.2 | $ | 10,293.4 | 4 | ||||||||||||||
| Investment income |
131.5 | 122.6 | 7 | 391.9 | 376.2 | 4 | ||||||||||||||||||
| Net realized gains (losses) on securities: |
||||||||||||||||||||||||
| Other-than-temporary impairment (OTTI) losses: |
||||||||||||||||||||||||
| Total OTTI losses |
(1.9 | ) | (20.2 | ) | (91 | ) | (19.1 | ) | (74.0 | ) | (74 | ) | ||||||||||||
| Non-credit losses, net of credit losses recognized on previously recorded non-credit OTTI losses |
(.2 | ) | 12.4 | NM | 5.3 | 36.2 | (85 | ) | ||||||||||||||||
| Net impairment losses recognized in earnings |
(2.1 | ) | (7.8 | ) | (73 | ) | (13.8 | ) | (37.8 | ) | (63 | ) | ||||||||||||
| Net realized gains (losses) on securities |
29.0 | 46.6 | (38 | ) | 32.0 | 19.1 | 68 | |||||||||||||||||
| Total net realized gains (losses) on securities |
26.9 | 38.8 | (31 | ) | 18.2 | (18.7 | ) | NM | ||||||||||||||||
| Service revenues |
4.8 | 4.5 | 7 | 14.0 | 12.1 | 16 | ||||||||||||||||||
| Net gain on extinguishment of debt |
6.4 | 0 | NM | 6.4 | 0 | NM | ||||||||||||||||||
| Total revenues |
3,769.5 | 3,611.3 | 4 | 11,121.7 | 10,663.0 | 4 | ||||||||||||||||||
| Expenses |
||||||||||||||||||||||||
| Losses and loss adjustment expenses |
2,543.4 | 2,459.9 | 3 | 7,510.0 | 7,259.5 | 3 | ||||||||||||||||||
| Policy acquisition costs |
342.4 | 333.8 | 3 | 1,014.3 | 1,004.1 | 1 | ||||||||||||||||||
| Other underwriting expenses |
459.1 | 401.9 | 14 | 1,331.8 | 1,170.2 | 14 | ||||||||||||||||||
| Investment expenses |
.3 | 2.9 | (90 | ) | 8.5 | 8.1 | 5 | |||||||||||||||||
| Service expenses |
5.2 | 5.5 | (5 | ) | 15.9 | 14.8 | 7 | |||||||||||||||||
| Interest expense |
31.9 | 35.3 | (10 | ) | 102.2 | 103.7 | (1 | ) | ||||||||||||||||
| Total expenses |
3,382.3 | 3,239.3 | 4 | 9,982.7 | 9,560.4 | 4 | ||||||||||||||||||
| Net Income |
||||||||||||||||||||||||
| Income before income taxes |
387.2 | 372.0 | 4 | 1,139.0 | 1,102.6 | 3 | ||||||||||||||||||
| Provision for income taxes |
125.6 | 102.1 | 23 | 369.9 | 350.1 | 6 | ||||||||||||||||||
| Net income |
$ | 261.6 | $ | 269.9 | (3 | ) | $ | 769.1 | $ | 752.5 | 2 | |||||||||||||
| Computation of Earnings Per Share |
||||||||||||||||||||||||
| Basic: |
||||||||||||||||||||||||
| Average shares outstanding |
655.8 | 666.7 | (2 | ) | 659.2 | 668.2 | (1 | ) | ||||||||||||||||
| Per share |
$ | .40 | $ | .40 | 0 | $ | 1.17 | $ | 1.13 | 4 | ||||||||||||||
| Diluted: |
||||||||||||||||||||||||
| Average shares outstanding |
655.8 | 666.7 | (2 | ) | 659.2 | 668.2 | (1 | ) | ||||||||||||||||
| Net effect of dilutive stock-based compensation |
5.4 | 6.1 | (11 | ) | 5.2 | 5.0 | 4 | |||||||||||||||||
| Total equivalent shares |
661.2 | 672.8 | (2 | ) | 664.4 | 673.2 | (1 | ) | ||||||||||||||||
| Per share |
$ | .40 | $ | .40 | 0 | $ | 1.16 | $ | 1.12 | 4 | ||||||||||||||
| Dividends declared per share1 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
NM = Not Meaningful
| 1 | Progressive maintains an annual dividend program. See Note 9 - Dividends and Note 12 - Subsequent Event for further discussion. |
See notes to consolidated financial statements.
2
The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)
| September 30, | December
31, 2009 |
|||||||||||
| (millions) |
2010 | 2009 | ||||||||||
| Assets |
||||||||||||
| Investments - Available-for-sale, at fair value: |
||||||||||||
| Fixed maturities (amortized cost: $11,727.3, $11,915.6, and $11,717.0) |
$ | 12,085.8 | $ | 11,729.9 | $ | 11,563.4 | ||||||
| Equity securities: |
||||||||||||
| Nonredeemable preferred stocks (cost: $610.6, $762.7, and $665.4) |
1,189.4 | 1,244.8 | 1,255.8 | |||||||||
| Common equities (cost: $1,014.7, $290.4, and $598.4) |
1,285.3 | 466.6 | 816.2 | |||||||||
| Short-term investments (amortized cost: $1,815.5, $1,227.9, and $1,078.0) |
1,815.5 | 1,227.9 | 1,078.0 | |||||||||
| Total investments |
16,376.0 | 14,669.2 | 14,713.4 | |||||||||
| Cash |
155.0 | 172.5 | 160.7 | |||||||||
| Accrued investment income |
107.3 | 103.6 | 110.4 | |||||||||
| Premiums receivable, net of allowance for doubtful accounts of $109.5, $109.1, and $116.4 |
2,858.6 | 2,636.1 | 2,454.8 | |||||||||
| Reinsurance recoverables, including $34.4, $35.2, and $35.4 on paid losses and loss adjustment expenses |
685.2 | 335.9 | 564.8 | |||||||||
| Prepaid reinsurance premiums |
97.8 | 68.4 | 69.3 | |||||||||
| Deferred acquisition costs |
450.5 | 433.6 | 402.2 | |||||||||
| Income taxes |
164.6 | 490.9 | 416.7 | |||||||||
| Property and equipment, net of accumulated depreciation of $560.1, $577.8, and $595.8 |
932.0 | 974.1 | 961.3 | |||||||||
| Other assets |
197.6 | 163.1 | 195.7 | |||||||||
| Total assets |
$ | 22,024.6 | $ | 20,047.4 | $ | 20,049.3 | ||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Unearned premiums |
$ | 4,711.0 | $ | 4,493.5 | $ | 4,172.9 | ||||||
| Loss and loss adjustment expense reserves |
6,953.4 | 6,352.0 | 6,653.0 | |||||||||
| Accounts payable, accrued expenses, and other liabilities |
1,689.2 | 1,528.7 | 1,297.6 | |||||||||
|
Debt1 |
1,957.8 | 2,176.8 | 2,177.2 | |||||||||
| Total liabilities |
15,311.4 | 14,551.0 | 14,300.7 | |||||||||
| Common Shares, $1.00 par value (authorized 900.0; issued 797.7, 797.8, and 797.8, including treasury shares of 134.3, 121.6, and 125.2) |
663.4 | 676.2 | 672.6 | |||||||||
| Paid-in capital |
977.0 | 922.2 | 939.7 | |||||||||
| Retained earnings |
4,273.6 | 3,561.9 | 3,683.1 | |||||||||
| Accumulated other comprehensive income (loss): |
||||||||||||
| Net non-credit related OTTI losses, adjusted for valuation changes |
(3.1 | ) | (13.9 | ) | (15.7 | ) | ||||||
| Other net unrealized gains (losses) on securities |
785.8 | 327.0 | 445.9 | |||||||||
| Total net unrealized gains (losses) on securities |
782.7 | 313.1 | 430.2 | |||||||||
| Net unrealized gains on forecasted transactions |
15.4 | 23.0 | 21.6 | |||||||||
| Foreign currency translation adjustment |
1.1 | 0 | 1.4 | |||||||||
| Total accumulated other comprehensive income (loss) |
799.2 | 336.1 | 453.2 | |||||||||
| Total shareholders’ equity |
6,713.2 | 5,496.4 | 5,748.6 | |||||||||
| Total liabilities and shareholders’ equity |
$ | 22,024.6 | $ | 20,047.4 | $ | 20,049.3 | ||||||
| 1 | Consists of long-term debt. See Note 4 - Debt. |
See notes to consolidated financial statements.
3
The Progressive Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
| Nine months ended September 30, |
2010 | 2009 | ||||||
| (millions) | ||||||||
| Cash Flows From Operating Activities |
||||||||
| Net income |
$ | 769.1 | $ | 752.5 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
62.4 | 65.2 | ||||||
| Amortization of fixed-income securities |
172.9 | 179.8 | ||||||
| Amortization of stock-based compensation |
35.2 | 28.0 | ||||||
| Net realized (gains) losses on securities |
(18.2 | ) | 18.7 | |||||
| Net loss on disposition of property and equipment |
(1.2 | ) | 7.1 | |||||
| Net gain on extinguishment of debt |
(6.4 | ) | 0 | |||||
| Changes in: |
||||||||
| Premiums receivable |
(403.8 | ) | (227.5 | ) | ||||
| Reinsurance recoverables |
(120.4 | ) | (47.4 | ) | ||||
| Prepaid reinsurance premiums |
(28.5 | ) | (6.0 | ) | ||||
| Deferred acquisition costs |
(48.3 | ) | (19.6 | ) | ||||
| Income taxes |
64.2 | 18.5 | ||||||
| Unearned premiums |
538.1 | 317.6 | ||||||
| Loss and loss adjustment expense reserves |
300.4 | 174.6 | ||||||
| Accounts payable, accrued expenses, and other liabilities |
362.3 | 140.9 | ||||||
| Other, net |
.1 | 12.7 | ||||||
| Net cash provided by operating activities |
1,677.9 | 1,415.1 | ||||||
| Cash Flows From Investing Activities |
||||||||
| Purchases: |
||||||||
| Fixed maturities |
(3,515.7 | ) | (8,078.6 | ) | ||||
| Equity securities |
(453.7 | ) | (79.1 | ) | ||||
| Sales: |
||||||||
| Fixed maturities |
2,448.1 | 6,134.5 | ||||||
| Equity securities |
153.6 | 564.9 | ||||||
| Maturities, paydowns, calls, and other: |
||||||||
| Fixed maturities |
912.9 | 534.7 | ||||||
| Net purchases of short-term investments - other |
(736.9 | ) | (74.4 | ) | ||||
| Net unsettled security transactions |
47.2 | (119.1 | ) | |||||
| Purchases of property and equipment |
(39.5 | ) | (50.3 | ) | ||||
| Sales of property and equipment |
7.6 | 1.0 | ||||||
| Net cash used in investing activities |
(1,176.4 | ) | (1,166.4 | ) | ||||
| Cash Flows From Financing Activities |
||||||||
| Proceeds from exercise of stock options |
14.4 | 11.4 | ||||||
| Tax benefit from exercise/vesting of stock-based compensation |
6.0 | 2.9 | ||||||
| Reacquisition of debt |
(214.3 | ) | 0 | |||||
| Dividends paid to shareholders1 |
(108.2 | ) | 0 | |||||
| Acquisition of treasury shares |
(205.5 | ) | (93.4 | ) | ||||
| Net cash used in financing activities |
(507.6 | ) | (79.1 | ) | ||||
| Effect of exchange rate changes on cash |
.4 | 0 | ||||||
| Increase (decrease) in cash |
(5.7 | ) | 169.6 | |||||
| Cash, January 1 |
160.7 | 2.9 | ||||||
| Cash, September 30 |
$ | 155.0 | $ | 172.5 | ||||
| 1 | Progressive maintains an annual dividend program. See Note 9 - Dividends for further discussion. |
See notes to consolidated financial statements.
4
The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1 Basis of Presentation — The consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries, and a mutual company affiliate. All of the subsidiaries and the mutual company affiliate are wholly owned or controlled. The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. The results of operations for the period ended September 30, 2010, are not necessarily indicative of the results expected for the full year. These consolidated financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.
Note 2 Investments — The following table presents the composition of our investment portfolio by major security type consistent with our internal classification, which represents how we manage, monitor, and measure the portfolio:
| ($ in millions) |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Net Realized Gains (Losses)1 |
Fair Value |
% of Total Fair Value |
||||||||||||||||||
| September 30, 2010 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 3,411.7 | $ | 110.0 | $ | 0 | $ | 0 | $ | 3,521.7 | 21.5 | % | ||||||||||||
| State and local government obligations |
1,865.1 | 67.8 | (.6 | ) | 0 | 1,932.3 | 11.8 | |||||||||||||||||
| Corporate debt securities |
2,392.6 | 109.3 | (1.2 | ) | 5.1 | 2,505.8 | 15.3 | |||||||||||||||||
| Residential mortgage-backed securities |
576.8 | 14.4 | (24.5 | ) | 0 | 566.7 | 3.4 | |||||||||||||||||
| Commercial mortgage-backed securities |
1,801.0 | 72.3 | (5.7 | ) | 0 | 1,867.6 | 11.4 | |||||||||||||||||
| Other asset-backed securities |
1,077.2 | 16.5 | (1.7 | ) | (.2 | ) | 1,091.8 | 6.7 | ||||||||||||||||
| Redeemable preferred stocks |
602.9 | 26.0 | (29.0 | ) | 0 | 599.9 | 3.7 | |||||||||||||||||
| Other debt obligations |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Total fixed maturities |
11,727.3 | 416.3 | (62.7 | ) | 4.9 | 12,085.8 | 73.8 | |||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
610.6 | 580.0 | 0 | (1.2 | ) | 1,189.4 | 7.3 | |||||||||||||||||
| Common equities |
1,014.7 | 279.6 | (9.0 | ) | 0 | 1,285.3 | 7.8 | |||||||||||||||||
| Short-term investments: |
||||||||||||||||||||||||
| Other short-term investments |
1,815.5 | 0 | 0 | 0 | 1,815.5 | 11.1 | ||||||||||||||||||
| Total portfolio2,3 |
$ | 15,168.1 | $ | 1,275.9 | $ | (71.7 | ) | $ | 3.7 | $ | 16,376.0 | 100.0 | % | |||||||||||
5
| ($ in millions) |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Net Realized Gains (Losses)1 |
Fair Value |
% of Total Fair Value |
||||||||||||||||||
| September 30, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 5,444.4 | $ | 11.9 | $ | (90.9 | ) | $ | 0 | $ | 5,365.4 | 36.6 | % | |||||||||||
| State and local government obligations |
2,131.5 | 57.3 | (14.8 | ) | 0 | 2,174.0 | 14.8 | |||||||||||||||||
| Corporate debt securities |
1,026.3 | 47.5 | (5.5 | ) | 0 | 1,068.3 | 7.3 | |||||||||||||||||
| Residential mortgage-backed securities |
590.6 | 2.9 | (82.2 | ) | 0 | 511.3 | 3.5 | |||||||||||||||||
| Commercial mortgage-backed securities |
1,559.1 | 23.2 | (47.3 | ) | 0 | 1,535.0 | 10.5 | |||||||||||||||||
| Other asset-backed securities |
501.2 | 5.4 | (2.3 | ) | 0 | 504.3 | 3.4 | |||||||||||||||||
| Redeemable preferred stocks |
661.4 | 18.5 | (109.4 | ) | 0 | 570.5 | 3.9 | |||||||||||||||||
| Other debt obligations |
1.1 | 0 | 0 | 0 | 1.1 | 0 | ||||||||||||||||||
| Total fixed maturities |
11,915.6 | 166.7 | (352.4 | ) | 0 | 11,729.9 | 80.0 | |||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
762.7 | 497.0 | (5.8 | ) | (9.1 | ) | 1,244.8 | 8.4 | ||||||||||||||||
| Common equities |
290.4 | 179.6 | (3.4 | ) | 0 | 466.6 | 3.2 | |||||||||||||||||
| Short-term investments: |
||||||||||||||||||||||||
| Other short-term investments |
1,227.9 | 0 | 0 | 0 | 1,227.9 | 8.4 | ||||||||||||||||||
| Total portfolio2,3 |
$ | 14,196.6 | $ | 843.3 | $ | (361.6 | ) | $ | (9.1 | ) | $ | 14,669.2 | 100.0 | % | ||||||||||
| December 31, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 4,939.6 | $ | 6.4 | $ | (128.5 | ) | $ | 0 | $ | 4,817.5 | 32.8 | % | |||||||||||
| State and local government obligations |
1,974.2 | 55.1 | (5.3 | ) | 0 | 2,024.0 | 13.8 | |||||||||||||||||
| Corporate debt securities |
1,244.9 | 43.4 | (6.9 | ) | 0 | 1,281.4 | 8.7 | |||||||||||||||||
| Residential mortgage-backed securities |
592.0 | 4.3 | (79.9 | ) | 0 | 516.4 | 3.5 | |||||||||||||||||
| Commercial mortgage-backed securities |
1,572.0 | 37.0 | (18.9 | ) | 0 | 1,590.1 | 10.8 | |||||||||||||||||
| Other asset-backed securities |
721.9 | 6.1 | (1.8 | ) | 0 | 726.2 | 4.9 | |||||||||||||||||
| Redeemable preferred stocks |
671.3 | 20.7 | (85.3 | ) | 0 | 606.7 | 4.1 | |||||||||||||||||
| Other debt obligations |
1.1 | 0 | 0 | 0 | 1.1 | 0 | ||||||||||||||||||
| Total fixed maturities |
11,717.0 | 173.0 | (326.6 | ) | 0 | 11,563.4 | 78.6 | |||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
665.4 | 597.6 | 0 | (7.2 | ) | 1,255.8 | 8.5 | |||||||||||||||||
| Common equities |
598.4 | 220.1 | (2.3 | ) | 0 | 816.2 | 5.6 | |||||||||||||||||
| Short-term investments: |
||||||||||||||||||||||||
| Other short-term investments |
1,078.0 | 0 | 0 | 0 | 1,078.0 | 7.3 | ||||||||||||||||||
| Total portfolio2,3 |
$ | 14,058.8 | $ | 990.7 | $ | (328.9 | ) | $ | (7.2 | ) | $ | 14,713.4 | 100.0 | % | ||||||||||
| 1 | Represents net holding period gains (losses) on certain hybrid securities (discussed below). |
| 2 | At September 30, 2010 and 2009, and December 31, 2009, we had $54.9 million, $135.1 million, and $7.7 million, respectively, of net unsettled security transactions offset in other liabilities. |
| 3 | The total fair value of the portfolio at September 30, 2010 and 2009, and December 31, 2009 included $1.6 billion, $0.9 billion, and $2.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions. |
Our other short-term investments include Eurodollar deposits, commercial paper, reverse repurchase transactions, and other investments that are expected to mature within one year. At September 30, 2010 and December 31, 2009, our other short-term investments also included $9.2 million and $0.9 million, respectively, in Treasury Bills issued by the Australian government; we held $0 in Australian Treasury Bills as of September 30, 2009.
6
Included in our fixed-maturity and equity securities are hybrid securities, which are reported at fair value:
| (millions) |
September 30, | December 31, | ||||||||||
| 2010 | 2009 | 2009 | ||||||||||
| Fixed maturities: |
||||||||||||
| Corporate debt securities |
$ | 133.9 | $ | 0 | $ | 0 | ||||||
| Other asset-backed securities |
14.8 | 0 | 0 | |||||||||
| Total fixed maturities |
148.7 | 0 | 0 | |||||||||
| Equity securities: |
||||||||||||
| Nonredeemable preferred stocks |
55.5 | 11.4 | 66.3 | |||||||||
| Total hybrid securities |
$ | 204.2 | $ | 11.4 | $ | 66.3 | ||||||
As permitted under current accounting guidance, we elected to treat the change in valuation of these hybrid securities as a component of realized gains (losses), rather than separate the host contract and the derivative component based on the underlying structure of the instruments. Certain corporate debt securities are accounted for as hybrid securities since they were acquired at a substantial premium and contain a change of control put feature that permits the investor, at its sole option once the change of control is triggered, to put the security back to the issuer at a 1% premium to par. Due to this change of control put option and the substantial market premium paid, there is a potential that the election to put upon the occurrence of a change in control could result in the investment not returning substantially all of the original investment. The hybrid in the asset-backed portfolio was acquired at a deep discount to par due to a failing auction, and contains a put option (derivative feature) that allows the investor to put that security back to the auction at par. If the auction is restored, this embedded derivative has the potential to more than double our initial investment yield. The hybrid securities in our nonredeemable preferred stock portfolio are perpetual preferred stocks that have call features with fixed-rate coupons, whereby the change in value of the call features is a component of the overall change in value of the preferred stocks.
Our securities are reported at fair value, with the changes in fair value of these securities (other than hybrid securities and derivative instruments) reported as a component of accumulated other comprehensive income, net of deferred income taxes. The changes in fair value of the hybrid securities and derivative instruments are recorded as a component of net realized gains (losses) on securities.
Gross Unrealized Losses The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:
| Total Fair Value |
Gross Unrealized Losses |
Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||
| (millions) |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||||
| September 30, 2010 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
| State and local government obligations |
101.4 | (.6 | ) | 89.0 | (.2 | ) | 12.4 | (.4 | ) | |||||||||||||||
| Corporate debt securities |
96.7 | (1.2 | ) | 48.0 | (.2 | ) | 48.7 | (1.0 | ) | |||||||||||||||
| Residential mortgage-backed securities |
283.3 | (24.5 | ) | 46.0 | (.7 | ) | 237.3 | (23.8 | ) | |||||||||||||||
| Commercial mortgage-backed securities |
189.4 | (5.7 | ) | 114.7 | (.6 | ) | 74.7 | (5.1 | ) | |||||||||||||||
| Other asset-backed securities |
111.3 | (1.7 | ) | 105.7 | (.4 | ) | 5.6 | (1.3 | ) | |||||||||||||||
| Redeemable preferred stocks |
374.1 | (29.0 | ) | 0 | 0 | 374.1 | (29.0 | ) | ||||||||||||||||
| Total fixed maturities |
1,156.2 | (62.7 | ) | 403.4 | (2.1 | ) | 752.8 | (60.6 | ) | |||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Common equities |
125.8 | (9.0 | ) | 121.1 | (8.5 | ) | 4.7 | (.5 | ) | |||||||||||||||
| Total equity securities |
125.8 | (9.0 | ) | 121.1 | (8.5 | ) | 4.7 | (.5 | ) | |||||||||||||||
| Total portfolio |
$ | 1,282.0 | $ | (71.7 | ) | $ | 524.5 | $ | (10.6 | ) | $ | 757.5 | $ | (61.1 | ) | |||||||||
7
| Total Fair Value |
Gross Unrealized Losses |
Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||
| (millions) |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||||
| September 30, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 3,842.3 | $ | (90.9 | ) | $ | 3,614.2 | $ | (85.6 | ) | $ | 228.1 | $ | (5.3 | ) | |||||||||
| State and local government obligations |
684.3 | (14.8 | ) | 23.7 | (.1 | ) | 660.6 | (14.7 | ) | |||||||||||||||
| Corporate debt securities |
203.3 | (5.5 | ) | 83.4 | (.8 | ) | 119.9 | (4.7 | ) | |||||||||||||||
| Residential mortgage-backed securities |
386.8 | (82.2 | ) | 26.0 | (2.2 | ) | 360.8 | (80.0 | ) | |||||||||||||||
| Commercial mortgage-backed securities |
572.8 | (47.3 | ) | 30.7 | (.6 | ) | 542.1 | (46.7 | ) | |||||||||||||||
| Other asset-backed securities |
104.2 | (2.3 | ) | 93.5 | (.3 | ) | 10.7 | (2.0 | ) | |||||||||||||||
| Redeemable preferred stocks |
504.2 | (109.4 | ) | 16.8 | (3.1 | ) | 487.4 | (106.3 | ) | |||||||||||||||
| Total fixed maturities |
6,297.9 | (352.4 | ) | 3,888.3 | (92.7 | ) | 2,409.6 | (259.7 | ) | |||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
51.4 | (5.8 | ) | 1.0 | (.4 | ) | 50.4 | (5.4 | ) | |||||||||||||||
| Common equities |
35.2 | (3.4 | ) | 21.0 | (1.8 | ) | 14.2 | (1.6 | ) | |||||||||||||||
| Total equity securities |
86.6 | (9.2 | ) | 22.0 | (2.2 | ) | 64.6 | (7.0 | ) | |||||||||||||||
| Total portfolio |
$ | 6,384.5 | $ | (361.6 | ) | $ | 3,910.3 | $ | (94.9 | ) | $ | 2,474.2 | $ | (266.7 | ) | |||||||||
| December 31, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| U.S. government obligations |
$ | 4,595.3 | $ | (128.5 | ) | $ | 2,408.1 | $ | (6.4 | ) | $ | 2,187.2 | $ | (122.1 | ) | |||||||||
| State and local government obligations |
448.6 | (5.3 | ) | 41.3 | (.2 | ) | 407.3 | (5.1 | ) | |||||||||||||||
| Corporate debt securities |
344.2 | (6.9 | ) | 264.6 | (1.8 | ) | 79.6 | (5.1 | ) | |||||||||||||||
| Residential mortgage-backed securities |
367.4 | (79.9 | ) | 27.9 | (2.5 | ) | 339.5 | (77.4 | ) | |||||||||||||||
| Commercial mortgage-backed securities |
386.1 | (18.9 | ) | 32.6 | (.9 | ) | 353.5 | (18.0 | ) | |||||||||||||||
| Other asset-backed securities |
81.6 | (1.8 | ) | 71.6 | (.3 | ) | 10.0 | (1.5 | ) | |||||||||||||||
| Redeemable preferred stocks |
507.5 | (85.3 | ) | 0 | 0 | 507.5 | (85.3 | ) | ||||||||||||||||
| Total fixed maturities |
6,730.7 | (326.6 | ) | 2,846.1 | (12.1 | ) | 3,884.6 | (314.5 | ) | |||||||||||||||
| Equity securities: |
||||||||||||||||||||||||
| Nonredeemable preferred stocks |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
| Common equities |
30.7 | (2.3 | ) | 20.9 | (1.7 | ) | 9.8 | (.6 | ) | |||||||||||||||
| Total equity securities |
30.7 | (2.3 | ) | 20.9 | (1.7 | ) | 9.8 | (.6 | ) | |||||||||||||||
| Total portfolio |
$ | 6,761.4 | $ | (328.9 | ) | $ | 2,867.0 | $ | (13.8 | ) | $ | 3,894.4 | $ | (315.1 | ) | |||||||||
Included in gross unrealized losses at September 30, 2010, are securities for which an OTTI credit loss was also recorded in earnings. The fair value and gross unrealized losses for these securities are comprised of the following:
| (millions) |
Total Fair Value |
Gross Unrealized Losses |
Less than 12 Months | 12 Months or Greater | ||||||||||||||||||||
| Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||
| Residential mortgage-backed securities |
$ | 55.6 | $ | (4.5 | ) | $ | 0 | $ | 0 | $ | 55.6 | $ | (4.5 | ) | ||||||||||
| Commercial mortgage-backed securities |
1.2 | (.3 | ) | 0 | 0 | 1.2 | (.3 | ) | ||||||||||||||||
| Total fixed maturities |
$ | 56.8 | $ | (4.8 | ) | $ | 0 | $ | 0 | $ | 56.8 | $ | (4.8 | ) | ||||||||||
We do not intend to sell the fixed-income securities (total fixed maturities and nonredeemable preferred stocks) held at September 30, 2010 and determined that it is more likely than not that we will not be required to sell these securities for the period of time necessary to recover their respective cost bases. In addition, we may retain the common stocks to maintain correlation to the Russell 1000 Index, as long as the portfolio and index correlation remain similar. If our strategy were to change and these securities were determined to be other-than-temporarily impaired, we would recognize a write-down in accordance with our stated policy.
8
Other-Than-Temporary Impairment (OTTI) The following tables provide a rollforward of the amounts related to credit losses recognized in earnings for which a portion of the OTTI loss was recognized in accumulated other comprehensive income at the time the credit impairment was determined and recognized:
| Three Months Ended September 30, 2010 | ||||||||||||||||
| (millions) |
Residential Mortgage- Backed |
Commercial Mortgage- Backed |
Corporate Debt |
Total | ||||||||||||
| Beginning balance at July 1, 2010 |
$ | 44.2 | $ | 1.5 | $ | 6.5 | $ | 52.2 | ||||||||
| Credit losses for which an OTTI was previously recognized |
0 | .2 | 0 | .2 | ||||||||||||
| Credit losses for which an OTTI was not previously recognized |
0 | .2 | 0 | .2 | ||||||||||||
| Change in recoveries of future cash flows expected to be collected1 |
(.6 | ) | 0 | 0 | (.6 | ) | ||||||||||
| Reductions for previously recognized credit impairments written-down to fair value2 |
(7.7 | ) | (.6 | ) | 0 | (8.3 | ) | |||||||||
| Ending balance at September 30, 2010 |
$ | 35.9 | $ | 1.3 | $ | 6.5 | $ | 43.7 | ||||||||
| Nine Months Ended September 30, 2010 | ||||||||||||||||
| (millions) |
Residential Mortgage- Backed |
Commercial Mortgage- Backed |
Corporate Debt |
Total | ||||||||||||
| Beginning balance at January 1, 2010 |
$ | 41.1 | $ | .9 | $ | 6.5 | $ | 48.5 | ||||||||
| Credit losses for which an OTTI was previously recognized |
3.0 | .3 | 0 | 3.3 | ||||||||||||
| Credit losses for which an OTTI was not previously recognized |
2.4 | .9 | 0 | 3.3 | ||||||||||||
| Change in recoveries of future cash flows expected to be collected1 |
(1.7 | ) | 0 | 0 | (1.7 | ) | ||||||||||
| Reductions for previously recognized credit impairments written-down to fair value2 |
(8.9 | ) | (.8 | ) | 0 | (9.7 | ) | |||||||||
| Ending balance at September 30, 2010 |
$ | 35.9 | $ | 1.3 | $ | 6.5 | $ | 43.7 | ||||||||
9
| Three Months Ended September 30, 2009 | ||||||||||||||||
| (millions) |
Residential Mortgage- Backed |
Commercial Mortgage- Backed |
Corporate Debt |
Total | ||||||||||||
| Beginning balance at July 1, 2009 |
$ | 38.7 | $ | 0 | $ | 6.5 | $ | 45.2 | ||||||||
| Credit losses for which an OTTI was previously recognized |
1.5 | 0 | 0 | 1.5 | ||||||||||||
| Credit losses for which an OTTI was not previously recognized |
.7 | 0 | 0 | .7 | ||||||||||||
| Change in recoveries of future cash flows expected to be collected1 |
0 | 0 | 0 | 0 | ||||||||||||
| Reductions for previously recognized credit impairments written-down to fair value2 |
0 | 0 | 0 | 0 | ||||||||||||
| Ending balance at September 30, 2009 |
$ | 40.9 | $ | 0 | $ | 6.5 | $ | 47.4 | ||||||||
| Six Months Ended September 30, 20093 | ||||||||||||||||
| (millions) |
Residential Mortgage- Backed |
Commercial Mortgage- Backed |
Corporate Debt |
Total | ||||||||||||
| Beginning balance at April 1, 2009 |
$ | 24.2 | $ | 0 | $ | 6.5 | $ | 30.7 | ||||||||
| Credit losses for which an OTTI was previously recognized |
1.4 | 0 | 0 | 1.4 | ||||||||||||
| Credit losses for which an OTTI was not previously recognized |
15.3 | 0 | 0 | 15.3 | ||||||||||||
| Change in recoveries of future cash flows expected to be collected1 |
0 | 0 | 0 | 0 | ||||||||||||
| Reductions for previously recognized credit impairments written-down to fair value2 |
0 | 0 | 0 | 0 | ||||||||||||
| Ending balance at September 30, 2009 |
$ | 40.9 | $ | 0 | $ | 6.5 | $ | 47.4 | ||||||||
| 1 | Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security, net of any current quarter (increases) decreases in expected cash flows on previously recorded reductions. |
| 2 | Reflects reductions of prior credit impairments where the current credit impairment requires writing securities down to fair value (i.e., no remaining non-credit loss). |
| 3 | Reflects the period since adoption of the new accounting standards, which were effective beginning in the second quarter 2009. |
Since we determined that it is more likely than not that we will not be required to sell the securities prior to the recovery (which could be maturity) of their respective cost bases, in order to measure the amount of credit losses on the securities that were determined to be other-than-temporarily impaired, we considered a number of factors and inputs related to the individual securities. The methodology and significant inputs used to measure the amount of credit losses in our asset-backed portfolio included: current performance indicators on the underlying assets (e.g., delinquency rates, foreclosure rates, and default rates), credit support (via current levels of subordination), and historical credit ratings. Updated cash flow expectations were also generated by our portfolio managers based upon these performance indicators. In order to determine the amount of credit loss, if any, the net present value of the cash flows expected (i.e., expected recovery value) was calculated using the current book yield for each security, and was compared to its current amortized value. In the event that the net present value was below the amortized value, a credit loss was deemed to exist, and the security was written-down.
Trading Securities At September 30, 2010, September 30, 2009, and December 31, 2009, we did not hold any trading securities and did not have any net realized gains (losses) on trading securities for the three and nine months ended September 30, 2010 and 2009.
Derivative Instruments We have invested in the following derivative exposures at various times: interest rate swaps, asset-backed credit default swaps, U.S. corporate debt credit default swaps, cash flow hedges, and equity options.
For all derivative positions discussed below, realized holding period gains and losses are netted with any upfront cash that may be exchanged under the contract to determine if the net position should be classified either as an asset or liability. To be reported as a component of the available-for-sale portfolio, the inception-to-date realized gain on the derivative position at period end would have to exceed any upfront cash received (net derivative asset). On the other hand, a net derivative liability would include any inception-to-date realized loss plus the amount of upfront cash received (or netted, if upfront cash was paid) and would be reported as a component of other liabilities. These net derivative assets/liabilities are not separately disclosed on the balance sheet due to their immaterial effect on our financial condition, cash flows, and results of operations.
10
The following table shows the status of our derivative instruments at September 30, 2010, September 30, 2009, and December 31, 2009, and for the three and nine months ended September 30, 2010 and 2009; amounts are on a pretax basis:
| (millions) | Balance Sheet |
Income Statement | ||||||||||||||||||||||||||||||||||||||||||||
| Notional Value1 | Assets (Liabilities) Fair Value |
Net Realized Gains (Losses) on Securities |
||||||||||||||||||||||||||||||||||||||||||||
| Sept. 30, | Dec. 31, | Sept. 30, | Dec. 31, | Three months ended Sept. 30, |
Nine months ended Sept. 30, |
|||||||||||||||||||||||||||||||||||||||||
| Derivatives designated as: |
2010 | 2009 | 2009 | Purpose | Classification |
2010 | 2009 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||
| Hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency cash flow hedge |
$ | 0 | $ | 0 | $ | 0 | |
Forecasted transaction |
|
Accumulated other comprehensive income | $ | 0 | $ | .9 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
| Ineffective cash flow hedge2 |
223 | 0 | 0 | |
Manage interest rate risk |
|
NA | 0 | 0 | 0 | 5.8 | 0 | 5.8 | 0 | ||||||||||||||||||||||||||||||||
| Non-hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps3 |
0 | 0 | 713 | |
Manage portfolio duration |
|
Investments - fixed maturities | 0 | 0 | .1 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
| Corporate credit default swaps4 |
35 | 0 | 0 | |
Manage credit risk |
|
Investments - fixed maturities | .4 | 0 | 0 | .6 | 0 | 1.7 | 0 | ||||||||||||||||||||||||||||||||
| Liabilities: |
||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps3 |
713 | 228 | 0 | |
Manage portfolio duration |
|
Other liabilities | (84.1 | ) | (2.1 | ) | 0 | (34.3 | ) | 5.2 | (102.7 | ) | (.6 | ) | |||||||||||||||||||||||||||
| Corporate credit default swaps4 |
0 | 25 | 25 | |
Manage credit risk |
|
Other liabilities | 0 | (.8 | ) | (.8 | ) | 0 | (.3 | ) | 0 | (.5 | ) | ||||||||||||||||||||||||||||
| Closed: |
||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps3 |
0 | 3,958 | 4,186 | |
Manage portfolio duration |
|
NA | 0 | 0 | 0 | 0 | 6.4 | 0 | 6.9 | ||||||||||||||||||||||||||||||||
| Corporate credit default swaps4 |
25 | 7 | 7 | |
Manage credit risk |
|
NA | 0 | 0 | 0 | (.2 | ) | 0 | (.2 | ) | (.4 | ) | |||||||||||||||||||||||||||||
| Equity options5 (177,190 contracts) |
(a | ) | NA | (a | ) | |
Manage price risk |
|
NA |
0 | 0 | 0 | 0 | 1.5 | 0 | (9.1 | ) | |||||||||||||||||||||||||||||
| Total |
NA | NA | NA | $ | (83.7 | ) | $ | (2.0 | ) | $ | (.7 | ) | $ | (28.1 | ) | $ | 12.8 | $ | (95.4 | ) | $ | (3.7 | ) | |||||||||||||||||||||||
| 1 | The amounts represent the value held at quarter and year end for open positions and the maximum amount held during the quarter for closed positions. |
| 2 | During the third quarter 2010, we reclassified to net realized gains (losses) on securities the portion of the unrealized gain on forecasted transactions that was related to the $222.9 million of our Debentures that were extinguished pursuant to our Tender Offer (see Note 4 – Debt for further discussion). |
| 3 | The $713 million notional value swap at September 30, 2010 and December 31, 2009 was entered into as a short position (i.e., receive variable and pay fixed coupon) while the swaps held at September 30, 2009 were long positions (i.e., receive fixed and pay variable coupon). |
| 4 | The open notional value at September 30, 2010 includes a $10 million position where we sold protection and a $25 million position where we bought protection. We bought protection on the closed positions at September 30, 2010 and on the positions held as of September 30, 2009 and December 31, 2009. |
| 5 | Each contract is equivalent to 100 shares of common stock of the issuer; we had no option activity in 2010. |
| (a) | No equity option positions were open at these periods. |
NA= Not Applicable
11
CASH FLOW HEDGES
We had no cash flow hedges open during 2010. During the third quarter 2010, we finalized the Tender Offer for, and purchased $222.9 million of, our $1 billion 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 that were issued during the second quarter 2007 (see Note 4 – Debt for further discussion). We reclassified $5.8 million (pretax) from accumulated other comprehensive income (balance sheet) to net realized gains (losses) on securities (income statement), reflecting the portion of the unrealized gain on forecasted transactions that was related to the Debentures that were extinguished pursuant to the Tender Offer.
During the fourth quarter 2008, we entered into a cash flow hedge of forecasted foreign currency transactions. The hedge was designated as, and qualified for, cash flow hedge accounting treatment. We closed our hedge position during the third quarter 2009.
INTEREST RATE SWAPS
During the periods ended September 30, 2010, September 30, 2009, and December 31, 2009, we invested in interest rate swap positions, primarily to manage the fixed-income portfolio duration. During the fourth quarter 2009, we entered into a 9-year interest rate swap position pursuant to which we are paying a fixed rate and receiving a variable rate. Since that time, the position has generated a realized loss, as interest rates have fallen since the inception of this position. As of September 30, 2010, we delivered $94.2 million in cash collateral to the counterparty on our open interest rate swap position. We had delivered an immaterial amount of collateral at September 30, 2009 and $0 at December 31, 2009 to the counterparties on our then open interest rate swap positions.
CORPORATE CREDIT DEFAULT SWAPS
During the periods ended September 30, 2010, September 30, 2009, and December 31, 2009, we held a position, which was opened during the third quarter 2008, on one corporate issuer within the financial services sector for which we bought credit default protection in the form of a credit default swap for a 5-year time horizon. We hold this protection to reduce our exposure to additional valuation declines on a preferred stock position of the same issuer.
During the second quarter 2010, we opened two positions on one corporate issuer within the industrial sector for which we bought credit default protection in the form of credit default swaps for 2-year and 4-year time horizons; both positions were closed as of September 30, 2010. We paid $0.2 million in upfront cash when we entered the 4-year exposure position. We held this protection to reduce our exposure to valuation declines on a corporate position of the same issuer due to potential future credit impairment. We also closed a position during the third quarter 2009, for which we bought credit default protection in the form of credit default swaps for a 2-year time horizon on one corporate issuer within the industrial sector. We paid $0.6 million in upfront cash when we entered this position.
As of September 30, 2010, we received $0.4 million in cash collateral from a counterparty on the above open corporate credit default swap position. As of September 30, 2009 and December 31, 2009, we delivered $0 and $0.6 million, respectively, in cash collateral to a counterparty on our then open corporate credit default swap positions.
Additionally, we opened a position during the second quarter 2010, where we sold credit protection in the form of a corporate credit default swap on one issuer in the automotive sector for a 5-year time horizon. We acquired an equal par value amount of U.S. Treasury Notes with a similar maturity to cover the credit default swap’s notional exposure. As of September 30, 2010, we received $0.1 million in cash collateral from the counterparty on this position.
EQUITY OPTIONS
We had no equity option activity during the periods ended September 30, 2010. During the nine-month period ended September 30, 2009, we simultaneously sold and purchased a substantially equivalent amount of call and put options, respectively, on Citigroup common stock, related to our Citigroup preferred stock holding. The purpose of this transaction was to effect a forward sale of a portion of the common stock we expected to receive from Citigroup resulting from the conversion of our preferred stock holding into common stock pursuant to Citigroup’s exchange that occurred during the third quarter 2009. This was achieved through matching the strike price and term of the option contracts and was meant to offset the downside price risk of the common stock during the time period pending the exchange. All of the common stock we received from the preferred stock conversion into common stock was sold by the end of the third quarter 2009.
Note 3 Fair Value — We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, into a fair value hierarchy of three levels, as follows:
| • | Level 1: Inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. government obligations and active exchange-traded equity securities). |
12
| • | Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3: Inputs that are unobservable. Unobservable inputs reflect our subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments). |
Pursuant to generally accepted accounting principles, which require us to evaluate whether a market is distressed or inactive in determining the fair value for our portfolio, we review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances existed to create an active market. Based on this evaluation, we concluded that there was sufficient activity related to the sectors and securities for which we obtained valuations.
The composition of the investment portfolio by major security type was:
| Fair Value | Cost | |||||||||||||||||||
| (millions) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| September 30, 2010 |
||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||
| U.S. government obligations |
$ | 3,521.7 | $ | 0 | $ | 0 | $ | 3,521.7 | $ | 3,411.7 | ||||||||||
| State and local government obligations |
0 | 1,932.3 | 0 | 1,932.3 | 1,865.1 | |||||||||||||||
| Corporate debt securities |
0 | 2,476.2 | 29.6 | 2,505.8 | 2,392.6 | |||||||||||||||
| Other debt obligations |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
| Subtotal |
3,521.7 | 4,408.5 | 29.6 | 7,959.8 | 7,669.4 | |||||||||||||||
| Asset-backed securities: |
|
|||||||||||||||||||
| Residential mortgage-backed |
0 | 462.1 | 104.6 | 566.7 | 576.8 | |||||||||||||||
| Commercial mortgage-backed |
0 | 1,842.2 | 25.4 | 1,867.6 | 1,801.0 | |||||||||||||||
| Other asset-backed |
0 | 1,086.2 | 5.6 | 1,091.8 | 1,077.2 | |||||||||||||||
| Subtotal asset-backed securities |
0 | 3,390.5 | 135.6 | 3,526.1 | 3,455.0 | |||||||||||||||
| Redeemable preferred stocks: |
|
|||||||||||||||||||
| Financials |
23.5 | 231.6 | 0 | 255.1 | 247.6 | |||||||||||||||
| Utilities |
0 | 69.9 | 0 | 69.9 | 69.9 | |||||||||||||||
| Industrials |
0 | 274.9 | 0 | 274.9 | 285.4 | |||||||||||||||
| Subtotal redeemable preferred stocks |
23.5 | 576.4 | 0 | 599.9 | 602.9 | |||||||||||||||
| Total fixed maturities |
3,545.2 | 8,375.4 | 165.2 | 12,085.8 | 11,727.3 | |||||||||||||||
| Equity securities: |
||||||||||||||||||||
| Nonredeemable preferred stocks: |
||||||||||||||||||||
| Agencies |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
| Financials |
608.9 | 478.2 | 0 | 1,087.1 | 523.6 | |||||||||||||||
| Utilities |
0 | 67.0 | 0 | 67.0 | 50.8 | |||||||||||||||
| Industrials |
0 | 35.3 | 0 | 35.3 | 36.2 | |||||||||||||||
| Subtotal nonredeemable preferred stocks |
608.9 | 580.5 | 0 | 1,189.4 | 610.6 | |||||||||||||||
| Common equities: |
|
|||||||||||||||||||
| Common stocks1 |
1,272.8 | 0 | 0 | 1,272.8 | 1,010.0 | |||||||||||||||
| Other equity-like investments |
0 | 0 | 12.5 | 12.5 | 4.7 | |||||||||||||||
| Subtotal common equities |
1,272.8 | 0 | 12.5 | 1,285.3 | 1,014.7 | |||||||||||||||
| Total fixed maturities and equity securities |
$ | 5,426.9 | $ | 8,955.9 | $ | 177.7 | 14,560.5 | 13,352.6 | ||||||||||||
| Short-term investments: |
||||||||||||||||||||
| Other short-term investments2 |
|
1,815.5 | 1,815.5 | |||||||||||||||||
| Total portfolio |
$ | 16,376.0 | $ | 15,168.1 | ||||||||||||||||
| Debt3 |
|
$ | 2,091.2 | $ | 1,957.8 | |||||||||||||||
13
| Fair Value | Cost | |||||||||||||||||||
| (millions) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| September 30, 2009 |
||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||
| U.S. government obligations |
$ | 5,365.4 | $ | 0 | $ | 0 | $ | 5,365.4 | $ | 5,444.4 | ||||||||||
| State and local government obligations |
0 | 2,174.0 | 0 | 2,174.0 | 2,131.5 | |||||||||||||||
| Corporate debt securities |
0 | 1,040.6 | 27.7 | 1,068.3 | 1,026.3 | |||||||||||||||
| Other debt obligations |
0 | 0 | 1.1 | 1.1 | 1.1 | |||||||||||||||
| Subtotal |
5,365.4 | 3,214.6 | 28.8 | 8,608.8 | 8,603.3 | |||||||||||||||
| Asset-backed securities: |
|
|||||||||||||||||||
| Residential mortgage-backed |
0 | 492.8 | 18.5 | 511.3 | 590.6 | |||||||||||||||
| Commercial mortgage-backed |
0 | 1,511.1 | 23.9 | 1,535.0 | 1,559.1 | |||||||||||||||
| Other asset-backed |
0 | 496.0 | 8.3 | 504.3 | 501.2 | |||||||||||||||
| Subtotal asset-backed securities |
0 | 2,499.9 | 50.7 | 2,550.6 | 2,650.9 | |||||||||||||||
| Redeemable preferred stocks: |
|
|||||||||||||||||||
| Financials |
17.0 | 220.1 | 0 | 237.1 | 277.2 | |||||||||||||||
| Utilities |
0 | 68.4 | 0 | 68.4 | 73.7 | |||||||||||||||
| Industrials |
0 | 213.9 | 51.1 | 265.0 | 310.5 | |||||||||||||||
| Subtotal redeemable preferred stocks |
17.0 | 502.4 | 51.1 | 570.5 | 661.4 | |||||||||||||||
| Total fixed maturities |
5,382.4 | 6,216.9 | 130.6 | 11,729.9 | 11,915.6 | |||||||||||||||
| Equity securities: |
||||||||||||||||||||
| Nonredeemable preferred stocks: |
|
|||||||||||||||||||
| Agencies |
2.9 | 0 | 0 | 2.9 | .9 | |||||||||||||||
| Financials |
523.2 | 549.9 | 0 | 1,073.1 | 595.5 | |||||||||||||||
| Utilities |
0 | 58.7 | 0 | 58.7 | 50.8 | |||||||||||||||
| Industrials |
0 | 0 | 110.1 | 110.1 | 115.5 | |||||||||||||||
| Subtotal nonredeemable preferred stocks |
526.1 | 608.6 | 110.1 | 1,244.8 | 762.7 | |||||||||||||||
| Common equities: |
|
|||||||||||||||||||
| Common stocks1 |
453.6 | 0 | 0 | 453.6 | 284.8 | |||||||||||||||
| Other equity-like investments |
0 | 0 | 13.0 | 13.0 | 5.6 | |||||||||||||||
| Subtotal common equities |
453.6 | 0 | 13.0 | 466.6 | 290.4 | |||||||||||||||
| Total fixed maturities and equity securities |
$ | 6,362.1 | $ | 6,825.5 | $ | 253.7 | 13,441.3 | 12,968.7 | ||||||||||||
| Short-term investments: |
||||||||||||||||||||
| Other short-term investments2 |
|
1,227.9 | 1,227.9 | |||||||||||||||||
| Total portfolio |
$ | 14,669.2 | $ | 14,196.6 | ||||||||||||||||
| Debt3 |
|
$ | 2,138.9 | $ | 2,176.8 | |||||||||||||||
14
| Fair Value | Cost | |||||||||||||||||||
| (millions) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| December 31, 2009 |
||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||
| U.S. government obligations |
$ | 4,817.5 | $ | 0 | $ | 0 | $ | 4,817.5 | $ | 4,939.6 | ||||||||||
| State and local government obligations |
0 | 2,024.0 | 0 | 2,024.0 | 1,974.2 | |||||||||||||||
| Corporate debt securities |
0 | 1,253.2 | 28.2 | 1,281.4 | 1,244.9 | |||||||||||||||
| Other debt obligations |
0 | 0 | 1.1 | 1.1 | 1.1 | |||||||||||||||
| Subtotal |
4,817.5 | 3,277.2 | 29.3 | 8,124.0 | 8,159.8 | |||||||||||||||
| Asset-backed securities: |
|
|||||||||||||||||||
| Residential mortgage-backed |
0 | 470.3 | 46.1 | 516.4 | 592.0 | |||||||||||||||
| Commercial mortgage-backed |
0 | 1,568.5 | 21.6 | 1,590.1 | 1,572.0 | |||||||||||||||
| Other asset-backed |
0 | 718.4 | 7.8 | 726.2 | 721.9 | |||||||||||||||
| Subtotal asset-backed securities |
0 | 2,757.2 | 75.5 | 2,832.7 | 2,885.9 | |||||||||||||||
| Redeemable preferred stocks: |
|
|||||||||||||||||||
| Financials |
17.8 | 231.9 | 0 | 249.7 | 277.2 | |||||||||||||||
| Utilities |
0 | 66.9 | 0 | 66.9 | 69.4 | |||||||||||||||
| Industrials |
0 | 237.0 | 53.1 | 290.1 | 324.7 | |||||||||||||||
| Subtotal redeemable preferred stocks |
17.8 | 535.8 | 53.1 | 606.7 | 671.3 | |||||||||||||||
| Total fixed maturities |
4,835.3 | 6,570.2 | 157.9 | 11,563.4 | 11,717.0 | |||||||||||||||
| Equity securities: |
||||||||||||||||||||
| Nonredeemable preferred stocks: |
|
|||||||||||||||||||
| Agencies |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
| Financials |
604.2 | 534.2 | 0 | 1,138.4 | 561.6 | |||||||||||||||
| Utilities |
0 | 65.8 | 0 | 65.8 | 50.8 | |||||||||||||||
| Industrials |
0 | 51.6 | 0 | 51.6 | 53.0 | |||||||||||||||
| Subtotal nonredeemable preferred stocks |
604.2 | 651.6 | 0 | 1,255.8 | 665.4 | |||||||||||||||
| Common equities: |
|
|||||||||||||||||||
| Common stocks1 |
803.3 | 0 | 0 | 803.3 | 593.2 | |||||||||||||||
| Other equity-like investments |
0 | 0 | 12.9 | 12.9 | 5.2 | |||||||||||||||
| Subtotal common equities |
803.3 | 0 | 12.9 | 816.2 | 598.4 | |||||||||||||||
| Total fixed maturities and equity securities |
$ | 6,242.8 | $ | 7,221.8 | $ | 170.8 | 13,635.4 | 12,980.8 | ||||||||||||
| Short-term investments: |
||||||||||||||||||||
| Other short-term investments2 |
1,078.0 | 1,078.0 | ||||||||||||||||||
| Total portfolio |
$ | 14,713.4 | $ | 14,058.8 | ||||||||||||||||
|
Debt3 |
$ | 2,154.2 | $ | 2,177.2 | ||||||||||||||||
| 1 | Common stocks are managed externally to track the Russell 1000 Index; therefore, a break-out by major sector type is not applicable. |
| 2 | Due to the underlying nature of these securities, cost approximates fair value. |
| 3 | Debt is not subject to measurement at fair value in the Consolidated Balance Sheets. Therefore, it is not broken out by hierarchy level; fair values are obtained from publicly quoted sources. |
Our portfolio valuations classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including: pricing vendors, dealers/market makers, and exchange-quoted prices. We did not have any transfers between Level 1 and Level 2 for the periods presented.
With limited exceptions, our Level 3 securities are also priced externally; however, due to several factors (e.g., nature of the securities, level of activity, lack of similar securities trading to obtain observable market level inputs), these valuations are more subjective in nature. Certain private equity investments and fixed-income investments included in the Level 3 securities are valued using external pricing supplemented by internal review and analysis.
At September 30, 2010, vendor-quoted prices represented 65% of our Level 1 classifications, compared to 77% at December 31, 2009, and 93% at September 30, 2009. The securities quoted by vendors in Level 1 represent holdings in our U.S. Treasury Notes, which are frequently traded and the quotes are considered similar to exchange trade quotes. The decrease in the Level 1 percentage from September 2009 to December 2009 and September 2010 reflected a decrease in our U.S. Treasury holdings as a percentage of total invested assets. The balance of our Level 1 pricing comes from quotes obtained directly from trades made on an active exchange.
At September 30, 2010, vendor-quoted prices comprised 91% of our Level 2 classifications, compared to 92% at December 31, 2009, and 92% at September 30, 2009. We reviewed independent documentation detailing the pricing techniques, models, and methodologies used by these pricing vendors and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield, and structure
15
that were recently transacted. We continue to monitor any changes or modifications to their processes due to the recent market events. We reviewed each sector for transaction volumes and determined that sufficient activity and liquidity existed to provide a source for market level valuations, despite being below historical averages, for all periods presented.
Broker-quoted prices represented the balance of our Level 2 classifications. In these instances, we typically use broker/dealers because the security we hold is not widely held or frequently traded and thus is not serviced by the pricing vendors. We reviewed independent documentation detailing the pricing techniques, models, and methodologies used by broker/dealers and determined that they used the same pricing techniques as the external vendor pricing sources discussed above. The broker/dealers contain back office pricing desks, separate from the day-to-day traders that buy and sell the securities. This process creates uniformity in pricing when they quote externally to their various customers. The broker/dealer valuations are quoted in terms of spreads to various indices and the spreads are based off recent transactions adjusted for movements since the last trade or based off similar securities currently trading in the market. These quotes are not considered binding offers to transact. From time to time, we will obtain more than one broker quote for a security, and we will also obtain a broker/dealer quote for those securities priced by vendors as further evaluation of market price. We believe these additional steps help to ensure that we are reporting the most representative price and validates our pricing methodology.
To the extent the inputs used by external pricing sources are determined to not contain sufficient observable market information, we will reclassify the affected security valuations to Level 3. At September 30, 2010 and 2009, and December 31, 2009, securities in our fixed-maturity portfolio listed as Level 3 were comprised substantially of securities that were either (i) private placement deals, (ii) thinly held and/or traded securities, or (iii) non-investment-grade securities with little liquidity. Based on these factors, it was difficult to independently verify observable market inputs that were used to generate the external valuations we received. During all three periods reported, one private common equity security with an aggregate value of $10.2 million was priced internally.
During each valuation period, we create internal estimations of portfolio valuation (performance returns), based on current market-related activity (e.g., interest rate and credit spread movements and other credit-related factors) within each major sector of our portfolio. We compare our internally generated portfolio results with those generated based on quotes we received externally and research material valuation differences.
Based on the criteria described above and valuation techniques used, we believe that the current level classifications are appropriate and that our fair values accurately reflect current market assumptions in the aggregate.
16
The following tables provide a summary of changes in fair value associated with Level 3 assets for the three and nine months ended September 30, 2010 and 2009:
| Level 3 Fair Value Nine months ended September 30, 2010 |
||||||||||||||||||||||||||||||||
| (millions) |
Fair Value at Dec. 31, 2009 |
Calls/ Maturities/ Paydowns |
Purchases | Sales | Realized (gain)/loss |
Change in Valuation |
Gross Transfers in (out)1 |
Fair value at Sept. 30, 2010 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||||||||||
| Asset-backed securities: |
||||||||||||||||||||||||||||||||
| Residential mortgage-backed |
$ | 46.1 | $ | (13.0 | ) | $ | 55.6 | $ | 0 | $ | 0 | $ | 3.8 | $ | 12.1 | $ | 104.6 | |||||||||||||||
| Commercial mortgage-backed |
21.6 | 0 | 0 | 0 | 0 | 3.5 | .3 | 25.4 | ||||||||||||||||||||||||
| Other asset-backed |
7.8 | (2.0 | ) | 0 | 0 | 0 | (.2 | ) | 0 | 5.6 | ||||||||||||||||||||||
| Total asset-backed securities |
75.5 | (15.0 | ) | 55.6 | 0 | 0 | 7.1 | 12.4 | 135.6 | |||||||||||||||||||||||
| Corporate debt securities |
28.2 | 0 | 0 | 0 | 0 | 1.4 | 0 | 29.6 | ||||||||||||||||||||||||
| Other debt obligations |
1.1 | 0 | 0 | 0 | 0 | (1.1 | ) | 0 | 0 | |||||||||||||||||||||||
| Redeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
53.1 | 0 | 0 | 0 | 0 | 0 | (53.1 | ) | 0 | |||||||||||||||||||||||
| Total fixed maturities |
157.9 | (15.0 | ) | 55.6 | 0 | 0 | 7.4 | (40.7 | ) | 165.2 | ||||||||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||||||||||
| Nonredeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Common equities: |
||||||||||||||||||||||||||||||||
| Other equity-like investments |
12.9 | (.6 | ) | 0 | (.3 | ) | .3 | .2 | 0 | 12.5 | ||||||||||||||||||||||
| Total Level 3 securities |
$ | 170.8 | $ | (15.6 | ) | $ | 55.6 | $ | (.3 | ) | $ | .3 | $ | 7.6 | $ | (40.7 | ) | $ | 177.7 | |||||||||||||
| 1 | The $12.1 million was transferred from Level 2 into Level 3 due to a lack of trade volume and the $53.1 million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a redeemable preferred stock. |
| Level 3 Fair Value Three months ended September 30, 2010 |
||||||||||||||||||||||||||||||||
| (millions) |
Fair Value at June 30, 2010 |
Calls/ Maturities/ Paydowns |
Purchases | Sales | Realized (gain)/loss |
Change in Valuation |
Gross Transfers in (out)1 |
Fair value at Sept. 30, 2010 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||||||||||
| Asset-backed securities: |
||||||||||||||||||||||||||||||||
| Residential mortgage-backed |
$ | 88.5 | $ | (5.5 | ) | $ | 21.3 | $ | 0 | $ | 0 | $ | .3 | $ | 0 | $ | 104.6 | |||||||||||||||
| Commercial mortgage-backed |
22.6 | 0 | 0 | 0 | 0 | 2.5 | .3 | 25.4 | ||||||||||||||||||||||||
| Other asset-backed |
6.4 | (.8 | ) | 0 | 0 | 0 | 0 | 0 | 5.6 | |||||||||||||||||||||||
| Total asset-backed securities |
117.5 | (6.3 | ) | 21.3 | 0 | 0 | 2.8 | .3 | 135.6 | |||||||||||||||||||||||
| Corporate debt securities |
29.0 | 0 | 0 | 0 | 0 | .6 | 0 | 29.6 | ||||||||||||||||||||||||
| Other debt obligations |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Redeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Total fixed maturities |
146.5 | (6.3 | ) | 21.3 | 0 | 0 | 3.4 | .3 | 165.2 | |||||||||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||||||||||
| Nonredeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Common equities: |
||||||||||||||||||||||||||||||||
| Other equity-like investments |
12.7 | 0 | 0 | (.3 | ) | .3 | (.2 | ) | 0 | 12.5 | ||||||||||||||||||||||
| Total Level 3 securities |
$ | 159.2 | $ | (6.3 | ) | $ | 21.3 | $ | (.3 | ) | $ | .3 | $ | 3.2 | $ | .3 | $ | 177.7 | ||||||||||||||
| 1 | The $0.3 million was transferred from Level 2 into Level 3 due to a lack of trade volume and liquidity. |
17
| Level 3 Fair Value Nine months ended September 30, 2009 |
||||||||||||||||||||||||||||||||
| (millions) |
Fair Value at Dec. 31, 2008 |
Calls/ Maturities/ Paydowns |
Purchases | Sales | Realized (gain)/loss |
Change in Valuation |
Gross Transfers in (out)1 |
Fair value at Sept. 30, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||||||||||
| Asset-backed securities: |
||||||||||||||||||||||||||||||||
| Residential mortgage-backed |
$ | .3 | $ | 0 | $ | 18.2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 18.5 | ||||||||||||||||
| Commercial mortgage-backed |
26.4 | (.8 | ) | 0 | 0 | 0 | 5.5 | (7.2 | ) | 23.9 | ||||||||||||||||||||||
| Other asset-backed |
11.0 | (2.6 | ) | 11.0 | 0 | 0 | (.1 | ) | (11.0 | ) | 8.3 | |||||||||||||||||||||
| Total asset-backed securities |
37.7 | (3.4 | ) | 29.2 | 0 | 0 | 5.4 | (18.2 | ) | 50.7 | ||||||||||||||||||||||
| Corporate debt securities |
24.2 | 0 | 0 | 0 | 0 | 3.5 | 0 | 27.7 | ||||||||||||||||||||||||
| Other debt obligations |
3.0 | 0 | 0 | (1.1 | ) | (1.8 | ) | 1.0 | 0 | 1.1 | ||||||||||||||||||||||
| Redeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
44.7 | 0 | 0 | 0 | 0 | 6.4 | 0 | 51.1 | ||||||||||||||||||||||||
| Total fixed maturities |
109.6 | (3.4 | ) | 29.2 | (1.1 | ) | (1.8 | ) | 16.3 | (18.2 | ) | 130.6 | ||||||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||||||||||
| Nonredeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
112.3 | 0 | 0 | 0 | 0 | (2.2 | ) | 0 | 110.1 | |||||||||||||||||||||||
| Common equities: |
||||||||||||||||||||||||||||||||
| Other equity-like investments |
13.5 | (.1 | ) | 0 | 0 | 0 | (.4 | ) | 0 | 13.0 | ||||||||||||||||||||||
| Total Level 3 securities |
$ | 235.4 | $ | (3.5 | ) | $ | 29.2 | $ | (1.1 | ) | $ | (1.8 | ) | $ | 13.7 | $ | (18.2 | ) | $ | 253.7 | ||||||||||||
| 1 | Represents movement between the fair value levels during 2009, reflecting changes in the inputs used to measure fair value during the period. |
| Level 3 Fair Value Three months ended September 30, 2009 |
||||||||||||||||||||||||||||||||
| (millions) |
Fair Value at June 30, 2009 |
Calls/ Maturities/ Paydowns |
Purchases | Sales | Realized (gain)/loss |
Change in Valuation |
Gross Transfers in (out)1 |
Fair value at Sept. 30, 2009 |
||||||||||||||||||||||||
| Fixed maturities: |
||||||||||||||||||||||||||||||||
| Asset-backed securities: |
||||||||||||||||||||||||||||||||
| Residential mortgage-backed |
$ | .3 | $ | 0 | $ | 18.2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 18.5 | ||||||||||||||||
| Commercial mortgage-backed |
23.0 | (.2 | ) | 0 | 0 | 0 | 6.8 | (5.7 | ) | 23.9 | ||||||||||||||||||||||
| Other asset-backed |
19.8 | (1.0 | ) | 0 | 0 | 0 | .5 | (11.0 | ) | 8.3 | ||||||||||||||||||||||
| Total asset-backed securities |
43.1 | (1.2 | ) | 18.2 | 0 | 0 | 7.3 | (16.7 | ) | 50.7 | ||||||||||||||||||||||
| Corporate debt securities |
24.4 | 0 | 0 | 0 | 0 | 3.3 | 0 | 27.7 | ||||||||||||||||||||||||
| Other debt obligations |
3.0 | 0 | 0 | (1.1 | ) | (1.8 | ) | 1.0 | 0 | 1.1 | ||||||||||||||||||||||
| Redeemable preferred stocks: |
||||||||||||||||||||||||||||||||
| Industrials |
49.0 | 0 | 0 | 0 | 0 | 2.1 | 0 | 51.1 | ||||||||||||||||||||||||
| Total fixed maturities |
119.5 | (1.2 | ) | 18.2 | (1.1 | ) | (1.8 | ) | 13.7 | (16.7 | ) | 130.6 | ||||||||||||||||||||
| Equity securities: |
||||||||||||||||||||||||||||||||