Investments

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Investments — The following tables present the composition of our investment portfolio by major security type, consistent with our classification of how we manage, monitor, and measure the portfolio. Our securities are reported in our consolidated balance sheets at fair value. The changes in fair value for our fixed-maturity securities (other than hybrid securities) are reported as a component of accumulated other comprehensive income, net of deferred income taxes, in our consolidated balance sheets. The net holding period gains (losses) reported below represent the inception-to-date changes in fair value of the securities. The changes in the net holding period gains (losses) between periods for the hybrid securities and equity securities are recorded as a component of net realized gains (losses) on securities in our consolidated statements of comprehensive income. During the third quarter 2020, the portfolio’s valuation rose as markets continued to recover from their first quarter declines.


($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Net Holding Period Gains (Losses)		Fair Value		% of Total Fair Value
September 30, 2020
Available-for-sale securities:
Fixed maturities:
U.S. government obligations	$	9,835.1	$	370.3	$	(1.6)	$	0	$	10,203.8	22.3	%
State and local government obligations	4,382.1		148.2		(0.5)		0		4,529.8		9.9
Corporate debt securities	10,038.7		574.7		(3.6)		2.2		10,612.0		23.2
Residential mortgage-backed securities	525.4		7.0		(1.4)		0		531.0		1.2
Commercial mortgage-backed securities	5,964.4		117.1		(27.9)		0		6,053.6		13.2
Other asset-backed securities	4,155.8		46.8		(2.3)		0		4,200.3		9.2
Redeemable preferred stocks	181.3		2.5		(3.2)		2.4		183.0		0.4
Total fixed maturities	35,082.8		1,266.6		(40.5)		4.6		36,313.5		79.4
Short-term investments	4,667.8		0		0		0		4,667.8		10.2
Total available-for-sale securities	39,750.6		1,266.6		(40.5)		4.6		40,981.3		89.6
Equity securities:
Nonredeemable preferred stocks	1,302.7		0		0		20.5		1,323.2		2.9
Common equities	1,130.0		0		0		2,329.8		3,459.8		7.5
Total equity securities	2,432.7		0		0		2,350.3		4,783.0		10.4
Total portfolio1,2	$	42,183.3	$	1,266.6	$	(40.5)	$	2,354.9	$	45,764.3	100.0	%


($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Net Holding Period Gains (Losses)		Fair Value		% of Total Fair Value
September 30, 2019
Available-for-sale securities:
Fixed maturities:
U.S. government obligations	$	13,387.6	$	300.3	$	(9.2)	$	0	$	13,678.7	35.4	%
State and local government obligations	1,652.2		32.6		(1.1)		0		1,683.7		4.4
Corporate debt securities	7,048.9		231.6		(0.4)		1.0		7,281.1		18.9
Residential mortgage-backed securities	677.5		5.5		(1.5)		0		681.5		1.8
Commercial mortgage-backed securities	4,547.9		93.0		(1.9)		0		4,639.0		12.0
Other asset-backed securities	4,601.0		21.5		(0.6)		0		4,621.9		12.0
Redeemable preferred stocks	219.8		4.4		(2.5)		5.1		226.8		0.6
Total fixed maturities	32,134.9		688.9		(17.2)		6.1		32,812.7		85.1
Short-term investments	1,467.4		0		0		0		1,467.4		3.8
Total available-for-sale securities	33,602.3		688.9		(17.2)		6.1		34,280.1		88.9
Equity securities:
Nonredeemable preferred stocks	1,054.2		0		0		74.3		1,128.5		2.9
Common equities	1,210.3		0		0		1,954.8		3,165.1		8.2
Total equity securities	2,264.5		0		0		2,029.1		4,293.6		11.1
Total portfolio1,2	$	35,866.8	$	688.9	$	(17.2)	$	2,035.2	$	38,573.7	100.0	%


($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Net Holding Period Gains (Losses)		Fair Value		% of Total Fair Value
December 31, 2019
Available-for-sale securities:
Fixed maturities:
U.S. government obligations	$	13,100.7	$	194.1	$	(43.7)	$	0	$	13,251.1	33.7	%
State and local government obligations	1,686.0		30.0		(2.7)		0		1,713.3		4.4
Corporate debt securities	6,860.3		206.6		(0.5)		1.3		7,067.7		18.0
Residential mortgage-backed securities	625.0		4.5		(2.0)		0		627.5		1.6
Commercial mortgage-backed securities	5,020.7		61.5		(6.0)		0		5,076.2		12.9
Other asset-backed securities	5,164.7		16.2		(1.4)		0		5,179.5		13.2
Redeemable preferred stocks	185.7		4.1		(1.3)		6.5		195.0		0.5
Total fixed maturities	32,643.1		517.0		(57.6)		7.8		33,110.3		84.3
Short-term investments	1,798.8		0		0		0		1,798.8		4.6
Total available-for-sale securities	34,441.9		517.0		(57.6)		7.8		34,909.1		88.9
Equity securities:
Nonredeemable preferred stocks	971.3		0		0		67.6		1,038.9		2.7
Common equities	1,125.5		0		0		2,180.8		3,306.3		8.4
Total equity securities	2,096.8		0		0		2,248.4		4,345.2		11.1
Total portfolio1,2	$	36,538.7	$	517.0	$	(57.6)	$	2,256.2	$	39,254.3	100.0	%

1Our portfolio reflects the effect of net unsettled security transactions; at September 30, 2020, we had $469.2 million in other liabilities, compared to $286.5 million and $11.9 million at September 30, 2019 and December 31, 2019, respectively.

2The total fair value of the portfolio at September 30, 2020 and 2019, and December 31, 2019, included $2.8 billion, $1.5 billion, and $3.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

At September 30, 2020, bonds and certificates of deposit in the principal amount of $281.1 million were on deposit to meet state insurance regulatory requirements. We did not hold any securities of any one issuer, excluding U.S. government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at September 30, 2020 and 2019, or December 31, 2019. At September 30, 2020, we did not hold any debt securities that were non-income producing during the preceding 12 months.

Short-Term Investments Our short-term investments may include commercial paper and other investments that are expected to mature or are redeemable within one year.

Although we invest in repurchase and reverse repurchase transactions from time to time, we did not have any open positions at September 30, 2020 or December 31, 2019, and had $400.0 million in open reverse repurchase positions at September 30, 2019. To the extent we enter into repurchase or reverse repurchase transactions, consistent with past practice, we would elect not to offset these transactions and would report them on a gross basis on our consolidated balance sheets, despite the option to elect to offset these transactions as long as they were with the same counterparty and subject to an enforceable master netting arrangement.

Hybrid Securities Included in our fixed-maturity securities are hybrid securities, which are reported at fair value:


	September 30,
(millions)	2020		2019		December 31, 2019
Fixed maturities:
State and local government obligations	$	0	$	3.5	$	3.5
Corporate debt securities	101.0		91.3		91.2
Other asset-backed securities	18.7		3.0		2.6
Redeemable preferred stocks	122.5		90.7		92.1
Total hybrid securities	$	242.2	$	188.5	$	189.4

Certain securities in our portfolio are accounted for as hybrid securities because they contain embedded derivatives that are not deemed to be clearly and closely related to the host investments. Since the embedded derivatives (e.g., change-in-control put option, debt-to-equity conversion, or any other feature unrelated to the credit quality or risk of default of the issuer that could impact the amount or timing of our expected future cash flows) do not have observable intrinsic values, we have elected to record the changes in fair value of these securities through income as realized gains or losses.

Fixed Maturities The composition of fixed maturities by maturity at September 30, 2020, was:


(millions)	Cost		Fair Value
Less than one year	$	5,794.9	$	5,827.6
One to five years	19,507.0		20,100.9
Five to ten years	9,319.7		9,900.1
Ten years or greater	461.2		484.9
Total	$	35,082.8	$	36,313.5

Asset-backed securities are classified in the maturity distribution table based upon their projected cash flows. All other securities, which do not have a single maturity date, are reported based upon expected average maturity. Contractual maturities may differ from expected maturities because the issuers of the securities may have the right to call or prepay obligations.

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 No. of Sec.	Total Fair Value		Gross Unrealized Losses		Less than 12 Months					12 Months or Greater
($ in millions)						No. of Sec.	Fair Value		Unrealized Losses		No. of Sec.	Fair Value		Unrealized Losses
September 30, 2020
Fixed maturities:
U.S. government obligations	13	$	1,993.8	$	(1.6)	13	$	1,993.8	$	(1.6)	0	$	0	$	0
State and local government obligations	45	320.1		(0.5)		45	320.1		(0.5)		0	0		0
Corporate debt securities	28	537.8		(3.6)		28	537.8		(3.6)		0	0		0
Residential mortgage-backed securities	28	86.7		(1.4)		9	38.7		(1.0)		19	48.0		(0.4)
Commercial mortgage-backed securities	77	1,794.8		(27.9)		46	1,170.4		(17.3)		31	624.4		(10.6)
Other asset-backed securities	22	191.5		(2.3)		11	146.5		(2.1)		11	45.0		(0.2)
Redeemable preferred stocks	1	9.3		(3.2)		0	0		0		1	9.3		(3.2)
Total fixed maturities	214	$	4,934.0	$	(40.5)	152	$	4,207.3	$	(26.1)	62	$	726.7	$	(14.4)


	Total No. of Sec.	Total Fair Value		Gross Unrealized Losses		Less than 12 Months					12 Months or Greater
($ in millions)						No. of Sec.	Fair Value		Unrealized Losses		No. of Sec.	Fair Value		Unrealized Losses
September 30, 2019
Fixed maturities:
U.S. government obligations	14	$	2,708.0	$	(9.2)	7	$	2,534.4	$	(8.9)	7	$	173.6	$	(0.3)
State and local government obligations	60	228.3		(1.1)		25	100.4		(0.7)		35	127.9		(0.4)
Corporate debt securities	24	245.5		(0.4)		5	77.2		(0.1)		19	168.3		(0.3)
Residential mortgage-backed securities	39	301.0		(1.5)		5	138.7		(0.1)		34	162.3		(1.4)
Commercial mortgage-backed securities	48	743.3		(1.9)		26	361.9		(0.8)		22	381.4		(1.1)
Other asset-backed securities	55	529.4		(0.6)		20	359.1		(0.2)		35	170.3		(0.4)
Redeemable preferred stocks	3	57.2		(2.5)		2	45.9		(1.3)		1	11.3		(1.2)
Total fixed maturities	243	$	4,812.7	$	(17.2)	90	$	3,617.6	$	(12.1)	153	$	1,195.1	$	(5.1)


	Total No. of Sec.	Total Fair Value		Gross Unrealized Losses		Less than 12 Months					12 Months or Greater
($ in millions)						No. of Sec.	Fair Value		Unrealized Losses		No. of Sec.	Fair Value		Unrealized Losses
December 31, 2019
Fixed maturities:
U.S. government obligations	23	$	5,152.4	$	(43.7)	19	$	5,057.2	$	(43.6)	4	$	95.2	$	(0.1)
State and local government obligations	67	314.3		(2.7)		52	287.5		(2.6)		15	26.8		(0.1)
Corporate debt securities	16	247.6		(0.5)		12	191.4		(0.5)		4	56.2		0
Residential mortgage-backed securities	41	292.8		(2.0)		12	163.7		(0.9)		29	129.1		(1.1)
Commercial mortgage-backed securities	98	1,742.4		(6.0)		79	1,400.0		(5.3)		19	342.4		(0.7)
Other asset-backed securities	61	1,000.6		(1.4)		43	938.5		(0.9)		18	62.1		(0.5)
Redeemable preferred stocks	1	11.2		(1.3)		0	0		0		1	11.2		(1.3)
Total fixed maturities	307	$	8,761.3	$	(57.6)	217	$	8,038.3	$	(53.8)	90	$	723.0	$	(3.8)

For securities in the table, during the third quarter 2020, we had no securities with credit rating upgrades and four securities that had their credit ratings downgraded, including two state and local government obligations and two commercial mortgage-backed securities, with a combined fair value of $47.5 million and an unrealized loss of $1.5 million as of September 30, 2020. A review of all securities in the table above indicated that the issuers were current with respect to their interest obligations and that there was no evidence of significant deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity.

Allowance For Credit and Uncollectible Losses We are required to measure the amount of potential credit losses for all fixed-maturity securities in an unrealized loss position. We did not record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible for the first nine months of 2020 and did not have a credit loss allowance balance as of September 30, 2020. We considered several factors and inputs related to the individual securities as part of our analysis. The methodology and significant inputs used to measure the amount of credit losses in our portfolio included:

•current performance indicators on the business model or underlying assets (e.g., delinquency rates, foreclosure rates, and default rates);

•credit support (via current levels of subordination);

•historical credit ratings; and

•updated cash flow expectations based upon these performance indicators.

In order to determine the amount of credit loss, if any, we initially reviewed securities in a loss position to determine whether it was likely that we would be required, or intended, to sell any of the securities prior to the recovery of their respective cost bases (which could be maturity). If we were likely to, or intended to, sell prior to a potential recovery, we would write off the unrealized loss. For those securities that we determined we were not likely to, or intended to, sell prior to a potential recovery, we calculated the net present value (NPV) of the cash flows expected (i.e., expected recovery value) using the current book yield for each security. The NPV was then compared to the security’s current amortized value to determine if a credit loss existed. In the event that the net present value was below the amortized value, and the amount was determined to be material individually, or in aggregate, a credit loss would be deemed to exist, and either an allowance for credit losses would be created, or if an allowance currently existed, either a recovery of the previous allowance, or an incremental loss, would be recorded to realized gains (losses).

As of September 30, 2020, we believe none of the unrealized losses relate to material credit losses on any specific securities, or in the aggregate, based on our review. We continue to expect all the securities in our portfolio to pay their principal and interest obligations.

In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at September 30, 2020, to determine if the accrued interest amounts were determined to be uncollectible. Based on our analysis, we believe the issuers have sufficient liquidity and capital reserves to meet their current interest, and future principal, obligations and, therefore, did not write off any accrued income as uncollectible at September 30, 2020.

Realized Gains (Losses) The components of net realized gains (losses) for the three and nine months ended September 30, were:


	Three Months				Nine Months
(millions)	2020		2019		2020		2019
Gross realized gains on security sales
Available-for-sale securities:
U.S. government obligations	$	90.2	$	41.5	$	565.8	$	113.0
State and local government obligations	43.9		1.8		58.9		4.0
Corporate and other debt securities	58.8		21.3		125.5		68.5
Residential mortgage-backed securities	0		0		0		0.2
Commercial mortgage-backed securities	5.0		2.6		15.4		6.2
Other asset-backed securities	0.2		0.1		0.2		0.8


Total available-for-sale securities	198.1		67.3		765.8		192.7
Equity securities:
Nonredeemable preferred stocks	0.3		3.6		20.0		20.2
Common equities	2.0		4.7		77.1		9.4
Total equity securities	2.3		8.3		97.1		29.6
Subtotal gross realized gains on security sales	200.4		75.6		862.9		222.3
Gross realized losses on security sales
Available-for-sale securities:
U.S. government obligations	(1.5)		(1.5)		(4.8)		(13.9)
State and local government obligations	0		0		0		(0.7)
Corporate and other debt securities	0		(0.2)		(6.5)		(7.7)
Residential mortgage-backed securities	0		0		0		(2.3)
Commercial mortgage-backed securities	(2.9)		0		(12.7)		(2.1)
Other asset-backed securities	0		0		0		(0.1)
Redeemable preferred stocks	0		(0.2)		0		(0.3)

Total available-for-sale securities	(4.4)		(1.9)		(24.0)		(27.1)
Equity securities:
Nonredeemable preferred stocks	(0.1)		(2.0)		(7.5)		(2.0)
Common equities	0		0		(60.3)		(7.9)
Total equity securities	(0.1)		(2.0)		(67.8)		(9.9)
Subtotal gross realized losses on security sales	(4.5)		(3.9)		(91.8)		(37.0)
Net realized gains (losses) on security sales
Available-for-sale securities:
U.S. government obligations	88.7		40.0		561.0		99.1
State and local government obligations	43.9		1.8		58.9		3.3
Corporate and other debt securities	58.8		21.1		119.0		60.8
Residential mortgage-backed securities	0		0		0		(2.1)
Commercial mortgage-backed securities	2.1		2.6		2.7		4.1
Other asset-backed securities	0.2		0.1		0.2		0.7
Redeemable preferred stocks	0		(0.2)		0		(0.3)

Total available-for-sale securities	193.7		65.4		741.8		165.6
Equity securities:
Nonredeemable preferred stocks	0.2		1.6		12.5		18.2
Common equities	2.0		4.7		16.8		1.5
Total equity securities	2.2		6.3		29.3		19.7
Subtotal net realized gains (losses) on security sales	195.9		71.7		771.1		185.3
Net holding period gains (losses)
Hybrid securities	3.2		4.2		(3.2)		16.3
Equity securities	333.5		27.6		101.9		520.6

Subtotal net holding period gains (losses)	336.7		31.8		98.7		536.9
Impairment losses





Other asset impairment	0		(38.1)		0		(62.4)
Subtotal impairment losses	0		(38.1)		0		(62.4)
Total net realized gains (losses) on securities	$	532.6	$	65.4	$	869.8	$	659.8

Realized gains (losses) on securities sold are computed using the first-in-first-out method. During 2020, we sold U.S. Treasury securities in order to selectively increase holdings across the remainder of the portfolio, predominantly in our corporate debt securities. The sales in our common stock portfolio were the result of rebalancing the indexed equity portfolio. In addition, during the third quarter 2020, our common and nonredeemable preferred stocks’ valuations continued to experience a significant recovery.

For 2019, the other asset impairment losses related to federal renewable energy tax credit fund investments, which were reported in other assets on the consolidated balance sheets, based on an analysis that our investments in those funds will not generate the cash flows that we anticipated.

The following table reflects our holding period realized gains (losses) on equity securities recognized for the three and nine months ended September 30, 2020 and 2019, for equity securities held at the respective quarter end:


	Three Months				Nine Months
(millions)	2020		2019		2020		2019
Total net gains (losses) recognized during the period on equity securities	$	335.7	$	33.9	$	131.2	$	540.3
Less: Net gains (losses) recognized on equity securities sold during the period	2.2		6.3		29.3		19.7
Net holding period gains (losses) recognized during the period on equity securities held at period end	$	333.5	$	27.6	$	101.9	$	520.6

Net Investment Income The components of net investment income for the three and nine months ended September 30, were:


	Three Months				Nine Months
(millions)	2020		2019		2020		2019
Available-for-sale securities:
Fixed maturities:
U.S. government obligations	$	36.7	$	75.8	$	135.0	$	198.7
State and local government obligations	18.5		8.7		44.2		26.9
Corporate debt securities	76.6		65.1		211.2		209.8
Residential mortgage-backed securities	0.8		5.4		8.8		16.6
Commercial mortgage-backed securities	37.3		35.6		114.2		100.7
Other asset-backed securities	22.6		31.4		76.6		85.5
Redeemable preferred stocks	2.5		3.9		12.5		16.1
Total fixed maturities	195.0		225.9		602.5		654.3
Short-term investments	6.2		7.1		26.9		34.3
Total available-for-sale securities	201.2		233.0		629.4		688.6
Equity securities:
Nonredeemable preferred stocks	15.8		15.9		44.3		47.3
Common equities	13.5		14.1		41.8		41.3
Total equity securities	29.3		30.0		86.1		88.6
Investment income	230.5		263.0		715.5		777.2
Investment expenses	(4.7)		(5.9)		(14.5)		(18.3)
Net investment income	$	225.8	$	257.1	$	701.0	$	758.9

The amount of investment income (interest and dividends) we earn varies based on the average assets held during the year and the book yields of the securities in our portfolio. On a year-over-year basis, investment income decreased 12% for the third quarter and 8% for the first nine months, compared to the same periods last year, due to a decrease in the portfolio yield, which was partially offset by an increase in average assets. The recurring investment book yield decreased about 25% in the third quarter 2020 and 21% for the first nine months of 2020, compared to the same period in 2019, as a result of investing cash from operations and reinvesting cash from sales, maturities, paydowns, and other redemptions at market yields that were significantly lower than the portfolio’s overall yield. The income reduction from the negative yield change was partially offset by an increase in income earned as a result of investing the $1.0 billion of proceeds from the debt issued during March 2020, as well as strong premium growth and underwriting profitability, net of common and preferred stock dividends. The portfolio’s duration at September 30, 2020 was 3.0 years, compared to 2.9 years at September 30, 2019. The decrease in investment expenses for both periods in 2020, compared to 2019, primarily reflects lower expenses incurred due to our decision to no longer maintain an actively managed portfolio, and lower incentive-based compensation recognized.