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Investments | 3 Months Ended
--- | ---
Mar. 31, 2013
Notes to Financial Statements [Abstract] |
Investments | Fixed Maturity Securities At March 31, 2013 and December 31, 2012, all fixed maturity securities were classified as available-for-sale. The amortized cost and fair values of securities by security type are shown as follows.
| March 31, 2013
| Amortized Cost |  | Gross Unrealized Gain |  | Gross Unrealized Loss |  | Fair Value
| (in millions of dollars)
United States Government and Government Agencies and Authorities | $ | 1,027.3 |  |  | $ | 309.2 |  |  | $ | 1.4 |  |  | $ | 1,335.1 |
States, Municipalities, and Political Subdivisions | 1,550.8 |  |  | 308.5 |  |  | 5.5 |  |  | 1,853.8 |
Foreign Governments | 1,197.3 |  |  | 260.5 |  |  | — |  |  | 1,457.8 |
Public Utilities | 9,316.7 |  |  | 1,782.4 |  |  | 9.9 |  |  | 11,089.2 |
Mortgage/Asset-Backed Securities | 1,767.1 |  |  | 275.6 |  |  | 0.5 |  |  | 2,042.2 |
All Other Corporate Bonds | 22,740.4 |  |  | 3,907.7 |  |  | 29.0 |  |  | 26,619.1 |
Redeemable Preferred Stocks | 33.0 |  |  | 6.3 |  |  | — |  |  | 39.3 |
Total Fixed Maturity Securities | $ | 37,632.6 |  |  | $ | 6,850.2 |  |  | $ | 46.3 |  |  | $ | 44,436.5 |
| December 31, 2012
| Amortized Cost |  | Gross Unrealized Gain |  | Gross Unrealized Loss |  | Fair Value
| (in millions of dollars)
United States Government and Government Agencies and Authorities | $ | 1,020.9 |  |  | $ | 329.0 |  |  | $ | 1.1 |  |  | $ | 1,348.8 |
States, Municipalities, and Political Subdivisions | 1,498.4 |  |  | 316.2 |  |  | 7.8 |  |  | 1,806.8 |
Foreign Governments | 1,280.4 |  |  | 226.6 |  |  | — |  |  | 1,507.0 |
Public Utilities | 9,294.3 |  |  | 1,865.0 |  |  | 15.1 |  |  | 11,144.2 |
Mortgage/Asset-Backed Securities | 1,927.9 |  |  | 289.1 |  |  | 0.5 |  |  | 2,216.5 |
All Other Corporate Bonds | 22,696.6 |  |  | 4,245.3 |  |  | 31.5 |  |  | 26,910.4 |
Redeemable Preferred Stocks | 33.0 |  |  | 6.3 |  |  | — |  |  | 39.3 |
Total Fixed Maturity Securities | $ | 37,751.5 |  |  | $ | 7,277.5 |  |  | $ | 56.0 |  |  | $ | 44,973.0 |
As of March 31, 2013 and December 31, 2012, we held no fixed maturity securities for which a portion of an other-than-temporary impairment had previously been recognized in other comprehensive income. The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.
| March 31, 2013
| Less Than 12 Months |  | 12 Months or Greater
| Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
| (in millions of dollars)
United States Government and Government Agencies and Authorities | $ | — |  |  | $ | — |  |  | $ | 6.2 |  |  | $ | 1.4 |
States, Municipalities, and Political Subdivisions | 91.0 |  |  | 1.8 |  |  | 45.3 |  |  | 3.7 |
Public Utilities | 224.4 |  |  | 4.1 |  |  | 57.4 |  |  | 5.8 |
Mortgage/Asset-Backed Securities | 2.5 |  |  | — |  |  | 3.8 |  |  | 0.5 |
All Other Corporate Bonds | 843.4 |  |  | 14.9 |  |  | 323.8 |  |  | 14.1 |
Total Fixed Maturity Securities | $ | 1,161.3 |  |  | $ | 20.8 |  |  | $ | 436.5 |  |  | $ | 25.5 |
| December 31, 2012
| Less Than 12 Months |  | 12 Months or Greater
| Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
| (in millions of dollars)
United States Government and Government Agencies and Authorities | $ | — |  |  | $ | — |  |  | $ | 6.5 |  |  | $ | 1.1 |
States, Municipalities, and Political Subdivisions | 30.8 |  |  | 0.9 |  |  | 42.1 |  |  | 6.9 |
Public Utilities | 110.3 |  |  | 3.9 |  |  | 147.6 |  |  | 11.2 |
Mortgage/Asset-Backed Securities | 4.4 |  |  | — |  |  | 3.8 |  |  | 0.5 |
All Other Corporate Bonds | 441.3 |  |  | 7.0 |  |  | 396.8 |  |  | 24.5 |
Total Fixed Maturity Securities | $ | 586.8 |  |  | $ | 11.8 |  |  | $ | 596.8 |  |  | $ | 44.2 |
The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments.
| March 31, 2013
| Total Amortized Cost |  | Unrealized Gain Position |  | Unrealized Loss Position
|  | Gross Gain |  | Fair Value |  | Gross Loss |  | Fair Value
| (in millions of dollars)
1 year or less | $ | 1,059.7 |  |  | $ | 23.6 |  |  | $ | 1,040.1 |  |  | $ | 0.2 |  |  | $ | 43.0 |
Over 1 year through 5 years | 5,927.8 |  |  | 654.8 |  |  | 6,501.5 |  |  | 1.7 |  |  | 79.4 |
Over 5 years through 10 years | 9,756.5 |  |  | 1,548.7 |  |  | 10,799.5 |  |  | 8.0 |  |  | 497.7 |
Over 10 years | 19,121.5 |  |  | 4,347.5 |  |  | 22,461.7 |  |  | 35.9 |  |  | 971.4 |
| 35,865.5 |  |  | 6,574.6 |  |  | 40,802.8 |  |  | 45.8 |  |  | 1,591.5 |
Mortgage/Asset-Backed Securities | 1,767.1 |  |  | 275.6 |  |  | 2,035.9 |  |  | 0.5 |  |  | 6.3 |
Total Fixed Maturity Securities | $ | 37,632.6 |  |  | $ | 6,850.2 |  |  | $ | 42,838.7 |  |  | $ | 46.3 |  |  | $ | 1,597.8 |
| December 31, 2012
| Total Amortized Cost |  | Unrealized Gain Position |  | Unrealized Loss Position
|  | Gross Gain |  | Fair Value |  | Gross Loss |  | Fair Value
| (in millions of dollars)
1 year or less | $ | 956.4 |  |  | $ | 21.2 |  |  | $ | 934.1 |  |  | $ | 0.5 |  |  | $ | 43.0 |
Over 1 year through 5 years | 5,922.8 |  |  | 628.1 |  |  | 6,449.8 |  |  | 5.0 |  |  | 96.1 |
Over 5 years through 10 years | 9,752.3 |  |  | 1,606.4 |  |  | 10,997.0 |  |  | 7.6 |  |  | 354.1 |
Over 10 years | 19,192.1 |  |  | 4,732.7 |  |  | 23,200.2 |  |  | 42.4 |  |  | 682.2 |
| 35,823.6 |  |  | 6,988.4 |  |  | 41,581.1 |  |  | 55.5 |  |  | 1,175.4 |
Mortgage/Asset-Backed Securities | 1,927.9 |  |  | 289.1 |  |  | 2,208.3 |  |  | 0.5 |  |  | 8.2 |
Total Fixed Maturity Securities | $ | 37,751.5 |  |  | $ | 7,277.5 |  |  | $ | 43,789.4 |  |  | $ | 56.0 |  |  | $ | 1,183.6 |
At March 31, 2013, the fair value of investment-grade fixed maturity securities was $41,295.1 million, with a gross unrealized gain of $6,647.8 million and a gross unrealized loss of $27.8 million. The gross unrealized loss on investment-grade fixed maturity securities was 60.0 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities. At March 31, 2013, the fair value of below-investment-grade fixed maturity securities was $3,141.4 million, with a gross unrealized gain of $202.4 million and a gross unrealized loss of $18.5 million. The gross unrealized loss on below-investment-grade fixed maturity securities was 40.0 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to develop credit concerns than investment-grade securities. At March 31, 2013, the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value. As of March 31, 2013, we held 64 individual investment-grade fixed maturity securities and 33 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 15 investment-grade fixed maturity securities and 14 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year. In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the following factors:
• | Whether we expect to recover the entire amortized cost basis of the security
• | Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis
• | Whether the security is current as to principal and interest payments
• | The significance of the decline in value
• | The time period during which there has been a significant decline in value
• | Current and future business prospects and trends of earnings
• | The valuation of the security's underlying collateral
• | Relevant industry conditions and trends relative to their historical cycles
• | Market conditions
• | Rating agency and governmental actions
• | Bid and offering prices and the level of trading activity
• | Adverse changes in estimated cash flows for securitized investments
• | Changes in fair value subsequent to the balance sheet date
• | Any other key measures for the related security
We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In particular, we also consider the strength of the issuer's balance sheet, its debt obligations and near term funding requirements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. Although available and applicable factors are considered in our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the security, whether it is more likely than not we will be required to sell the security before recovery of its amortized cost, and whether the security is current on principal and interest payments are the most critical factors in determining whether impairments are other than temporary. The significance of the decline in value and the length of time during which there has been a significant decline are also important factors, but we generally do not record an impairment loss based solely on these two factors, since often other more relevant factors will impact our evaluation of a security. While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments determined to have an other-than-temporary impairment. If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value, and an impairment loss is recognized in the current period, either in earnings or in both earnings and other comprehensive income, as applicable. For those fixed maturity securities with an unrealized loss for which we have not recognized an other-than-temporary impairment, we believe we will recover the entire amortized cost, we do not intend to sell the security, and we do not believe it is more likely than not we will be required to sell the security before recovery of its amortized cost. There have been no defaults in the repayment obligations of any securities for which we have not recorded an other-than-temporary impairment. Other-than-temporary impairment losses on fixed maturity securities which we intend to sell or more likely than not will be required to sell before recovery in value are recognized in earnings and equal the entire difference between the security's amortized cost basis and its fair value. For securities which we do not intend to sell and it is not more likely than not that we will be required to sell before recovery in value, other-than-temporary impairment losses recognized in earnings generally represent the difference between the amortized cost of the security and the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of acquisition. The determination of cash flows is inherently subjective, and methodologies may vary depending on the circumstances specific to the security. The timing and amount of our cash flow estimates are developed using historical and forecast financial information from the issuer, including its current and projected liquidity position. We also consider industry analyst reports and forecasts, sector credit ratings, future business prospects and earnings trends, issuer refinancing capabilities, actual and/or potential asset sales by the issuer, and other data relevant to the collectibility of the contractual cash flows of the security. We take into account the probability of default, expected recoveries, third party guarantees, quality of collateral, and where our debt security ranks in terms of subordination. We may use the estimated fair value of collateral as a proxy for the present value of cash flows if we believe the security is dependent on the liquidation of collateral for recovery of our investment. For fixed maturity securities for which we have recognized an other-than-temporary impairment loss through earnings, if through subsequent evaluation there is a significant increase in expected cash flows, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted as net investment income. At March 31, 2013, we had non-binding commitments of $153.0 million to fund private placement fixed maturity securities. Variable Interest Entities We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period. As of March 31, 2013, the carrying amount of our variable interest entity investments that are not consolidated under the provisions of GAAP was $431.7 million, comprised of $326.3 million of tax credit partnerships and $105.4 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets. Additionally, we recognize a liability for all legally binding unfunded commitments to these partnerships, with a corresponding recognition of an invested asset. Our liability for legally binding unfunded commitments to the tax credit partnerships was $75.7 million at March 31, 2013. Contractually, we are a limited partner in these investments, and our maximum exposure to loss is limited to the carrying value of our investment. We also had non-binding commitments of $107.8 million to fund certain private equity partnerships at March 31, 2013, the amount of which may or may not be funded. We are the sole beneficiary of a special purpose entity which is consolidated under the provisions of GAAP. This entity is a securitized asset trust containing a highly rated bond for principal protection and several partnership equity investments. We contributed the bond and partnership investments into the trust at the time it was established. The trust supports our investment objectives and allows us to maintain our investment in the partnerships while at the same time protecting the principal of the investment. There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time. Because the assets in the trust are not liquid investments, we periodically provide funding to the underlying partnerships in the trust upon satisfaction of contractual notice from the partnerships. The fair values of the bond and partnerships were $141.8 million and $6.7 million, respectively, as of March 31, 2013. The bonds are reported as fixed maturity securities, and the partnerships are reported as other long-term investments in our consolidated balance sheets. At March 31, 2013, we had no commitments to fund the underlying partnerships, nor did we fund any amounts to the partnerships during the three months ended March 31, 2013 and 2012. Mortgage Loans Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period. We update our debt service coverage ratios annually. Mortgage loans by property type and geographic region are as follows:
| March 31, 2013 |  | December 31, 2012
| (in millions of dollars)
| Carrying |  | Percent of |  | Carrying |  | Percent of
| Amount |  | Total |  | Amount |  | Total
Property Type |  |  |  |  |  |  |
Apartment | $ | 33.8 |  |  | 2.0 | % |  | $ | 34.0 |  |  | 2.0 | %
Industrial | 518.0 |  |  | 29.9 |  |  | 513.4 |  |  | 30.0 |
Mixed | 77.8 |  |  | 4.5 |  |  | 78.4 |  |  | 4.6 |
Office | 730.6 |  |  | 42.2 |  |  | 713.4 |  |  | 41.6 |
Retail | 370.2 |  |  | 21.4 |  |  | 373.5 |  |  | 21.8 |
Total | $ | 1,730.4 |  |  | 100.0 | % |  | $ | 1,712.7 |  |  | 100.0 | %
Region |  |  |  |  |  |  |
New England | $ | 113.2 |  |  | 6.5 | % |  | $ | 114.3 |  |  | 6.7 | %
Mid-Atlantic | 158.9 |  |  | 9.2 |  |  | 160.0 |  |  | 9.3 |
East North Central | 233.1 |  |  | 13.5 |  |  | 224.7 |  |  | 13.1 |
West North Central | 158.0 |  |  | 9.1 |  |  | 160.8 |  |  | 9.4 |
South Atlantic | 437.8 |  |  | 25.3 |  |  | 440.9 |  |  | 25.7 |
East South Central | 79.1 |  |  | 4.6 |  |  | 79.6 |  |  | 4.7 |
West South Central | 157.8 |  |  | 9.1 |  |  | 159.5 |  |  | 9.3 |
Mountain | 89.6 |  |  | 5.2 |  |  | 90.5 |  |  | 5.3 |
Pacific | 302.9 |  |  | 17.5 |  |  | 282.4 |  |  | 16.5 |
Total | $ | 1,730.4 |  |  | 100.0 | % |  | $ | 1,712.7 |  |  | 100.0 | %
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings may include the following:
• | Loan-to-value ratio
• | Debt service coverage ratio based on current operating income
• | Property location, including regional economics, trends and demographics
• | Age, condition, and construction quality of property
• | Current and historical occupancy of property
• | Lease terms relative to market
• | Tenant size and financial strength
• | Borrower's financial strength
• | Borrower's equity in transaction
• | Additional collateral, if any
Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency. Mortgage loans, sorted by the applicable credit quality indicators, are as follows:
| March 31 2013 |  | December 31 2012
| (in millions of dollars)
Internal Rating |  |  |
Aa | $ | 11.3 |  |  | $ | 11.5 |
A | 660.8 |  |  | 659.4 |
Baa | 1,005.6 |  |  | 994.5 |
Ba | 39.6 |  |  | 34.2 |
B | 13.1 |  |  | 13.1 |
Total | $ | 1,730.4 |  |  | $ | 1,712.7 |
Loan-to-Value Ratio |  |  |
<= 65% | $ | 657.8 |  |  | $ | 624.7 |
> 65% <= 75% | 847.3 |  |  | 858.8 |
> 75% <= 85% | 131.5 |  |  | 142.5 |
> 85% | 93.8 |  |  | 86.7 |
Total | $ | 1,730.4 |  |  | $ | 1,712.7 |
Based on an analysis of the above risk factors, as well as other current information, if we determine that it is probable we will be unable to collect all amounts due under the contractual terms of a mortgage loan, we establish an allowance for credit loss. If we expect to foreclose on the property, the amount of the allowance typically equals the excess carrying value of the mortgage loan over the fair value of the underlying collateral. If we expect to retain the mortgage loan until payoff, the allowance equals the excess carrying value of the mortgage loan over the expected future cash flows of the loan. The projection of future cash flows and the determination of whether a borrower can make the contractual payments are inherently subjective, and methodologies may vary depending on the circumstances specific to a loan. Additions and reductions to our allowance for credit losses on mortgage loans are reported as a component of net realized investment gains and losses. There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. The activity in the allowance for credit losses is as follows:
| Three Months Ended March 31
| 2013 |  | 2012
| (in millions of dollars)
Balance at Beginning of Year | $ | 1.5 |  |  | $ | 1.5 |
Provision | — |  |  | 0.5 |
Balance at End of Period | $ | 1.5 |  |  | $ | 2.0 |
Impaired mortgage loans are as follows:
| March 31, 2013
| (in millions of dollars)
|  |  | Unpaid |  |
| Recorded |  | Principal |  | Related
| Investment |  | Balance |  | Allowance
With No Related Allowance Recorded | $ | 4.3 |  |  | $ | 4.3 |  |  | $ | — |
With an Allowance Recorded | 13.1 |  |  | 14.6 |  |  | 1.5 |
Total | $ | 17.4 |  |  | $ | 18.9 |  |  | $ | 1.5 |
| December 31, 2012
| (in millions of dollars)
|  |  | Unpaid |  |
| Recorded |  | Principal |  | Related
| Investment |  | Balance |  | Allowance
With No Related Allowance Recorded | $ | 4.3 |  |  | $ | 4.3 |  |  | $ | — |
With an Allowance Recorded | 13.1 |  |  | 14.6 |  |  | 1.5 |
Total | $ | 17.4 |  |  | $ | 18.9 |  |  | $ | 1.5 |
For the three months ended March 31, 2013 and 2012, our average investment in impaired mortgage loans was $17.4 million and $23.7 million, respectively. For each of the three months ended March 31, 2013 and 2012, we recognized $0.2 million of interest income on mortgage loans subsequent to impairment. We had no troubled debt restructurings during the three months ended March 31, 2013. We had one loan foreclosure with a carrying amount of $4.2 million that qualified as a troubled debt restructuring during the three months ended March 31, 2012. We had no realized losses on loan foreclosures for the three months ended March 31, 2013 and 2012, other than the initial impairment losses recognized prior to foreclosure. For mortgage loans that are past due regarding principal and/or interest payments and for which collection of investment income is uncertain, we discontinue the accrual of investment income. At March 31, 2013 and December 31, 2012, we had no mortgage loans greater than 90 days past due for which we were still accruing interest income. At March 31, 2013 and December 31, 2012, we held one mortgage loan that was greater than 90 days past due and had a carrying value of $4.3 million. At March 31, 2013, we had non-binding commitments of $48.2 million to fund certain commercial mortgage loans, the amount of which may or may not be funded. Transfers of Financial Assets To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally 102 percent of the cash received. Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. Generally, cash is received as collateral under these agreements and is typically reinvested in short-term investments. In the event that securities are received as collateral, we are not permitted to sell or re-post them. We account for all of our securities lending agreements and repurchase agreements as collateralized financings. As of March 31, 2013, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $234.0 million, for which we received collateral in the form of cash and securities of $236.3 million and $6.5 million, respectively. As of December 31, 2012, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $452.8 million, for which we received collateral in the form of cash and securities of $455.8 million and $14.5 million, respectively. We had no outstanding repurchase agreements at March 31, 2013 or December 31, 2012. Offsetting of Financial Instruments We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy, or merger without assumption. See Note 5 for further discussion of collateral related to our derivative contracts. We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our securities or any other amounts due to us. Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.
|  | Offsetting of Financial Assets and Derivative Assets
|  | March 31, 2013
|  | Gross |  |  |  | Net Amount of |  | Gross Amount Not |  |
|  | Amount of |  | Gross Amount |  | Assets |  | Offset in Balance Sheet |  |
|  | Recognized |  | Offset in |  | Presented in |  | Financial |  | Cash Collateral |  |
|  | Assets |  | Balance Sheet |  | Balance Sheet |  | Instruments |  | Received |  | Net Amount
|  | (in millions of dollars)
Derivatives |  | $ | 62.1 |  |  | $ | — |  |  | $ | 62.1 |  |  | $ | (53.6 | ) |  | $ | — |  |  | $ | 8.5 |
Securities Lending |  | 234.0 |  |  | — |  |  | 234.0 |  |  | — |  |  | (234.0 | ) |  | — |
Total |  | $ | 296.1 |  |  | $ | — |  |  | $ | 296.1 |  |  | $ | (53.6 | ) |  | $ | (234.0 | ) |  | $ | 8.5 |
|  | Offsetting of Financial Liabilities and Derivative Liabilities
|  | March 31, 2013
|  | Gross |  |  |  | Net Amount of |  | Gross Amount Not |  |
|  | Amount of |  | Gross Amount |  | Liabilities |  | Offset in Balance Sheet |  |
|  | Recognized |  | Offset in |  | Presented in |  | Financial |  | Cash Collateral |  |
|  | Liabilities |  | Balance Sheet |  | Balance Sheet |  | Instruments |  | Pledged |  | Net Amount
|  | (in millions of dollars)
Derivatives |  | $ | 157.4 |  |  | $ | — |  |  | $ | 157.4 |  |  | $ | (117.7 | ) |  | $ | (1.8 | ) |  | $ | 37.9 |
Securities Lending |  | 236.3 |  |  | — |  |  | 236.3 |  |  | (234.0 | ) |  | — |  |  | 2.3 |
Total |  | $ | 393.7 |  |  | $ | — |  |  | $ | 393.7 |  |  | $ | (351.7 | ) |  | $ | (1.8 | ) |  | $ | 40.2 |
|  | Offsetting of Financial Assets and Derivative Assets
|  | December 31, 2012
|  | Gross |  |  |  | Net Amount of |  | Gross Amount Not |  |
|  | Amount of |  | Gross Amount |  | Assets |  | Offset in Balance Sheet |  |
|  | Recognized |  | Offset in |  | Presented in |  | Financial |  | Cash Collateral |  |
|  | Assets |  | Balance Sheet |  | Balance Sheet |  | Instruments |  | Received |  | Net Amount
|  | (in millions of dollars)
Derivatives |  | $ | 81.6 |  |  | $ | — |  |  | $ | 81.6 |  |  | $ | (72.9 | ) |  | $ | — |  |  | $ | 8.7 |
Securities Lending |  | 452.8 |  |  | — |  |  | 452.8 |  |  | — |  |  | (452.8 | ) |  | — |
Total |  | $ | 534.4 |  |  | $ | — |  |  | $ | 534.4 |  |  | $ | (72.9 | ) |  | $ | (452.8 | ) |  | $ | 8.7 |
|  | Offsetting of Financial Liabilities and Derivative Liabilities
|  | December 31, 2012
|  | Gross |  |  |  | Net Amount of |  | Gross Amount Not |  |
|  | Amount of |  | Gross Amount |  | Liabilities |  | Offset in Balance Sheet |  |
|  | Recognized |  | Offset in |  | Presented in |  | Financial |  | Cash Collateral |  |
|  | Liabilities |  | Balance Sheet |  | Balance Sheet |  | Instruments |  | Pledged |  | Net Amount
|  | (in millions of dollars)
Derivatives |  | $ | 170.5 |  |  | $ | — |  |  | $ | 170.5 |  |  | $ | (129.8 | ) |  | $ | (1.8 | ) |  | $ | 38.9 |
Securities Lending |  | 455.8 |  |  | — |  |  | 455.8 |  |  | (452.8 | ) |  | — |  |  | 3.0 |
Total |  | $ | 626.3 |  |  | $ | — |  |  | $ | 626.3 |  |  | $ | (582.6 | ) |  | $ | (1.8 | ) |  | $ | 41.9 |
Net Investment Income Net investment income reported in our consolidated statements of income is as follows:
| Three Months Ended March 31
| 2013 |  | 2012
| (in millions of dollars)
Fixed Maturity Securities | $ | 589.9 |  |  | $ | 595.5 |
Derivative Financial Instruments | 7.7 |  |  | 6.3 |
Mortgage Loans | 26.0 |  |  | 25.0 |
Policy Loans | 3.7 |  |  | 3.6 |
Other Long-term Investments | 7.7 |  |  | 3.2 |
Short-term Investments | 0.8 |  |  | 1.2 |
Gross Investment Income | 635.8 |  |  | 634.8 |
Less Investment Expenses | 7.1 |  |  | 7.2 |
Less Investment Income on PFA Assets | 4.0 |  |  | 4.1 |
Less Amortization of Tax Credit Partnerships | 3.6 |  |  | 4.0 |
Net Investment Income | $ | 621.1 |  |  | $ | 619.5 |
Realized Investment Gain and Loss Realized investment gains and losses reported in our consolidated statements of income are as follows:
| Three Months Ended March 31
| 2013 |  | 2012
| (in millions of dollars)
Fixed Maturity Securities |  |  |
Gross Gains on Sales | $ | 6.6 |  |  | $ | 5.9 |
Gross Losses on Sales | (5.5 | ) |  | (5.0 | )
Other-Than-Temporary Impairment Loss | (0.8 | ) |  | — |
Mortgage Loans and Other Invested Assets |  |  |
Gross Gains on Sales | 7.6 |  |  | — |
Impairment Loss | (1.0 | ) |  | (0.5 | )
Embedded Derivative in Modified Coinsurance Arrangement | 6.4 |  |  | 12.3 |
Other Derivatives | (0.3 | ) |  | — |
Foreign Currency Transactions | (2.7 | ) |  | (0.3 | )
Net Realized Investment Gain | $ | 10.3 |  |  | $ | 12.4 |

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