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Fair Values of Financial Instruments | 12 Months Ended
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Dec. 31, 2014
Fair Value Disclosures [Abstract] |
Fair Values of Financial Instruments | Presented as follows are the carrying amounts and fair values of financial instruments. The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, accrued investment income, and securities lending agreements approximate fair value due to the short-term nature of the instruments. As such, these financial instruments are not included in the following chart.
| December 31, 2014 |  | December 31, 2013
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
| (in millions of dollars)
Assets |  |  |  |  |  |  |
Fixed Maturity Securities | $ | 45,064.9 |  |  | $ | 45,064.9 |  |  | $ | 42,344.4 |  |  | $ | 42,344.4 |
Mortgage Loans | 1,856.6 |  |  | 2,024.2 |  |  | 1,815.1 |  |  | 1,980.2 |
Policy Loans | 3,306.6 |  |  | 3,407.6 |  |  | 3,276.0 |  |  | 3,339.6 |
Other Long-term Investments |  |  |  |  |  |  |
Derivatives | 28.0 |  |  | 28.0 |  |  | 10.8 |  |  | 10.8 |
Equity Securities | 12.5 |  |  | 12.5 |  |  | 16.4 |  |  | 16.4 |
Miscellaneous Long-term Investments | 485.5 |  |  | 485.5 |  |  | 475.2 |  |  | 475.2 |
Liabilities |  |  |  |  |  |  |
Policyholders' Funds |  |  |  |  |  |  |
Deferred Annuity Products | $ | 621.4 |  |  | $ | 621.4 |  |  | $ | 631.5 |  |  | $ | 631.5 |
Supplementary Contracts without Life Contingencies | 600.4 |  |  | 600.4 |  |  | 563.1 |  |  | 563.1 |
Short-term Debt | 151.9 |  |  | 158.9 |  |  | — |  |  | — |
Long-term Debt | 2,628.7 |  |  | 2,912.6 |  |  | 2,612.0 |  |  | 2,824.4 |
Other Liabilities |  |  |  |  |  |  |
Derivatives | 92.9 |  |  | 92.9 |  |  | 135.6 |  |  | 135.6 |
Embedded Derivative in Modified Coinsurance Arrangement | 49.9 |  |  | 49.9 |  |  | 53.2 |  |  | 53.2 |
Unfunded Commitments to Investment Partnerships | 12.8 |  |  | 12.8 |  |  | 27.2 |  |  | 27.2 |
The methods and assumptions used to estimate fair values of financial instruments are discussed as follows. Fair Value Measurements for Financial Instruments Not Carried at Fair Value Mortgage Loans: Fair values are estimated using discounted cash flow analyses and interest rates currently being offered for similar loans to borrowers with similar credit ratings and maturities. Loans with similar characteristics are aggregated for purposes of the calculations. These financial instruments are assigned a Level 2 within the fair value hierarchy. Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies. Carrying amounts for ceded policy loans, which equal $3,068.4 million and $3,043.7 million as of December 31, 2014 and 2013, respectively, approximate fair value and are reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties. These financial instruments are assigned a Level 3 within the fair value hierarchy. Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Fair values for private equity partnerships are primarily derived from net asset values provided by the general partner in the partnerships' financial statements. Our private equity partnerships represent funds that are primarily invested in railcar leasing, the financial services industry, mezzanine debt, and bank loans. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. As of December 31, 2014, we estimate that the underlying assets of the funds will be liquidated over the next one to thirteen years. These financial instruments are assigned a Level 3 within the fair value hierarchy. Policyholders' Funds: Policyholders' funds are comprised primarily of deferred annuity products and supplementary contracts without life contingencies and represent customer deposits plus interest credited at contract rates. Carrying amounts approximate fair value. These financial instruments are assigned a Level 3 within the fair value hierarchy. Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. Short-term Debt: Fair values for short-term debt were determined based on prices from independent pricing services that generally use observable inputs for securities or comparable securities in active markets in their valuation techniques. These financial instruments are assigned a Level 2. Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. Debt instruments which are valued using active trades from independent pricing services for which there was current market activity in that specific debt instrument have fair values of $849.7 million and $1,329.2 million as of December 31, 2014 and 2013, respectively, and are assigned a Level 1 within the fair value hierarchy. Debt instruments which are valued based on prices from pricing services that generally use observable inputs for securities or comparable securities in active markets in their valuation techniques have fair values of $2,062.9 million and $1,495.2 million as of December 31, 2014 and 2013, respectively, and are assigned a Level 2. Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent legally binding amounts that we have committed to certain investment partnerships subject to the partnerships meeting specified conditions. When these conditions are met, we are obligated to invest these amounts in the partnerships. Carrying amounts approximate fair value. These financial instruments are assigned a Level 2 within the fair value hierarchy. Fair Value Measurements for Financial Instruments Carried at Fair Value We report fixed maturity securities, derivative financial instruments, and equity securities at fair value in our consolidated balance sheets. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted have less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is generally impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, and overall market conditions. Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types. The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the current replacement cost. We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be obtained without undue cost and effort. In some cases, a single valuation technique will be appropriate (for example, when valuing an asset or liability using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques will be appropriate. If we use multiple valuation techniques to measure fair value, we evaluate and weigh the results, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances. The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach valuation technique provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is a binding offer. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2014, we have applied valuation techniques on a consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2013. We use observable and unobservable inputs in measuring the fair value of our financial instruments. Inputs that may be used include the following:
• | Broker market maker prices and price levels
• | Trade Reporting and Compliance Engine (TRACE) pricing
• | Prices obtained from external pricing services
• | Benchmark yields (Treasury and interest rate swap curves)
• | Transactional data for new issuance and secondary trades
• | Security cash flows and structures
• | Recent issuance/supply
• | Sector and issuer level spreads
• | Security credit ratings/maturity/capital structure/optionality
• | Corporate actions
• | Underlying collateral
• | Prepayment speeds/loan performance/delinquencies/weighted average life/seasoning
• | Public covenants
• | Comparative bond analysis
• | Derivative spreads
• | Relevant reports issued by analysts and rating agencies
• | Audited financial statements
The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing. We review all prices obtained to ensure they are consistent with a variety of observable market inputs and to verify the validity of a security's price. In the event we receive a vendor's market price that does not appear reasonable based on our market analysis, we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as an actual trade. We also review all price changes from the prior month which fall outside a predetermined corridor. The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price. These adjustments may be made when, in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit risk, credit structure, concentration, or liquidity. Additionally, an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument. In the event an asset is sold, we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period. The parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions on a quarter to quarter basis, as certain features may be more significant drivers of valuation at the time of pricing. Changes to inputs in valuations are not changes to valuation methodologies; rather, the inputs are modified to reflect direct or indirect impacts on asset classes from changes in market conditions. Fair values for derivatives other than embedded derivatives in modified coinsurance arrangements are based on market quotes or pricing models and represent the net amount of cash we would have paid or received if the contracts had been settled or closed as of the last day of the period. We analyze credit default swap spreads relative to the average credit spread embedded within the LIBOR-setting syndicate in determining the effect of credit risk on our derivatives' fair values. If net counterparty credit risk for a derivative asset is determined to be material and is not adequately reflected in the LIBOR-based fair value obtained from our pricing sources, we adjust the valuations obtained from our pricing sources. For purposes of valuing net counterparty risk, we measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date under current market conditions. In regard to our own credit risk component, we adjust the valuation of derivative liabilities wherein the counterparty is exposed to our credit risk when the LIBOR-based valuation of our derivatives obtained from pricing sources does not effectively include an adequate credit component for our own credit risk. Fair values for our embedded derivative in a modified coinsurance arrangement are estimated using internal pricing models and represent the hypothetical value of the duration mismatch of assets and liabilities, interest rate risk, and third party credit risk embedded in the modified coinsurance arrangement. Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by the lack of market liquidity. For these securities, we use internally prepared valuations combining matrix pricing with vendor purchased software programs, including valuations based on estimates of future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for these securities include risk free interest rates, risk premiums, performance of underlying collateral (if any), and other factors involving significant assumptions which may or may not reflect those of an active market. At December 31, 2014, approximately 6.6 percent of our fixed maturity securities were valued using active trades from TRACE pricing or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding quote). The prices obtained were not adjusted, and the assets were classified as Level 1, the highest category of the three-level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities. The remaining 93.4 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below.
• | Approximately 78.1 percent of our fixed maturity securities were valued based on prices from pricing services that generally use observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques. These assets were classified as Level 2. Level 2 assets or liabilities are those valued using inputs (other than prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
• | Approximately 3.5 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data, or on TRACE prices for identical or similar assets absent current market activity. When only one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were able to validate the price using other observable market data, were classified as Level 2.
• | Approximately 11.8 percent of our fixed maturity securities were valued based on prices of comparable securities, matrix pricing, market models, and/or internal models or were valued based on non-binding quotes with no other observable market data. These assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data. Level 3 is the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair value.
We consider transactions in inactive or disorderly markets to be less representative of fair value. We use all available observable inputs when measuring fair value, but when significant other unobservable inputs and adjustments are necessary, we classify these assets or liabilities as Level 3. In the following charts, prior year amounts have been reclassified, where applicable, between public utilities and all other corporate bonds to conform to the current year categorization of certain securities. Fair value measurements by input level for financial instruments carried at fair value are as follows:
| December 31, 2014
| Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
| (in millions of dollars)
Assets |  |  |  |  |  |  |
Fixed Maturity Securities |  |  |  |  |  |  |
United States Government and Government Agencies and Authorities | $ | 297.5 |  |  | $ | 941.0 |  |  | $ | — |  |  | $ | 1,238.5 |
States, Municipalities, and Political Subdivisions | — |  |  | 1,981.4 |  |  | 140.1 |  |  | 2,121.5 |
Foreign Governments | — |  |  | 1,238.1 |  |  | 69.3 |  |  | 1,307.4 |
Public Utilities | 106.2 |  |  | 8,129.4 |  |  | 315.0 |  |  | 8,550.6 |
Mortgage/Asset-Backed Securities | — |  |  | 2,431.8 |  |  | — |  |  | 2,431.8 |
All Other Corporate Bonds | 2,556.6 |  |  | 25,383.3 |  |  | 1,425.3 |  |  | 29,365.2 |
Redeemable Preferred Stocks | — |  |  | 25.0 |  |  | 24.9 |  |  | 49.9 |
Total Fixed Maturity Securities | 2,960.3 |  |  | 40,130.0 |  |  | 1,974.6 |  |  | 45,064.9 |
Other Long-term Investments |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Interest Rate Swaps | — |  |  | 5.7 |  |  | — |  |  | 5.7 |
Foreign Exchange Contracts | — |  |  | 22.3 |  |  | — |  |  | 22.3 |
Total Derivatives | — |  |  | 28.0 |  |  | — |  |  | 28.0 |
Equity Securities | — |  |  | 11.1 |  |  | 1.4 |  |  | 12.5 |
Liabilities |  |  |  |  |  |  |
Other Liabilities |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Interest Rate Swaps | $ | — |  |  | $ | 20.8 |  |  | $ | — |  |  | $ | 20.8 |
Foreign Exchange Contracts | — |  |  | 70.9 |  |  | — |  |  | 70.9 |
Credit Default Swaps | — |  |  | 1.2 |  |  | — |  |  | 1.2 |
Embedded Derivative in Modified Coinsurance Arrangement | — |  |  | — |  |  | 49.9 |  |  | 49.9 |
Total Derivatives | — |  |  | 92.9 |  |  | 49.9 |  |  | 142.8 |
| December 31, 2013
| Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
| (in millions of dollars)
Assets |  |  |  |  |  |  |
Fixed Maturity Securities |  |  |  |  |  |  |
United States Government and Government Agencies and Authorities | $ | 144.5 |  |  | $ | 1,051.6 |  |  | $ | — |  |  | $ | 1,196.1 |
States, Municipalities, and Political Subdivisions | — |  |  | 1,608.1 |  |  | 175.1 |  |  | 1,783.2 |
Foreign Governments | — |  |  | 1,294.7 |  |  | 78.5 |  |  | 1,373.2 |
Public Utilities | 246.0 |  |  | 7,611.9 |  |  | 139.3 |  |  | 7,997.2 |
Mortgage/Asset-Backed Securities | — |  |  | 2,038.8 |  |  | 0.5 |  |  | 2,039.3 |
All Other Corporate Bonds | 2,132.8 |  |  | 23,861.6 |  |  | 1,923.3 |  |  | 27,917.7 |
Redeemable Preferred Stocks | — |  |  | 13.9 |  |  | 23.8 |  |  | 37.7 |
Total Fixed Maturity Securities | 2,523.3 |  |  | 37,480.6 |  |  | 2,340.5 |  |  | 42,344.4 |
Other Long-term Investments |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Interest Rate Swaps | — |  |  | 9.2 |  |  | — |  |  | 9.2 |
Foreign Exchange Contracts | — |  |  | 1.6 |  |  | — |  |  | 1.6 |
Total Derivatives | — |  |  | 10.8 |  |  | — |  |  | 10.8 |
Equity Securities | — |  |  | 11.8 |  |  | 4.6 |  |  | 16.4 |
Liabilities |  |  |  |  |  |  |
Other Liabilities |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |
Interest Rate Swaps | $ | — |  |  | $ | 35.0 |  |  | $ | — |  |  | $ | 35.0 |
Foreign Exchange Contracts | — |  |  | 98.7 |  |  | — |  |  | 98.7 |
Credit Default Swaps | — |  |  | 1.9 |  |  | — |  |  | 1.9 |
Embedded Derivative in Modified Coinsurance Arrangement | — |  |  | — |  |  | 53.2 |  |  | 53.2 |
Total Derivatives | — |  |  | 135.6 |  |  | 53.2 |  |  | 188.8 |
Transfers of assets between Level 1 and Level 2 are as follows:
| Year Ended December 31
| 2014 |  | 2013
| Transfers into
| Level 1 from Level 2 |  | Level 2 from Level 1 |  | Level 1 from Level 2 |  | Level 2 from Level 1
| (in millions of dollars)
Fixed Maturity Securities |  |  |  |  |  |  |
United States Government and Government Agencies and Authorities | $ | 163.2 |  |  | $ | — |  |  | $ | 62.2 |  |  | $ | — |
States, Municipalities, and Political Subdivisions | — |  |  | — |  |  | — |  |  | 53.0 |
Public Utilities | 81.8 |  |  | 253.4 |  |  | 248.4 |  |  | 20.8 |
All Other Corporate Bonds | 1,592.1 |  |  | 1,598.3 |  |  | 1,296.5 |  |  | 1,117.9 |
Total Fixed Maturity Securities | $ | 1,837.1 |  |  | $ | 1,851.7 |  |  | $ | 1,607.1 |  |  | $ | 1,191.7 |
Transfers between Level 1 and Level 2 occurred due to the change in availability of either a TRACE or broker market maker price. Depending on current market conditions, the availability of these Level 1 prices can vary from period to period. For fair value measurements of financial instruments that were transferred either into or out of Level 1 or 2, we reflect the transfers using the fair value at the beginning of the period. Changes in assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:
| Year Ended December 31, 2014
|  |  | Total Realized and Unrealized Investment Gains (Losses) Included in |  |  |  |  |  |  |  |  |  |
| Beginning of Year |  | Earnings |  | Other Comprehensive Income or Loss |  | Purchases |  | Sales |  | Level 3 Transfers |  | End of Year
| Into |  | Out of |
| (in millions of dollars)
Fixed Maturity Securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States, Municipalities, and Political Subdivisions | $ | 175.1 |  |  | $ | — |  |  | $ | 21.0 |  |  | $ | — |  |  | $ | (1.4 | ) |  | $ | — |  |  | $ | (54.6 | ) |  | $ | 140.1 |
Foreign Governments | 78.5 |  |  | 1.1 |  |  | 0.8 |  |  | — |  |  | (11.1 | ) |  | — |  |  | — |  |  | 69.3 |
Public Utilities | 139.3 |  |  | — |  |  | 6.9 |  |  | — |  |  | (0.8 | ) |  | 199.9 |  |  | (30.3 | ) |  | 315.0 |
Mortgage/Asset-Backed Securities | 0.5 |  |  | (0.2 | ) |  | 0.3 |  |  | — |  |  | (0.6 | ) |  | — |  |  | — |  |  | — |
All Other Corporate Bonds | 1,923.3 |  |  | 0.7 |  |  | 44.8 |  |  | 91.1 |  |  | (147.7 | ) |  | 626.9 |  |  | (1,113.8 | ) |  | 1,425.3 |
Redeemable Preferred Stocks | 23.8 |  |  | — |  |  | 1.1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 24.9 |
Total Fixed Maturity Securities | 2,340.5 |  |  | 1.6 |  |  | 74.9 |  |  | 91.1 |  |  | (161.6 | ) |  | 826.8 |  |  | (1,198.7 | ) |  | 1,974.6 |
Equity Securities | 4.6 |  |  | 10.5 |  |  | (0.2 | ) |  | — |  |  | (13.5 | ) |  | — |  |  | — |  |  | 1.4 |
Embedded Derivative in Modified Coinsurance Arrangement | (53.2 | ) |  | 3.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (49.9 | )
| Year Ended December 31, 2013
|  |  | Total Realized and Unrealized Investment Gains (Losses) Included in |  |  |  |  |  |  |  |  |  |
| Beginning of Year |  | Earnings |  | Other Comprehensive Income or Loss |  | Purchases |  | Sales |  | Level 3 Transfers |  | End of Year
| Into |  | Out of |
| (in millions of dollars)
Fixed Maturity Securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States, Municipalities, and Political Subdivisions | $ | 128.7 |  |  | $ | — |  |  | $ | (13.1 | ) |  | $ | — |  |  | $ | (1.0 | ) |  | $ | 60.5 |  |  | $ | — |  |  | $ | 175.1 |
Foreign Governments | 82.1 |  |  | — |  |  | (3.6 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | 78.5 |
Public Utilities | 226.4 |  |  | — |  |  | (1.1 | ) |  | — |  |  | (3.1 | ) |  | 101.9 |  |  | (184.8 | ) |  | 139.3 |
Mortgage/Asset-Backed Securities | 0.5 |  |  | — |  |  | 0.1 |  |  | — |  |  | (0.1 | ) |  | — |  |  | — |  |  | 0.5 |
All Other Corporate Bonds | 1,525.8 |  |  | 1.1 |  |  | (156.8 | ) |  | 186.7 |  |  | (122.0 | ) |  | 1,511.9 |  |  | (1,023.4 | ) |  | 1,923.3 |
Redeemable Preferred Stocks | 24.8 |  |  | — |  |  | (1.0 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | 23.8 |
Total Fixed Maturity Securities | 1,988.3 |  |  | 1.1 |  |  | (175.5 | ) |  | 186.7 |  |  | (126.2 | ) |  | 1,674.3 |  |  | (1,208.2 | ) |  | 2,340.5 |
Equity Securities | 4.3 |  |  | — |  |  | 0.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4.6 |
Embedded Derivative in Modified Coinsurance Arrangement | (83.9 | ) |  | 30.7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (53.2 | )
Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation. Gains for the years ended December 31, 2014 and 2013 which are included in earnings and are attributable to the change in unrealized gains or losses relating to assets or liabilities valued using significant unobservable inputs and still held at each year end were $3.3 million and $30.7 million, respectively. These amounts relate entirely to the changes in fair value of an embedded derivative in a modified coinsurance arrangement which are reported as realized investment gains and losses. The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources.
| December 31, 2014
| Fair Value |  | Unobservable Input |  | Range/Weighted Average
| (in millions of dollars)
Fixed Maturity Securities |  |  |  |  |
States, Municipalities, and Political Subdivisions - Private | $ | 101.0 |  |  | - Comparability Adjustment | (b) | 0.25% - 1.00% / 0.71%
All Other Corporate Bonds - Private | 432.8 |  |  | - Comparability Adjustment - Discount for Size - Lack of Marketability - Volatility of Credit - Market Convention | (b) (c) (d) (e) (f) | 0.50% - 0.70% / 0.60% 0.50% - 0.50% / 0.50% 0.48% - 0.48% / 0.48% 0.20% - 2.00% / 0.64% Priced at Par
All Other Corporate Bonds - Public | 128.7 |  |  | - Comparability Adjustment - Lack of Marketability - Volatility of Credit | (b) (d) (e) | 0.10% - 0.50% / 0.40% 0.20% - 0.35% / 0.29% (0.30)% - 0.50% / (0.05)%
Equity Securities - Private | 1.1 |  |  | - Market Convention | (f) | Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement | (49.9 | ) |  | - Projected Liability Cash Flows | (g) | Actuarial Assumptions
| December 31, 2013
| Fair Value |  | Unobservable Input |  | Range/Weighted Average
| (in millions of dollars)
Fixed Maturity Securities |  |  |  |  |
States, Municipalities, and Political Subdivisions - Private | $ | 142.7 |  |  | - Comparability Adjustment | (b) | 0.25% - 1.25% / 0.65%
Mortgage/Asset-Backed Securities - Private | 0.5 |  |  | - Discount for Size | (c) | 4.93% - 5.03% / 5.01%
All Other Corporate Bonds - Private | 371.3 |  |  | - Change in Benchmark Reference - Comparability Adjustment - Discount for Size - Lack of Marketability - Volatility of Credit - Market Convention | (a) (b) (c) (d) (e) (f) | 3.36% - 3.36% / 3.36% (0.70)% - (0.40)% / (0.60)% 0.50% - 0.50% / 0.50% 0.20% - 1.00% / 0.55% 0.07% - 4.00% / 0.85% Priced at Par
All Other Corporate Bonds - Public | 514.4 |  |  | - Change in Benchmark Reference - Comparability Adjustment - Lack of Marketability - Volatility of Credit | (a) (b) (d) (e) | (0.32)% - 0.25% / 0.04% (0.23)% - 1.00% / 0.41% 0.20% - 0.20% / 0.20% (0.88)% - 0.46% / (0.26)%
Equity Securities - Private | 4.2 |  |  | - Market Convention | (f) | Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement | (53.2 | ) |  | - Projected Liability Cash Flows | (g) | Actuarial Assumptions
(a) | Represents basis point adjustments for changes in benchmark spreads associated with various ratings categories
(b) | Represents basis point adjustments for changes in benchmark spreads associated with various industry sectors
(c) | Represents basis point adjustments based on issue/issuer size relative to the benchmark
(d) | Represents basis point adjustments to apply a discount due to the illiquidity of an investment
(e) | Represents basis point adjustments for credit-specific factors
(f) | Represents a decision to price based on par value, cost, or owner's equity when limited data is available
(g) | Represents various actuarial assumptions required to derive the liability cash flows including incidence, termination, and lapse rates
Isolated increases in unobservable inputs other than market convention will result in a lower fair value measurement, whereas isolated decreases will result in a higher fair value measurement. The unobservable input for market convention is not sensitive to input movements. The projected liability cash flows used in the fair value measurement of our Level 3 embedded derivative are based on expected claim payments. If claim payments increase, the projected liability cash flows will increase, resulting in a decrease in the fair value of the embedded derivative. Decreases in projected liability cash flows will result in an increase in the fair value of the embedded derivative.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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