v2.3.0.11
Investments
 6 Months Ended
Jun. 30, 2011
Investments Disclosures [Abstract]  
Investments
Note 2 - Investments
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at June 30, 2011 were:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
(Dollars in Millions)
 
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
461.3


 
$
32.5


 
$
(0.2
)
 
$
493.6


States and Political Subdivisions
 
1,779.6


 
69.5


 
(5.8
)
 
1,843.3


Corporate Securities:
 
 
 
 
 
 
 
 
Bonds and Notes
 
1,956.3


 
196.0


 
(7.0
)
 
2,145.3


Redeemable Preferred Stocks
 
78.4


 
5.6


 
—


 
84.0


Mortgage and Asset-backed
 
6.2


 
1.5


 
(0.7
)
 
7.0


Investments in Fixed Maturities
 
$
4,281.8


 
$
305.1


 
$
(13.7
)
 
$
4,573.2






Note 2 - Investments (continued)


Included in the fair value of Mortgage and Asset-backed investments at June 30, 2011 are $4.1 million of collateralized debt obligations, $2.1 million of non-governmental residential mortgage-backed securities, $0.7 million of other asset-backed securities and $0.1 million of commercial mortgage-backed securities.


The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2010 were:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
(Dollars in Millions)
 
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
508.6


 
$
28.4


 
$
(0.1
)
 
$
536.9


States and Political Subdivisions
 
1,760.0


 
53.5


 
(20.7
)
 
1,792.8


Corporate Securities:
 
 
 
 
 
 
 
 
Bonds and Notes
 
1,880.3


 
178.8


 
(10.1
)
 
2,049.0


Redeemable Preferred Stocks
 
83.4


 
4.9


 
—


 
88.3


Mortgage and Asset-backed
 
8.5


 
1.1


 
(1.3
)
 
8.3


Investments in Fixed Maturities
 
$
4,240.8


 
$
266.7


 
$
(32.2
)
 
$
4,475.3






Included in the fair value of Mortgage and Asset-backed investments at December 31, 2010 are $5.0 million of collateralized debt obligations, $1.9 million of non-governmental residential mortgage-backed securities, $1.2 million of other asset-backed securities and $0.2 million of commercial mortgage-backed securities.
The estimated fair values of the Company’s Investments in Fixed Maturities at June 30, 2011, by contractual maturity, were:
(Dollars in Millions)
 
 
Due in One Year or Less
 
$
93.9


Due after One Year to Five Years
 
466.6


Due after Five Years to Ten Years
 
957.5


Due after Ten Years
 
2,742.2


Asset-backed Securities Not Due at a Single Maturity Date
 
313.0


Investments in Fixed Maturities
 
$
4,573.2






The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments in Asset-backed Securities Not Due at a Single Maturity Date at June 30, 2011 consisted of securities issued by the Government National Mortgage Association with a fair value of $273.4 million, securities issued by the Federal National Mortgage Association with a fair value of $31.5 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $1.1 million and securities of other issuers with a fair value of $7.0 million.


Accrued Expenses and Other Liabilities at June 30, 2011 includes a payable of $90.2 million for purchases of Investments in Fixed Maturities that settled in July. There were no unsettled purchases of Investments in Fixed Maturities at December 31, 2010.
Note 2 - Investments (continued)


Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at June 30, 2011 were:
 
 
 
 
Gross Unrealized
 
 
(Dollars in Millions)
 
Cost
 
Gains
 
Losses
 
Fair Value
Preferred Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
$
94.3


 
$
4.4


 
$
(0.1
)
 
$
98.6


Other Industries
 
18.2


 
2.4


 
(0.1
)
 
20.5


Common Stocks:
 
 
 
 
 
 
 
 
Intermec
 
70.3


 
26.8


 
—


 
97.1


Manufacturing
 
63.6


 
15.0


 
—


 
78.6


Other Industries
 
38.8


 
7.1


 
(0.7
)
 
45.2


Other Equity Interests:
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
83.1


 
—


 
(0.2
)
 
82.9


Limited Liability Companies and Limited Partnerships
 
66.5


 
14.5


 
(0.9
)
 
80.1


Investments in Equity Securities
 
$
434.8


 
$
70.2


 
$
(2.0
)
 
$
503.0






Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at December 31, 2010 were:
 
 
 
 
Gross Unrealized
 
 
(Dollars in Millions)
 
Cost
 
Gains
 
Losses
 
Fair Value
Preferred Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
$
94.4


 
$
3.5


 
$
(0.2
)
 
$
97.7


Other Industries
 
20.0


 
7.6


 
(0.2
)
 
27.4


Common Stocks:
 
 
 
 
 
 
 
 
Intermec
 
86.9


 
50.6


 
—


 
137.5


Manufacturing
 
75.3


 
14.6


 
(0.3
)
 
89.6


Other Industries
 
37.3


 
6.6


 
(0.1
)
 
43.8


Other Equity Interests:
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
76.5


 
2.7


 
—


 
79.2


Limited Liability Companies and Limited Partnerships
 
58.8


 
17.6


 
(1.2
)
 
75.2


Investments in Equity Securities
 
$
449.2


 
$
103.2


 
$
(2.0
)
 
$
550.4




 
Note 2 - Investments (continued)


An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at June 30, 2011 is presented below:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(Dollars in Millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed Maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and Government Agencies and Authorities
 
$
11.0


 
$
(0.2
)
 
$
—


 
$
—


 
$
11.0


 
$
(0.2
)
States and Political Subdivisions
 
245.3


 
(3.9
)
 
18.4


 
(1.9
)
 
263.7


 
(5.8
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
128.1


 
(2.6
)
 
69.0


 
(4.4
)
 
197.1


 
(7.0
)
Redeemable Preferred Stocks
 
0.8


 
—


 
—


 
—


 
0.8


 
—


Mortgage and Asset-backed
 
0.1


 
—


 
3.6


 
(0.7
)
 
3.7


 
(0.7
)
Total Fixed Maturities
 
385.3


 
(6.7
)
 
91.0


 
(7.0
)
 
476.3


 
(13.7
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
—


 
—


 
2.3


 
(0.1
)
 
2.3


 
(0.1
)
Other Industries
 
1.7


 
—


 
2.8


 
(0.1
)
 
4.5


 
(0.1
)
Common Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
1.3


 
—


 
—


 
—


 
1.3


 
—


Other Industries
 
8.2


 
(0.7
)
 
—


 
—


 
8.2


 
(0.7
)
Other Equity Interests:
 
 
 
 
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
44.2


 
(0.2
)
 
—


 
—


 
44.2


 
(0.2
)
Limited Liability Companies and Limited Partnerships
 
19.8


 
(0.6
)
 
1.8


 
(0.3
)
 
21.6


 
(0.9
)
Total Equity Securities
 
75.2


 
(1.5
)
 
6.9


 
(0.5
)
 
82.1


 
(2.0
)
Total
 
$
460.5


 
$
(8.2
)
 
$
97.9


 
$
(7.5
)
 
$
558.4


 
$
(15.7
)




Unrealized losses on fixed maturities, which the Company has determined to be temporary at June 30, 2011, were $13.7 million, of which $7.0 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at June 30, 2011 related to securities for which the Company has recognized credit losses in earnings in the preceding table under either the heading “Less Than 12 Months” or the heading “12 Months or Longer.” Included in the preceding table under the heading “12 Months or Longer” are unrealized losses of $0.1 million at June 30, 2011 related to securities for which the Company has previously recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $10.2 million and below-investment-grade fixed maturity investments comprised $3.5 million of the unrealized losses on investments in fixed maturities at June 30, 2011. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.1 million for 1 issuer that the Company previously recognized foreign currency impairment losses in earnings. For the other remaining below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 3% of the amortized cost basis of the investment. At June 30, 2011, the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be at maturity. The Company concluded that these impairments were temporary at June 30, 2011.
 
Note 2 - Investments (continued)


For equity securities, the Company considers various factors when determining whether a decline in the fair value is other than temporary, including, but not limited to:


•
The financial condition and prospects of the issuer;
•
The length of time and magnitude of the unrealized loss;
•
The volatility of the investment;
•
Analyst recommendations and near term price targets;
•
Opinions of the Company’s external investment managers;
•
Market liquidity;
•
Debt-like characteristics of perpetual preferred stocks and issuer ratings; and
•
The Company’s intentions to sell or ability to hold the investments until recovery.
The vast majority of the Company’s preferred stocks in an unrealized loss position at June 30, 2011 are perpetual preferred stocks of financial institutions and public utilities. The Company considers the debt-like characteristics of perpetual preferred stocks along with issuer ratings when evaluating impairment. All such preferred stocks paid dividends at the stated dividend rate during the twelve-month period preceding the evaluation date. The Company concluded that the declines in the fair values of these perpetual preferred stocks were temporary in nature, largely driven by market conditions, and since the Company intends to hold the securities until recovery, these investments were not considered to be other-than-temporarily impaired at June 30, 2011. The Company concluded that the unrealized losses on its investments in common stocks at June 30, 2011 were temporary based on the relative short length and magnitude of the losses. The Company’s investments in other equity interests include investments in limited liability partnerships that primarily invest in distressed debt, mezzanine debt and secondary transactions. By the nature of their underlying investments, the Company believes that its investments in the limited liability partnerships also exhibit debt-like characteristics which, among other factors, the Company considers when evaluating these investments for impairment. Based on evaluations of the factors in the preceding paragraph, the Company concluded that the declines in the fair values of the Company’s investments in equity securities were temporary at June 30, 2011.


Note 2 - Investments (continued)


An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at December 31, 2010 is presented below:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(Dollars in Millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed Maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and Government Agencies and Authorities
 
$
18.5


 
$
(0.1
)
 
$
0.1


 
$
—


 
$
18.6


 
$
(0.1
)
States and Political Subdivisions
 
455.6


 
(16.9
)
 
16.5


 
(3.8
)
 
472.1


 
(20.7
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
123.0


 
(3.7
)
 
87.8


 
(6.4
)
 
210.8


 
(10.1
)
Redeemable Preferred Stocks
 
0.7


 
—


 
—


 
—


 
0.7


 
—


Mortgage and Asset-backed
 
—


 
—


 
4.6


 
(1.3
)
 
4.6


 
(1.3
)
Total Fixed Maturities
 
597.8


 
(20.7
)
 
109.0


 
(11.5
)
 
706.8


 
(32.2
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
3.0


 
—


 
2.6


 
(0.2
)
 
5.6


 
(0.2
)
Other Industries
 
0.7


 
(0.1
)
 
2.8


 
(0.1
)
 
3.5


 
(0.2
)
Common Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
7.9


 
(0.3
)
 
1.7


 
—


 
9.6


 
(0.3
)
Other Industries
 
6.3


 
(0.1
)
 
—


 
—


 
6.3


 
(0.1
)
Other Equity Interests:
 
 
 
 
 
 
 
 
 
 
 
 
Limited Liability Companies and Limited Partnerships
 
2.2


 
(0.3
)
 
6.1


 
(0.9
)
 
8.3


 
(1.2
)
Total Equity Securities
 
20.1


 
(0.8
)
 
13.2


 
(1.2
)
 
33.3


 
(2.0
)
Total
 
$
617.9


 
$
(21.5
)
 
$
122.2


 
$
(12.7
)
 
$
740.1


 
$
(34.2
)




Unrealized losses on fixed maturities, which the Company determined to be temporary at December 31, 2010, were $32.2 million, of which $11.5 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at December 31, 2010 related to securities for which the Company has recognized credit losses in earnings in the preceding table under either the heading “Less Than 12 Months” or the heading “12 Months or Longer.” Included in the preceding table under the heading “12 Months or Longer” are unrealized losses of $0.1 million at December 31, 2010 related to securities for which the Company has recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $28.1 million and below-investment-grade fixed maturity investments comprised $4.1 million of the unrealized losses on investments in fixed maturities at December 31, 2010. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.1 million for 1 issuer that the Company recognized foreign currency impairment losses in earnings for the year ended December 31, 2010. For the other remaining below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 4% of the amortized cost basis of the investment. At December 31, 2010, the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be at maturity. The Company concluded that these impairments were temporary at December 31, 2010.


The vast majority of the Company’s preferred stocks in an unrealized loss position at December 31, 2010 are perpetual preferred stocks of financial institutions and public utilities. The Company considers the debt-like characteristics of perpetual preferred stocks along with issuer ratings when evaluating impairment. All such preferred stocks paid dividends at the stated dividend rate during the twelve-month period preceding the evaluation date. The Company concluded that the declines in the fair values of these perpetual preferred stocks were temporary in nature, largely driven by market conditions, and since the Company intends to hold the securities until recovery, these investments were not considered to be other-than-temporarily
Note 2 - Investments (continued)


impaired at December 31, 2010. The Company concluded that the unrealized losses on its investments in common stocks at December 31, 2010 were temporary based on the relative short length and magnitude of the losses. The Company’s investments in other equity interests include investments in limited liability partnerships that primarily invest in distressed debt, mezzanine debt and secondary transactions. By the nature of their underlying investments, the Company believes that its investments in the limited liability partnerships also exhibit debt-like characteristics which, among other factors, the Company considers when evaluating these investments for impairment. Based on evaluations of the factors described above that the Company considers when determining whether a decline in the fair value of an investment in equity securities is other than temporary, the Company concluded that the declines in the fair values of the Company’s investments in equity securities were temporary at December 31, 2010.
The following table sets forth the pre-tax amount of other-than-temporary-impairment (“OTTI”) credit losses, recognized in Retained Earnings for Investments in Fixed Maturities held by the Company as of the dates indicated, for which a portion of the OTTI loss has been recognized in Accumulated Other Comprehensive Income, and the corresponding changes in such amounts.
 
 
Six Months Ended
 
Three Months Ended
(Dollars in Millions)
 
Jun 30,

2011
 
Jun 30,

2010
 
Jun 30,

2011
 
Jun 30,

2010
Balance at Beginning of Period
 
$
2.4


 
$
3.7


 
$
2.3


 
$
5.6


Additions for Previously Unrecognized OTTI Credit Losses
 
—


 
3.1


 
—


 
—


Increases to Previously Recognized OTTI Credit Losses
 
—


 
2.6


 
—


 
2.5


Reductions to Previously Recognized OTTI Credit Losses
 
(0.3
)
 
(1.5
)
 
(0.2
)
 
(0.2
)
Reductions due to Intent to Sell Investments
 
—


 
(2.5
)
 
—


 
(2.5
)
Balance at End of Period
 
$
2.1


 
$
5.4


 
$
2.1


 
$
5.4






The carrying values of the Company’s Other Investments at June 30, 2011 and December 31, 2010 were:
(Dollars in Millions)
 
Jun 30,

2011
 
Dec 31,

2010
Loans to Policyholders at Unpaid Principal
 
$
243.7


 
$
238.4


Real Estate at Depreciated Cost
 
247.9


 
249.9


Trading Securities at Fair Value
 
5.0


 
5.1


Other
 
0.6


 
0.8


Total
 
$
497.2


 
$
494.2