v2.4.0.6
Investments
 3 Months Ended
Mar. 31, 2012
Investments Disclosures [Abstract]  
Investments
Note 3 - Investments
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2012 were:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
(Dollars in Millions)
 
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
429.1

 
$
45.9

 
$
(0.6
)
 
$
474.4

States and Political Subdivisions
 
1,666.6

 
159.3

 
(0.5
)
 
1,825.4

Corporate Securities:
 
 
 
 
 
 
 
 
Bonds and Notes
 
2,120.4

 
288.6

 
(7.5
)
 
2,401.5

Redeemable Preferred Stocks
 
76.8

 
4.8

 
(0.2
)
 
81.4

Mortgage and Asset-backed
 
4.7

 
1.0

 
(0.7
)
 
5.0

Investments in Fixed Maturities
 
$
4,297.6

 
$
499.6

 
$
(9.5
)
 
$
4,787.7


Included in the fair value of Mortgage and Asset-backed investments at March 31, 2012 are $2.9 million of collateralized debt obligations, $1.7 million of non-governmental residential mortgage-backed securities and $0.4 million of other asset-backed securities.
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2011 were:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
(Dollars in Millions)
 
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
439.4

 
$
52.3

 
$
—

 
$
491.7

States and Political Subdivisions
 
1,705.0

 
148.4

 
(0.8
)
 
1,852.6

Corporate Securities:
 
 
 
 
 
 
 
 
Bonds and Notes
 
2,040.1

 
311.6

 
(9.4
)
 
2,342.3

Redeemable Preferred Stocks
 
76.7

 
5.1

 
(0.1
)
 
81.7

Mortgage and Asset-backed
 
4.9

 
1.0

 
(0.8
)
 
5.1

Investments in Fixed Maturities
 
$
4,266.1

 
$
518.4

 
$
(11.1
)
 
$
4,773.4


Included in the fair value of Mortgage and Asset-backed investments at December 31, 2011 are $2.9 million of collateralized debt obligations, $1.7 million of non-governmental residential mortgage-backed securities, $0.4 million of other asset-backed securities and $0.1 million of commercial mortgage-backed securities.
The estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2012 by contractual maturity were:
(Dollars in Millions)
 
 
Due in One Year or Less
 
$
75.1

Due after One Year to Five Years
 
505.7

Due after Five Years to Ten Years
 
966.6

Due after Ten Years
 
2,966.9

Asset-backed Securities Not Due at a Single Maturity Date
 
273.4

Investments in Fixed Maturities
 
$
4,787.7


Note 3 - Investments (continued)
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 March 31, 2012 consisted of securities issued by the Government National Mortgage Association with a fair value of $241.6 million, securities issued by the Federal National Mortgage Association with a fair value of $26.0 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $0.8 million and securities of other issuers with a fair value of $5.0 million.
Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at March 31, 2012 were:
 
 
 
 
Gross Unrealized
 
 
(Dollars in Millions)
 
Cost
 
Gains
 
Losses
 
Fair Value
Preferred Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
$
94.4

 
$
3.3

 
$
(0.3
)
 
$
97.4

Other Industries
 
18.1

 
3.4

 
(0.3
)
 
21.2

Common Stocks:
 
 
 
 
 
 
 
 
Manufacturing
 
65.3

 
21.9

 
(0.1
)
 
87.1

Other Industries
 
41.4

 
8.9

 
(0.6
)
 
49.7

Other Equity Interests:
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
66.0

 
1.7

 
—

 
67.7

Limited Liability Companies and Limited Partnerships
 
95.2

 
13.4

 
(2.1
)
 
106.5

Investments in Equity Securities
 
$
380.4

 
$
52.6

 
$
(3.4
)
 
$
429.6


Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at December 31, 2011 were:
 
 
 
 
Gross Unrealized
 
 
(Dollars in Millions)
 
Cost
 
Gains
 
Losses
 
Fair Value
Preferred Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
$
94.4

 
$
1.0

 
$
(8.7
)
 
$
86.7

Other Industries
 
18.0

 
2.6

 
(0.1
)
 
20.5

Common Stocks:
 
 
 
 
 
 
 
 
Manufacturing
 
64.6

 
18.9

 
(0.1
)
 
83.4

Other Industries
 
41.4

 
7.4

 
(1.8
)
 
47.0

Other Equity Interests:
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
66.0

 
0.6

 
—

 
66.6

Limited Liability Companies and Limited Partnerships
 
82.9

 
11.7

 
(1.5
)
 
93.1

Investments in Equity Securities
 
$
367.3

 
$
42.2

 
$
(12.2
)
 
$
397.3


Note 3 - Investments (continued)
An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at March 31, 2012 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
 
$
19.7

 
$
(0.6
)
 
$
—

 
$
—

 
$
19.7

 
$
(0.6
)
States and Political Subdivisions
 
—

 
—

 
12.3

 
(0.5
)
 
12.3

 
(0.5
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
170.2

 
(4.2
)
 
51.3

 
(3.3
)
 
221.5

 
(7.5
)
Redeemable Preferred Stocks
 
0.5

 
(0.2
)
 
0.1

 
—

 
0.6

 
(0.2
)
Mortgage and Asset-backed
 
—

 
—

 
2.6

 
(0.7
)
 
2.6

 
(0.7
)
Total Fixed Maturities
 
190.4

 
(5.0
)
 
66.3

 
(4.5
)
 
256.7

 
(9.5
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
—

 
—

 
2.4

 
(0.3
)
 
2.4

 
(0.3
)
Other Industries
 
1.8

 
(0.2
)
 
2.8

 
(0.1
)
 
4.6

 
(0.3
)
Common Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
1.2

 
(0.1
)
 
—

 
—

 
1.2

 
(0.1
)
Other Industries
 
5.4

 
(0.6
)
 
0.1

 
—

 
5.5

 
(0.6
)
Other Equity Interests:
 
 
 
 
 
 
 
 
 
 
 
 
Limited Liability Companies and Limited Partnerships
 
16.0

 
(2.1
)
 
—

 
—

 
16.0

 
(2.1
)
Total Equity Securities
 
24.4

 
(3.0
)
 
5.3

 
(0.4
)
 
29.7

 
(3.4
)
Total
 
$
214.8

 
$
(8.0
)
 
$
71.6

 
$
(4.9
)
 
$
286.4

 
$
(12.9
)

The Company regularly reviews its investment portfolio for factors that may indicate that a decline in fair value of an investment is other-than-temporary. The portions of the declines in the fair values of investments that are determined to be other-than-temporary are reported as losses in the Condensed Consolidated Statements of Income in the periods when such determinations are made.
Unrealized losses on fixed maturities, which the Company has determined to be temporary at March 31, 2012, were $9.5 million, of which $4.5 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at March 31, 2012 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 March 31, 2012 related to securities for which the Company has previously recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $6.5 million and below-investment-grade fixed maturity investments comprised $3.0 million of the unrealized losses on investments in fixed maturities at March 31, 2012. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.1 million for one 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 March 31, 2012, 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. Based on the Company’s evaluation at March 31, 2012 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
Note 3 - 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 majority of the Company’s preferred stocks in an unrealized loss position at March 31, 2012 were perpetual preferred stocks of financial institutions. 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 March 31, 2012. The Company concluded that the unrealized losses on its investments in common stocks at March 31, 2012 were temporary based on the relative short length and magnitude of the losses and overall market volatility. 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 March 31, 2012.
Note 3 - Investments (continued)
An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at December 31, 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
 
$
1.3

 
$
—

 
$
—

 
$
—

 
$
1.3

 
$
—

States and Political Subdivisions
 
2.0

 
—

 
12.0

 
(0.8
)
 
14.0

 
(0.8
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
169.6

 
(5.1
)
 
74.7

 
(4.3
)
 
244.3

 
(9.4
)
Redeemable Preferred Stocks
 
0.6

 
(0.1
)
 
0.1

 
—

 
0.7

 
(0.1
)
Mortgage and Asset-backed
 
—

 
—

 
2.7

 
(0.8
)
 
2.7

 
(0.8
)
Total Fixed Maturities
 
173.5

 
(5.2
)
 
89.5

 
(5.9
)
 
263.0

 
(11.1
)
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
54.9

 
(8.1
)
 
2.2

 
(0.6
)
 
57.1

 
(8.7
)
Other Industries
 
1.8

 
—

 
2.8

 
(0.1
)
 
4.6

 
(0.1
)
Common Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
1.5

 
(0.1
)
 
0.1

 
—

 
1.6

 
(0.1
)
Other Industries
 
10.7

 
(1.8
)
 
—

 
—

 
10.7

 
(1.8
)
Other Equity Interests:
 
 
 
 
 
 
 
 
 
 
 
 
Limited Liability Companies and Limited Partnerships
 
17.1

 
(1.5
)
 
—

 
—

 
17.1

 
(1.5
)
Total Equity Securities
 
86.0

 
(11.5
)
 
5.1

 
(0.7
)
 
91.1

 
(12.2
)
Total
 
$
259.5

 
$
(16.7
)
 
$
94.6

 
$
(6.6
)
 
$
354.1

 
$
(23.3
)

Unrealized losses on fixed maturities, which the Company determined to be temporary at December 31, 2011, were $11.1 million, of which $5.9 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. Unrealized losses at December 31, 2011 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “Less Than 12 Months” were insignificant. There were no unrealized losses at December 31, 2011 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.” Included in the preceding table under the heading “12 Months or Longer” are unrealized losses of $0.2 million at December 31, 2011 related to securities for which the Company has previously recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $5.7 million and below-investment-grade fixed maturity investments comprised $5.4 million of the unrealized losses on investments in fixed maturities at December 31, 2011. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.2 million for one issuer that the Company recognized foreign currency impairment losses in earnings for the year ended December 31, 2011. 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, 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. Based on the Company’s evaluation at December 31, 2011 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
Note 3 - Investments (continued)
The vast majority of the Company’s preferred stocks in an unrealized loss position at December 31, 2011 are perpetual preferred stocks of financial institutions. 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 December 31, 2011. The Company concluded that the unrealized losses on its investments in common stocks at December 31, 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 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, 2011.
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.
 
 
Three Months Ended
(Dollars in Millions)
 
Mar 31,
2012
 
Mar 31,
2011
Balance at Beginning of Period
 
$
3.9

 
$
2.4

Reductions to Previously Recognized OTTI Credit Losses
 
(0.1
)
 
(0.1
)
Balance at End of Period
 
$
3.8

 
$
2.3

The carrying values of the Company’s Other Investments at March 31, 2012 and December 31, 2011 were:
(Dollars in Millions)
 
Mar 31,
2012
 
Dec 31,
2011
Loans to Policyholders at Unpaid Principal
 
$
255.6

 
$
253.9

Real Estate at Depreciated Cost
 
238.2

 
239.4

Trading Securities at Fair Value
 
4.6

 
4.4

Other
 
0.6

 
0.6

Total
 
$
499.0

 
$
498.3