Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The following tables present the financial instruments carried at fair value on a recurring basis by ASC 820-10 valuation hierarchy (as described above). There were no financial instruments carried at fair value on a non-recurring basis as of December 31, 2013 and 2012, respectively.

9. Fair Value of Financial Instruments (continued)

Fair Values of Financial Instruments by Level:	As of
($ in millions)	December 31, 2013
	Level 1		Level 2		Level 3			Total
Assets
Available-for-sale debt securities
U.S. government and agency	$	—	$	9.8	$	58.8	[1]	$	68.6
State and political subdivision	—		20.8		133.8			154.6
Foreign government	—		62.2		3.3			65.5
Corporate	—		1,105.0		1,102.3			2,207.3
CMBS	—		221.8		31.9			253.7
RMBS	—		333.9		175.9			509.8
CDO/CLO	—		—		70.9			70.9
Other asset-backed	—		13.6		82.3			95.9
Total available-for-sale debt securities	—		1,767.1		1,659.2			3,426.3
Short-term investments	80.0		1.0		—			81.0
Derivative assets	12.5		225.3		—			237.8
Related party reinsurance derivative asset	—		—		—			—
Fair value investments	—		13.0		35.6			48.6
Separate account assets	2,052.7		—		—			2,052.7
Total assets	$	2,145.2	$	2,006.4	$	1,694.8		$	5,846.4
Liabilities
Derivative liabilities	$	—	$	110.8	$	—		$	110.8
Embedded derivatives	—		—		74.8			74.8
Total liabilities	$	—	$	110.8	$	74.8		$	185.6

———————

[1] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

There were no transfers of assets between Level 1 and Level 2 during the year ended December 31, 2013.

9. Fair Value of Financial Instruments (continued)

Fair Values of Financial Instruments by Level:	As of
($ in millions)	December 31, 2012
	Level 1		Level 2		Level 3			Total
Assets
Available-for-sale debt securities
U.S. government and agency	$	—	$	14.3	$	25.9	[1]	$	40.2
State and political subdivision	—		14.8		116.1			130.9
Foreign government	—		43.8		8.0			51.8
Corporate	—		1,096.0		801.5			1,897.5
CMBS	—		234.7		19.3			254.0
RMBS	—		199.9		222.6			422.5
CDO/CLO	—		—		56.8			56.8
Other asset-backed	—		38.5		80.1			118.6
Total available-for-sale debt securities	—		1,642.0		1,330.3			2,972.3
Short-term investments	244.9		—		—			244.9
Derivative assets	13.8		135.6		—			149.4
Related party reinsurance derivative asset	—		—		—			—
Fair value investments	—		15.8		22.7			38.5
Separate account assets	2,061.8		—		—			2,061.8
Total assets	$	2,320.5	$	1,793.4	$	1,353.0		$	5,466.9
Liabilities
Derivative liabilities	$	—	$	45.7	$	—		$	45.7
Embedded derivatives	—		—		79.5			79.5
Total liabilities	$	—	$	45.7	$	79.5		$	125.2

———————

[1] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Fair Value, Assets Measured on Recurring Basis

The following tables present corporates carried at fair value on a recurring basis by sector.

Fair Values of Corporates by Level and Sector:	As of
($ in millions)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Corporates
Consumer	$	—	$	288.9	$	377.0	$	665.9
Energy	—		137.7		95.4		233.1
Financial services	—		440.3		262.2		702.5
Technical/communications	—		32.8		25.4		58.2
Transportation	—		25.0		85.1		110.1
Utilities	—		83.6		154.3		237.9
Other	—		96.7		102.9		199.6
Total corporates	$	—	$	1,105.0	$	1,102.3	$	2,207.3

9. Fair Value of Financial Instruments (continued)

Fair Values of Corporates by Level and Sector:	As of
($ in millions)	December 31, 2012
	Level 1		Level 2		Level 3		Total
Corporates
Consumer	$	—	$	352.9	$	389.5	$	742.4
Energy	—		79.6		18.8		98.4
Financial services	—		361.9		165.8		527.7
Technical/communications	—		45.4		7.6		53.0
Transportation	—		9.3		29.8		39.1
Utilities	—		116.9		134.2		251.1
Other	—		130.0		55.8		185.8
Total corporates	$	—	$	1,096.0	$	801.5	$	1,897.5

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following tables set forth a summary of changes in the fair value of our Level 3 financial assets and liabilities. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The securities which were transferred as of the end of each reporting period into Level 3 were due to decreased

market observability of similar assets and/or changes to significant inputs, such as downgrades or price declines. Transfers out of Level 3 were due to increased market activity on comparable assets or observability of inputs.

Level 3 Financial Assets:	As of
($ in millions)	December 31, 2013
	Balance, beginning of period		Purchases		Sales			Transfers into Level 3		Transfers out of Level 3			Realized and unrealized gains (losses) included in income [1]			Unrealized gains (losses) included in OCI			Total
Assets
Available-for-sale debt securities
U.S. government and agency [2]	$	25.9	$	44.3	$	(4.3	)	$	—	$	—		$	—		$	(7.1	)	$	58.8
State and political subdivision	116.1		47.8		(1.5		)	—		—			—			(28.6		)	133.8
Foreign government	8.0		—		—			1.6		(6.1		)	—			(0.2		)	3.3
Corporate	801.5		364.8		(12.8		)	41.6		(10.9		)	—			(81.9		)	1,102.3
CMBS	19.3		19.3		(0.7		)	—		(1.5		)	(0.2		)	(4.3		)	31.9
RMBS	222.6		1.3		(28.9		)	5.1		—			(0.4		)	(23.8		)	175.9
CDO/CLO	56.8		36.6		(6.6		)	—		—			(0.3		)	(15.6		)	70.9
Other asset-backed	80.1		13.4		(6.0		)	—		—			—			(5.2		)	82.3
Total available-for-sale   debt securities	1,330.3		527.5		(60.8		)	48.3		(18.5		)	(0.9		)	(166.7		)	1,659.2
Related party reinsurance   derivative asset	—		—		—			—		—			—			—			—
Fair value investments	22.7		21.1		(3.8		)	—		—			(4.4		)	—			35.6
Total assets	$	1,353.0	$	548.6	$	(64.6	)	$	48.3	$	(18.5	)	$	(5.3	)	$	(166.7	)	$	1,694.8

———————

[1] Reflected in realized investment gains and losses for all assets except fair value investments which are included in net investment income.

[2] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

9. Fair Value of Financial Instruments (continued)

Level 3 Financial Assets:	As of
($ in millions)	December 31, 2012
	Balance, beginning of period		Purchases		Sales			Transfers into Level 3		Transfers out of Level 3			Realized and unrealized gains (losses) included in income [1]			Unrealized gains (losses) included in OCI			Total
Assets
Available-for-sale debt securities
U.S. government and agency [2]	$	31.7	$	3.2	$	(6.7	)	$	—	$	—		$	—		$	(2.3	)	$	25.9
State and political subdivision	48.7		41.9		(0.8		)	12.9		—			—			13.4			116.1
Foreign government	3.1		3.5		—			—		—			—			1.4			8.0
Corporate	513.8		297.1		(16.2		)	21.0		(14.2		)	—			—			801.5
CMBS	35.4		—		(0.6		)	1.1		(17.1		)	—			0.5			19.3
RMBS	268.0		1.6		(38.9		)	—		—			2.0			(10.1		)	222.6
CDO/CLO	62.5		2.8		(5.3		)	—		—			(0.3		)	(2.9		)	56.8
Other asset-backed	81.2		9.5		(7.6		)	—		(1.8		)	—			(1.2		)	80.1
Total available-for-sale   debt securities	1,044.4		359.6		(76.1		)	35.0		(33.1		)	1.7			(1.2		)	1,330.3
Related party reinsurance   derivative asset	3.5		—		—			—		—			(3.5		)	—			—
Fair value investments	27.5		5.7		(11.5		)	—		—			1.0			—			22.7
Total assets	$	1,075.4	$	365.3	$	(87.6	)	$	35.0	$	(33.1	)	$	(0.8	)	$	(1.2	)	$	1,353.0

———————

[1] Reflected in realized investment gains and losses for all assets except fair value investments which are included in net investment income.

[2] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Level 3 Financial Liabilities:	Embedded Derivatives
($ in millions)	Years Ended December 31,
	2013			2012
Balance, beginning of period	$	79.5		$	82.3
Net purchases/(sales)	12.9			8.4
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Realized (gains) losses [1]	(17.6		)	(11.2		)
Balance, end of period	$	74.8		$	79.5

———————

[1] Realized gains and losses are included in net realized investment gains on the statements of income and comprehensive income.

Fair Value Inputs, Liabilities, Quantitative Information

The following tables present quantitative estimates about unobservable inputs used in the fair value measurement of significant categories of internally priced assets.

Level 3 Assets: [1]	As of
($ in millions)	December 31, 2013
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
U.S. government and agency	$	58.8	Discounted cash flow	Yield	1.07%-5.00% (3.18%)
State and political subdivision	$	45.4	Discounted cash flow	Yield	2.44%-5.79% (3.88%)
Corporate	$	874.1	Discounted cash flow	Yield	1.06%-6.75% (3.81%)
Other asset-backed	$	11.3	Discounted cash flow	Yield	2.10%-3.41% (2.30%)
			Discounted cash flow	Prepayment rate	2%
				Default rate	2.53% for 48 mos then .37% thereafter
				Recovery rate	10% (TRUPS)
Fair value investments	$	0.8	Discounted cash flow	Default rate	0.25%
				Recovery rate	45%

———————

[1] Excludes Level 3 assets which are valued based upon non-binding independent third-party valuations or third-party price information for which unobservable inputs are not reasonably available to us.

Level 3 Assets: [1]	As of
($ in millions)	December 31, 2012
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
U.S. government and agency	$	25.9	Discounted cash flow	Yield	1.46%-3.29% (2.57%)
State and political subdivision	$	58.0	Discounted cash flow	Yield	1.94%-3.53% (2.94%)
Corporate	$	649.6	Discounted cash flow	Yield	1.47%-6.33% (3.01%)
CDO/CLO	$	3.4	Discounted cash flow	Prepayment rate	20% (CLOs)
				Default rate	2.5% (CLOs)
				Recovery rate	65% (Loans), 35% (High yield bonds),   45% (Investment grade bonds)
				Reinvestment spread	3 mo LIBOR + 400bps (CLOs)
Other asset-backed	$	2.8	Discounted cash flow	Yield	2.61%-9.50% (4.97%)
			Discounted cash flow	Prepayment rate	2%
				Default rate	2.53% for 48 mos then .33% thereafter
				Recovery rate	10% (TRUPS)
Fair value investments	$	0.8	Discounted cash flow	Default rate	0.24%
				Recovery rate	45%

———————

[1] Excludes Level 3 assets which are valued based upon non-binding independent third-party valuations or third-party price information for which unobservable inputs are not reasonably available to us.

Significant unobservable inputs used in the fair value measurement of variable annuity GMAB and GMWB type liabilities are equity volatility, swap curve, mortality and lapse rates and an adjustment for non-performance risk. Keeping other inputs unchanged, an increase in the equity volatility would increase the fair value of the liability while an increase in the swap curve or CSA would result in a decrease to the fair value of the liability. The impact of changes in mortality and lapse rates are dependent on overall market conditions. The fair value of fixed indexed annuity and indexed universal life embedded derivative related to index credits is calculated using the swap curve, future option budget, mortality and lapse rates, as well as an adjustment for non-performance risk. Keeping other inputs unchanged, an increase in any of these significant unobservable inputs would result in a decrease of the fixed indexed annuity embedded derivative liability.

9. Fair Value of Financial Instruments (continued)

The following tables present quantitative estimates about unobservable inputs used in the fair value measurement of internally priced liabilities.

Level 3 Liabilities:	As of
($ in millions)	December 31, 2013
	Fair Value			Valuation Technique(s)	Unobservable Input	Range
Embedded derivatives (FIA)	$	78.9		Budget method	Swap curve	0.19% - 3.79%
					Mortality rate	103% or 97% 2012 IAM basic table with scale G2
					Lapse rate	0.02% - 47.15%
					CSA	3.23%
Embedded derivatives (GMAB / GMWB)	$	(4.1	)	Risk neutral stochastic   valuation methodology	Volatility surface	10.85% - 46.33%
					Swap curve	0.15% - 4.15%
					Mortality rate	105% 2012 IAM basic table with scale G2
					Lapse rate	0.00% - 40.00%
					CSA	3.23%

Level 3 Liabilities:	As of
($ in millions)	December 31, 2012
	Fair Value		Valuation Technique(s)	Unobservable Input	Range
Embedded derivatives (FIA)	$	51.2	Budget method	Swap curve	0.21% - 2.50%
				Mortality rate	75% of A2000 basic table
				Lapse rate	1.00% - 35.00%
				CSA	4.47%
Embedded derivatives (GMAB / GMWB)	$	28.3	Risk neutral stochastic   valuation methodology	Volatility surface	11.67% - 50.83%
				Swap curve	0.36% - 3.17%
				Mortality rate	75% of A2000 basic table
				Lapse rate	0.00% - 60.00%
				CSA	4.47%

Fair Value, Instruments Classified in Shareholders' Equity Measured on Recurring Basis, Unobservable Input Reconciliation

Level 3 Assets and Liabilities by Pricing Source:	As of
($ in millions)	December 31, 2013
	Internal [1]		External [2]		Total
Assets
Available-for-sale debt securities
U.S. government and agency [3]	$	58.8	$	—	$	58.8
State and political subdivision	45.4		88.4		133.8
Foreign government	—		3.3		3.3
Corporate	874.1		228.2		1,102.3
CMBS	—		31.9		31.9
RMBS	—		175.9		175.9
CDO/CLO	—		70.9		70.9
Other asset-backed	11.3		71.0		82.3
Total available-for-sale debt securities	989.6		669.6		1,659.2
Related party reinsurance derivative asset	—		—		—
Fair value investments	0.8		34.8		35.6
Total assets	$	990.4	$	704.4	$	1,694.8
Liabilities
Embedded derivatives	$	74.8	$	—	$	74.8
Total liabilities	$	74.8	$	—	$	74.8

———————

[1] Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.

[2] Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.

[3] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Level 3 Assets and Liabilities by Pricing Source:	As of
($ in millions)	December 31, 2012
	Internal [1]		External [2]		Total
Assets
Available-for-sale debt securities
U.S. government and agency [3]	$	25.9	$	—	$	25.9
State and political subdivision	58.0		58.1		116.1
Foreign government	—		8.0		8.0
Corporate	649.6		151.9		801.5
CMBS	—		19.3		19.3
RMBS	—		222.6		222.6
CDO/CLO	3.4		53.4		56.8
Other asset-backed	2.8		77.3		80.1
Total available-for-sale debt securities	739.7		590.6		1,330.3
Related party reinsurance derivative asset	—		—		—
Fair value investments	0.8		21.9		22.7
Total assets	$	740.5	$	612.5	$	1,353.0
Liabilities
Embedded derivatives	$	79.5	$	—	$	79.5
Total liabilities	$	79.5	$	—	$	79.5

———————

[1] Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.

[2] Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.

[3] Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Fair Value, by Balance Sheet Grouping

The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ:

Carrying Amounts and Fair Values		As of December 31,
of Financial Instruments:	Fair Value	2013				2012
($ in millions)	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Value		Value		Value		Value
Financial assets:
Policy loans	Level 3	$	66.1	$	65.6	$	61.0	$	60.6
Cash and cash equivalents	Level 1	$	181.0	$	181.0	$	83.1	$	83.1
Financial liabilities:
Investment contracts	Level 3	$	2,762.8	$	2,763.8	$	2,349.8	$	2,355.4
Surplus notes	Level 3	$	30.0	$	30.0	$	—	$	—