Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and December 31, 2012, respectively.



	As of
Fair Values of Financial Instruments by Level:	March 31, 2013
($ in millions)	Level 1		Level 2		Level 3			Total
Assets
Available-for-sale debt securities
U.S. government and agency	$	—	$	14.2	$	31.4	[1]	$	45.6
State and political subdivision	—		18.9		98.2			117.1
Foreign government	—		40.6		9.5			50.1
Corporate	—		1,122.3		903.2			2,025.5
CMBS	—		230.0		18.7			248.7
RMBS	—		181.7		214.3			396.0
CDO/CLO	—		—		62.2			62.2
Other asset-backed	—		29.6		79.9			109.5
Total available-for-sale debt securities	—		1,637.3		1,417.4			3,054.7
Short-term investments	224.9		—		—			224.9
Derivative assets	10.8		175.8		—			186.6
Related party reinsurance derivative asset	—		—		—			—
Fair value investments	—		15.1		31.4			46.5
Separate account assets	2,109.5		—		—			2,109.5
Total assets	$	2,345.2	$	1,828.2	$	1,448.8		$	5,622.2
Liabilities
Derivative liabilities	$	—	$	76.4	$	—		$	76.4
Embedded derivatives	—		—		81.8			81.8
Total liabilities	$	—	$	76.4	$	81.8		$	158.2

———————


[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 quarter ended March 31, 2013.



	As of
Fair Values of Financial Instruments by Level:	December 31, 2012
($ in millions)	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.



	As of
Fair Values of Corporates by Level and Sector:	March 31, 2013
($ in millions)	Level 1		Level 2		Level 3		Total
Corporates
Consumer	$	—	$	302.5	$	346.9	$	649.4
Energy	—		116.5		58.0		174.5
Financial services	—		436.3		217.9		654.2
Technical/communications	—		73.9		24.1		98.0
Transportation	—		15.5		59.8		75.3
Utilities	—		79.1		123.4		202.5
Other	—		98.5		73.1		171.6
Total corporates	$	—	$	1,122.3	$	903.2	$	2,025.5



	As of
Fair Values of Corporates by Level and Sector:	December 31, 2012
($ in millions)	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.



	Three Months Ended
Level 3 Financial Assets:	March 31, 2013
($ in millions)	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	$	5.5	$	(0.1	)	$	—	$	—		$	—		$	0.1		$	31.4
State and political subdivision	116.1		—		(0.2		)	—		—			—			(17.7		)	98.2
Foreign government	8.0		—		—			1.6		—			—			(0.1		)	9.5
Corporate	801.5		84.2		(2.5		)	4.9		(8.9		)	—			24.0			903.2
CMBS	19.3		—		—			—		(1.5		)	—			0.9			18.7
RMBS	222.6		0.3		(7.1		)	—		—			(0.2		)	(1.3		)	214.3
CDO/CLO	56.8		10.9		(1.4		)	—		—			(0.3		)	(3.8		)	62.2
Other asset-backed	80.1		—		(1.4		)	—		—			—			1.2			79.9
Total available-for-sale debt securities	1,330.3		100.9		(12.7		)	6.5		(10.4		)	(0.5		)	3.3			1,417.4
Related party reinsurance derivative asset	—		—		—			—		—			—			—			—
Fair value investments	22.7		9.8		(1.3		)	—		—			0.2			—			31.4
Total assets	$	1,353.0	$	110.7	$	(14.0	)	$	6.5	$	(10.4	)	$	(0.3	)	$	3.3		$	1,448.8

———————


[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.



	Three Months Ended
Level 3 Financial Assets:	March 31, 2012
($ in millions)	As restated and amended
	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	$	—	$	(2.5	)	$	—	$	—		$	—		$	(2.5	)	$	26.7
State and political subdivision	48.7		14.9		—			12.9		—			—			2.2			78.7
Foreign government	3.1		3.5		—			—		—			—			0.3			6.9
Corporate	513.8		64.9		(1.6		)	20.0		(17.3		)	—			(2.0		)	577.8
CMBS	35.4		—		—			—		(14.1		)	(0.1		)	(0.8		)	20.4
RMBS	268.0		0.4		—			—		—			(0.5		)	(12.5		)	255.4
CDO/CLO	62.5		—		—			—		—			—			2.4			64.9
Other asset-backed	81.2		7.0		(0.4		)	—		—			0.1			(9.2		)	78.7
Total available-for-sale debt securities	1,044.4		90.7		(4.5		)	32.9		(31.4		)	(0.5		)	(22.1		)	1,109.5
Related party reinsurance derivative asset	3.5		—		—			—		—			(5.3		)	—			(1.8		)
Fair value investments	27.5		—		—			—		—			(7.1		)	—			20.4
Total assets	$	1,075.4	$	90.7	$	(4.5	)	$	32.9	$	(31.4	)	$	(12.9	)	$	(22.1	)	$	1,128.1

———————


[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.

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



Level 3 Financial Liabilities:	Embedded Derivative Liabilities
($ in millions)	Three Months Ended
	March 31,
	2013		2012
			As restated and amended

Balance, beginning of period	$	79.5	$	82.4
Net purchases/(sales)	1.7		2.6
Transfers into Level 3	—		—
Transfers out of Level 3	—		—
Realized (gains) losses [1]	0.6		(23.0		)
Balance, end of period	$	81.8	$	62.0

———————


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

Fair Value Inputs, Assets, Quantitative Information

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



	As of
Level 3 Assets: [1]	March 31, 2013
($ in millions)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)

U.S. government and agency	$	31.4	Discounted cash flow	Yield	1.35%-3.34% (2.66%)
State and political subdivision	$	40.6	Discounted cash flow	Yield	1.96%-3.57% (2.90%)
Corporate	$	731.0	Discounted cash flow	Yield	1.35%-5.96% (3.10%)
CDO/CLO	$	1.2	Discounted cash flow	Prepayment rate	20% (CLOs)
				Default rate	2.55% (CLOs)
				Recovery rate	65% (Loans), 35% (High yield bonds), 45% (Investment grade bonds)
				Reinvestment spread	3 mos LIBOR + 400bps (CLOs)
Other asset-backed	$	2.8	Discounted cash flow	Yield	2.53%
				Prepayment rate	2%
				Default rate	2.53% for 48 mos then .37% thereafter
				Recovery rate	10% (TRUPS)
Fair value investments	$	0.7	Discounted cash flow	Default rate	0.30%
				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.



	As of
Level 3 Assets: [1]	December 31, 2012
($ in millions)
	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 mos LIBOR + 400bps (CLOs)
Other asset-backed	$	2.8	Discounted cash flow	Yield	2.61%-9.50% (4.97%)
				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.

Fair Value Inputs, Liabilities, Quantitative Information

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



	As of
Level 3 Liabilities:	March 31, 2013
($ in millions)	Fair Value		Valuation Technique(s)	Unobservable Input	Range

Embedded derivatives	$	63.4	Budget method	Swap curve	0.24% - 2.69%
(FIA)				Mortality rate	75% of A2000 basic table
				Lapse rate	0.60% - 35.00%
				CSA	3.76%
Embedded derivatives (GMAB / GMWB)	$	18.4	Risk neutral stochastic valuation methodology	Volatility surface	9.32% - 44.45%
				Swap curve	0.24% - 3.18%
				Mortality rate	75% of A2000 basic table
				Lapse rate	0.00% - 60.00%
				CSA	3.76%



	As of
Level 3 Liabilities:	December 31, 2012
($ in millions)	Fair Value		Valuation Technique(s)	Unobservable Input	Range

Embedded derivatives	$	51.2	Budget method	Swap curve	0.21%-2.50%
(FIA)				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%

Level 3 Assets and Liabilities by Pricing Source



	As of
Level 3 Assets and Liabilities by Pricing Source:	March 31, 2013
($ in millions)	Internal [1]		External [2]		Total
Assets
Available-for-sale debt securities
U.S. government and agency [3]	$	31.4	$	—	$	31.4
State and political subdivision	40.6		57.6		98.2
Foreign government	—		9.5		9.5
Corporate	731.0		172.2		903.2
CMBS	—		18.7		18.7
RMBS	—		214.3		214.3
CDO/CLO	1.2		61.0		62.2
Other asset-backed	2.8		77.1		79.9
Total available-for-sale debt securities	807.0		610.4		1,417.4
Related party reinsurance derivative asset	—		—		—
Fair value investments	0.7		30.7		31.4
Total assets	$	807.7	$	641.1	$	1,448.8
Liabilities
Embedded derivatives	$	81.8	$	—	$	81.8
Total liabilities	$	81.8	$	—	$	81.8

———————


[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.



	As of
Level 3 Assets and Liabilities by Pricing Source:	December 31, 2012
($ in millions)	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 Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ:



		As of				As of
Carrying Amounts and Fair Values		March 31, 2013				December 31, 2012
of Financial Instruments:	Fair Value Hierarchy Level	Carrying Value		Fair Value		Carrying Value		Fair Value
($ in millions)	Fair Value Hierarchy Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Policy loans	Level 3	$	61.5	$	61.1	$	61.0	$	60.6
Cash and cash equivalents	Level 1	$	116.2	$	116.2	$	83.1	$	83.1
Financial liabilities:
Investment contracts	Level 3	$	2,468.1	$	2,472.7	$	2,349.8	$	2,355.4

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of financial instruments classified in shareholders' equity using significant unobservable inputs (level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of level 3 (for example, transfers due to changes in the observability of significant inputs) by class of equity.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

+ References+ Details