7. Investing Activities (Tables)

9 Months Ended

Sep. 30, 2012

Investing Activities Tables

Fair Value and Cost of Securities

The following tables present the fixed maturity securities available-for-sale by sector held at September 30, 2012 and December 31, 2011, respectively. The unrealized loss amounts presented below include the non-credit loss component of OTTI losses. We classify these investments into various sectors in line with industry conventions.

Fair Value and Cost of Securities:	September 30, 2012
($ in millions)			Gross		Gross					OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains(1)		Losses			Value		in AOCI(2)
U.S. government and agency	$	168.2	$	5.1	$	(0.4	)	$	172.9	$	—
State and political subdivision		98.7		10.3		(0.6	)		108.4		—
Foreign government		44.4		6.5		—			50.9		—
Corporate		1,605.3		141.6		(26.7	)		1,720.2		(1.5	)
Commercial mortgage-backed (“CMBS”)		245.0		25.9		(1.4	)		269.5		(0.6	)
Residential mortgage-backed (“RMBS”)		442.8		19.1		(10.1	)		451.8		(24.1	)
CDO/CLO		63.5		1.4		(6.0	)		58.9		(6.8	)
Other asset-backed		134.6		5.8		(6.8	)		133.6		1.2
Available-for-sale debt securities	$	2,802.5	$	215.7	$	(52.0	)	$	2,966.2	$	(31.8	)

———————

(1)

Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI. The table above presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI).

(2)

Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.

Fair Value and Cost of Securities:		December 31, 2011
($ in millions)	As restated and amended
				Gross		Gross					OTTI
		Amortized		Unrealized		Unrealized			Fair		Recognized
		Cost		Gains(1)		Losses			Value		in AOCI(2)
U.S. government and agency		$	162.2	$	12.4	$	(0.5	)	$	174.1		$	—
State and political subdivision			78.3		5.7		(0.5	)		83.5			—
Foreign government			30.5		1.8		(0.4	)		31.9			—
Corporate			1,157.4		84.8		(37.5	)		1,204.7			(1.5	)
CMBS			273.3		12.1		(3.9	)		281.5			(5.1	)
RMBS			538.6		13.3		(20.4	)		531.5			(21.6	)
CDO/CLO			74.0		0.7		(12.2	)		62.5			(8.4	)
Other asset-backed			146.6		3.1		(7.3	)		142.4			0.7
Available-for-sale debt securities		$	2,460.9	$	133.9	$	(82.7	)	$	2,512.1		$	(35.9	)

———————

(1)

Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI. The table above presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI).

(2)

Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.

Maturities of debt securities

Maturities of Debt Securities:	September 30, 2012
($ in millions)	Amortized		Fair
	Cost		Value
Due in one year or less	$	176.0	$	177.0
Due after one year through five years		325.8		349.9
Due after five years through ten years		832.4		905.8
Due after ten years		582.4		619.7
CMBS/RMBS/ABS/CDO/CLO		885.9		913.8
Total	$	2,802.5	$	2,966.2

———————

(1) CMBS, RMBS, ABS, CDO and CLO are not listed separately in the table as each security does not have a single fixed maturity.

Sales of Available-for-Sale Securities

The following table depicts the sources of available-for-sale investment proceeds and related investment gains (losses).

Sales of Available-for-Sale Securities:	As of September 30,			As of December 31,
($ in millions)	2012			2011
				As restated and amended
Fixed maturities, available-for-sale
Proceeds from sales	$	344.4			$	325.8
Proceeds from maturities/repayments		275.7				213.8
Gross investment gains from sales, prepayments and maturities		21.4				2.5
Gross investment losses from sales and maturities		(0.2	)			(0.7	)

Aging of Temporarily Impaired	As of September 30, 2012
Debt Securities:	Less than 12 months					Greater than 12 months					Total
($ in millions)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Debt Securities
U.S. government and agency	$	—	$	—		$	3.5	$	(0.4	)	$	3.5	$	(0.4	)
State and political subdivision		4.8		(0.2	)		1.0		(0.4	)		5.8		(0.6	)
Foreign government		—		—			—		—			—		—
Corporate		49.9		(1.5	)		67.4		(25.2	)		117.3		(26.7	)
CMBS		—		—			13.1		(1.4	)		13.1		(1.4	)
RMBS		16.5		(0.3	)		73.0		(9.8	)		89.5		(10.1	)
CDO/CLO		1.2		(0.1	)		42.4		(5.9	)		43.6		(6.0	)
Other asset-backed		3.2		—			10.7		(6.8	)		13.9		(6.8	)
Total temporarily impaired securities	$	75.6	$	(2.1	)	$	211.1	$	(49.9	)	$	286.7	$	(52.0	)
Below investment grade	$	15.3	$	(1.5	)	$	52.9	$	(29.0	)	$	68.2	$	(30.5	)
Number of securities				24					104					128

Aging of Temporarily Impaired Securities

Aging of Temporarily Impaired Securities	As of December 31, 2011
($ in millions)	As restated and amended
	Less than 12 months					Greater than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt Securities
U.S. government and agency	$	—	$	—		$	3.5		(0.5	)	$	3.5	$	(0.5	)
State and political subdivision		15.4		—			0.9		(0.5	)		16.3		(0.5	)
Foreign government		7.2		(0.4	)		—		—			7.2		(0.4	)
Corporate		113.4		(3.5	)		69.3		(34.0	)		182.7		(37.5	)
CMBS		50.3		(1.2	)		6.9		(2.7	)		57.2		(3.9	)
RMBS		78.0		(3.3	)		91.1		(17.1	)		169.1		(20.4	)
CDO/CLO		4.8		(0.4	)		40.6		(11.8	)		45.4		(12.2	)
Other asset-backed		24.4		(0.2	)		16.5		(7.1	)		40.9		(7.3	)
Total temporarily impaired securities	$	293.5	$	(9.0	)	$	228.8	$	(73.7	)	$	522.3	$	(82.7	)
Below investment grade	$	25.3	$	(1.6	)	$	74.8	$	(50.2	)	$	100.1	$	(51.8	)
Number of securities				129					139					268

Credit Losses Recognized in Earnings on Debt Securities

The following table presents a roll-forward of pre-tax credit losses recognized in earnings related to debt securities for which a portion of the OTTI was recognized in OCI.

Credit Losses Recognized in Earnings on Debt Securities for	Three Months Ended						Nine Months Ended
which a Portion of the OTTI Loss was Recognized in OCI:	September 30,						September 30,
($ in millions)	2012			2011			2012			2011
				As restated and amended						As restated and amended
Balance, beginning of period	$	(20.0	)	$	(20.0	)	$	(21.3	)	$	(19.9	)
Add: Credit losses on securities not previously impaired (1)		(0.2	)		—			(0.5)			(0.5	)
Add: Credit losses on securities previously impaired (1)		(0.4	)		(0.7	)		(1.4	)		(0.8	)
Less: Credit losses on securities impaired due to intent to sell		—			—			—			—
Less: Credit losses on securities sold		1.0			0.3			3.6			0.8
Less: Increases in cash flows expected on     previously impaired securities		—			—			—			—
Balance, end of period	$	(19.6	)	$	(20.4	)	$	(19.6	)	$	(20.4	)

———————

(1) Additional credit losses on securities for which a portion of the OTTI loss was recognized in AOCI are included within net OTTI losses recognized in earnings on the statements of comprehensive income.

Sources of Net Investment Income

Sources of Net Investment Income:	Three Months Ended					Nine Months Ended
($ in millions)	September 30,					September 30,
	2012		2011			2012		2011
			As restated and amended					As restated and amended
Debt securities	$	31.7	$	25.2		$	92.7	$	68.9
Policy loans		0.7		0.8			2.3		2.3
Limited partnerships and other investments		0.8		(0.3)			1.8		0.3
Fair value investments		0.4		(0.2	)		0.6		0.4
Cash and cash equivalents		—		—			—		—
Total investment income		33.6		25.5			97.4		71.9
Less: Investment expenses		0.3		0.5			0.9		1.2
Net investment income	$	33.3	$	25.0		$	96.5	$	70.7

Sources and Types of Net Realized Investment Gains (Losses)

Sources and Types of	Three Months Ended						Nine Months Ended
Net Realized Investment Gains (Losses):	September 30,						September 30,
($ in millions)	2012			2011			2012			2011
				As restated and amended						As restated and amended
Total other-than temporary debt impairment losses	$	(0.7	)	$	(4.7	)	$	(4.4	)	$	(7.0	)
Portion of loss recognized in OCI		(0.3	)		3.7			1.8			4.7
Net debt impairment losses recognized in earnings	$	(1.0	)	$	(1.0	)	$	(2.6	)	$	(2.3	)
Debt security impairments:
U.S. government and agency	$	—		$	—		$	—		$	—
State and political subdivision		—			—			—			—
Foreign government		—			—			—			—
Corporate		—			(0.2)			—			(0.4)
CMBS		—			—			(0.1	)		—
RMBS		(0.8	)		(0.8	)		(2.1	)		(1.8	)
CDO/CLO		(0.1	)		—			(0.1	)		—
Other asset-backed		(0.1	)		—			(0.3	)		(0.1	)
Net debt security impairments		(1.0	)		(1.0	)		(2.6	)		(2.3	)
Limited partnerships and other investment impairments		—			—			—			—
Impairment losses		(1.0	)		(1.0	)		(2.6	)		(2.3	)
Debt security transaction gains		20.8			0.2			21.4			2.4
Debt security transaction losses		(0.1	)		—			(0.2)			(0.6	)
Limited partnerships and other investment transaction gains		—			—			—			0.1
Limited partnerships and other investment transaction losses		(0.3	)		—			(0.4)			—
Net transaction gains		20.4			0.2			20.8			1.9
Derivative instruments		(18.0	)		34.8			(33.5	)		23.2
Embedded derivatives (1)		6.6			(48.3	)		6.1			(41.0	)
Related party reinsurance derivatives		(4.2	)		10.1			(3.5	)		10.1
Net realized investment gains (losses), excluding impairment losses	$	4.8		$	(3.2	)	$	(10.1	)	$	(5.8	)
Net realized investment gains (losses), including impairment losses	$	3.8		$	(4.2	)	$	(12.7	)	$	(8.1	)

Sources of Changes in Net Unrealized Investment Gains (Losses)

Sources of Changes in	Three Months Ended						Nine Months Ended
Net Unrealized Investment Gains (Losses):	September 30,						September 30,
($ in millions)	2012			2011			2012		2011
				As restated and amended					As restated and amended
Debt securities	$	51.0		$	22.3		$	112.5	$	58.6
Equity securities		—			(0.1	)		—		0.1
Other investments		—			0.1			—		0.1
Net unrealized investment gains	$	51.0		$	22.3		$	112.5	$	58.8
Net unrealized investment gains	$	51.0		$	22.3		$	112.5	$	58.8
Applicable deferred policy acquisition cost		(5.8	)		17.7			25.6		30.1
Applicable other actuarial offsets		54.8			13.7			68.2		11.1
Applicable deferred income tax expense		7.1			(2.1	)		17.1		4.2
Offsets to net unrealized investment gains		56.1			29.3			110.9		45.4
Net unrealized investment gains (losses) included in OCI	$	(5.1	)	$	(7.0	)	$	1.6	$	13.4