|
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 |
|
|