(Mark One) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 06-1599088 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One American Row, Hartford, Connecticut | 06102-5056 | |
(Address of principal executive offices) | (Zip Code) |
(860) 403-5000 |
(Registrant’s telephone number, including area code) |
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o | Smaller reporting company o |
(Do not check if smaller reporting company) |
Part I | FINANCIAL INFORMATION | Page |
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | OTHER INFORMATION | |
Item 1. | ||
Item 1A. | ||
Item 6. | ||
June 30, 2014 | December 31, 2013 | ||||||
ASSETS: | |||||||
Available-for-sale debt securities, at fair value (amortized cost of $11,733.4 and $11,418.0) | $ | 12,454.1 | $ | 11,808.6 | |||
Available-for-sale equity securities, at fair value (cost of $40.0 and $40.4) | 68.5 | 61.8 | |||||
Short-term investments | 504.8 | 361.6 | |||||
Limited partnerships and other investments | 557.9 | 561.9 | |||||
Policy loans, at unpaid principal balances | 2,325.4 | 2,350.3 | |||||
Derivative instruments | 175.0 | 243.1 | |||||
Fair value investments | 207.4 | 210.8 | |||||
Total investments | 16,293.1 | 15,598.1 | |||||
Cash and cash equivalents | 330.2 | 496.4 | |||||
Accrued investment income | 185.7 | 170.4 | |||||
Reinsurance recoverable | 594.7 | 603.3 | |||||
Deferred policy acquisition costs | 869.0 | 940.6 | |||||
Deferred income taxes, net | 29.4 | 70.0 | |||||
Other assets | 279.0 | 299.9 | |||||
Discontinued operations assets | 39.9 | 43.6 | |||||
Separate account assets | 3,285.4 | 3,402.3 | |||||
Total assets | $ | 21,906.4 | $ | 21,624.6 | |||
LIABILITIES: | |||||||
Policy liabilities and accruals | $ | 12,429.0 | $ | 12,437.6 | |||
Policyholder deposit funds | 3,658.7 | 3,429.7 | |||||
Dividend obligations | 895.6 | 705.9 | |||||
Indebtedness | 378.9 | 378.8 | |||||
Pension and postretirement liabilities | 302.5 | 315.9 | |||||
Other liabilities | 376.4 | 333.0 | |||||
Discontinued operations liabilities | 35.1 | 37.7 | |||||
Separate account liabilities | 3,285.4 | 3,402.3 | |||||
Total liabilities | 21,361.6 | 21,040.9 | |||||
CONTINGENCIES AND COMMITMENTS (Notes 20 & 21) | |||||||
STOCKHOLDERS’ EQUITY: | |||||||
Common stock, $.01 par value: 5.7 million and 5.7 million shares outstanding | 0.1 | 0.1 | |||||
Additional paid-in capital | 2,632.7 | 2,633.1 | |||||
Accumulated other comprehensive income (loss) | (177.2 | ) | (185.2 | ) | |||
Accumulated deficit | (1,739.7 | ) | (1,692.1 | ) | |||
Treasury stock, at cost: 0.7 million and 0.7 million shares | (182.9 | ) | (182.9 | ) | |||
Total The Phoenix Companies, Inc. stockholders’ equity | 533.0 | 573.0 | |||||
Noncontrolling interests | 11.8 | 10.7 | |||||
Total stockholders’ equity | 544.8 | 583.7 | |||||
Total liabilities and stockholders’ equity | $ | 21,906.4 | $ | 21,624.6 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
REVENUES: | |||||||||||||||
Premiums | $ | 83.2 | $ | 87.4 | $ | 162.8 | $ | 170.1 | |||||||
Fee income | 134.2 | 132.6 | 269.0 | 268.9 | |||||||||||
Net investment income | 195.3 | 194.0 | 408.8 | 385.1 | |||||||||||
Net realized investment gains (losses): | |||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (1.0 | ) | — | (1.0 | ) | (0.9 | ) | ||||||||
Portion of OTTI gains (losses) recognized in other comprehensive income (“OCI”) | — | (2.5 | ) | (0.2 | ) | (4.2 | ) | ||||||||
Net OTTI losses recognized in earnings | (1.0 | ) | (2.5 | ) | (1.2 | ) | (5.1 | ) | |||||||
Net realized investment gains (losses), excluding OTTI losses | 5.1 | 9.7 | (20.4 | ) | (3.6 | ) | |||||||||
Net realized investment gains (losses) | 4.1 | 7.2 | (21.6 | ) | (8.7 | ) | |||||||||
Total revenues | 416.8 | 421.2 | 819.0 | 815.4 | |||||||||||
BENEFITS AND EXPENSES: | |||||||||||||||
Policy benefits | 298.5 | 272.8 | 534.5 | 591.6 | |||||||||||
Policyholder dividends | 42.4 | 51.3 | 116.2 | 55.7 | |||||||||||
Policy acquisition cost amortization | 17.4 | 32.2 | 39.8 | 77.5 | |||||||||||
Interest expense on indebtedness | 7.1 | 7.1 | 14.2 | 14.8 | |||||||||||
Other operating expenses | 85.5 | 91.8 | 183.4 | 172.6 | |||||||||||
Total benefits and expenses | 450.9 | 455.2 | 888.1 | 912.2 | |||||||||||
Income (loss) from continuing operations before income taxes | (34.1 | ) | (34.0 | ) | (69.1 | ) | (96.8 | ) | |||||||
Income tax expense (benefit) | (20.4 | ) | (1.3 | ) | (24.0 | ) | 2.9 | ||||||||
Income (loss) from continuing operations | (13.7 | ) | (32.7 | ) | (45.1 | ) | (99.7 | ) | |||||||
Income (loss) from discontinued operations, net of income taxes | (0.6 | ) | (0.2 | ) | (1.5 | ) | (2.0 | ) | |||||||
Net income (loss) | (14.3 | ) | (32.9 | ) | (46.6 | ) | (101.7 | ) | |||||||
Less: Net income (loss) attributable to noncontrolling interests | — | (0.1 | ) | 1.0 | (0.2 | ) | |||||||||
Net income (loss) attributable to The Phoenix Companies, Inc. | $ | (14.3 | ) | $ | (32.8 | ) | $ | (47.6 | ) | $ | (101.5 | ) |
(Continued from previous page) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
COMPREHENSIVE INCOME (LOSS): | |||||||||||||||
Net income (loss) attributable to The Phoenix Companies, Inc. | $ | (14.3 | ) | $ | (32.8 | ) | $ | (47.6 | ) | $ | (101.5 | ) | |||
Net income (loss) attributable to noncontrolling interests | — | (0.1 | ) | 1.0 | (0.2 | ) | |||||||||
Net income (loss) | (14.3 | ) | (32.9 | ) | (46.6 | ) | (101.7 | ) | |||||||
Other comprehensive income (loss) before income taxes: | |||||||||||||||
Unrealized investment gains (losses), net of related offsets | 52.8 | (40.4 | ) | 69.7 | (47.9 | ) | |||||||||
Net pension liability adjustment | 1.8 | 2.6 | 3.4 | 6.4 | |||||||||||
Other comprehensive income (loss) before income taxes | 54.6 | (37.8 | ) | 73.1 | (41.5 | ) | |||||||||
Less: Income tax expense (benefit) related to: | |||||||||||||||
Unrealized investment gains (losses), net of related offsets | 36.4 | (24.3 | ) | 65.1 | (16.5 | ) | |||||||||
Net pension liability adjustment | — | — | — | — | |||||||||||
Total income tax expense (benefit) | 36.4 | (24.3 | ) | 65.1 | (16.5 | ) | |||||||||
Other comprehensive income (loss), net of income taxes | 18.2 | (13.5 | ) | 8.0 | (25.0 | ) | |||||||||
Comprehensive income (loss) | 3.9 | (46.4 | ) | (38.6 | ) | (126.7 | ) | ||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | — | (0.1 | ) | 1.0 | (0.2 | ) | |||||||||
Comprehensive income (loss) attributable to The Phoenix Companies, Inc. | $ | 3.9 | $ | (46.3 | ) | $ | (39.6 | ) | $ | (126.5 | ) | ||||
EARNINGS (LOSS) PER SHARE: | |||||||||||||||
Income (loss) from continuing operations – basic | $ | (2.38 | ) | $ | (5.69 | ) | $ | (7.85 | ) | $ | (17.36 | ) | |||
Income (loss) from continuing operations – diluted | $ | (2.38 | ) | $ | (5.69 | ) | $ | (7.85 | ) | $ | (17.36 | ) | |||
Income (loss) from discontinued operations – basic | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.35 | ) | |||
Income (loss) from discontinued operations – diluted | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.35 | ) | |||
Net income (loss) attributable to The Phoenix Companies, Inc.– basic | $ | (2.49 | ) | $ | (5.71 | ) | $ | (8.29 | ) | $ | (17.68 | ) | |||
Net income (loss) attributable to The Phoenix Companies, Inc. – diluted | $ | (2.49 | ) | $ | (5.71 | ) | $ | (8.29 | ) | $ | (17.68 | ) | |||
Basic weighted-average common shares outstanding (in thousands) | 5,749 | 5,742 | 5,745 | 5,742 | |||||||||||
Diluted weighted-average common shares outstanding (in thousands) | 5,749 | 5,742 | 5,745 | 5,742 |
June 30, | |||||||
2014 | 2013 | ||||||
OPERATING ACTIVITIES: | |||||||
Net income (loss) | $ | (47.6 | ) | $ | (101.5 | ) | |
Net realized investment gains / losses | 21.6 | 8.7 | |||||
Policy acquisition costs deferred | (31.7 | ) | (28.9 | ) | |||
Policy acquisition cost amortization | 39.8 | 77.5 | |||||
Amortization and depreciation | 3.0 | 4.3 | |||||
Interest credited | 70.2 | 63.7 | |||||
Equity in earnings of limited partnerships and other investments | (29.8 | ) | (21.4 | ) | |||
Change in: | |||||||
Accrued investment income | (81.1 | ) | (70.1 | ) | |||
Deferred income taxes, net | (24.6 | ) | — | ||||
Reinsurance recoverable | 8.6 | 5.8 | |||||
Policy liabilities and accruals | (237.4 | ) | (193.8 | ) | |||
Dividend obligations | 30.9 | (33.5 | ) | ||||
Pension and postretirement liabilities | (10.0 | ) | (4.4 | ) | |||
Impact of operating activities of consolidated investment entities, net | (7.7 | ) | (2.0 | ) | |||
Other operating activities, net | 14.6 | 35.2 | |||||
Cash provided by (used for) operating activities | (281.2 | ) | (260.4 | ) | |||
INVESTING ACTIVITIES: | |||||||
Purchases of: | |||||||
Available-for-sale debt securities | (871.9 | ) | (992.7 | ) | |||
Available-for-sale equity securities | (2.2 | ) | (2.4 | ) | |||
Short-term investments | (1,058.9 | ) | (849.4 | ) | |||
Derivative instruments | (33.0 | ) | (59.8 | ) | |||
Fair value and other investments | (0.6 | ) | (20.0 | ) | |||
Sales, repayments and maturities of: | |||||||
Available-for-sale debt securities | 662.8 | 912.6 | |||||
Available-for-sale equity securities | 4.3 | 2.7 | |||||
Short-term investments | 915.6 | 949.6 | |||||
Derivative instruments | 53.6 | 22.4 | |||||
Fair value and other investments | 14.1 | 11.7 | |||||
Contributions to limited partnerships and limited liability corporations | (34.0 | ) | (27.7 | ) | |||
Distributions from limited partnerships and limited liability corporations | 64.0 | 58.8 | |||||
Policy loans, net | 78.0 | 57.3 | |||||
Impact of investing activities of consolidated investment entities, net | — | — | |||||
Other investing activities, net | (4.4 | ) | (4.2 | ) | |||
Cash provided by (used for) investing activities | (212.6 | ) | 58.9 |
(Continued from previous page) | June 30, | ||||||
2014 | 2013 | ||||||
FINANCING ACTIVITIES: | |||||||
Policyholder deposits | 713.0 | 708.9 | |||||
Policyholder withdrawals | (611.9 | ) | (578.1 | ) | |||
Net transfers to/from separate accounts | 227.7 | 193.0 | |||||
Impact of financing activities of consolidated investment entities, net | 0.2 | 1.1 | |||||
Other financing activities, net | — | — | |||||
Cash provided by (used for) financing activities | 329.0 | 324.9 | |||||
Change in cash and cash equivalents | (164.8 | ) | 123.4 | ||||
Change in cash included in discontinued operations assets | (1.4 | ) | (0.5 | ) | |||
Cash and cash equivalents, beginning of period | 496.4 | 246.4 | |||||
Cash and cash equivalents, end of period | $ | 330.2 | $ | 369.3 | |||
Supplemental Disclosure of Cash Flow Information | |||||||
Income taxes paid (refunded) | $ | — | $ | 8.7 | |||
Interest expense on indebtedness paid | $ | 13.9 | $ | 13.9 | |||
Non-Cash Transactions During the Year | |||||||
Investment exchanges | $ | 62.4 | $ | 74.4 |
June 30, | |||||||
2014 | 2013 | ||||||
COMMON STOCK: | |||||||
Balance, beginning of period | $ | 0.1 | $ | 0.1 | |||
Balance, end of period | $ | 0.1 | $ | 0.1 | |||
ADDITIONAL PAID-IN CAPITAL: | |||||||
Balance, beginning of period | $ | 2,633.1 | $ | 2,633.1 | |||
Issuance of shares and compensation expense on stock compensation awards | (0.4 | ) | (0.1 | ) | |||
Balance, end of period | $ | 2,632.7 | $ | 2,633.0 | |||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | |||||||
Balance, beginning of period | $ | (185.2 | ) | $ | (249.3 | ) | |
Other comprehensive income (loss) | 8.0 | (25.0 | ) | ||||
Balance, end of period | $ | (177.2 | ) | $ | (274.3 | ) | |
ACCUMULATED DEFICIT: | |||||||
Balance, beginning of period | $ | (1,692.1 | ) | $ | (1,697.2 | ) | |
Net income (loss) | (47.6 | ) | (101.5 | ) | |||
Balance, end of period | $ | (1,739.7 | ) | $ | (1,798.7 | ) | |
TREASURY STOCK, AT COST: | |||||||
Balance, beginning of period | $ | (182.9 | ) | $ | (182.9 | ) | |
Balance, end of period | $ | (182.9 | ) | $ | (182.9 | ) | |
TOTAL STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO | |||||||
THE PHOENIX COMPANIES, INC.: | |||||||
Balance, beginning of period | $ | 573.0 | $ | 503.8 | |||
Change in stockholders’ equity attributable to The Phoenix Companies, Inc. | (40.0 | ) | (126.6 | ) | |||
Balance, end of period | $ | 533.0 | $ | 377.2 | |||
NONCONTROLLING INTERESTS: | |||||||
Balance, beginning of period | $ | 10.7 | $ | 6.7 | |||
Change in noncontrolling interests | 1.1 | 0.8 | |||||
Balance, end of period | $ | 11.8 | $ | 7.5 | |||
TOTAL STOCKHOLDERS’ EQUITY: | |||||||
Balance, beginning of period | $ | 583.7 | $ | 510.5 | |||
Change in stockholders’ equity | (38.9 | ) | (125.8 | ) | |||
Balance, end of period | $ | 544.8 | $ | 384.7 |
Direct Business and Reinsurance in Continuing Operations: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Direct premiums | $ | 119.2 | $ | 126.3 | $ | 235.0 | $ | 247.7 | |||||||
Premiums assumed from reinsureds | 0.6 | 1.4 | 2.4 | 4.0 | |||||||||||
Premiums ceded to reinsurers [1] | (36.6 | ) | (40.3 | ) | (74.6 | ) | (81.6 | ) | |||||||
Premiums | $ | 83.2 | $ | 87.4 | $ | 162.8 | $ | 170.1 | |||||||
Percentage of amount assumed to net premiums | 0.7% | 1.6% | 1.5 | % | 2.4 | % | |||||||||
Direct policy benefits incurred | $ | 196.8 | $ | 177.8 | $ | 376.3 | $ | 397.4 | |||||||
Policy benefits assumed from reinsureds | 25.7 | 11.3 | 38.3 | 18.8 | |||||||||||
Policy benefits ceded to reinsurers | (64.8 | ) | (50.0 | ) | (133.5 | ) | (115.3 | ) | |||||||
Premiums paid to reinsurers [2] | 16.0 | 16.1 | 38.3 | 27.5 | |||||||||||
Policy benefits [3] | $ | 173.7 | $ | 155.2 | $ | 319.4 | $ | 328.4 |
[1] | Primarily represents premiums ceded to reinsurers related to traditional life and term insurance policies. |
[2] | For universal life and variable universal life contracts, premiums paid to reinsurers are reflected within policy benefits. See Note 2 to these consolidated interim unaudited financial statements for additional information regarding significant accounting policies. |
[3] | Policy benefit amounts above exclude changes in reserves, interest credited to policyholders and other items, which total $124.8 million and $117.6 million, net of reinsurance, for the three months ended June 30, 2014 and 2013, respectively, and $215.1 million and $263.2 million, net of reinsurance, for the six months ended June 30, 2014 and 2013, respectively |
4. Demutualization and Closed Block (continued) |
Closed Block Assets and Liabilities as of: | June 30, 2014 | December 31, 2013 | |||||||||
($ in millions) | Inception | ||||||||||
Available-for-sale debt securities | $ | 5,973.6 | $ | 5,804.6 | $ | 4,773.1 | |||||
Available-for-sale equity securities | 29.0 | 25.8 | — | ||||||||
Short-term investments | 144.8 | 106.9 | — | ||||||||
Limited partnerships and other investments | 347.5 | 345.3 | 399.0 | ||||||||
Policy loans | 1,178.6 | 1,201.6 | 1,380.0 | ||||||||
Fair value investments | 44.7 | 40.3 | — | ||||||||
Total closed block investments | 7,718.2 | 7,524.5 | 6,552.1 | ||||||||
Cash and cash equivalents | 35.3 | 78.2 | — | ||||||||
Accrued investment income | 81.3 | 81.7 | 106.8 | ||||||||
Reinsurance recoverable | 29.9 | 26.8 | — | ||||||||
Deferred income taxes | 273.2 | 284.9 | 389.4 | ||||||||
Other closed block assets | 72.8 | 58.2 | 41.4 | ||||||||
Total closed block assets | 8,210.7 | 8,054.3 | 7,089.7 | ||||||||
Policy liabilities and accruals | 8,162.3 | 8,257.2 | 8,301.7 | ||||||||
Policyholder dividends payable | 207.1 | 207.8 | 325.1 | ||||||||
Policy dividend obligation | 688.2 | 497.9 | — | ||||||||
Other closed block liabilities | 114.6 | 65.5 | 12.3 | ||||||||
Total closed block liabilities | 9,172.2 | 9,028.4 | 8,639.1 | ||||||||
Excess of closed block liabilities over closed block assets [1] | 961.5 | 974.1 | $ | 1,549.4 | |||||||
Less: Excess of closed block assets over closed block liabilities attributable to noncontrolling interests | (7.9 | ) | (7.4 | ) | |||||||
Excess of closed block liabilities over closed block assets attributable to The Phoenix Companies, Inc. | $ | 969.4 | $ | 981.5 |
[1] | The maximum future earnings summary to inure to the benefit of the stockholders is represented by the excess of closed block liabilities over closed block assets. All unrealized investment gains (losses), net of income tax, have been allocated to the policyholder dividend obligation. |
Closed Block Revenues and Expenses and Changes in | Three Months Ended | Six Months Ended | |||||||||||||
Policyholder Dividend Obligations: | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Closed block revenues | |||||||||||||||
Premiums | $ | 75.8 | $ | 78.7 | $ | 148.6 | $ | 154.2 | |||||||
Net investment income | 95.1 | 101.0 | 203.9 | 200.1 | |||||||||||
Net realized investment gains (losses) | 5.0 | (1.7 | ) | 10.3 | 1.7 | ||||||||||
Total revenues | 175.9 | 178.0 | 362.8 | 356.0 | |||||||||||
Policy benefits | 122.8 | 115.8 | 227.2 | 278.6 | |||||||||||
Other operating expenses | 1.4 | 1.3 | 0.7 | 2.6 | |||||||||||
Total benefits and expenses | 124.2 | 117.1 | 227.9 | 281.2 | |||||||||||
Closed block contribution to income before dividends and income taxes | 51.7 | 60.9 | 134.9 | 74.8 | |||||||||||
Policyholder dividends | (42.3 | ) | (51.3 | ) | (116.1 | ) | (55.6 | ) | |||||||
Closed block contribution to income before income taxes | 9.4 | 9.6 | 18.8 | 19.2 | |||||||||||
Applicable income tax expense | 3.3 | 3.4 | 6.6 | 6.7 | |||||||||||
Closed block contribution to income | 6.1 | 6.2 | 12.2 | 12.5 | |||||||||||
Less: Closed block contribution to income attributable to noncontrolling interests | (0.1 | ) | (0.1 | ) | 0.4 | (0.2 | ) | ||||||||
Closed block contribution to income attributable to The Phoenix Companies, Inc. | $ | 6.2 | $ | 6.3 | $ | 11.8 | $ | 12.7 |
4. Demutualization and Closed Block (continued) |
Closed Block Policyholder Dividend Obligation as of: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
Policyholder dividend obligation | |||||||
Policyholder dividends provided through earnings | $ | 116.1 | $ | 189.4 | |||
Policyholder dividends provided through OCI | 158.9 | (308.7 | ) | ||||
Additions to (reductions of) policyholder dividend liabilities | 275.0 | (119.3 | ) | ||||
Policyholder dividends paid | (85.4 | ) | (178.6 | ) | |||
Increase (decrease) in policyholder dividend liabilities | 189.6 | (297.9 | ) | ||||
Policyholder dividend liabilities, beginning of period | 705.7 | 1,003.6 | |||||
Policyholder dividend liabilities, end of period | 895.3 | 705.7 | |||||
Policyholder dividends payable, end of period | (207.1 | ) | (207.8 | ) | |||
Policyholder dividend obligation, end of period | $ | 688.2 | $ | 497.9 |
Deferred Policy Acquisition Costs: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 892.4 | $ | 881.5 | $ | 940.6 | $ | 902.2 | |||||||
Policy acquisition costs deferred | 17.3 | 14.0 | 31.7 | 28.9 | |||||||||||
Costs amortized to expenses: | |||||||||||||||
Recurring costs | (15.9 | ) | (27.0 | ) | (49.4 | ) | (75.5 | ) | |||||||
Realized investment gains (losses) | (1.5 | ) | (5.2 | ) | 9.6 | (2.0 | ) | ||||||||
Offsets to net unrealized investment gains or losses included in AOCI | (23.3 | ) | 51.3 | (63.5 | ) | 61.0 | |||||||||
Balance, end of period | $ | 869.0 | $ | 914.6 | $ | 869.0 | $ | 914.6 |
Changes in Deferred Sales Inducement Activity: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 74.3 | $ | 64.8 | $ | 76.1 | $ | 61.4 | |||||||
Sales inducements deferred | 5.5 | 2.7 | 7.6 | 5.6 | |||||||||||
Amortization charged to income | (1.9 | ) | (2.8 | ) | (2.6 | ) | (3.6 | ) | |||||||
Offsets to net unrealized investment gains or losses included in AOCI | (2.9 | ) | 8.4 | (6.1 | ) | 9.7 | |||||||||
Balance, end of period | $ | 75.0 | $ | 73.1 | $ | 75.0 | $ | 73.1 |
Fair Value and Cost of Securities: | June 30, 2014 | ||||||||||||||||||
($ in millions) | Gross | Gross | OTTI | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Recognized | |||||||||||||||
Cost | Gains [1] | Losses [1] | Value | in AOCI [2] | |||||||||||||||
U.S. government and agency | $ | 407.8 | $ | 45.4 | $ | (0.4 | ) | $ | 452.8 | $ | — | ||||||||
State and political subdivision | 418.8 | 31.8 | (4.7 | ) | 445.9 | (1.1 | ) | ||||||||||||
Foreign government | 203.3 | 26.4 | — | 229.7 | — | ||||||||||||||
Corporate | 7,615.6 | 559.9 | (52.9 | ) | 8,122.6 | (8.6 | ) | ||||||||||||
Commercial mortgage-backed (“CMBS”) | 630.6 | 53.7 | (0.2 | ) | 684.1 | (3.4 | ) | ||||||||||||
Residential mortgage-backed (“RMBS”) | 1,946.7 | 70.4 | (20.7 | ) | 1,996.4 | (25.6 | ) | ||||||||||||
Collateralized debt obligations (“CDO”) / collateralized loan obligations (“CLO”) | 236.8 | 5.4 | (3.1 | ) | 239.1 | (13.9 | ) | ||||||||||||
Other asset-backed (“ABS”) | 273.8 | 15.1 | (5.4 | ) | 283.5 | (1.8 | ) | ||||||||||||
Available-for-sale debt securities | $ | 11,733.4 | $ | 808.1 | $ | (87.4 | ) | $ | 12,454.1 | $ | (54.4 | ) | |||||||
Amounts applicable to the closed block | $ | 5,528.0 | $ | 471.0 | $ | (25.4 | ) | $ | 5,973.6 | $ | (15.5 | ) | |||||||
Available-for-sale equity securities | $ | 40.0 | $ | 29.5 | $ | (1.0 | ) | $ | 68.5 | $ | — | ||||||||
Amounts applicable to the closed block | $ | 17.0 | $ | 12.5 | $ | (0.5 | ) | $ | 29.0 | $ | — |
[1] | Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our consolidated balance sheets as a component 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. 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). |
7. Investing Activities (continued) |
Fair Value and Cost of Securities: | December 31, 2013 | ||||||||||||||||||
($ in millions) | Gross | Gross | OTTI | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Recognized | |||||||||||||||
Cost | Gains [1] | Losses [1] | Value | in AOCI [2] | |||||||||||||||
U.S. government and agency | $ | 370.2 | $ | 36.2 | $ | (2.6 | ) | $ | 403.8 | $ | — | ||||||||
State and political subdivision | 402.5 | 18.2 | (10.2 | ) | 410.5 | (1.1 | ) | ||||||||||||
Foreign government | 194.0 | 16.6 | (0.7 | ) | 209.9 | — | |||||||||||||
Corporate | 7,342.6 | 428.0 | (140.1 | ) | 7,630.5 | (8.8 | ) | ||||||||||||
CMBS | 681.2 | 36.2 | (2.9 | ) | 714.5 | (3.4 | ) | ||||||||||||
RMBS | 1,893.0 | 41.3 | (37.4 | ) | 1,896.9 | (26.7 | ) | ||||||||||||
CDO/CLO | 223.4 | 5.8 | (5.1 | ) | 224.1 | (15.3 | ) | ||||||||||||
Other ABS | 311.1 | 14.8 | (7.5 | ) | 318.4 | (1.8 | ) | ||||||||||||
Available-for-sale debt securities | $ | 11,418.0 | $ | 597.1 | $ | (206.5 | ) | $ | 11,808.6 | $ | (57.1 | ) | |||||||
Amounts applicable to the closed block | $ | 5,515.2 | $ | 365.4 | $ | (75.9 | ) | $ | 5,804.6 | $ | (16.5 | ) | |||||||
Available-for-sale equity securities | $ | 40.4 | $ | 22.3 | $ | (0.9 | ) | $ | 61.8 | $ | — | ||||||||
Amounts applicable to the closed block | $ | 17.1 | $ | 9.1 | $ | (0.4 | ) | $ | 25.8 | $ | — |
[1] | Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our consolidated balance sheets as a component 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. 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). |
Maturities of Debt Securities: | June 30, 2014 | ||||||
($ in millions) | Amortized | Fair | |||||
Cost | Value | ||||||
Due in one year or less | $ | 647.7 | $ | 668.5 | |||
Due after one year through five years | 2,150.4 | 2,332.1 | |||||
Due after five years through ten years | 3,246.3 | 3,415.0 | |||||
Due after ten years | 2,601.1 | 2,835.4 | |||||
CMBS/RMBS/ABS/CDO/CLO [1] | 3,087.9 | 3,203.1 | |||||
Total | $ | 11,733.4 | $ | 12,454.1 |
[1] | CMBS, RMBS, ABS, CDO and CLO are not listed separately in the table as each security does not have a single fixed maturity. |
7. Investing Activities (continued) |
Sales of Available-for-Sale Securities: ($ in millions) | Six Months Ended June 30, | ||||||
2014 | 2013 | ||||||
Debt securities, available-for-sale | |||||||
Proceeds from sales | $ | 70.4 | $ | 46.8 | |||
Proceeds from maturities/repayments | 605.9 | 841.5 | |||||
Gross investment gains from sales, prepayments and maturities | 18.6 | 12.0 | |||||
Gross investment losses from sales and maturities | (3.8 | ) | (2.7 | ) | |||
Equity securities, available-for-sale | |||||||
Proceeds from sales | $ | 4.3 | $ | 2.7 | |||
Gross investment gains from sales | 1.9 | 1.0 | |||||
Gross investment losses from sales | — | (1.2 | ) |
Aging of Temporarily Impaired Securities: | June 30, 2014 | ||||||||||||||||||||||
($ in millions) | Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Debt Securities | |||||||||||||||||||||||
U.S. government and agency | $ | 16.5 | $ | (0.1 | ) | $ | 8.4 | $ | (0.3 | ) | $ | 24.9 | $ | (0.4 | ) | ||||||||
State and political subdivision | 18.3 | (0.1 | ) | 44.7 | (4.6 | ) | 63.0 | (4.7 | ) | ||||||||||||||
Foreign government | 3.3 | — | — | — | 3.3 | — | |||||||||||||||||
Corporate | 180.5 | (12.7 | ) | 906.0 | (40.2 | ) | 1,086.5 | (52.9 | ) | ||||||||||||||
CMBS | 0.1 | — | 10.8 | (0.2 | ) | 10.9 | (0.2 | ) | |||||||||||||||
RMBS | 17.2 | (0.4 | ) | 331.1 | (20.3 | ) | 348.3 | (20.7 | ) | ||||||||||||||
CDO/CLO | 24.0 | (0.1 | ) | 101.5 | (3.0 | ) | 125.5 | (3.1 | ) | ||||||||||||||
Other ABS | 1.9 | — | 24.0 | (5.4 | ) | 25.9 | (5.4 | ) | |||||||||||||||
Debt securities | 261.8 | (13.4 | ) | 1,426.5 | (74.0 | ) | 1,688.3 | (87.4 | ) | ||||||||||||||
Equity securities | 8.4 | (0.3 | ) | 0.8 | (0.7 | ) | 9.2 | (1.0 | ) | ||||||||||||||
Total temporarily impaired securities | $ | 270.2 | $ | (13.7 | ) | $ | 1,427.3 | $ | (74.7 | ) | $ | 1,697.5 | $ | (88.4 | ) | ||||||||
Amounts inside the closed block | $ | 68.6 | $ | (2.3 | ) | $ | 513.2 | $ | (23.6 | ) | $ | 581.8 | $ | (25.9 | ) | ||||||||
Amounts outside the closed block | $ | 201.6 | $ | (11.4 | ) | $ | 914.1 | $ | (51.1 | ) | $ | 1,115.7 | $ | (62.5 | ) | ||||||||
Amounts outside the closed block that are below investment grade | $ | 15.8 | $ | (0.6 | ) | $ | 69.5 | $ | (5.5 | ) | $ | 85.3 | $ | (6.1 | ) | ||||||||
Number of securities | 72 | 279 | 351 |
7. Investing Activities (continued) |
Aging of Temporarily Impaired Securities: | December 31, 2013 | ||||||||||||||||||||||
($ in millions) | Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Debt Securities | |||||||||||||||||||||||
U.S. government and agency | $ | 48.0 | $ | (2.1 | ) | $ | 3.0 | $ | (0.5 | ) | $ | 51.0 | $ | (2.6 | ) | ||||||||
State and political subdivision | 120.1 | (7.6 | ) | 10.7 | (2.6 | ) | 130.8 | (10.2 | ) | ||||||||||||||
Foreign government | 41.0 | (0.7 | ) | — | — | 41.0 | (0.7 | ) | |||||||||||||||
Corporate | 1,769.4 | (91.8 | ) | 314.9 | (48.3 | ) | 2,084.3 | (140.1 | ) | ||||||||||||||
CMBS | 93.7 | (2.7 | ) | 6.5 | (0.2 | ) | 100.2 | (2.9 | ) | ||||||||||||||
RMBS | 773.5 | (24.4 | ) | 144.4 | (13.0 | ) | 917.9 | (37.4 | ) | ||||||||||||||
CDO/CLO | 64.1 | (0.6 | ) | 97.1 | (4.5 | ) | 161.2 | (5.1 | ) | ||||||||||||||
Other ABS | 22.3 | (0.1 | ) | 29.5 | (7.4 | ) | 51.8 | (7.5 | ) | ||||||||||||||
Debt securities | 2,932.1 | (130.0 | ) | 606.1 | (76.5 | ) | 3,538.2 | (206.5 | ) | ||||||||||||||
Equity securities | 4.0 | — | 3.7 | (0.9 | ) | 7.7 | (0.9 | ) | |||||||||||||||
Total temporarily impaired securities | $ | 2,936.1 | $ | (130.0 | ) | $ | 609.8 | $ | (77.4 | ) | $ | 3,545.9 | $ | (207.4 | ) | ||||||||
Amounts inside the closed block | $ | 1,176.1 | $ | (48.9 | ) | $ | 224.6 | $ | (27.4 | ) | $ | 1,400.7 | $ | (76.3 | ) | ||||||||
Amounts outside the closed block | $ | 1,760.0 | $ | (81.1 | ) | $ | 385.2 | $ | (50.0 | ) | $ | 2,145.2 | $ | (131.1 | ) | ||||||||
Amounts outside the closed block that are below investment grade | $ | 75.3 | $ | (3.5 | ) | $ | 52.9 | $ | (7.8 | ) | $ | 128.2 | $ | (11.3 | ) | ||||||||
Number of securities | 476 | 154 | 630 |
7. Investing Activities (continued) |
Credit Losses Recognized in Earnings on Available-for-Sale Debt Securities | Three Months Ended | Six Months Ended | |||||||||||||
for which a Portion of the OTTI Loss was Recognized in OCI: | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Balance, beginning of period | $ | (63.6 | ) | $ | (70.7 | ) | $ | (72.0 | ) | $ | (72.6 | ) | |||
Add: Credit losses on securities not previously impaired [1] | — | — | — | — | |||||||||||
Add: Credit losses on securities previously impaired [1] | — | (1.8 | ) | — | (3.4 | ) | |||||||||
Less: Credit losses on securities impaired due to intent to sell | — | — | — | — | |||||||||||
Less: Credit losses on securities sold | 0.5 | — | 8.9 | 3.5 | |||||||||||
Less: Increases in cash flows expected on previously impaired securities | — | — | — | — | |||||||||||
Balance, end of period | $ | (63.1 | ) | $ | (72.5 | ) | $ | (63.1 | ) | $ | (72.5 | ) |
[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 income and comprehensive income. |
7. Investing Activities (continued) |
Limited Partnerships and Other Investments: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
Limited partnerships | |||||||
Private equity funds | $ | 240.1 | $ | 243.4 | |||
Mezzanine funds | 175.6 | 180.4 | |||||
Infrastructure funds | 39.0 | 38.1 | |||||
Hedge funds | 11.4 | 13.0 | |||||
Mortgage and real estate funds | 3.9 | 3.3 | |||||
Leverage leases | 15.3 | 16.8 | |||||
Direct equity investments | 47.9 | 42.5 | |||||
Life settlements | 22.2 | 21.6 | |||||
Other alternative assets | 2.5 | 2.8 | |||||
Limited partnerships and other investments | $ | 557.9 | $ | 561.9 | |||
Amounts applicable to the closed block | $ | 347.5 | $ | 345.3 |
Sources of Net Investment Income: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Debt securities [1] | $ | 150.1 | $ | 141.7 | $ | 293.7 | $ | 286.8 | |||||||
Equity securities | 0.7 | 0.7 | 1.3 | (0.3 | ) | ||||||||||
Limited partnerships and other investments | 6.7 | 11.3 | 39.4 | 23.8 | |||||||||||
Policy loans | 41.3 | 41.2 | 82.5 | 80.5 | |||||||||||
Fair value investments | 1.1 | 3.2 | 0.7 | 2.0 | |||||||||||
Total investment income | 199.9 | 198.1 | 417.6 | 392.8 | |||||||||||
Less: Discontinued operations | 0.3 | 0.3 | 0.6 | 0.6 | |||||||||||
Less: Investment expenses | 4.3 | 3.8 | 8.2 | 7.1 | |||||||||||
Net investment income | $ | 195.3 | $ | 194.0 | $ | 408.8 | $ | 385.1 | |||||||
Amounts applicable to the closed block | $ | 95.1 | $ | 101.0 | $ | 203.9 | $ | 200.1 |
[1] | Includes net investment income on short-term investments. |
7. Investing Activities (continued) |
Sources and Types of | Three Months Ended | Six Months Ended | |||||||||||||
Net Realized Investment Gains (Losses): | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Total other-than-temporary debt impairments | $ | (0.5 | ) | $ | — | $ | (0.5 | ) | $ | (0.9 | ) | ||||
Portion of gains (losses) recognized in OCI | — | (2.5 | ) | (0.2 | ) | (4.2 | ) | ||||||||
Net debt impairments recognized in earnings | $ | (0.5 | ) | $ | (2.5 | ) | $ | (0.7 | ) | $ | (5.1 | ) | |||
Debt security impairments: | |||||||||||||||
U.S. government and agency | $ | — | $ | — | $ | — | $ | — | |||||||
State and political subdivision | — | — | — | — | |||||||||||
Foreign government | — | — | — | — | |||||||||||
Corporate | (0.5 | ) | — | (0.7 | ) | — | |||||||||
CMBS | — | (1.9 | ) | — | (1.9 | ) | |||||||||
RMBS | — | (1.1 | ) | — | (2.9 | ) | |||||||||
CDO/CLO | — | 0.5 | — | (0.3 | ) | ||||||||||
Other ABS | — | — | — | — | |||||||||||
Net debt security impairments | (0.5 | ) | (2.5 | ) | (0.7 | ) | (5.1 | ) | |||||||
Equity security impairments | (0.5 | ) | — | (0.5 | ) | — | |||||||||
Limited partnerships and other investment impairments | — | — | — | — | |||||||||||
Impairment losses | (1.0 | ) | (2.5 | ) | (1.2 | ) | (5.1 | ) | |||||||
Debt security transaction gains | 8.0 | 1.0 | 18.7 | 12.0 | |||||||||||
Debt security transaction losses | (0.9 | ) | (1.3 | ) | (3.8 | ) | (2.7 | ) | |||||||
Equity security transaction gains | — | 0.7 | 1.9 | 1.0 | |||||||||||
Equity security transaction losses | — | (1.2 | ) | — | (1.2 | ) | |||||||||
Limited partnerships and other investment transaction gains | — | — | — | — | |||||||||||
Limited partnerships and other investment transaction losses | — | — | — | — | |||||||||||
Net transaction gains (losses) | 7.1 | (0.8 | ) | 16.8 | 9.1 | ||||||||||
Derivative instruments | (2.2 | ) | 4.2 | (26.0 | ) | (19.7 | ) | ||||||||
Embedded derivatives [1] | (0.4 | ) | 6.2 | (12.1 | ) | 5.7 | |||||||||
Assets valued at fair value | 0.6 | 0.1 | 0.9 | 1.3 | |||||||||||
Net realized investment gains (losses), excluding impairment losses | 5.1 | 9.7 | (20.4 | ) | (3.6 | ) | |||||||||
Net realized investment gains (losses), including impairment losses | $ | 4.1 | $ | 7.2 | $ | (21.6 | ) | $ | (8.7 | ) |
[1] | Includes the change in fair value of embedded derivatives associated with fixed index annuity indexed crediting feature and variable annuity riders. See Note 10 to these consolidated interim unaudited financial statements for additional disclosures. |
7. Investing Activities (continued) |
Sources of Changes in | Three Months Ended | Six Months Ended | |||||||||||||
Net Unrealized Investment Gains (Losses): | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Debt securities | $ | 161.9 | $ | (389.8 | ) | $ | 330.1 | $ | (411.6 | ) | |||||
Equity securities | 5.2 | 4.2 | 7.1 | 6.2 | |||||||||||
Other investments | (0.5 | ) | (1.5 | ) | 0.2 | (0.5 | ) | ||||||||
Net unrealized investment gains (losses) | $ | 166.6 | $ | (387.1 | ) | $ | 337.4 | $ | (405.9 | ) | |||||
Net unrealized investment gains (losses) | $ | 166.6 | $ | (387.1 | ) | $ | 337.4 | $ | (405.9 | ) | |||||
Applicable to closed block policyholder dividend obligation | 76.8 | (205.1 | ) | 158.9 | (225.7 | ) | |||||||||
Applicable to DAC | 23.3 | (51.3 | ) | 63.5 | (61.0 | ) | |||||||||
Applicable to other actuarial offsets | 13.7 | (90.3 | ) | 45.3 | (71.3 | ) | |||||||||
Applicable to deferred income tax expense (benefit) | 36.4 | (24.3 | ) | 65.1 | (16.5 | ) | |||||||||
Offsets to net unrealized investment gains (losses) | 150.2 | (371.0 | ) | 332.8 | (374.5 | ) | |||||||||
Net unrealized investment gains (losses) included in OCI | $ | 16.4 | $ | (16.1 | ) | $ | 4.6 | $ | (31.4 | ) |
7. Investing Activities (continued) |
Carrying Value of Assets and Liabilities for | June 30, 2014 | December 31, 2013 | |||||||||||||||||||||
Consolidated Variable Interest Entities: | Maximum | Maximum | |||||||||||||||||||||
($ in millions) | Exposure | Exposure | |||||||||||||||||||||
Assets | Liabilities | to Loss [1] | Assets | Liabilities | to Loss [1] | ||||||||||||||||||
Debt securities, at fair value [2] | $ | 4.6 | $ | — | $ | 4.2 | $ | 3.6 | $ | — | $ | 3.2 | |||||||||||
Equity securities, at fair value [2] | 33.5 | — | 28.5 | 29.4 | — | 24.7 | |||||||||||||||||
Cash and cash equivalents | 10.8 | — | 10.7 | 10.8 | — | 10.6 | |||||||||||||||||
Investment in partnership interests | — | — | — | 0.1 | — | 0.1 | |||||||||||||||||
Investment in single asset LLCs | 23.4 | — | 17.7 | 19.9 | — | 15.1 | |||||||||||||||||
Other assets | 0.6 | — | 0.5 | 0.6 | — | 0.5 | |||||||||||||||||
Total assets of consolidated VIEs | $ | 72.9 | $ | — | $ | 61.6 | $ | 64.4 | $ | — | $ | 54.2 | |||||||||||
Total liabilities of consolidated VIEs | $ | — | $ | 0.7 | $ | 0.5 | $ | — | $ | 0.8 | $ | 0.6 |
[1] | Creditors or beneficial interest holders of the consolidated VIEs have no recourse to our general credit. Our obligation to the VIEs is limited to the amount of our committed investment. We have not provided material financial or other support that was not contractually required to these VIEs. The maximum exposure to loss above at June 30, 2014 and December 31, 2013 excludes unfunded commitments of $13.0 million and $0, respectively. |
[2] | Included in fair value investments on the consolidated balance sheets. |
Carrying Value of Assets and Liabilities | June 30, 2014 | December 31, 2013 | |||||||||||||||||||||
and Maximum Exposure Loss Relating | Maximum | Maximum | |||||||||||||||||||||
to Variable Interest Entities: | Exposure | Exposure | |||||||||||||||||||||
($ in millions) | Assets | Liabilities | to Loss [1] | Assets | Liabilities | to Loss [1] | |||||||||||||||||
Limited partnerships | $ | 89.5 | $ | — | $ | 145.3 | $ | 116.7 | $ | — | $ | 171.6 | |||||||||||
LLCs | 52.9 | — | 52.9 | 55.9 | — | 55.9 | |||||||||||||||||
Total | $ | 142.4 | $ | — | $ | 198.2 | $ | 172.6 | $ | — | $ | 227.5 |
[1] | Creditors or beneficial interest holders of the VIEs have no recourse to our general credit. Our obligation to the VIEs is limited to the amount of our committed investment. We have not provided material financial or other support that was not contractually required to these VIEs. |
7. Investing Activities (continued) |
Indebtedness at Carrying Value: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
7.15% surplus notes, due December 2034 | $ | 126.2 | $ | 126.1 | |||
7.45% senior unsecured bonds, matures January 2032 | 252.7 | 252.7 | |||||
Total indebtedness | $ | 378.9 | $ | 378.8 |
8. Financing Activities (continued) |
Interest Expense on Indebtedness, including | Three Months Ended | Six Months Ended | |||||||||||||
Amortization of Debt Issuance Costs: | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
7.15% surplus notes | $ | 2.3 | $ | 2.3 | $ | 4.6 | $ | 4.6 | |||||||
7.45% senior unsecured bonds | 4.8 | 4.8 | 9.6 | 10.2 | |||||||||||
Interest expense on indebtedness | $ | 7.1 | $ | 7.1 | $ | 14.2 | $ | 14.8 |
9. Common Stock and Stock Repurchase Program (continued) |
Separate Account Investments of Account Balances of Variable Annuity Contracts with Insurance Guarantees: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
Debt securities | $ | 420.6 | $ | 433.0 | |||
Equity funds | 1,817.6 | 1,920.4 | |||||
Other | 57.1 | 64.3 | |||||
Total | $ | 2,295.3 | $ | 2,417.7 |
• | Liabilities associated with the guaranteed minimum death benefit (“GMDB”) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the expected life of the contract based on total expected assessments. The assumptions used for calculating the liabilities are generally consistent with those used for amortizing DAC. |
• | Liabilities associated with the guaranteed minimum income benefit (“GMIB”) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing DAC. |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
Changes in Variable Annuity Guaranteed Insurance Benefit Liability Balances: | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 | |||||||||||||
($ in millions) | Annuity | Annuity | Annuity | Annuity | |||||||||||
GMDB | GMIB | GMDB | GMIB | ||||||||||||
Balance, beginning of period | $ | 22.1 | $ | 9.0 | $ | 22.7 | $ | 9.8 | |||||||
Incurred | (2.6 | ) | (3.3 | ) | (2.7 | ) | (4.0 | ) | |||||||
Paid | (0.8 | ) | — | (1.4 | ) | — | |||||||||
Change due to net unrealized gains or losses included in AOCI | (0.1 | ) | — | — | (0.1 | ) | |||||||||
Assumption unlocking | — | — | — | — | |||||||||||
Balance, end of period | $ | 18.6 | $ | 5.7 | $ | 18.6 | $ | 5.7 |
Changes in Variable Annuity Guaranteed Insurance Benefit Liability Balances: | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | |||||||||||||
($ in millions) | Annuity | Annuity | Annuity | Annuity | |||||||||||
GMDB | GMIB | GMDB | GMIB | ||||||||||||
Balance, beginning of period | $ | 15.2 | $ | 22.8 | $ | 15.9 | $ | 21.7 | |||||||
Incurred | 0.8 | (1.2 | ) | 1.3 | — | ||||||||||
Paid | (1.0 | ) | — | (2.3 | ) | — | |||||||||
Change due to net unrealized gains or losses included in AOCI | (0.1 | ) | — | — | (0.1 | ) | |||||||||
Assumption unlocking | — | — | — | — | |||||||||||
Balance, end of period | $ | 14.9 | $ | 21.6 | $ | 14.9 | $ | 21.6 |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
GMDB and GMIB Benefits by Type: | June 30, 2014 | ||||||||||||
($ in millions) | NAR | NAR | Average | ||||||||||
Account | before | after | Attained Age | ||||||||||
Value | Reinsurance | Reinsurance | of Annuitant | ||||||||||
GMDB return of premium | $ | 729.9 | $ | 1.7 | $ | 1.7 | 63 | ||||||
GMDB step up | 1,888.9 | 110.9 | 8.5 | 64 | |||||||||
GMDB earnings enhancement benefit (“EEB”) | 33.8 | — | — | 64 | |||||||||
GMDB greater of annual step up and roll up | 26.4 | 4.6 | 4.6 | 68 | |||||||||
Total GMDB at June 30, 2014 | 2,679.0 | $ | 117.2 | $ | 14.8 | ||||||||
Less: General account value with GMDB | 391.6 | ||||||||||||
Subtotal separate account liabilities with GMDB | 2,287.4 | ||||||||||||
Separate account liabilities without GMDB | 998.0 | ||||||||||||
Total separate account liabilities | $ | 3,285.4 | |||||||||||
GMIB [1] at June 30, 2014 | $ | 366.7 | 65 | ||||||||||
GMDB and GMIB Benefits by Type: | December 31, 2013 | ||||||||||||
($ in millions) | NAR | NAR | Average | ||||||||||
Account | before | after | Attained Age | ||||||||||
Value | Reinsurance | Reinsurance | of Annuitant | ||||||||||
GMDB return of premium | $ | 770.3 | $ | 2.1 | $ | 2.1 | 63 | ||||||
GMDB step up | 1,974.7 | 117.9 | 9.9 | 64 | |||||||||
GMDB earnings enhancement benefit (“EEB”) | 36.0 | 0.1 | 0.1 | 64 | |||||||||
GMDB greater of annual step up and roll up | 26.7 | 4.8 | 4.8 | 68 | |||||||||
Total GMDB at December 31, 2013 | 2,807.7 | $ | 124.9 | $ | 16.9 | ||||||||
Less: General account value with GMDB | 403.3 | ||||||||||||
Subtotal separate account liabilities with GMDB | 2,404.4 | ||||||||||||
Separate account liabilities without GMDB | 997.9 | ||||||||||||
Total separate account liabilities | $ | 3,402.3 | |||||||||||
GMIB [1] at December 31, 2013 | $ | 398.6 | 64 |
[1] | Policies with a GMIB also have a GMDB, however these benefits are not additive. When a policy terminates due to death, any NAR related or GMIB is released. Similarly, when a policy goes into benefit status on a GMIB, its GMDB NAR is released. |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
• | Liabilities associated with the guaranteed minimum withdrawal benefit (“GMWB”) and Chronic Care guarantees are determined by estimating the value of the withdrawal benefits expected to be paid after the projected account value depletes and recognizing the value ratably over the accumulation period based on total expected assessments. Liabilities associated with the GMWB for the fixed indexed annuities differ from those contained on variable annuities in that the GMWB feature and the underlying contract, exclusive of the equity index crediting option, are fixed income instruments. |
• | Liabilities associated with the GMDB are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the expected life of the contract based on total expected assessments. |
Changes in Fixed Indexed Annuity Guaranteed Liability Balances: | Fixed Indexed Annuity | ||||||||||||
($ in millions) | GMWB & GMDB | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Balance, beginning of period | $ | 114.7 | $ | 117.5 | 90.0 | 103.6 | |||||||
Incurred | 11.3 | 20.2 | 16.3 | 32.8 | |||||||||
Paid | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | |||||
Change due to net unrealized gains or losses included in AOCI | 15.3 | (48.2 | ) | 35.1 | (46.8 | ) | |||||||
Assumption unlocking | — | — | — | — | |||||||||
Balance, end of period | $ | 141.2 | $ | 89.4 | 141.2 | 89.4 |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
Changes in Universal Life Guaranteed Liability Balances: | Universal Life | ||||||||||||||
($ in millions) | Secondary Guarantees | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 183.6 | $ | 151.2 | $ | 179.8 | $ | 137.7 | |||||||
Incurred | 9.7 | 8.5 | 14.5 | 24.9 | |||||||||||
Paid | (1.3 | ) | (1.9 | ) | (3.2 | ) | (5.3 | ) | |||||||
Change due to net unrealized gains or losses included in AOCI | 0.9 | (2.3 | ) | 1.8 | (1.8 | ) | |||||||||
Assumption unlocking | — | — | — | — | |||||||||||
Balance, end of period | $ | 192.9 | $ | 155.5 | $ | 192.9 | $ | 155.5 |
Changes in Universal Life Additional Liability Balances: | Universal Life | ||||||||||||||
($ in millions) | Profits Followed by Losses | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 293.4 | $ | 341.4 | $ | 257.0 | $ | 308.4 | |||||||
Expenses | 24.1 | 17.4 | 44.0 | 39.4 | |||||||||||
Change due to net unrealized gains or losses included in AOCI | (9.3 | ) | (19.2 | ) | 7.2 | (8.2 | ) | ||||||||
Assumption unlocking | — | — | — | — | |||||||||||
Balance, end of period | $ | 308.2 | $ | 339.6 | $ | 308.2 | $ | 339.6 |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
Variable Annuity Embedded Derivatives Non-Insurance Guaranteed Product Features: | June 30, 2014 | ||||
($ in millions) | Average | ||||
Attained | |||||
Account | Age of | ||||
Value | Annuitant | ||||
GMWB | $ | 554.1 | 64 | ||
GMAB | 355.8 | 59 | |||
COMBO | 7.3 | 63 | |||
Balance, end of period | $ | 917.2 | |||
Variable Annuity Embedded Derivatives Non-Insurance Guaranteed Product Features: | December 31, 2013 | ||||
($ in millions) | Average | ||||
Attained | |||||
Account | Age of | ||||
Value | Annuitant | ||||
GMWB | $ | 581.5 | 64 | ||
GMAB | 382.2 | 59 | |||
COMBO | 7.2 | 63 | |||
Balance, end of period | $ | 970.9 |
Variable Annuity Embedded Derivative Liabilities: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
GMWB | $ | (2.5 | ) | $ | (5.1 | ) | |
GMAB | (1.1 | ) | 1.4 | ||||
COMBO | (0.4 | ) | (0.4 | ) | |||
Total variable annuity embedded derivative liabilities | $ | (4.0 | ) | $ | (4.1 | ) |
10. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued) |
Derivative Instruments: | Fair Value as of | ||||||||||||
($ in millions) | Notional | June 30, 2014 | |||||||||||
Maturity | Amount | Assets | Liabilities [1] | ||||||||||
Interest rate swaps | 2016 - 2029 | $ | 114.0 | $ | 6.7 | $ | 3.2 | ||||||
Variance swaps | 2015 - 2017 | 0.9 | — | 8.9 | |||||||||
Swaptions | 2024 - 2025 | 3,277.0 | 4.9 | — | |||||||||
Put options | 2015 - 2022 | 406.0 | 22.6 | — | |||||||||
Call options [2] | 2014 - 2019 | 1,889.4 | 128.3 | 72.9 | |||||||||
Cross currency swaps | 2016 | 10.0 | — | 0.7 | |||||||||
Equity futures | 2014 | 136.1 | 12.5 | — | |||||||||
Total derivative instruments | $ | 5,833.4 | $ | 175.0 | $ | 85.7 |
[1] | Derivative liabilities are included in other liabilities on the consolidated balance sheets. |
[2] | Includes a contingent receivable of $1.9 million. |
11. Derivative Instruments (continued) |
Derivative Instruments: | Fair Value as of | ||||||||||||
($ in millions) | Notional | December 31, 2013 | |||||||||||
Maturity | Amount | Assets | Liabilities [1] | ||||||||||
Interest rate swaps | 2016 - 2027 | $ | 139.0 | $ | 3.9 | $ | 6.8 | ||||||
Variance swaps | 2015 - 2017 | 0.9 | — | 7.9 | |||||||||
Swaptions | 2024 - 2029 | 3,902.0 | 30.7 | — | |||||||||
Put options | 2015 - 2022 | 406.0 | 31.1 | — | |||||||||
Call options [2] | 2014 - 2018 | 1,701.6 | 163.1 | 96.1 | |||||||||
Cross currency swaps | 2016 | 10.0 | — | 0.7 | |||||||||
Equity futures | 2014 | 160.6 | 14.3 | — | |||||||||
Total derivative instruments | $ | 6,320.1 | $ | 243.1 | $ | 111.5 |
[1] | Derivative liabilities are included in other liabilities on the consolidated balance sheets. |
[2] | Includes a contingent receivable of $1.9 million. |
Derivative Instrument Gains (Losses) Recognized in | Three Months Ended | Six Months Ended | |||||||||||||
Realized Investment Gains (Losses): | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Interest rate swaps | $ | (0.3 | ) | $ | (5.2 | ) | $ | 4.7 | $ | (6.0 | ) | ||||
Variance swaps | (0.4 | ) | 0.3 | (1.0 | ) | (1.8 | ) | ||||||||
Swaptions | (7.3 | ) | 15.4 | (25.6 | ) | 13.6 | |||||||||
Put options | (4.5 | ) | (4.0 | ) | (8.7 | ) | (21.4 | ) | |||||||
Call options | 17.1 | 2.5 | 14.1 | 19.9 | |||||||||||
Cross currency swaps | 0.1 | (0.2 | ) | — | 0.1 | ||||||||||
Equity futures | (6.9 | ) | (4.6 | ) | (9.5 | ) | (24.1 | ) | |||||||
Embedded derivatives | (0.4 | ) | 6.2 | (12.1 | ) | 5.7 | |||||||||
Total derivative instrument gains (losses) recognized in realized investment gains (losses) | $ | (2.6 | ) | $ | 10.4 | $ | (38.1 | ) | $ | (14.0 | ) |
11. Derivative Instruments (continued) |
Offsetting of | June 30, 2014 | ||||||||||||||||||||||
Derivative Assets/Liabilities: | Gross | Gross amounts not offset | |||||||||||||||||||||
($ in millions) | Gross | amounts | Net amounts | in the balance sheet | |||||||||||||||||||
amounts | offset in the | presented in the | Financial | Cash collateral | |||||||||||||||||||
recognized [1] | balance sheet | balance sheet | instruments | pledged [2] | Net amount | ||||||||||||||||||
Total derivative assets | $ | 175.0 | $ | — | $ | 175.0 | $ | (81.3 | ) | $ | — | $ | 93.7 | ||||||||||
Total derivative liabilities | $ | (85.7 | ) | $ | — | $ | (85.7 | ) | $ | 81.3 | $ | 4.4 | $ | — | |||||||||
Offsetting of | December 31, 2013 | ||||||||||||||||||||||
Derivative Assets/Liabilities: | Gross | Gross amounts not offset | |||||||||||||||||||||
($ in millions) | Gross | amounts | Net amounts | in the balance sheet | |||||||||||||||||||
amounts | offset in the | presented in the | Financial | Cash collateral | |||||||||||||||||||
recognized [1] | balance sheet | balance sheet | instruments | pledged [2] | Net amount | ||||||||||||||||||
Total derivative assets | $ | 243.1 | $ | — | $ | 243.1 | $ | (110.2 | ) | $ | — | $ | 132.9 | ||||||||||
Total derivative liabilities | $ | (111.5 | ) | $ | — | $ | (111.5 | ) | $ | 110.2 | $ | 1.3 | $ | — |
[1] | Amounts include all derivative instruments, irrespective of whether there is a legally enforceable master netting arrangement in place. |
[2] | Cash collateral pledged with derivative counterparties is recorded within other assets on the balance sheets. The Company pledges cash collateral to offset certain individual derivative liability positions with certain counterparties. Cash collateral of $8.3 million and $7.3 million as of June 30, 2014 and December 31, 2013, respectively, that exceeds the net liability resulting from the aggregate derivative positions with a corresponding counterparty is excluded. |
12. Fair Value of Financial Instruments (continued) |
• | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 securities include highly liquid government bonds and exchange-traded equities. |
• | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of such instruments include government-backed mortgage products, certain collateralized mortgage and debt obligations and certain high-yield debt securities. |
• | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs reflect management’s own assumptions about inputs in which market participants would use in pricing these types of assets or liabilities. Level 3 financial instruments include values which are determined using pricing models and third-party evaluation. Additionally, the determination of some fair value estimates utilizes significant management judgments or best estimates. |
Fair Values of Financial Instruments by Level: | June 30, 2014 | ||||||||||||||
($ in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale debt securities | |||||||||||||||
U.S. government and agency [1] | $ | — | $ | 79.4 | $ | 373.4 | $ | 452.8 | |||||||
State and political subdivision | — | 160.5 | 285.4 | 445.9 | |||||||||||
Foreign government | — | 213.2 | 16.5 | 229.7 | |||||||||||
Corporate | — | 4,175.5 | 3,947.1 | 8,122.6 | |||||||||||
CMBS | — | 652.5 | 31.6 | 684.1 | |||||||||||
RMBS | — | 1,486.8 | 509.6 | 1,996.4 | |||||||||||
CDO/CLO | — | — | 239.1 | 239.1 | |||||||||||
Other ABS | — | 60.3 | 223.2 | 283.5 | |||||||||||
Total available-for-sale debt securities | — | 6,828.2 | 5,625.9 | 12,454.1 | |||||||||||
Available-for-sale equity securities | — | 1.0 | 67.5 | 68.5 | |||||||||||
Short-term investments | 504.8 | — | — | 504.8 | |||||||||||
Derivative assets | 12.5 | 162.5 | — | 175.0 | |||||||||||
Fair value investments [2] | 32.0 | 13.0 | 162.4 | 207.4 | |||||||||||
Separate account assets | 3,285.4 | — | — | 3,285.4 | |||||||||||
Total assets | $ | 3,834.7 | $ | 7,004.7 | $ | 5,855.8 | $ | 16,695.2 | |||||||
Liabilities | |||||||||||||||
Derivative liabilities | $ | — | $ | 85.7 | $ | — | $ | 85.7 | |||||||
Embedded derivatives | — | — | 103.4 | 103.4 | |||||||||||
Total liabilities | $ | — | $ | 85.7 | $ | 103.4 | $ | 189.1 |
[1] | Level 3 includes securities whose underlying collateral is an obligation of a U.S. government entity. |
[2] | Fair value investments at June 30, 2014 include $113.9 million of debt securities recorded at fair value. In addition, we have also elected the fair value option for equity securities backing our deferred compensation liabilities at $23.2 million as of June 30, 2014. Changes in the fair value of these assets are recorded through net investment income. Additionally, $70.4 million of assets relate to investment holdings of consolidated VIEs held at fair value, $8.8 million of which are Level 1 securities. |
12. Fair Value of Financial Instruments (continued) |
Fair Values of Financial Instruments by Level: | December 31, 2013 | ||||||||||||||
($ in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale debt securities | |||||||||||||||
U.S. government and agency [1] | $ | — | $ | 76.6 | $ | 327.2 | $ | 403.8 | |||||||
State and political subdivision | — | 141.4 | 269.1 | 410.5 | |||||||||||
Foreign government | — | 194.0 | 15.9 | 209.9 | |||||||||||
Corporate | — | 3,662.1 | 3,968.4 | 7,630.5 | |||||||||||
CMBS | — | 600.1 | 114.4 | 714.5 | |||||||||||
RMBS | — | 1,344.9 | 552.0 | 1,896.9 | |||||||||||
CDO/CLO | — | — | 224.1 | 224.1 | |||||||||||
Other ABS | — | 70.7 | 247.7 | 318.4 | |||||||||||
Total available-for-sale debt securities | — | 6,089.8 | 5,718.8 | 11,808.6 | |||||||||||
Available-for-sale equity securities | 2.8 | — | 59.0 | 61.8 | |||||||||||
Short-term investments | 349.7 | 11.0 | 0.9 | 361.6 | |||||||||||
Derivative assets | 14.3 | 228.8 | — | 243.1 | |||||||||||
Fair value investments [2] | 32.1 | 13.2 | 165.5 | 210.8 | |||||||||||
Separate account assets | 3,402.3 | — | — | 3,402.3 | |||||||||||
Total assets | $ | 3,801.2 | $ | 6,342.8 | $ | 5,944.2 | $ | 16,088.2 | |||||||
Liabilities | |||||||||||||||
Derivative liabilities | $ | — | $ | 111.5 | $ | — | $ | 111.5 | |||||||
Embedded derivatives | — | — | 74.8 | 74.8 | |||||||||||
Total liabilities | $ | — | $ | 111.5 | $ | 74.8 | $ | 186.3 |
[1] | Level 3 includes securities whose underlying collateral is an obligation of a U.S. government entity. |
[2] | Fair value investments at December 31, 2013 include $125.7 million of debt securities recorded at fair value. In addition, we have also elected the fair value option for equity securities backing our deferred compensation liabilities at $23.2 million as of December 31, 2013. Changes in the fair value of these assets are recorded through net investment income. Additionally, $61.9 million of assets relate to investment holdings of consolidated VIEs held at fair value, $8.9 million of which are Level 1 securities. |
12. Fair Value of Financial Instruments (continued) |
Fair Values of Corporates by Level and Sector: | June 30, 2014 | ||||||||||||||
($ in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Corporates | |||||||||||||||
Consumer | $ | — | $ | 609.4 | $ | 1,217.5 | $ | 1,826.9 | |||||||
Energy | — | 567.2 | 326.4 | 893.6 | |||||||||||
Financial services | — | 1,724.7 | 882.3 | 2,607.0 | |||||||||||
Capital goods | — | 426.4 | 338.5 | 764.9 | |||||||||||
Transportation | — | 111.3 | 266.7 | 378.0 | |||||||||||
Utilities | — | 342.4 | 569.6 | 912.0 | |||||||||||
Other | — | 394.1 | 346.1 | 740.2 | |||||||||||
Total corporates | $ | — | $ | 4,175.5 | $ | 3,947.1 | $ | 8,122.6 |
Fair Values of Corporates by Level and Sector: | December 31, 2013 | ||||||||||||||
($ in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Corporates | |||||||||||||||
Consumer | $ | — | $ | 896.0 | $ | 1,496.5 | $ | 2,392.5 | |||||||
Energy | — | 492.2 | 335.2 | 827.4 | |||||||||||
Financial services | — | 1,497.0 | 971.8 | 2,468.8 | |||||||||||
Capital goods | — | 187.6 | 192.7 | 380.3 | |||||||||||
Transportation | — | 93.6 | 230.9 | 324.5 | |||||||||||
Utilities | — | 316.0 | 560.0 | 876.0 | |||||||||||
Other | — | 179.7 | 181.3 | 361.0 | |||||||||||
Total corporates | $ | — | $ | 3,662.1 | $ | 3,968.4 | $ | 7,630.5 |
12. Fair Value of Financial Instruments (continued) |
Level 3 Financial Assets: | Three Months Ended June 30, 2014 | ||||||||||||||||||||||||||||||
($ in millions) | Realized & | ||||||||||||||||||||||||||||||
unrealized | Unrealized | ||||||||||||||||||||||||||||||
gains | gains | ||||||||||||||||||||||||||||||
Balance, | Transfers | Transfers | (losses) | (losses) | |||||||||||||||||||||||||||
beginning | into | out of | included in | included | |||||||||||||||||||||||||||
of period | Purchases | Sales | Level 3 | Level 3 | income [1] | in OCI | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Available-for-sale debt securities | |||||||||||||||||||||||||||||||
U.S. government and agency [2] | $ | 340.4 | $ | — | $ | (14.0 | ) | $ | — | $ | — | $ | — | $ | 47.0 | $ | 373.4 | ||||||||||||||
State and political subdivision | 276.8 | 6.6 | (2.7 | ) | — | — | — | 4.7 | 285.4 | ||||||||||||||||||||||
Foreign government | 16.1 | — | — | — | — | — | 0.4 | 16.5 | |||||||||||||||||||||||
Corporate | 3,941.5 | 71.0 | (20.1 | ) | 16.1 | (4.6 | ) | (0.5 | ) | (56.3 | ) | 3,947.1 | |||||||||||||||||||
CMBS | 52.1 | — | (3.3 | ) | — | (0.2 | ) | — | (17.0 | ) | 31.6 | ||||||||||||||||||||
RMBS | 534.0 | 0.7 | (18.5 | ) | — | (4.5 | ) | (0.3 | ) | (1.8 | ) | 509.6 | |||||||||||||||||||
CDO/CLO | 236.1 | 22.0 | (5.7 | ) | — | — | 0.3 | (13.6 | ) | 239.1 | |||||||||||||||||||||
Other ABS | 229.4 | — | (4.1 | ) | — | — | (0.5 | ) | (1.6 | ) | 223.2 | ||||||||||||||||||||
Total available-for-sale debt securities | 5,626.4 | 100.3 | (68.4 | ) | 16.1 | (9.3 | ) | (1.0 | ) | (38.2 | ) | 5,625.9 | |||||||||||||||||||
Available-for-sale equity securities | 63.0 | 5.6 | — | — | — | — | (1.1 | ) | 67.5 | ||||||||||||||||||||||
Short-term investments | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Fair value investments | 170.3 | — | (2.3 | ) | — | — | (5.6 | ) | — | 162.4 | |||||||||||||||||||||
Total assets | $ | 5,859.7 | $ | 105.9 | $ | (70.7 | ) | $ | 16.1 | $ | (9.3 | ) | $ | (6.6 | ) | $ | (39.3 | ) | $ | 5,855.8 |
[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. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Financial Assets: | Three Months Ended June 30, 2013 | ||||||||||||||||||||||||||||||
($ in millions) | Realized & | ||||||||||||||||||||||||||||||
unrealized | Unrealized | ||||||||||||||||||||||||||||||
gains | gains | ||||||||||||||||||||||||||||||
Balance, | Transfers | Transfers | (losses) | (losses) | |||||||||||||||||||||||||||
beginning | into | out of | included in | included | |||||||||||||||||||||||||||
of period | Purchases | Sales | Level 3 | Level 3 | income [1] | in OCI | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Available-for-sale debt securities | |||||||||||||||||||||||||||||||
U.S. government and agency [2] | $ | 309.5 | $ | 36.2 | $ | (4.0 | ) | $ | — | $ | — | $ | — | $ | (13.8 | ) | $ | 327.9 | |||||||||||||
State and political subdivision | 196.5 | 23.3 | (1.4 | ) | 3.3 | — | — | (13.8 | ) | 207.9 | |||||||||||||||||||||
Foreign government | 51.1 | — | — | — | (29.9 | ) | — | (5.7 | ) | 15.5 | |||||||||||||||||||||
Corporate | 3,846.2 | 192.3 | (19.3 | ) | 75.7 | (10.3 | ) | (1.3 | ) | (241.5 | ) | 3,841.8 | |||||||||||||||||||
CMBS | 81.2 | 40.2 | (4.1 | ) | — | — | (1.8 | ) | 0.8 | 116.3 | |||||||||||||||||||||
RMBS | 678.8 | 0.5 | (38.0 | ) | — | — | (0.6 | ) | (6.6 | ) | 634.1 | ||||||||||||||||||||
CDO/CLO | 238.0 | 23.2 | (18.7 | ) | — | — | (0.2 | ) | (11.3 | ) | 231.0 | ||||||||||||||||||||
Other ABS | 309.2 | 1.0 | (8.4 | ) | — | — | (0.5 | ) | (16.2 | ) | 285.1 | ||||||||||||||||||||
Total available-for-sale debt securities | 5,710.5 | 316.7 | (93.9 | ) | 79.0 | (40.2 | ) | (4.4 | ) | (308.1 | ) | 5,659.6 | |||||||||||||||||||
Available-for-sale equity securities | 32.9 | 2.6 | (2.5 | ) | — | — | (0.8 | ) | 3.4 | 35.6 | |||||||||||||||||||||
Short-term investments | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Fair value investments | 168.3 | 4.8 | (5.6 | ) | — | — | 3.5 | — | 171.0 | ||||||||||||||||||||||
Total assets | $ | 5,911.7 | $ | 324.1 | $ | (102.0 | ) | $ | 79.0 | $ | (40.2 | ) | $ | (1.7 | ) | $ | (304.7 | ) | $ | 5,866.2 |
[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. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Financial Assets: | Six Months Ended June 30, 2014 | ||||||||||||||||||||||||||||||
($ in millions) | Realized & | ||||||||||||||||||||||||||||||
unrealized | Unrealized | ||||||||||||||||||||||||||||||
gains | gains | ||||||||||||||||||||||||||||||
Balance, | Transfers | Transfers | (losses) | (losses) | |||||||||||||||||||||||||||
beginning | into | out of | included in | included | |||||||||||||||||||||||||||
of period | Purchases | Sales | Level 3 | Level 3 | income [1] | in OCI | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Available-for-sale debt securities | |||||||||||||||||||||||||||||||
U.S. government and agency [2] | $ | 327.2 | $ | 62.8 | $ | (19.1 | ) | $ | — | $ | — | $ | — | $ | 2.5 | $ | 373.4 | ||||||||||||||
State and political subdivision | 269.1 | 9.5 | (3.3 | ) | — | — | — | 10.1 | 285.4 | ||||||||||||||||||||||
Foreign government | 15.9 | — | — | — | — | — | 0.6 | 16.5 | |||||||||||||||||||||||
Corporate | 3,968.4 | 236.3 | (38.8 | ) | 15.8 | (131.4 | ) | (0.5 | ) | (102.7 | ) | 3,947.1 | |||||||||||||||||||
CMBS | 114.4 | — | (5.2 | ) | — | (60.3 | ) | (0.1 | ) | (17.2 | ) | 31.6 | |||||||||||||||||||
RMBS | 552.0 | 1.3 | (28.7 | ) | — | (4.3 | ) | 0.2 | (10.9 | ) | 509.6 | ||||||||||||||||||||
CDO/CLO | 224.1 | 39.9 | (10.8 | ) | — | — | 0.4 | (14.5 | ) | 239.1 | |||||||||||||||||||||
Other ABS | 247.7 | — | (8.1 | ) | — | (1.7 | ) | — | (14.7 | ) | 223.2 | ||||||||||||||||||||
Total available-for-sale debt securities | 5,718.8 | 349.8 | (114.0 | ) | 15.8 | (197.7 | ) | — | (146.8 | ) | 5,625.9 | ||||||||||||||||||||
Available-for-sale equity securities | 59.0 | 12.2 | — | — | — | — | (3.7 | ) | 67.5 | ||||||||||||||||||||||
Short-term investments | 0.9 | — | — | — | — | — | (0.9 | ) | — | ||||||||||||||||||||||
Fair value investments | 165.5 | — | (3.8 | ) | — | — | 0.7 | — | 162.4 | ||||||||||||||||||||||
Total assets | $ | 5,944.2 | $ | 362.0 | $ | (117.8 | ) | $ | 15.8 | $ | (197.7 | ) | $ | 0.7 | $ | (151.4 | ) | $ | 5,855.8 |
[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. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Financial Assets: | Six Months Ended June 30, 2013 | ||||||||||||||||||||||||||||||
($ in millions) | Realized & | ||||||||||||||||||||||||||||||
unrealized | Unrealized | ||||||||||||||||||||||||||||||
gains | gains | ||||||||||||||||||||||||||||||
Balance, | Transfers | Transfers | (losses) | (losses) | |||||||||||||||||||||||||||
beginning | into | out of | included in | included | |||||||||||||||||||||||||||
of period | Purchases | Sales | Level 3 | Level 3 | income [1] | in OCI | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Available-for-sale debt securities | |||||||||||||||||||||||||||||||
U.S. government and agency [2] | $ | 296.7 | $ | 48.4 | $ | (5.6 | ) | $ | — | $ | — | $ | — | $ | (11.6 | ) | $ | 327.9 | |||||||||||||
State and political subdivision | 212.4 | 23.3 | (1.6 | ) | 3.3 | — | — | (29.5 | ) | 207.9 | |||||||||||||||||||||
Foreign government | 45.8 | — | — | 8.0 | (31.3 | ) | — | (7.0 | ) | 15.5 | |||||||||||||||||||||
Corporate | 3,812.3 | 395.4 | (32.7 | ) | 41.7 | (64.4 | ) | (1.4 | ) | (309.1 | ) | 3,841.8 | |||||||||||||||||||
CMBS | 89.7 | 40.2 | (4.6 | ) | — | (8.7 | ) | (1.8 | ) | 1.5 | 116.3 | ||||||||||||||||||||
RMBS | 709.3 | 1.2 | (52.7 | ) | — | — | (1.7 | ) | (22.0 | ) | 634.1 | ||||||||||||||||||||
CDO/CLO | 223.7 | 45.0 | (25.9 | ) | — | — | (0.3 | ) | (11.5 | ) | 231.0 | ||||||||||||||||||||
Other ABS | 309.9 | 1.0 | (14.0 | ) | — | — | — | (11.8 | ) | 285.1 | |||||||||||||||||||||
Total available-for-sale debt securities | 5,699.8 | 554.5 | (137.1 | ) | 53.0 | (104.4 | ) | (5.2 | ) | (401.0 | ) | 5,659.6 | |||||||||||||||||||
Available-for-sale equity securities | 32.7 | 4.9 | (2.3 | ) | — | — | — | 0.3 | 35.6 | ||||||||||||||||||||||
Short-term investments | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Fair value investments | 153.3 | 19.4 | (7.5 | ) | 1.3 | — | 4.5 | — | 171.0 | ||||||||||||||||||||||
Total assets | $ | 5,885.8 | $ | 578.8 | $ | (146.9 | ) | $ | 54.3 | $ | (104.4 | ) | $ | (0.7 | ) | $ | (400.7 | ) | $ | 5,866.2 |
[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 Derivative Liabilities | ||||||||||||||
($ in millions) | Three Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 93.6 | $ | 82.8 | $ | 74.8 | $ | 80.8 | |||||||
Net purchases/(sales) | 9.4 | 1.0 | 16.5 | 2.5 | |||||||||||
Transfers into Level 3 | — | — | — | — | |||||||||||
Transfers out of Level 3 | — | — | — | — | |||||||||||
Realized (gains) losses [1] | 0.4 | (6.2 | ) | 12.1 | (5.7 | ) | |||||||||
Balance, end of period | $ | 103.4 | $ | 77.6 | $ | 103.4 | $ | 77.6 |
[1] | Realized gains and losses are included in net realized investment gains on the consolidated statements of income and comprehensive income. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Assets: [1] | June 30, 2014 | ||||||||
($ in millions) | Fair | Valuation | Unobservable | ||||||
Value | Technique(s) | Input | Range (Weighted Average) | ||||||
U.S. government and agency | $ | 333.4 | Discounted cash flow | Yield | 0.86% - 4.90% (3.46%) | ||||
State and political subdivision | $ | 121.6 | Discounted cash flow | Yield | 2.04% - 5.09% (3.47%) | ||||
Corporate | $ | 3,055.6 | Discounted cash flow | Yield | 0.86% - 5.99% (3.23%) | ||||
Other ABS | $ | 41.3 | Discounted cash flow | Yield | 0.60% - 3.38% (1.86%) | ||||
Fair value investments | $ | 5.8 | Discounted cash flow | Default rate | 0.15% | ||||
Recovery rate | 42% |
[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] | December 31, 2013 | ||||||||
($ in millions) | Fair | Valuation | Unobservable | ||||||
Value | Technique(s) | Input | Range (Weighted Average) | ||||||
U.S. government and agency | $ | 327.2 | Discounted cash flow | Yield | 1.05% - 5.66% (3.78%) | ||||
State and political subdivision | $ | 119.4 | Discounted cash flow | Yield | 2.35% - 5.79% (3.74%) | ||||
Corporate | $ | 2,972.6 | Discounted cash flow | Yield | 1.00% - 6.75% (3.56%) | ||||
Other ABS | $ | 47.9 | Discounted cash flow | Yield | 0.5% - 3.75% (2.23%) | ||||
Prepayment rate | 2% | ||||||||
Default rate | 2.53% for 48 mos then .37% thereafter | ||||||||
Recovery rate | 10% (TRUPS) | ||||||||
Fair value investments | $ | 5.5 | 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. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Liabilities: | June 30, 2014 | ||||||||
($ in millions) | Fair Value | Valuation Technique(s) | Unobservable Input | Range | |||||
Embedded derivatives | $ | 107.4 | Budget method | Swap curve | 0.18% - 3.15% | ||||
(FIA) | Mortality rate | 103% or 97% 2012 IAM basic table with scale G2 | |||||||
Lapse rate | 0.02% - 47.15% | ||||||||
CSA | 2.92% | ||||||||
Embedded derivatives (GMAB / GMWB / COMBO) | $ | (4.0 | ) | Risk neutral stochastic valuation methodology | Volatility surface | 8.89% - 44.06% | |||
Swap curve | 0.16% - 3.48% | ||||||||
Mortality rate | 105% 2012 IAM basic table with scale G2 | ||||||||
Lapse rate | 0.00% - 40.00% | ||||||||
CSA | 2.92% |
Level 3 Liabilities: | December 31, 2013 | ||||||||
($ in millions) | Fair Value | Valuation Technique(s) | Unobservable Input | Range | |||||
Embedded derivatives | $ | 78.9 | Budget method | Swap curve | 0.19% -3.79% | ||||
(FIA) | 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 / COMBO) | $ | (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% |
12. Fair Value of Financial Instruments (continued) |
Level 3 Assets and Liabilities by Pricing Source: | June 30, 2014 | ||||||||||
($ in millions) | Internal [1] | External [2] | Total | ||||||||
Assets | |||||||||||
Available-for-sale debt securities | |||||||||||
U.S. government and agency [3] | $ | 333.4 | $ | 40.0 | $ | 373.4 | |||||
State and political subdivision | 121.6 | 163.8 | 285.4 | ||||||||
Foreign government | — | 16.5 | 16.5 | ||||||||
Corporate | 3,055.6 | 891.5 | 3,947.1 | ||||||||
CMBS | — | 31.6 | 31.6 | ||||||||
RMBS | — | 509.6 | 509.6 | ||||||||
CDO/CLO | — | 239.1 | 239.1 | ||||||||
Other ABS | 41.3 | 181.9 | 223.2 | ||||||||
Total available-for-sale debt securities | 3,551.9 | 2,074.0 | 5,625.9 | ||||||||
Available-for-sale equity securities | — | 67.5 | 67.5 | ||||||||
Short-term investments | — | — | — | ||||||||
Fair value investments | 5.8 | 156.6 | 162.4 | ||||||||
Total assets | $ | 3,557.7 | $ | 2,298.1 | $ | 5,855.8 | |||||
Liabilities | |||||||||||
Embedded derivatives | $ | 103.4 | $ | — | $ | 103.4 | |||||
Total liabilities | $ | 103.4 | $ | — | $ | 103.4 |
[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. |
12. Fair Value of Financial Instruments (continued) |
Level 3 Assets and Liabilities by Pricing Source: | December 31, 2013 | ||||||||||
($ in millions) | Internal [1] | External [2] | Total | ||||||||
Assets | |||||||||||
Available-for-sale debt securities | |||||||||||
U.S. government and agency [3] | $ | 327.2 | $ | — | $ | 327.2 | |||||
State and political subdivision | 119.4 | 149.7 | 269.1 | ||||||||
Foreign government | — | 15.9 | 15.9 | ||||||||
Corporate | 2,972.6 | 995.8 | 3,968.4 | ||||||||
CMBS | — | 114.4 | 114.4 | ||||||||
RMBS | — | 552.0 | 552.0 | ||||||||
CDO/CLO | — | 224.1 | 224.1 | ||||||||
Other ABS | 47.9 | 199.8 | 247.7 | ||||||||
Total available-for-sale debt securities | 3,467.1 | 2,251.7 | 5,718.8 | ||||||||
Available-for-sale equity securities | — | 59.0 | 59.0 | ||||||||
Short-term investments | — | 0.9 | 0.9 | ||||||||
Fair value investments | 5.5 | 160.0 | 165.5 | ||||||||
Total assets | $ | 3,472.6 | $ | 2,471.6 | $ | 5,944.2 | |||||
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. |
Carrying Amounts and Fair Values | Fair Value | June 30, 2014 | December 31, 2013 | ||||||||||||||
of Financial Instruments: | Hierarchy | Carrying | Fair | Carrying | Fair | ||||||||||||
($ in millions) | Level | Value | Value | Value | Value | ||||||||||||
Financial assets: | |||||||||||||||||
Policy loans | Level 3 | $ | 2,325.4 | $ | 2,313.1 | $ | 2,350.3 | $ | 2,338.0 | ||||||||
Cash and cash equivalents | Level 1 | $ | 330.2 | $ | 330.2 | $ | 496.4 | $ | 496.4 | ||||||||
Financial liabilities: | |||||||||||||||||
Investment contracts | Level 3 | $ | 3,658.7 | $ | 3,660.4 | $ | 3,429.7 | $ | 3,424.4 | ||||||||
7.15% Surplus notes | Level 3 | $ | 126.2 | $ | 91.3 | $ | 126.1 | $ | 86.5 | ||||||||
7.45% Senior unsecured bonds | Level 2 | $ | 252.7 | $ | 247.6 | $ | 252.7 | $ | 224.6 |
Accumulated Other Comprehensive Income (Loss) | Net Unrealized Gains / (Losses) on Investments where Credit-related OTTI was Recognized [1] | Net Unrealized Gains / (Losses) on All Other Investments [1] | Net Pension Liability Adjustments | Total | |||||||||||
Attributable to The Phoenix Companies, Inc.: | |||||||||||||||
($ in millions) | |||||||||||||||
Balance as of March 31, 2014 | $ | 12.4 | $ | 12.3 | $ | (220.1 | ) | $ | (195.4 | ) | |||||
Change in component during the period before reclassifications | 1.6 | 18.8 | 0.7 | 21.1 | |||||||||||
Amounts reclassified from AOCI | (0.3 | ) | (3.7 | ) | 1.1 | (2.9 | ) | ||||||||
Balance as of June 30, 2014 | $ | 13.7 | $ | 27.4 | $ | (218.3 | ) | $ | (177.2 | ) | |||||
Balance as of March 31, 2013 | $ | (0.7 | ) | $ | 57.1 | $ | (317.2 | ) | $ | (260.8 | ) | ||||
Change in component during the period before reclassifications | 11.6 | (29.8 | ) | 0.9 | (17.3 | ) | |||||||||
Amounts reclassified from AOCI | (1.4 | ) | 3.5 | 1.7 | 3.8 | ||||||||||
Balance as of June 30, 2013 | $ | 9.5 | $ | 30.8 | $ | (314.6 | ) | $ | (274.3 | ) | |||||
Balance as of December 31, 2013 | $ | 10.0 | $ | 26.5 | $ | (221.7 | ) | $ | (185.2 | ) | |||||
Change in component during the period before reclassifications | 7.1 | 7.7 | 1.3 | 16.1 | |||||||||||
Amounts reclassified from AOCI | (3.4 | ) | (6.8 | ) | 2.1 | (8.1 | ) | ||||||||
Balance as of June 30, 2014 | $ | 13.7 | $ | 27.4 | $ | (218.3 | ) | $ | (177.2 | ) | |||||
Balance as of December 31, 2012 | $ | (6.2 | ) | $ | 77.9 | $ | (321.0 | ) | $ | (249.3 | ) | ||||
Change in component during the period before reclassifications | 17.4 | (46.2 | ) | 3.0 | (25.8 | ) | |||||||||
Amounts reclassified from AOCI | (1.7 | ) | (0.9 | ) | 3.4 | 0.8 | |||||||||
Balance as of June 30, 2013 | $ | 9.5 | $ | 30.8 | $ | (314.6 | ) | $ | (274.3 | ) |
[1] | See Note 7 to these consolidated interim unaudited financial statements for additional information regarding offsets to net unrealized investment gains and losses which include policyholder dividend obligation, DAC and other actuarial offsets, and deferred income tax expense (benefit). |
14. Accumulated Other Comprehensive Income (continued) |
AOCI | Amounts Reclassified from AOCI | Affected Line Item in the Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||
($ in millions) | Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||
Net unrealized gains / (losses) on investments where credit-related OTTI was recognized: | ||||||||||||||||||
Available-for-sale securities | $ | 0.4 | $ | 2.2 | $ | 5.3 | $ | 2.6 | Net realized capital gains (losses) | |||||||||
0.4 | 2.2 | 5.3 | 2.6 | Total before income taxes | ||||||||||||||
0.1 | 0.8 | 1.9 | 0.9 | Income tax expense (benefit) | ||||||||||||||
$ | 0.3 | $ | 1.4 | $ | 3.4 | $ | 1.7 | Net income (loss) | ||||||||||
Net unrealized investment gains / (losses) on all other investments: | ||||||||||||||||||
Available-for-sale securities | $ | 5.7 | $ | (5.4 | ) | $ | 10.3 | $ | 1.4 | Net realized capital gains (losses) | ||||||||
5.7 | (5.4 | ) | 10.3 | 1.4 | Total before income taxes | |||||||||||||
2.0 | (1.9 | ) | 3.6 | 0.5 | Income tax expense (benefit) | |||||||||||||
$ | 3.7 | $ | (3.5 | ) | $ | 6.7 | $ | 0.9 | Net income (loss) | |||||||||
Net pension liability adjustments: | ||||||||||||||||||
Amortization of actuarial gains (losses) | $ | (1.9 | ) | $ | (2.9 | ) | $ | (3.8 | ) | $ | (5.8 | ) | Other operating expense | |||||
Amortization of prior service costs | 0.3 | 0.3 | 0.6 | 0.6 | Other operating expense | |||||||||||||
(1.6 | ) | (2.6 | ) | (3.2 | ) | (5.2 | ) | Total before income taxes | ||||||||||
(0.5 | ) | (0.9 | ) | (1.1 | ) | (1.8 | ) | Income tax expense (benefit) | ||||||||||
$ | (1.1 | ) | $ | (1.7 | ) | $ | (2.1 | ) | $ | (3.4 | ) | Net income (loss) | ||||||
Total amounts reclassified from AOCI | $ | 2.9 | $ | (3.8 | ) | $ | 8.0 | $ | (0.8 | ) | Net income (loss) |
Components of Pension Benefit Costs: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost | $ | 0.6 | $ | 0.5 | $ | 1.2 | $ | 1.0 | |||||||
Interest cost | 9.1 | 8.2 | 18.2 | 16.4 | |||||||||||
Expected return on plan assets | (9.5 | ) | (9.0 | ) | (19.0 | ) | (18.0 | ) | |||||||
Net loss amortization | 2.0 | 2.9 | 4.0 | 5.8 | |||||||||||
Pension benefit cost | $ | 2.2 | $ | 2.6 | $ | 4.4 | $ | 5.2 |
15. Employee Benefit Plans and Employment Agreements (continued) |
Components of Other Post-Employment Benefit Costs: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | — | |||||||
Interest cost | 0.4 | 0.3 | 0.8 | 0.6 | |||||||||||
Net gain amortization | (0.1 | ) | — | (0.2 | ) | — | |||||||||
Prior service cost amortization | (0.3 | ) | (0.3 | ) | (0.6 | ) | (0.6 | ) | |||||||
Other post-employment benefit cost | $ | — | $ | — | $ | — | $ | — |
Share-Based Compensation Plans: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Compensation cost charged to income from continuing operations | $ | 0.2 | $ | 1.8 | $ | 0.4 | $ | 2.5 | |||||||
Income tax expense (benefit) before valuation allowance | $ | (0.1 | ) | $ | (0.6 | ) | $ | (0.1 | ) | $ | (0.9 | ) |
Shares Used in Calculation of Earnings Per Share: | Three Months Ended | Six Months Ended | |||||||||
(shares in thousands) | June 30, | June 30, | |||||||||
2014 | 2013 | 2014 | 2013 | ||||||||
Weighted-average common shares outstanding | 5,749 | 5,742 | 5,745 | 5,742 | |||||||
Weighted-average effect of dilutive potential common shares: | |||||||||||
Restricted stock units | 3 | 17 | 10 | 38 | |||||||
Employee stock options | 2 | 2 | 2 | 2 | |||||||
Potential common shares | 5 | 19 | 12 | 40 | |||||||
Less: Potential common shares excluded from calculation due to net losses | 5 | 19 | 12 | 40 | |||||||
Dilutive potential common shares | — | — | — | — | |||||||
Weighted-average common shares outstanding, including dilutive potential common shares | 5,749 | 5,742 | 5,745 | 5,742 |
Segment Information | Three Months Ended | Six Months Ended | |||||||||||||
on Revenues: | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Life and Annuity [1] | $ | 410.2 | $ | 417.1 | $ | 807.7 | $ | 807.8 | |||||||
Saybrus Partners [2] | 9.6 | 6.4 | 16.9 | 12.2 | |||||||||||
Less: Intercompany revenues [3] | 3.0 | 2.3 | 5.6 | 4.6 | |||||||||||
Total revenues | $ | 416.8 | $ | 421.2 | $ | 819.0 | $ | 815.4 |
[1] | Includes intercompany interest revenue of $0.0 million and $0.1 million for the three months ended June 30, 2014 and 2013, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2014 and 2013, respectively. |
[2] | Includes intercompany commission revenue of $3.0 million and $2.4 million for the three months ended June 30, 2014 and 2013, respectively, and $5.7 million and $4.8 million for the six months ended June 30, 2014 and 2013, respectively. |
[3] | All intercompany balances are eliminated in consolidating the financial statements. |
18. Segment Information (continued) |
Results of Operations by Segment as Reconciled to | Three Months Ended | Six Months Ended | |||||||||||||
Consolidated Net Income (Loss): | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Life and Annuity operating income (loss) | $ | (40.1 | ) | $ | (42.0 | ) | $ | (49.8 | ) | $ | (88.8 | ) | |||
Saybrus Partners operating income (loss) | 1.9 | 0.8 | 2.3 | 0.7 | |||||||||||
Less: Applicable income tax expense (benefit) | (20.4 | ) | (1.3 | ) | (24.0 | ) | 2.9 | ||||||||
Income (loss) from discontinued operations, net of income taxes | (0.6 | ) | (0.2 | ) | (1.5 | ) | (2.0 | ) | |||||||
Net realized investment gains (losses) | 4.1 | 7.2 | (21.6 | ) | (8.7 | ) | |||||||||
Less: Net income (loss) attributable to noncontrolling interests | — | (0.1 | ) | 1.0 | (0.2 | ) | |||||||||
Net income (loss) | $ | (14.3 | ) | $ | (32.8 | ) | $ | (47.6 | ) | $ | (101.5 | ) |
Phoenix Timetable of SEC Periodic Reports | ||
Form | Period | Amended Deadline |
10-K | Year ended December 31, 2013 | August 6, 2014 |
10-Q | Quarterly Period ended March 31, 2013 | September 10, 2014 |
10-Q | Quarterly Period ended June 30, 2013 | September 10, 2014 |
10-Q | Quarterly Period ended September 30, 2013 | September 10, 2014 |
10-Q | Quarterly Period ended March 31, 2014 | October 17, 2014 |
10-Q | Quarterly Period ended June 30, 2014 | October 24, 2014 |
10-Q | Quarterly Period ended September 30, 2014 | December 5, 2014 |
20. Contingent Liabilities (continued) |
PHL Variable Timetable of SEC Periodic Reports | ||
Form | Period | Amended Deadline |
10-K | Year ended December 31, 2013 | August 22, 2014 |
10-Q | Quarterly Period ended March 31, 2013 | September 12, 2014 |
10-Q | Quarterly Period ended June 30, 2013 | September 12, 2014 |
10-Q | Quarterly Period ended September 30, 2013 | September 12, 2014 |
10-Q | Quarterly Period ended March 31, 2014 | October 21, 2014 |
10-Q | Quarterly Period ended June 30, 2014 | October 28, 2014 |
10-Q | Quarterly Period ended September 30, 2014 | December 12, 2014 |
20. Contingent Liabilities (continued) |
20. Contingent Liabilities (continued) |
22. Subsequent Events (continued) |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | competitive and innovative products; |
• | underwriting and mortality risk management expertise; |
• | ability to develop business partnerships; and |
• | value-added support provided to distributors by our wholesalers and operating personnel. |
• | Fees on life and annuity products consist primarily of: (i) cost of insurance (“COI”) charges, which are based on the difference between policy face amounts and the account values (referred to as the net amount at risk or the “NAR”); (ii) asset-based fees (including mortality and expense charges for variable annuities) which are calculated as a percentage of assets under management within our separate accounts; (iii) premium-based fees to cover premium taxes and renewal commissions; and (iv) surrender charges. |
• | Policy benefits include death claims net of reinsurance cash flows, including ceded premiums and recoverables, interest credited to policyholders and changes in policy liabilities and accruals. Certain universal life reserves are based on management’s assumptions about future COI fees and interest margins which, in turn, are affected by future premium payments, surrenders, lapses and mortality rates. Actual experience can vary significantly from these assumptions, resulting in greater or lesser changes in reserves. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes to these reserves. For fixed indexed annuities, policy benefits include the change in the liability associated with guaranteed minimum withdrawal benefits. Certain of our variable annuity contracts include guaranteed minimum death and income benefits. The change in the liability associated with these guarantees is included in policy benefits. The value of these liabilities is sensitive to changes in equity markets, equity market volatility and interest rates, as well as subject to management assumptions regarding future surrenders, rider utilization rates and mortality. |
• | Interest margins consist of net investment income earned on universal life, fixed indexed annuities and other policyholder funds, gains on options purchased to fund index credits less the interest or index credits applied to policyholders on those funds. Interest margins also include investment income on assets supporting the Company’s surplus. |
• | Non-deferred operating expenses are expenses related to servicing policies, premium taxes, reinsurance allowances, non-deferrable acquisition expenses and commissions and general overhead, including professional fees and outside consulting and legal services. They also include pension and other benefit costs which involve significant estimates and assumptions. |
• | Deferred policy acquisition cost (“DAC”) amortization is based on the amount of expenses deferred, actual results in each quarter and management’s assumptions about the future performance of the business. The amount of future profit or margin is dependent principally on investment returns in our separate accounts, interest and default rates, reinsurance costs and recoveries, mortality, surrender rates, premium persistency and expenses. These factors enter into management’s estimates of gross profits or margins, which generally are used to amortize DAC. Actual equity market movements, net investment income in excess of amounts credited to policyholders, claims payments and other key factors can vary significantly from our assumptions, resulting in a change in estimated gross profits or margins, and a change in amortization, with a resulting impact to income. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes in amortization for the period of the unlock. |
• | Net realized investment gains or losses related to investments and hedging programs include transaction gains and losses, OTTIs and changes in the value of certain derivatives and embedded derivatives. Certain of our variable and fixed annuity contracts include guaranteed minimum withdrawal and accumulation benefits which are classified as embedded derivatives. The fair value of the embedded derivative liability is calculated using significant management estimates, including: (i) the expected value of index credits on the next policy anniversary dates; (ii) the interest rate used to project the future growth in the contract liability; (iii) the discount rate used to discount future benefit payments, which includes an adjustment for our credit worthiness; and (iv) the expected costs of annual call options that will be purchased in the future to fund index credits beyond the next policy anniversary. These factors can vary significantly from period to period. |
• | Income tax expense/benefit consists of both current and deferred tax provisions. The computation of these amounts is a function of pre-tax income and the application of relevant tax law and generally accepted accounting principles in the United States (“U.S. GAAP”) accounting guidance. In assessing the realizability of our deferred tax assets, we make significant judgments with respect to projections of future taxable income, the identification of prudent and feasible tax planning strategies and the reversal pattern of the Company’s book-to-tax differences that are temporary in nature. We also consider the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits. We have recorded a valuation allowance against a significant portion of our deferred tax assets based upon our conclusion that there is insufficient objective positive evidence to overcome the significant negative evidence from our cumulative losses in recent years. This assessment could change in the future, resulting in a release of the valuation allowance and a benefit to income. |
• | Net investment income. Net investment income increased by $23.7 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in net investment income is primarily driven by a $15.6 million increase in income from limited partnerships and other investments due to increase in the valuation of the underlying funds. This increase in net investment income is partially offset by an increase in policyholder dividends as the partnership income associated with assets in the closed block is included within policyholder dividends. The average net investment income yield, excluding limited partnerships and other investments remains relatively consistent for the comparable periods. |
• | Net realized investment gains or losses. Realized capital losses on investments increased by $12.9 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The most significant driver of the increase in realized capital losses is losses resulting from the change in fair value of the embedded derivatives of $12.1 million in the current year compared to a gain of $5.7 million in the prior period. The losses are primarily associated with the fixed indexed annuity business and are due to decreasing interest rates during the period compared with increasing interest rates in the prior year period. There were also significant changes in the realized gains and losses on the derivatives that are used to hedge the fixed indexed annuity and variable annuity businesses that largely offset each other. This is primarily due to losses in 2014 on the derivatives used to hedge fixed indexed annuity due to decreasing interest rates, that were gains in the prior year as a result of increasing interest rates, and less significant losses on the hedges that are more closely linked to the equity markets given the more significant increase in the market in 2014. |
• | Policy acquisition cost amortization. Policy acquisition cost amortization decreased for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The decrease in amortization is primarily the result of higher than expected mortality losses in the universal life product. |
• | Operating expenses. Other operating expenses increased $10.8 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in operating expenses is primarily the result of higher professional fees and outside consulting and legal services primarily as a result of the restatement of our prior period financial statements, preparation of delayed financial statements and remediation efforts. Professional fees and outside consulting and legal services continue to be a significant driver of operating expenses for the Company. |
• | Income taxes. Income tax benefit increased by $26.9 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The current period income tax benefit includes $0.6 million of current period tax expense and $24.6 million of a deferred tax benefit resulting from the application of intraperiod tax allocation rules. These rules allow for the benefitting of current year losses when an increase to the valuation allowance is not required due to existence of current year income reported elsewhere in the financial statements. |
• | Balance sheet strength; |
• | Policyholder service; |
• | Operational efficiency; and |
• | Profitable growth. |
Summary Consolidated Financial Data: | Three Months Ended | Increase (decrease) and | ||||||||||||
($ in millions) | June 30, | percentage change | ||||||||||||
2014 | 2013 | 2014 vs. 2013 | ||||||||||||
REVENUES: | ||||||||||||||
Premiums | $ | 83.2 | $ | 87.4 | (4.2 | ) | (5 | %) | ||||||
Fee income | 134.2 | 132.6 | 1.6 | 1 | % | |||||||||
Net investment income | 195.3 | 194.0 | 1.3 | 1 | % | |||||||||
Net realized investment gains (losses): | ||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (1.0 | ) | — | (1.0 | ) | NM | ||||||||
Portion of OTTI gains (losses) recognized in other comprehensive income (“OCI”) | — | (2.5 | ) | 2.5 | (100 | %) | ||||||||
Net OTTI losses recognized in earnings | (1.0 | ) | (2.5 | ) | 1.5 | (60 | %) | |||||||
Net realized investment gains (losses), excluding OTTI losses | 5.1 | 9.7 | (4.6 | ) | (47 | %) | ||||||||
Net realized investment gains (losses) | 4.1 | 7.2 | (3.1 | ) | (43 | %) | ||||||||
Total revenues | 416.8 | 421.2 | (4.4 | ) | (1 | %) | ||||||||
BENEFITS AND EXPENSES: | ||||||||||||||
Policy benefits | 298.5 | 272.8 | 25.7 | 9 | % | |||||||||
Policyholder dividends | 42.4 | 51.3 | (8.9 | ) | (17 | %) | ||||||||
Policy acquisition cost amortization | 17.4 | 32.2 | (14.8 | ) | (46 | %) | ||||||||
Interest expense on indebtedness | 7.1 | 7.1 | — | — | % | |||||||||
Other operating expenses | 85.5 | 91.8 | (6.3 | ) | (7 | %) | ||||||||
Total benefits and expenses | 450.9 | 455.2 | (4.3 | ) | (1 | %) | ||||||||
Income (loss) from continuing operations before income taxes | (34.1 | ) | (34.0 | ) | (0.1 | ) | — | % | ||||||
Income tax expense (benefit) | (20.4 | ) | (1.3 | ) | (19.1 | ) | NM | |||||||
Income (loss) from continuing operations | (13.7 | ) | (32.7 | ) | 19.0 | (58 | %) | |||||||
Income (loss) from discontinued operations, net of income taxes | (0.6 | ) | (0.2 | ) | (0.4 | ) | 200 | % | ||||||
Net income (loss) | (14.3 | ) | (32.9 | ) | 18.6 | (57 | %) | |||||||
Less: Net income (loss) attributable to noncontrolling interests | — | (0.1 | ) | 0.1 | (100 | %) | ||||||||
Net income (loss) attributable to The Phoenix Companies, Inc. | $ | (14.3 | ) | $ | (32.8 | ) | $ | 18.5 | (56 | %) |
• | Policy acquisition cost amortization decreased by $14.8 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The decrease in amortization is primarily the result of higher than expected mortality losses. |
• | Income tax benefit increased by $19.1 million in the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The current period income tax benefit includes $2.0 million of current period tax benefit and $18.4 million of a deferred tax benefit resulting from the application of intraperiod tax allocation rules. These rules allow for the benefitting of current year losses when an increase to the valuation allowance is not required due to existence of current year income reported elsewhere in the financial statements. |
• | Realized capital gains on investments decreased by $3.1 million during the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The most significant driver of the decrease in realized capital gains are losses results from the change in fair value of the embedded derivatives and the derivatives that are used to hedge the fixed indexed annuity business as a result of decreasing interest rates during the period. These losses were partially offset by increases in the derivatives that are linked to the increases in the equity markets and gains from the sale of available-for-sale debt securities in the three months ended June 30, 2014. |
• | Policy benefits, including policyholder dividends, increased by $16.8 million during the three months ended June 30, 2014 compared to the three months ended June 30, 2014. The increase is primarily due to modestly unfavorable mortality in the universal life products. |
Summary Consolidated Financial Data: | Six Months Ended | Increase (decrease) and | ||||||||||||
($ in millions) | June 30, | percentage change | ||||||||||||
2014 | 2013 | 2014 vs. 2013 | ||||||||||||
REVENUES: | ||||||||||||||
Premiums | $ | 162.8 | $ | 170.1 | $ | (7.3 | ) | (4 | %) | |||||
Fee income | 269.0 | 268.9 | 0.1 | — | % | |||||||||
Net investment income | 408.8 | 385.1 | 23.7 | 6 | % | |||||||||
Net realized investment gains (losses): | ||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (1.0 | ) | (0.9 | ) | (0.1 | ) | 11 | % | ||||||
Portion of OTTI gains (losses) recognized in other comprehensive income (“OCI”) | (0.2 | ) | (4.2 | ) | 4.0 | (95 | %) | |||||||
Net OTTI losses recognized in earnings | (1.2 | ) | (5.1 | ) | 3.9 | (76 | %) | |||||||
Net realized investment gains (losses), excluding OTTI losses | (20.4 | ) | (3.6 | ) | (16.8 | ) | NM | |||||||
Net realized investment gains (losses) | (21.6 | ) | (8.7 | ) | (12.9 | ) | 148 | % | ||||||
Total revenues | 819.0 | 815.4 | 3.6 | — | % | |||||||||
BENEFITS AND EXPENSES: | ||||||||||||||
Policy benefits | 534.5 | 591.6 | (57.1 | ) | (10 | %) | ||||||||
Policyholder dividends | 116.2 | 55.7 | 60.5 | 109 | % | |||||||||
Policy acquisition cost amortization | 39.8 | 77.5 | (37.7 | ) | (49 | %) | ||||||||
Interest expense on indebtedness | 14.2 | 14.8 | (0.6 | ) | (4 | %) | ||||||||
Other operating expenses | 183.4 | 172.6 | 10.8 | 6 | % | |||||||||
Total benefits and expenses | 888.1 | 912.2 | (24.1 | ) | (3 | %) | ||||||||
Income (loss) from continuing operations before income taxes | (69.1 | ) | (96.8 | ) | 27.7 | (29 | %) | |||||||
Income tax expense (benefit) | (24.0 | ) | 2.9 | (26.9 | ) | NM | ||||||||
Income (loss) from continuing operations | (45.1 | ) | (99.7 | ) | 54.6 | (55 | %) | |||||||
Income (loss) from discontinued operations, net of income taxes | (1.5 | ) | (2.0 | ) | 0.5 | (25 | %) | |||||||
Net income (loss) | (46.6 | ) | (101.7 | ) | 55.1 | (54 | %) | |||||||
Less: Net income (loss) attributable to noncontrolling interests | 1.0 | (0.2 | ) | 1.2 | NM | |||||||||
Net income (loss) attributable to The Phoenix Companies, Inc. | $ | (47.6 | ) | $ | (101.5 | ) | $ | 53.9 | (53 | %) |
• | Net investment income increased by $23.7 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in net investment income is primarily driven by a $15.6 million increase in income from limited partnerships and other investments due to increase in the valuation of the underlying funds. This increase in net investment income is partially offset by an increase in policyholder dividends as the partnership income associated with assets in the closed block is included within policyholder dividends. The average net investment income yield, excluding limited partnerships and other investments remains relatively consistent for the comparable periods. |
• | Policy acquisition cost amortization decreased for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The decrease in amortization is primarily the result of higher than expected mortality losses in the universal life product. |
• | Realized capital losses on investments increased by $12.9 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The most significant driver of the increase in realized capital losses is losses resulting from the change in fair value of the embedded derivatives of $12.1 million in the current year compared to a gain of $5.7 million in the prior period. There were also significant changes in the realized gains and losses on the derivatives that are used to hedge the fixed indexed annuity and variable annuity businesses that largely offset each other. This is primarily due to losses in 2014 on the derivatives used to hedge fixed indexed annuity due to decreasing interest rates, that were gains in the prior year as a result of increasing interest rates, and less significant losses on the hedges that are more closely linked to the equity markets given the more significant increase in the market in 2014. |
• | Policy benefits, including policyholder dividends, increased by $3.4 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The decrease in policy benefits is driven by favorable mortality in the closed block, which is then offset by an increase in policyholder dividends. |
• | Other operating expenses increased by $10.8 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in operating expenses is primarily the result of higher professional fees and outside consulting and legal services primarily as a result of the restatement of our prior period financial statements, preparation of delayed financial statements and remediation efforts. Professional fees and outside consulting and legal services continue to be a significant driver of operating expenses for the Company. |
• | Income tax benefit increased by $26.9 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The current period income tax benefit includes $0.6 million of current period tax expense and $24.6 million of a deferred tax benefit resulting from the application of intraperiod tax allocation rules. These rules allow for the benefitting of current year losses when an increase to the valuation allowance is not required due to existence of current year income reported elsewhere in the financial statements. |
Available-for-Sale Debt Securities Ratings by Percentage: | June 30, 2014 | |||||||||||||||
($ in millions) | % of | % of | ||||||||||||||
NAIC | S&P Equivalent | Fair | Fair | Amortized | Amortized | |||||||||||
Rating | Designation | Value | Value | Cost | Cost | |||||||||||
1 | AAA/AA/A | $ | 6,955.5 | 55.8 | % | $ | 6,560.9 | 55.9 | % | |||||||
2 | BBB | 4,628.3 | 37.2 | % | 4,348.7 | 37.1 | % | |||||||||
Total investment grade | 11,583.8 | 93.0 | % | 10,909.6 | 93.0 | % | ||||||||||
3 | BB | 537.7 | 4.3 | % | 505.9 | 4.3 | % | |||||||||
4 | B | 220.9 | 1.8 | % | 210.9 | 1.8 | % | |||||||||
5 | CCC and lower | 82.9 | 0.7 | % | 84.4 | 0.7 | % | |||||||||
6 | In or near default | 28.8 | 0.2 | % | 22.6 | 0.2 | % | |||||||||
Total available-for-sale debt securities | $ | 12,454.1 | 100.0 | % | $ | 11,733.4 | 100.0 | % |
Available-for-Sale Debt Securities by Type: | June 30, 2014 | ||||||||||||||||||
($ in millions) | Unrealized Gains (Losses) | ||||||||||||||||||
Fair | Amortized | Gross | Gross | ||||||||||||||||
Value | Cost | Gains | Losses | Net | |||||||||||||||
U.S. government and agency | $ | 452.8 | $ | 407.8 | $ | 45.4 | $ | (0.4 | ) | $ | 45.0 | ||||||||
State and political subdivision | 445.9 | 418.8 | 31.8 | (4.7 | ) | 27.1 | |||||||||||||
Foreign government | 229.7 | 203.3 | 26.4 | — | 26.4 | ||||||||||||||
Corporate | 8,122.6 | 7,615.6 | 559.9 | (52.9 | ) | 507.0 | |||||||||||||
CMBS | 684.1 | 630.6 | 53.7 | (0.2 | ) | 53.5 | |||||||||||||
RMBS | 1,996.4 | 1,946.7 | 70.4 | (20.7 | ) | 49.7 | |||||||||||||
Collateralized debt obligation (“CDO”) / collateralized loan obligation (“CLO”) | 239.1 | 236.8 | 5.4 | (3.1 | ) | 2.3 | |||||||||||||
Other ABS | 283.5 | 273.8 | 15.1 | (5.4 | ) | 9.7 | |||||||||||||
Total available-for-sale debt securities | $ | 12,454.1 | $ | 11,733.4 | $ | 808.1 | $ | (87.4 | ) | $ | 720.7 | ||||||||
Available-for-sale debt securities outside closed block: | |||||||||||||||||||
Unrealized gains | $ | 5,369.2 | $ | 5,032.2 | $ | 337.0 | $ | — | $ | 337.0 | |||||||||
Unrealized losses | 1,111.3 | 1,173.3 | — | (62.0 | ) | (62.0 | ) | ||||||||||||
Total outside the closed block | 6,480.5 | 6,205.5 | 337.0 | (62.0 | ) | 275.0 | |||||||||||||
Available-for-sale debt securities in closed block: | |||||||||||||||||||
Unrealized gains | 5,396.6 | 4,925.5 | 471.1 | — | 471.1 | ||||||||||||||
Unrealized losses | 577.0 | 602.4 | — | (25.4 | ) | (25.4 | ) | ||||||||||||
Total in the closed block | 5,973.6 | 5,527.9 | 471.1 | (25.4 | ) | 445.7 | |||||||||||||
Total available-for-sale debt securities | $ | 12,454.1 | $ | 11,733.4 | $ | 808.1 | $ | (87.4 | ) | $ | 720.7 |
Fair Value of Eurozone Exposure by Country: | June 30, 2014 | |||||||||||||||||
($ in millions) | Sovereign | Financial | % of Debt | |||||||||||||||
Debt | Institutions | All Other | Total | Securities [1] | ||||||||||||||
Spain | $ | — | $ | 11.6 | $ | 48.5 | $ | 60.1 | 0.5 | % | ||||||||
Ireland | — | — | 43.3 | 43.3 | 0.3 | % | ||||||||||||
Italy | — | — | 8.6 | 8.6 | 0.1 | % | ||||||||||||
Portugal | — | — | 0.9 | 0.9 | — | % | ||||||||||||
Greece | — | — | — | — | — | % | ||||||||||||
Total | — | 11.6 | 101.3 | 112.9 | 0.9 | % | ||||||||||||
All other Eurozone [2] | 4.5 | 84.1 | 274.5 | 363.1 | 2.8 | % | ||||||||||||
Total | $ | 4.5 | $ | 95.7 | $ | 375.8 | $ | 476.0 | 3.7 | % |
[1] | Inclusive of available-for-sale debt securities and short-term investments. |
[2] | Includes Belgium, Finland, France, Germany, Latvia, Luxembourg and Netherlands. |
Residential Mortgage-Backed Securities: | |||||||||||||||||||||||||||||||
($ in millions) | June 30, 2014 | ||||||||||||||||||||||||||||||
NAIC Rating | |||||||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | ||||||||||||||||||||||||||
AAA/ | In or | ||||||||||||||||||||||||||||||
Amortized | Market | % Invested | AA/ | CCC and | Near | % Closed | |||||||||||||||||||||||||
Cost [1] | Value [1] | Assets [2] | A | BBB | BB | B | Below | Default | Block | ||||||||||||||||||||||
Collateral | |||||||||||||||||||||||||||||||
Agency | $ | 1,464.3 | $ | 1,499.8 | 9.0 | % | 100.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 44.9 | % | |||||||||||
Prime | 199.1 | 206.4 | 1.2 | % | 75.8 | % | 17.9 | % | 4.7 | % | 1.6 | % | 0.0 | % | 0.0 | % | 45.8 | % | |||||||||||||
Alt-A | 197.4 | 200.1 | 1.3 | % | 73.7 | % | 10.8 | % | 9.4 | % | 3.3 | % | 2.8 | % | 0.0 | % | 31.9 | % | |||||||||||||
Sub-prime | 111.8 | 115.9 | 0.7 | % | 90.8 | % | 3.4 | % | 1.0 | % | 4.8 | % | 0.0 | % | 0.0 | % | 10.3 | % | |||||||||||||
Total | $ | 1,972.6 | $ | 2,022.2 | 12.2 | % | 94.4 | % | 3.1 | % | 1.5 | % | 0.7 | % | 0.3 | % | 0.0 | % | 41.7 | % |
[1] | Individual categories may not agree with the Debt Securities by Type table on previous page due to nature of underlying collateral. In addition, RMBS holdings in this exhibit include $25.8 million classified as fair value investments on the consolidated balance sheets. For these fair value investments, there is no impact to OCI as carrying value is equal to market value. |
[2] | Percentages based on market value of total investments, including cash and cash equivalents. |
Commercial Mortgage-Backed Securities: | |||||||||||||||||||||||||||||||
($ in millions) | June 30, 2014 | ||||||||||||||||||||||||||||||
Year of Issue | |||||||||||||||||||||||||||||||
S&P Equivalent | Amortized | Market | % Invested | Post- | 2004 and | % Closed | |||||||||||||||||||||||||
Rating | Designation | Cost | Value [1] | Assets [2] | 2007 | 2007 | 2006 | 2005 | Prior | Block | |||||||||||||||||||||
NAIC-1 | AAA/AA/A | $ | 628.5 | $ | 680.6 | 4.1 | % | 57.3 | % | 5.5 | % | 18.5 | % | 10.9 | % | 7.8 | % | 37.9 | % | ||||||||||||
NAIC-2 | BBB | 7.0 | 7.1 | 0.0 | % | 0.0 | % | 0.0 | % | 47.0 | % | 53.0 | % | 0.0 | % | 31.8 | % | ||||||||||||||
NAIC-3 | BB | 0.1 | 0.1 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | 0.0 | % | 50.0 | % | ||||||||||||||
NAIC-4 | B | 11.7 | 13.3 | 0.1 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | 53.6 | % | ||||||||||||||
NAIC-5 | CCC and below | — | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||
NAIC-6 | In or near default | 6.2 | 8.1 | 0.0 | % | 0.0 | % | 5.5 | % | 0.0 | % | 0.0 | % | 94.5 | % | 13.2 | % | ||||||||||||||
Total | $ | 653.5 | $ | 709.2 | 4.2 | % | 55.0 | % | 5.3 | % | 18.2 | % | 11.1 | % | 10.4 | % | 37.9 | % |
[1] | Includes commercial mortgage-backed CDOs with amortized cost and market values of $18.9 million and $21.0 million, respectively. CMBS holdings in this exhibit include $4.1 million classified as fair value investments on the consolidated balance sheets. For these fair value investments, there is no impact to OCI as carrying value is equal to market value. |
[2] | Percentages based on market value of total investments, including cash and cash equivalents. |
Sources and Types of | Three Months Ended | Six Months Ended | |||||||||||||
Net Realized Investment Gains (Losses): | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Total other-than-temporary debt impairments | $ | (0.5 | ) | $ | — | $ | (0.5 | ) | $ | (0.9 | ) | ||||
Portion of gains (losses) recognized in OCI | — | (2.5 | ) | (0.2 | ) | (4.2 | ) | ||||||||
Net debt impairments recognized in earnings | $ | (0.5 | ) | $ | (2.5 | ) | $ | (0.7 | ) | $ | (5.1 | ) | |||
Debt security impairments: | |||||||||||||||
U.S. government and agency | $ | — | $ | — | $ | — | $ | — | |||||||
State and political subdivision | — | — | — | — | |||||||||||
Foreign government | — | — | — | — | |||||||||||
Corporate | (0.5 | ) | — | (0.7 | ) | — | |||||||||
CMBS | — | (1.9 | ) | — | (1.9 | ) | |||||||||
RMBS | — | (1.1 | ) | — | (2.9 | ) | |||||||||
CDO/CLO | — | 0.5 | — | (0.3 | ) | ||||||||||
Other ABS | — | — | — | — | |||||||||||
Net debt security impairments | (0.5 | ) | (2.5 | ) | (0.7 | ) | (5.1 | ) | |||||||
Equity security impairments | (0.5 | ) | — | (0.5 | ) | — | |||||||||
Limited partnerships and other investment impairments | — | — | — | — | |||||||||||
Impairment losses | (1.0 | ) | (2.5 | ) | (1.2 | ) | (5.1 | ) | |||||||
Debt security transaction gains | 8.0 | 1.0 | 18.7 | 12.0 | |||||||||||
Debt security transaction losses | (0.9 | ) | (1.3 | ) | (3.8 | ) | (2.7 | ) | |||||||
Equity security transaction gains | — | 0.7 | 1.9 | 1.0 | |||||||||||
Equity security transaction losses | — | (1.2 | ) | — | (1.2 | ) | |||||||||
Limited partnerships and other investment transaction gains | — | — | — | — | |||||||||||
Limited partnerships and other investment transaction losses | — | — | — | — | |||||||||||
Net transaction gains (losses) | 7.1 | (0.8 | ) | 16.8 | 9.1 | ||||||||||
Derivative instruments | (2.2 | ) | 4.2 | (26.0 | ) | (19.7 | ) | ||||||||
Embedded derivatives [1] | (0.4 | ) | 6.2 | (12.1 | ) | 5.7 | |||||||||
Assets valued at fair value | 0.6 | 0.1 | 0.9 | 1.3 | |||||||||||
Net realized investment gains (losses), excluding impairment losses | 5.1 | 9.7 | (20.4 | ) | (3.6 | ) | |||||||||
Net realized investment gains (losses), including impairment losses | $ | 4.1 | $ | 7.2 | $ | (21.6 | ) | $ | (8.7 | ) |
[1] | Includes the change in fair value of embedded derivatives associated with fixed index annuity indexed crediting feature and variable annuity riders. See Note 10 to our consolidated interim unaudited financial statements in this Form 10-Q for additional disclosures. |
Credit Losses Recognized in Earnings on Available-for-Sale Debt Securities | Three Months Ended | Six Months Ended | |||||||||||||
for which a Portion of the OTTI Loss was Recognized in OCI: | June 30, | June 30, | |||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Balance, beginning of period | $ | (63.6 | ) | $ | (70.7 | ) | $ | (72.0 | ) | $ | (72.6 | ) | |||
Add: Credit losses on securities not previously impaired [1] | — | — | — | — | |||||||||||
Add: Credit losses on securities previously impaired [1] | — | (1.8 | ) | — | (3.4 | ) | |||||||||
Less: Credit losses on securities impaired due to intent to sell | — | — | — | — | |||||||||||
Less: Credit losses on securities sold | 0.5 | — | 8.9 | 3.5 | |||||||||||
Less: Increases in cash flows expected on previously impaired securities | — | — | — | — | |||||||||||
Balance, end of period | $ | (63.1 | ) | $ | (72.5 | ) | $ | (63.1 | ) | $ | (72.5 | ) |
[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 income and comprehensive income. |
Available-for-Sale Debt Securities Non-Credit OTTI Losses in AOCI, by Security Type: | June 30, 2014 | December 31, 2013 | |||||
($ in millions) | |||||||
U.S. government and agency | $ | — | $ | — | |||
State and political subdivision | (1.1 | ) | (1.1 | ) | |||
Foreign government | — | — | |||||
Corporate | (8.6 | ) | (8.8 | ) | |||
CMBS | (3.4 | ) | (3.4 | ) | |||
RMBS | (25.6 | ) | (26.7 | ) | |||
CDO/CLO | (13.9 | ) | (15.3 | ) | |||
Other ABS | (1.8 | ) | (1.8 | ) | |||
Total available-for-sale debt securities non-credit OTTI losses in AOCI | $ | (54.4 | ) | $ | (57.1 | ) |
[1] | Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment. |
Duration of Gross Unrealized Losses on | June 30, 2014 | ||||||||||||||
Securities Outside Closed Block: | 0 – 6 | 6 – 12 | Over 12 | ||||||||||||
($ in millions) | Total | Months | Months | Months | |||||||||||
Available-for-sale debt securities outside closed block | |||||||||||||||
Total fair value | $ | 1,111.3 | $ | 78.8 | $ | 118.9 | $ | 913.6 | |||||||
Total amortized cost | 1,173.3 | 80.2 | 128.8 | 964.3 | |||||||||||
Unrealized losses | $ | (62.0 | ) | $ | (1.4 | ) | $ | (9.9 | ) | $ | (50.7 | ) | |||
Number of securities [1] | 307 | 29 | 36 | 242 | |||||||||||
Investment grade: | |||||||||||||||
Unrealized losses | $ | (55.9 | ) | $ | (1.1 | ) | $ | (9.6 | ) | $ | (45.2 | ) | |||
Below investment grade: | |||||||||||||||
Unrealized losses | $ | (6.1 | ) | $ | (0.3 | ) | $ | (0.3 | ) | $ | (5.5 | ) | |||
Available-for-sale equity securities outside closed block | |||||||||||||||
Unrealized losses | $ | (0.5 | ) | $ | (0.1 | ) | $ | — | $ | (0.4 | ) | ||||
Number of securities [1] | 13 | 2 | — | 11 |
[1] | Certain securities are held in both the open and closed blocks. |
Duration of Gross Unrealized Losses on | June 30, 2014 | ||||||||||||||
Securities Outside Closed Block: | 0 – 6 | 6 – 12 | Over 12 | ||||||||||||
($ in millions) | Total | Months | Months | Months | |||||||||||
Available-for-sale debt securities outside closed block | |||||||||||||||
Unrealized losses over 20% of cost | $ | (29.3 | ) | $ | (4.2 | ) | $ | (9.1 | ) | $ | (16.0 | ) | |||
Number of securities [1] | 21 | 4 | 6 | 11 | |||||||||||
Investment grade: | |||||||||||||||
Unrealized losses over 20% of cost | $ | (26.1 | ) | $ | (4.2 | ) | $ | (8.1 | ) | $ | (13.8 | ) | |||
Below investment grade: | |||||||||||||||
Unrealized losses over 20% of cost | $ | (3.2 | ) | $ | — | $ | (1.0 | ) | $ | (2.2 | ) | ||||
Available-for-sale equity securities outside closed block | |||||||||||||||
Unrealized losses over 20% of cost | $ | (0.4 | ) | $ | — | $ | (0.1 | ) | $ | (0.3 | ) | ||||
Number of securities [1] | 11 | — | 1 | 10 |
[1] | Certain securities are held in both the open and closed blocks. |
Duration of Gross Unrealized Losses on | June 30, 2014 | ||||||||||||||
Securities Inside Closed Block: | 0 – 6 | 6 – 12 | Over 12 | ||||||||||||
($ in millions) | Total | Months | Months | Months | |||||||||||
Available-for-sale debt securities inside closed block | |||||||||||||||
Total fair value | $ | 577.0 | $ | 31.6 | $ | 32.6 | $ | 512.8 | |||||||
Total amortized cost | 602.4 | 32.5 | 33.8 | 536.1 | |||||||||||
Unrealized losses | $ | (25.4 | ) | $ | (0.9 | ) | $ | (1.2 | ) | $ | (23.3 | ) | |||
Number of securities [1] | 153 | 13 | 10 | 130 | |||||||||||
Investment grade: | |||||||||||||||
Unrealized losses | $ | (21.1 | ) | $ | (0.7 | ) | $ | (0.8 | ) | $ | (19.6 | ) | |||
Below investment grade: | |||||||||||||||
Unrealized losses | $ | (4.3 | ) | $ | (0.2 | ) | $ | (0.4 | ) | $ | (3.7 | ) | |||
Available-for-sale equity securities inside closed block | |||||||||||||||
Unrealized losses | $ | (0.5 | ) | $ | (0.2 | ) | $ | — | $ | (0.3 | ) | ||||
Number of securities [1] | 12 | 4 | — | 8 |
[1] | Certain securities are held in both the open and closed blocks. |
Duration of Gross Unrealized Losses on | June 30, 2014 | ||||||||||||||
Securities Inside Closed Block: | 0 – 6 | 6 – 12 | Over 12 | ||||||||||||
($ in millions) | Total | Months | Months | Months | |||||||||||
Available-for-sale debt securities inside closed block | |||||||||||||||
Unrealized losses over 20% of cost | $ | (4.9 | ) | $ | (4.0 | ) | $ | (0.8 | ) | $ | (0.1 | ) | |||
Number of securities [1] | 6 | 2 | 1 | 3 | |||||||||||
Investment grade: | |||||||||||||||
Unrealized losses over 20% of cost | $ | (4.1 | ) | $ | (4.0 | ) | $ | — | $ | (0.1 | ) | ||||
Below investment grade: | |||||||||||||||
Unrealized losses over 20% of cost | $ | (0.8 | ) | $ | — | $ | (0.8 | ) | $ | — | |||||
Available-for-sale equity securities inside closed block | |||||||||||||||
Unrealized losses over 20% of cost | $ | (0.4 | ) | $ | (0.1 | ) | $ | — | $ | (0.3 | ) | ||||
Number of securities [1] | 8 | 1 | — | 7 |
[1] | Certain securities are held in both the open and closed blocks. |
Summary Consolidated Cash Flows: | Six Months Ended | ||||||
($ in millions) | June 30, | ||||||
2014 | 2013 | ||||||
Cash provided by (used for) operating activities | $ | (281.2 | ) | $ | (260.4 | ) | |
Cash provided by (used for) investing activities | (212.6 | ) | 58.9 | ||||
Cash provided by (used for) financing activities | 329.0 | 324.9 | |||||
Change in cash and cash equivalents | $ | (164.8 | ) | $ | 123.4 |
Financial Strength Rating | Senior Debt Rating | |||||||
Rating Agency [1] | of Phoenix Life [2] | Outlook | of Phoenix | Outlook | ||||
A.M. Best Company, Inc. | B | Stable | b | Negative | ||||
Standard & Poor’s | B+ | Negative | B- | Negative |
[1] | On January 14, 2014, Moody’s Investor Services withdrew all ratings of Phoenix including the Caa1 senior debt rating of Phoenix and the Ba2 financial strength rating of the Company’s life insurance subsidiaries and the B1 (hyb) debt rating of Phoenix Life’s surplus notes. |
[2] | PHL Variable is also rated by A.M. Best Company, Inc. and Standard & Poor’s. Phoenix Life and Annuity Company and American Phoenix Life and Reassurance Company are only rated by A.M. Best Company, Inc. All subsidiaries have the same rating as Phoenix Life. |
Consolidated Balance Sheet: | Increase (decrease) and | |||||||||||||
($ in millions) | June 30, 2014 | December 31, 2013 | percentage change | |||||||||||
2014 vs. 2013 | ||||||||||||||
ASSETS | ||||||||||||||
Available-for-sale debt securities, at fair value | $ | 12,454.1 | $ | 11,808.6 | $ | 645.5 | 5 | % | ||||||
Available-for-sale equity securities, at fair value | 68.5 | 61.8 | 6.7 | 11 | % | |||||||||
Short-term investments | 504.8 | 361.6 | 143.2 | 40 | % | |||||||||
Limited partnerships and other investments | 557.9 | 561.9 | (4.0 | ) | (1 | %) | ||||||||
Policy loans, at unpaid principal balances | 2,325.4 | 2,350.3 | (24.9 | ) | (1 | %) | ||||||||
Derivative instruments | 175.0 | 243.1 | (68.1 | ) | (28 | %) | ||||||||
Fair value investments | 207.4 | 210.8 | (3.4 | ) | (2 | %) | ||||||||
Total investments | 16,293.1 | 15,598.1 | 695.0 | 4 | % | |||||||||
Cash and cash equivalents | 330.2 | 496.4 | (166.2 | ) | (33 | %) | ||||||||
Accrued investment income | 185.7 | 170.4 | 15.3 | 9 | % | |||||||||
Reinsurance recoverable | 594.7 | 603.3 | (8.6 | ) | (1 | %) | ||||||||
Deferred policy acquisition costs | 869.0 | 940.6 | (71.6 | ) | (8 | %) | ||||||||
Deferred income taxes, net | 29.4 | 70.0 | (40.6 | ) | (58 | %) | ||||||||
Other assets | 279.0 | 299.9 | (20.9 | ) | (7 | %) | ||||||||
Discontinued operations assets | 39.9 | 43.6 | (3.7 | ) | (8 | %) | ||||||||
Separate account assets | 3,285.4 | 3,402.3 | (116.9 | ) | (3 | %) | ||||||||
Total assets | $ | 21,906.4 | $ | 21,624.6 | $ | 281.8 | 1 | % | ||||||
LIABILITIES | ||||||||||||||
Policy liabilities and accruals | $ | 12,429.0 | $ | 12,437.6 | $ | (8.6 | ) | — | % | |||||
Policyholder deposit funds | 3,658.7 | 3,429.7 | 229.0 | 7 | % | |||||||||
Dividend obligations | 895.6 | 705.9 | 189.7 | 27 | % | |||||||||
Indebtedness | 378.9 | 378.8 | 0.1 | — | % | |||||||||
Pension and postretirement liabilities | 302.5 | 315.9 | (13.4 | ) | (4 | %) | ||||||||
Other liabilities | 376.4 | 333.0 | 43.4 | 13 | % | |||||||||
Discontinued operations liabilities | 35.1 | 37.7 | (2.6 | ) | (7 | %) | ||||||||
Separate account liabilities | 3,285.4 | 3,402.3 | (116.9 | ) | (3 | %) | ||||||||
Total liabilities | 21,361.6 | 21,040.9 | 320.7 | 2 | % | |||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||
Common stock | 0.1 | 0.1 | — | — | % | |||||||||
Additional paid-in capital | 2,632.7 | 2,633.1 | (0.4 | ) | — | % | ||||||||
Accumulated other comprehensive income (loss) | (177.2 | ) | (185.2 | ) | 8.0 | (4 | %) | |||||||
Accumulated deficit | (1,739.7 | ) | (1,692.1 | ) | (47.6 | ) | 3 | % | ||||||
Treasury stock | (182.9 | ) | (182.9 | ) | — | — | % | |||||||
Total The Phoenix Companies, Inc. stockholders’ equity | 533.0 | 573.0 | (40.0 | ) | (7 | %) | ||||||||
Noncontrolling interests | 11.8 | 10.7 | 1.1 | 10 | % | |||||||||
Total stockholders’ equity | 544.8 | 583.7 | (38.9 | ) | (7 | %) | ||||||||
Total liabilities and stockholders’ equity | $ | 21,906.4 | $ | 21,624.6 | $ | 281.8 | 1 | % |
Composition of Deferred Policy Acquisition Costs | Increase (decrease) and | |||||||||||||
by Product: | June 30, 2014 | December 31, 2013 | percentage change | |||||||||||
($ in millions) | 2014 vs. 2013 | |||||||||||||
Variable universal life | $ | 122.1 | $ | 128.1 | $ | (6.0 | ) | (5 | %) | |||||
Universal life | 159.9 | 209.7 | (49.8 | ) | (24 | %) | ||||||||
Variable annuities | 76.3 | 84.1 | (7.8 | ) | (9 | %) | ||||||||
Fixed annuities | 199.7 | 191.4 | 8.3 | 4 | % | |||||||||
Traditional life | 311.0 | 327.3 | (16.3 | ) | (5 | %) | ||||||||
Total deferred policy acquisition costs | $ | 869.0 | $ | 940.6 | $ | (71.6 | ) | (8 | %) |
Annuity Funds on Deposit: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 5,525.2 | $ | 5,215.4 | $ | 5,502.4 | $ | 5,042.1 | |||||||
Deposits | 201.0 | 174.0 | 371.4 | 347.7 | |||||||||||
Performance and interest credited | 103.1 | 17.6 | 165.2 | 185.0 | |||||||||||
Fees | (17.7 | ) | (16.6 | ) | (36.0 | ) | (33.1 | ) | |||||||
Benefits and surrenders | (188.6 | ) | (173.8 | ) | (380.0 | ) | (325.1 | ) | |||||||
Balance, end of period | $ | 5,623.0 | $ | 5,216.6 | $ | 5,623.0 | $ | 5,216.6 |
Variable Universal Life Funds on Deposit: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 1,080.1 | $ | 1,044.2 | $ | 1,089.3 | $ | 1,014.3 | |||||||
Deposits | 16.1 | 18.6 | 33.7 | 37.8 | |||||||||||
Performance and interest credited | 36.0 | 2.0 | 49.0 | 60.3 | |||||||||||
Fees and cost of insurance | (17.6 | ) | (18.9 | ) | (35.8 | ) | (37.2 | ) | |||||||
Benefits and surrenders | (21.9 | ) | (29.1 | ) | (43.5 | ) | (58.4 | ) | |||||||
Balance, end of period | $ | 1,092.7 | $ | 1,016.8 | $ | 1,092.7 | $ | 1,016.8 |
Universal Life Funds on Deposit: | Three Months Ended | Six Months Ended | |||||||||||||
($ in millions) | June 30, | June 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Balance, beginning of period | $ | 1,809.0 | $ | 1,846.5 | $ | 1,818.2 | $ | 1,837.9 | |||||||
Deposits | 77.3 | 81.3 | 164.8 | 188.3 | |||||||||||
Interest credited | 18.2 | 19.0 | 34.7 | 37.6 | |||||||||||
Fees and cost of insurance | (86.3 | ) | (86.1 | ) | (173.5 | ) | (174.7 | ) | |||||||
Benefits and surrenders | (21.0 | ) | (18.6 | ) | (47.0 | ) | (47.0 | ) | |||||||
Balance, end of period | $ | 1,797.2 | $ | 1,842.1 | $ | 1,797.2 | $ | 1,842.1 |
Exhibit | ||
12 | Ratio of Earnings to Fixed Charges* | |
31.1 | Certification of James D. Wehr, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
31.2 | Certification of Bonnie J. Malley, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
32 | Certification by James D. Wehr, Chief Executive Officer and Bonnie J. Malley, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
101.INS | XBRL Instance Document* | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
* | Filed herewith |
Date: November 7, 2014 | By: | /s/ Bonnie J. Malley |
Bonnie J. Malley | ||
Executive Vice President and Chief Financial Officer |
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS [1] | |||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||||||||
($ amounts in millions) | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | (34.1 | ) | $ | (69.1 | ) | $ | 16.7 | $ | (156.0 | ) | $ | 2.7 | $ | (41.6 | ) | $ | (73.9 | ) | ||||||||
Less: Equity in earnings (losses) of limited partnership and other investments | 5.8 | 37.3 | 52.6 | 59.5 | 44.6 | 57.4 | (41.3 | ) | |||||||||||||||||||
Add: Distributed earnings of limited partnership and other investments | — | — | 24.9 | 28.7 | 33.1 | 61.3 | 20.6 | ||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in undistributed earnings of limited partnership and other investments | $ | (39.9 | ) | $ | (106.4 | ) | $ | (11.0 | ) | $ | (186.8 | ) | $ | (8.8 | ) | $ | (37.7 | ) | $ | (12.0 | ) | ||||||
Fixed Charges: | |||||||||||||||||||||||||||
Interest expense on indebtedness | $ | 7.1 | $ | 14.1 | $ | 28.9 | $ | 30.8 | $ | 31.8 | $ | 31.8 | $ | 33.1 | |||||||||||||
Interest expense on attributable to rentals | — | 0.1 | 0.2 | 0.3 | 0.4 | 0.5 | 0.7 | ||||||||||||||||||||
Total fixed charges [2] | 7.1 | 14.2 | 29.1 | 31.1 | 32.2 | 32.3 | 33.8 | ||||||||||||||||||||
Interest credited on policyholder contract balances | 34.6 | 69.8 | 138.0 | 122.6 | 115.2 | 124.2 | 136.2 | ||||||||||||||||||||
Total fixed charges, including interest credited to policyholders | $ | 41.7 | $ | 84.0 | $ | 167.1 | $ | 153.7 | $ | 147.4 | $ | 156.5 | $ | 170.0 | |||||||||||||
Income (loss) from continuing operations before income taxes, equity in undistributed earnings of limited partnership and other investments and fixed charges | $ | 1.8 | $ | (22.4 | ) | $ | 156.1 | $ | (33.1 | ) | $ | 138.6 | $ | 118.8 | $ | 158.0 | |||||||||||
Ratio of earnings to fixed charges and preferred stock dividends | — | (0.3 | ) | 0.9 | (0.2 | ) | 0.9 | 0.8 | 0.9 | ||||||||||||||||||
Additional earnings required to achieve 1:1 ratio coverage | $ | 39.9 | $ | 106.4 | $ | 11.0 | $ | 186.8 | $ | 8.8 | $ | 37.7 | $ | 12.0 | |||||||||||||
SUPPLEMENTAL RATIO [3] --- Ratio of earnings to fixed charges and preferred stock dividends exclusive of interest credited on policyholder contract balances: | |||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in undistributed earnings of limited partnership and other investments | $ | (39.9 | ) | $ | (106.4 | ) | $ | (11.0 | ) | $ | (186.8 | ) | $ | (8.8 | ) | $ | (37.7 | ) | $ | (12.0 | ) | ||||||
Fixed Charges: | |||||||||||||||||||||||||||
Total fixed charges, as above | $ | 7.1 | $ | 14.2 | $ | 29.1 | $ | 31.1 | $ | 32.2 | $ | 32.3 | $ | 33.8 | |||||||||||||
Income (loss) from continuing operations before income taxes, equity in undistributed earnings of limited partnership and other investments and fixed charges | $ | (32.8 | ) | $ | (92.2 | ) | $ | 18.1 | $ | (155.7 | ) | $ | 23.4 | $ | (5.4 | ) | $ | 21.8 | |||||||||
Ratio of earnings to fixed charges and preferred stock dividends | (4.6 | ) | (6.5 | ) | 0.6 | (5.0 | ) | 0.7 | (0.2 | ) | 0.6 | ||||||||||||||||
Additional earnings required to achieve 1:1 ratio coverage | $ | 39.9 | $ | 106.4 | $ | 11.0 | $ | 186.8 | $ | 8.8 | $ | 37.7 | $ | 12.0 |
[1] | We had no dividends on preferred stock for the years 2009 to 2013. |
[2] | Total fixed charges consist of interest expense on indebtedness and an interest factor attributable to rentals. The interest factor attributable to rentals consists of one-third of rental charges, which we deem to be representative of the interest factor inherent in rents. |
[3] | This ratio is disclosed for the convenience of investors and may be more comparable to the ratios disclosed by other issuers of fixed income securities. |
Date: November 7, 2014 | /s/ James D. Wehr | ||
Name: | James D. Wehr | ||
Title: | President and Chief Executive Officer |
Date: November 7, 2014 | /s/ Bonnie J. Malley | ||
Name: | Bonnie J. Malley | ||
Title: | Executive Vice President and Chief Financial Officer |
/s/ James D. Wehr | /s/ Bonnie J. Malley | ||||
Name: | James D. Wehr | Name: | Bonnie J. Malley | ||
Title: | President and Chief Executive Officer | Title: | Executive Vice President and Chief Financial Officer | ||
Date: | November 7, 2014 | Date: | November 7, 2014 |
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Accumulated Other Comprehensive Income (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2014
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | Changes in each component of AOCI attributable to the Company for the periods ended June 30, 2014 and 2013 are as follows below (net of tax):
———————
|
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Reclassification out of Accumulated Other Comprehensive Income | Reclassifications from AOCI consist of the following:
|
Closed Block Assets and Liabilities (Details) (USD $)
In Millions, unless otherwise specified |
Jun. 30, 2014
|
Dec. 31, 2013
|
Jun. 25, 2011
|
|||||
---|---|---|---|---|---|---|---|---|
Closed Block Assets And Liabilities | ||||||||
Available-for-sale debt securities | $ 5,973.6 | $ 5,804.6 | $ 4,773.1 | |||||
Available-for-sale equity securities | 29.0 | 25.8 | 0 | |||||
Short-term investments | 144.8 | 106.9 | 0 | |||||
Limited partnerships and other investments | 347.5 | 345.3 | 399.0 | |||||
Policy loans | 1,178.6 | 1,201.6 | 1,380.0 | |||||
Fair value investments | 44.7 | 40.3 | 0 | |||||
Total closed block investments | 7,718.2 | 7,524.5 | 6,552.1 | |||||
Cash and cash equivalents | 35.3 | 78.2 | 0 | |||||
Accrued investment income | 81.3 | 81.7 | 106.8 | |||||
Reinsurance recoverable | 29.9 | 26.8 | 0 | |||||
Deferred income taxes | 273.2 | 284.9 | 389.4 | |||||
Other closed block assets | 72.8 | 58.2 | 41.4 | |||||
Total closed block assets | 8,210.7 | 8,054.3 | 7,089.7 | |||||
Policy liabilities and accruals | 8,162.3 | 8,257.2 | 8,301.7 | |||||
Policyholder dividends payable | 207.1 | 207.8 | 325.1 | |||||
Policy dividend obligation | 688.2 | 497.9 | 0 | |||||
Other closed block liabilities | 114.6 | 65.5 | 12.3 | |||||
Total closed block liabilities | 9,172.2 | 9,028.4 | 8,639.1 | |||||
Excess of closed block liabilities over closed block assets | 961.5 | [1] | 974.1 | [1] | 1,549.4 | [1] | ||
Less: Excess of closed block assets over closed block liabilities attributable to noncontrolling interests | (7.9) | (7.4) | ||||||
Excess of closed block liabilities over closed block assets attributable to The Phoenix Companies, Inc. | $ 969.4 | $ 981.5 | ||||||
|
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