Fair Value

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows:



Level Input		Input Definition
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II		Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in the consolidated balance sheets:

Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I.

Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level I or Level II inputs for the determination of fair value to facilitate fair value measurements and disclosures. United States Government securities represent Level I securities, while Level II securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt securities, that are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets.

Equity securities, available-for-sale: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.

Other invested assets, current: Other invested assets, current include securities held in rabbi trusts that are classified as trading. These securities are designated Level I securities as fair values are based on quoted market prices.

Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value measurements and disclosures.

Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We independently verify prices provided by the counterparties using valuation models that incorporate market observable inputs for similar derivative transactions. Derivatives are designated as Level II securities. Derivatives presented within the fair value hierarchy table below are presented on a gross basis and not on a master netting basis by counterparty.

A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016 is as follows:



	Level I		Level II			Level III		Total
June 30, 2017
Assets:
Cash equivalents	$	2,625.2	$	—		$	—	$	2,625.2
Investments available-for-sale:
Fixed maturity securities:
United States Government securities	379.3		—			—		379.3
Government sponsored securities	5.0		42.4			—		47.4
States, municipalities and political subdivisions, tax-exempt	—		5,939.2			—		5,939.2
Corporate securities	737.6		8,889.2			238.2		9,865.0
Residential mortgage-backed securities	3.1		2,235.4			2.9		2,241.4
Commercial mortgage-backed securities	—		97.8			—		97.8
Other securities	53.4		814.7			34.8		902.9
Total fixed maturity securities	1,178.4		18,018.7			275.9		19,473.0
Equity securities	1,509.4		102.2			244.5		1,856.1
Other invested assets, current	19.1		—			—		19.1
Securities lending collateral	857.0		357.5			—		1,214.5
Derivatives	—		311.7			—		311.7
Total assets	$	6,189.1	$	18,790.1		$	520.4	$	25,499.6
Liabilities:
Derivatives	$	—	$	(382.2	)	$	—	$	(382.2	)
Total liabilities	$	—	$	(382.2	)	$	—	$	(382.2	)

December 31, 2016
Assets:
Cash equivalents	$	1,546.0	$	—		$	—	$	1,546.0
Investments available-for-sale:
Fixed maturity securities:
United States Government securities	558.5		—			—		558.5
Government sponsored securities	—		40.0			—		40.0
States, municipalities and political subdivisions, tax-exempt	—		6,105.3			—		6,105.3
Corporate securities	79.9		7,775.9			238.8		8,094.6
Residential mortgage-backed securities	—		1,917.3			12.0		1,929.3
Commercial mortgage-backed securities	—		214.3			—		214.3
Other securities	53.4		649.3			42.8		745.5
Total fixed maturity securities	691.8		16,702.1			293.6		17,687.5
Equity securities	1,200.2		111.9			187.8		1,499.9
Other invested assets, current	15.8		—			—		15.8
Securities lending collateral	726.0		353.8			—		1,079.8
Derivatives	—		758.7			—		758.7
Total assets	$	4,179.8	$	17,926.5		$	481.4	$	22,587.7
Liabilities:
Derivatives	$	—	$	(241.9	)	$	—	$	(241.9	)
Total liabilities	$	—	$	(241.9	)	$	—	$	(241.9	)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the three months ended June 30, 2017 and 2016 is as follows:



	Corporate Securities			Residential Mortgage- backed Securities			Other Debt Securities			Equity Securities			Total
Three months ended June 30, 2017
Beginning balance at April 1, 2017	$	230.0		$	7.2		$	28.6		$	223.3		$	489.1
Total gains (losses):
Recognized in net income	0.9			—			—			(0.5		)	0.4
Recognized in accumulated other comprehensive loss	0.1			—			0.1			0.4			0.6
Purchases	25.4			—			21.3			21.3			68.0
Sales	(7.3		)	(3.9		)	(0.8		)	—			(12.0		)
Settlements	(16.0		)	(0.1		)	(0.7		)	—			(16.8		)
Transfers into Level III	5.1			1.2			—			—			6.3
Transfers out of Level III	—			(1.5		)	(13.7		)	—			(15.2		)
Ending balance at June 30, 2017	$	238.2		$	2.9		$	34.8		$	244.5		$	520.4
Change in unrealized losses included in net income related to assets still held for the three months ended June 30, 2017	$	(0.9	)	$	—		$	—		$	—		$	(0.9	)

Three months ended June 30, 2016
Beginning balance at April 1, 2016	$	232.2		$	—		$	34.8		$	144.5		$	411.5
Total (losses) gains:
Recognized in net income	(0.7		)	—			—			—			(0.7		)
Recognized in accumulated other comprehensive loss	0.2			—			0.1			1.2			1.5
Purchases	33.9			—			—			28.1			62.0
Sales	(0.8		)	—			—			(8.1		)	(8.9		)
Settlements	(10.3		)	—			—			—			(10.3		)
Transfers into Level III	0.6			1.6			7.6			—			9.8
Transfers out of Level III	(47.0		)	—			(10.2		)	—			(57.2		)
Ending balance at June 30, 2016	$	208.1		$	1.6		$	32.3		$	165.7		$	407.7
Change in unrealized losses included in net income related to assets still held for the three months ended June 30, 2016	$	(0.1	)	$	—		$	—		$	—		$	(0.1	)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the six months ended June 30, 2017 and 2016 is as follows:



	Corporate Securities			Residential Mortgage- backed Securities			Commercial Mortgage- backed Securities			Other Securities			Equity Securities			Total
Six Months Ended June 30, 2017
Beginning balance at January 1, 2017	$	238.8		$	12.0		$	—		$	42.8		$	187.8		$	481.4
Total (losses) gains:
Recognized in net income	(0.4		)	—			—			—			(0.2		)	(0.6		)
Recognized in accumulated other comprehensive loss	3.7			—			—			0.2			—			3.9
Purchases	60.2			1.5			—			30.8			57.3			149.8
Sales	(39.9		)	(5.4		)	—			(0.8		)	(0.4		)	(46.5		)
Settlements	(35.6		)	(0.3		)	—			(1.1		)	—			(37.0		)
Transfers into Level III	13.4			1.2			—			1.2			—			15.8
Transfers out of Level III	(2.0		)	(6.1		)	—			(38.3		)	—			(46.4		)
Ending balance at June 30, 2017	$	238.2		$	2.9		$	—		$	34.8		$	244.5		$	520.4
Change in unrealized losses included in net income related to assets still held for the six months ended June 30, 2017	$	(2.6	)	$	—		$	—		$	—		$	—		$	(2.6	)

Six Months Ended June 30, 2016
Beginning balance at January 1, 2016	$	186.2		$	—		$	1.9		$	25.6		$	102.1		$	315.8
Total (losses) gains:
Recognized in net income	(1.6		)	—			—			—			2.2			0.6
Recognized in accumulated other comprehensive loss	(1.3		)	—			—			(0.3		)	(0.4		)	(2.0		)
Purchases	91.9			—			—			—			72.3			164.2
Sales	(1.8		)	—			—			—			(10.5		)	(12.3		)
Settlements	(21.2		)	—			—			—			—			(21.2		)
Transfers into Level III	2.9			1.6			—			17.2			—			21.7
Transfers out of Level III	(47.0		)	—			(1.9		)	(10.2		)	—			(59.1		)
Ending balance at June 30, 2016	$	208.1		$	1.6		$	—		$	32.3		$	165.7		$	407.7
Change in unrealized losses included in net income related to assets still held for the six months ended June 30, 2016	$	(1.8	)	$	—		$	—		$	—		$	—		$	(1.8	)

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no material transfers between levels during the three and six months ended June 30, 2017 or 2016.

There were no material assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 30, 2017 or 2016.

Our valuation policy is determined by members of our treasury and accounting departments. Whenever possible, our policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain only one quoted price for each security from third party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. When broker quotes are used, we generally obtain only one broker quote per security. As we are responsible for the determination of fair value, we perform monthly analysis on the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. This analysis is performed by our internal treasury personnel who are familiar with our investment portfolios, the pricing services engaged and the valuation techniques and inputs used. Our analysis includes a review of month-to-month price fluctuations. If unusual fluctuations are noted in this review, we may obtain additional information from other pricing services to validate the quoted price. There were no adjustments to quoted market prices obtained from the pricing services during the three and six months ended June 30, 2017 or 2016.

In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other current assets, deferred income taxes, intangible assets and certain financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.

The carrying amounts reported in the consolidated balance sheets for cash, accrued investment income, premium and self-funded receivables, other receivables, unearned income, accounts payable and accrued expenses, income taxes receivable/payable, security trades pending payable, securities lending payable and certain other current liabilities approximate fair value because of the short term nature of these items. These assets and liabilities are not listed in the table below.

The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument that is recorded at its carrying value on the consolidated balance sheets:

Other invested assets, long-term: Other invested assets, long-term include primarily our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. The carrying value of corporate-owned life insurance policies represents the cash surrender value as reported by the respective insurer, which approximates fair value.

Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices were available, on the current market interest rates estimated to be available to us for debt of similar terms and remaining maturities.

Long-term debt – commercial paper: The carrying amount for commercial paper approximates fair value as the underlying instruments have variable interest rates at market value.

Long-term debt – senior unsecured notes, remarketable subordinated notes and surplus notes: The fair values of our notes are based on quoted market prices in active markets for the same or similar debt, or, if no quoted market prices are available, on the current market observable rates estimated to be available to us for debt of similar terms and remaining maturities.

Long-term debt – senior unsecured convertible debentures: The fair value of our convertible debentures is based on the market price in the active private market in which the convertible debentures trade.

A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance sheets at June 30, 2017 and December 31, 2016 are as follows:



	Carrying Value		Estimated Fair Value
			Level I		Level II		Level III		Total
June 30, 2017
Assets:
Other invested assets, long-term	$	2,352.1	$	—	$	—	$	2,352.1	$	2,352.1
Liabilities:
Debt:
Short-term borrowings	580.0		—		580.0		—		580.0
Commercial paper	1,976.8		—		1,976.8		—		1,976.8
Notes	13,400.3		—		14,563.2		—		14,563.2
Convertible debentures	335.3		—		1,320.4		—		1,320.4

December 31, 2016
Assets:
Other invested assets, long-term	$	2,240.5	$	—	$	—	$	2,240.5	$	2,240.5
Liabilities:
Debt:
Short-term borrowings	440.0		—		440.0		—		440.0
Commercial paper	629.0		—		629.0		—		629.0
Notes	14,323.8		—		14,858.4		—		14,858.4
Convertible debentures	334.1		—		1,020.2		—		1,020.2