Investments

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements [Abstract]

Investments

Fixed Maturity Securities

At December 31, 2014 and 2013, all fixed maturity securities were classified as available-for-sale. In the following charts, prior year amounts have been reclassified, where applicable, between public utilities and all other corporate bonds to conform to the current year categorization of certain securities.

The amortized cost and fair values of securities by security type are shown as follows.

	December 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	983.5	$	255.5	$	0.5	$	1,238.5
States, Municipalities, and Political Subdivisions	1,745.0		377.6		1.1		2,121.5
Foreign Governments	1,101.1		206.3		—		1,307.4
Public Utilities	7,046.1		1,505.4		0.9		8,550.6
Mortgage/Asset-Backed Securities	2,224.9		207.0		0.1		2,431.8
All Other Corporate Bonds	25,658.8		3,828.6		122.2		29,365.2
Redeemable Preferred Stocks	44.0		5.9		—		49.9
Total Fixed Maturity Securities	$	38,803.4	$	6,386.3	$	124.8	$	45,064.9

	December 31, 2013
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,028.6	$	173.1	$	5.6	$	1,196.1
States, Municipalities, and Political Subdivisions	1,706.0		117.2		40.0		1,783.2
Foreign Governments	1,226.4		149.6		2.8		1,373.2
Public Utilities	7,121.7		901.2		25.7		7,997.2
Mortgage/Asset-Backed Securities	1,858.7		184.6		4.0		2,039.3
All Other Corporate Bonds	25,315.2		2,828.3		225.8		27,917.7
Redeemable Preferred Stocks	33.0		4.7		—		37.7
Total Fixed Maturity Securities	$	38,289.6	$	4,358.7	$	303.9	$	42,344.4

The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.

	December 31, 2014
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	—	$	—	$	7.4	$	0.5
States, Municipalities, and Political Subdivisions	1.6		—		42.0		1.1
Public Utilities	5.1		0.2		58.2		0.7
Mortgage/Asset-Backed Securities	28.0		—		1.9		0.1
All Other Corporate Bonds	1,666.2		82.2		729.4		40.0
Total Fixed Maturity Securities	$	1,700.9	$	82.4	$	838.9	$	42.4

	December 31, 2013
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	41.1	$	3.1	$	5.2	$	2.5
States, Municipalities, and Political Subdivisions	412.5		33.5		37.2		6.5
Foreign Governments	87.2		2.8		—		—
Public Utilities	506.0		23.7		27.5		2.0
Mortgage/Asset-Backed Securities	341.0		3.6		2.5		0.4
All Other Corporate Bonds	3,776.9		197.4		238.6		28.4
Total Fixed Maturity Securities	$	5,164.7	$	264.1	$	311.0	$	39.8

The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments.

	December 31, 2014
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
			Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	1,372.0	$	34.3	$	1,406.3	$	—	$	—
Over 1 year through 5 years	6,871.2		719.3		7,434.0		9.4		147.1
Over 5 years through 10 years	9,532.9		1,003.3		8,792.3		80.9		1,663.0
Over 10 years	18,802.4		4,422.4		22,490.6		34.4		699.8
	36,578.5		6,179.3		40,123.2		124.7		2,509.9
Mortgage/Asset-Backed Securities	2,224.9		207.0		2,401.9		0.1		29.9
Total Fixed Maturity Securities	$	38,803.4	$	6,386.3	$	42,525.1	$	124.8	$	2,539.8

	December 31, 2013
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
			Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	903.9	$	20.6	$	915.5	$	—	$	9.0
Over 1 year through 5 years	7,098.2		727.1		7,678.5		0.6		146.2
Over 5 years through 10 years	9,492.6		940.2		8,137.4		95.8		2,199.6
Over 10 years	18,936.2		2,486.2		18,441.5		203.5		2,777.4
	36,430.9		4,174.1		35,172.9		299.9		5,132.2
Mortgage/Asset-Backed Securities	1,858.7		184.6		1,695.8		4.0		343.5
Total Fixed Maturity Securities	$	38,289.6	$	4,358.7	$	36,868.7	$	303.9	$	5,475.7

At December 31, 2014, the fair value of investment-grade fixed maturity securities was $41,539.7 million, with a gross unrealized gain of $6,238.0 million and a gross unrealized loss of $47.5 million. The gross unrealized loss on investment-grade fixed maturity securities was 38.1 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities.

At December 31, 2014, the fair value of below-investment-grade fixed maturity securities was $3,525.2 million, with a gross unrealized gain of $148.3 million and a gross unrealized loss of $77.3 million. The gross unrealized loss on below-investment-grade fixed maturity securities was 61.9 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to develop credit concerns than investment-grade securities. At December 31, 2014, the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value.

As of December 31, 2014, we held 75 individual investment-grade fixed maturity securities and 68 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 31 investment-grade fixed maturity securities and 15 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.

In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the following factors:

• Whether we expect to recover the entire amortized cost basis of the security

• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis

• Whether the security is current as to principal and interest payments

• The significance of the decline in value

• The time period during which there has been a significant decline in value

• Current and future business prospects and trends of earnings

• The valuation of the security's underlying collateral

• Relevant industry conditions and trends relative to their historical cycles

• Market conditions

• Rating agency and governmental actions

• Bid and offering prices and the level of trading activity

• Adverse changes in estimated cash flows for securitized investments

• Changes in fair value subsequent to the balance sheet date

• Any other key measures for the related security

While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments determined to have an other-than-temporary impairment.

We held no fixed maturity securities as of December 31, 2014 and 2013, for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.

At December 31, 2014, we had non-binding commitments of $15.0 million to fund private placement fixed maturity securities. 

Variable Interest Entities

We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period.

As of December 31, 2014, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $484.1 million, comprised of $289.0 million of tax credit partnerships and $195.1 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.

Additionally, we recognize a liability for all legally binding unfunded commitments to these partnerships, with a corresponding recognition of an invested asset.  Our liability for legally binding unfunded commitments to the tax credit partnerships was $12.8 million at December 31, 2014. Contractually, we are a limited partner in these investments, and our maximum exposure to loss is limited to the carrying value of our investment. We also had non-binding commitments of $161.6 million to fund certain private equity partnerships at December 31, 2014, the amount of which may or may not be funded.

We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements.  This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity partnership investment which we contributed into the trust at the time it was established.  There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time.  The fair values of the bond and partnership were $143.9 million and $1.4 million, respectively, as of December 31, 2014 and $136.2 million and $4.4 million, respectively, as of December 31, 2013. The bond is reported as a component of fixed maturity securities, and the partnership is reported as a component of other long-term investments in our consolidated balance sheets. At December 31, 2014, we had no commitments to fund the underlying partnership, nor did we fund any amounts to the partnership during the years ended December 31, 2014, 2013, and 2012.

Mortgage Loans

Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period. We update our debt service coverage ratios annually.

Mortgage loans by property type and geographic region are presented below.

	December 31
	2014				2013
	(in millions of dollars)
	Carrying		Percent of		Carrying		Percent of
	Amount		Total		Amount		Total
Property Type
Apartment	$	110.1	5.9	%	$	61.1	3.3	%
Industrial	542.9		29.2		567.8		31.3
Office	794.0		42.8		776.5		42.8
Retail	409.6		22.1		409.7		22.6
Total	$	1,856.6	100.0	%	$	1,815.1	100.0	%

Region
New England	$	105.6	5.7	%	$	100.9	5.6	%
Mid-Atlantic	179.4		9.7		191.5		10.5
East North Central	210.6		11.4		244.3		13.5
West North Central	166.2		8.9		162.3		8.9
South Atlantic	453.6		24.4		447.7		24.7
East South Central	75.3		4.1		67.7		3.7
West South Central	215.6		11.6		190.9		10.5
Mountain	116.0		6.2		101.9		5.6
Pacific	334.3		18.0		307.9		17.0
Total	$	1,856.6	100.0	%	$	1,815.1	100.0	%

We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings may include the following:

• Loan-to-value ratio

• Debt service coverage ratio based on current operating income

• Property location, including regional economics, trends and demographics

• Age, condition, and construction quality of property

• Current and historical occupancy of property

• Lease terms relative to market

• Tenant size and financial strength

• Borrower's financial strength

• Borrower's equity in transaction

• Additional collateral, if any

Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency.

Mortgage loans, sorted by the applicable credit quality indicators, are as follows:

	December 31
	2014		2013
	(in millions of dollars)
Internal Rating
Aa	$	7.7	$	10.8
A	666.0		683.1
Baa	1,156.7		1,094.6
Ba	13.1		13.5
B	13.1		13.1
Total	$	1,856.6	$	1,815.1

Loan-to-Value Ratio
<= 65%	$	898.7	$	777.4
> 65% <= 75%	818.0		867.5
> 75% <= 85%	102.3		107.6
> 85%	37.6		62.6
Total	$	1,856.6	$	1,815.1

A summary of our troubled debt restructurings is as follows:

	Year Ended December 31
	2014		2013		2012
	(in millions of dollars)
Foreclosure
Carrying Amount	$	18.1	$	4.3	$	17.3
Number of Loans	1		1		3

We had no realized losses on loan foreclosures for the years ended December 31, 2014, 2013, and 2012 other than the initial impairment losses recognized prior to foreclosure. During 2014, we modified the terms of a mortgage loan with a carrying value of $18.1 million, recognized a $3.0 million realized loss on the troubled debt restructuring, and foreclosed on the property in a subsequent quarter of 2014.

At December 31, 2014 and 2013, we held no mortgage loans that were on nonaccrual status or past due regarding principal and/or interest payments.

There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. The activity in the allowance for credit losses is as follows:

	Year Ended December 31
	2014			2013		2012
	(in millions of dollars)
Balance at Beginning of Year	$	1.5		$	1.5	$	1.5
Provision	3.0			—		1.8
Charge-offs, Net of Recoveries	(3.0		)	—		(1.8		)
Balance at End of Year	$	1.5		$	1.5	$	1.5

As of December 31, 2014 and 2013 we held one impaired mortgage loan with an unpaid principal balance of $14.6 million, a related allowance for credit losses of $1.5 million, and a carrying value of $13.1 million.

Our average investment in impaired mortgage loans was $26.7 million, $14.9 million, and $19.1 million for the years ended December 31, 2014, 2013, and 2012, respectively. For the years ended December 31, 2014, 2013, and 2012, we recognized $1.0 million, $0.8 million, and $0.8 million, respectively, of interest income on mortgage loans subsequent to impairment.

At December 31, 2014, we had non-binding commitments of $49.3 million to fund certain commercial mortgage loans, the amount of which may or may not be funded.

Transfers of Financial Assets

To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally 102 percent of the cash received.

Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. Generally, cash is received as collateral under these agreements and is typically reinvested in short-term investments. In the event that securities are received as collateral, we are not permitted to sell or re-post them.

As of December 31, 2014, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.5 million, for which we received collateral in the form of cash and securities of $58.4 million and $128.5 million, respectively. As of December 31, 2013, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $201.6 million, for which we received collateral in the form of cash and securities of $76.5 million and $132.9 million, respectively. We had no outstanding repurchase agreements at December 31, 2014 or 2013.

During 2014, we were approved for membership of the Federal Home Loan Bank System (FHLB). As a member, we obtain access to low-cost funding and also receive dividends based on our stock ownership. Membership requires that we purchase a minimum amount of FHLB common stock based on a percentage of our total assets. Additional common stock purchases are required based upon the amount of funds borrowed from the FHLB. We will be required to post mortgage-related assets, U.S. Treasury securities, or other acceptable forms of collateral for any borrowings we make from the FHLB. As of December 31, 2014 we had not funded any FHLB common stock purchases or obtained any advances from the FHLB. We expect to fund our initial common stock membership purchase in the first quarter of 2015 at a cost of approximately $17.7 million, $12.5 million of which was a non-binding commitment as of December 31, 2014.

Offsetting of Financial Instruments

We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy, or merger without assumption. See Note 4 for further discussion of collateral related to our derivative contracts.

We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our securities or any other amounts due to us.

Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.

	December 31, 2014
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	28.0	$	—	$	28.0	$	(7.2	)	$	(15.4	)	$	5.4
Securities Lending	176.5		—		176.5		(118.1		)	(58.4		)	—
Total	$	204.5	$	—	$	204.5	$	(125.3	)	$	(73.8	)	$	5.4
Financial Liabilities:
Derivatives	$	92.9	$	—	$	92.9	$	(67.0	)	$	—		$	25.9
Securities Lending	58.4		—		58.4		(58.4		)	—			—
Total	$	151.3	$	—	$	151.3	$	(125.4	)	$	—		$	25.9

	December 31, 2013
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	10.8	$	—	$	10.8	$	(9.5	)	$	(1.1	)	$	0.2
Securities Lending	201.6		—		201.6		(125.1		)	(76.5		)	—
Total	$	212.4	$	—	$	212.4	$	(134.6	)	$	(77.6	)	$	0.2
Financial Liabilities:
Derivatives	$	135.6	$	—	$	135.6	$	(98.6	)	$	—		$	37.0
Securities Lending	76.5		—		76.5		(76.5		)	—			—
Total	$	212.1	$	—	$	212.1	$	(175.1	)	$	—		$	37.0

Net Investment Income

Net investment income reported in our consolidated statements of income is as follows:

	Year Ended December 31
	2014		2013		2012
	(in millions of dollars)
Fixed Maturity Securities	$	2,344.4	$	2,371.6	$	2,404.0
Derivatives	40.4		35.2		28.9
Mortgage Loans	109.8		109.2		107.1
Policy Loans	16.3		15.7		14.8
Other Long-term Investments	23.0		18.0		15.2
Short-term Investments	2.4		2.4		4.3
Gross Investment Income	2,536.3		2,552.1		2,574.3
Less Investment Expenses	29.0		29.5		26.9
Less Investment Income on Participation Fund Account Assets	15.1		15.7		16.1
Less Amortization of Tax Credit Partnerships	14.8		14.8		16.1
Net Investment Income	$	2,477.4	$	2,492.1	$	2,515.2

Realized Investment Gain and Loss

Realized investment gains and losses are as follows:

	Year Ended December 31
	2014			2013			2012
	(in millions of dollars)
Fixed Maturity Securities
Gross Gains on Sales	$	9.3		$	15.8		$	29.3
Gross Losses on Sales	(7.5		)	(45.7		)	(20.4		)
Other-Than-Temporary Impairment Loss	(13.5		)	(0.8		)	—
Mortgage Loans and Other Invested Assets
Gross Gains on Sales	21.2			15.6			5.0
Gross Losses on Sales	(0.8		)	—			(4.3		)
Impairment Loss	(3.4		)	(2.0		)	(1.9		)
Embedded Derivative in Modified Coinsurance Arrangement	3.3			30.7			51.8
All Other Derivatives	11.0			(1.9		)	—
Foreign Currency Transactions	(3.5		)	(4.9		)	(3.3		)
Net Realized Investment Gain	$	16.1		$	6.8		$	56.2