Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Values of Financial Instruments

Fair Value Measurements for Financial Instruments Carried at Fair Value

We report fixed maturity securities, which are classified as available-for-sale securities, derivative financial instruments, and unrestricted equity securities at fair value in our consolidated balance sheets. We report our investments in private equity partnerships at our share of the partnerships' net asset value per share or its equivalent (NAV) as a practical expedient for fair value.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted have less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is generally impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, and overall market conditions.

We classify financial instruments in accordance with a fair value hierarchy consisting of three levels based on the observability of valuation inputs:

•Level 1 - the highest category of the fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2 - valued using inputs (other than prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.

•Level 3 - the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair value.

Valuation Methodologies of Financial Instruments Measured at Fair Value

Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types. The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the current replacement cost.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be obtained without undue cost and effort. In some cases, a single valuation technique will be appropriate (for example, when valuing an asset or liability using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques will be appropriate. If we use multiple valuation techniques to measure fair value, we evaluate and weigh the results, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our

pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether it is a bid or market quote. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2020, we have applied valuation approaches and techniques on a consistent basis to similar assets and liabilities and consistent with those approaches and techniques used at year end 2019.

Fixed Maturity and Equity Securities

We use observable and unobservable inputs in measuring the fair value of our fixed maturity and equity securities. For securities categorized as Level 1, fair values equal active Trade Reporting and Compliance Engine (TRACE) pricing or unadjusted broker market maker prices. For securities categorized as Level 2 or Level 3, inputs that may be used in valuing each class of securities at any given time period are disclosed below. Actual inputs used to determine fair values will vary for each reporting period depending on the availability of inputs which may, at times, be affected by the lack of market liquidity.

		Level 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs
United States Government and Government Agencies and Authorities
	Valuation Method	Principally the market approach	Not applicable
	Valuation Techniques / Inputs	Prices obtained from external pricing services
States, Municipalities, and Political Subdivisions
	Valuation Method	Principally the market approach	Principally the market approach
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Relevant reports issued by analysts and rating agencies
		Audited financial statements
Foreign Governments
	Valuation Method	Principally the market approach	Principally the market approach
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes
		Call provisions
Public Utilities
	Valuation Method	Principally the market and income approaches	Principally the market and income approaches
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Change in benchmark reference

		Level 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs
Public Utilities - Continued
		Non-binding broker quotes	Analysis of similar bonds, adjusted for comparability
		Benchmark yields	Discount for size - illiquidity
		Transactional data for new issuances and secondary trades	Volatility of credit
		Security cash flows and structures	Lack of marketability
		Recent issuance / supply
		Audited financial statements
		Security and issuer level spreads
		Security creditor ratings/maturity/capital structure/optionality
		Public covenants
		Comparative bond analysis
		Relevant reports issued by analysts and rating agencies
Mortgage/Asset-Backed Securities
	Valuation Method	Principally the market and income approaches	Principally the market approach
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes	Prices obtained from external pricing services
		Security cash flows and structures
		Underlying collateral
		Prepayment speeds/loan performance/delinquencies
		Relevant reports issued by analysts and rating agencies
		Audited financial statements
All Other Corporate Bonds
	Valuation Method	Principally the market and income approaches	Principally the market and income approaches
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Change in benchmark reference
		Non-binding broker quotes	Discount for size - illiquidity
		Benchmark yields	Volatility of credit
		Transactional data for new issuances and secondary trades	Lack of marketability
		Security cash flows and structures	Prices obtained from external pricing services
		Recent issuance / supply
		Security and issuer level spreads
		Security creditor ratings/maturity/capital structure/optionality

		Level 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs
All Other Corporate Bonds - Continued
		Public covenants
		Comparative bond analysis
		Relevant reports issued by analysts and rating agencies
		Audited financial statements
Redeemable Preferred Stocks
	Valuation Method	Principally the market approach	Principally the market approach
	Valuation Techniques / Inputs	Non-binding broker quotes	Financial statement analysis
		Benchmark yields
		Comparative bond analysis
		Call provisions
		Relevant reports issued by analysts and rating agencies
		Audited financial statements
Perpetual Preferred and Equity Securities
	Valuation Method	Principally the market approach	Principally the market and income approaches
	Valuation Techniques / Inputs	Prices obtained from external pricing services	Financial statement analysis
		Non-binding broker quotes

The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing. We review all prices that vary between multiple pricing vendors by a threshold that is outside a normal market range for the asset type.  In the event we receive a vendor's market price that does not appear reasonable based on our market analysis, we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as an actual trade. We also review all prices that did not change from the prior month to ensure that these prices are within our expectations. The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price. These adjustments may be made when, in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit risk, credit structure, concentration, or liquidity. Additionally, an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument. In the event an asset is sold, we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period.

Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by the lack of market liquidity. For these securities, we use internally prepared valuations, including valuations based on estimates of future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for

these securities include risk free interest rates, risk premiums, performance of underlying collateral (if any), and other factors involving significant assumptions which may or may not reflect those of an active market.

The parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions on a quarter to quarter basis, as certain features may be more significant drivers of valuation at the time of pricing. Changes to inputs in valuations are not changes to valuation methodologies; rather, the inputs are modified to reflect direct or indirect impacts on asset classes from changes in market conditions.

At June 30, 2020, approximately 18.1 percent of our fixed maturity securities were valued using active trades from TRACE pricing or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding quote).  The prices obtained were not adjusted, and the assets were classified as Level 1.

The remaining 81.9 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below:

•68.5 percent of our fixed maturity securities were valued based on prices from pricing services that generally use observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques. These assets were classified as Level 2. 

•9.1 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data. When only one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were able to validate the price using other observable market data, were classified as Level 2.

•4.3 percent of our fixed maturity securities were valued based on prices of comparable securities, internal models, or pricing services or other non-binding quotes with no other observable market data. These assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data.  

Derivatives

Fair values for derivatives other than embedded derivatives in modified coinsurance arrangements are based on market quotes or pricing models and represent the net amount of cash we would have paid or received if the contracts had been settled or closed as of the last day of the period. We analyze credit default swap spreads relative to the average credit spread embedded within the LIBOR-setting syndicate in determining the effect of credit risk on our derivatives' fair values.  If net counterparty credit risk for a derivative asset is determined to be material and is not adequately reflected in the LIBOR-based fair value obtained from our pricing sources, we adjust the valuations obtained from our pricing sources. For purposes of valuing net counterparty risk, we measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date under current market conditions. In regard to our own credit risk component, we adjust the valuation of derivative liabilities wherein the counterparty is exposed to our credit risk when the LIBOR-based valuation of our derivatives obtained from pricing sources does not effectively include an adequate credit component for our own credit risk.

Fair values for our embedded derivative in a modified coinsurance arrangement are estimated using internal pricing models and represent the hypothetical value of the duration mismatch of assets and liabilities, interest rate risk, and third party credit risk embedded in the modified coinsurance arrangement.

We consider transactions in inactive markets to be less representative of fair value. We use all available observable inputs when measuring fair value, but when significant unobservable inputs are used, we classify these assets or liabilities as Level 3.

Private Equity Partnerships

Our private equity partnerships represent funds that are primarily invested in private credit, private equity, and real assets, as described below. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. There is generally not a public market for these investments.

The following tables present additional information about our private equity partnerships, including commitments for additional investments which may or may not be funded:

		June 30, 2020
Investment Category		Fair Value		Redemption Term / Redemption Notice	Unfunded Commitments
		(in millions of dollars)			(in millions of dollars)
Private Credit	(a)	$	230.7	Not redeemable	$	133.1
		39.7		Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice	—
Total Private Credit		270.4			133.1
Private Equity	(b)	179.6		Not redeemable	179.9
Real Assets	(c)	161.4		Not redeemable	171.2
		55.2		Quarterly / 90 days notice	—
Total Real Assets		216.6			171.2
Total Partnerships		$	666.6		$	484.2

		December 31, 2019
Investment Category		Fair Value		Redemption Term / Redemption Notice	Unfunded Commitments
		(in millions of dollars)			(in millions of dollars)
Private Credit	(a)	$	223.6	Not redeemable	$	152.6
		39.6		Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice	0.1
Total Private Credit		263.2			152.7
Private Equity	(b)	149.3		Not redeemable	166.8
Real Assets	(c)	173.8		Not redeemable	130.6
		30.4		Quarterly / 90 days notice	25.0
Total Real Assets		204.2			155.6
Total Partnerships		$	616.7		$	475.1

(a)Private Credit - The limited partnerships described in this category employ various investment strategies, generally providing direct lending or other forms of debt financing including first-lien, second-lien, mezzanine, and subordinated loans. The limited partnerships have credit exposure to corporates, physical assets, and/or financial assets within a variety of industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail) in North America and, to a lesser extent, outside of North America.  As of June 30, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 39 percent in the next 3 years, 22 percent during the period from 3 to 5 years, 37 percent during the period from 5 to 10 years, and 2 percent during the period from 10 to 15 years.

(b)Private Equity - The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and/or assets across various industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets within North America and, to a lesser extent, outside of North America.  As of June 30, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 23 percent in the next 3 years, 33 percent during the period from 3 to 5 years, 41 percent during the period from 5 to 10 years, and 3 percent during the period from 10 to 15 years.

(c)Real Assets - The limited partnerships described in this category employ various strategies, which include investing in the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater, communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America, Europe, South America, and Asia.  As of June 30, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 14 percent in the next 3 years, 25 percent during period from 3 to 5 years and 61 percent during the period from 5 to 10 years.

We record changes in our share of net asset value of the partnerships in net investment income. We receive financial information related to our investments in partnerships generally on a one-quarter lag in accordance with our accounting policy. We estimate that we will recognize gains in the third quarter of 2020 that will partially offset the losses recorded in the second quarter of 2020 as we receive financial statements from the partnerships for the second quarter of 2020 that will reflect the improvement in market conditions.

The following tables present information about financial instruments measured at fair value on a recurring basis by fair value level, based on the observability of the inputs used:

	June 30, 2020
	Level 1		Level 2		Level 3		NAV		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	120.4	$	1,245.9	$	—	$	—	$	1,366.3
States, Municipalities, and Political Subdivisions	—		3,469.1		13.8		—		3,482.9
Foreign Governments	—		1,046.8		22.0		—		1,068.8
Public Utilities	327.2		7,286.6		309.2		—		7,923.0
Mortgage/Asset-Backed Securities	—		1,293.5		174.3		—		1,467.8
All Other Corporate Bonds	8,260.8		24,107.9		546.5		—		32,915.2
Redeemable Preferred Stocks	—		9.4		—		—		9.4
Total Fixed Maturity Securities	8,708.4		38,459.2		1,065.8		—		48,233.4
Other Long-term Investments
Derivatives
Interest Rate Swaps	—		0.6		—		—		0.6
Forwards	—		0.3		—		—		0.3
Foreign Exchange Contracts	—		61.7		—		—		61.7
Credit Default Swaps	—		0.5		—		—		0.5
Total Derivatives	—		63.1		—		—		63.1
Perpetual Preferred and Equity Securities	20.1		0.2		4.5		—		24.8
Private Equity Partnerships	—		—		—		666.6		666.6
Total Other Long-term Investments	20.1		63.3		4.5		666.6		754.5
Total Financial Instrument Assets Carried at Fair Value	$	8,728.5	$	38,522.5	$	1,070.3	$	666.6	$	48,987.9
Liabilities
Other Liabilities
Derivatives
Foreign Exchange Contracts	$	—	$	31.9	$	—	$	—	$	31.9
Embedded Derivative in Modified Coinsurance Arrangement	—		—		67.8		—		67.8
Total Derivatives	—		31.9		67.8		—		99.7
Total Financial Instrument Liabilities Carried at Fair Value	$	—	$	31.9	$	67.8	$	—	$	99.7

	December 31, 2019
	Level 1		Level 2		Level 3		NAV		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	412.8	$	988.9	$	—	$	—	$	1,401.7
States, Municipalities, and Political Subdivisions	—		3,321.6		41.8		—		3,363.4
Foreign Governments	—		995.9		21.8		—		1,017.7
Public Utilities	171.1		7,546.5		14.6		—		7,732.2
Mortgage/Asset-Backed Securities	—		1,444.6		34.1		—		1,478.7
All Other Corporate Bonds	4,114.4		27,695.5		600.5		—		32,410.4
Redeemable Preferred Stocks	—		39.6		—		—		39.6
Total Fixed Maturity Securities	4,698.3		42,032.6		712.8		—		47,443.7
Other Long-term Investments
Derivatives
Foreign Exchange Contracts	—		27.0		—		—		27.0
Credit Default Swaps	—		0.5		—		—		0.5
Total Derivatives	—		27.5		—		—		27.5
Perpetual Preferred and Equity Securities	—		28.0		4.6		—		32.6
Private Equity Partnerships	—		—		—		616.7		616.7
Total Other Long-term Investments	—		55.5		4.6		616.7		676.8
Total Financial Instrument Assets Carried at Fair Value	$	4,698.3	$	42,088.1	$	717.4	$	616.7	$	48,120.5
Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps	$	—	$	0.6	$	—	$	—	$	0.6
Foreign Exchange Contracts	—		34.0		—		—		34.0
Embedded Derivative in Modified Coinsurance Arrangement	—		—		22.8		—		22.8
Total Derivatives	—		34.6		22.8		—		57.4
Total Financial Instrument Liabilities Carried at Fair Value	$	—	$	34.6	$	22.8	$	—	$	57.4

Changes in assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

	Three Months Ended June 30, 2020
	Fair Value Beginning of Period		Total Realized and Unrealized Investment Gains (Losses) in								Level 3 Transfers				Fair Value End of Period		Change in Unrealized Gain (Loss) on Securities Held at the End of Period included in
			Earnings		OCI (1)		Purchases		Sales		Into		Out of				OCI		Earnings
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	31.3	$	—	$	1.4	$	—	$	—	$	12.4	$	(31.3)	$	13.8	$	(4.5)	$	—
Foreign Governments	20.9		—		1.1		—		—		—		—		22.0		1.1		—
Public Utilities	26.3		—		7.0		—		—		275.9		—		309.2		7.0		—
Mortgage/Asset-Backed Securities	75.1		—		(3.9)		—		—		103.1		—		174.3		1.8		—
All Other Corporate Bonds	553.0		—		18.8		—		(28.5)		244.0		(240.8)		546.5		22.6		—
Total Fixed Maturity Securities	706.6		—		24.4		—		(28.5)		635.4		(272.1)		1,065.8		28.0		—
Equity Securities	4.6		(0.1)		—		—		—		—		—		4.5		—		(0.1)
Embedded Derivative in Modified Coinsurance Arrangement	(109.7)		41.9		—		—		—		—		—		(67.8)		—		41.9

(1) Other Comprehensive Income (Loss)

	Three Months Ended June 30, 2019
	Fair Value Beginning of Period		Total Realized and Unrealized Investment Gains (Losses) in								Level 3 Transfers				Fair Value End of Period
			Earnings		OCI		Purchases		Sales		Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
Foreign Governments	$	31.6	$	—	$	0.3	$	—	$	—	$	—	$	—	$	31.9
Public Utilities	224.0		—		(2.0)		—		—		80.3		(113.2)		189.1
All Other Corporate Bonds	496.0		—		16.0		—		(9.7)		595.8		(84.0)		1,014.1
Redeemable Preferred Stocks	21.0		—		—		—		—		—		(21.0)		—
Total Fixed Maturity Securities	772.6		—		14.3		—		(9.7)		676.1		(218.2)		1,235.1
Equity Securities	4.6		—		—		—		—		—		—		4.6
Embedded Derivative in Modified Coinsurance Arrangement	(25.6)		(0.8)		—		—		—		—		—		(26.4)

	Six Months Ended June 30, 2020
	Fair Value Beginning of Year		Total Realized and Unrealized Investment Gains (Losses) in								Level 3 Transfers				Fair Value End of Period		Change in Unrealized Gain (Loss) on Securities Held at the End of Period included in
			Earnings		OCI		Purchases		Sales		Into		Out of				OCI		Earnings
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	41.8	$	—	$	0.4	$	—	$	—	$	—	$	(28.4)	$	13.8	$	(1.7)	$	—
Foreign Governments	21.8		—		0.2		—		—		—		—		22.0		0.2		—
Public Utilities	14.6		—		2.2		—		—		292.4		—		309.2		40.1		—
Mortgage/Asset-Backed Securities	34.1		—		(4.0)		—		—		144.4		(0.2)		174.3		10.5		—
All Other Corporate Bonds	600.5		—		1.7		6.0		(29.1)		177.8		(210.4)		546.5		33.9		—
Total Fixed Maturity Securities	712.8		—		0.5		6.0		(29.1)		614.6		(239.0)		1,065.8		83.0		—
Equity Securities	4.6		(0.1)		—		—		—		—		—		4.5		—		(0.1)
Embedded Derivative in Modified Coinsurance Arrangement	(22.8)		(45.0)		—		—		—		—		—		(67.8)		—		(45.0)

	Six Months Ended June 30, 2019
	Fair Value Beginning of Year		Total Realized and Unrealized Investment Gains (Losses) in								Level 3 Transfers				Fair Value End of Period
			Earnings		OCI		Purchases		Sales		Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
Foreign Governments	$	31.4	$	—	$	0.5	$	—	$	—	$	—	$	—	$	31.9
Public Utilities	84.7		—		7.2		—		(0.2)		151.8		(54.4)		189.1
All Other Corporate Bonds	1,495.8		—		61.8		14.0		(60.5)		405.5		(902.5)		1,014.1
Redeemable Preferred Stocks	21.1		—		—		—		—		—		(21.1)		—
Total Fixed Maturity Securities	1,633.0		—		69.5		14.0		(60.7)		557.3		(978.0)		1,235.1
Equity Securities	4.6		—		—		—		—		—		—		4.6
Embedded Derivative in Modified Coinsurance Arrangement	(31.1)		4.7		—		—		—		—		—		(26.4)

Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation. Gains (losses) which are included in earnings and are attributable to the change in fair value of assets or liabilities valued using significant unobservable inputs and still held at each period end were $(0.8) million and $4.7 million for the three and six months ended June 30, 2019, respectively, and relate entirely to the change in fair value of an embedded derivative in a modified coinsurance arrangement and are reported as a component of realized investment gains and losses.

The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. Unobservable inputs for fixed maturity securities are weighted by the fair value of the securities. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources.

	June 30, 2020
	Fair Value		Valuation Method	Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
Public Utilities	$	100.3	Market Approach	Lack of Marketability Discount for Size	(a) (e)	0.41% - 1.85% / 0.79% 0.07% - 0.07% / 0.07%
All Other Corporate Bonds - Private	70.7		Market Approach	Lack of Marketability Volatility of Credit Comparability Adjustment	(a) (b) (f)	0.20% - 1.39% / 0.99% 0.50% - 12.44% / 3.53% 0.50% - 0.50% / 0.50%
Equity Securities - Private	4.5		Market Approach	Market Convention	(c)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(67.8)		Discounted Cash Flows	Projected Liability Cash Flows Weighted Spread of Swap Curve	(d)	Actuarial Assumptions 1.6%

	December 31, 2019
	Fair Value		Valuation Method	Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private	$	119.2	Market Approach	Lack of Marketability Volatility of Credit Market Convention	(a) (b) (c)	4.56% - 4.56% / 4.56% 0.35% - 17.68% / 2.2% Priced at Par
Equity Securities - Private	4.6		Market Approach	Market Convention	(c)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(22.8)		Discounted Cash Flows	Projected Liability Cash Flows Weighted Spread of Swap Curve	(d)	Actuarial Assumptions 0.8%

(a)Represents basis point adjustments to apply a discount due to the illiquidity of an investment

(b)Represents basis point adjustments for credit-specific factors

(c)Represents a decision to price based on par value, cost, or owner's equity when limited data is available

(d)Represents various actuarial assumptions required to derive the liability cash flows. Fair value of embedded derivative is most often driven by the change in the weighted average credit spread to the swap curve for the assets backing the hypothetical loan.

(e)Represents basis point adjustments based on issue/issuer size relative to the benchmark

(f)Represents basis point adjustments for changes in benchmark spreads associated with various industry sectors

Isolated increases in unobservable inputs other than market convention will result in a lower fair value measurement, whereas isolated decreases will result in a higher fair value measurement. The unobservable input for market convention is not sensitive to input movements. The projected liability cash flows used in the fair value measurement of our Level 3 embedded derivative are based on expected claim payments. If claim payments increase, the projected liability cash flows will increase, resulting in

a decrease in the fair value of the embedded derivative. Decreases in projected liability cash flows will result in an increase in the fair value of the embedded derivative.

Fair Value Measurements for Financial Instruments Not Carried at Fair Value

The methods and assumptions used to estimate fair values of financial instruments not carried at fair value are discussed as follows:

Mortgage Loans: Fair values are estimated using discounted cash flow analyses and interest rates currently being offered for similar loans to borrowers with similar credit ratings and maturities. Loans with similar characteristics are aggregated for purposes of the calculations.

Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies. Carrying amounts for ceded policy loans, which equal $3,684.0 million and $3,490.6 million as of June 30, 2020 and December 31, 2019, respectively, approximate fair value and are reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties.

Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Our shares of FHLB common stock are carried at cost, which approximates fair value.

Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.

Federal Home Loan Bank (FHLB) Funding Agreements: Funding agreements with the FHLB represent cash advances used for the purpose of investing in fixed maturity securities. Carrying amounts approximate fair value.

Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent amounts that we have committed to fund certain investment partnerships. These commitments are legally binding, subject to the partnerships meeting specified conditions. Carrying amounts of these financial instruments approximate fair value.

The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:

	June 30, 2020
	Estimated Fair Value
	Level 1		Level 2		Level 3		Total		Carrying Value
	(in millions of dollars)
Assets
Mortgage Loans	$	—	$	2,632.5	$	—	$	2,632.5	$	2,434.4
Policy Loans	—		—		3,857.1		3,857.1		3,684.0
Other Long-term Investments
Miscellaneous Long-term Investments	—		27.5		51.1		78.6		78.6
Total Financial Instrument Assets Not Carried at Fair Value	$	—	$	2,660.0	$	3,908.2	$	6,568.2	$	6,197.0
Liabilities
Long-term Debt	$	3,124.7	$	525.3	$	—	$	3,650.0	$	3,393.1
Payable for Collateral on Federal Home Loan Bank (FHLB) Funding Agreements	—		162.1		—		162.1		162.1
Other Liabilities
Unfunded Commitments	—		1.8		—		1.8		1.8
Total Financial Instrument Liabilities Not Carried at Fair Value	$	3,124.7	$	689.2	$	—	$	3,813.9	$	3,557.0

	December 31, 2019
	Estimated Fair Value
	Level 1		Level 2		Level 3		Total		Carrying Value
	(in millions of dollars)
Assets
Mortgage Loans	$	—	$	2,556.3	$	—	$	2,556.3	$	2,397.0
Policy Loans	—		—		3,911.4		3,911.4		3,779.5
Other Long-term Investments
Miscellaneous Long-term Investments	—		18.5		58.4		76.9		76.9
Total Financial Instrument Assets Not Carried at Fair Value	$	—	$	2,574.8	$	3,969.8	$	6,544.6	$	6,253.4
Liabilities
Long-term Debt	$	1,712.8	$	1,526.2	$	—	$	3,239.0	$	2,926.9
Other Liabilities
Unfunded Commitments	—		1.9		—		1.9		1.9
Total Financial Instrument Liabilities Not Carried at Fair Value	$	1,712.8	$	1,528.1	$	—	$	3,240.9	$	2,928.8

The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, accrued investment income, securities lending agreements, and short-term debt approximate fair value due to the short-term nature of the instruments. As such, these financial instruments are not included in the above chart.

Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

^[1]

[1] Real Assets - The limited partnerships described in this category employ various strategies, which include investing in the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater, communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America, Europe, South America, and Asia.  As of June 30, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 14 percent in the next 3 years, 25 percent during period from 3 to 5 years and 61 percent during the period from 5 to 10 years.We record changes in our share of net asset value of the partnerships in net investment income. We receive financial information related to our investments in partnerships generally on a one-quarter lag in accordance with our accounting policy. We estimate that we will recognize gains in the third quarter of 2020 that will partially offset the losses recorded in the second quarter of 2020 as we receive financial statements from the partnerships for the second quarter of 2020 that will reflect the improvement in market conditions.