Investments

Fixed Maturities and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities and equity securities were as follows as of March 31, 2015:



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽²⁾		Fair Value		OTTI⁽³⁾
Fixed maturities:
U.S. Treasuries	$	670.5	$	140.1	$	—	$	—	$	810.6	$	—
U.S. Government agencies and authorities	45.6		0.6		—		—		46.2		—
State, municipalities and political subdivisions	303.2		22.0		0.1		—		325.1		—
U.S. corporate securities	10,643.9		1,041.8		34.8		—		11,650.9		1.4

Foreign securities⁽¹⁾:
Government	339.4		27.5		3.1		—		363.8		—
Other	5,138.3		375.8		36.1		—		5,478.0		—
Total foreign securities	5,477.7		403.3		39.2		—		5,841.8		—

Residential mortgage-backed securities:
Agency	1,620.0		134.4		2.3		15.2		1,767.3		0.2
Non-Agency	218.6		55.2		2.0		12.3		284.1		7.6
Total Residential mortgage-backed securities	1,838.6		189.6		4.3		27.5		2,051.4		7.8

Commercial mortgage-backed securities	1,046.9		99.4		0.1		—		1,146.2		6.7
Other asset-backed securities	337.1		14.3		1.5		—		349.9		2.6
Total fixed maturities, including securities pledged	20,363.5		1,911.1		80.0		27.5		22,222.1		18.5
Less: Securities pledged	217.1		26.4		4.5		—		239.0		—
Total fixed maturities	20,146.4		1,884.7		75.5		27.5		21,983.1		18.5
Equity securities	107.7		15.9		—		—		123.6		—
Total fixed maturities and equity securities investments	$	20,254.1	$	1,900.6	$	75.5	$	27.5	$	22,106.7	$	18.5

⁽¹⁾ Primarily U.S. dollar denominated.

⁽²⁾Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

⁽³⁾ Represents Other-than Temporary-Impairments ("OTTI") reported as a component of Other comprehensive income (loss).

Available-for-sale and FVO fixed maturities and equity securities were as follows as of December 31, 2014:



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽²⁾		Fair Value		OTTI⁽³⁾
Fixed maturities:
U.S. Treasuries	$	649.0	$	124.1	$	—	$	—	$	773.1	$	—
U.S. Government agencies and authorities	45.7		0.9		—		—		46.6		—
State, municipalities and political subdivisions	259.0		18.3		0.1		—		277.2		—
U.S. corporate securities	10,366.7		902.4		49.1		—		11,220.0		1.5

Foreign securities⁽¹⁾:
Government	346.5		23.8		5.5		—		364.8		—
Other	5,138.9		324.7		50.5		—		5,413.1		—
Total foreign securities	5,485.4		348.5		56.0		—		5,777.9		—

Residential mortgage-backed securities:
Agency	1,613.5		125.4		3.6		15.7		1,751.0		0.2
Non-Agency	227.9		54.6		2.2		12.1		292.4		8.7
Total Residential mortgage-backed securities	1,841.4		180.0		5.8		27.8		2,043.4		8.9

Commercial mortgage-backed securities	998.9		79.2		0.1		—		1,078.0		6.7
Other asset-backed securities	389.0		13.1		1.7		—		400.4		2.6
Total fixed maturities, including securities pledged	20,035.1		1,666.5		112.8		27.8		21,616.6		19.7
Less: Securities pledged	224.4		17.8		6.9		—		235.3		—
Total fixed maturities	19,810.7		1,648.7		105.9		27.8		21,381.3		19.7
Equity securities	107.4		14.5		—		—		121.9		—
Total fixed maturities and equity securities investments	$	19,918.1	$	1,663.2	$	105.9	$	27.8	$	21,503.2	$	19.7

⁽¹⁾ Primarily U.S. dollar denominated.

⁽³⁾ Represents OTTI reported as a component of Other comprehensive income (loss).

The amortized cost and fair value of fixed maturities, including securities pledged, as of March 31, 2015, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called or prepaid. Mortgage-backed securities ("MBS") and Other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.



	Amortized Cost		Fair Value
Due to mature:
One year or less	$	567.7	$	574.5
After one year through five years	4,261.7		4,522.1
After five years through ten years	5,950.9		6,314.4
After ten years	6,360.6		7,263.6
Mortgage-backed securities	2,885.5		3,197.6
Other asset-backed securities	337.1		349.9
Fixed maturities, including securities pledged	$	20,363.5	$	22,222.1

The investment portfolio is monitored to maintain a diversified portfolio on an ongoing basis. Credit risk is mitigated by monitoring concentrations by issuer, sector and geographic stratification and limiting exposure to any one issuer.

As of March 31, 2015 and December 31, 2014, the Company did not have any investments in a single issuer, other than obligations of the U.S. Government and government agencies, with a carrying value in excess of 10% of the Company's condensed consolidated Shareholder's equity.

The following tables set forth the composition of the U.S. and foreign corporate securities within the fixed maturity portfolio by industry category as of the dates indicated:



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Fair Value
March 31, 2015
Communications	$	1,177.7	$	151.9	$	0.7	$	1,328.9
Financial	2,411.2		244.7		0.8		2,655.1
Industrial and other companies	9,130.6		673.9		65.1		9,739.4
Utilities	2,587.0		300.9		4.1		2,883.8
Transportation	475.7		46.2		0.2		521.7
Total	$	15,782.2	$	1,417.6	$	70.9	$	17,128.9

December 31, 2014
Communications	$	1,226.1	$	136.8	$	2.4	$	1,360.5
Financial	2,310.5		221.4		1.6		2,530.3
Industrial and other companies	8,962.6		569.4		90.0		9,442.0
Utilities	2,555.7		259.2		4.3		2,810.6
Transportation	450.7		40.3		1.3		489.7
Total	$	15,505.6	$	1,227.1	$	99.6	$	16,633.1

Fixed Maturities and Equity Securities:

The Company's fixed maturities and equity securities are currently designated as available-for-sale, except those accounted for using the FVO. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in Accumulated other comprehensive income (loss) ("AOCI") and presented net of related changes in Deferred policy acquisition costs ("DAC"), Value of business acquired ("VOBA") and Deferred income taxes. In addition, certain fixed maturities have embedded derivatives, which are reported with the host contract on the Condensed Consolidated Balance Sheets.

The Company has elected the FVO for certain of its fixed maturities to better match the measurement of assets and liabilities in the Condensed Consolidated Statements of Operations. Certain collateralized mortgage obligations ("CMOs"), primarily interest-only and principal-only strips, are accounted for as hybrid instruments and valued at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

The Company invests in various categories of CMOs, including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of March 31, 2015 and December 31, 2014, approximately 58.7% and 57.3%, respectively, of the Company’s CMO holdings, such as interest-only or principal-only strips, were invested in those types of CMOs that are subject to more prepayment and extension risk than traditional CMOs.

Repurchase Agreements

The Company engages in dollar repurchase agreements with mortgage-backed securities ("dollar rolls") and repurchase agreements with other collateral types to increase its return on investments and improve liquidity. Such arrangements meet the requirements to be accounted for as financing arrangements. The Company also enters into reverse repurchase agreements. These transactions involve a purchase of securities and an agreement to sell substantially the same securities as those purchased. As of March 31, 2015 and December 31, 2014, the Company did not have any securities pledged in dollar rolls, repurchase agreement transactions or reverse repurchase agreements.

Securities Lending

The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at a rate of 102% of the market value of the loaned securities. For certain transactions, a lending agent may be used and the agent may retain some or all of the collateral deposited by the borrower and transfer the remaining collateral to the Company. Collateral retained by the agent is invested in liquid assets on behalf of the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. As of March 31, 2015 and December 31, 2014, the fair value of loaned securities was $154.6 and $174.9, respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets. As of March 31, 2015 and December 31, 2014, collateral retained by the lending agent and invested in liquid assets on the Company's behalf was $160.0 and $182.0, respectively, and recorded in Short-term investments under securities loan agreements, including collateral delivered on the Condensed Consolidated Balance Sheets. As of March 31, 2015 and December 31, 2014, liabilities to return collateral of $160.0 and $182.0, respectively, were included in Payables under securities loan agreements, including collateral held on the Condensed Consolidated Balance Sheets.

Variable Interest Entities ("VIEs")

The Company holds certain VIEs for investment purposes. VIEs may be in the form of private placement securities, structured securities, securitization transactions or limited partnerships. The Company has reviewed each of its holdings and determined that consolidation of these investments in the Company’s financial statements is not required, as the Company is not the primary beneficiary, because the Company does not have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation or right to potentially significant losses or benefits, for any of its investments in VIEs. The Company did not provide any non-contractual financial support and its carrying value represents the Company’s exposure to loss. The carrying value of the equity tranches of the Collateralized loan obligations ("CLOs") of $0.6 and $0.7 as of March 31, 2015 and December 31, 2014, respectively, is included in Limited partnerships/corporations on the Condensed Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income in the Condensed Consolidated Statements of Operations.

Securitizations

The Company invests in various tranches of securitization entities, including Residential mortgage-backed securities ("RMBS"), Commercial mortgage-backed securities ("CMBS") and asset-backed securities ("ABS"). Through its investments, the Company is not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. The Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company, through its investments or other arrangements, does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and will not consolidate any of the RMBS, CMBS and ABS entities in which it holds investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements Note to these Condensed Consolidated Financial Statements and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS that are accounted for under the FVO for which changes in fair value are reflected in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. The Company’s maximum exposure to loss on these structured investments is limited to the amount of its investment.

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of March 31, 2015:



	Six Months or Less Below Amortized Cost					More Than Six Months and Twelve Months or Less Below Amortized Cost					More Than Twelve Months Below Amortized Cost				Total
	Fair Value		Unrealized Capital Losses			Fair Value		Unrealized Capital Losses			Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses
U.S. Treasuries	$	—	$	—		$	—	$	—		$	—	$	—	$	—	$	—
U.S. Government, agencies and authorities	—		—			—		—			—		—		—		—
State, municipalities and political subdivisions	13.5		0.1			—		—			—		—		13.5		0.1
U.S. corporate securities	475.7		12.7			109.7		8.5			190.4		13.6		775.8		34.8
Foreign	414.2		14.9			109.2		15.1			124.2		9.2		647.6		39.2
Residential mortgage-backed	55.4		0.9			1.4		—		*	139.5		3.4		196.3		4.3
Commercial mortgage-backed	13.2		0.1			—		—			—		—		13.2		0.1
Other asset-backed	1.2		—		*	—		—			18.2		1.5		19.4		1.5
Total	$	973.2	$	28.7		$	220.3	$	23.6		$	472.3	$	27.7	$	1,665.8	$	80.0
*Less than $0.1



	Six Months or Less Below Amortized Cost					More Than Six Months and Twelve Months or Less Below Amortized Cost				More Than Twelve Months Below Amortized Cost				Total
	Fair Value		Unrealized Capital Losses			Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses
U.S. Treasuries	$	12.4	$	—	*	$	—	$	—	$	—	$	—	$	12.4	$	—	*
U.S. Government, agencies and authorities	2.3		—		*	—		—		—		—		2.3		—		*
State, municipalities and political subdivisions	22.5		0.1			—		—		—		—		22.5		0.1
U.S. corporate securities	772.1		20.0			34.8		1.5		712.8		27.6		1,519.7		49.1
Foreign	671.0		35.7			9.7		0.2		350.2		20.1		1,030.9		56.0
Residential mortgage-backed	94.5		0.7			25.2		0.6		163.1		4.5		282.8		5.8
Commercial mortgage-backed	59.1		0.1			—		—		—		—		59.1		0.1
Other asset-backed	27.0		0.1			—		—		18.4		1.6		45.4		1.7
Total	$	1,660.9	$	56.7		$	69.7	$	2.3	$	1,244.5	$	53.8	$	2,975.1	$	112.8
*Less than $0.1

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 94.5% and 95.9% of the average book value as of March 31, 2015 and December 31, 2014, respectively.

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive months as indicated in the tables below, were as follows as of the dates indicated:



	Amortized Cost				Unrealized Capital Losses				Number of Securities
	< 20%		> 20%		< 20%		> 20%		< 20%	> 20%
March 31, 2015
Six months or less below amortized cost	$	1,055.6	$	40.0	$	36.1	$	10.5	221	7
More than six months and twelve months or less below amortized cost	204.9		—		14.2		—		42	—
More than twelve months below amortized cost	443.4		1.9		18.8		0.4		133	1
Total	$	1,703.9	$	41.9	$	69.1	$	10.9	396	8

December 31, 2014
Six months or less below amortized cost	$	1,690.4	$	59.7	$	50.5	$	13.2	341	13
More than six months and twelve months or less below amortized cost	115.1		—		6.7		—		34	—
More than twelve months below amortized cost	1,220.5		2.2		41.8		0.6		223	2
Total	$	3,026.0	$	61.9	$	99.0	$	13.8	598	15

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, by market sector for instances in which fair value declined below amortized cost by greater than or less than 20% were as follows as of the dates indicated:



	Amortized Cost					Unrealized Capital Losses						Number of Securities
	< 20%		> 20%			< 20%			> 20%			< 20%	> 20%
March 31, 2015
U.S. Treasuries	$	—	$	—		$	—		$	—		—	—
U.S. Government, agencies and authorities	—		—			—			—			—	—
State, municipalities and political subdivisions	13.7		—			0.1			—			4	—
U.S. corporate securities	795.0		15.5			31.3			3.5			136	2
Foreign	662.3		24.5			32.3			6.9			129	4
Residential mortgage-backed	200.6		—			4.3			—		*	109	1
Commercial mortgage-backed	13.3		—			0.1			—			6	—
Other asset-backed	19.0		1.9			1.0			0.5			12	1
Total	$	1,703.9	$	41.9		$	69.1		$	10.9		396	8
* Less than $0.1.
December 31, 2014
U.S. Treasuries	$	12.4	$	—		$	—	*	$	—		1	—
U.S. Government, agencies and authorities	2.3		—			—		*	—			1	—
State, municipalities and political subdivisions	22.6		—			0.1			—			8	—
U.S. corporate securities	1,543.7		25.1			43.4			5.7			254	5
Foreign	1,052.3		34.6			48.5			7.5			185	6
Residential mortgage-backed	288.6		—		*	5.8			—		*	124	2
Commercial mortgage-backed	59.2		—			0.1			—			11	—
Other asset-backed	44.9		2.2			1.1			0.6			14	2
Total	$	3,026.0	$	61.9		$	99.0		$	13.8		598	15
* Less than $0.1.

Investments with fair values less than amortized cost are included in the Company's other-than-temporary impairments analysis. Impairments were recognized as disclosed in the "Evaluating Securities for Other-Than-Temporary Impairments" section below. The Company evaluates non-agency RMBS and ABS for "other-than-temporary impairments" each quarter based on actual and projected cash flows after considering the quality and updated loan-to-value ratios reflecting current home prices of underlying collateral, forecasted loss severity, the payment priority within the tranche structure of the security and amount of any credit enhancements. The Company's assessment of current levels of cash flows compared to estimated cash flows at the time the securities were acquired (typically pre-2008) indicates the amount and the pace of projected cash flows from the underlying collateral has generally been lower and slower, respectively. However, since cash flows are typically projected at a trust level, the impairment review incorporates the security's position within the trust structure as well as credit enhancement remaining in the trust to determine whether an impairment is warranted. Therefore, while lower and slower cash flows will impact the trust, the effect on the valuation of a particular security within the trust will also be dependent upon the trust structure. Where the assessment continues to project full recovery of principal and interest on schedule, the Company has not recorded an impairment. Based on this analysis, the Company determined that the remaining investments in an unrealized loss position were not other-than-temporarily impaired and therefore no further other-than-temporary impairment was necessary.

Troubled Debt Restructuring

The Company invests in high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications are granted to these contracts. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructuring when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the face amount or maturity amount of the debt as originally stated, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. A valuation allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. For the three months ended March 31, 2015, and for the year ended December 31, 2014 the Company had no new troubled debt restructurings for private placement bonds or commercial mortgage loans.

As of March 31, 2015 the Company held 12 commercial mortgage troubled debt restructured loans with a carrying value of $15.7. These 12 commercial mortgage loans were restructured in August, 2013 with a pre-modification and post modification carrying value of $26.7. These loans represent what remains of an initial portfolio of 20 restructures with a pre-modification and post modification carrying value of $39.4. This portfolio of loans is comprised of cross-defaulted, cross-collateralized individual loans, which are owned by the same sponsor. Between the date of the troubled debt restructurings and March 31, 2015, these loans have repaid $23.7 in principal.

As of March 31, 2015 and December 31, 2014, the Company did not have any commercial mortgage loans or private placements modified in a troubled debt restructuring with a subsequent payment default.

Mortgage Loans on Real Estate

The Company's mortgage loans on real estate are all commercial mortgage loans held for investment, which are reported at amortized cost, less impairment write-downs and allowance for losses. The Company diversifies its commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate. Subsequently, the Company continuously evaluates mortgage loans based on relevant current information including a review of loan-specific credit quality, property characteristics and market trends. Loan performance is monitored on a loan-specific basis through the review of submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review ensures properties are performing at a consistent and acceptable level to secure the debt. The components to evaluate debt service coverage are received and reviewed at least annually to determine the level of risk.

The following table summarizes the Company's investment in mortgage loans as of the dates indicated:



	March 31, 2015			December 31, 2014
Commercial mortgage loans	$	3,666.1		$	3,514.1
Collective valuation allowance for losses	(1.0		)	(1.1		)
Total net commercial mortgage loans	$	3,665.1		$	3,513.0

There were no impairments taken on the mortgage loan portfolio for the three months ended March 31, 2015 and 2014.

The following table summarizes the activity in the allowance for losses for commercial mortgage loans for the periods indicated:



	March 31, 2015			December 31, 2014
Collective valuation allowance for losses, balance at January 1	$	1.1		$	1.2
Addition to (reduction of) allowance for losses	(0.1		)	(0.1		)
Collective valuation allowance for losses, end of period	$	1.0		$	1.1

The carrying values and unpaid principal balances of impaired mortgage loans were as follows as of the dates indicated:



	March 31, 2015		December 31, 2014
Impaired loans without allowances for losses	$	20.7	$	32.4
Less: Allowances for losses on impaired loans	—		—
Impaired loans, net	$	20.7	$	32.4
Unpaid principal balance of impaired loans	$	22.2	$	33.9

As of March 31, 2015 and December 31, 2014, the company did not have any impaired loans with allowances for losses.

The following table presents information on restructured loans as of the dates indicated:



	March 31, 2015		December 31, 2014
Troubled debt restructured loans	$	15.7	$	27.3

The Company defines delinquent mortgage loans consistent with industry practice as 60 days past due. The Company's policy is to recognize interest income until a loan becomes 90 days delinquent or foreclosure proceedings are commenced, at which point interest accrual is discontinued. Interest accrual is not resumed until the loan is brought current.

There were no mortgage loans in the Company's portfolio in process of foreclosure or in arrears with respect to principal and interest as of March 31, 2015 and December 31, 2014.

The following table presents information on the average investment during the period in impaired loans and interest income recognized on impaired and troubled debt restructured loans for the periods indicated:



	Three Months Ended March 31,
	2015		2014
Impaired loans, average investment during the period (amortized cost)⁽¹⁾	$	26.6	$	42.8
Interest income recognized on impaired loans, on an accrual basis⁽¹⁾	0.4		0.6
Interest income recognized on impaired loans, on a cash basis⁽¹⁾	0.5		0.4
Interest income recognized on troubled debt restructured loans, on an accrual basis	0.3		0.5
⁽¹⁾Includes amounts for Troubled debt restructured loans.

Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.0 indicates that a property’s operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.

The following table presents the LTV ratios as of the dates indicated:



	March 31, 2015⁽¹⁾		December 31, 2014⁽¹⁾
Loan-to-Value Ratio:
0% - 50%	$	386.0	$	411.0
>50% - 60%	920.3		824.1
>60% - 70%	2,196.3		2,107.9
>70% - 80%	152.4		159.7
>80% and above	11.1		11.4
Total Commercial mortgage loans	$	3,666.1	$	3,514.1