Fair Value of Financial Instruments

The following is a list of those assets and liabilities that are measured at fair value by hierarchy level as of December 31, 2014:



(In millions)	Level I		Level II		Total
Assets and Liabilities at Fair Value
Investment Portfolio:
U.S. government and agency securities	$	836.9	$	3.0	$	839.9
State and municipal obligations	—		362.8		362.8
Money market instruments	600.3		—		600.3
Corporate bonds and notes	—		992.8		992.8
RMBS	—		132.3		132.3
CMBS	—		246.8		246.8
Other ABS	—		185.5		185.5
Foreign government and agency securities	—		37.7		37.7
Equity securities (1)	164.0		51.6		215.6
Other investments (2)	—		1.0		1.0
Total Investments at Fair Value (3)	1,601.2		2,013.5		3,614.7
Total Assets at Fair Value	$	1,601.2	$	2,013.5	$	3,614.7

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(1)	Comprising broadly diversified domestic equity mutual funds and certain common stocks included within Level I and various preferred stocks invested across numerous companies and industries included within Level II.


(2)	Comprising short-term CDs ($1.0 million) included within Level II.


(3)	Does not include certain other invested assets ($14.6 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value. Also excludes investments classified as assets held for sale of $495.1 million, $839.2 million and $102.6 million, with fair values categorized in Level I, Level II and Level III, respectively.

At December 31, 2014, there were no Level III assets, and total Level III liabilities of $3.8 million accounted for 100% of total liabilities measured at fair value.

For the year ended December 31, 2014, $137.3 million of U.S. government and agency securities and $21.0 million of equity securities were transferred from Level II to Level I at the end of the period as a result of our ongoing review of the inputs to the valuations of our assets and liabilities, and the availability of unadjusted quoted prices in active markets for those identical securities as of that date. There were no investment transfers from Level I to Level II for the year ended December 31, 2014.

The following is a list of those assets and liabilities that are measured at fair value by hierarchy level as of December 31, 2013:



(In millions)	Level I		Level II		Level III		Total
Assets and Liabilities at Fair Value
Investment Portfolio:
U.S. government and agency securities	$	450.0	$	246.6	$	—	$	696.6
State and municipal obligations	—		374.1		—		374.1
Money market instruments	484.8		—		—		484.8
Corporate bonds and notes	—		880.4		—		880.4
RMBS	—		338.8		—		338.8
CMBS	—		209.2		—		209.2
Other ABS	—		120.5		0.9		121.4
Foreign government and agency securities	—		28.3		—		28.3
Equity securities (1)	128.3		75.6		0.4		204.3
Other investments (2)	—		1.0		—		1.0
Total Investments at Fair Value (3)	1,063.1		2,274.5		1.3		3,338.9
Total Assets at Fair Value	$	1,063.1	$	2,274.5	$	1.3	$	3,338.9

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(1)	Comprising broadly diversified domestic equity mutual funds included within Level I and various preferred and common stocks invested across numerous companies and industries included within Levels II and III.


(2)	Comprising short-term CDs ($1.0 million) included within Level II.


(3)	Does not include fixed-maturities held to maturity ($0.4 million) and certain other invested assets ($22.4 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.

At December 31, 2013, our total Level III assets approximated less than 1% of total assets measured at fair value and our total Level III liabilities of $2.8 million accounted for 100% of total liabilities measured at fair value.

There were no investment transfers between Level I and Level II for the year ended December 31, 2013.

Rollforward activity of Level III assets and liabilities (including realized and unrealized gains and losses, purchases, sales, issuances, settlements and transfers) was not material during the years ended December 31, 2014 and 2013.

The following are descriptions of our valuation methodologies for financial assets and liabilities measured at fair value.

Investments

We are responsible for the determination of the value of all investments carried at fair value and the supporting methodologies and assumptions. To assist us in this responsibility, we utilize independent third-party valuation service providers to gather, analyze and interpret market information and estimate fair values based upon relevant methodologies and assumptions for various asset classes and individual securities. We perform monthly quantitative and qualitative analyses on the prices received from third parties to determine whether the prices are reasonable estimates of fair value. Our analysis includes: (i) a review of the methodology used by third-party pricing services; (ii) a comparison of pricing services’ valuations to other independent sources; (iii) a review of month-to-month price fluctuations; and (iv) a comparison of actual purchase and sale transactions with valuations received from third parties. These processes are designed to ensure that our investment values are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value.

U.S. government and agency securities—The fair value of U.S. government and agency securities is estimated using observed market transactions, including broker-dealer quotes and actual trade activity as a basis for valuation. U.S. government and agency securities are categorized in either Level I or Level II of the fair value hierarchy.

State and municipal obligations—The fair value of state and municipal obligations is estimated using recent transaction activity, including market observations. Evaluation models are used, which incorporate bond structure, yield curve, credit spreads and other factors. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable.

Money market instruments—The fair value of money market instruments is based on daily prices, which are published and available to all potential investors and market participants. As such, these securities are categorized in Level I of the fair value hierarchy.

Corporate bonds and notes—The fair value of corporate bonds and notes is estimated using recent transaction activity, including market observations. Spread models are used that incorporate issuer and structure characteristics, such as credit risk and early redemption features, where applicable. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable.

RMBS, CMBS, and Other ABS—The fair value of these instruments is estimated based on prices of comparable securities and spreads and observable prepayment speeds. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable. The fair value of any Level III securities is generally estimated by discounting estimated future cash flows.

Foreign government and agency securities—The fair value of foreign government and agency securities is estimated using observed market yields used to create a maturity curve and observed credit spreads from market makers and broker-dealers. These securities are categorized in Level II of the fair value hierarchy.

Equity securities—The fair value of these securities is generally estimated using observable market data in active markets or bid prices from market makers and broker-dealers. Generally, these securities are categorized in Level I or II of the fair value hierarchy, as observable market data are readily available. A small number of our equity securities, however, are categorized in Level III of the fair value hierarchy due to a lack of market-based transaction data or the use of model-based evaluations.

Other investments—These securities primarily consist of short-term CDs, which are categorized in Level II of the fair value hierarchy.

Other Fair Value Disclosure

The carrying value and estimated fair value of other selected assets and liabilities not carried at fair value on our consolidated balance sheets were as follows as of the dates indicated:



	December 31, 2014					December 31, 2013
(In millions)	Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Assets:
Fixed-maturities held to maturity	$	—	$	—		$	0.4	$	0.4	(1)
Other invested assets	14.6		20.5		(1)	22.4		27.8		(1)
Liabilities:
Long-term debt	1,209.9		1,859.3		(1)	930.1		1,502.7		(1)

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(1)	These estimated fair values would be classified in Level II of the fair value hierarchy.

Fixed-Maturities Held to Maturity—The fair values of fixed-maturity securities are obtained from independent pricing services that use observed market transactions, including broker-dealer quotes and actual trade activity as a basis for valuation.

Other Invested Assets—The fair value of these assets, primarily invested in limited partnerships, is estimated based on information within the financial statements provided by the limited partnerships. These interests are accounted for and carried as cost-method investments.

Long-Term Debt—The carrying amount of long-term debt is net of the equity component of our convertible notes, which is accounted for under the accounting standard for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The fair value is estimated based on the quoted market prices for the same or similar issues. See Note 11 for further information.