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Investments
 12 Months Ended
Dec. 31, 2018
Investments Debt And Equity Securities [Abstract]  
Investments

3. INVESTMENTS

A. FIXED MATURITIES

The amortized cost and fair value of available-for-sale fixed maturities were as follows:

 

DECEMBER 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

OTTI

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

$

414.7

 

 

$

2.4

 

 

$

7.2

 

 

$

409.9

 

 

$

—

 

Foreign government

 

 

7.3

 

 

 

0.1

 

 

 

—

 

 

 

7.4

 

 

 

—

 

Municipal

 

 

879.0

 

 

 

16.6

 

 

 

9.8

 

 

 

885.8

 

 

 

—

 

Corporate

 

 

3,476.6

 

 

 

26.1

 

 

 

92.0

 

 

 

3,410.7

 

 

 

6.6

 

Residential mortgage-backed

 

 

728.4

 

 

 

2.7

 

 

 

14.7

 

 

 

716.4

 

 

 

—

 

Commercial mortgage-backed

 

 

648.4

 

 

 

1.7

 

 

 

9.8

 

 

 

640.3

 

 

 

—

 

Asset-backed

 

 

91.5

 

 

 

0.2

 

 

 

0.7

 

 

 

91.0

 

 

 

—

 

Fixed maturities, excluding held-for-sale (Chaucer)

 

 

6,245.9

 

 

 

49.8

 

 

 

134.2

 

 

 

6,161.5

 

 

 

6.6

 

Fixed maturities, held-for-sale

 

 

24.9

 

 

 

—

 

 

 

0.4

 

 

 

24.5

 

 

 

—

 

Total fixed maturities

 

$

6,270.8

 

 

$

49.8

 

 

$

134.6

 

 

$

6,186.0

 

 

$

6.6

 

 

DECEMBER 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

OTTI

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

Losses

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

$

322.1

 

 

$

3.4

 

 

$

3.2

 

 

$

322.3

 

 

$

—

 

Foreign government

 

 

8.2

 

 

 

0.3

 

 

 

—

 

 

 

8.5

 

 

 

—

 

Municipal

 

 

910.1

 

 

 

29.7

 

 

 

5.8

 

 

 

934.0

 

 

 

—

 

Corporate

 

 

3,134.2

 

 

 

84.1

 

 

 

21.7

 

 

 

3,196.6

 

 

 

6.5

 

Residential mortgage-backed

 

 

632.3

 

 

 

5.8

 

 

 

4.9

 

 

 

633.2

 

 

 

—

 

Commercial mortgage-backed

 

 

590.3

 

 

 

7.2

 

 

 

2.5

 

 

 

595.0

 

 

 

—

 

Asset-backed

 

 

59.9

 

 

 

0.1

 

 

 

0.3

 

 

 

59.7

 

 

 

—

 

Fixed maturities, excluding held-for-sale (Chaucer)

 

 

5,657.1

 

 

 

130.6

 

 

 

38.4

 

 

 

5,749.3

 

 

 

6.5

 

Fixed maturities, held-for-sale

 

 

2,031.7

 

 

 

14.6

 

 

 

15.9

 

 

 

2,030.4

 

 

 

0.4

 

Total fixed maturities

 

$

7,688.8

 

 

$

145.2

 

 

$

54.3

 

 

$

7,779.7

 

 

$

6.9

 

 

OTTI unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $7.4 million and $11.0 million as of December 31, 2018 and 2017, respectively.

The Company participates in a security lending program for the purpose of enhancing income. Securities on loan to various counterparties had a fair value of $4.8 million and $23.4 million at December 31, 2018 and 2017, respectively, and were fully collateralized by cash. The fair value of the loaned securities is monitored on a daily basis, and the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. Securities lending collateral is recorded by the Company in cash and cash equivalents, with an offsetting liability included in expenses and taxes payable.

At December 31, 2018 and 2017, fixed maturities with fair values of $299.9 million and $286.9 million, respectively, were on deposit with various state governmental authorities or trustees.

The Company enters into various agreements that may require its fixed maturities to be held as collateral by others. At December 31, 2018 and 2017, fixed maturities with fair values of $234.9 million and $225.7 million, respectively, were held as collateral for the FHLB collateralized borrowing program. See Note 6—“Debt and Credit Arrangements” for additional information related to the Company’s FHLB program.

The amortized cost and fair value by maturity periods for fixed maturities are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or the Company may have the right to put or sell the obligations back to the issuers.

 

DECEMBER 31

 

2018

 

(in millions)

 

Amortized

Cost

 

 

Fair Value

 

Due in one year or less

 

$

207.4

 

 

$

208.5

 

Due after one year through five years

 

 

1,830.9

 

 

 

1,830.0

 

Due after five years through ten years

 

 

2,465.1

 

 

 

2,398.7

 

Due after ten years

 

 

274.2

 

 

 

276.6

 

 

 

 

4,777.6

 

 

 

4,713.8

 

Mortgage-backed and asset-backed securities

 

 

1,468.3

 

 

 

1,447.7

 

Fixed maturities, excluding held-for-sale (Chaucer)

 

 

6,245.9

 

 

 

6,161.5

 

Fixed maturities, held-for-sale

 

 

24.9

 

 

 

24.5

 

Total fixed maturities

 

$

6,270.8

 

 

$

6,186.0

 

B. UNREALIZED GAINS AND LOSSES

Unrealized gains and losses on available-for-sale and other securities are summarized in the following table.

 

YEARS ENDED DECEMBER 31

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Fixed

 

 

Securities and

 

 

 

 

 

2018

 

Maturities

 

 

Other

 

 

Total

 

Net appreciation, beginning of year

 

$

110.1

 

 

$

95.3

 

 

$

205.4

 

Net depreciation on available-for-sale securities

 

 

(203.7

)

 

 

—

 

 

 

(203.7

)

Provision for deferred income taxes

 

 

33.6

 

 

 

—

 

 

 

33.6

 

Amount realized with sale of Chaucer, net of tax

 

 

19.1

 

 

 

—

 

 

 

19.1

 

Cumulative effect adjustment for ASUs 2016-01 and 2018-02, net of tax

 

 

13.7

 

 

 

(95.3

)

 

 

(81.6

)

 

 

 

(137.3

)

 

 

(95.3

)

 

 

(232.6

)

Net depreciation, end of year

 

$

(27.2

)

 

$

—

 

 

$

(27.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

Net appreciation, beginning of year

 

$

127.1

 

 

$

58.9

 

 

$

186.0

 

Net appreciation (depreciation) on available-for-sale securities

 

 

(15.0

)

 

 

55.9

 

 

 

40.9

 

Provision for deferred income taxes

 

 

(11.2

)

 

 

(19.5

)

 

 

(30.7

)

Change in OTTI losses recognized in other comprehensive income

 

 

9.2

 

 

 

—

 

 

 

9.2

 

 

 

 

(17.0

)

 

 

36.4

 

 

 

19.4

 

Net appreciation, end of year

 

$

110.1

 

 

$

95.3

 

 

$

205.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

Net appreciation, beginning of year

 

$

116.5

 

 

$

33.4

 

 

$

149.9

 

Net appreciation on available-for-sale securities

 

 

36.9

 

 

 

39.2

 

 

 

76.1

 

Provision for deferred income taxes

 

 

(37.5

)

 

 

(13.7

)

 

 

(51.2

)

Change in OTTI losses recognized in other comprehensive income

 

 

11.2

 

 

 

—

 

 

 

11.2

 

 

 

 

10.6

 

 

 

25.5

 

 

 

36.1

 

Net appreciation, end of year

 

$

127.1

 

 

$

58.9

 

 

$

186.0

 

 

Effective January 1, 2018, increases or decreases in fair value of equity securities are no longer reported as unrealized gains and losses in accumulated other comprehensive income. Instead, they are reported in net realized and unrealized investment gains (losses) in the Consolidated Statements of Income (see “Equity Securities” below).

C. FIXED MATURITY SECURITIES IN AN UNREALIZED LOSS POSITION

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at December 31, 2018 and 2017 including the length of time the securities have been in an unrealized loss position:

 

DECEMBER 31, 2018

 

12 months or less

 

 

Greater than 12 months

 

 

Total

 

(in millions)

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

$

1.1

 

 

$

66.0

 

 

$

6.1

 

 

$

210.9

 

 

$

7.2

 

 

$

276.9

 

Foreign governments

 

 

—

 

 

 

2.0

 

 

 

—

 

 

 

0.8

 

 

 

—

 

 

 

2.8

 

Municipal

 

 

0.8

 

 

 

110.0

 

 

 

9.0

 

 

 

248.0

 

 

 

9.8

 

 

 

358.0

 

Corporate

 

 

30.0

 

 

 

1,277.9

 

 

 

43.9

 

 

 

781.6

 

 

 

73.9

 

 

 

2,059.5

 

Residential mortgage-backed

 

 

2.6

 

 

 

201.2

 

 

 

12.1

 

 

 

323.7

 

 

 

14.7

 

 

 

524.9

 

Commercial mortgage-backed

 

 

3.4

 

 

 

293.0

 

 

 

6.4

 

 

 

175.5

 

 

 

9.8

 

 

 

468.5

 

Asset-backed

 

 

0.4

 

 

 

42.3

 

 

 

0.3

 

 

 

18.0

 

 

 

0.7

 

 

 

60.3

 

Total investment grade

 

 

38.3

 

 

 

1,992.4

 

 

 

77.8

 

 

 

1,758.5

 

 

 

116.1

 

 

 

3,750.9

 

Below investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.9

 

 

 

—

 

 

 

0.9

 

Corporate

 

 

8.1

 

 

 

185.6

 

 

 

10.0

 

 

 

54.0

 

 

 

18.1

 

 

 

239.6

 

Total below investment grade

 

 

8.1

 

 

 

185.6

 

 

 

10.0

 

 

 

54.9

 

 

 

18.1

 

 

 

240.5

 

Fixed maturities, excluding held-for-sale (Chaucer)

 

 

46.4

 

 

 

2,178.0

 

 

 

87.8

 

 

 

1,813.4

 

 

 

134.2

 

 

 

3,991.4

 

Fixed maturities, held-for-sale

 

 

0.1

 

 

 

4.0

 

 

 

0.3

 

 

 

18.0

 

 

 

0.4

 

 

 

22.0

 

Total fixed maturities

 

$

46.5

 

 

$

2,182.0

 

 

$

88.1

 

 

$

1,831.4

 

 

$

134.6

 

 

$

4,013.4

 

 

DECEMBER 31, 2017

 

12 months or less

 

 

Greater than 12 months

 

 

Total

 

(in millions)

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

$

1.1

 

 

$

146.3

 

 

$

2.1

 

 

$

62.3

 

 

$

3.2

 

 

$

208.6

 

Foreign governments

 

 

—

 

 

 

0.1

 

 

 

—

 

 

 

0.6

 

 

 

—

 

 

 

0.7

 

Municipal

 

 

1.7

 

 

 

183.8

 

 

 

4.1

 

 

 

101.2

 

 

 

5.8

 

 

 

285.0

 

Corporate

 

 

3.0

 

 

 

386.2

 

 

 

10.8

 

 

 

395.9

 

 

 

13.8

 

 

 

782.1

 

Residential mortgage-backed

 

 

1.4

 

 

 

196.3

 

 

 

3.5

 

 

 

159.0

 

 

 

4.9

 

 

 

355.3

 

Commercial mortgage-backed

 

 

0.9

 

 

 

139.2

 

 

 

1.6

 

 

 

61.9

 

 

 

2.5

 

 

 

201.1

 

Asset-backed

 

 

0.3

 

 

 

34.6

 

 

 

—

 

 

 

2.4

 

 

 

0.3

 

 

 

37.0

 

Total investment grade

 

 

8.4

 

 

 

1,086.5

 

 

 

22.1

 

 

 

783.3

 

 

 

30.5

 

 

 

1,869.8

 

Below investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

1.5

 

 

 

48.7

 

 

 

6.4

 

 

 

39.0

 

 

 

7.9

 

 

 

87.7

 

Fixed maturities, excluding held-for-sale (Chaucer)

 

 

9.9

 

 

 

1,135.2

 

 

 

28.5

 

 

 

822.3

 

 

 

38.4

 

 

 

1,957.5

 

Fixed maturities, held-for-sale

 

 

5.7

 

 

 

803.3

 

 

 

10.2

 

 

 

389.6

 

 

 

15.9

 

 

 

1,192.9

 

Total fixed maturities

 

$

15.6

 

 

$

1,938.5

 

 

$

38.7

 

 

$

1,211.9

 

 

$

54.3

 

 

$

3,150.4

 

 

The Company views gross unrealized losses on fixed maturities as being temporary since it is its assessment that these securities will recover in the near term, allowing the Company to realize the anticipated long-term economic value. The Company employs a systematic methodology to evaluate declines in fair value below amortized cost for fixed maturity securities. In determining OTTI, the Company evaluates several factors and circumstances, including the issuer’s overall financial condition; the issuer’s credit and financial strength ratings; the issuer’s financial performance, including earnings trends and asset quality; any specific events which may influence the operations of the issuer; the general outlook for market conditions in the industry or geographic region in which the issuer operates; and the length of time and the degree to which the fair value of an issuer’s securities remains below the Company’s amortized cost. The Company also considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security.

D. EQUITY SECURITIES

Equity securities are carried at fair value. Effective January 1, 2018, increases or decreases in the fair value of equity securities are reported in net realized and unrealized investment gains (losses) in the Consolidated Statements of Income. Previously, equity securities were categorized as available-for-sale and unrealized gains and losses were reported in AOCI, a separate component of shareholders’ equity. On January 1, 2018, the Company recorded a cumulative effect adjustment which included the reclassification of net unrealized gains on equity securities of $142.5 million, pre-tax, from AOCI to retained earnings. As of December 31, 2017, the Company held equity securities with a fair value of $576.2 million and a cost of $433.7 million.

E. OTHER INVESTMENTS

The Company’s mortgage participations and other mortgage loans were $405.7 million and $365.8 million at December 31, 2018 and 2017, respectively. Participating interests in commercial mortgage loans are originated and serviced by a third-party.  For these investments, the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgages. Mortgage participations and other mortgage loans were comprised of the following property types and geographic locations.

 

DECEMBER 31

 

2018

 

 

2017

 

(in millions)

 

 

 

 

 

 

Property Type:

 

 

 

 

 

 

 

 

Office

 

$

141.1

 

 

$

134.6

 

Apartments

 

 

85.5

 

 

 

64.9

 

Retail

 

 

66.9

 

 

 

64.1

 

Hotel

 

 

62.7

 

 

 

58.1

 

Industrial

 

 

50.6

 

 

 

45.0

 

Valuation allowance

 

 

(1.1

)

 

 

(0.9

)

Total

 

$

405.7

 

 

$

365.8

 

 

DECEMBER 31

 

2018

 

 

2017

 

(in millions)

 

 

 

 

 

 

Geographic Region:

 

 

 

 

 

 

 

 

Pacific

 

$

92.5

 

 

$

87.6

 

South Atlantic

 

 

82.1

 

 

 

76.9

 

West South Central

 

 

65.9

 

 

 

66.1

 

Mid-Atlantic

 

 

53.4

 

 

 

53.4

 

New England

 

 

35.3

 

 

 

28.8

 

East North Central

 

 

27.9

 

 

 

16.5

 

Mountain

 

 

12.5

 

 

 

5.0

 

Other

 

 

37.2

 

 

 

32.4

 

Valuation allowance

 

 

(1.1

)

 

 

(0.9

)

Total

 

$

405.7

 

 

$

365.8

 

 

At December 31, 2018, scheduled maturities of mortgage participations and other mortgage loans were as follows: due in 2020 - $10.0 million; in 2021 - $57.4 million; 2022 - $28.1 million; 2023 - $17.0 million and thereafter - $293.2 million. There were no scheduled loan maturities in 2019. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties and loans may be refinanced. During 2018, the Company did not refinance any loans based on terms that differed from current market rates.

Other investments also include interests in limited partnerships of $235.7 million and $186.4 million at December 31, 2018 and December 31, 2017, respectively.

F. OTHER

At December 31, 2018 and 2017, the Company’s exposure to concentration of investments in a single investee that exceeded 10% of shareholders’ equity included securities of a U.S. government-sponsored agency, as well as mortgage participations with a highly rated single third party with a carry value of $396.7 million and $356.8 million, respectively.

At December 31, 2018, there were contractual investment commitments of up to $162.9 million.