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Investments
 3 Months Ended
Mar. 31, 2019
Investments Debt And Equity Securities [Abstract]  
Investments

5. Investments

A. Fixed maturities

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

 

 

 

March 31, 2019

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

OTTI

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

(in millions)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

Losses

 

U.S. Treasury and government agencies

 

$

404.5

 

 

$

4.7

 

 

$

2.5

 

 

$

406.7

 

 

$

—

 

Foreign government

 

 

7.3

 

 

 

0.1

 

 

 

—

 

 

 

7.4

 

 

 

—

 

Municipal

 

 

848.1

 

 

 

20.8

 

 

 

3.4

 

 

 

865.5

 

 

 

—

 

Corporate

 

 

3,635.7

 

 

 

66.3

 

 

 

27.4

 

 

 

3,674.6

 

 

 

4.8

 

Residential mortgage-backed

 

 

819.2

 

 

 

6.8

 

 

 

6.1

 

 

 

819.9

 

 

 

—

 

Commercial mortgage-backed

 

 

684.9

 

 

 

9.4

 

 

 

2.4

 

 

 

691.9

 

 

 

—

 

Asset-backed

 

 

93.0

 

 

 

0.6

 

 

 

0.2

 

 

 

93.4

 

 

 

—

 

Total fixed maturities

 

$

6,492.7

 

 

$

108.7

 

 

$

42.0

 

 

$

6,559.4

 

 

$

4.8

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

OTTI

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

Unrealized

 

(in millions)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

Losses

 

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

 

 

Other-than-temporary impairments (“OTTI”) unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income (“AOCI”). 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 as of both March 31, 2019 and December 31, 2018.

The Company deposits funds with various state and governmental authorities. For a discussion of the Company’s deposits with state and governmental authorities, see also Note 3 – “Investments” of the Notes to Consolidated Financial Statements in the Company’s 2018 Annual Report on Form 10-K.

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.

 

 

 

March 31, 2019

 

 

 

Amortized

 

 

Fair

 

(in millions)

 

Cost

 

 

Value

 

Due in one year or less

 

$

249.2

 

 

$

250.9

 

Due after one year through five years

 

 

1,969.6

 

 

 

2,001.6

 

Due after five years through ten years

 

 

2,407.4

 

 

 

2,423.2

 

Due after ten years

 

 

269.4

 

 

 

278.5

 

 

 

 

4,895.6

 

 

 

4,954.2

 

Mortgage-backed and asset-backed securities

 

 

1,597.1

 

 

 

1,605.2

 

Total fixed maturities

 

$

6,492.7

 

 

$

6,559.4

 

 

B. 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 March 31, 2019 and December 31, 2018 including the length of time the securities have been in an unrealized loss position:

 

 

 

March 31, 2019

 

 

 

12 months or less

 

 

Greater than 12 months

 

 

Total

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

(in millions)

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

$

—

 

 

$

—

 

 

$

2.5

 

 

$

158.4

 

 

$

2.5

 

 

$

158.4

 

Foreign governments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.8

 

 

 

—

 

 

 

0.8

 

Municipal

 

 

—

 

 

 

9.7

 

 

 

3.4

 

 

 

192.3

 

 

 

3.4

 

 

 

202.0

 

Corporate

 

 

0.9

 

 

 

15.3

 

 

 

19.7

 

 

 

993.2

 

 

 

20.6

 

 

 

1,008.5

 

Residential mortgage-backed

 

 

—

 

 

 

2.1

 

 

 

6.1

 

 

 

352.6

 

 

 

6.1

 

 

 

354.7

 

Commercial mortgage-backed

 

 

—

 

 

 

0.3

 

 

 

2.4

 

 

 

226.7

 

 

 

2.4

 

 

 

227.0

 

Asset-backed

 

 

—

 

 

 

—

 

 

 

0.2

 

 

 

31.9

 

 

 

0.2

 

 

 

31.9

 

Total investment grade

 

 

0.9

 

 

 

27.4

 

 

 

34.3

 

 

 

1,955.9

 

 

 

35.2

 

 

 

1,983.3

 

Below investment grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

0.3

 

 

 

17.1

 

 

 

6.5

 

 

 

75.7

 

 

 

6.8

 

 

 

92.8

 

Total fixed maturities

 

$

1.2

 

 

$

44.5

 

 

$

40.8

 

 

$

2,031.6

 

 

$

42.0

 

 

$

2,076.1

 

 

 

 

December 31, 2018

 

 

 

12 months or less

 

 

Greater than 12 months

 

 

Total

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

(in millions)

 

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

 

 

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.

C. Proceeds from sales

The proceeds from sales of available-for-sale securities and gross realized gains and gross realized losses on those sales were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

Proceeds from

 

 

Gross

 

 

Gross

 

 

Proceeds from

 

 

Gross

 

 

Gross

 

(in millions)

 

Sales

 

 

Gains

 

 

Losses

 

 

Sales

 

 

Gains

 

 

Losses

 

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

 

$

60.1

 

 

$

1.0

 

 

$

1.5

 

 

$

57.1

 

 

$

0.2

 

 

$

1.7

 

Fixed maturities, held-for-sale

 

 

0.3

 

 

 

—

 

 

 

—

 

 

 

70.7

 

 

 

0.4

 

 

 

0.6

 

Total fixed maturities

 

$

60.4

 

 

$

1.0

 

 

$

1.5

 

 

$

127.8

 

 

$

0.6

 

 

$

2.3

 

 

D. Other-than-temporary impairments

For the three months ended March 31, 2019, the Company recognized no OTTI.    

For the three months ended March 31, 2018, total OTTI from continuing operations was $0.9 million, consisting primarily of fixed maturities.  Of this amount, $0.6 million was recognized in earnings and the remaining $0.3 million was recorded as unrealized losses in AOCI.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2018 were as follows:

Corporate bonds – the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating and asset duration and loss-given-default factors based on security type. These factors are based on historical data provided by an independent third-party rating agency. In addition, other market data relevant to the realizability of contractual cash flows may be considered.

The following table provides rollforwards of the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on fixed maturity securities from continuing operations for which the non-credit portion of the loss is included in other comprehensive income. 

 

 

Three Months Ended March 31,

 

(in millions)

2019

 

 

2018

 

Credit losses as of the beginning of the period

$

3.8

 

 

$

3.6

 

Credit losses on securities for which an OTTI was not previously recognized

 

—

 

 

 

0.2

 

Reductions for securities sold, matured or called

 

(0.5

)

 

 

(0.7

)

Credit losses as of the end of the period

$

3.3

 

 

$

3.1

 

 

E. Equity securities

Equity securities are carried at fair value and all increases or decreases in fair value are reported in net realized and unrealized investment gains (losses) on the Consolidated Statements of Income. The following table provides pre-tax net realized and unrealized gains (losses) on equity securities from continuing operations:

 

 

Three Months Ended March 31,

 

(in millions)

 

2019

 

 

 

2018

 

Net gains (losses) recognized during the period

$

48.6

 

 

$

(22.9

)

Less: net gains recognized on equity securities sold during the period

 

1.1

 

 

 

0.5

 

Net unrealized gains (losses) recognized during the period on equity securities still held

$

47.5

 

 

$

(23.4

)