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Investments
 12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments Investments
Included in “total investments” in our consolidated balance sheets at December 31, 2019 and 2018 is $158.6 million and $133.4 million, respectively, of assets managed on behalf of the trade capital providers, who are third-party participants that provide underwriting capital to the operations of Syndicates 1200 and 1910.
Fixed Maturities
The amortized cost, gross unrealized gains, gross unrealized losses and fair value in fixed maturity investments were as follows: 
December 31, 2019
 
 
 
 
 
 
 
(in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
U.S. Governments
$
353.5

 
$
2.3

 
$
1.2

 
$
354.6

Foreign Governments
244.8

 
4.6

 
0.7

 
248.7

Obligations of states and political subdivisions
145.8

 
6.9

 
0.1

 
152.6

Corporate bonds
1,777.4

 
37.7

 
34.7

 
1,780.4

Commercial mortgage-backed securities
213.5

 
4.6

 
1.1

 
217.0

Residential mortgage-backed securities
479.1

 
10.4

 
0.6

 
488.9

Asset-backed securities
164.2

 
1.5

 
0.2

 
165.5

Collateralized loan obligations
226.7

 
0.5

 
1.4

 
225.8

Total fixed maturities
$
3,605.0

 
$
68.5

 
$
40.0

 
$
3,633.5

December 31, 2018
 
 
 
 
 
 
 
(in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
U.S. Governments
$
240.9

 
$
0.2

 
$
4.9

 
$
236.2

Foreign Governments
224.1

 
0.5

 
7.8

 
216.8

Obligations of states and political subdivisions
236.7

 
4.3

 
1.2

 
239.8

Corporate bonds
1,808.7

 
7.5

 
58.7

 
1,757.5

Commercial mortgage-backed securities
205.3

 
0.7

 
3.2

 
202.8

Residential mortgage-backed securities
413.1

 
3.4

 
5.7

 
410.8

Asset-backed securities
173.6

 
0.4

 
1.2

 
172.8

Collateralized loan obligations
226.7

 
0.5

 
3.5

 
223.7

Total fixed maturities
$
3,529.1


$
17.5


$
86.2


$
3,460.4


Contractual Maturity
The amortized cost and fair values of fixed maturity investments as of December 31, 2019, by contractual maturity, were as follows:
(in millions)
Amortized
Cost
 
Fair
Value
Due in one year or less
$
294.2

 
$
294.8

Due after one year through five years
1,495.0

 
1,491.0

Due after five years through ten years
653.2

 
666.6

Thereafter
79.1

 
83.9

Structured securities
1,083.5

 
1,097.2

Total
$
3,605.0


$
3,633.5


The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.
Other Invested Assets
Details regarding the carrying value and unfunded investment commitments of the other invested assets portfolio as of December 31, 2019 and 2018 were as follows:
December 31, 2019
 
 
 
(in millions)
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
Hedge funds
$
109.5

 


Private equity
268.1

 
110.0

Long only funds
114.6

 


Other
4.3

 


Total other investments
$
496.5

 
$
110.0

December 31, 2018
 
 
 
(in millions)
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
Hedge funds
$
120.6

 
$
—

Private equity
211.8

 
120.5

Long only funds
153.0

 
—

Other
4.4

 
—

Total other invested assets
$
489.8

 
$
120.5


The following describes each investment type:
•
Hedge funds: Hedge funds include funds that primarily buy and sell stocks including short sales, multi-strategy credit, relative value credit and distressed credit.
•
Private equity:  Private equity includes buyout funds, real asset/infrastructure funds, credit special situations funds, mezzanine lending funds and direct investments and strategic non-controlling minority investments in private companies that are principally accounted for using the equity method of accounting.
•
Long only funds:  Our long only funds include a fund that primarily owns international stocks and funds that primarily own investment-grade corporate and sovereign fixed income securities.
•
Other: Other includes participation in investment pools.
Unrealized Losses and Other-than-temporary Impairments
An aging of unrealized losses on our investments in fixed maturities is presented below:
December 31, 2019
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
$
114.6

 
$
1.1

 
$
17.0

 
$
0.1

 
$
131.6

 
$
1.2

Foreign Governments
117.6

 
0.7

 
5.1

 
—

 
122.7

 
0.7

Obligations of states and political subdivisions
0.7

 
—

 
2.1

 
0.1

 
2.8

 
0.1

Corporate bonds
249.4

 
18.9

 
63.6

 
15.8

 
313.0

 
34.7

Commercial mortgage-backed securities
74.8

 
1.1

 
4.9

 
—

 
79.7

 
1.1

Residential mortgage-backed securities
66.9

 
0.3

 
25.2

 
0.3

 
92.1

 
0.6

Asset-backed securities
22.5

 
0.1

 
18.9

 
0.1

 
41.4

 
0.2

Collateralized loan obligations
54.7

 
0.8

 
116.7

 
0.6

 
171.4

 
1.4

Total fixed maturities
$
701.2


$
23.0


$
253.5


$
17.0


$
954.7


$
40.0

December 31, 2018
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
$
28.2

 
$
0.2

 
$
173.0

 
$
4.7

 
$
201.2

 
$
4.9

Foreign Governments
73.4

 
3.6

 
125.0

 
4.2

 
198.4

 
7.8

Obligations of states and political subdivisions
53.3

 
0.6

 
25.3

 
0.6

 
78.6

 
1.2

Corporate bonds
964.3

 
45.7

 
440.8

 
13.0

 
1,405.1

 
58.7

Commercial mortgage-backed securities
48.5

 
0.6

 
90.6

 
2.6

 
139.1

 
3.2

Residential mortgage-backed securities
63.5

 
0.7

 
176.1

 
5.0

 
239.6

 
5.7

Asset-backed securities
73.6

 
0.6

 
64.2

 
0.6

 
137.8

 
1.2

Collateralized loan obligations
209.5

 
3.3

 
10.3

 
0.2

 
219.8

 
3.5

Total fixed maturities
$
1,514.3


$
55.3


$
1,105.3


$
30.9


$
2,619.6


$
86.2

We regularly evaluate our investments for other-than-temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. We also recognize other-than-temporary losses on fixed maturity securities that we intend to sell. Effective January 1, 2018, the Company adopted ASU 2016-1. As a result, changes in the fair value of equity securities are recognized in net realized investment gains\(losses) in the Consolidated Statement of Income.
We hold a total of 6,069 securities, of which 909 were in an unrealized loss position for less than one year and 330 were in an unrealized loss position for a period one year or greater as of December 31, 2019. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral, as well. In considering whether an investment is other-than-temporarily impaired or not, we also considered that we do not intend to sell the investments and it is unlikely that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider these investments to be other-than-temporarily impaired at December 31, 2019.
We recognized other-than-temporary losses on our fixed maturities and equity portfolios as follows:
 
For the Years Ended December 31,
(in millions)
2019
 
2018
 
2017
Other-than-temporary impairment:

 

 

Foreign governments
$
(2.0
)
 
$
—

 
$
—

Obligations of states and political subdivisions
(0.1
)
 
—

 
(0.1
)
Corporate bonds
(18.2
)
 
(6.6
)
 
(0.7
)
Equity securities
—

 
—

 
(1.7
)
Other invested assets
—

 
(1.0
)
 
—

Other-than-temporary impairment losses
$
(20.3
)
 
$
(7.6
)
 
$
(2.5
)

Net Investment Income
Investment income and expenses were as follows:
 
For the Years Ended December 31,
(in millions)
2019
 
2018
 
2017
Investment income:
 
 
 
 
 
   Interest on fixed maturities
$
129.5

 
$
115.0

 
$
97.1

   Dividends on equity securities
11.1

 
12.5

 
13.9

   Income on alternative investments
22.4

 
19.8

 
49.5

   Income on short-term and other investments
8.9

 
9.5

 
7.7

Investment income
171.9


156.8


168.2

Investment expenses
(20.8
)
 
(23.7
)
 
(28.2
)
Net investment income
$
151.1


$
133.1


$
140.0


Net Realized Investment Gains and Losses
The following table presents our gross realized investment gains (losses):
 
For the Years Ended December 31,
(in millions)
2019
 
2018
 
2017
Realized gains on fixed maturities and other
 
 
 
 
 
Fixed maturities
$
22.2

 
$
17.7

 
$
25.7

Other investments
33.0

 
41.4

 
25.7

Other assets and short-term investments
—

 
0.2

 
0.7

 
55.2

 
59.3

 
52.1

Realized losses on fixed maturities and other


 


 


Fixed maturities
(11.7
)
 
(16.0
)
 
(20.0
)
Other investments
(31.3
)

(39.5
)

(36.2
)
Short-term investments
—

 
(0.5
)
 
(0.2
)
Other-than-temporary impairment losses on fixed maturities
(20.3
)
 
(6.6
)
 
(0.8
)
Other-than-temporary impairment losses on other assets
—

 
(1.0
)
 
—

 
(63.3
)
 
(63.6
)
 
(57.2
)
Equity securities (1)


 


 


Net realized gains on equity securities
128.9

 
37.4

 
46.1

Other-than-temporary impairment losses on equity securities
—

 
—

 
(1.7
)
Change in unrealized (losses) on equity securities held at the end of the period
(40.8
)
 
(105.1
)
 
—

Net realized gains (losses) on equity securities
88.1


(67.7
)

44.4

Net realized investment gains (losses) before income taxes
80.0

 
(72.0
)
 
39.3

Income tax provision
(16.2
)
 
(11.2
)
 
(12.0
)
Net realized investment gains (losses) net of income taxes
$
63.8


$
(83.2
)

$
27.3

(1) Effective January 1, 2018, we adopted ASU 2016-1. As a result, unrealized gains (losses) at the date of adoption have been reclassified from accumulated other comprehensive income to retained earnings. Additionally, all changes in the fair value of equity securities are recognized in net realized investment gains (losses). Prior periods have not been restated to conform to the current presentation. See “Recently Issued Accounting Pronouncements.”
The cost of securities sold is based on the specific identification method.
Changes in unrealized appreciation (depreciation) related to investments are summarized as follows: 
 
For the Years Ended December 31,
(in millions)
2019
 
2018
 
2017
Change in unrealized gains (losses)
 
 
 
 
 
Fixed maturities
$
93.3

 
$
(88.1
)
 
$
25.4

Equity securities
—

 
—

 
36.6

Other investments
4.4

 
0.1

 
2.1

Other and short-term investments
0.2

 
(0.5
)
 
—

Net unrealized investment gains (losses) before income taxes
97.9


(88.5
)

64.1

Income tax (provision) benefit
(15.4
)
 
13.0

 
(14.6
)
Net unrealized investment gains (losses), net of income taxes
$
82.5


$
(75.5
)

$
49.5


Foreign Currency Exchange Forward Contracts
We entered into foreign currency exchange forward contracts to manage operational currency exposure on our Canadian dollar (“CAD”) investment portfolio and certain catastrophic events, minimize negative impacts to investment portfolio returns, and gain exposure to a total return strategy which invests in multiple currencies.  The currency forward contracts are carried at fair value in our consolidated balance sheets in “other assets” at December 31, 2019 and 2018.  The gains and losses are included in “net realized investment and other gains” in our consolidated statements of income.
The fair value of our foreign currency exchange forward contracts as of December 31 was as follows:
(in millions)
December 31, 2019
 
December 31, 2018
Operational currency exposure
$
(0.8
)
 
$
4.4

Asset manager investment exposure
(0.3
)
 
(0.3
)
Total return strategy
2.2

 
(1.5
)
Total
$
1.1

 
$
2.6


The following table presents our gross investment realized gains and losses on our foreign currency exchange forward contracts:
 
For the Years Ended December 31,
(in millions)
2019
 
2018
 
2017
Realized gains
 
 
 
 
 
Operational currency exposure
5.7

 
9.7

 
12.4

Asset manager investment exposure
2.7

 
5.8

 
1.5

Total return strategy
22.5

 
26.7

 
10.4

Gross realized investment gains
30.9


42.2


24.3

Realized losses
 
 
 
 
 
Operational currency exposure
(10.6
)
 
(7.9
)
 
(13.8
)
Asset manager investment exposure
(0.8
)
 
(3.0
)
 
(11.3
)
Total return strategy
(17.6
)
 
(28.6
)
 
(7.6
)
Gross realized investment losses
(29.0
)

(39.5
)

(32.7
)
Net realized investment gains (losses) on foreign
   currency exchange forward contracts
$
1.9

 
$
2.7

 
$
(8.4
)

Regulatory Deposits, Pledged Securities and Letters of Credit
We are required to maintain assets on deposit with various regulatory authorities to support our insurance and reinsurance operations.  We maintain assets pledged as collateral in support of irrevocable letters of credit issued under the terms of certain reinsurance agreements for reported loss and loss expense reserves.  The following table presents our components of restricted assets at December 31:
(in millions)
December 31, 2019
 
December 31, 2018
Securities on deposit for regulatory and other purposes
$
192.5

 
$
172.6

Securities pledged as collateral for letters of credit and other
169.9

 
120.9

Securities and cash on deposit supporting Lloyd’s business
412.8

 
376.8

Total restricted investments
$
775.2


$
670.3


Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.
Valuation techniques consistent with the market and income approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels.
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.
•
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.
•
Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.
We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of December 31, 2019 and 2018. A description of the valuation techniques we use to measure assets at fair value is as follows:
Fixed Maturities (Available-for-Sale) Levels 1 and 2:
•
United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.
•
United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated government and credit securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.
•
Asset and mortgage-backed securities and collateralized loan obligations are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Fixed Maturities Level 3:
•
We own term loans that are valued using unobservable inputs.    
Equity Securities Level 1: Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.
Equity Securities Level 3: We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:
•
Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.
•
Fair value measurements from a broker and an independent valuation service, both based upon estimates and assumptions.
Other Investments Level 2: Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon values obtained from Lloyd’s.
Short-term Investments: Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate and governmental bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.
Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis have been categorized as follows:
 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
December 31, 2019
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
U.S. Governments
$
354.6

 
$
349.1

 
$
5.5

 
$
—

Foreign Governments
248.7

 
—

 
248.7

 
—

Obligations of states and political subdivisions
152.6

 
—

 
152.6

 
—

Corporate bonds
1,780.4

 
—

 
1,773.0

 
7.4

Commercial mortgage-backed securities
217.0

 
—

 
217.0

 
—

Residential mortgage-backed securities
488.9

 
—

 
488.9

 
—

Asset-backed securities
165.5

 
—

 
165.5

 
—

Collateralized loan obligations
225.8

 
—

 
225.8

 
—

Total fixed maturities
3,633.5


349.1


3,277.0


7.4

Equity securities
124.4

 
117.8

 
—

 
6.6

Other investments
400.2

 
—

 
400.2

 
—

Short-term investments
845.0

 
823.5

 
21.5

 
—

 
$
5,003.1


$
1,290.4


$
3,698.7


$
14.0

(a) Quoted prices in active markets for identical asset
(b) Significant other observable inputs
(c) Significant unobservable inputs

 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
December 31, 2018
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
U.S. Governments
$
236.2

 
$
226.7

 
$
9.5

 
$
—

Foreign Governments
216.8

 
—

 
216.8

 
—

Obligations of states and political subdivisions
239.8

 
—

 
239.8

 
—

Corporate bonds
1,757.5

 
—

 
1,755.3

 
2.2

Commercial mortgage-backed securities
202.8

 
—

 
202.8

 
—

Residential mortgage-backed securities
410.8

 
—

 
410.8

 
—

Asset-backed securities
172.8

 
—

 
172.8

 
—

Collateralized loan obligations
223.7

 
—

 
223.7

 
—

Total fixed maturities
3,460.4


226.7


3,231.5


2.2

Equity securities
354.5

 
346.3

 
—

 
8.2

Other investments
114.4

 
—

 
114.4

 
—

Short-term investments
482.3

 
453.9

 
28.4

 
—

 
$
4,411.6


$
1,026.9


$
3,374.3


$
10.4

(a) Quoted prices in active markets for identical asset
(b) Significant other observable inputs
(c) Significant unobservable inputs
The fair value measurements in the tables above do not equal “total investments” on our consolidated balance sheets as they exclude certain other investments that are accounted for under the equity-method of accounting.
A reconciliation of the beginning and ending balances for the investments categorized as Level 3 are as follows:
Fair Value Measurements Using Observable Inputs (Level 3)
(in millions)
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2019
$
2.2

 
$
8.2

 
$
10.4

Transfers into Level 3
3.5

 
—

 
3.5

Transfers out of Level 3
—

 
—

 
—

Total gains or losses (realized/unrealized):
 
 
 
 
 
Included in net income
(0.4
)
 
(1.6
)
 
(2.0
)
Included in other comprehensive income
0.6

 
—

 
0.6

Purchases, issuances, sales, and settlements:
 
 
 
 
 
Purchases
1.9

 
—

 
1.9

Issuances
—

 
—

 
—

Sales
(0.4
)
 
—

 
(0.4
)
Settlements
—

 
—

 
—

Ending balance, Ending balance, December 31, 2019
$
7.4


$
6.6


$
14.0

Amount of total gains or losses for the year included in net income attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2019
$
—

 
$
—

 
$
—

(in millions)
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2018
$
1.9

 
$
2.3

 
$
4.2

Transfers into Level 3
—

 
—

 
—

Transfers out of Level 3
—

 
—

 
—

Total gains or losses (realized/unrealized):
 
 
 
 
 
Included in net income
—

 
0.2

 
0.2

Included in other comprehensive loss
0.3

 
—

 
0.3

Purchases, issuances, sales, and settlements:
 
 
 
 
 
Purchases
—

 
7.3

 
7.3

Issuances
—

 
—

 
—

Sales
—

 
(1.6
)
 
(1.6
)
Settlements
—

 
—

 
—

Ending balance, Ending balance, December 31, 2018
$
2.2


$
8.2


$
10.4

Amount of total gains or losses for the year included in net income attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2018
$
—

 
$
—

 
$
—


At December 31, 2019 and 2018, we did not have any financial assets or financial liabilities measured at fair value on a nonrecurring basis or any financial liabilities on a recurring basis.