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Investments
 12 Months Ended
Sep. 30, 2013
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments
The Company’s consolidated investments are summarized as follows:
 
September 30, 2013
 
Cost or Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Carrying Value
 
 
 
 
 
 
 
 
 
 
Fixed-maturity securities, available-for sale
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
1,505.7

 
$
22.6

 
$
(5.2
)
 
$
1,523.1

 
$
1,523.1

Commercial mortgage-backed securities
431.3

 
24.7

 
(1.6
)
 
454.4

 
454.4

Corporates
9,314.7

 
288.7

 
(185.1
)
 
9,418.3

 
9,418.3

Hybrids
412.6

 
19.5

 
(3.3
)
 
428.8

 
428.8

Municipals
998.8

 
49.0

 
(40.8
)
 
1,007.0

 
1,007.0

Agency residential mortgage-backed securities
96.5

 
2.4

 
(0.3
)
 
98.6

 
98.6

Non-agency residential mortgage-backed securities
1,304.0

 
77.4

 
(13.4
)
 
1,368.0

 
1,368.0

U.S. Government
998.5

 
7.2

 
(3.9
)
 
1,001.8

 
1,001.8

Total fixed maturities
15,062.1

 
491.5

 
(253.6
)
 
15,300.0

 
15,300.0

Equity securities
 
 
 
 
 
 
 
 
 
Available-for-sale
274.6

 
6.7

 
(10.3
)
 
271.0

 
271.0

Held for trading
120.1

 
0.6

 
(39.2
)
 
81.5

 
81.5

Total equity securities
394.7

 
7.3

 
(49.5
)
 
352.5

 
352.5

Derivatives
141.7

 
88.5

 
(8.4
)
 
221.8

 
221.8

Asset-based loans
560.4

 
—

 
—

 
560.4

 
560.4

Other invested assets
 
 
 
 
 
 
 
 
 
Policy loans and other invested assets
31.2

 
—

 
—

 
31.2

 
31.2

Total investments
$
16,190.1

 
$
587.3

 
$
(311.5
)
 
$
16,465.9

 
$
16,465.9


 
September 30, 2012
 
Cost or Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Carrying Value
 
 
 
 
 
 
 
 
 
 
Fixed-maturity securities, available-for-sale
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
1,010.9

 
$
18.6

 
$
(1.6
)
 
$
1,027.9

 
$
1,027.9

Commercial mortgage-backed securities
520.0

 
36.2

 
(2.4
)
 
553.8

 
553.8

Corporates
10,211.8

 
807.2

 
(10.0
)
 
11,009.0

 
11,009.0

Hybrids
519.0

 
18.8

 
(9.6
)
 
528.2

 
528.2

Municipals
1,083.2

 
141.9

 
(1.1
)
 
1,224.0

 
1,224.0

Agency residential mortgage-backed securities
149.5

 
5.8

 
(0.3
)
 
155.0

 
155.0

Non-agency residential mortgage-backed securities
629.1

 
35.8

 
(4.3
)
 
660.6

 
660.6

U.S. Government
917.5

 
12.9

 
—

 
930.4

 
930.4

Total fixed-maturity securities
15,041.0

 
1,077.2

 
(29.3
)
 
16,088.9

 
16,088.9

Equity securities
 
 
 
 
 
 
 
 
 
Available-for-sale
237.5

 
11.9

 
(1.3
)
 
248.1

 
248.1

Held for trading
191.8

 
—

 
(45.0
)
 
146.8

 
146.8

Total equity securities
429.3

 
11.9

 
(46.3
)
 
394.9

 
394.9

Derivatives
142.1

 
67.0

 
(8.4
)
 
200.7

 
200.7

Asset-based loans
180.1

 
—

 
—

 
180.1

 
180.1

Other invested assets
 
 
 
 
 
 
 
 
 
U.S. Treasuries and certificate of deposit, held-to-maturity
35.0

 
—

 
—

 
35.0

 
35.0

Policy loans and other invested assets
18.8

 
—

 
—

 
18.8

 
18.8

Total other invested assets
53.8

 
—

 
—

 
53.8

 
53.8

Total investments
$
15,846.3

 
$
1,156.1

 
$
(84.0
)
 
$
16,918.4

 
$
16,918.4



Included in AOCI were unrealized gains of $0.9 and unrealized losses of $1.9 related to the non-credit portion of other-than-temporary impairments on non-agency residential mortgage-backed securities at September 30, 2013 and 2012, respectively. The non-agency residential mortgage-backed securities unrealized losses and gains represent the difference between book value and fair value on securities that were previously impaired. There have been no impairments or write downs on any of the 2013 purchased non-agency residential mortgage-backed securities.

Securities held on deposit with various state regulatory authorities had a fair value of $19.4 and $20.7 at September 30, 2013 and 2012, respectively.

Maturities of Fixed-maturity Securities
The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.
 
September 30, 2013
 
Amortized Cost
 
 Fair Value
Corporates, Non-structured Hybrids, Municipal and U.S. Government securities:
 
 
 
Due in one year or less
$
978.5

 
$
982.4

Due after one year through five years
2,739.1

 
2,805.8

Due after five years through ten years
2,972.4

 
3,000.9

Due after ten years
5,007.5

 
5,037.5

Subtotal
11,697.5

 
11,826.6

Other securities which provide for periodic payments:
 
 
 
Asset-backed securities
1,505.7

 
1,523.1

Commercial-mortgage-backed securities
431.3

 
454.3

Structured hybrids
27.1

 
29.4

Agency residential mortgage-backed securities
96.5

 
98.6

Non-agency residential mortgage-backed securities
1,304.0

 
1,368.0

Total fixed maturity available-for-sale securities
$
15,062.1

 
$
15,300.0



Securities in an Unrealized Loss Position
FGH’s available-for-sale securities with unrealized losses are reviewed for potential other-than-temporary impairments. In evaluating whether a decline in value is other-than-temporary, FGH considers several factors including, but not limited to the following: (1) the extent and the duration of the decline; (2) the reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); and (3) the financial condition of and near-term prospects of the issuer. FGH also considers the ability and intent to hold the investment for a period of time to allow for a recovery of value.
FGH analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. If the net present value is less than the amortized cost of the investment, an other-than-temporary impairment is recognized. FGH has concluded that the fair values of the securities presented in the table below were not other-than-temporarily impaired as of September 30, 2013.

The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category, were as follows:
 
September 30, 2013
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
329.3

 
$
(4.5
)
 
$
81.5

 
$
(0.7
)
 
$
410.8

 
$
(5.2
)
Commercial-mortgage-backed securities
26.6

 
(0.5
)
 
4.9

 
(1.1
)
 
31.5

 
(1.6
)
Corporates
3,457.2

 
(175.0
)
 
186.0

 
(10.1
)
 
3,643.2

 
(185.1
)
Equities
118.6

 
(9.1
)
 
32.2

 
(1.2
)
 
150.8

 
(10.3
)
Hybrids
52.0

 
(3.3
)
 
—

 
—

 
52.0

 
(3.3
)
Municipals
333.3

 
(27.3
)
 
144.4

 
(13.5
)
 
477.7

 
(40.8
)
Agency residential mortgage-backed securities
9.8

 
(0.1
)
 
1.1

 
(0.2
)
 
10.9

 
(0.3
)
Non-agency residential mortgage-backed securities
325.2

 
(12.2
)
 
69.9

 
(1.2
)
 
395.1

 
(13.4
)
U.S. Government
753.9

 
(3.9
)
 
—

 
—

 
753.9

 
(3.9
)
Total available-for-sale securities
$
5,405.9

 
$
(235.9
)
 
$
520.0

 
$
(28.0
)
 
$
5,925.9

 
$
(263.9
)
Total number of available-for-sale securities in an unrealized loss position
 
 
588

 
 
 
78

 
 
 
666


 
September 30, 2012
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
169.8

 
$
(1.0
)
 
$
7.5

 
$
(0.6
)
 
$
177.3

 
$
(1.6
)
Commercial-mortgage-backed securities
0.8

 
(0.8
)
 
10.7

 
(1.6
)
 
11.5

 
(2.4
)
Corporates
411.3

 
(8.1
)
 
45.5

 
(1.9
)
 
456.8

 
(10.0
)
Equities
—

 
—

 
44.5

 
(1.3
)
 
44.5

 
(1.3
)
Hybrids
13.4

 
(0.4
)
 
107.7

 
(9.2
)
 
121.1

 
(9.6
)
Municipals
71.1

 
(1.1
)
 
—

 
—

 
71.1

 
(1.1
)
Agency residential mortgage-backed securities
1.8

 
(0.2
)
 
6.1

 
(0.1
)
 
7.9

 
(0.3
)
Non-agency residential mortgage-backed securities
12.9

 
(0.3
)
 
101.8

 
(4.0
)
 
114.7

 
(4.3
)
Total available-for-sale securities
$
681.1

 
$
(11.9
)
 
$
323.8

 
$
(18.7
)
 
$
1,004.9

 
$
(30.6
)
Total number of available-for-sale securities in an unrealized loss position
 
 
100

 
 
 
56

 
 
 
156


At September 30, 2013 and 2012, securities in an unrealized loss position were primarily concentrated in investment grade corporate debt instruments and municipals. Total unrealized losses were $263.9 and $30.6 at September 30, 2013 and 2012, respectively. The increase in the unrealized loss position is largely due to the increase in Treasury yields in the current fiscal year. 10 year US Treasury yields increased from 1.63% at September 30, 2012 to 2.64% at September 30, 2013. As a result, corporate debt holdings generally declined in value during this period. Management believes the increase in Treasury yields during the fiscal year is attributable to concerns about the cessation of liquidity measures being provided by the Federal Reserve.
At September 30, 2013 and 2012, securities with a fair value of $60.9 and $1.2, respectively, were depressed greater than 20% of amortized cost (excluding United States Government and United States Government sponsored agency securities), which represented less than 1% of the carrying values of all investments.
Credit Loss Portion of Other-than-temporary Impairments
The following table provides a reconciliation of the beginning and ending balances of the credit loss portion of other-than-temporary impairments on fixed maturity securities held by FGH for the years ended September 30, 2013, 2012 and 2011, for which a portion of the other-than-temporary impairment was recognized in AOCI:
 
Year ended September 30,
 
2013
 
2012
 
2011
Beginning balance
$
2.7

 
$
0.7

 
$
—

Increases attributable to credit losses on securities:
 
 
 
 
 
Other-than-temporary impairment was previously recognized
—

 
0.1

 
—

Other-than-temporary impairment was not previously recognized
—

 
1.9

 
0.7

Ending balance
$
2.7

 
$
2.7

 
$
0.7


For the year ended September 30, 2013, FGH recognized impairment losses in operations totaling $2.9, including credit impairments of $0.8 and change-of-intent impairments of $2.2 and had an amortized cost of $9.6 and a fair value of $6.7 at the time of impairment. For the year ended September 30, 2012, FGH recognized impairment losses in operations totaling $22.8, including credit impairments of $5.7, and change-of-intent impairments of $17.1, as well as non-credit losses in other comprehensive income totaling $1.5, for investments which experienced other-than-temporary impairments and had an amortized cost of $162.3 and a fair value of $138.0 at September 30, 2012. For the year ended September 30, 2011, FGH recognized impairment losses in operations totaling $18.0, including credit impairments of $5.1 and change-of-intent impairments of $12.9, as well as non-credit gains totaling $0.5 in other comprehensive income, for investments which experienced other-than-temporary impairments and had an amortized cost of $103.3 and a fair value of $85.8 at the time of impairment.
Details underlying write-downs taken as a result of other-than-temporary impairments that were recognized in earnings and included in net realized gains on securities were as follows:
 
Year ended September 30,
 
2013
 
2012
 
2011
Other-than-temporary impairments recognized in net income:
 
 
 
 
 
Corporates
$
1.2

 
$
4.1

 
$
1.5

Non-agency residential mortgage-backed securities
1.2

 
7.5

 
5.1

Equities
—

 
—

 
11.0

Hybrids
—

 
9.7

 
—

Other invested assets
0.5

 
1.5

 
0.4

Total other-than-temporary impairments
$
2.9

 
$
22.8

 
$
18.0



Asset-based Loans
Salus’ portfolio of asset-based loans receivable, included in “Asset-based loans” in the Consolidated Balance Sheets as of September 30, 2013 and September 30, 2012, consisted of the following:
 
September 30,
2013
 
September 30, 2012
Asset-based loans, by major industry:
 
 
 
Wholesale
$
56.8

 
$
77.2

Apparel
252.9

 
70.1

Jewelry
125.8

 
27.9

Other
130.1

 
6.3

Total asset-based loans
565.6

 
181.5

Less: Allowance for credit losses
5.2

 
1.4

Total asset-based loans, net
$
560.4

 
$
180.1


Salus establishes its allowance for credit losses through a provision for credit losses based on its evaluation of the credit quality of its loan portfolio. The following table presents the activity in its allowance for credit losses for the year ended September 30, 2013 and September 30, 2012:
 
Year ended September 30,
 
2013
 
2012
Allowance for credit losses:
 
 
 
Balance at beginning of year
$
1.4

 
$
—

Provision for credit losses
3.8

 
1.4

Charge-offs
—

 
—

Recoveries
—

 
—

Balance at end of year
$
5.2

 
$
1.4



Credit Quality Indicators
Salus monitors credit quality as indicated by various factors and utilizes such information in its evaluation of the adequacy of the allowance for credit losses. As of September 30, 2013 and September 30, 2012, Salus had no outstanding loans that either were non-performing, in a non-accrual status, or had been subject to a troubled-debt restructuring. As of September 30, 2013 and September 30, 2012, there were no outstanding loans that had been individually considered impaired, as all loans were in current payment status.
 
Internal Risk Rating
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
September 30, 2013
$
306.9

 
$
36.7

 
$
222.0

 
$
—

 
$
565.6

September 30, 2012
$
91.6

 
$
89.9

 
$
—

 
$
—

 
$
181.5





Net Investment Income

The major sources of “Net investment income” on the accompanying Consolidated Statements of Operations were as follows:
 
Year ended September 30,
 
2013
 
2012
 
2011
Fixed maturity available-for-sale securities
$
686.2

 
$
707.1

 
$
364.8

Equity available-for-sale securities
14.8

 
14.0

 
10.2

Policy loans
0.8

 
0.7

 
1.5

Invested cash and short-term investments
1.4

 
4.9

 
0.1

Other investments
48.3

 
7.7

 
0.3

Gross investment income
751.5

 
734.4

 
376.9

External investment expense
(16.8
)
 
(11.7
)
 
(7.1
)
Net investment income
$
734.7

 
$
722.7

 
$
369.8


 
Net investment gains (losses)

“Net investment gains (losses)” reported on the accompanying Consolidated Statements of Operations were as follows:
 
Year ended September 30,
 
2013
 
2012
 
2011
Net realized gains before other-than-temporary impairments
$
332.9

 
$
287.2

 
$
34.9

Gross other-than-temporary impairments
(2.9
)
 
(24.3
)
 
(17.5
)
Non-credit portion of other-than-temporary impairments included in other comprehensive income
—

 
1.5

 
(0.5
)
Net realized gains on fixed maturity available-for-sale securities
330.0

 
264.4

 
16.9

Realized gains on equity securities
12.6

 
0.9

 
(10.9
)
Net realized gains on securities
342.6

 
265.3

 
6.0

Realized gains (losses) on certain derivative instruments
20.5

 
(10.3
)
 
(44.8
)
Unrealized gains on certain derivative instruments
148.6

 
156.3

 
(126.0
)
Change in fair value of derivatives
169.1

 
146.0

 
(170.8
)
Realized gains on other invested assets
(0.1
)
 
(1.3
)
 
(2.1
)
Net investment gains (losses)
$
511.6

 
$
410.0

 
$
(166.9
)

For the year ended September 30, 2013, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities totaled $8,986.9, gross gains on such sales totaled $351.2 and gross losses totaled $18.3, respectively. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the year ended September 30, 2013.
For the year ended September 30, 2012, principal repayments, calls, tenders, and proceeds from the sale of fixed maturity available-for-sale securities, including assets transferred to Wilton Re as discussed in Note 21 totaled $4,603.0, gross gains on such sales totaled $295.9 and gross losses totaled $13.8, respectively. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the year ended September 30, 2012.
For the year ended September 30, 2011, proceeds from the sale of fixed maturity available-for-sale securities, including assets transferred to Wilton Re as discussed in Note 21 totaled $1,804.0, gross gains on such sales totaled $42.0 and gross losses totaled $17.1. The proceeds from the sale of fixed maturity available-for sale securities exclude maturities and repayments for the year ended September 30, 2011.
Underlying write-downs taken to fixed maturity available-for-sale securities as a result of other-than-temporary impairments that were recognized in earnings and included in net realized gains on securities above were $2.9, $22.8 and $18.0 for the year ended September 30, 2013, 2012 and 2011, respectively. The portion of other-than-temporary impairments is recognized in AOCI in the accompanying Consolidated Statements of Comprehensive Income.
Cash flows from consolidated investing activities by security classification were as follows:
 
Year ended September 30,
 
2013
 
2012
 
2011
Proceeds from investments sold, matured or repaid:
 
 
 
 
 
Available-for-sale
$
8,986.9

 
$
5,833.4

 
$
1,482.2

Held-to-maturity
—

 
109.6

 
101.8

Trading (acquired for holding)
92.9

 
106.1

 
29.5

Derivatives and other
352.4

 
157.6

 
86.4

 
$
9,432.2

 
$
6,206.7

 
$
1,699.9

Cost of investments acquired:
 
 
 
 
 
Available-for-sale
$
(8,757.5
)
 
$
(5,640.1
)
 
$
(1,286.0
)
Held-to-maturity
—

 
(68.7
)
 
(123.4
)
Trading (acquired for holding)
(20.8
)
 
(122.3
)
 
(332.7
)
Derivatives and other
(162.5
)
 
(141.6
)
 
(66.9
)
 
$
(8,940.8
)
 
$
(5,972.7
)
 
$
(1,809.0
)