Fair Value of Financial Instruments Fair Value of Financial Instruments (Tables)

12 Months Ended

Sep. 30, 2014

Assets and Liabilities Carrying at Fair Value on Recurring Basis

The Company’s consolidated assets and liabilities measured at fair value are summarized according to the hierarchy previously described as follows:



	September 30, 2014
	Level 1		Level 2		Level 3		Fair Value
Assets
Contingent purchase price reduction receivable	$	—	$	—	$	41.5	$	41.5
Derivatives:
Interest rate contracts	—		0.6		—		0.6
Commodity swap and option agreements	—		3.2		—		3.2
Foreign exchange contracts	—		12.8		—		12.8
Call options and futures contracts	—		296.3		—		296.3
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		1,755.9		37.0		1,792.9
Commercial mortgage-backed securities	—		553.8		83.1		636.9
Corporates	—		8,945.8		850.0		9,795.8
Hybrids	—		1,316.1		—		1,316.1
Municipals	—		1,222.6		37.2		1,259.8
Agency residential mortgage-backed securities	—		107.3		—		107.3
Non-agency residential mortgage-backed securities	—		2,006.7		—		2,006.7
U.S. Government	115.6		180.4		—		296.0
Equity securities:
Available-for-sale	59.2		598.4		6.0		663.6
Trading	104.5		—		—		104.5
Other invested assets	—		2.1		11.2		13.3
Funds withheld receivable	—		154.4		—		154.4
Total financial assets	$	279.3	$	17,156.4	$	1,066.0	$	18,501.7

Liabilities
Derivatives:
FIA embedded derivatives, included in contractholder funds	$	—	$	—	$	1,908.1	$	1,908.1
Front Street future policyholder benefit liability	—		—		151.3		151.3
Foreign exchange forward agreements and contracts	—		0.1		—		0.1
Commodity contracts	—		0.4		—		0.4
Futures contracts	—		0.5		—		0.5
Interest rate contracts	—		1.8		—		1.8
Total financial liabilities	$	—	$	2.8	$	2,059.4	$	2,062.2



	September 30, 2013
	Level 1		Level 2		Level 3		Fair Value
Assets
Contingent purchase price reduction receivable	$	—	$	—	$	41.0	$	41.0
Derivatives:
Foreign exchange forward agreements	—		1.8		—		1.8
Commodity swap and option agreements	—		4.1		—		4.1
Call options	—		221.8		—		221.8
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		1,518.1		5.0		1,523.1
Commercial mortgage-backed securities	—		448.7		5.7		454.4
Corporates	—		8,957.2		461.1		9,418.3
Hybrids	—		428.8		—		428.8
Municipals	—		1,007.0		—		1,007.0
Agency residential mortgage-backed securities	—		98.6		—		98.6
Non-agency residential mortgage-backed securities	—		1,368.0		—		1,368.0
U.S. Government	790.9		210.9		—		1,001.8
Equity securities
Available-for-sale	—		271.0		—		271.0
Trading	70.8		—		10.7		81.5
Total financial assets	$	861.7	$	14,536.0	$	523.5	$	15,921.2

Liabilities
Derivatives:
FIA embedded derivatives, included in contractholder funds	$	—	$	—	$	1,544.4	$	1,544.4
Futures contracts	—		1.0		—		1.0
Foreign exchange forward agreements and contracts	—		10.0		—		10.0
Commodity contracts	—		2.4		—		2.4
Equity conversion feature of preferred stock	—		—		330.8		330.8
Total financial liabilities	$	—	$	13.4	$	1,875.2	$	1,888.6

Schedule of Unobservable Inputs Used for Level Three Fair Value Measurements of Financial Instruments on Recurring Basis

Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of September 30, 2014 and 2013 are as follows:



			Fair Value at				Range (Weighted average)
Assets	Valuation Technique	Unobservable Input(s)	September 30, 2014		September 30, 2013		September 30, 2014	September 30, 2013
Contingent purchase price reduction receivable	Discounted cash flow	Probability of collection	$	41.5	$	41.0	88% - 96% (92%)	88% - 96% (92%)
		Expected term					4.5 months	9 months
		Discount rate					1%	1%
		Credit insurance risk premium					12%	11%
Asset-backed securities	Broker-quoted	Offered quotes	37.0		5.0		100% - 109% (101%)	103%
Commercial mortgage-backed securities	Broker-quoted	Offered quotes	83.1		5.7		105% - 121% (118%)	96%
Corporates	Broker-quoted	Offered quotes	848.0		404.5		62% - 120% (100%)	0% - 113% (90%)
Corporates	Matrix pricing	Quoted prices	2.0		56.6		142%	90% - 131% (97%)
Municipal	Broker-quoted	Offered quotes	37.2		—		107%	—
Equity	Broker-quoted	Offered quotes	6.0		—		100%	—
	Option Pricing	Risk-adjusted rate	—		10.7		—	25.0%
		Risk-free discount factor					—	0.999
		Risk-adjusted discount factor					—	0.995
		Upward movement factor (Mu)					—	1.1
		Downward movement factor (Md)					—	0.9
		Probability of upward movement (Pu)					—	48.6%
		Probability of downward movement (Pd)					—	51.4%
Other invested assets	Black Scholes model	Net asset value of Anchor Path fund	11.2		—		100%	—
Total			$	1,066.0	$	523.5

Liabilities
FIA embedded derivatives, included in contractholder funds	Discounted cash flow	Market value of option	$	1,908.1	$	1,544.4	0% - 50% (3%)	0% - 38% (4%)
		SWAP rates					2% - 3% (2%)	2% - 3% (2%)
		Mortality multiplier					80%	80%
		Surrender rates					0.50% - 75% (7%)	0.50% - 75% (7%)
		Non-performance risk spread					0.25%	0.25%
Front Street future policyholder benefit liability	Discounted cash flow	Non-performance risk spread	151.3		—		0.50% - 1.50%	—
		Risk margin to reflect uncertainty					0.50%	—
Equity conversion feature of preferred stock	Monte Carlo simulation / Option model	Annualized volatility of equity	—		330.8		—	42%
		Discount yield					—	11%
		Non-cash accretion rate					—	0%
		Calibration adjustment					—	0% - 1.0% (0.3%)
Total			$	2,059.4	$	1,875.2

Changes in Fair Value of Financial Instruments

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for Fiscal 2014, 2013 and 2012. This summary excludes any impact of amortization of VOBA and DAC. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.



	Fiscal 2014
	Balance at Beginning of Period		Total Gains (Losses)														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.0	$	0.5		$	—		$	—	$	—		$	—		$	—		$	41.5
Fixed maturity securities available-for-sale:
Asset-backed securities	5.0		—			(0.3		)	36.1		—			—			(3.8		)	37.0
Commercial mortgage-backed securities	5.7		—			—			83.7		(0.3		)	—			(6.0		)	83.1
Corporates	461.1		—			19.1			398.1		(11.8		)	(2.4		)	(14.1		)	850.0
Municipals	—		—			2.2			35.0		—			—			—			37.2
Equity securities - trading	10.7		1.3			—			1.5		—			(13.5		)	—			—
Equity securities - available-for-sale	—		—			1.2			4.8		—			—			—			6.0
Other invested assets	—		(0.1		)	—			11.3		—			—			—			11.2
Total assets at fair value	$	523.5	$	1.7		$	22.2		$	570.5	$	(12.1	)	$	(15.9	)	$	(23.9	)	$	1,066.0

	Balance at Beginning of Period		Total (Gains) Losses														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,544.4	$	363.7		$	—		$	—	$	—		$	—		$	—		$	1,908.1
Front Street future policyholder benefit liability	—		7.0			—			150.6		—			(6.3		)	—			151.3
Equity conversion feature of preferred stock	330.8		12.7			—			—		—			(343.5		)	—			—
Total liabilities at fair value	$	1,875.2	$	383.4		$	—		$	150.6	$	—		$	(349.8	)	$	—		$	2,059.4


(a)	The net transfers in and out of Level 3 during Fiscal 2014 were exclusively to or from Level 2.



	Fiscal 2013
	Balance at Beginning of Period		Total Gains (Losses)														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.0	$	—		$	—		$	—	$	—		$	—		$	—		$	41.0
Fixed maturity securities available-for-sale:
Asset-backed securities	15.9		—			(0.2		)	—		—			(0.2		)	(10.5		)	5.0
Commercial mortgage-backed securities	5.0		—			(0.3		)	1.0		—			—			—			5.7
Corporates	135.3		(0.3		)	(13.4		)	406.0		(9.6		)	(23.1		)	(33.8		)	461.1
Hybrids	8.8		—			(0.1		)	—		—			—			(8.7		)	—
Equity securities - trading	—		—			—			10.7		—			—			—			10.7
Equity securities - available-for-sale	—		0.2			—			10.5		(10.7		)	—			—			—
Total assets at fair value	$	206.0	$	(0.1	)	$	(14.0	)	$	428.2	$	(20.3	)	$	(23.3	)	$	(53.0	)	$	523.5

	Balance at Beginning of Period		Total (Gains) Losses														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,550.8	$	(6.4	)	$	—		$	—	$	—		$	—		$	—		$	1,544.4
Equity conversion feature of preferred stock	232.0		101.6			—			—		—			(2.8		)	—			330.8
Total liabilities at fair value	$	1,782.8	$	95.2		$	—		$	—	$	—		$	(2.8	)	$	—		$	1,875.2


(a)	The net transfers in and out of Level 3 during Fiscal 2013 was exclusively to or from Level 2.



	Fiscal 2012
	Balance at Beginning of Period		Total Gains (Losses)														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	—	$	41.0		$	—		$	—	$	—		$	—		$	—		$	41.0
Fixed maturity securities available-for-sale:
Asset-backed securities	374.5		—			7.4			410.7		—			(38.8		)	(737.9		)	15.9
Commercial mortgage-backed securities	—		—			—			5.0		—			—			—			5.0
Corporates	159.7		—			(3.6		)	1.3		(26.8		)	(14.2		)	18.9			135.3
Hybrids	5.2		—			(0.1		)	—		—			—			3.7			8.8
Municipals	—		—			0.1			10.2		—			—			(10.3		)	—
Agency residential mortgage-backed securities	3.3		—			—			—		—			—			(3.3		)	—
Non-agency residential mortgage-backed securities	3.8		(0.1		)	—			—		(0.5		)	(0.3		)	(2.9		)	—
Total assets at fair value	$	546.5	$	40.9		$	3.8		$	427.2	$	(27.3	)	$	(53.3	)	$	(731.8	)	$	206.0

	Balance at Beginning of Period		Total (Gains) Losses														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,396.3	$	154.5		$	—		$	—	$	—		$	—		$	—		$	1,550.8
Equity conversion feature of preferred stock	75.4		156.6			—			—		—			—			—			232.0
Available-for-sale embedded derivatives	0.4		(0.4		)	—			—		—			—			—			—
Total liabilities at fair value	$	1,472.1	$	310.7		$	—		$	—	$	—		$	—		$	—		$	1,782.8


(a)	The net transfers in and out of Level 3 during Fiscal 2012 was exclusively to or from Level 2.

Schedule of Assets and Liabilities not Measured at Fair Value

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial instrument assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are summarized as follows:



	September 30, 2014
	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount
Assets (a)
Cash and cash equivalents	$	1,319.2	$	—	$	—	$	1,319.2	$	1,319.2
Other invested assets	—		—		151.7		151.7		151.7
Asset-based loans	—		—		811.6		811.6		811.6
Total financial assets	$	1,319.2	$	—	$	963.3	$	2,282.5	$	2,282.5

Liabilities (a)
Total debt (b)	$	—	$	5,308.5	$	—	$	5,308.5	$	5,157.8
Investment contracts, included in contractholder funds	—		—		13,108.8		13,108.8		14,555.4
Total financial liabilities	$	—	$	5,308.5	$	13,108.8	$	18,417.3	$	19,713.2



	September 30, 2013
	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount
Assets (a)
Cash and cash equivalents	$	1,899.7	$	—	$	—	$	1,899.7	$	1,899.7
Other invested assets	—		—		31.2		31.2		31.2
Asset-based loans	—		—		560.4		560.4		560.4
Total financial assets	$	1,899.7	$	—	$	591.6	$	2,491.3	$	2,491.3

Liabilities (a)
Total debt (b)	$	—	$	4,773.2	$	—	$	4,773.2	$	4,896.1
Redeemable preferred stock, excluding equity conversion feature	—		—		377.1		377.1		329.4
Investment contracts, included in contractholder funds	—		—		12,378.6		12,378.6		13,703.8
Total financial liabilities	$	—	$	4,773.2	$	12,755.7	$	17,528.9	$	18,929.3


(a)	The carrying amounts of trade receivables, accounts payable, accrued investment income and portions of other insurance liabilities approximate fair value due to their short duration and, accordingly, they are not presented in the tables above.


(b)