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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of financial instruments carried at fair value categorized by input level

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at September 30, 2020 is as follows (dollars in millions):


	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	13,850.0	$	120.6	$	13,970.6
United States Treasury securities and obligations of United States government corporations and agencies	—		241.8		—		241.8
States and political subdivisions	—		2,628.7		—		2,628.7
Foreign governments	—		104.3		—		104.3
Asset-backed securities	—		1,104.8		12.6		1,117.4
Agency residential mortgage-backed securities	—		67.6		—		67.6
Non-agency residential mortgage-backed securities	—		2,158.8		2.2		2,161.0
Commercial mortgage-backed securities	—		1,951.4		—		1,951.4
Collateralized loan obligations	—		457.2		2.9		460.1


Total fixed maturities, available for sale	—		22,564.6		138.3		22,702.9

Equity securities - corporate securities	16.0		37.8		8.3		62.1


Trading securities:




Asset-backed securities	—		10.4		—		10.4
Agency residential mortgage-backed securities	—		.4		—		.4
Non-agency residential mortgage-backed securities	—		99.6		—		99.6

Commercial mortgage-backed securities	—		113.0		16.9		129.9



Total trading securities	—		223.4		16.9		240.3
Investments held by variable interest entities - corporate securities	—		1,172.6		—		1,172.6
Other invested assets - derivatives	—		143.8		—		143.8
Assets held in separate accounts	—		3.9		—		3.9

Total assets carried at fair value by category	$	16.0	$	24,146.1	$	163.5	$	24,325.6

Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	$	—	$	—	$	1,598.9	$	1,598.9

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2019 is as follows (dollars in millions):


	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	12,756.5	$	178.8	$	12,935.3
United States Treasury securities and obligations of United States government corporations and agencies	—		204.6		—		204.6
States and political subdivisions	—		2,246.7		—		2,246.7
Foreign governments	—		94.5		1.1		95.6
Asset-backed securities	—		1,375.3		12.6		1,387.9
Agency residential mortgage-backed securities	—		95.0		—		95.0
Non-agency residential mortgage-backed securities	—		2,042.3		—		2,042.3
Collateralized loan obligations	—		400.8		—		400.8
Commercial mortgage-backed securities	—		1,887.0		—		1,887.0


Total fixed maturities, available for sale	—		21,102.7		192.5		21,295.2

Equity securities - corporate securities	31.3		4.5		8.3		44.1


Trading securities:



Asset-backed securities	—		12.1		—		12.1
Agency residential mortgage-backed securities	—		.4		—		.4
Non-agency residential mortgage-backed securities	—		113.4		—		113.4

Commercial mortgage-backed securities	—		105.5		12.5		118.0



Total trading securities	—		231.4		12.5		243.9
Investments held by variable interest entities - corporate securities	—		1,188.6		—		1,188.6
Other invested assets - derivatives	—		203.8		—		203.8
Assets held in separate accounts	—		4.2		—		4.2
Total assets carried at fair value by category	$	31.3	$	22,735.2	$	213.3	$	22,979.8

Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	$	—	$	—	$	1,565.4	$	1,565.4

The fair value of our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):


	September 30, 2020
	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total estimated fair value		Total carrying amount
Assets:
Mortgage loans	$	—	$	—	$	1,496.5	$	1,496.5	$	1,444.9
Policy loans	—		—		123.6		123.6		123.6
Other invested assets:
Company-owned life insurance	—		206.7		—		206.7		206.7
Cash and cash equivalents:
Unrestricted	735.5		.1		—		735.6		735.6
Held by variable interest entities	51.0		—		—		51.0		51.0
Liabilities:
Policyholder account liabilities	—		—		12,357.5		12,357.5		12,357.5
Investment borrowings	—		1,648.0		—		1,648.0		1,642.9
Borrowings related to variable interest entities	—		1,124.6		—		1,124.6		1,152.0
Notes payable – direct corporate obligations	—		1,148.8		—		1,148.8		990.1


	December 31, 2019
	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total estimated fair value		Total carrying amount
Assets:
Mortgage loans	$	—	$	—	$	1,651.4	$	1,651.4	$	1,566.1
Policy loans	—		—		124.5		124.5		124.5
Other invested assets:
Company-owned life insurance	—		194.0		—		194.0		194.0
Cash and cash equivalents:
Unrestricted	579.9		.1		—		580.0		580.0
Held by variable interest entities	74.7		—		—		74.7		74.7
Liabilities:
Policyholder account liabilities	—		—		12,132.3		12,132.3		12,132.3
Investment borrowings	—		1,647.9		—		1,647.9		1,644.3
Borrowings related to variable interest entities	—		1,142.1		—		1,142.1		1,152.5
Notes payable – direct corporate obligations	—		1,117.2		—		1,117.2		989.1

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value for the three months ended September 30, 2020 (dollars in millions):


	September 30, 2020
	Beginning balance as of June 30, 2020		Purchases, sales, issuances and settlements, net (b)		Total realized and unrealized gains (losses) included in net income		Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)		Transfers into Level 3 (a)		Transfers out of Level 3 (a)		Ending balance as of September 30, 2020		Amount of total gains (losses) for the three months ended September 30, 2020 included in our net income relating to assets and liabilities still held as of the reporting date		Amount of total gains (losses) for the three months ended September 30, 2020 included in accumulated other comprehensive income (loss) relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	114.2	$	1.2	$	(1.0)	$	1.8	$	53.0	$	(48.6)	$	120.6	$	(1.0)	$	1.1



Asset-backed securities	12.6		(.1)		—		.1		—		—		12.6		—		.1
Non-agency residential mortgage-backed securities	—		2.2		—		—		—		—		2.2		—		—
Collateralized loan obligations	—		—		—		.1		2.8		—		2.9		—		.1



Total fixed maturities, available for sale	126.8		3.3		(1.0)		2.0		55.8		(48.6)		138.3		(1.0)		1.3

Equity securities - corporate securities	8.3		—		—		—		—		—		8.3		—		—






Trading securities - commercial mortgage-backed securities	12.0		—		.4		.2		4.3		—		16.9		.4		—




Investments held by variable interest entities - corporate securities	.4		(.5)		—		.1		—		—		—		—		—

Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(1,526.9)		(77.1)		5.1		—		—		—		(1,598.9)		5.1		5.1

_________

(a)Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.

(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the three months ended September 30, 2020 (dollars in millions):


	Purchases		Sales		Issuances		Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	1.3	$	(.1)	$	—	$	—	$	1.2



Asset-backed securities	—		(.1)		—		—		(.1)
Non-agency residential mortgage-backed securities	2.2		—		—		—		2.2




Total fixed maturities, available for sale	3.5		(.2)		—		—		3.3









Investments held by variable interest entities - corporate securities	—		(.5)		—		—		(.5)

Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(43.8)		—		(52.2)		18.9		(77.1)

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value for the nine months ended September 30, 2020 (dollars in millions):


	September 30, 2020
	Beginning balance as of December 31, 2019		Purchases, sales, issuances and settlements, net (b)		Total realized and unrealized gains (losses) included in net income		Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)		Transfers into Level 3 (a)		Transfers out of Level 3 (a)		Ending balance as of September 30, 2020		Amount of total gains (losses) for the nine months ended September 30, 2020 included in our net income relating to assets and liabilities still held as of the reporting date		Amount of total gains (losses) for the nine months ended September 30, 2020 included in accumulated other comprehensive income (loss) relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	178.8	$	8.6	$	(1.1)	$	4.6	$	79.3	$	(149.6)	$	120.6	$	(1.2)	$	2.3


Foreign governments	1.1		—		—		—		—		(1.1)		—		—		—
Asset-backed securities	12.6		(.4)		—		.4		—		—		12.6		—		.4
Non-agency residential mortgage-backed securities	—		2.2		—		—		—		—		2.2		—		—
Collateralized loan obligations	—		—		—		—		2.9		—		2.9		—		—



Total fixed maturities, available for sale	192.5		10.4		(1.1)		5.0		82.2		(150.7)		138.3		(1.2)		2.7

Equity securities - corporate securities	8.3		—		—		—		—		—		8.3		—		—






Trading securities - commercial mortgage-backed securities	12.5		4.3		(.4)		.5		—		—		16.9		(.4)		—






Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(1,565.4)		(49.8)		16.3		—		—		—		(1,598.9)		16.3		16.3

_________

(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2020 (dollars in millions):


	Purchases		Sales		Issuances		Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	11.0	$	(2.4)	$	—	$	—	$	8.6



Asset-backed securities	—		(.4)		—		—		(.4)
Non-agency residential mortgage-backed securities	2.2		—		—		—		2.2




Total fixed maturities, available for sale	13.2		(2.8)		—		—		10.4





Trading securities - commercial mortgage-backed securities	4.3		—		—		—		4.3





Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(133.4)		119.3		(101.2)		65.5		(49.8)


	September 30, 2019
	Beginning balance as of June 30, 2019		Purchases, sales, issuances and settlements, net (b)		Total realized and unrealized gains (losses) included in net income		Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)		Transfers into Level 3 (a)		Transfers out of Level 3 (a)		Ending balance as of September 30, 2019		Amount of total gains (losses) for the three months ended September 30, 2019 included in our net income relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	135.9	$	(1.7)	$	(1.8)	$	2.3	$	36.8	$	—	$	171.5	$	(1.8)


Foreign governments	1.0		—		—		—		—		—		1.0		—
Asset-backed securities	12.4		(.2)		—		.4		—		—		12.6		—

Commercial mortgage-backed securities	15.9		—		—		—		—		(15.9)		—		—


Total fixed maturities, available for sale	165.2		(1.9)		(1.8)		2.7		36.8		(15.9)		185.1		(1.8)

Equity securities - corporate securities	8.3		—		—		—		—		—		8.3		—













Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(1,454.2)		(22.2)		(32.1)		—		—		—		(1,508.5)		(32.1)

____________


	Purchases		Sales		Issuances		Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	(1.7)	$	—	$	—	$	(1.7)



Asset-backed securities	—		(.2)		—		—		(.2)




Total fixed maturities, available for sale	—		(1.9)		—		—		(1.9)











Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(39.8)		2.6		(6.4)		21.4		(22.2)

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value for the nine months ended September 30, 2019 (dollars in millions):


	September 30, 2019
	Beginning balance as of December 31, 2018		Purchases, sales, issuances and settlements, net (b)		Total realized and unrealized gains (losses) included in net income		Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)		Transfers into Level 3 (a)		Transfers out of Level 3 (a)		Ending balance as of September 30, 2019		Amount of total gains (losses) for the nine months ended September 30, 2019 included in our net income relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	158.6	$	(27.8)	$	(4.6)	$	10.6	$	34.7	$	—	$	171.5	$	(4.0)


Foreign governments	1.0		—		—		—		—		—		1.0		—
Asset-backed securities	12.0		(.5)		—		1.1		—		—		12.6		—

Commercial mortgage-backed securities	—		—		—		—		—		—		—		—


Total fixed maturities, available for sale	171.6		(28.3)		(4.6)		11.7		34.7		—		185.1		(4.0)

Equity securities - corporate securities	9.5		—		(1.2)		—		—		—		8.3		—













Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(1,289.0)		(109.8)		(109.7)		—		—		—		(1,508.5)		(109.7)

____________

(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2019 (dollars in millions):


	Purchases		Sales		Issuances		Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	.1	$	(27.9)	$	—	$	—	$	(27.8)



Asset-backed securities	—		(.5)		—		—		(.5)




Total fixed maturities, available for sale	.1		(28.4)		—		—		(28.3)











Liabilities:
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)	(115.5)		4.5		(66.6)		67.8		(109.8)

Schedule of fair value measurement inputs

The following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the Company to determine fair value for certain assets and liabilities carried at fair value at September 30, 2020 (dollars in millions):

Fair value at September 30, 2020

Valuation techniques

Unobservable inputs

Range (weighted average) (a)

Assets:

Corporate securities (b)

5.6

Discounted cash flow analysis

Discount margins

4.33% - 4.57% (4.55%)

Asset-backed securities (c)

12.6

Discounted cash flow analysis

Discount margins

2.47%

Equity securities (d)

8.3

Recovery method

Percent of recovery expected

59.27% - 100.00% (59.52%)

Other assets categorized as Level 3 (e)

137.0

Unadjusted third-party price source

Not applicable

Total

163.5

Liabilities:

Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) (f)

1,598.9

Discounted projected embedded derivatives

Projected portfolio yields

3.65% - 4.25% (4.23%)

Discount rates

0.00% - 2.46% (0.83%)

Surrender rates

1.30% - 24.00% (10.00%)

________________________________

(a) The weighted average is based on the relative fair value of the related assets or liabilities.

(b) Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.

(c) Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.

(d) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.

(e) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

(f) Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would have led to a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would have led to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.

Fair value at December 31, 2019

Valuation techniques

Unobservable inputs

Range (weighted average)

Assets:

Corporate securities (a)

134.2

Discounted cash flow analysis

Discount margins

1.07% - 8.42% (1.91%)

Corporate securities (b)

1.0

Recovery method

Percent of recovery expected

12.77%

Asset-backed securities (c)

12.6

Discounted cash flow analysis

Discount margins

1.66%

Equity securities (d)

8.3

Recovery method

Percent of recovery expected

59.27% - 100.00% (59.52%)

Other assets categorized as Level 3 (e)

57.2

Unadjusted third-party price source

Not applicable

Total

213.3

Liabilities:

Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) (f)

1,565.4

Discounted projected embedded derivatives

Projected portfolio yields

4.71% - 4.98% (4.72%)

Discount rates

1.24% - 3.07% (1.88%)

Surrender rates

1.60% - 31.90% (10.90%)

________________________________

(a) Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(b) Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.

(c) Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(d) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.

(e) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

(f) Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.