Investments

6 Months Ended

Jun. 30, 2011

4. Investments

The following tables summarize the Company’s available-for-sale fixed maturities and marketable equity securities. The other-than-temporary impairments (OTTI) in accumulated other comprehensive income (AOCI) represent the amount of cumulative non-credit OTTI losses transferred to, or recorded in, AOCI for securities that also had a credit-related impairment.

Cost or

Gross

Amortized

Unrealized

Fair

OTTI in

Cost

Gains

Losses

Value

AOCI

As of June 30, 2011

Fixed maturities:

U.S. government and agencies

40.0

3.1

—

43.1

(0.1

)

State and political subdivisions

521.1

10.6

(8.1

)

523.6

(0.2

)

Corporate securities

14,674.0

998.1

(127.9

)

15,544.2

(18.3

)

Residential mortgage-backed securities

3,495.2

158.3

(22.1

)

3,631.4

(38.3

)

Commercial mortgage-backed securities

1,702.0

123.9

(9.0

)

1,816.9

(3.1

)

Other debt obligations

549.8

40.6

(3.1

)

587.3

(4.5

)

Total fixed maturities

20,982.1

1,334.6

(170.2

)

22,146.5

(64.5

)

Marketable equity securities, available-for-sale

52.8

0.3

(1.9

)

51.2

—

Total

21,034.9

1,334.9

(172.1

)

22,197.7

(64.5

)


	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		OTTI in
	Cost		Gains		Losses			Value		AOCI
As of December 31, 2010
Fixed maturities:
U.S. government and agencies	$	30.3	$	2.8	$	—		$	33.1	$	(0.1	)
State and political subdivisions		462.9		5.3		(15.4	)		452.8		(0.2	)
Corporate securities		13,891.7		855.3		(205.6	)		14,541.4		(26.2	)
Residential mortgage-backed securities		3,707.2		148.9		(54.5	)		3,801.6		(40.0	)
Commercial mortgage-backed securities		1,782.2		115.2		(10.1	)		1,887.3		(3.3	)
Other debt obligations		542.2		35.8		(12.4	)		565.6		(6.4	)

Total fixed maturities		20,416.5		1,163.3		(298.0	)		21,281.8		(76.2	)
Marketable equity securities, available-for-sale		52.8		0.1		(7.8	)		45.1		—

Total	$	20,469.3	$	1,163.4	$	(305.8	)	$	21,326.9	$	(76.2	)

The following tables summarize gross unrealized losses and fair values of the Company’s available-for-sale investments. For fixed maturities, gross unrealized losses include the portion of OTTI recorded in AOCI. The tables are aggregated by investment category and present separately those securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.

Less Than 12 Months

12 Months or More

Gross

Fair

Unrealized

# of

Fair

Unrealized

# of

Value

Losses

Securities

Value

Losses

Securities

As of June 30, 2011

Fixed maturities:

State and political subdivisions

83.2

(0.7

)

127.1

(7.4

)

Corporate securities

1,812.0

(43.5

)

223

700.9

(84.4

)

Residential mortgage-backed securities

485.3

(8.8

)

179.6

(13.3

)

Commercial mortgage-backed securities

138.5

(2.3

)

59.0

(6.7

)

Other debt obligations

67.4

(0.7

)

70.8

(2.4

)

Total fixed maturities

2,586.4

(56.0

)

299

1,137.4

(114.2

)

144

Marketable equity securities, available-for-sale

20.1

(0.3

)

29.5

(1.6

)

Total

2,606.5

(56.3

)

300

1,166.9

(115.8

)

146


	Less Than 12 Months							12 Months or More
			Gross							Gross
	Fair		Unrealized			# of		Fair		Unrealized			# of
	Value		Losses			Securities		Value		Losses			Securities
As of December 31, 2010
Fixed maturities:
State and political subdivisions	$	139.1	$	(3.3	)		19	$	146.9	$	(12.1	)		24
Corporate securities		2,191.5		(92.2	)		203		897.7		(113.4	)		105
Residential mortgage-backed securities		525.8		(18.6	)		37		273.1		(35.9	)		42
Commercial mortgage-backed securities		160.5		(2.9	)		26		63.2		(7.2	)		17
Other debt obligations		41.4		(0.8	)		7		94.9		(11.6	)		10

Total fixed maturities	$	3,058.3	$	(117.8	)		292	$	1,475.8	$	(180.2	)		198
Marketable equity securities, available-for-sale		19.9		(0.7	)		2		24.1		(7.1	)		3

Total	$	3,078.2	$	(118.5	)		294	$	1,499.9	$	(187.3	)		201

Based on National Association of Insurance Commissioners (NAIC) ratings, as of June 30, 2011 and December 31, 2010, the Company held below-investment-grade fixed maturities with fair values of $1,481.3 and $1,257.5, respectively, and amortized costs of $1,510.0 and $1,321.2, respectively. These holdings amounted to 6.7% and 5.9% of the Company’s investments in fixed maturities at fair value as of June 30, 2011 and December 31, 2010, respectively.

The following table summarizes the amortized cost and fair value of fixed maturities as of June 30, 2011, by contractual years to maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.


	Amortized		Fair
	Cost		Value
One year or less	$	484.6	$	493.7
Over one year through five years		3,252.9		3,482.9
Over five years through ten years		6,630.9		7,076.2
Over ten years		4,909.1		5,108.0
Residential mortgage-backed securities		3,495.2		3,631.4
Commercial mortgage-backed securities		1,702.0		1,816.9
Other asset-backed securities		507.4		537.4

Total fixed maturities	$	20,982.1	$	22,146.5

The following table summarizes the Company’s net investment income:


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Fixed maturities	$	283.1		$	280.4		$	569.8		$	551.4
Marketable equity securities, available-for-sale		1.1			1.1			1.7			1.7
Marketable equity securities, trading		2.2			0.8			3.1			1.5
Mortgage loans		31.3			20.9			59.2			39.7
Policy loans		1.0			1.1			2.0			2.2
Investments in limited partnerships		(1.3	)		(2.6	)		(3.9	)		(3.8	)
Other		1.4			0.7			2.7			1.8

Total investment income		318.8			302.4			634.6			594.5
Investment expenses		(6.6	)		(5.3	)		(12.4	)		(10.5	)

Net investment income	$	312.2		$	297.1		$	622.2		$	584.0

The following table summarizes the Company’s net realized investment gains (losses):


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Fixed maturities:
Gross gains on sales	$	29.7		$	7.0		$	32.4		$	17.4
Gross losses on sales		(1.5	)		(0.2	)		(7.6	)		(1.3	)
Other-than-temporary impairments		(2.8	)		(1.5	)		(3.7	)		(11.2	)
Other(1)		(2.2	)		(0.1	)		6.0			2.2

Total fixed maturities		23.2			5.2			27.1			7.1
Marketable equity securities, trading(2)		(7.7	)		(8.8	)		4.5			(1.2	)
Other invested assets		(0.7	)		(4.8	)		(0.2	)		(6.2	)
Deferred policy acquisition costs adjustment		(0.7	)		(1.6	)		(1.7	)		(2.9	)

Net realized investment gains (losses)	$	14.1		$	(10.0	)	$	29.7		$	(3.2	)


(1)		This includes net gains on calls and redemptions and changes in the fair value of the Company’s convertible securities held as of period end totaling $(3.0), $(2.9), $(1.3) and $(0.6) for the three and six months ended June 30, 2011 and 2010, respectively.

(2)		This includes changes in fair value of trading securities held as of period end, totaling $(7.3), $(7.4), $3.2 and $(2.7) of net gains (losses) for the three and six months ended June 30, 2011 and 2010, respectively.

Other-Than-Temporary Impairments

The Company’s review of investment securities for OTTI includes both quantitative and qualitative criteria. Quantitative criteria include the length of time and amount that each security is in an unrealized loss position (i.e., is underwater) and for fixed maturities, whether expected future cash flows indicate that a credit loss exists.

While all securities are monitored for impairment, the Company’s experience indicates that securities for which the cost or amortized cost exceeds fair value by less than 20% do not represent a significant risk of impairment and, often, fair values recover over time as the factors that caused the declines improve. If the estimated fair value has declined and remained below cost or amortized cost by 20% or more for at least six months, the Company further analyzes the decrease in fair value to determine whether it is an other-than-temporary decline. To make this determination for each security the Company considers, among other factors:

	•		Extent and duration of the decline in fair value below cost or amortized cost;

	•		The financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations, earnings potential or compliance with terms and covenants of the security;

	•		Changes in the financial condition of the security’s underlying collateral;

	•		Any downgrades of the security by a rating agency;

	•		Any reduction or elimination of dividends or non-payment of scheduled interest payments;

	•		Other indications that a credit loss has occurred; and

	•		For fixed maturities, the Company’s intent to sell or whether it is more likely than not the Company will be required to sell the fixed maturity prior to recovery of its amortized cost, considering any regulatory developments and the Company’s liquidity needs.

For fixed maturities, if the Company determines that the present value of the cash flows expected to be collected is less than the amortized cost of the security (i.e., a credit loss exists), the Company concludes that an OTTI has occurred. In order to determine the amount of the credit loss, the Company calculates the recovery value by discounting the current expectations of future cash flows it expects to recover. The discount rate is the effective interest rate implicit in the underlying fixed maturity. The effective interest rate is the original effective yield for corporate securities, or current effective yield for mortgage-backed securities.

Determination of OTTI on Corporate Securities

To determine the recovery value, credit loss or intent to sell for a corporate security, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Expected cash flows of the issuer;

	•		Fundamentals of the industry in which the issuer operates;

	•		Fundamentals of the issuer to determine what the Company would recover if the issuer were to file for bankruptcy, compared to the price at which the market is trading;

	•		Earnings multiples for an issuer’s industry or sector of the industry, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;

	•		Expectations regarding defaults and recovery rates;

	•		Changes to the rating of the security by a rating agency; and

	•		Additional market information.

Determination of OTTI on Structured Securities

To determine the recovery value, credit loss or intent to sell for a structured security, including residential mortgage-, commercial mortgage- and other asset-backed securities, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Discounted cash flow analysis based on the future cash flows the Company expects to recover;

	•		Level of creditworthiness;

	•		Delinquency ratios and loan-to-value ratios;

	•		Average cumulative collateral loss, vintage year and level of subordination;

	•		Susceptibility to fair value fluctuations due to changes in the interest rate environment;

	•		Susceptibility to variability of prepayments; and

	•		Susceptibility to reinvestment risk.

The following table presents the severity and duration of the gross unrealized losses on the Company’s underwater available-for-sale securities, after the recognition of OTTI:


	As of June 30, 2011					As of December 31, 2010
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses
Fixed maturities
Underwater by 20% or more:
Less than 6 consecutive months	$	43.2	$	(11.9	)	$	69.1	$	(23.7	)
6 consecutive months or more		36.2		(12.2	)		93.9		(36.2	)

Total underwater by 20% or more		79.4		(24.1	)		163.0		(59.9	)
All other underwater fixed maturities		3,644.4		(146.1	)		4,371.1		(238.1	)

Total underwater fixed maturities	$	3,723.8	$	(170.2	)	$	4,534.1	$	(298.0	)


Marketable equity securities, available-for-sale
Underwater by 20% or more:
Less than 6 consecutive months	$	—	$	—		$	—	$	—
6 consecutive months or more		—		—			1.7		(4.4	)

Total underwater by 20% or more		—		—			1.7		(4.4	)
All other underwater marketable equity securities, available-for-sale		49.6		(1.9	)		42.3		(3.4	)

Total underwater marketable equity securities, available-for-sale	$	49.6	$	(1.9	)	$	44.0	$	(7.8	)

The Company reviewed its available-for-sale investments with unrealized losses as of June 30, 2011 in accordance with its impairment policy and determined, after the recognition of other-than-temporary impairments, that the remaining declines in fair value were temporary. The Company did not intend to sell its underwater fixed maturities and it was not more likely than not that the Company will be required to sell the fixed maturities before recovery of amortized cost. This conclusion is supported by the Company’s spread analysis, cash flow modeling and expected continuation of contractually required principal and interest payments.

As of June 30, 2011, the Company did not intend to sell its underwater available-for-sale marketable equity securities, primarily consisting of non-redeemable preferred stocks. Based on its analysis of these securities, including an evaluation of the near term prospects of the issuers, it had the intent and ability to hold them until recovery. Therefore, the Company concluded that the declines in fair value of these securities were temporary.

Changes in the amount of credit-related OTTI recognized in net income where the portion related to other factors was recognized in other comprehensive income were as follows:


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Balance, beginning of period	$	52.2		$	69.5		$	68.0		$	69.6
Increases recognized in the current period:
For which an OTTI was not previously recognized		0.2			0.5			0.6			6.5
For which an OTTI was previously recognized		—			0.9			—			2.4
Decreases attributable to:
Securities sold or paid down during the period		(2.1	)		(2.4	)		(18.3	)		(10.0	)

Balance, end of period	$	50.3		$	68.5		$	50.3		$	68.5