Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

6. Fair Value of Financial Instruments

          The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize its use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level hierarchy, which gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level within which a fair value measurement falls is determined based on the lowest-level input that is significant to the fair value measurement. The Company’s financial assets recorded at fair value on the consolidated balance sheets are categorized as follows:

• Level 1 — Unadjusted quoted prices in active markets for identical instruments. This level primarily consists of exchange-traded marketable equity securities and actively traded mutual fund investments.

• Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable. This level includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. All significant inputs are observable, derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the market place. Financial instruments in this category primarily include certain corporate fixed maturities, government or agency securities and certain mortgage-backed securities.

• Level 3 — Instruments whose significant value drivers are unobservable. This comprises financial instruments for which fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on or corroborated by readily available market information. In limited circumstances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturities, including certain corporate private placement securities, and investments in private equity funds.

          The following tables present the financial assets accounted for at fair value on a recurring basis, classified by the valuation hierarchy described above. The Company has no financial liabilities accounted for at fair value on a recurring basis.

	As of June 30, 2011
									Level 3
	Fair Value		Level 1		Level 2		Level 3		Percent
Types of Investments
Fixed maturities, available-for-sale:
U.S. government and agencies	$	43.1	$	—	$	43.1	$	—		—
State and political subdivisions		523.6		—		523.6		—		—
Corporate securities		15,544.2		—		14,817.3		726.9		3.1	%
Residential mortgage-backed securities		3,631.4		—		3,631.4		—		—
Commercial mortgage-backed securities		1,816.9		—		1,800.1		16.8		0.1
Other debt obligations		587.3		—		435.6		151.7		0.6
Total fixed maturities, available-for-sale		22,146.5		—		21,251.1		895.4		3.8
Marketable equity securities, available-for-sale		51.2		46.2		—		5.0		—
Marketable equity securities, trading		380.9		371.5		—		9.4		0.1
Investments in limited partnerships(1)		30.4		—		—		30.4		0.1
Other invested assets		8.7		2.7		—		6.0		—
Total investments carried at fair value		22,617.7		420.4		21,251.1		946.2		4.0
Separate account assets		887.3		887.3		—		—		—
Total	$	23,505.0	$	1,307.7	$	21,251.1	$	946.2		4.0	%

(1) Includes investments in private equity funds.

	As of December 31, 2010
									Level 3
	Fair Value		Level 1		Level 2		Level 3		Percent
Types of Investments
Fixed maturities, available-for-sale:
U.S. government and agencies	$	33.1	$	—	$	33.1	$	—		—
State and political subdivisions		452.8		—		452.8		—		—
Corporate securities		14,541.4		—		13,786.8		754.6		3.3	%
Residential mortgage-backed securities		3,801.6		—		3,801.6		—		—
Commercial mortgage-backed securities		1,887.3		—		1,868.2		19.1		0.1
Other debt obligations		565.6		—		412.4		153.2		0.7
Total fixed maturities, available-for-sale		21,281.8		—		20,354.9		926.9		4.1
Marketable equity securities, available-for-sale		45.1		43.3		—		1.8		—
Marketable equity securities, trading		189.3		188.7		—		0.6		—
Investments in limited partnerships(1)		36.5		—		—		36.5		0.2
Other invested assets		6.4		2.6		—		3.8		—
Total investments carried at fair value		21,559.1		234.6		20,354.9		969.6		4.3
Separate account assets		881.7		881.7		—		—		—
Total	$	22,440.8	$	1,116.3	$	20,354.9	$	969.6		4.3	%

(1) Includes investments in private equity funds.

   Fixed Maturities

          The vast majority of the Company’s fixed maturities have been classified as Level 2 measurements. To make this assessment, the Company determines whether the market for a security is active and if significant pricing inputs are observable. The Company predominantly utilizes third party independent pricing services to assist management in determining the fair value of its fixed maturity securities. As of June 30, 2011 and December 31, 2010, respectively, pricing services provided prices for 96.0% and 95.6% of the Company’s fixed maturities.

          The pricing services provide prices where observable inputs are available. The Company’s pricing services utilize evaluated pricing models that vary by asset class. If sufficient objectively verifiable information about a security’s valuation is not available, the pricing services will not provide a valuation for the security.

          The Company performs an analysis on the prices received from the pricing services to ensure they represent a reasonable estimate of fair value and to gain assurance on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with accounting standards for fair value determination. This analysis is performed through evaluation of pricing methodologies and inputs, analytical reviews of certain prices between reporting periods, and back-testing of selected sales activity to determine whether there were significant differences between the market price used to value the security prior to sale and the actual sales price. Based upon this analysis, the Company has not adjusted prices obtained from the pricing services, and multiple prices for these securities are not obtained.

          In situations where the Company is unable to obtain sufficient market-observable information to estimate the fair value of a security, the security’s fair value is determined using internal pricing models. These models typically utilize significant, unobservable market inputs or inputs that are difficult to corroborate with observable market data, and the resulting value is considered a Level 3 measurement. This is generally the case for private placement securities and other securities the pricing services are unable to price.

          As of June 30, 2011 and December 31, 2010, the Company had $869.7, or 3.9%, and $892.9, or 4.2%, respectively, of its fixed maturities invested in private placement securities. The valuation of certain private placement securities requires significant judgment by management due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. The use of significant unobservable inputs in determining the fair value of the Company’s investments in private placement securities resulted in the classification of $796.0, or 91.5%, and $815.4, or 91.3%, as Level 3 measurements as of June 30, 2011 and December 31, 2010, respectively.

   Corporate Securities

          As of June 30, 2011 and December 31, 2010, the fair value of the Company’s corporate securities classified as Level 2 measurements was $14,817.3 and $13,786.8, respectively. The following table presents additional information about the composition of the Level 2 corporate securities:

	As of June 30, 2011								As of December 31, 2010
	Amount			% of Total			# of Securities		Amount			% of Total			# of Securities
Significant Security Sectors:
Industrials	$	2,696.3			18.2	%		212	$	2,444.7			17.7	%		225
Consumer staples		2,420.4			16.3			157		2,118.0			15.4			157
Financials		1,924.7			13.0			231		1,862.1			13.5			260
Utilities		1,771.7			12.0			175		1,738.2			12.6			194
Weighted-average coupon rate		6.18	%							6.27	%
Weighted-average remaining years to contractual maturity		11.8								12.2

          Corporate securities classified as Level 2 measurements are priced by independent pricing services utilizing evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data, including market research publications. Because many corporate securities do not trade on a daily basis, evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations.

          As of June 30, 2011, 94.4% of corporate securities classified as Level 3 were privately placed securities. These securities were issued by entities primarily in the industrial sector, 21.6%, the financial sector, 20.9%, and the consumer discretionary sector, 14.5%.

          As of December 31, 2010, 94.7% of corporate securities classified as Level 3 were privately placed securities. These securities were issued by entities primarily in the industrial sector, 21.6%, the financial sector, 21.2%, and the consumer discretionary sector, 15.9%.

          The valuation of these privately placed Level 3 corporate securities requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the duration of such assets. The fair values of these securities were determined using a discounted cash flow approach. The discount rate was based on the current Treasury curve, adjusted for credit and liquidity factors. The credit factor adjustment, which is based on credit spreads to the Treasury curve for similar securities, varies for each security based on its quality and industry or sector. The illiquidity adjustment is estimated based on illiquidity spreads observed in transactions involving similar securities. As of June 30, 2011 and December 31, 2010 the range of illiquidity adjustments varied from 0 to 50 basis points.

          The following table presents additional information about the quality of the Level 3 privately placed corporate securities:

			As of June 30, 2011					As of December 31, 2010
			Fair Value		% of Total			Fair Value		% of Total
NAIC Rating:		Comparable Standard & Poor’s rating:
	1	AAA, AA, A	$	89.3		13.0	%	$	118.6		16.6	%
	2	BBB		487.4		71.0			497.5		69.6
	3 - 6	BB & below		109.8		16.0			98.7		13.8
		Total	$	686.5		100.0	%	$	714.8		100.0	%

Residential Mortgage-backed Securities

          As of June 30, 2011 and December 31, 2010, the fair value of the Company’s residential mortgage-backed securities (RMBS) classified as Level 2 measurements was $3,631.4 and $3,801.6, respectively. These securities were primarily fixed-rate, with a weighted-average coupon rate of 4.98% and 5.13% as of June 30, 2011 and December 31, 2010, respectively. Agency securities comprised 88.8% and 88.4% of the Company’s Level 2 RMBS as of June 30, 2011 and December 31, 2010, respectively.

          The following table presents additional information about the composition of the Level 2 non-agency RMBS securities:

	As of June 30, 2011					As of December 31, 2010
	Fair Value		% of Total			Fair Value		% of Total
Standard & Poor’s equivalent rating:
AAA	$	146.9		36.1	%	$	166.6		37.8	%
AA through BBB		87.2		21.4			89.0		20.2
BB & below		173.1		42.5			185.4		42.0
Total non-agency RMBS	$	407.2		100.0	%	$	441.0		100.0	%
Non-agency RMBS with super senior subordination	$	244.0		59.9	%	$	259.2		58.8	%

          As of June 30, 2011 and December 31, 2010, the Company’s non-agency Level 2 RMBS had a weighted-average credit enhancement of 9.5% and 9.8%, respectively. As of June 30, 2011 and December 31, 2010, $166.8 and $181.8, or 41.0% and 41.2%, respectively, of the Company’s non-agency Level 2 RMBS had an origination or vintage year of 2004 and prior.

          Level 2 RMBS securities are priced by independent pricing services that utilize evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data, including market research publications. Because many RMBS do not trade on a daily basis, evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, the pricing services use models and processes to develop prepayment and interest rate scenarios. The pricing services monitor market indicators, industry and economic events, and their models take into account market convention.

Commercial Mortgage-backed Securities

          As of June 30, 2011 and December 31, 2010, the fair value of the Company’s commercial mortgage-backed securities (CMBS) classified as Level 2 measurements was $1,800.1 and $1,868.2, respectively. These were primarily non-agency securities, which comprised 73.2% and 68.3% of Level 2 CMBS as of June 30, 2011 and December 31, 2010, respectively. The non-agency CMBS had an estimated weighted-average credit enhancement of 28.6% and 28.5% as of June 30, 2011 and December 31, 2010, respectively, and 94.5% and 94.3% were in the most senior tranche as of June 30, 2011 and December 31, 2010, respectively.

          The Company’s Level 2 CMBS had a weighted-average coupon rate of 5.37% and 5.50% as of June 30, 2011 and December 31, 2010, respectively. As of June 30, 2011 and December 31, 2010, 18.2% of the underlying collateral for these securities was located in New York for both periods, 13.2% and 13.3% was located in California, and 7.3% and 7.1% was located in Texas. The underlying collateral primarily consisted of retail shopping centers, comprising 33.7% as of both periods, and office buildings comprising 30.6% and 30.5%, respectively, of these securities as of June 30, 2011 and December 31, 2010.

          Level 2 CMBS securities are priced by independent pricing services that utilize evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, new issues, monthly payment information and other reference data, including market research publications. Because many CMBS do not trade on a daily basis, evaluated pricing applications apply available information through processes, such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations.

Marketable Equity Securities

          Marketable equity securities are investments in common stock, real estate investment trusts (REITs) and certain nonredeemable preferred stocks, which primarily consist of investments in publicly traded companies and actively traded mutual fund investments. The fair values of the Company’s marketable equity securities are primarily based on quoted market prices in active markets for identical assets, which are classified as Level 1 measurements.

Investments in Limited Partnerships

          Investments in limited partnerships recorded at fair value are investments in private equity funds. The Company utilizes the fair value option for these investments, regardless of ownership percentage, to standardize the related accounting and reporting.

          The fair value for the Company’s investments in private equity funds is based upon the Company’s proportionate interest in the underlying partnership or fund’s net asset value (NAV), which approximates fair value. The Company is generally unable to liquidate these investments during the term of the partnership or fund, which range from five to twelve years. As such, the Company classifies these securities as Level 3 measurements.

Separate Accounts

          Separate account assets are primarily invested in mutual funds with published NAVs, which are classified as Level 1 measurements.

Rollforward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

          The following tables present additional information about assets measured at fair value on a recurring basis and for which significant unobservable inputs (Level 3) were utilized to determine fair value for the three and six months ended June 30, 2011:

														Unrealized Gain (Loss)
								Transfers						Included in:
	Balance as							In and/or									Other		Realized		Balance as of
	of April 1,							(Out) of						Net			Comprehensive		Gains		June 30,
	2011		Purchases		Sales			Level 3(1)			Other(2)			Income(3)			Income		(Losses)(3)		2011
Types of Investments:
Corporate securities	$	769.4	$	2.2	$	(1.3	)	$	(28.4	)	$	(21.5	)	$	—		$	6.3	$	0.2	$	726.9
Commercial mortgage backed securities		17.7		—		—			—			(1.1	)		—			0.2		—		16.8
Other debt obligations		150.4		—		—			—			(0.5	)		—			1.8		—		151.7
Total fixed maturities, available-for-sale		937.5		2.2		(1.3	)		(28.4	)		(23.1	)		—			8.3		0.2		895.4
Marketable equity securities, available-for-sale		1.8		—		—			—			—			—			3.2		—		5.0
Marketable equity securities, trading		0.7		7.9		—			—			—			0.8			—		—		9.4
Investments in limited partnerships		34.9		2.3		—			—			(8.5	)		0.5			—		1.2		30.4
Other invested assets		4.4		1.5		—			—			—			(0.4	)		0.5		—		6.0
Total Level 3	$	979.3	$	13.9	$	(1.3	)	$	(28.4	)	$	(31.6	)	$	0.9		$	12.0	$	1.4	$	946.2

														Unrealized Gain (Loss)
								Transfers						Included in:
	Balance as							In and/or								Other		Realized			Balance as of
	of January 1,							(Out) of						Net		Comprehensive		Gains			June 30,
	2011		Purchases		Sales			Level 3(1)			Other(2)			Income(3)		Income		(Losses)(3)			2011
Types of Investments:
Corporate securities	$	754.6	$	3.2	$	(9.8	)	$	(4.5	)	$	(24.0	)	$	—	$	11.1	$	(3.7	)	$	726.9
Commercial mortgage backed securities		19.1		—		—			—			(2.5	)		—		0.2		—			16.8
Other debt obligations		153.2		9.0		(10.8	)		—			(1.3	)		—		3.3		(1.7	)		151.7
Total fixed maturities, available-for-sale		926.9		12.2		(20.6	)		(4.5	)		(27.8	)		—		14.6		(5.4	)		895.4
Marketable equity securities, available-for-sale		1.8		—		—			—			—			—		3.2		—			5.0
Marketable equity securities, trading		0.6		7.9		—			—			—			0.9		—		—			9.4
Investments in limited partnerships		36.5		2.4		—			—			(12.3	)		1.8		—		2.0			30.4
Other invested assets		3.8		1.5		—			—			—			0.2		0.5		—			6.0
Total Level 3	$	969.6	$	24.0	$	(20.6	)	$	(4.5	)	$	(40.1	)	$	2.9	$	18.3	$	(3.4	)	$	946.2

(1)	Transfers into and/or out of Level 3 are reported at the value as of the beginning of the period in which the transfer occurs. Gross transfers into Level 3 were $0.9 and $0.0 for the three and six months ended June 30, 2011, respectively. Gross transfers out of Level 3 were $29.3 and $4.5 for the three and six months ended June 30, 2011, respectively.
(2)	Other is comprised of transactions such as pay downs, calls, amortization and redemptions.
(3)	Realized and unrealized gains and losses for investments in limited partnerships are included in net investment income.

          The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized significant unobservable inputs (Level 3) to determine fair value for the three and six months ended June 30, 2010:

														Unrealized Gain (Loss)
								Transfers						Included in:
	Balance as							In and/or									Other		Realized			Balance as of
	of April 1,							(Out) of						Net			Comprehensive		Gains			June 30,
	2010		Purchases		Sales			Level 3(1)			Other(2)			Income(3)			Income		(Losses)(3)			2010
Types of Investments:
State and political subdivisions	$	7.4	$	—	$	—		$	—		$	—		$	—		$	0.2	$	—		$	7.6
Corporate securities		862.6		15.7		—			4.5			(35.7	)		—			12.8		2.3			862.2
Residential mortgage-backed securities		260.8		17.4		—			(202.6	)		0.7			—			0.8		—			77.1
Commercial mortgage backed securities		23.1		10.1		—			(1.3	)		(1.0	)		—			0.7		—			31.6
Other debt obligations		55.0		—		—			0.2			(0.4	)		—			1.8		(0.1	)		56.5
Total fixed maturities, available-for-sale		1,208.9		43.2		—			(199.2	)		(36.4	)		—			16.3		2.2			1,035.0
Marketable equity securities, available-for-sale		1.8		—		—			—			—			—			—		—			1.8
Marketable equity securities, trading		0.5		—		—			—			0.1			0.1			—		—			0.7
Investments in limited partnerships		25.2		8.6		(1.4	)		—			0.1			(1.1	)		—		0.7			32.1
Other invested assets		3.8		—		—			—			—			(1.3	)		—		—			2.5
Total Level 3	$	1,240.2	$	51.8	$	(1.4	)	$	(199.2	)	$	(36.2	)	$	(2.3	)	$	16.3	$	2.9		$	1,072.1

														Unrealized Gain (Loss)
								Transfers						Included in:
	Balance as							In and/or									Other		Realized			Balance as of
	of January 1,							(Out) of						Net			Comprehensive		Gains			June 30,
	2010		Purchases		Sales			Level 3(1)			Other(2)			Income(3)			Income		(Losses)(3)			2010
Types of Investments:
State and political subdivisions	$	7.2	$	—	$	—		$	—		$	—		$	—		$	0.4	$	—		$	7.6
Corporate securities		847.1		31.7		(17.3	)		12.8			(37.6	)		—			24.9		0.6			862.2
Residential mortgage-backed securities		250.5		17.4		—			(194.6	)		1.4			—			2.4		—			77.1
Commercial mortgage backed securities		24.0		10.1		—			(1.3	)		(2.8	)		—			1.6		—			31.6
Other debt obligations		54.7		—		—			—			(1.3	)		—			3.2		(0.1	)		56.5
Total fixed maturities, available-for-sale		1,183.5		59.2		(17.3	)		(183.1	)		(40.3	)		—			32.5		0.5			1,035.0
Marketable equity securities, available-for-sale		1.8		—		—			—			—			—			—		—			1.8
Marketable equity securities, trading		0.3		—		—			—			0.3			0.1			—		—			0.7
Investments in limited partnerships		24.7		9.2		(2.4	)		—			—			(0.2	)		—		0.8			32.1
Other invested assets		4.6		—		(0.3	)		—			(0.8	)		(1.1	)		—		0.1			2.5
Total Level 3	$	1,214.9	$	68.4	$	(20.0	)	$	(183.1	)	$	(40.8	)	$	(1.2	)	$	32.5	$	1.4		$	1,072.1

(1)	Transfers into and/or out of Level 3 are reported at the value as of the beginning of the period in which the transfer occurs. Gross transfers into Level 3 were $4.7 and $14.9 for the three and six months ended June 30, 2010, respectively. Gross transfers out of Level 3 were $203.9 and $198.0 for the three and six ended June 30, 2010, respectively, as public market information on certain of the Company’s RMBS securities became available and third party independent pricing services began to provide process. Such securities are now classified as Level 2.
(2)	Other is comprised of transactions such as pay downs, calls, amortization, and redemptions.
(3)	Realized and unrealized gains and losses for investments in limited partnerships are included in net investment income.

          The following table summarizes the carrying or reported values and corresponding fair values of financial instruments subject to fair value disclosure requirements:

	As of June 30, 2011				As of December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial assets:
Fixed maturities	$	22,146.5	$	22,146.5	$	21,281.8	$	21,281.8
Marketable equity securities, available-for-sale		51.2		51.2		45.1		45.1
Marketable equity securities, trading		380.9		380.9		189.3		189.3
Mortgage loans		2,085.0		2,173.1		1,713.0		1,772.2
Investments in limited partnerships:
Private equity funds		30.4		30.4		36.5		36.5
Tax credit investments		163.4		163.3		150.4		152.6
Other invested assets		14.5		14.5		12.6		12.6
Cash and cash equivalents		87.4		87.4		274.6		274.6
Separate account assets		887.3		887.3		881.7		881.7
Financial liabilities:
Funds held under deposit contracts:
Deferred annuities		9,678.4		9,525.8		8,795.8		8,694.2
Immediate annuities		6,642.9		7,195.0		6,670.4		7,188.9
Notes payable:
Capital Efficient Notes (CENts)		149.8		151.8		149.8		140.9
Senior notes		299.3		316.6		299.2		301.6

   Other Financial Instruments

          Cash and cash equivalents consist of demand bank deposits and short-term highly liquid investments with original maturities of three months or less at the time of purchase. Cash equivalents are reported at cost, which approximates fair value, and were $78.5 and $261.0 as of June 30, 2011 and December 31, 2010, respectively. Cash equivalents of $75.7 and $257.9 were held in a single highly rated overnight money market fund as of June 30, 2011 and December 31, 2010, respectively.

          The fair values of the Company’s mortgage loans were measured by discounting the projected future cash flows using the current rate at which the loans would be made to borrowers with similar credit ratings and for the same maturities.

          Investments in limited partnerships associated with tax credit investments are carried at amortized cost. Fair value was estimated based on the discounted cash flows over the remaining life of the tax credits. The discount rate used was the original internal rate of return for each investment.

          The Company estimates the fair values of funds held under deposit contracts related to investment-type contracts using an income approach, based on the present value of the discounted cash flows. Cash flows were projected using best estimates for lapses, mortality and expenses, and discounted at a risk-free rate plus a nonperformance risk spread. The carrying value of this balance excludes $5,587.7 and $5,487.1 of liabilities related to insurance contracts as of June 30, 2011 and December 31, 2010, respectively.

          The fair values of the Company’s notes payable were based on nonbinding quotes provided by third-parties. The fair value measurement assumes that liabilities were transferred to a market participant of equal credit standing and without consideration for any optional redemption features.