Investments

6 Months Ended

Jun. 30, 2015

Investments, Debt and Equity Securities [Abstract]

Investments

Fixed Maturity Securities

At June 30, 2015 and December 31, 2014, all fixed maturity securities were classified as available-for-sale. The amortized cost and fair values of securities by security type are shown as follows:

	June 30, 2015
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,248.5	$	215.3	$	10.0	$	1,453.8
States, Municipalities, and Political Subdivisions	1,804.2		275.8		6.3		2,073.7
Foreign Governments	1,084.3		187.2		—		1,271.5
Public Utilities	7,063.9		1,189.8		6.9		8,246.8
Mortgage/Asset-Backed Securities	2,389.1		195.9		5.5		2,579.5
All Other Corporate Bonds	26,035.2		3,047.7		187.0		28,895.9
Redeemable Preferred Stocks	44.0		5.4		0.2		49.2
Total Fixed Maturity Securities	$	39,669.2	$	5,117.1	$	215.9	$	44,570.4

	December 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	983.5	$	255.5	$	0.5	$	1,238.5
States, Municipalities, and Political Subdivisions	1,745.0		377.6		1.1		2,121.5
Foreign Governments	1,101.1		206.3		—		1,307.4
Public Utilities	7,046.1		1,505.4		0.9		8,550.6
Mortgage/Asset-Backed Securities	2,224.9		207.0		0.1		2,431.8
All Other Corporate Bonds	25,658.8		3,828.6		122.2		29,365.2
Redeemable Preferred Stocks	44.0		5.9		—		49.9
Total Fixed Maturity Securities	$	38,803.4	$	6,386.3	$	124.8	$	45,064.9

The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.

	June 30, 2015
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	246.5	$	10.0	$	—	$	—
States, Municipalities, and Political Subdivisions	228.1		6.1		1.8		0.2
Public Utilities	262.3		6.5		6.7		0.4
Mortgage/Asset-Backed Securities	364.4		5.4		1.0		0.1
All Other Corporate Bonds	4,329.7		158.2		304.2		28.8
Redeemable Preferred Stocks	10.8		0.2		—		—
Total Fixed Maturity Securities	$	5,441.8	$	186.4	$	313.7	$	29.5

	December 31, 2014
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	—	$	—	$	7.4	$	0.5
States, Municipalities, and Political Subdivisions	1.6		—		42.0		1.1
Public Utilities	5.1		0.2		58.2		0.7
Mortgage/Asset-Backed Securities	28.0		—		1.9		0.1
All Other Corporate Bonds	1,666.2		82.2		729.4		40.0
Total Fixed Maturity Securities	$	1,700.9	$	82.4	$	838.9	$	42.4

The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments.

	June 30, 2015
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
			Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	1,238.4	$	26.7	$	1,250.1	$	0.1	$	14.9
Over 1 year through 5 years	6,882.6		712.8		7,476.1		5.0		114.3
Over 5 years through 10 years	10,057.0		852.2		7,987.7		93.7		2,827.8
Over 10 years	19,102.1		3,329.5		19,886.9		111.6		2,433.1
	37,280.1		4,921.2		36,600.8		210.4		5,390.1
Mortgage/Asset-Backed Securities	2,389.1		195.9		2,214.1		5.5		365.4
Total Fixed Maturity Securities	$	39,669.2	$	5,117.1	$	38,814.9	$	215.9	$	5,755.5

	December 31, 2014
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
			Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	1,372.0	$	34.3	$	1,406.3	$	—	$	—
Over 1 year through 5 years	6,871.2		719.3		7,434.0		9.4		147.1
Over 5 years through 10 years	9,532.9		1,003.3		8,792.3		80.9		1,663.0
Over 10 years	18,802.4		4,422.4		22,490.6		34.4		699.8
	36,578.5		6,179.3		40,123.2		124.7		2,509.9
Mortgage/Asset-Backed Securities	2,224.9		207.0		2,401.9		0.1		29.9
Total Fixed Maturity Securities	$	38,803.4	$	6,386.3	$	42,525.1	$	124.8	$	2,539.8

At June 30, 2015, the fair value of investment-grade fixed maturity securities was $40,910.7 million, with a gross unrealized gain of $4,967.5 million and a gross unrealized loss of $140.9 million. The gross unrealized loss on investment-grade fixed maturity securities was 65.3 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities.

At June 30, 2015, the fair value of below-investment-grade fixed maturity securities was $3,659.7 million, with a gross unrealized gain of $149.6 million and a gross unrealized loss of $75.0 million. The gross unrealized loss on below-investment-grade fixed maturity securities was 34.7 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to develop credit concerns than investment-grade securities. At June 30, 2015, the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value.

As of June 30, 2015, we held 213 individual investment-grade fixed maturity securities and 82 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 8 investment-grade fixed maturity securities and 13 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.

In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the following factors:

• Whether we expect to recover the entire amortized cost basis of the security

• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis

• Whether the security is current as to principal and interest payments

• The significance of the decline in value

• The time period during which there has been a significant decline in value

• Current and future business prospects and trends of earnings

• The valuation of the security's underlying collateral

• Relevant industry conditions and trends relative to their historical cycles

• Market conditions

• Rating agency and governmental actions

• Bid and offering prices and the level of trading activity

• Adverse changes in estimated cash flows for securitized investments

• Changes in fair value subsequent to the balance sheet date

• Any other key measures for the related security

While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments determined to have an other-than-temporary impairment.

We held no fixed maturity securities as of June 30, 2015 or December 31, 2014 for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.

At June 30, 2015, we had non-binding commitments of $184.5 million to fund private placement fixed maturity securities. 

Variable Interest Entities

We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period.

As of June 30, 2015, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $451.0 million, comprised of $220.7 million of tax credit partnerships and $230.3 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.

The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from passive losses on the investments. Amounts recognized in the consolidated statements of income are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2015			2014			2015			2014
	(in millions of dollars)
Income Tax Credits	$	10.5		$	10.5		$	21.0		$	20.9
Amortization, net of tax	(5.8		)	(5.8		)	(11.6		)	(11.6		)
Income Tax Benefit	$	4.7		$	4.7		$	9.4		$	9.3

Additionally, we recognize a liability for all legally binding unfunded commitments to these partnerships, with a corresponding recognition of an invested asset.  Our liability for legally binding unfunded commitments to the tax credit partnerships was $8.1 million at June 30, 2015. Contractually, we are a limited partner in these investments, and our maximum exposure to loss is limited to the carrying value of our investment. We also had non-binding commitments of $149.2 million to fund certain private equity partnerships at June 30, 2015, the amount of which may or may not be funded.

We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements.  This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity partnership investment which we contributed into the trust at the time it was established.  There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time.  The fair values of the bond and partnership were $146.2 million and $1.4 million, respectively, as of June 30, 2015.  The bond is reported as a component of fixed maturity securities, and the partnership is reported as a component of other long-term investments in our consolidated balance sheets. At June 30, 2015, we had no commitments to fund the underlying partnership, nor did we fund any amounts to the partnership during the three and six months ended June 30, 2015 and 2014.

Mortgage Loans

Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period. We update our debt service coverage ratios annually.

Mortgage loans by property type and geographic region are presented below.

	June 30, 2015				December 31, 2014
	(in millions of dollars)
	Carrying		Percent of		Carrying		Percent of
	Amount		Total		Amount		Total
Property Type
Apartment	$	116.8	6.3	%	$	110.1	5.9	%
Industrial	548.0		29.5		542.9		29.2
Office	769.7		41.5		794.0		42.8
Retail	422.0		22.7		409.6		22.1
Total	$	1,856.5	100.0	%	$	1,856.6	100.0	%

Region
New England	$	103.1	5.6	%	$	105.6	5.7	%
Mid-Atlantic	161.5		8.7		179.4		9.7
East North Central	195.7		10.6		210.6		11.4
West North Central	156.6		8.4		166.2		8.9
South Atlantic	440.4		23.7		453.6		24.4
East South Central	80.2		4.3		75.3		4.1
West South Central	238.2		12.8		215.6		11.6
Mountain	164.0		8.8		116.0		6.2
Pacific	316.8		17.1		334.3		18.0
Total	$	1,856.5	100.0	%	$	1,856.6	100.0	%

We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings may include the following:

• Loan-to-value ratio

• Debt service coverage ratio based on current operating income

• Property location, including regional economics, trends and demographics

• Age, condition, and construction quality of property

• Current and historical occupancy of property

• Lease terms relative to market

• Tenant size and financial strength

• Borrower's financial strength

• Borrower's equity in transaction

• Additional collateral, if any

Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency.

Mortgage loans, sorted by the applicable credit quality indicators, are as follows:

	June 30 2015		December 31 2014
	(in millions of dollars)
Internal Rating
Aa	$	2.8	$	7.7
A	604.4		666.0
Baa	1,223.9		1,156.7
Ba	12.8		13.1
B	12.6		13.1
Total	$	1,856.5	$	1,856.6

Loan-to-Value Ratio
<= 65%	$	958.2	$	898.7
> 65% <= 75%	772.1		818.0
> 75% <= 85%	89.5		102.3
> 85%	36.7		37.6
Total	$	1,856.5	$	1,856.6

There were no troubled debt restructurings during the three months ended June 30, 2015 and 2014 and during the six months ended June 30, 2015. During the six months ended June 30, 2014, we modified the terms of a mortgage loan with a carrying value of $18.1 million and recognized a $3.0 million realized loss on the troubled debt restructuring. At June 30, 2015 and December 31, 2014, we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments.

There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. The activity in the allowance for credit losses is as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2015		2014		2015		2014
	(in millions of dollars)
Balance at Beginning of Period	$	1.5	$	4.5	$	1.5	$	1.5
Provision	0.5		—		0.5		3.0
Balance at End of Period	$	2.0	$	4.5	$	2.0	$	4.5

At December 31, 2014 we held one impaired mortgage loan with an unpaid principal balance of $14.6 million, a related allowance for credit losses of $1.5 million, and a carrying value of $13.1 million. During the second quarter of 2015, we increased the allowance for credit losses by $0.5 million and recognized a corresponding investment loss, resulting in a carrying value of $12.6 million at June 30, 2015. The unpaid principal balance remains unchanged.

Our average investment in impaired mortgage loans was $12.9 million and $13.0 million for the three and six months ended June 30, 2015, respectively, and $31.2 million and $25.2 million for the three and six months ended June 30, 2014, respectively. Interest income recognized on mortgage loans subsequent to impairment was $0.2 million and $0.4 million for the three and six months ended June 30, 2015, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2014, respectively.

At June 30, 2015, we had non-binding commitments of $113.0 million to fund certain commercial mortgage loans, the amount of which may or may not be funded.

Transfers of Financial Assets

To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally 102 percent of the cash received.

Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. We may receive cash and/or securities as collateral under these agreements. Cash received as collateral is typically reinvested in short-term investments. If securities are received as collateral, we are not permitted to sell or re-post them.

As of June 30, 2015, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $221.8 million, for which we received collateral in the form of cash and securities of $34.9 million and $196.5 million, respectively. As of December 31, 2014, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.5 million, for which we received collateral in the form of cash and securities of $58.4 million and $128.5 million, respectively. We had no outstanding repurchase agreements at June 30, 2015 or December 31, 2014.

The remaining contractual maturities of our securities lending agreements disaggregated by class of collateral pledged are as follows:

	June 30, 2015
	Overnight and Continuous
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1.2
Public Utilities	1.0
All Other Corporate Bonds	32.7
Total Borrowings	34.9
Gross Amount of Recognized Liability for Securities Lending Transactions	34.9
Amounts Related to Agreements Not Included in Offsetting Disclosure Contained Herein	$	—

Certain of our domestic insurance subsidiaries are members of of regional FHLBs. As members, we obtain access to low-cost funding and also receive dividends based on our stock ownership. Our initial membership purchases of FHLB common stock occurred during 2015, and additional purchases may be required based upon the amount of funds borrowed from FHLBs. As of June 30, 2015, we owned $30.9 million of FHLB common stock and had obtained $350.0 million in advances from the regional FHLBs for the purpose of purchasing fixed maturity securities. As of June 30, 2015, the carrying value of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs was $336.8 million and $101.0 million, respectively.

Offsetting of Financial Instruments

We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy, or merger without assumption. See Note 5 for further discussion of collateral related to our derivative contracts.

We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our securities or any other amounts due to us.

Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.

	June 30, 2015
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	39.3	$	—	$	39.3	$	(10.6	)	$	(25.0	)	$	3.7
Securities Lending	221.8		—		221.8		(186.9		)	(34.9		)	—
Total	$	261.1	$	—	$	261.1	$	(197.5	)	$	(59.9	)	$	3.7
Financial Liabilities:
Derivatives	$	74.7	$	—	$	74.7	$	(52.9	)	$	—		$	21.8
Securities Lending	34.9		—		34.9		(34.9		)	—			—
Total	$	109.6	$	—	$	109.6	$	(87.8	)	$	—		$	21.8

	December 31, 2014
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	28.0	$	—	$	28.0	$	(7.2	)	$	(15.4	)	$	5.4
Securities Lending	176.5		—		176.5		(118.1		)	(58.4		)	—
Total	$	204.5	$	—	$	204.5	$	(125.3	)	$	(73.8	)	$	5.4
Financial Liabilities:
Derivatives	$	92.9	$	—	$	92.9	$	(67.0	)	$	—		$	25.9
Securities Lending	58.4		—		58.4		(58.4		)	—			—
Total	$	151.3	$	—	$	151.3	$	(125.4	)	$	—		$	25.9

Net Investment Income

Net investment income reported in our consolidated statements of income is as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2015		2014		2015		2014
	(in millions of dollars)
Fixed Maturity Securities	$	592.9	$	589.6	$	1,159.1	$	1,170.7
Derivatives	11.5		10.3		22.4		20.2
Mortgage Loans	27.4		26.6		55.7		55.0
Policy Loans	4.2		4.0		8.2		7.9
Other Long-term Investments	4.9		12.0		8.8		15.8
Short-term Investments	0.8		0.6		1.7		1.1
Gross Investment Income	641.7		643.1		1,255.9		1,270.7
Less Investment Expenses	7.3		6.9		15.8		14.9
Less Investment Income on Participation Fund Account Assets	3.7		3.8		7.4		7.6
Net Investment Income	$	630.7	$	632.4	$	1,232.7	$	1,248.2

Realized Investment Gain and Loss

Realized investment gains and losses are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2015			2014			2015			2014
	(in millions of dollars)
Fixed Maturity Securities
Gross Gains on Sales	$	4.9		$	1.0		$	7.4		$	1.9
Gross Losses on Sales	(1.9		)	(1.1		)	(7.6		)	(6.5		)
Other-Than-Temporary Impairment Loss	(8.1		)	—			(12.6		)	—
Mortgage Loans and Other Invested Assets
Gross Gains on Sales	7.8			2.4			8.9			9.8
Gross Losses on Sales	—			—			—			(0.6		)
Impairment Loss	(1.0		)	(0.4		)	(3.7		)	(3.4		)
Embedded Derivative in Modified Coinsurance Arrangement	(2.0		)	12.4			(5.9		)	20.9
All Other Derivatives	0.8			12.7			(0.3		)	12.3
Foreign Currency Transactions	0.3			(1.1		)	(0.7		)	(2.2		)
Net Realized Investment Gain (Loss)	$	0.8		$	25.9		$	(14.5	)	$	32.2