Fair Values of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2016

Carrying Amount and Fair Value of Financial Instruments

Presented as follows are the carrying amounts and fair values of financial instruments. The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, accrued investment income, and securities lending agreements approximate fair value due to the short-term nature of the instruments. As such, these financial instruments are not included in the following chart.



	March 31, 2016				December 31, 2015

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions of dollars)
Assets
Fixed Maturity Securities	$	44,699.2	$	44,699.2	$	43,354.4	$	43,354.4
Mortgage Loans	1,881.3		2,042.6		1,883.6		2,013.9
Policy Loans	3,343.9		3,458.0		3,395.4		3,498.0
Other Long-term Investments
Derivatives	40.1		40.1		49.8		49.8
Equity Securities	1.5		1.5		1.4		1.4
Miscellaneous Long-term Investments	473.5		473.5		474.4		474.4

Liabilities
Policyholders' Funds
Deferred Annuity Products	$	607.0	$	607.0	$	608.8	$	608.8
Supplementary Contracts without Life Contingencies	632.6		632.6		641.1		641.1
Short-term Debt	351.4		361.7		352.0		366.2
Long-term Debt	2,442.5		2,634.4		2,449.4		2,645.9
Payables for Collateral on Investments
Federal Home Loan Bank (FHLB) Funding Agreements	350.0		350.0		350.0		350.0
Other Liabilities
Derivatives	58.0		58.0		50.2		50.2
Embedded Derivative in Modified Coinsurance Arrangement	93.2		93.2		87.6		87.6
Unfunded Commitments to Investment Partnerships	4.8		4.8		5.0		5.0

Fair Values by Fair Value Heirarchy Input Level

Fair value measurements by input level for financial instruments carried at fair value are as follows:



	March 31, 2016
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	689.4	$	896.9	$	—	$	1,586.3
States, Municipalities, and Political Subdivisions	—		2,087.9		88.7		2,176.6
Foreign Governments	—		1,024.0		53.9		1,077.9
Public Utilities	569.1		7,403.9		270.2		8,243.2
Mortgage/Asset-Backed Securities	—		2,480.4		—		2,480.4
All Other Corporate Bonds	8,074.0		19,938.8		1,074.7		29,087.5
Redeemable Preferred Stocks	—		23.9		23.4		47.3
Total Fixed Maturity Securities	9,332.5		33,855.8		1,510.9		44,699.2

Other Long-term Investments
Derivatives
Interest Rate Swaps	—		5.3		—		5.3
Foreign Exchange Contracts	—		34.8		—		34.8
Total Derivatives	—		40.1		—		40.1
Equity Securities	—		0.3		1.2		1.5

Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps	$	—	$	7.8	$	—	$	7.8
Foreign Exchange Contracts	—		50.1		—		50.1
Credit Default Swaps	—		0.1		—		0.1
Embedded Derivative in Modified Coinsurance Arrangement	—		—		93.2		93.2
Total Derivatives	—		58.0		93.2		151.2



	December 31, 2015
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	97.3	$	1,367.9	$	—	$	1,465.2
States, Municipalities, and Political Subdivisions	—		1,994.9		122.2		2,117.1
Foreign Governments	—		998.7		52.9		1,051.6
Public Utilities	59.1		7,687.2		274.1		8,020.4
Mortgage/Asset-Backed Securities	—		2,481.5		—		2,481.5
All Other Corporate Bonds	2,770.4		23,992.8		1,408.2		28,171.4
Redeemable Preferred Stocks	—		23.4		23.8		47.2
Total Fixed Maturity Securities	2,926.8		38,546.4		1,881.2		43,354.4

Other Long-term Investments
Derivatives
Interest Rate Swaps	—		2.4		—		2.4
Foreign Exchange Contracts	—		47.4		—		47.4
Total Derivatives	—		49.8		—		49.8
Equity Securities	—		—		1.4		1.4

Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps	$	—	$	12.3	$	—	$	12.3
Foreign Exchange Contracts	—		37.6		—		37.6
Credit Default Swaps	—		0.3		—		0.3
Embedded Derivative in Modified Coinsurance Arrangement	—		—		87.6		87.6
Total Derivatives	—		50.2		87.6		137.8

Transfers of Assets between Level 1 and Level 2

Transfers of assets between Level 1 and Level 2 are as follows:



	Three Months Ended March 31
	2016				2015
	Transfers into
	Level 1 from Level 2		Level 2 from Level 1		Level 1 from Level 2		Level 2 from Level 1
	(in millions of dollars)
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	423.8	$	—	$	219.6	$	—
Public Utilities	511.6		43.0		606.7		48.9
All Other Corporate Bonds	5,352.0		786.4		4,463.8		1,189.4
Total Fixed Maturity Securities	$	6,287.4	$	829.4	$	5,290.1	$	1,238.3

Changes in Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Unobservable Inputs

Changes in assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:



	Three Months Ended March 31, 2016
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Period			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	122.2		$	—		$	0.6		$	—	$	—		$	—	$	(34.1	)	$	88.7
Foreign Governments	52.9			—			1.0			—		—			—		—			53.9
Public Utilities	274.1			—			4.2			—		—			94.5		(102.6		)	270.2
All Other Corporate Bonds	1,408.2			(1.6		)	15.6			—		(28.0		)	282.6		(602.1		)	1,074.7
Redeemable Preferred Stocks	23.8			—			(0.4		)	—		—			—		—			23.4
Total Fixed Maturity Securities	1,881.2			(1.6		)	21.0			—		(28.0		)	377.1		(738.8		)	1,510.9

Equity Securities	1.4			—			—			—		—			—		(0.2		)	1.2
Embedded Derivative in Modified Coinsurance Arrangement	(87.6		)	(5.6		)	—			—		—			—		—			(93.2		)

	Three Months Ended March 31, 2015
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Period			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	140.1		$	—		$	4.1		$	—	$	—		$	—	$	—		$	144.2
Foreign Governments	69.3			—			(0.2		)	—		—			—		—			69.1
Public Utilities	315.0			—			3.1			—		(0.1		)	300.8		(69.0		)	549.8
All Other Corporate Bonds	1,425.3			(0.3		)	12.5			—		(15.9		)	498.5		(284.3		)	1,635.8
Redeemable Preferred Stocks	24.9			—			—			—		—			—		—			24.9
Total Fixed Maturity Securities	1,974.6			(0.3		)	19.5			—		(16.0		)	799.3		(353.3		)	2,423.8

Equity Securities	1.4			—			—			—		—			—		—			1.4
Embedded Derivative in Modified Coinsurance Arrangement	(49.9		)	(3.9		)	—			—		—			—		—			(53.8		)

Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation. Losses which are included in earnings and are attributable to the change in fair value of assets or liabilities valued using significant unobservable inputs and still held at period end were $5.6 million and $3.9 million for the three months ended March 31, 2016 and 2015, respectively. These amounts relate entirely to the change in fair value of an embedded derivative in a modified coinsurance arrangement and are reported as a component of realized investment gains and losses.

Quantitative Information Regarding Significant Unobservable Inputs

The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources.



	March 31, 2016
	Fair Value			Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private	$	111.8		Comparability Adjustment Discount for Size Lack of Marketability Volatility of Credit Market Convention	(b) (c) (d) (e) (f)	0.50% - 0.50% / 0.50% 0.50% - 0.50% / 0.50% 1.00% - 2.00% / 1.75% 0.25% - 6.10% / 0.95% Priced at Par
All Other Corporate Bonds - Public	9.5			Lack of Marketability	(d)	2.50% - 2.50% / 2.50%
Equity Securities - Private	1.1			Market Convention	(f)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(93.2		)	Projected Liability Cash Flows	(g)	Actuarial Assumptions



	December 31, 2015
	Fair Value			Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions - Private	$	73.3		Change in Benchmark Reference	(a)	0.50% - 1.00% / 0.70%
States, Municipalities, and Political Subdivisions - Public	12.0			Market Convention	(f)	Priced at Par
All Other Corporate Bonds - Private	151.0			Comparability Adjustment Discount for Size Lack of Marketability Volatility of Credit Market Convention	(b) (c) (d) (e) (f)	0.50% - 0.50% / 0.50% 0.50% - 0.50% / 0.50% 1.00% - 2.00% / 1.75% 0.25% - 5.56% / 0.94% Priced at Par
All Other Corporate Bonds - Public	36.2			Lack of Marketability	(d)	1.00% - 1.00% / 1.00%
Equity Securities - Private	1.1			Market Convention	(f)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(87.6		)	Projected Liability Cash Flows	(g)	Actuarial Assumptions


(a)	Represents basis point adjustments for changes in benchmark spreads associated with various ratings categories


(b)	Represents basis point adjustments for changes in benchmark spreads associated with various industry sectors


(c)	Represents basis point adjustments based on issue/issuer size relative to the benchmark


(d)	Represents basis point adjustments to apply a discount due to the illiquidity of an investment


(e)	Represents basis point adjustments for credit-specific factors


(f)	Represents a decision to price based on par value, cost, or owner's equity when limited data is available


(g)	Represents various actuarial assumptions required to derive the liability cash flows including incidence, termination, and lapse rates