Investments

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements [Abstract]

Investments

Fixed Maturity Securities

At December 31, 2016 and 2015, 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:

	December 31, 2016
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,202.8	$	183.1	$	3.5	$	1,382.4
States, Municipalities, and Political Subdivisions	1,868.0		294.8		4.8		2,158.0
Foreign Governments	714.8		199.9		—		914.7
Public Utilities	6,916.1		1,123.5		16.9		8,022.7
Mortgage/Asset-Backed Securities	2,104.9		134.7		9.2		2,230.4
All Other Corporate Bonds	26,707.1		2,944.0		183.9		29,467.2
Redeemable Preferred Stocks	39.0		3.2		0.3		41.9
Total Fixed Maturity Securities	$	39,552.7	$	4,883.2	$	218.6	$	44,217.3

	December 31, 2015
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,265.8	$	207.3	$	7.9	$	1,465.2
States, Municipalities, and Political Subdivisions	1,828.3		293.4		4.6		2,117.1
Foreign Governments	897.2		154.4		—		1,051.6
Public Utilities	6,979.3		1,057.4		16.3		8,020.4
Mortgage/Asset-Backed Securities	2,318.6		167.6		4.7		2,481.5
All Other Corporate Bonds	26,325.5		2,454.1		608.2		28,171.4
Redeemable Preferred Stocks	44.0		3.8		0.6		47.2
Total Fixed Maturity Securities	$	39,658.7	$	4,338.0	$	642.3	$	43,354.4

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

	December 31, 2016
	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	$	132.8	$	3.5	$	—	$	—
States, Municipalities, and Political Subdivisions	132.2		4.8		—		—
Public Utilities	260.2		15.3		15.6		1.6
Mortgage/Asset-Backed Securities	513.2		9.1		0.8		0.1
All Other Corporate Bonds	3,621.0		122.1		774.7		61.8
Redeemable Preferred Stocks	7.9		0.1		10.8		0.2
Total Fixed Maturity Securities	$	4,667.3	$	154.9	$	801.9	$	63.7

	December 31, 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	$	213.5	$	7.9	$	—	$	—
States, Municipalities, and Political Subdivisions	112.3		4.3		3.3		0.3
Public Utilities	408.4		14.4		10.3		1.9
Mortgage/Asset-Backed Securities	504.3		4.6		9.0		0.1
All Other Corporate Bonds	6,155.0		464.2		554.7		144.0
Redeemable Preferred Stocks	10.4		0.6		—		—
Total Fixed Maturity Securities	$	7,403.9	$	496.0	$	577.3	$	146.3

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.

	December 31, 2016
	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	$	1,338.8	$	28.6	$	1,355.6	$	—	$	11.8
Over 1 year through 5 years	6,231.0		553.5		6,605.6		8.2		170.7
Over 5 years through 10 years	10,991.6		843.8		9,336.2		82.8		2,416.4
Over 10 years	18,886.4		3,322.6		19,734.3		118.4		2,356.3
	37,447.8		4,748.5		37,031.7		209.4		4,955.2
Mortgage/Asset-Backed Securities	2,104.9		134.7		1,716.4		9.2		514.0
Total Fixed Maturity Securities	$	39,552.7	$	4,883.2	$	38,748.1	$	218.6	$	5,469.2

	December 31, 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	$	1,112.2	$	20.6	$	1,098.8	$	0.2	$	33.8
Over 1 year through 5 years	6,514.0		554.4		6,649.5		49.8		369.1
Over 5 years through 10 years	10,519.3		746.3		7,124.4		320.5		3,820.7
Over 10 years	19,194.6		2,849.1		18,532.3		267.1		3,244.3
	37,340.1		4,170.4		33,405.0		637.6		7,467.9
Mortgage/Asset-Backed Securities	2,318.6		167.6		1,968.2		4.7		513.3
Total Fixed Maturity Securities	$	39,658.7	$	4,338.0	$	35,373.2	$	642.3	$	7,981.2

At December 31, 2016, the fair value of investment-grade fixed maturity securities was $40,819.3 million, with a gross unrealized gain of $4,764.5 million and a gross unrealized loss of $151.8 million. The gross unrealized loss on investment-grade fixed maturity securities was 69.4 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 December 31, 2016, the fair value of below-investment-grade fixed maturity securities was $3,398.0 million, with a gross unrealized gain of $118.7 million and a gross unrealized loss of $66.8 million. The gross unrealized loss on below-investment-grade fixed maturity securities was 30.6 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 December 31, 2016, 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 December 31, 2016, we held 332 individual investment-grade fixed maturity securities and 69 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 16 investment-grade fixed maturity securities and 37 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year. Of the 332 individual investment-grade securities in an unrealized loss position, 132 are held in the portfolio acquired through our 2016 purchase of H&J Capital, L.L.C., parent of Starmount Life Insurance Company and AlwaysCare Benefits (which collectively we refer to as Starmount). The fair value of the Starmount portfolio was $38.8 million and had a net unrealized loss of $1.5 million at December 31, 2016. See Note 13.

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 December 31, 2016 and 2015, for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.

At December 31, 2016, we had commitments of $30.0 million to fund private placement fixed maturity securities, the amount of which may or may not be funded. 

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 December 31, 2016, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $509.3 million, comprised of $165.2 million of tax credit partnerships and $344.1 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:

	Year Ended December 31
	2016			2015			2014
	(in millions of dollars)
Income Tax Credits	$	41.8		$	41.8		$	41.8
Amortization, Net of Tax	(23.2		)	(23.3		)	(23.2		)
Income Tax Benefit	$	18.6		$	18.5		$	18.6

Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to the carrying value of our investment, which includes $4.6 million of unfunded unconditional commitments at December 31, 2016. At December 31, 2016, we also have unfunded unconditional commitments of $0.4 million to fund certain private equity partnerships as well as commitments of $251.9 million, 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 $151.9 million and $1.0 million, respectively, as of December 31, 2016 and $148.0 million and $0.9 million, respectively, as of December 31, 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 December 31, 2016, we had no commitments to fund the underlying partnership, nor did we fund any amounts to the partnership during the years ended December 31, 2016, 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.

	December 31
	2016				2015
	(in millions of dollars)
	Carrying		Percent of		Carrying		Percent of
	Amount		Total		Amount		Total
Property Type
Apartment	$	288.4	14.1	%	$	130.6	6.9	%
Industrial	573.6		28.1		574.1		30.5
Office	700.1		34.4		764.7		40.6
Retail	455.4		22.4		392.3		20.8
Other	21.4		1.0		21.9		1.2
Total	$	2,038.9	100.0	%	$	1,883.6	100.0	%

Region
New England	$	72.7	3.6	%	$	97.6	5.2	%
Mid-Atlantic	125.3		6.1		128.8		6.9
East North Central	230.1		11.3		186.4		9.9
West North Central	172.0		8.4		162.6		8.6
South Atlantic	438.3		21.5		409.3		21.7
East South Central	91.6		4.5		79.1		4.2
West South Central	268.7		13.2		237.6		12.6
Mountain	214.1		10.5		196.5		10.4
Pacific	426.1		20.9		385.7		20.5
Total	$	2,038.9	100.0	%	$	1,883.6	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:

	December 31
	2016		2015
	(in millions of dollars)
Internal Rating
Aa	$	0.7	$	1.1
A	488.2		586.6
Baa	1,506.6		1,285.8
Ba	43.4		10.1
Total	$	2,038.9	$	1,883.6

Loan-to-Value Ratio
<= 65%	$	917.9	$	937.2
> 65% <= 75%	1,011.5		842.5
> 75% <= 85%	50.8		88.4
> 85%	58.7		15.5
Total	$	2,038.9	$	1,883.6

A summary of our troubled debt restructurings is as follows:

	Year Ended December 31
	2016		2015		2014
	(in millions of dollars)
Foreclosure
Carrying Amount	$	5.4	$	—	$	18.1
Number of Loans	1		—		1

We had no realized losses on loan foreclosures for the years ended December 31, 2016, 2015, and 2014 other than any initial impairment loss recognized prior to foreclosure. During 2016, we foreclosed on a mortgage loan with a carrying value of $5.4 million. We did not recognize a loss at foreclosure as the value of the underlying property exceeded the carrying value of the loan. During 2014, we modified the terms of a mortgage loan with a carrying value of $18.1 million, recognized a $3.0 million realized loss on the troubled debt restructuring, and foreclosed on the property in a subsequent quarter of 2014.

At December 31, 2016 and 2015, 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:

	Year Ended December 31
	2016		2015			2014
	(in millions of dollars)
Balance at Beginning of Year	$	—	$	1.5		$	1.5
Provision	—		0.5			3.0
Charge-offs, Net of Recoveries	—		(2.0		)	(3.0		)
Balance at End of Year	$	—	$	—		$	1.5

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 2015, we increased the allowance for credit losses for the impaired loan by $0.5 million and recognized a corresponding investment loss. The loan was repaid in a subsequent quarter of 2015, with an additional de minimis loss recognized at repayment.

Our average investment in impaired mortgage loans was $2.2 million, $8.6 million, and $26.7 million for the years ended December 31, 2016, 2015, and 2014, respectively. Interest income recognized on mortgage loans subsequent to impairment was $0.6 million and $1.0 million, for the years ended December 31, 2015 and 2014, respectively. We did not recognize any interest income during 2016 on mortgage loans subsequent to impairment.

At December 31, 2016, we had commitments of $32.1 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 December 31, 2016, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $178.5 million, for which we received collateral in the form of cash and securities of $29.9 million and $155.3 million, respectively. As of December 31, 2015, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $181.6 million, for which we received collateral in the form of cash and securities of $29.0 million and $159.3 million, respectively. We had no outstanding repurchase agreements at December 31, 2016 or 2015.

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

	December 31
	2016		2015
	Overnight and Continuous
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	0.1	$	1.2
Public Utilities	0.1		4.0
All Other Corporate Bonds	29.7		23.8
Total Borrowings	29.9		29.0
Gross Amount of Recognized Liability for Securities Lending Transactions	29.9		29.0
Amounts Related to Agreements Not Included in Offsetting Disclosure Contained Herein	$	—	$	—

Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. As of December 31, 2016 and 2015, we owned $31.6 million and $30.9 million of FHLB common stock, respectively. Advances from the regional FHLBs for the purpose of purchasing fixed maturity securities totaled $350.0 million as of December 31, 2016 and 2015. The carrying values of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs were $323.7 million and $288.5 million, respectively as of December 31, 2016, and $317.2 million and $96.0 million, respectively as of December 31, 2015. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs.

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 4 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.

	December 31, 2016
	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	$	32.7	$	—	$	32.7	$	(7.3	)	$	(25.4	)	$	—
Securities Lending	178.5		—		178.5		(148.6		)	(29.9		)	—
Total	$	211.2	$	—	$	211.2	$	(155.9	)	$	(55.3	)	$	—
Financial Liabilities:
Derivatives	$	52.8	$	—	$	52.8	$	(37.6	)	$	—		$	15.2
Securities Lending	29.9		—		29.9		(29.9		)	—			—
Total	$	82.7	$	—	$	82.7	$	(67.5	)	$	—		$	15.2

	December 31, 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	$	49.8	$	—	$	49.8	$	(12.8	)	$	(36.4	)	$	0.6
Securities Lending	181.6		—		181.6		(152.6		)	(29.0		)	—
Total	$	231.4	$	—	$	231.4	$	(165.4	)	$	(65.4	)	$	0.6
Financial Liabilities:
Derivatives	$	50.2	$	—	$	50.2	$	(35.6	)	$	—		$	14.6
Securities Lending	29.0		—		29.0		(29.0		)	—			—
Total	$	79.2	$	—	$	79.2	$	(64.6	)	$	—		$	14.6

Net Investment Income

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

	Year Ended December 31
	2016		2015		2014
	(in millions of dollars)
Fixed Maturity Securities	$	2,293.9	$	2,327.1	$	2,344.4
Derivatives	49.8		44.2		40.4
Mortgage Loans	114.0		114.0		109.8
Policy Loans	17.3		16.7		16.3
Other Long-term Investments	22.6		21.6		23.0
Short-term Investments	7.5		3.4		2.4
Gross Investment Income	2,505.1		2,527.0		2,536.3
Less Investment Expenses	31.9		31.2		29.0
Less Investment Income on Participation Fund Account Assets	14.2		14.6		15.1
Net Investment Income	$	2,459.0	$	2,481.2	$	2,492.2

Realized Investment Gain and Loss

Realized investment gains and losses are as follows:

	Year Ended December 31
	2016			2015			2014
	(in millions of dollars)
Fixed Maturity Securities
Gross Gains on Sales	$	34.3		$	23.8		$	9.3
Gross Losses on Sales	(17.2		)	(25.6		)	(7.5		)
Other-Than-Temporary Impairment Loss	(30.5		)	(32.4		)	(13.5		)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales	5.5			16.0			21.2
Gross Losses on Sales	(0.7		)	(0.1		)	(0.8		)
Impairment Loss	(5.7		)	(5.9		)	(3.4		)
Embedded Derivative in Modified Coinsurance Arrangement	40.9			(37.7		)	3.3
All Other Derivatives	(1.5		)	35.7			11.0
Foreign Currency Transactions	(0.9		)	(17.6		)	(3.5		)
Net Realized Investment Gain (Loss)	$	24.2		$	(43.8	)	$	16.1