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Investments
 12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments
NOTE 4. INVESTMENTS
Fixed Maturities
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2018 were:
DOLLARS IN MILLIONS
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
865.9

 
$
14.8

 
$
(15.0
)
 
$
865.7

States and Political Subdivisions
 
$
1,553.7

 
$
74.0

 
(8.6
)
 
1,619.1

Foreign Governments
 
6.5

 
—

 
(0.6
)
 
5.9

Corporate Securities:
 
 
 
 
 
 
 

Bonds and Notes
 
3,307.8

 
135.1

 
(49.1
)
 
3,393.8

Collateralized Loan Obligations
 
535.7

 
1.5

 
(13.2
)
 
524.0

Other Mortgage- and Asset-backed
 
14.9

 
0.9

 
(0.1
)
 
15.7

Investments in Fixed Maturities
 
$
6,284.5

 
$
226.3

 
$
(86.6
)
 
$
6,424.2


NOTE 4. INVESTMENTS (Continued)
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2017 were:
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair Value
DOLLARS IN MILLIONS
 
Gains
 
Losses
 
U.S. Government and Government Agencies and Authorities
 
$
542.7

 
$
19.6

 
$
(6.2
)
 
$
556.1

States and Political Subdivisions
 
1,595.5

 
108.6

 
(2.3
)
 
1,701.8

Foreign Governments
 
3.0

 
0.2

 
—

 
3.2

Corporate Securities:
 
 
 
 
 
 
 
 
Bonds and Notes
 
2,745.8

 
245.8

 
(11.0
)
 
2,980.6

Redeemable Preferred Stocks
 
0.1

 
—

 
—

 
0.1

Collateralized Loan Obligations
 
134.1

 
5.7

 
—

 
139.8

Other Mortgage- and Asset-backed
 
0.4

 
0.7

 
—

 
1.1

Investments in Fixed Maturities
 
$
5,021.6

 
$
380.6

 
$
(19.5
)
 
$
5,382.7


Accrued Expenses and Other Liabilities included unsettled purchases of Investments in Fixed Maturities of $10.5 million and $5.4 million at December 31, 2018 and 2017, respectively. There were $0.5 million of unsettled sales of Investments in Fixed Maturities at December 31, 2018. There were no unsettled sales of Investments in Fixed Maturities at December 31, 2017.
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2018 by contractual maturity were:
DOLLARS IN MILLIONS
 
Amortized Cost
 
Fair Value
Due in One Year or Less
 
$
130.3

 
$
131.0

Due after One Year to Five Years
 
914.3

 
917.7

Due after Five Years to Ten Years
 
1,816.8

 
1,842.5

Due after Ten Years
 
2,234.8

 
2,358.9

Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date
 
1,188.3

 
1,174.1

Investments in Fixed Maturities
 
$
6,284.5

 
$
6,424.2


The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Investments in Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date at December 31, 2018 consisted of securities issued by the Government National Mortgage Association with a fair value of $618.5 million, securities issued by the Federal National Mortgage Association with a fair value of $8.4 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $7.6 million and securities of other non-governmental issuers with a fair value of $539.6 million.
NOTE 4. INVESTMENTS (Continued)
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2018 is presented below.
DOLLARS IN MILLIONS
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed Maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and Government Agencies and Authorities
 
$
401.1

 
$
(7.6
)
 
$
79.0

 
$
(7.4
)
 
$
480.1

 
$
(15.0
)
States and Political Subdivisions
 
299.4

 
(5.0
)
 
102.6

 
(3.6
)
 
402.0

 
(8.6
)
Foreign Governments
 
4.9

 
(0.6
)
 
—

 
—

 
4.9

 
(0.6
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
1,326.0

 
(38.2
)
 
116.8

 
(10.9
)
 
1,442.8

 
(49.1
)
Collateralized Loan Obligations
 
439.2

 
(13.2
)
 
—

 
—

 
439.2

 
(13.2
)
Other Mortgage- and Asset-backed
 
0.2

 
—

 
4.5

 
(0.1
)
 
4.7

 
(0.1
)
Total Fixed Maturities
 
2,470.8

 
(64.6
)
 
302.9

 
(22.0
)
 
2,773.7

 
(86.6
)

The Company regularly reviews its fixed maturity investment portfolio for factors that may indicate that a decline in fair value of an investment is other than temporary. The portions of the declines in the fair values of fixed maturity investments that are determined to be other than temporary are reported as losses in the Consolidated Statements of Income in the periods when such determinations are made.
Unrealized losses on fixed maturities, which the Company has determined to be temporary at December 31, 2018, were $86.6 million, of which $22.0 million was related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at December 31, 2018 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “Less Than 12 Months.” There were no unrealized losses at December 31, 2018 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.” Investment-grade fixed maturity investments comprised $69.5 million and below-investment-grade fixed maturity investments comprised $17.1 million of the unrealized losses on investments in fixed maturities at December 31, 2018. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 5% of the amortized cost basis of the investment. At December 31, 2018, the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be at maturity. Based on the Company’s evaluation at December 31, 2018 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2017 is presented below.
DOLLARS IN MILLIONS
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed Maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and Government Agencies and Authorities
 
$
140.0

 
$
(1.1
)
 
$
103.4

 
$
(5.1
)
 
$
243.4

 
$
(6.2
)
States and Political Subdivisions
 
57.0

 
(0.3
)
 
124.2

 
(2.0
)
 
181.2

 
(2.3
)
Corporate Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Bonds and Notes
 
283.1

 
(4.2
)
 
208.9

 
(6.8
)
 
492.0

 
(11.0
)
Collateralized Loan Obligations
 
2.8

 
—

 
2.4

 
—

 
5.2

 
—

Total Fixed Maturities
 
$
482.9

 
$
(5.6
)
 
$
438.9

 
$
(13.9
)
 
$
921.8

 
$
(19.5
)

NOTE 4. INVESTMENTS (Continued)
Unrealized losses on fixed maturities, which the Company determined to be temporary at December 31, 2017, were $19.5 million, of which $13.9 million was related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at December 31, 2017 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “Less Than 12 Months.” There were no unrealized losses at December 31, 2017 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.” Investment-grade fixed maturities comprised $12.6 million and below-investment-grade fixed maturities comprised $6.9 million of the unrealized losses on investments in fixed maturities at December 31, 2017. For below-investment-grade fixed maturities in an unrealized loss position, the unrealized loss amount, on average, was less than 4% of the amortized cost basis of the investment. At December 31, 2017, the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be at maturity. Based on the Company’s evaluation at December 31, 2017 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
The following table sets forth the pre-tax amount of Other Than Temporary Impairments (“OTTI”) credit losses, recognized in Retained Earnings for Investments in Fixed Maturities held by the Company as of December 31, 2018, 2017 and 2016, for which a portion of the OTTI loss related to factors other than credit has been recognized in AOCI, and the corresponding changes in such amounts.
DOLLARS IN MILLIONS
 
2018
 
2017
 
2016
Cumulative Balance of Pre-tax Credit Losses Recognized in Retained Earnings at Beginning of Year
 
$
1.6

 
$
1.4

 
$
5.1

Pre-tax Credit Losses on Fixed Maturities without Pre-tax Credit Losses Included in Cumulative Balance at Beginning of Year
 
—

 
1.2

 
2.7

Reductions for Change in Impairment Status:
 
 
 
 
 
 
From Status of Credit Loss to Status of Intent-to-sell or Required-to-sell
 
(0.5
)
 
(0.7
)
 
(6.3
)
Reductions for Investments Sold During Year
 
—

 
(0.3
)
 
(0.1
)
Balance at End of Year
 
$
1.1

 
$
1.6

 
$
1.4


Equity Securities
On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. See Note 2, “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements under the sub-caption “Change in Accounting and Adoption of New Accounting Standards” for additional discussion.
Equity Securities at Fair Value
As a result of adopting ASU 2016-01, the Company revised its accounting policy as of January 1, 2018 and no longer classifies equity investments as available-for-sale or trading securities. Equity securities with readily-determinable fair values, including equity securities which the Company previously classified as Fair Value Option Investments, are classified as Equity Securities at Fair Value in the Consolidated Balance Sheet at December 31, 2018 with changes in fair value recorded as Income from Change in Fair Value of Equity and Convertible Securities in the Consolidated Statement of Income for the year ended December 31, 2018. Net unrealized losses arising during the year-ended December 31, 2018 and recognized in earnings, related to such investments still held as of December 31, 2018 were $48.9 million.
NOTE 4. INVESTMENTS (Continued)
Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at Fair Value at December 31, 2017 is presented below.
DOLLARS IN MILLIONS
 
Cost
 
Gross Unrealized
 
Fair Value
Gains
 
Losses
 
Preferred Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
$
51.1

 
$
4.6

 
$
—

 
$
55.7

Other Industries
 
17.1

 
6.0

 
—

 
23.1

Common Stocks:
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
5.5

 
1.7

 
(0.1
)
 
7.1

Other Industries
 
10.0

 
8.1

 
(0.4
)
 
17.7

Other Equity Interests:
 
 
 
 
 
 
 
 
Exchange Traded Funds
 
207.6

 
11.9

 
—

 
219.5

Limited Liability Companies and Limited Partnerships
 
184.9

 
23.9

 
(5.9
)
 
202.9

Investments in Equity Securities at Fair Value
 
$
476.2

 
$
56.2

 
$
(6.4
)
 
$
526.0

An aging of unrealized losses on the Company’s Investments in Equity Securities at Fair Value at December 31, 2017 is presented below.
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
DOLLARS IN MILLIONS
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Preferred Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
0.3

 
—

 
0.2

 
—

 
0.5

 
—

Other Industries
 
0.2

 
—

 
0.2

 
—

 
0.4

 
—

Common Stocks:
 
 
 
 
 
 
 
 
 
 
 
 
Finance, Insurance and Real Estate
 
1.6

 
(0.1
)
 
—

 
—

 
1.6

 
(0.1
)
Other Industries
 
0.4

 
(0.3
)
 
0.5

 
(0.1
)
 
0.9

 
(0.4
)
Other Equity Interests:
 
 
 
 
 
 
 
 
 
 
 
 
Limited Liability Companies and Limited Partnerships
 
48.4

 
(2.1
)
 
7.7

 
(3.8
)
 
56.1

 
(5.9
)
Investments in Equity Securities at Fair Value
 
$
50.9

 
$
(2.5
)
 
$
8.6

 
$
(3.9
)
 
$
59.5

 
$
(6.4
)

For Investments in Equity Securities at Fair Value at December 31, 2017, the Company considered various factors when determining whether a decline in the fair value was other than temporary, including, but not limited to:
•
The financial condition and prospects of the issuer;
•
The length of time and magnitude of the unrealized loss;
•
The volatility of the investment;
•
Analyst recommendations and near term price targets;
•
Opinions of the Company’s external investment managers;
•
Market liquidity;
•
Debt-like characteristics of perpetual preferred stocks and issuer ratings; and
•
The Company’s intentions to sell or ability to hold the investments until recovery.
With respect to Investments in Equity Securities at Fair Value, the Company concluded that the unrealized losses on its investments in preferred and common stocks at December 31, 2017 were temporary based on various factors, including the relative short length and magnitude of the losses and overall market volatility. The Company’s investments in other equity interests include investments in limited liability companies and limited partnerships that primarily invest in mezzanine debt and
NOTE 4. INVESTMENTS (Continued)
senior debt. By the nature of their underlying investments, the Company believes that some of its investments in the limited liability companies and limited partnerships exhibit debt-like characteristics which, among other factors, the Company also considers when evaluating these investments for impairment. Based on evaluations of the factors in the preceding paragraph, the Company concluded that the declines in the fair values of the Company’s investments in equity securities presented in the preceding table were temporary at December 31, 2017.
There were no unsettled sales of Investments in Equity Securities at Fair Value at either December 31, 2018 or December 31, 2017. There were no unsettled purchases of Investments in Equity Securities at Fair Value at either December 31, 2018 or December 31, 2017.
Equity Securities at Modified Cost
Effective January 1, 2018 with the adoption of ASU 2016-01, for Equity Securities at Modified Cost, the Company performs a qualitative impairment analysis on a quarterly basis consisting of various factors such as earnings performance, current market conditions, changes in credit ratings, changes in the regulatory environment and other factors. If the qualitative analysis identifies the presence of impairment indicators, the Company estimates the fair value of the investment. If the estimated fair value is below the carrying value, the Company records an other-than-temporary impairment in the Consolidated Statements of Income to reduce the carrying value to the estimated fair value. When the Company identifies observable transactions of the same or similar securities to those held by the Company, the Company increases or decreases the carrying value to the observable transaction price. The Company did not recognize any increases or decreases in the carrying value due to observable transactions. The Company recognized an impairment of $2.5 million on Equity Securities at Modified Cost for the year ended December 31, 2018 as a result of the Company’s qualitative impairment analysis. The Company has recognized no cumulative increases in the carrying value due to observable transactions, no cumulative decreases in the carrying value due to observable transactions and $4.8 million of cumulative impairments on Equity Securities at Modified Cost held as of December 31, 2018.
Equity Method Limited Liability Investments
Equity Method Limited Liability Investments include investments in limited liability investment companies and limited partnerships in which the Company’s interests are not deemed minor and are accounted for under the equity method of accounting. The Company’s investments in Equity Method Limited Liability Investments are generally of a passive nature in that the Company does not take an active role in the management of the investment entity. In 2017 and 2016, aggregate investment income (losses) from Equity Method Limited Liability Investments exceeded 10% of the Company’s pretax consolidated net income. Accordingly, the Company is disclosing aggregated summarized financial data for its Equity Method Limited Liability Investments for all periods presented in the Consolidated Financial Statements. Such aggregated summarized financial data does not represent the Company’s proportionate share of the Equity Method Limited Liability Investment assets or earnings. Aggregate total assets of the Equity Method Limited Liability Investments in which the Company invested totaled $2,805.3 million, $2,393.7 million and $2,618.1 million, as of December 31, 2018, 2017 and 2016, respectively. Aggregate total liabilities of the Equity Method Limited Liability Investments in which the Company invested totaled $1,030.7 million, $899.7 million and $828.0 million, as of December 31, 2018, 2017 and 2016, respectively. Aggregate net income of the Equity Method Limited Liability Investments in which the Company invested totaled $130.4 million, $209.3 million and $85.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The aggregate summarized financial data is based on the most recent and sufficiently-timely financial information available to the Company as of the respective reporting dates and periods. The Company’s maximum exposure to loss at December 31, 2018 is limited to the total carrying value of $187.0 million. In addition, the Company had outstanding commitments totaling approximately $112.4 million to fund Equity Method Limited Liability Investments at December 31, 2018.
Other Investments
The carrying values of the Company’s Other Investments at December 31, 2018 and 2017 were:
DOLLARS IN MILLIONS
 
2018
 
2017
Loans to Policyholders at Unpaid Principal
 
$
300.6

 
$
298.6

Real Estate at Depreciated Cost
 
114.2

 
116.8

Trading Securities at Fair Value
 
—

 
6.7

Other
 
—

 
0.1

Total
 
$
414.8

 
$
422.2