Income from Investments

12 Months Ended

Dec. 31, 2020

INVESTMENTS

Fixed Maturities

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2020 were:


DOLLARS IN MILLIONS	Amortized Cost		Gross Unrealized				Allowance for Expected Credit Losses		Fair Value
			Gains		Losses
U.S. Government and Government Agencies and Authorities	$	536.5	$	48.9	$	(0.1)	$	—	$	585.3
States and Political Subdivisions	1,404.3		185.4		(0.2)		—		1,589.5
Foreign Governments	6.6		—		(1.1)		(0.3)		5.2
Corporate Securities:
Bonds and Notes	3,749.5		689.5		(10.6)		(3.0)		4,425.4
Redeemable Preferred Stocks	7.0		0.5		—		—		7.5
Collateralized Loan Obligations	785.1		2.3		(19.7)		—		767.7
Other Mortgage- and Asset-backed	203.7		21.6		—		—		225.3
Investments in Fixed Maturities	$	6,692.7	$	948.2	$	(31.7)	$	(3.3)	$	7,605.9

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2019 were:


	Amortized Cost		Gross Unrealized				Fair Value
DOLLARS IN MILLIONS			Gains		Losses
U.S. Government and Government Agencies and Authorities	$	784.7	$	32.5	$	(1.3)	$	815.9
States and Political Subdivisions	1,386.4		130.5		(1.1)		1,515.8
Foreign Governments	17.2		1.2		(1.6)		16.8
Corporate Securities:
Bonds and Notes	3,465.0		401.8		(7.1)		3,859.7
Redeemable Preferred Stocks	6.8		—		(0.1)		6.7
Collateralized Loan Obligations	624.6		2.1		(8.5)		618.2
Other Mortgage- and Asset-backed	88.0		2.1		(1.1)		89.0
Investments in Fixed Maturities	$	6,372.7	$	570.2	$	(20.8)	$	6,922.1

Other Receivables included $5.1 million and $1.0 million of unsettled sales of Investments in Fixed Maturities at December 31, 2020 and December 31, 2019, respectively. Accrued Expenses and Other Liabilities included unsettled purchases of Investments in Fixed Maturities of $4.3 million and $19.5 million at December 31, 2020 and 2019, respectively.

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2020 by contractual maturity were:


DOLLARS IN MILLIONS	Amortized Cost		Fair Value
Due in One Year or Less	$	98.6	$	101.3
Due after One Year to Five Years	1,107.3		1,182.9
Due after Five Years to Ten Years	1,525.1		1,720.0
Due after Ten Years	2,567.8		3,177.7
Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date	1,393.9		1,424.0
Investments in Fixed Maturities	$	6,692.7	$	7,605.9

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.

NOTE 4. INVESTMENTS (Continued)

Investments in Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date at December 31, 2020 consisted of securities issued by the Government National Mortgage Association with a fair value of $413.8 million, securities issued by the Federal National Mortgage Association with a fair value of $5.2 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $12.0 million and securities of other non-governmental issuers with a fair value of $993.0 million.

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2020 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	$	10.5	$	(0.1)	$	—	$	—	$	10.5	$	(0.1)
States and Political Subdivisions	23.3		(0.2)		—		—		23.3		(0.2)
Foreign Governments	0.5		(0.1)		2.6		(1.0)		3.1		(1.1)
Corporate Securities:
Bonds and Notes	132.9		(7.5)		46.1		(3.1)		179.0		(10.6)

Collateralized Loan Obligations	145.2		(3.8)		371.4		(15.9)		516.6		(19.7)
Other Mortgage- and Asset-backed	6.3		—		—		—		6.3		—
Total Fixed Maturities	$	318.7	$	(11.7)	$	420.1	$	(20.0)	$	738.8	$	(31.7)

At December 31, 2020, 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 an anticipated recovery of value. The Company evaluated these investments for credit losses at December 31, 2020. The Company considers many factors in evaluating whether the unrealized losses were credit related including, but not limited to, the extent to which the fair value has been less than amortized cost, conditions related to the security, industry, or geographic area, payment structure of the investment and the likelihood of the issuer’s ability to make contractual cash flows, defaults or other collectability concerns related to the issuer, changes in the ratings assigned by a rating agency, and other credit enhancements that affect the investment’s expected performance. The Company determined that the unrealized losses on these securities were due to non-credit related factors at the evaluation date.

Investment-grade fixed maturity investments comprised $8.0 million and below-investment-grade fixed maturity investments comprised $23.7 million of the unrealized losses on investments in fixed maturities at December 31, 2020. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 11% of the amortized cost basis of the investment.

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2019 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	$	118.5	$	(1.3)	$	5.1	$	—	$	123.6	$	(1.3)
States and Political Subdivisions	63.0		(0.7)		5.4		(0.4)		68.4		(1.1)
Foreign Governments	1.0		(0.3)		3.1		(1.3)		4.1		(1.6)
Corporate Securities:
Bonds and Notes	160.0		(2.1)		70.7		(5.0)		230.7		(7.1)
Redeemable Preferred Stocks	5.5		(0.1)		—		—		5.5		(0.1)
Collateralized Loan Obligations	95.5		(1.9)		355.6		(6.6)		451.1		(8.5)
Other Mortgage- and Asset-backed	72.8		(1.1)		—		—		72.8		(1.1)
Total Fixed Maturities	$	516.3	$	(7.5)	$	439.9	$	(13.3)	$	956.2	$	(20.8)

NOTE 4. INVESTMENTS (Continued)

Based on the Company’s evaluation at December 31, 2019 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.

Investment-grade fixed maturity investments comprised $9.1 million and below-investment-grade fixed maturity investments comprised $11.7 million of the unrealized losses on investments in fixed maturities at December 31, 2019. 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.

There were $0.3 million unrealized losses at December 31, 2019 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, 2019 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.”

Fixed Maturities - Impairment Losses

The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for the year ended December 31, 2020.


	Foreign Governments		Corporate Bonds and Notes		Total
(Dollars in Millions)
Allowance for Credit Losses at Beginning of the Year	$	—	$	—	$	—
Impact of Adopting ASU 2016-13	—		—		—
Additions for Securities for which No Previous Expected Credit Losses were Recognized	1.2		5.9		7.1
Reduction Due to Sales	(0.7)		(1.3)		(2.0)
Net Increase (Decrease) in Allowance on Previously Impaired Securities	(0.2)		(0.2)		(0.4)
Write-offs Charged Against Allowance	—		(1.4)		(1.4)
Allowance for Credit Losses at End of Period	$	0.3	$	3.0	$	3.3

Equity Securities

Equity Securities at Fair Value

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 Sheets with changes in fair value recorded as Income from Change in Fair Value of Equity and Convertible Securities in the Consolidated Statements of Income. Net unrealized gains arising during the year-ended December 31, 2020 and recognized in earnings, related to such investments still held as of December 31, 2020 were $136.6 million.

Equity Securities at Modified Cost

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 impairment in the Consolidated Statement 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 recognized a decrease of $0.5 million in the carrying value due to observable transactions for the year ended December 31, 2020. The Company recognized an impairment of $2.9 million on Equity Securities at Modified Cost for the year ended December 31, 2020 as a result of the Company’s qualitative impairment analysis. The Company has recognized no cumulative increases in the carrying value due to

NOTE 4. INVESTMENTS (Continued)

observable transactions, no cumulative decreases in the carrying value due to observable transactions and $5.8 million of cumulative impairments on Equity Securities at Modified Cost held as of December 31, 2020.

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 HLBV equity method of accounting is used for the Company’s investments in Alternative Energy Partnerships. 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 2020 and 2019, 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 $3,554.5 million, $2,368.1 million and $2,805.3 million, as of December 31, 2020, 2019 and 2018, respectively. Aggregate total liabilities of the Equity Method Limited Liability Investments in which the Company invested totaled $1,602.5 million, $817.2 million and $1,030.7 million, as of December 31, 2020, 2019 and 2018, respectively. Aggregate net income of the Equity Method Limited Liability Investments in which the Company invested totaled $74.9 million, $78.0 million and $130.4 million for the years ended December 31, 2020, 2019 and 2018, 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, 2020 is limited to the total carrying value of $225.3 million. In addition, the Company had outstanding commitments totaling approximately $172.8 million to fund Equity Method Limited Liability Investments at December 31, 2020. At December 31, 2020, 4.4% of Equity Method Limited Liability Investments were reported without a reporting lag. 8.0% of the total carrying value were reported with a one month lag and the remainder were reported with more than a one month lag.

Other Investments

The carrying values of the Company’s Other Investments at December 31, 2020 and 2019 were:


DOLLARS IN MILLIONS	2020		2019
Company-owned Life Insurance	$	327.4	$	217.0
Loans to Policyholders at Unpaid Principal	297.9		305.6
Real Estate at Depreciated Cost	98.7		111.4

Mortgage Loans and Other	55.0		27.5
Total	$	779.0	$	661.5

INCOME FROM INVESTMENTS

Net Investment Income for the years ended December 31, 2020, 2019 and 2018 was:


DOLLARS IN MILLIONS	2020		2019		2018
Investment Income:
Interest on Fixed Income Securities	$	289.8	$	299.4	$	268.9
Dividends on Equity Securities Excluding Alternative Investments	15.4		22.9		13.6
Alternative Investments:
Equity Method Limited Liability Investments	4.9		1.0		11.0

Limited Liability Investments Included in Equity Securities	22.1		18.0		26.4
Total Alternative Investments	27.0		19.0		37.4
Short-term Investments	5.5		8.2		7.0
Loans to Policyholders	22.1		22.6		22.5
Real Estate	9.6		9.8		9.6
Other	13.2		1.5		0.9
Total Investment Income	382.6		383.4		359.9
Investment Expenses:
Real Estate	8.8		9.6		9.7
Other Investment Expenses	25.6		9.5		9.3
Total Investment Expenses	34.4		19.1		19.0
Net Investment Income	$	348.2	$	364.3	$	340.9

Other Receivables includes accrued investment income of $77.1 million and $78.7 million at December 31, 2020, and 2019, respectively.

NOTE 14. INCOME FROM INVESTMENTS (Continued)

The components of Net Realized Gains on Sales of Investments for the years ended December 31, 2020, 2019 and 2018 were:


DOLLARS IN MILLIONS	2020		2019		2018
Fixed Maturities:
Gains on Sales	$	40.6	$	41.1	$	25.3
Losses on Sales	(7.9)		(4.8)		(11.1)
Equity Securities:
Gains on Sales	5.9		5.8		12.3
Losses on Sales	(1.9)		(0.2)		—
Equity Method Limited Liability Investments:

Losses on Sales	(0.4)		—		—
Real Estate:
Gains on Sales	1.8		—		—

Other Investments:


Losses on Sales	—		—		(0.1)

Net Realized Gains on Sales of Investments	$	38.1	$	41.9	$	26.4

Gross Gains on Sales	$	48.3	$	46.9	$	37.6
Gross Losses on Sales	(10.2)		(5.0)		(11.2)

Net Realized Gains on Sales of Investments	$	38.1	$	41.9	$	26.4

The components of Impairment Losses reported in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 were:


DOLLARS IN MILLIONS	2020		2019		2018
Fixed Maturities	$	(16.7)	$	(13.3)	$	(2.0)
Equity Securities	(2.8)		(0.5)		(2.5)

Impairment Losses	$	(19.5)	$	(13.8)	$	(4.5)