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Investments
 3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments Investments
The following tables set forth the cost or amortized cost and fair value of investments by investment category at March 31, 2020 and December 31, 2019:
($ millions)
Cost or amortized cost
 
Gross unrealized holding gains
 
Gross unrealized holding losses
 
Fair value
March 31, 2020
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
U.S. treasury securities and obligations of U.S. government agencies
$
559.3

 
$
38.0

 
$
(0.2
)
 
$
597.1

Obligations of states and political subdivisions
392.9

 
20.8

 
—

 
413.7

Corporate securities
470.1

 
5.0

 
(7.2
)
 
467.9

U.S. government agencies mortgage-backed securities
629.5

 
24.7

 
(4.6
)
 
649.6

Total available-for-sale fixed maturities
$
2,051.8

 
$
88.5

 
$
(12.0
)
 
$
2,128.3

 
 
 
 
 
 
 
 
($ millions)
Cost or amortized cost
 
Gross unrealized holding gains
 
Gross unrealized holding losses
 
Fair value
December 31, 2019
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
U.S. treasury securities and obligations of U.S. government agencies
$
569.2

 
$
12.3

 
$
(3.3
)
 
$
578.2

Obligations of states and political subdivisions
404.3

 
21.1

 
—

 
425.4

Corporate securities
460.5

 
11.7

 
(0.4
)
 
471.8

U.S. government agencies mortgage-backed securities
646.0

 
11.1

 
(4.6
)
 
652.5

Total available-for-sale fixed maturities
$
2,080.0

 
$
56.2

 
$
(8.3
)
 
$
2,127.9

 
 
 
 
 
 
 
 

The following tables set forth the Company’s gross unrealized losses and fair value on its investments by lot, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2020:
($ millions, except # of positions)
Less than 12 months
 
12 months or more
 
Total
 
Fair value
 
Unrealized losses
 
Number of positions
 
Fair value
 
Unrealized losses
 
Number of positions
 
Fair value
 
Unrealized losses
 
Number of positions
March 31, 2020
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities and obligations of U.S. government agencies
$
22.2

 
$
(0.2
)
 
7

 
$
—

 
$
—

 
—

 
$
22.2

 
$
(0.2
)
 
7

Corporate securities
205.9

 
(7.1
)
 
38

 
6.0

 
$
(0.1
)
 
2

 
211.9

 
$
(7.2
)
 
40

U.S. government agencies mortgage-backed securities
113.1

 
(3.9
)
 
27

 
22.1

 
(0.7
)
 
5

 
135.2

 
(4.6
)
 
32

Total temporarily impaired securities
$
341.2

 
$
(11.2
)
 
72

 
$
28.1

 
$
(0.8
)
 
7

 
$
369.3

 
$
(12.0
)
 
79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The following tables set forth the Company’s gross unrealized losses and fair value on its investments by lot, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position at December 31, 2019:
($ millions, except # of positions)
Less than 12 months
 
12 months or more
 
Total
 
Fair value
 
Unrealized losses
 
Number of positions
 
Fair value
 
Unrealized losses
 
Number of positions
 
Fair value
 
Unrealized losses
 
Number of positions
December 31, 2019
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities and obligations of U.S. government agencies
$
136.0

 
$
(2.5
)
 
17

 
$
157.6

 
$
(0.8
)
 
11

 
$
293.6

 
$
(3.3
)
 
28
Corporate securities
—

 
—

 
—

 
40.8

 
(0.4
)
 
7

 
40.8

 
(0.4
)
 
7
U.S. government agencies mortgage-backed securities
126.6

 
(1.5
)
 
15

 
137.9

 
(3.1
)
 
32

 
264.5

 
(4.6
)
 
47
Total temporarily impaired securities
$
262.6

 
$
(4.0
)
 
32

 
$
336.3

 
$
(4.3
)
 
50

 
$
598.9

 
$
(8.3
)
 
82
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The Company reviewed its available-for-sale fixed maturities at March 31, 2020, and determined that no credit impairment existed in the gross unrealized holding losses, due to the reasons discussed below:
•U.S. treasury securities and obligations of U.S. government agencies: These securities were issued by the U.S. Treasury Department or Federal government-sponsored entities. The decline in fair values was attributable to changes in interest rates and not credit quality. The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery. Therefore, the Company does not consider these impaired securities.
•Corporate securities: Corporations in various industries issued these securities. The decline in fair values was attributable to changes in interest rates and not credit quality. The Company reviewed the issuers of these securities to identify any significant adverse change in financial condition, a change in the quality of credit enhancement (if any), a ratings decrease, or negative outlook assignment from a major credit rating agency, and any failure to make interest or principal payments. After these reviews, the Company determined that the decline in fair values was attributable to changes in interest rates and not credit quality. The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery. Therefore, the Company does not consider these impaired securities.
•U.S. government agencies mortgage-backed securities: Federal government-sponsored entities issued these securities. The decline in fair values was attributable to changes in interest rates and not credit quality. The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery. Therefore, the Company does not consider these impaired securities.
The Company regularly monitors its available-for-sale fixed maturities that have fair values less than cost or amortized cost for signs of impairment, an assessment that requires significant management judgment regarding the evidence known. Such judgments could change in the future as more information becomes known, which could negatively impact the amounts reported. Among the factors that management considers for fixed maturity securities are the financial condition of the issuer including receipt of scheduled principal and interest cash flows, and intent to sell, including if it is more likely than not that the Company will be required to sell the investments before recovery. When a fixed maturity has been determined to have an impairment, the impairment charge is separated into an amount representing the credit loss, which is recognized in earnings as a realized loss and on the balance sheet as an allowance for credit losses netted with the amortized cost of fixed maturities. Future increases in fair value, if related to credit factors, are recognized through earnings limited to the amount previously recognized as an allowance for credit losses. The amount related to non-credit factors is recognized in accumulated other comprehensive income and future increases or decreases in fair value, if not credit losses, are included in accumulated other comprehensive income.
The following table sets forth the amortized cost and fair value of available-for-sale fixed maturities by contractual maturity at March 31, 2020:
($ millions)
Amortized cost
 
Fair
value
Due in 1 year or less
$
106.6

 
$
106.8

Due after 1 year through 5 years
586.1

 
594.4

Due after 5 years through 10 years
149.9

 
154.9

Due after 10 years
579.7

 
622.6

U.S. government agencies mortgage-backed securities
629.5

 
649.6

Total
$
2,051.8

 
$
2,128.3

 
 
 
 

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations with or without call or prepayment penalties.
At March 31, 2020, State Auto P&C had U.S. government agencies mortgage-backed fixed maturity securities, with a carrying value of approximately $166.5 million pledged as collateral for loans from the Federal Home Loan Bank of Cincinnati ("FHLB") as further described in Note 8. In accordance with the terms of the FHLB Loans, State Auto P&C retains all rights regarding these pledged securities.
At March 31, 2020, State Auto P&C had fixed maturities with fair values of approximately $29.3 million pledged as collateral for the performance obligations under its reinsurance agreement with Home State County Mutual Insurance Company. In accordance with the terms of the trust agreement, State Auto P&C retains all rights regarding these securities, which are included in the “U.S. treasury securities and obligations of U.S. government agencies” classification of the Company’s fixed maturity securities portfolio.
Fixed maturities with fair values of $9.1 million and $9.3 million were on deposit with insurance regulators as required by law at March 31, 2020, and December 31, 2019, respectively. The Company retains all rights regarding these securities.
The following table sets forth the components of net investment income for the three months ended March 31, 2020 and 2019:
 ($ millions)
Three months ended March 31
 
2020
 
2019
Fixed maturities
$
15.1

 
$
15.1

Equity securities
3.1

 
2.8

Cash and cash equivalents, and other
1.0

 
1.7

Investment income
19.2

 
19.6

Investment expenses
0.3

 
0.2

Net investment income
$
18.9

 
$
19.4

 
 
 
 

The Company’s current investment strategy does not rely on the use of derivative financial instruments.
Proceeds on sales of investments were $97.1 million and $78.6 million for the three months ended March 31, 2020, and 2019, respectively.
The following table sets forth the realized and unrealized holding gains (losses) on the Company’s investment portfolio for the three months ended March 31, 2020 and 2019:
($ millions)
Three months ended March 31
 
2020
 
2019
Investment gain (loss), net:
 
 
 
Fixed maturities:
 
 
 
Realized gains on sales of securities
3.6

 
0.1

Realized losses on sales of securities
(1.2
)
 
—

Net gain on fixed maturities
2.4

 
0.1

Equity securities:
 
 
 
Realized gains (losses) on sales of securities, net
0.9

 
(1.9
)
Unrealized (loss) gain on securities still held, net
(123.3
)
 
44.1

Net (loss) gain on equity securities
(122.4
)
 
42.2

Other invested assets:
 
 
 
Unrealized (loss) gain on securities still held, net
(15.4
)
 
3.9

Net (loss) gain on other invested assets
(15.4
)
 
3.9

Other net realized gain (loss)
0.2

 
(1.3
)
Net (loss) gain on investments
$
(135.2
)
 
$
44.9

 
 
 
 
Change in unrealized holding gains (losses), net of tax:
 
 
 
Fixed maturities
$
28.6

 
$
34.4

Deferred federal income tax liability
(6.0
)
 
(7.2
)
Change in net unrealized holding gains, net of tax
$
22.6

 
$
27.2