Fair Value (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value of Financial Instruments, Including Chaucer Business Held-for-Sale

The estimated fair value of the financial instruments, including our Chaucer business held-for-sale, were as follows:

	September 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
(in millions)	Value		Value		Value		Value
Financial Instruments carried at ⁽¹⁾:
Fair Value through AOCI:
Fixed maturities	$	7,899.5	$	7,899.5	$	7,779.7	$	7,779.7
Equity securities		—		—		576.5		576.5
Other investments		—		—		3.6		3.6
Fair Value through Net Income:
Equity securities		575.0		575.0		—		—
Other investments		285.8		285.8		122.8		122.8
Amortized Cost/Cost:
Other investments		403.1		403.7		512.8		518.3
Cash and cash equivalents		251.3		251.3		376.4		376.4
Total financial instruments, including held-for-sale		9,414.7		9,415.3		9,371.8		9,377.3
Financial instruments, held-for-sale (Chaucer)		2,056.8		2,056.8		2,232.0		2,232.0
Total financial instruments, excluding held-for-sale	$	7,357.9	$	7,358.5	$	7,139.8	$	7,145.3

Financial Liabilities carried at:
Amortized Cost:
Debt	$	777.6	$	823.9	$	786.9	$	865.7

(1)

Due to the adoption of ASU No. 2016-01, certain classifications are not comparable to the prior year. See Note 2 – “New Accounting Pronouncements”.

Fair Value, Assets Measured on Recurring Basis, Including Chaucer Business Held-for-Sale

The following tables provide, for each hierarchy level, the Company’s assets that were measured at fair value on a recurring basis, including those of our Chaucer business which is held-for-sale.

	September 30, 2018
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	604.7	$	235.5	$	369.2	$	—
Foreign government		207.2		20.4		186.8		—
Municipal		1,026.9		—		1,003.4		23.5
Corporate		4,319.8		—		4,319.1		0.7
Residential mortgage-backed, U.S. agency backed		1,020.9		—		1,020.9		—
Residential mortgage-backed, non-agency		2.8		—		2.8		—
Commercial mortgage-backed		631.9		—		618.9		13.0
Asset-backed		85.3		—		85.3		—
Total fixed maturities		7,899.5		255.9		7,606.4		37.2
Equity securities		575.0		573.9		—		1.1
Other investments		119.9		—		116.3		3.6
Total investment assets at fair value, including held-for-sale		8,594.4		829.8		7,722.7		41.9
Investment assets, held-for-sale (Chaucer)		1,923.4		103.4		1,817.8		2.2
Total investment assets, excluding held-for-sale	$	6,671.0	$	726.4	$	5,904.9	$	39.7

	December 31, 2017
(in millions)	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. Treasury and government agencies	$	511.4	$	227.6	$	283.8	$	—
Foreign government		242.7		50.1		192.6		—
Municipal		1,076.0		—		1,049.2		26.8
Corporate		4,307.5		—		4,306.6		0.9
Residential mortgage-backed, U.S. agency backed		956.4		—		956.4		—
Residential mortgage-backed, non-agency		29.6		—		29.6		—
Commercial mortgage-backed		596.4		—		582.2		14.2
Asset-backed		59.7		—		59.7		—
Total fixed maturities		7,779.7		277.7		7,460.1		41.9
Equity securities		568.1		567.0		—		1.1
Other investments		126.4		—		122.8		3.6
Total investment assets at fair value, including held-for-sale		8,474.2		844.7		7,582.9		46.6
Investment assets, held-for-sale (Chaucer)		2,153.5		138.0		2,013.3		2.2
Total investment assets, excluding held-for-sale	$	6,320.7	$	706.7	$	5,569.6	$	44.4

Estimated Fair Values of Financial Instruments Not Carried at Fair Value, Including Assets Held-for-Sale

Limited partnerships measured at fair value using NAV based on an ownership interest in partners’ capital have not been included in the tables below. At September 30, 2018 and December 31, 2017, the fair values of these investments were $165.9 million and $149.4 million, respectively, which are less than 2% of total investment assets, including assets held-for-sale.

The following tables provide, for each hierarchy level, the Company’s estimated fair values of financial instruments that were not carried at fair value, including assets held-for-sale:

	September 30, 2018
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	251.3	$	251.3	$	—	$	—
Other investments		403.7		—		8.7		395.0
Total financial instruments, including held-for-sale		655.0		251.3		8.7		395.0
Financial instruments, held-for-sale (Chaucer)		133.4		133.4		—		—
Total financial instruments, excluding held-for-sale	$	521.6	$	117.9	$	8.7	$	395.0

Liabilities:
Debt	$	823.9	$	—	$	823.9	$	—

	December 31, 2017
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	376.4	$	376.4	$	—	$	—
Equity securities		8.4		—		8.4		—
Other investments		368.9		—		—		368.9
Total financial instruments, including held-for-sale		753.7		376.4		8.4		368.9
Financial instruments, held-for-sale (Chaucer)		78.5		78.5		—		—
Total financial instruments, excluding held-for-sale	$	675.2	$	297.9	$	8.4	$	368.9

Liabilities:
Debt	$	865.7	$	—	$	865.7	$	—

Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3), Including Assets Held-for-Sale of Chaucer Business

The tables below provide a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), including the held-for-sale assets of our Chaucer business.

	Fixed Maturities
(in millions)	Municipal			Corporate			Commercial mortgage- backed			Total			Equity and Other			Total Assets
Three Months Ended
September 30, 2018
Balance July 1, 2018	$	24.4		$	0.8		$	13.3		$	38.5		$	4.7		$	43.2
Transfers out of Level 3		(0.5	)		—			—			(0.5	)		—			(0.5	)
Total losses:
Included in other comprehensive income-net depreciation on available-for-sale securities		—			—			(0.2	)		(0.2	)		—			(0.2	)
Sales		(0.4	)		(0.1	)		(0.1	)		(0.6	)		—			(0.6	)
Balance September 30, 2018, including held-for-sale		23.5			0.7			13.0			37.2			4.7			41.9
Balance September 30, 2018, held-for-sale (Chaucer)		2.2			—			—			2.2			—			2.2
Balance September 30, 2018, excluding held-for-sale	$	21.3		$	0.7		$	13.0		$	35.0		$	4.7		$	39.7

Three Months Ended
September 30, 2017
Balance July 1, 2017	$	30.1		$	1.0		$	14.6		$	45.7		$	5.6		$	51.3
Transfers out of Level 3		(1.9	)		—			—			(1.9	)		(0.4	)		(2.3	)
Total gains:
Included in other comprehensive income-net appreciation on available-for-sale securities		0.2			—			—			0.2			—			0.2
Sales		(0.3	)		(0.1	)		(0.2	)		(0.6	)		—			(0.6	)
Balance September 30, 2017, including held-for-sale		28.1			0.9			14.4			43.4			5.2			48.6
Balance September 30, 2017, held-for-sale (Chaucer)		2.2			—			—			2.2			—			2.2
Balance September 30, 2017, excluding held-for-sale	$	25.9		$	0.9		$	14.4		$	41.2		$	5.2		$	46.4

	Fixed Maturities
(in millions)	Municipal			Corporate			Commercial mortgage- backed			Total			Equity and Other			Total Assets
Nine Months Ended
September 30, 2018
Balance January 1, 2018	$	26.8		$	0.9		$	14.2		$	41.9		$	4.7		$	46.6
Transfers out of Level 3		(0.5	)		—			—			(0.5	)		—			(0.5	)
Total gains (losses):
Included in total net realized and unrealized investment gains		0.1			—			—			0.1			—			0.1
Included in other comprehensive income-net depreciation on available-for-sale securities		(0.6	)		—			(0.5	)		(1.1	)		—			(1.1	)
Sales		(2.3	)		(0.2	)		(0.7	)		(3.2	)		—			(3.2	)
Balance September 30, 2018, including held-for-sale		23.5			0.7			13.0			37.2			4.7			41.9
Balance September 30, 2018, held-for-sale (Chaucer)		2.2			—			—			2.2			—			2.2
Balance September 30, 2018, excluding held-for-sale	$	21.3		$	0.7		$	13.0		$	35.0		$	4.7		$	39.7

Nine Months Ended
September 30, 2017
Balance January 1, 2017	$	31.0		$	4.2		$	15.0		$	50.2		$	5.6		$	55.8
Transfers out of Level 3		(1.9	)		—			—			(1.9	)		(0.4	)		(2.3	)
Total gains (losses):
Included in total net realized and unrealized investment gains		—			0.3			—			0.3			—			0.3
Included in other comprehensive income-net appreciation (depreciation) on available-for-sale securities		0.6			(0.2	)		0.1			0.5			—			0.5
Sales		(1.6	)		(3.4	)		(0.7	)		(5.7	)		—			(5.7	)
Balance September 30, 2017, including held-for-sale		28.1			0.9			14.4			43.4			5.2			48.6
Balance September 30, 2017, held-for-sale (Chaucer)		2.2			—			—			2.2			—			2.2
Balance September 30, 2017, excluding held-for-sale	$	25.9		$	0.9		$	14.4		$	41.2		$	5.2		$	46.4

Schedule of Additional Information About Significant Unobservable Inputs Used in Fair Valuations of Level 3 Assets, Including Chaucer Business Held-for-Sale

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets, including our Chaucer business held-for-sale. Where discounted cash flows were used in the valuation of fixed maturities, the internally-developed discount rate was adjusted by the significant unobservable inputs shown in the table. The table includes $2.2 million of municipal fixed maturities at September 30, 2018 and December 31, 2017 that are held for sale.

September 30, 2018

December 31, 2017

Valuation

Significant

Fair

Range

Fair

Range

(in millions)

Technique

Unobservable Inputs

Value

(Wtd Average)

Value

(Wtd Average)

Fixed maturities:

Municipal

Discounted

Discount for:

23.5

26.8

cash flow

Small issue size

Credit stress

Above-market coupon

0.7 - 6.8% (3.2%)

1.3% (1.3%)

0.3 - 0.5% (0.5%)

0.7 - 6.8% (3.3%)

0.9 - 1.5% (1.2%)

0.3 - 0.5% (0.4%)

Corporate

Discounted

Discount for:

0.7

0.9

cash flow

Small issue size

Above-market coupon

2.5% (2.5%)

0.3% (0.3%)

2.5% (2.5%)

0.3% (0.3%)

Commercial mortgage-backed

Discounted

Discount for:

13.0

14.2

cash flow

Small issue size

Above-market coupon

Lease structure

1.9 - 3.1% (2.7%)

0.5% (0.5%)

0.3% (0.3%)

1.9 - 3.1% (2.6%)

0.5% (0.5%)

0.3% (0.3%)

Equity securities

Market

Net tangible asset

1.1

comparables

market multiples

1.0X (1.0X)

Other

Discounted

Discount rate

3.6

18.0% (18.0%)

3.6

18.0% (18.0%)

cash flow