Investment Securities | 9 Months Ended |
Sep. 30, 2014 |
Schedule of Investments [Abstract] | ' |
Investment Securities | ' |
Investment Securities |
OneBeacon's invested assets are comprised of securities and other investments held for general investment purposes. Refer to the Company's 2013 Annual Report on Form 10-K for a complete discussion. |
OneBeacon classifies its portfolio of fixed maturity investments and common equity securities, including convertible fixed maturity investments, held for general investment purposes as trading securities. Trading securities are reported at fair value as of the balance sheet date as determined by quoted market prices when available. Realized and change in unrealized investment gains on trading securities are reported in total revenues as net realized and unrealized investment gains in revenues on a pre-tax basis. |
Short-term investments consist of money market funds, certificates of deposit and other securities which, at the time of purchase, mature or become available for use within one year. Short-term investments are carried at amortized cost, which approximates fair value. |
Other investments primarily include hedge funds and private equity funds. OneBeacon measures its investments in hedge funds and private equity funds at fair value with changes therein reported in total revenues as net realized and change in unrealized investment gains. Other investments also include an investment in a community reinvestment vehicle which is accounted for at fair value and a tax advantaged federal affordable housing development fund which is accounted for under the equity method. |
OneBeacon's net investment income is comprised primarily of interest income associated with fixed maturity investments, dividend income from its equity investments, and interest income from its short-term investments. Other investments primarily include hedge funds and private equity funds. Net investment income for the three and nine months ended September 30, 2014, and 2013 consisted of the following: |
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| | Three months ended | | Nine months ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, | September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | $ | 10.5 | | | $ | 10.4 | | | $ | 31.4 | | | $ | 30.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Common equity securities | | 1.5 | | | 1.5 | | | 5.2 | | | 4.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Convertible fixed maturity investments | | 0.5 | | | 0.2 | | | 0.6 | | | 0.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other investments | | (0.3 | ) | | (0.4 | ) | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Gross investment income | | 12.2 | | | 11.7 | | | 37.2 | | | 36 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Less investment expenses | | (1.8 | ) | | (1.6 | ) | | (5.1 | ) | | (5.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 10.4 | | | $ | 10.1 | | | $ | 32.1 | | | $ | 30.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The composition of net realized investment gains consisted of the following: |
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| | Three months ended | | Nine months ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, | September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | $ | 2.2 | | | $ | (5.0 | ) | | $ | 4.6 | | | $ | 2.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Short-term investments | | — | | | — | | | — | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Common equity securities | | 13.5 | | | 2.7 | | | 25.4 | | | 20.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Convertible fixed maturity investments | | 1 | | | — | | | 3.3 | | | (0.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other investments | | 2.6 | | | (1.9 | ) | | 2.6 | | | 2.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Net realized investment gains | | $ | 19.3 | | | $ | (4.2 | ) | | $ | 35.9 | | | $ | 25.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable on unsettled investment purchases as of September 30, 2014 and December 31, 2013 were $23.5 million and $11.6 million, respectively, and accounts receivable on unsettled investment sales were $22.0 million and $3.3 million, respectively. |
The net changes in fair value for the three and nine months ended September 30, 2014, and 2013 are as follows: |
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| | Three months ended September 30, 2014 | | Nine months ended September 30, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in net | | Changes in net | | Total net changes | | Changes in net | | Changes in net | | Total net changes | | | | | | | | | | | | | | | | | | | | | | | | |
unrealized investment | foreign currency | in fair value reflected | unrealized investment | foreign currency | in fair value reflected | | | | | | | | | | | | | | | | | | | | | | | | |
gains (losses)(1) | translation | in revenues(1) | gains(1) | translation | in revenues(1) | | | | | | | | | | | | | | | | | | | | | | | | |
| gains (losses)(1) | | | gains (losses)(1) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | $ | (8.0 | ) | | $ | — | | | $ | (8.0 | ) | | $ | 4 | | | $ | — | | | $ | 4 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Short-term investments | | — | | | (0.1 | ) | | (0.1 | ) | | — | | | (0.1 | ) | | (0.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Common equity securities | | (21.5 | ) | | (0.4 | ) | | (21.9 | ) | | (11.8 | ) | | (0.4 | ) | | (12.2 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible fixed maturity investments | | (1.8 | ) | | — | | | (1.8 | ) | | (4.1 | ) | | — | | | (4.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Other investments | | (3.5 | ) | | — | | | (3.5 | ) | | 1.3 | | | — | | | 1.3 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Net change in fair value | | $ | (34.8 | ) | | $ | (0.5 | ) | | $ | (35.3 | ) | | $ | (10.6 | ) | | $ | (0.5 | ) | | $ | (11.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Three months ended September 30, 2013 | | Nine months ended September 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in net | | Changes in net | | Total net changes | | Changes in net | | Changes in net | | Total net changes | | | | | | | | | | | | | | | | | | | | | | | | |
unrealized investment | foreign currency | in fair value reflected | unrealized investment | foreign currency | in fair value reflected | | | | | | | | | | | | | | | | | | | | | | | | |
gains (losses)(1) | translation | in revenues(1) | gains (1) | translation | in revenues(1) | | | | | | | | | | | | | | | | | | | | | | | | |
| gains (losses)(1) | | | gains (losses)(1) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | $ | 0.5 | | | $ | 0.1 | | | $ | 0.6 | | | $ | (33.7 | ) | | $ | — | | | $ | (33.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Short-term investments | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
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Common equity securities | | 15.8 | | | 0.1 | | | 15.9 | | | 21.3 | | | 0.1 | | | 21.4 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Convertible fixed maturity investments | | 1 | | | — | | | 1 | | | (0.6 | ) | | — | | | (0.6 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Other investments | | 3.7 | | | — | | | 3.7 | | | 6.9 | | | — | | | 6.9 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Net change in fair value | | $ | 21 | | | $ | 0.2 | | | $ | 21.2 | | | $ | (6.1 | ) | | $ | 0.1 | | | $ | (6.0 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | Includes pre-tax changes in net deferred gains and losses on sales of investments between OneBeacon and entities under White Mountains' common control of $(0.7) million and $(0.8) million for the three and nine months ended September 30, 2013, respectively, with no such changes in net deferred gains and losses for the three and nine months ended September 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The components of OneBeacon's ending net unrealized investment gains and losses, excluding the impact of net unrealized foreign currency translation gains and losses, on its investment portfolio as of September 30, 2014 and December 31, 2013 were as follows: |
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| | September 30, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross unrealized investment gains | | $ | 125 | | | $ | 133.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Gross unrealized investment losses | | (11.2 | ) | | (9.3 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net unrealized investment gains, pre-tax | | 113.8 | | | 124.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Income taxes | | (31.3 | ) | | (33.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net unrealized investment gains, after tax | | $ | 82.5 | | | $ | 90.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The cost or amortized cost, gross unrealized pre-tax investment gains and losses, net unrealized foreign currency translation gains (losses) and carrying values of fixed maturity investments as of September 30, 2014 and December 31, 2013 were as follows: |
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| | September 30, 2014(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cost or | | Gross | | Gross | | Net unrealized foreign | | Carrying | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
amortized | unrealized | unrealized | currency | value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
cost | gains | losses | translation gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency obligations | | $ | 73.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | 73.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Debt securities issued by corporations | | 799.9 | | | 13.7 | | | (1.0 | ) | | — | | | 812.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Municipal obligations | | 65.1 | | | 1.2 | | | (0.2 | ) | | — | | | 66.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Mortgage-backed and asset-backed securities | | 882.2 | | | 1.4 | | | (2.0 | ) | | — | | | 881.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign government obligations | | 1 | | | 0.3 | | | — | | | — | | | 1.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Preferred stocks | | 78.3 | | | 6.4 | | | — | | | — | | | 84.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total fixed maturity investments | | $ | 1,899.80 | | | $ | 23 | | | $ | (3.2 | ) | | $ | — | | | $ | 1,919.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | December 31, 2013(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cost or | | Gross | | Gross | | Net unrealized foreign | | Carrying | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
amortized | unrealized | unrealized | currency | value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
cost | gains | losses | translation gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency obligations | | $ | 131 | | | $ | 0.2 | | | $ | (0.1 | ) | | $ | — | | | $ | 131.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Debt securities issued by corporations | | 741.7 | | | 14.1 | | | (1.3 | ) | | — | | | 754.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Municipal obligations | | 16.9 | | | — | | | (0.4 | ) | | — | | | 16.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Mortgage-backed and asset-backed securities | | 951.5 | | | 1.2 | | | (3.2 | ) | | — | | | 949.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Foreign government obligations | | 2 | | | 0.3 | | | — | | | — | | | 2.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Preferred stocks | | 78.3 | | | 5 | | | — | | | — | | | 83.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total fixed maturity investments | | $ | 1,921.40 | | | $ | 20.8 | | | $ | (5.0 | ) | | $ | — | | | $ | 1,937.20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | Includes carrying value of $203.9 million and $236.3 million of fixed maturity investments reclassified to assets held for sale in the consolidated balance sheets as part of the Runoff Transaction as of September 30, 2014 and December 31, 2013, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The cost or amortized cost, gross unrealized pre-tax investment gains and losses, net unrealized foreign currency translation gains (losses) and carrying values of common equity securities, convertible fixed maturity investments and other investments as of September 30, 2014 and December 31, 2013 were as follows: |
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| | 30-Sep-14 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cost or | | Gross | | Gross | | Net unrealized foreign | | Carrying | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
amortized | unrealized | unrealized | currency | value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
cost | gains | losses | translation gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities | | $ | 258.1 | | | $ | 61.3 | | | $ | (3.7 | ) | | $ | (0.2 | ) | | $ | 315.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Convertible fixed maturity investments | | 17.2 | | | 0.6 | | | (0.5 | ) | | — | | | 17.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other investments | | 98.5 | | | 40.1 | | | (3.8 | ) | | — | | | 134.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total common equity securities, convertible fixed maturity investments and other investments | | $ | 373.8 | | | $ | 102 | | | $ | (8.0 | ) | | $ | (0.2 | ) | | $ | 467.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cost or | | Gross | | Gross | | Net unrealized foreign | | Carrying | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
amortized | unrealized | unrealized | currency | value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
cost | gains | losses | translation gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities | | $ | 267.2 | | | $ | 70.4 | | | $ | (0.9 | ) | | $ | 0.2 | | | $ | 336.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible fixed maturity investments | | 26.3 | | | 4.5 | | | (0.3 | ) | | — | | | 30.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other investments | | 104.7 | | | 38 | | | (3.1 | ) | | — | | | 139.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total common equity securities, convertible fixed maturity investments and other investments | | $ | 398.2 | | | $ | 112.9 | | | $ | (4.3 | ) | | $ | 0.2 | | | $ | 507 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2014 and December 31, 2013, the Company held unrestricted collateral from its customers, which is included in cash and invested assets, relating to its surety business of $76.1 million and $63.3 million, respectively. The obligation to return these funds is included in other liabilities in the consolidated balance sheets. |
Fair value measurements |
As of both September 30, 2014 and December 31, 2013, approximately 92% of the investment portfolio recorded at fair value was priced based upon observable inputs. |
The fair values of OneBeacon's investments in hedge funds and private equity funds have been classified as Level 3 under the fair value hierarchy since the fund managers do not provide sufficient information to independently evaluate the pricing inputs and methods for each underlying investment, and therefore the inputs are considered to be unobservable. At September 30, 2014 and December 31, 2013, OneBeacon did not record a liquidity adjustment to the net asset value related to its investments in hedge funds or private equity funds. |
As of September 30, 2014 and December 31, 2013, other investments reported at fair value represented approximately 4% and 5%, respectively, of the investment portfolio recorded at fair value. Other investments accounted for at fair value as of September 30, 2014 and December 31, 2013 were comprised of $47.6 million and $49.4 million, respectively, in hedge funds, $54.4 million and $56.1 million, respectively, in private equity funds, and $14.2 million and $14.4 million, respectively, in an investment in a community reinvestment vehicle. Additionally, other investments accounted for at fair value as of September 30, 2014 included $0.2 million in trust certificates issued upon dissolution of a private equity fund, with no such investments held as of December 31, 2013. As of both September 30, 2014 and December 31, 2013, OneBeacon held investments in 8 hedge funds and 17 and 19 private equity funds, respectively. The largest investment in a single fund was $15.6 million and $14.9 million at September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, other investments also included $18.4 million and $19.7 million, respectively, of an investment in a tax advantaged federal affordable housing development fund which is accounted for using the equity method. |
The following tables summarize the Company's fair value measurements for investments at September 30, 2014 and December 31, 2013 by level: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value at | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2014(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency obligations | | $ | 73.3 | | | $ | 73.3 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | 279 | | | — | | | 279 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial | | 141 | | | — | | | 141 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Industrial | | 104.4 | | | — | | | 104.4 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communications | | 87.2 | | | — | | | 87.2 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic materials | | 68 | | | — | | | 64.9 | | | 3.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy | | 67.1 | | | — | | | 67.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Utilities | | 36.9 | | | — | | | 36.9 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Technology | | 29 | | | — | | | 29 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations | | 812.6 | | | — | | | 809.5 | | | 3.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-backed and asset-backed securities | | 881.6 | | | — | | | 870.7 | | | 10.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stocks | | 84.7 | | | — | | | 13.2 | | | 71.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Municipal obligations | | 66.1 | | | — | | | 66.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign government obligations | | 1.3 | | | 0.6 | | | 0.7 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | 1,919.60 | | | 73.9 | | | 1,760.20 | | | 85.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term investments | | 238.4 | | | 238.1 | | | 0.3 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | 114.4 | | | 114.4 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financials | | 71.2 | | | 70.8 | | | — | | | 0.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy | | 27.1 | | | 27.1 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic Materials | | 19.1 | | | 19.1 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Utilities | | 10.3 | | | 10.3 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | 73.4 | | | 73.4 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities | | 315.5 | | | 315.1 | | | — | | | 0.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible fixed maturity investments | | 17.3 | | | — | | | 17.3 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other investments(1) | | 116.4 | | | — | | | — | | | 116.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total(1) | | $ | 2,607.20 | | | $ | 627.1 | | | $ | 1,777.80 | | | $ | 202.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-1 | Excludes the carrying value of $18.4 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of September 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | Fair value includes $203.9 million of fixed maturity investments reclassified to assets held for sale in the September 30, 2014 consolidated balance sheets as part of the Runoff Transaction. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value at | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2013(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency obligations | | $ | 131.1 | | | $ | 131.1 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | 239.6 | | | — | | | 239.6 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial | | 145.5 | | | — | | | 145.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Industrial | | 106 | | | — | | | 106 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Communications | | 91.5 | | | — | | | 91.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic materials | | 64.4 | | | — | | | 64.4 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy | | 40.5 | | | — | | | 40.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Utilities | | 38 | | | — | | | 38 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Technology | | 29 | | | — | | | 29 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations | | 754.5 | | | — | | | 754.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-backed and asset-backed securities | | 949.5 | | | — | | | 938.6 | | | 10.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stocks | | 83.3 | | | — | | | 12.3 | | | 71 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Municipal obligations | | 16.5 | | | — | | | 16.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign government obligations | | 2.3 | | | 1.6 | | | 0.7 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | 1,937.20 | | | 132.7 | | | 1,722.60 | | | 81.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term investments | | 157 | | | 155.9 | | | 1.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | 122.6 | | | 122.6 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financials | | 83.3 | | | 83.2 | | | — | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy | | 34.7 | | | 34.7 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic Materials | | 20.3 | | | 20.3 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Utilities | | 8.3 | | | 8.3 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | 67.7 | | | 67.7 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities | | 336.9 | | | 336.8 | | | — | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible fixed maturity investments | | 30.5 | | | — | | | 30.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other investments(1) | | 119.9 | | | — | | | — | | | 119.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total(1) | | $ | 2,581.50 | | | $ | 625.4 | | | $ | 1,754.20 | | | $ | 201.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-1 | Excludes the carrying value of $19.7 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of December 31, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | Fair value includes $236.3 million of fixed maturity investments reclassified to assets held for sale in the December 31, 2013 consolidated balance sheets as part of the Runoff Transaction. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2014 and December 31, 2013, OneBeacon held one private preferred stock that represented approximately 84% and 85%, respectively, of its preferred stock portfolio. OneBeacon calculated its fair value using projected discounted cash flows based on a discount yield. The discounted yield was determined with inputs from quoted market yields for similar securities and adjusted for liquidity based on management’s best estimate of market conditions; this security is classified as a Level 3 measurement. |
The following table summarizes the ratings of OneBeacon's corporate debt securities as of September 30, 2014 and December 31, 2013: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AA | | $ | 55.2 | | | $ | 51.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A | | 327.1 | | | 357.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BBB | | 426.2 | | | 345.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BB | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Not rated | | 4.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations(1) | | $ | 812.6 | | | $ | 754.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
(1) Credit ratings are assigned based on the following hierarchy: 1) Standard and Poor’s Financial Services LLC (“Standard and Poor’s”) and 2) Moody’s Investor Service (“Moody’s”). |
Rollforwards of Fair Value Measurements by Level |
The changes in Level 1 fair value measurements for the three and nine months ended September 30, 2014 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fixed | | Common | | Convertible | | Other | | Total(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
maturity | equity | fixed | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
investments | securities | maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2014 | | $ | 132.7 | | | $ | 336.8 | | | $ | — | | | $ | — | | | $ | 469.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 0.1 | | | 8.5 | | | — | | | — | | | 8.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 114.6 | | | 26 | | | — | | | — | | | 140.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (35.7 | ) | | (24.3 | ) | | — | | | — | | | (60.0 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2014 | | 211.7 | | | 347 | | | — | | | — | | | 558.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 1.3 | | | 12.8 | | | — | | | — | | | 14.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 256.6 | | | 22.6 | | | — | | | — | | | 279.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (309.4 | ) | | (23.3 | ) | | — | | | — | | | (332.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2014 | | 160.2 | | | 359.1 | | | — | | | — | | | 519.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | — | | | (8.5 | ) | | — | | | — | | | (8.5 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 113.7 | | | 14.4 | | | — | | | — | | | 128.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (200.0 | ) | | (49.9 | ) | | — | | | — | | | (249.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2014 | | $ | 73.9 | | | $ | 315.1 | | | $ | — | | | $ | — | | | $ | 389 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-1 | Excludes short-term investments which are deemed to have a Level 1 designation. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The changes in Level 2 fair value measurements for the three and nine months ended September 30, 2014 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fixed | | Common | | Convertible | | Other | | Total(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
maturity | equity | fixed | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
investments | securities | maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2014 | | $ | 1,722.60 | | | $ | — | | | $ | 30.5 | | | $ | — | | | $ | 1,753.10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | (2.6 | ) | | — | | | (0.1 | ) | | — | | | (2.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 5 | | | — | | | 1.9 | | | — | | | 6.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 344 | | | — | | | 3.8 | | | — | | | 347.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (404.6 | ) | | — | | | (6.8 | ) | | — | | | (411.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfer out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2014 | | 1,664.40 | | | — | | | 29.3 | | | — | | | 1,693.70 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | (2.7 | ) | | — | | | (0.1 | ) | | — | | | (2.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 7.2 | | | — | | | (1.7 | ) | | — | | | 5.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 345.1 | | | — | | | 4.7 | | | — | | | 349.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (285.8 | ) | | — | | | (6.3 | ) | | — | | | (292.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | 7.5 | | | — | | | — | | | — | | | 7.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfer out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2014 | | 1,735.70 | | | — | | | 25.9 | | | — | | | 1,761.60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | (2.8 | ) | | — | | | (0.1 | ) | | — | | | (2.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | (6.8 | ) | | — | | | (0.9 | ) | | — | | | (7.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 423.5 | | | — | | | 2.8 | | | — | | | 426.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (423.7 | ) | | — | | | (10.4 | ) | | — | | | (434.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | 34.3 | | | — | | | — | | | — | | | 34.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfer out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2014 | | $ | 1,760.20 | | | $ | — | | | $ | 17.3 | | | $ | — | | | $ | 1,777.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Excludes short-term investments which are deemed to have a Level 2 designation. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The changes in Level 3 fair value measurements for the three and nine months ended September 30, 2014 and 2013 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fixed | | Common | | Convertible | | Other | | Total(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
maturity | equity | fixed | investments(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
investments | securities | maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2014 | | $ | 81.9 | | | $ | 0.1 | | | $ | — | | | $ | 119.9 | | | $ | 201.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 0.3 | | | — | | | — | | | 3.1 | | | 3.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 7.5 | | | — | | | — | | | 2.3 | | | 9.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | — | | | — | | | — | | | (1.6 | ) | | (1.6 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2014 | | $ | 89.7 | | | $ | 0.1 | | | $ | — | | | $ | 123.7 | | | $ | 213.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 0.3 | | | 0.4 | | | — | | | 1.7 | | | 2.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 34.2 | | | — | | | — | | | 1 | | | 35.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | — | | | — | | | — | | | (1.5 | ) | | (1.5 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | (7.5 | ) | | — | | | — | | | — | | | (7.5 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2014 | | 116.7 | | | 0.5 | | | — | | | 124.9 | | | 242.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 1.1 | | | (0.1 | ) | | — | | | (0.9 | ) | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 2 | | | — | | | — | | | 0.3 | | | 2.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | — | | | — | | | — | | | (7.9 | ) | | (7.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | (34.3 | ) | | — | | | — | | | — | | | (34.3 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2014 | | $ | 85.5 | | | $ | 0.4 | | | $ | — | | | $ | 116.4 | | | $ | 202.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Excludes the carrying value of $18.4 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of September 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fixed | | Common | | Convertible | | Other | | Total(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
maturity | equity | fixed | investments(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
investments | securities | maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2013 | | $ | 76.1 | | | $ | 0.1 | | | $ | — | | | $ | 122.7 | | | $ | 198.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | 0.1 | | | — | | | — | | | 3.7 | | | 3.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 1.8 | | | — | | | — | | | 1.8 | | | 3.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | — | | | — | | | — | | | (4.5 | ) | | (4.5 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2013 | | 78 | | | 0.1 | | | — | | | 123.7 | | | 201.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | (0.2 | ) | | — | | | — | | | 4.2 | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | 14 | | | — | | | — | | | 3.4 | | | 17.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | — | | | — | | | — | | | (6.7 | ) | | (6.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | (1.8 | ) | | — | | | — | | | — | | | (1.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2013 | | 90 | | | 0.1 | | | — | | | 124.6 | | | 214.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization/accretion | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gains (losses) | | (1.8 | ) | | — | | | — | | | 1.9 | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | — | | | — | | | — | | | 1.3 | | | 1.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | (0.5 | ) | | — | | | — | | | (1.8 | ) | | (2.3 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers in | | 61.3 | | | — | | | — | | | — | | | 61.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfers out | | (13.8 | ) | | — | | | — | | | — | | | (13.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2013 | | $ | 135.2 | | | $ | 0.1 | | | $ | — | | | $ | 126 | | | $ | 261.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | Excludes the carrying value of $20.2 million associated with a tax advantaged federal affordable housing development fund accounted for using the equity method as of September 30, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
“Transfers in” to Level 3 fixed maturity investments of $61.3 million for the nine months ended September 30, 2013 were comprised of one agency commercial mortgage-backed security for which the estimated fair value was determined using industry standard pricing models that take into account unobservable inputs such as prepayment rate, default rate and swap spread. There were no such transfers for the nine months ended September 30, 2014. |
“Transfers out” of Level 3 fixed maturity investments of $41.8 million and $15.6 million for the nine months ended September 30, 2014 and 2013, respectively, were comprised of one commercial mortgage-backed security and one residential mortgage-backed security which were recategorized as Level 2 measurements when quoted market prices that were considered reliable and could be validated against alternative sources became available and one commercial mortgage-backed security which was recategorized as a Level 2 measurement when a quoted market price that was considered reliable and could be validated against an alternative source became available, respectively. |
Significant Unobservable Inputs |
As previously described, in certain circumstances, OneBeacon estimates the fair value of investments using industry standard pricing models and both observable and unobservable inputs. |
The following summarizes significant unobservable inputs used in estimating the fair value of investment securities classified within Level 3, other than hedge funds and private equity funds, at September 30, 2014. The fair value of investments in hedge funds and private equity funds, which are classified within Level 3, are estimated using the net asset value of the funds. |
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Description(1) | | Fair Value | | Rating(2) | | Valuation Technique | | Unobservable Inputs | | Range | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock | | $ | 71.5 | | | NR | | Discounted cash flow | | Discount yield | | 6.60% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other asset-backed securities | | $ | 10.9 | | | AA+ | | Broker pricing | | Broker quote | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities issued by corporations | | $ | 3.1 | | | NR | | Exchange transaction(3) | | N/A | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_________________________________________________________________________ |
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(1) | As of September 30, 2014, each asset type consists of one security. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) | Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor's and 2) Moody's | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(3) | Derived from the exchange of a convertible fixed maturity investment, where the valuation of the debt security issued by a corporation represents a portion of the total exchange price after taking into consideration the cash and value of the common equity security that was also received in the exchange transaction. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The assumed prepayment rate is a significant unobservable input used to estimate the fair value of investments in agency commercial mortgage-backed securities. Generally for securities priced at a premium, increases in prepayment speeds will result in a lower fair value, while decreases in prepayment speed may result in a higher fair value, with the inverse for securities priced at a discount. |
The following table summarizes the change in net unrealized gains or losses for assets designated as Level 3 for the three and nine months ended September 30, 2014 and 2013: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, | September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments | | $ | 1.1 | | | $ | (1.8 | ) | | $ | 1.7 | | | $ | (1.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Short-term investments | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity securities | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible fixed maturity investments | | — | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other investments | | (3.5 | ) | | 3.7 | | | 1.3 | | | 6.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | (2.4 | ) | | $ | 1.9 | | | $ | 3 | | | $ | 5.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Mortgage-backed Securities |
OneBeacon purchases commercial mortgage-backed securities ("CMBS") and residential mortgage-backed securities ("RMBS") to maximize its risk adjusted returns in the context of a diversified portfolio. OneBeacon's non-agency CMBS are generally short tenor and structurally senior, with more than 20 points of subordination on average for fixed rate and floating rate non-agency CMBS as of September 30, 2014. In general, subordination represents the percentage of principal loss on the underlying collateral that would have to occur before the security incurs a loss. These collateral losses, instead, are first absorbed by other securities lower in the capital structure. OneBeacon believes this structural protection mitigates the risk of loss tied to refinancing challenges facing the commercial real estate market. As of September 30, 2014, on average less than 1% of the underlying loans were reported as non-performing for both agency and non-agency CMBS held by OneBeacon. OneBeacon is not an originator of residential mortgage loans. OneBeacon did not hold any RMBS categorized as sub-prime as of September 30, 2014. OneBeacon's investments in hedge funds and private equity funds contain negligible amounts of sub-prime mortgage-backed securities as of September 30, 2014. OneBeacon considers sub-prime mortgage-backed securities to be those that have underlying loan pools that exhibit weak credit characteristics or are issued from dedicated sub-prime shelves or dedicated second-lien shelf registrations (i.e., OneBeacon considers investments backed primarily by second-liens to be sub-prime risks regardless of credit scores or other metrics). |
There are also mortgage-backed securities that OneBeacon categorizes as "non-prime" (also called "Alt A" or "A-") that are backed by collateral that has overall credit quality between prime and sub-prime, as determined based on OneBeacon's review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios. As of September 30, 2014, OneBeacon held one mortgage-backed security with a market value of $4.1 million that was classified as non-prime. OneBeacon's non-agency residential mortgage-backed portfolio is generally of moderate average life, fixed rate and structurally senior. OneBeacon does not own any collateralized debt obligations, including residential mortgage-backed collateralized debt obligations. |
The following table summarizes the carrying value of OneBeacon's mortgage-backed and asset-backed securities as of September 30, 2014 and December 31, 2013: |
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| | September 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Level 2 | | Level 3 | | Fair Value | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GNMA | | $ | 267.7 | | | $ | 267.7 | | | $ | — | | | $ | 321.8 | | | $ | 321.8 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | |
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FNMA | | 20.6 | | | 20.6 | | | — | | | 36.5 | | | 36.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
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FHLMC | | 1.1 | | | 1.1 | | | — | | | 24.3 | | | 24.3 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total agency(1) | | 289.4 | | | 289.4 | | | — | | | 382.6 | | | 382.6 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Non-agency: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | 94.7 | | | 94.7 | | | — | | | 51.5 | | | 51.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | 109.2 | | | 109.2 | | | — | | | 155 | | | 155 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Non-agency | | 203.9 | | | 203.9 | | | — | | | 206.5 | | | 206.5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage-backed securities | | 493.3 | | | 493.3 | | | — | | | 589.1 | | | 589.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other asset-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit card receivables | | 182.4 | | | 171.5 | | | 10.9 | | | 124.2 | | | 113.3 | | | 10.9 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Vehicle receivables | | 162.1 | | | 162.1 | | | — | | | 189.3 | | | 189.3 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other | | 43.8 | | | 43.8 | | | — | | | 46.9 | | | 46.9 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total other asset-backed securities | | 388.3 | | | 377.4 | | | 10.9 | | | 360.4 | | | 349.5 | | | 10.9 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage-backed and asset-backed securities | | $ | 881.6 | | | $ | 870.7 | | | $ | 10.9 | | | $ | 949.5 | | | $ | 938.6 | | | $ | 10.9 | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | Represents publicly traded mortgage-backed securities which carry the full faith and credit guarantee of the U.S. government (i.e., GNMA) or are guaranteed by a government sponsored entity (i.e., FNMA, FHLMC). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-agency Mortgage-backed Securities |
The security issuance years of OneBeacon's investments in non-agency RMBS and non-agency CMBS securities as of September 30, 2014 are as follows: |
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| | Fair Value | | Security Issuance Year | | |
| | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 |
| | ($ in millions) | | |
Total non-agency RMBS | | $ | 94.7 | | | $ | 5.4 | | | $ | 4.4 | | | $ | 5.3 | | | $ | — | | | $ | 5.7 | | | $ | — | | | $ | 4.1 | | | $ | 15.5 | | | $ | 4 | | | $ | 17.2 | | | $ | 33.1 | |
|
Total non-agency CMBS | | 109.2 | | | — | | | — | | | — | | | 0.7 | | | — | | | — | | | 6.7 | | | — | | | 6.3 | | | 38.9 | | | 56.6 | |
|
Total non-agency | | $ | 203.9 | | | $ | 5.4 | | | $ | 4.4 | | | $ | 5.3 | | | $ | 0.7 | | | $ | 5.7 | | | $ | — | | | $ | 10.8 | | | $ | 15.5 | | | $ | 10.3 | | | $ | 56.1 | | | $ | 89.7 | |
|
Non-agency Residential Mortgage-backed Securities |
The classification of the underlying collateral quality and the tranche levels of OneBeacon's non-agency RMBS securities are as follows as of September 30, 2014: |
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| | Fair Value | | Super Senior(1) | | Senior(2) | | Subordinate(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Prime | | $ | 90.6 | | | $ | 38.7 | | | $ | 51.9 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Non-prime | | 4.1 | | | — | | | 4.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total non-agency RMBS | | $ | 94.7 | | | $ | 38.7 | | | $ | 56 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch Ratings ("Fitch") and were senior to other AAA or Aaa securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were senior to non-AAA or non-Aaa securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-3 | At issuance, Subordinate were not rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were junior to other securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-agency Commercial Mortgage-backed Securities |
The amount of fixed and floating rate securities and their tranche levels of OneBeacon's non-agency CMBS securities are as follows as of September 30, 2014: |
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| | Fair Value | | Super Senior(1) | | Senior(2) | | Subordinate(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate CMBS | | $ | 62.3 | | | $ | 24.5 | | | $ | 20.3 | | | $ | 17.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Floating rate CMBS | | 46.9 | | | 0.7 | | | — | | | 46.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total non-agency CMBS | | $ | 109.2 | | | $ | 25.2 | | | $ | 20.3 | | | $ | 63.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | At issuance, Super Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's or AAA by Fitch and were senior to other AAA or Aaa securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | At issuance, Senior, or in the case of resecuritization, the underlying securities, were rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were senior to non-AAA or non-Aaa securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-3 | At issuance, Subordinate were not rated AAA by Standard & Poor's, Aaa by Moody's, or AAA by Fitch and were junior to other securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Investments |
OneBeacon holds investments in hedge funds and private equity funds which are included in other investments. The fair value of these investments has been estimated using the net asset value of the funds. The following table summarizes investments in hedge funds and private equity funds at September 30, 2014 and December 31, 2013: |
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| | 30-Sep-14 | | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair | | Unfunded | | Fair | | Unfunded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Value | Commitments | Value | Commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hedge funds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long/short equity | | $ | 36.6 | | | $ | — | | | $ | 39.1 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Long/short credit and distressed | | 8.5 | | | — | | | 8.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Long/short equity activist | | 2.4 | | | — | | | 2.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Long bank loan | | 0.1 | | | — | | | 0.1 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total hedge funds | | 47.6 | | | — | | | 49.4 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Private equity funds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy infrastructure and services | | 26.3 | | | 4.8 | | | 26 | | | 5.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Multi-sector | | 15.1 | | | 2.2 | | | 14.5 | | | 2.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Private equity secondaries | | 6.3 | | | 2.1 | | | 6.4 | | | 2.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Healthcare | | 2.9 | | | 1.4 | | | 2.8 | | | 1.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Insurance | | 2.2 | | | 0.1 | | | 2.3 | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Real estate | | 1.6 | | | 0.1 | | | 3.9 | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Distressed residential real estate | | — | | | — | | | 0.2 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total private equity funds | | 54.4 | | | 10.7 | | | 56.1 | | | 12.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total hedge funds and private equity funds(1) | | $ | 102 | | | $ | 10.7 | | | $ | 105.5 | | | $ | 12.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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_______________________________________________________________________________ |
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-1 | Excluded from the above table as of September 30, 2014 and December 31, 2013 are other investments, which include an investment in a community reinvestment vehicle of $14.2 million and $14.4 million, respectively, and an investment in a tax advantaged federal affordable housing development fund of $18.4 million and $19.7 million, respectively. Additionally, other investments include trust certificates issued upon dissolution of a private equity fund of $0.2 million as of September 30, 2014, with no such investment held as of December 31, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redemptions of investments in certain funds are subject to restrictions including "lock-up" periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period. The following summarizes the September 30, 2014 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds: |
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| | Hedge Funds—Active Funds | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 30 - 59 days | | 60 - 89 days | | 90 - 119 days | | 120+ days | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
notice | notice | notice | notice | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redemption frequency | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Monthly | | $ | 1.8 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Quarterly | | 28.8 | | | 8.5 | | | 6 | | | — | | | 43.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Annual | | — | | | — | | | 2.4 | | | 0.1 | | | 2.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total hedge funds | | $ | 30.6 | | | $ | 8.5 | | | $ | 8.4 | | | $ | 0.1 | | | $ | 47.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Certain hedge fund investments are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund's underlying investments are liquidated. At September 30, 2014, $0.9 million of hedge funds were in liquidation. The actual amount of the final distribution is subject to market fluctuations. The date at which such distributions will be received is not determinable at September 30, 2014. |
OneBeacon has also submitted redemption requests for certain of its investments in active hedge funds. At September 30, 2014, redemptions of $8.5 million were outstanding and are subject to market fluctuations. Such redemptions are expected to be received in the first quarter of 2015. Redemptions are recorded as receivables when the investment is no longer subject to market fluctuations. |
Investments in private equity funds are generally subject to lock-up periods during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund's underlying investment. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors. At September 30, 2014, investments in private equity funds were subject to lock-up periods as follows: |
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| | 1 - 3 years | | 3 - 5 years | | 5 - 10 years | | >10 years | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Private Equity Funds—expected lock-up period remaining | | $ | 9.6 | | | $ | 18.2 | | | $ | 26.6 | | | $ | — | | | $ | 54.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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