| Investments | Fixed Maturity Securities At March 31, 2016 and December 31, 2015 , all fixed maturity securities were classified as available-for-sale. The amortized cost and fair values of securities by security type are shown as follows: March 31, 2016 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value (in millions of dollars) United States Government and Government Agencies and Authorities $ 1,338.7 $ 247.7 $ 0.1 $ 1,586.3 States, Municipalities, and Political Subdivisions 1,814.0 364.0 1.4 2,176.6 Foreign Governments 895.7 182.2 — 1,077.9 Public Utilities 6,974.0 1,273.0 3.8 8,243.2 Mortgage/Asset-Backed Securities 2,279.8 201.0 0.4 2,480.4 All Other Corporate Bonds 26,458.5 3,047.5 418.5 29,087.5 Redeemable Preferred Stocks 44.0 3.6 0.3 47.3 Total Fixed Maturity Securities $ 39,804.7 $ 5,319.0 $ 424.5 $ 44,699.2 December 31, 2015 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value (in millions of dollars) United States Government and Government Agencies and Authorities $ 1,265.8 $ 207.3 $ 7.9 $ 1,465.2 States, Municipalities, and Political Subdivisions 1,828.3 293.4 4.6 2,117.1 Foreign Governments 897.2 154.4 — 1,051.6 Public Utilities 6,979.3 1,057.4 16.3 8,020.4 Mortgage/Asset-Backed Securities 2,318.6 167.6 4.7 2,481.5 All Other Corporate Bonds 26,325.5 2,454.1 608.2 28,171.4 Redeemable Preferred Stocks 44.0 3.8 0.6 47.2 Total Fixed Maturity Securities $ 39,658.7 $ 4,338.0 $ 642.3 $ 43,354.4 The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position. March 31, 2016 Less Than 12 Months 12 Months or Greater Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (in millions of dollars) United States Government and Government Agencies and Authorities $ 33.0 $ 0.1 $ — $ — States, Municipalities, and Political Subdivisions 58.2 1.1 3.3 0.3 Public Utilities 192.4 2.7 18.8 1.1 Mortgage/Asset-Backed Securities 53.7 0.3 8.9 0.1 All Other Corporate Bonds 3,469.7 289.8 761.9 128.7 Redeemable Preferred Stocks 10.7 0.3 — — Total Fixed Maturity Securities $ 3,817.7 $ 294.3 $ 792.9 $ 130.2 December 31, 2015 Less Than 12 Months 12 Months or Greater Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (in millions of dollars) United States Government and Government Agencies and Authorities $ 213.5 $ 7.9 $ — $ — States, Municipalities, and Political Subdivisions 112.3 4.3 3.3 0.3 Public Utilities 408.4 14.4 10.3 1.9 Mortgage/Asset-Backed Securities 504.3 4.6 9.0 0.1 All Other Corporate Bonds 6,155.0 464.2 554.7 144.0 Redeemable Preferred Stocks 10.4 0.6 — — Total Fixed Maturity Securities $ 7,403.9 $ 496.0 $ 577.3 $ 146.3 The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments. March 31, 2016 Total Amortized Cost Unrealized Gain Position Unrealized Loss Position Gross Gain Fair Value Gross Loss Fair Value (in millions of dollars) 1 year or less $ 1,157.6 $ 21.0 $ 1,104.5 $ 0.4 $ 73.7 Over 1 year through 5 years 6,657.1 633.0 6,880.2 63.1 346.8 Over 5 years through 10 years 10,669.6 950.1 9,201.5 200.9 2,217.3 Over 10 years 19,040.6 3,513.9 20,484.6 159.7 1,910.2 37,524.9 5,118.0 37,670.8 424.1 4,548.0 Mortgage/Asset-Backed Securities 2,279.8 201.0 2,417.8 0.4 62.6 Total Fixed Maturity Securities $ 39,804.7 $ 5,319.0 $ 40,088.6 $ 424.5 $ 4,610.6 December 31, 2015 Total Amortized Cost Unrealized Gain Position Unrealized Loss Position Gross Gain Fair Value Gross Loss Fair Value (in millions of dollars) 1 year or less $ 1,112.2 $ 20.6 $ 1,098.8 $ 0.2 $ 33.8 Over 1 year through 5 years 6,514.0 554.4 6,649.5 49.8 369.1 Over 5 years through 10 years 10,519.3 746.3 7,124.4 320.5 3,820.7 Over 10 years 19,194.6 2,849.1 18,532.3 267.1 3,244.3 37,340.1 4,170.4 33,405.0 637.6 7,467.9 Mortgage/Asset-Backed Securities 2,318.6 167.6 1,968.2 4.7 513.3 Total Fixed Maturity Securities $ 39,658.7 $ 4,338.0 $ 35,373.2 $ 642.3 $ 7,981.2 At March 31, 2016 , the fair value of investment-grade fixed maturity securities was $41,305.8 million , with a gross unrealized gain of $5,220.3 million and a gross unrealized loss of $174.9 million . The gross unrealized loss on investment-grade fixed maturity securities was 41.2 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities. At March 31, 2016 , the fair value of below-investment-grade fixed maturity securities was $3,393.4 million , with a gross unrealized gain of $98.7 million and a gross unrealized loss of $249.6 million . The gross unrealized loss on below-investment-grade fixed maturity securities was 58.8 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to develop credit concerns than investment-grade securities. At March 31, 2016 , the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value. As of March 31, 2016 , we held 145 individual investment-grade fixed maturity securities and 84 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 27 investment-grade fixed maturity securities and 34 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year. In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the following factors: • Whether we expect to recover the entire amortized cost basis of the security • Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis • Whether the security is current as to principal and interest payments • The significance of the decline in value • The time period during which there has been a significant decline in value • Current and future business prospects and trends of earnings • The valuation of the security's underlying collateral • Relevant industry conditions and trends relative to their historical cycles • Market conditions • Rating agency and governmental actions • Bid and offering prices and the level of trading activity • Adverse changes in estimated cash flows for securitized investments • Changes in fair value subsequent to the balance sheet date • Any other key measures for the related security While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments determined to have an other-than-temporary impairment. We held no fixed maturity securities as of March 31, 2016 or December 31, 2015 for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income. At March 31, 2016 , we had commitments of $107.9 million to fund private placement fixed maturity securities, the amount of which may or may not be funded. Variable Interest Entities We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period. As of March 31, 2016 , the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $441.6 million , comprised of $192.9 million of tax credit partnerships and $248.7 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets. The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from passive losses on the investments. Amounts recognized in the consolidated statements of income are as follows: Three Months Ended March 31 2016 2015 (in millions of dollars) Income Tax Credits $ 10.5 $ 10.5 Amortization, net of tax (5.8 ) (5.8 ) Income Tax Benefit $ 4.7 $ 4.7 Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to the carrying value of our investment, which includes $4.8 million of unfunded unconditional commitments at March 31, 2016 . We also had commitments of $282.8 million to fund certain private equity partnerships at March 31, 2016 , the amount of which may or may not be funded. We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements. This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity partnership investment which we contributed into the trust at the time it was established. There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time. The fair values of the bond and partnership were $151.9 million and $1.0 million , respectively, as of March 31, 2016 . The bond is reported as a component of fixed maturity securities, and the partnership is reported as a component of other long-term investments in our consolidated balance sheets. At March 31, 2016 , we had no commitments to fund the underlying partnership, nor did we fund any amounts to the partnership during the three months ended March 31, 2016 and 2015 . Mortgage Loans Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period. We update our debt service coverage ratios annually. Mortgage loans by property type and geographic region are presented below. March 31, 2016 December 31, 2015 (in millions of dollars) Carrying Percent of Carrying Percent of Amount Total Amount Total Property Type Apartment $ 164.1 8.7 % $ 130.6 6.9 % Industrial 570.1 30.3 574.1 30.5 Office 741.7 39.4 764.7 40.6 Retail 383.6 20.4 392.3 20.8 Other 21.8 1.2 21.9 1.2 Total $ 1,881.3 100.0 % $ 1,883.6 100.0 % Region New England $ 81.1 4.3 % $ 97.6 5.2 % Mid-Atlantic 127.6 6.8 128.8 6.9 East North Central 194.8 10.3 186.4 9.9 West North Central 147.0 7.8 162.6 8.6 South Atlantic 401.7 21.4 409.3 21.7 East South Central 91.3 4.9 79.1 4.2 West South Central 230.3 12.2 237.6 12.6 Mountain 194.9 10.4 196.5 10.4 Pacific 412.6 21.9 385.7 20.5 Total $ 1,881.3 100.0 % $ 1,883.6 100.0 % We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings may include the following: • Loan-to-value ratio • Debt service coverage ratio based on current operating income • Property location, including regional economics, trends and demographics • Age, condition, and construction quality of property • Current and historical occupancy of property • Lease terms relative to market • Tenant size and financial strength • Borrower's financial strength • Borrower's equity in transaction • Additional collateral, if any Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency. Mortgage loans, sorted by the applicable credit quality indicators, are as follows: March 31 December 31 (in millions of dollars) Internal Rating Aa $ 1.0 $ 1.1 A 572.4 586.6 Baa 1,292.5 1,285.8 Ba 15.4 10.1 Total $ 1,881.3 $ 1,883.6 Loan-to-Value Ratio <= 65% $ 961.3 $ 937.2 > 65% <= 75% 820.0 842.5 > 75% <= 85% 85.3 88.4 > 85% 14.7 15.5 Total $ 1,881.3 $ 1,883.6 There were no troubled debt restructurings during the three months ended March 31, 2016 or 2015. At March 31, 2016 and December 31, 2015 , we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments. There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. As of March 31, 2016 and December 31, 2015, we had no allowance for credit losses. Our allowance of $1.5 million as of March 31, 2015 was related to an impaired mortgage loan that was repaid in the third quarter of 2015. There was no activity in the allowance for credit losses during the three months ended March 31, 2016 or 2015. We did not hold any impaired mortgage loans during the three months ended March 31, 2016, nor did we recognize any interest income on mortgage loans subsequent to impairment. Our average investment in impaired mortgage loans was $13.1 million for the three months ended March 31, 2015, and interest income recognized on mortgage loans subsequent to impairment was $0.2 million . At March 31, 2016 , we had commitments of $83.5 million to fund certain commercial mortgage loans, the amount of which may or may not be funded. Transfers of Financial Assets To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically outstanding for less than 30 days . We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally 102 percent of the cash received. Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. We may receive cash and/or securities as collateral under these agreements. Cash received as collateral is typically reinvested in short-term investments. If securities are received as collateral, we are not permitted to sell or re-post them. As of March 31, 2016 , the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $194.3 million , for which we received collateral in the form of cash and securities of $48.8 million and $152.2 million , respectively. As of December 31, 2015 , the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $181.6 million , for which we received collateral in the form of cash and securities of $29.0 million and $159.3 million , respectively. We had no outstanding repurchase agreements at March 31, 2016 or December 31, 2015 . The remaining contractual maturities of our securities lending agreements disaggregated by class of collateral pledged are as follows: March 31, 2016 December 31, 2015 Overnight and Continuous (in millions of dollars) United States Government and Government Agencies and Authorities $ 2.2 $ 1.2 Public Utilities 2.8 4.0 All Other Corporate Bonds 43.8 23.8 Total Borrowings 48.8 29.0 Gross Amount of Recognized Liability for Securities Lending Transactions 48.8 29.0 Amounts Related to Agreements Not Included in Offsetting Disclosure Contained Herein $ — $ — Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. As of March 31, 2016 and December 31, 2015, we owned $30.9 million of FHLB common stock and had obtained $350.0 million in advances from the regional FHLBs for the purpose of purchasing fixed maturity securities. As of March 31, 2016 , the carrying value of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs was $318.6 million and $95.1 million , respectively. As of December 31, 2015, the carrying value of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs was $317.2 million and $96.0 million , respectively. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs. Offsetting of Financial Instruments We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy, or merger without assumption. See Note 5 for further discussion of collateral related to our derivative contracts. We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our securities or any other amounts due to us. Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties. March 31, 2016 Gross Amount Gross Amount Not of Recognized Gross Amount Net Amount Offset in Balance Sheet Financial Offset in Presented in Financial Cash Net Instruments Balance Sheet Balance Sheet Instruments Collateral Amount (in millions of dollars) Financial Assets: Derivatives $ 40.1 $ — $ 40.1 $ (13.1 ) $ (27.0 ) $ — Securities Lending 194.3 — 194.3 (145.5 ) (48.8 ) — Total $ 234.4 $ — $ 234.4 $ (158.6 ) $ (75.8 ) $ — Financial Liabilities: Derivatives $ 58.0 $ — $ 58.0 $ (41.2 ) $ — $ 16.8 Securities Lending 48.8 — 48.8 (48.8 ) — — Total $ 106.8 $ — $ 106.8 $ (90.0 ) $ — $ 16.8 December 31, 2015 Gross Amount Gross Amount Not of Recognized Gross Amount Net Amount Offset in Balance Sheet Financial Offset in Presented in Financial Cash Net Instruments Balance Sheet Balance Sheet Instruments Collateral Amount (in millions of dollars) Financial Assets: Derivatives $ 49.8 $ — $ 49.8 $ (12.8 ) $ (36.4 ) $ 0.6 Securities Lending 181.6 — 181.6 (152.6 ) (29.0 ) — Total $ 231.4 $ — $ 231.4 $ (165.4 ) $ (65.4 ) $ 0.6 Financial Liabilities: Derivatives $ 50.2 $ — $ 50.2 $ (35.6 ) $ — $ 14.6 Securities Lending 29.0 — 29.0 (29.0 ) — — Total $ 79.2 $ — $ 79.2 $ (64.6 ) $ — $ 14.6 Net Investment Income Net investment income reported in our consolidated statements of income is as follows: Three Months Ended March 31 2016 2015 (in millions of dollars) Fixed Maturity Securities $ 563.8 $ 566.2 Derivatives 11.9 10.9 Mortgage Loans 26.9 28.3 Policy Loans 4.1 4.0 Other Long-term Investments 10.0 3.9 Short-term Investments 1.5 0.9 Gross Investment Income 618.2 614.2 Less Investment Expenses 8.2 8.5 Less Investment Income on Participation Fund Account Assets 3.6 3.7 Net Investment Income $ 606.4 $ 602.0 Realized Investment Gain and Loss Realized investment gains and losses are as follows: Three Months Ended March 31 2016 2015 (in millions of dollars) Fixed Maturity Securities Gross Gains on Sales $ 16.9 $ 2.5 Gross Losses on Sales (9.6 ) (5.7 ) Other-Than-Temporary Impairment Loss (21.1 ) (4.5 ) Mortgage Loans and Other Invested Assets Gross Gains on Sales 1.8 1.1 Gross Losses on Sales (0.3 ) — Impairment Loss — (2.7 ) Embedded Derivative in Modified Coinsurance Arrangement (5.6 ) (3.9 ) All Other Derivatives (2.5 ) (1.1 ) Foreign Currency Transactions (0.1 ) (1.0 ) Net Realized Investment Loss $ (20.5 ) $ (15.3 ) |
