| Investments | 65% <= 75% 1,053.7 43.8 1,053.0 43.9 > 75% <= 85% 45.5 1.9 91.4 3.8 > 85% 57.2 2.4 37.5 1.6 Total $ 2,406.5 100.0 % $ 2,397.0 100.0 % The followin g table presents the amortized cost of our mortgage loans by year of origination and credit quality indicators at September 30, 2020 : Prior to 2016 2016 2017 2018 2019 2020 Total (in millions of dollars) Internal Rating A $ 233.0 $ 104.5 $ 52.7 $ 60.3 $ 17.1 $ — $ 467.6 BBB 515.2 290.1 281.5 333.5 353.5 133.7 1,907.5 BB 29.6 — — — — — 29.6 B 16.4 — — — — — 16.4 Total Amortized Cost 794.2 394.6 334.2 393.8 370.6 133.7 2,421.1 Allowance for credit losses (2.8) (2.6) (1.8) (3.1) (3.1) (1.2) (14.6) Carrying Amount $ 791.4 $ 392.0 $ 332.4 $ 390.7 $ 367.5 $ 132.5 $ 2,406.5 Loan-to-Value Ratio <=65% $ 652.1 $ 245.4 $ 146.8 $ 78.1 $ 83.3 $ 48.5 $ 1,254.2 >65<=75% 65.2 121.8 187.4 315.7 287.3 85.2 1,062.6 >75%<=85% 18.9 27.4 — — — — 46.3 >85% 58.0 — — — — — 58.0 Total Amortized Cost 794.2 394.6 334.2 393.8 370.6 133.7 2,421.1 Allowance for credit losses (2.8) (2.6) (1.8) (3.1) (3.1) (1.2) (14.6) Carrying Amount $ 791.4 $ 392.0 $ 332.4 $ 390.7 $ 367.5 $ 132.5 $ 2,406.5 The following table presents a roll-forward of allowance for expected credit losses by loan-to-value ratio: Three Months Ended September 30, 2020 Beginning of Period Current Period Provisions Write-Offs Recoveries End of Period (in millions of dollars) Loan-to-Value Ratio <=65% $ 3.9 $ — $ — $ — $ 3.9 >65<=75% 7.9 1.2 — — 9.1 >75%<=85% 1.0 (0.3) — — 0.7 >85% 0.4 0.5 — — 0.9 Total $ 13.2 $ 1.4 $ — $ — $ 14.6 Nine Months Ended September 30, 2020 Beginning of Year Current Period Provisions Write-Offs Recoveries End of Period (in millions of dollars) Loan-to-Value Ratio <=65% $ 2.8 $ 1.1 $ — $ — $ 3.9 >65<=75% 4.6 4.5 — — 9.1 >75%<=85% 0.5 0.2 — — 0.7 >85% 0.4 0.5 — — 0.9 Total $ 8.3 $ 6.3 $ — $ — $ 14.6 The increase in our estimate of expected losses during the third quarter and first nine months of 2020 is primarily due to the expected impact of COVID-19, specifically impacts to underlying commercial real estate values, and reflects market conditions at September 30, 2020. There were no troubled debt restructurings during the three and nine months ended September 30, 2020 and 2019. At September 30, 2020 and December 31, 2019, we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments. We had no loan foreclosures for the three and nine months ended September 30, 2020 and 2019. For the three and nine months ended September 30, 2020, we had no impaired mortgage loans. Our average investment in impaired mortgage loans was zero and $0.8 million for the three and nine months ended September 30, 2019, respectively. We did not recognize any interest income on mortgage loans subsequent to impairment during the three and nine months ended September 30, 2020 or 2019. At September 30, 2020, we had $26.9 million of commitments to fund commercial mortgage loans. Consistent with how we determine the estimate of current expected credit losses for our funded mortgage loans each period, we estimate expected credit losses for loans that have not been funded but we are committed to fund at the end of each period. At September 30, 2020, we had $0.2 million of expected credit losses related to unfunded commitments on our consolidated balance sheets. 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. We had no outstanding securities lending agreements at September 30, 2020. As of December 31, 2019, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.4 million, for which we received collateral in the form of securities of $186.5 million. We had no outstanding repurchase agreements at September 30, 2020 or December 31, 2019. 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. Advances received from the FHLB are used for the purchase of short-term investments or fixed maturity securities. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs. The carrying value of common stock owned, collateral posted, and advances received are as follows: September 30, 2020 December 31, 2019 (in millions of dollars) Carrying Value of FHLB Common Stock $ 21.7 $ 18.5 Advances from FHLB $ 30.2 $ — Carrying Value of Collateral Posted to FHLB Fixed Maturity Securities $ 970.4 $ 182.1 Commercial Mortgage Loans 1,099.7 164.4 Total Carrying Value of Collateral Posted to FHLB $ 2,070.1 $ 346.5 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. September 30, 2020 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 $ 38.3 $ — $ 38.3 $ (4.2) $ (34.1) $ — Financial Liabilities: Derivatives $ 34.0 $ — $ 34.0 $ (33.4) $ — $ 0.6 December 31, 2019 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 $ 27.5 $ — $ 27.5 $ (4.0) $ (23.5) $ — Securities Lending 176.4 — 176.4 (176.4) — — Total $ 203.9 $ — $ 203.9 $ (180.4) $ (23.5) $ — Financial Liabilities: Derivatives $ 34.6 $ — $ 34.6 $ (31.3) $ — $ 3.3 Net Investment Income Net investment income reported in our consolidated statements of income is presented below. Certain prior period amounts have been reclassified to conform to the current period presentation. Three Months Ended September 30 Nine Months Ended September 30 2020 2019 2020 2019 (in millions of dollars) Fixed Maturity Securities $ 560.8 $ 546.7 $ 1,643.1 $ 1,656.3 Derivatives 18.7 19.1 59.6 55.0 Mortgage Loans 26.1 25.4 83.1 77.0 Policy Loans 5.1 5.0 14.9 14.5 Other Long-term Investments Perpetual Preferred Securities 1 (0.2) 0.1 (6.7) 4.8 Private Equity Partnerships 2 11.3 4.7 (9.6) 19.5 Other 0.4 0.2 5.3 2.8 Short-term Investments 1.3 8.7 10.1 22.4 Gross Investment Income 623.5 609.9 1,799.8 1,852.3 Less Investment Expenses 7.2 7.3 23.3 23.6 Less Investment Income on Participation Fund Account Assets 3.1 3.2 9.3 9.7 Net Investment Income $ 613.2 $ 599.4 $ 1,767.2 $ 1,819.0 1 The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2020 related to perpetual preferred securities still held at September 30, 2020 was $(0.8) million and $(8.7) million, respectively. The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2019 related to perpetual preferred securities still held at September 30, 2019 was $0.3 million and $3.3 million, respectively. 2 The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2020 related to private equity partnerships still held at September 30, 2020 was $8.5 million and $(27.1) million, respectively. The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2019 related to private equity partnerships still held at September 30, 2019 was $(1.1) million and $2.6 million, respectively. See Note 3 for further discussion of private equity partnerships. Realized Investment Gain and Loss Realized investment gains and losses are as follows: Three Months Ended September 30 Nine Months Ended September 30 2020 2019 2020 2019 (in millions of dollars) Fixed Maturity Securities Gross Gains on Sales $ 3.3 $ 11.3 $ 8.3 $ 22.5 Gross Losses on Sales (2.8) (5.7) (7.6) (30.5) Credit Losses — (20.8) (59.3) (20.8) Mortgage Loans and Other Invested Assets Gross Gains on Sales 0.9 0.6 1.2 4.5 Gross Losses on Sales (0.2) — (0.4) (0.1) Impairment Loss (8.4) — (8.4) — Credit Losses (1.6) — (6.2) — Embedded Derivative in Modified Coinsurance Arrangement 14.1 (11.1) (30.9) (6.4) All Other Derivatives (0.6) (0.1) (2.3) (0.7) Foreign Currency Transactions (0.3) (0.4) (0.2) (0.9) Net Realized Investment Gain (Loss) $ 4.4 $ (26.2) $ (105.8) $ (32.4)" id="sjs-B4">Fixed Maturity Securities At September 30, 2020 and December 31, 2019, 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: September 30, 2020 Amortized ACL (1) Gross Gross Fair (in millions of dollars) United States Government and Government Agencies and Authorities $ 1,032.0 $ — $ 217.9 $ — $ 1,249.9 States, Municipalities, and Political Subdivisions 3,321.6 — 612.0 3.6 3,930.0 Foreign Governments 860.9 — 255.6 1.4 1,115.1 Public Utilities 6,359.9 — 1,662.7 6.6 8,016.0 Mortgage/Asset-Backed Securities 1,317.1 — 115.2 0.2 1,432.1 All Other Corporate Bonds 28,338.3 12.5 5,313.7 134.4 33,517.6 Redeemable Preferred Stocks 9.6 — — 0.1 9.5 Total Fixed Maturity Securities $ 41,239.4 $ 12.5 $ 8,177.1 $ 146.3 $ 49,270.2 December 31, 2019 Amortized Gross Gross Fair (in millions of dollars) United States Government and Government Agencies and Authorities $ 1,246.1 $ 156.0 $ 0.4 $ 1,401.7 States, Municipalities, and Political Subdivisions 2,863.1 507.6 7.3 3,363.4 Foreign Governments 843.5 175.2 1.0 1,017.7 Public Utilities 6,436.7 1,303.7 8.2 7,732.2 Mortgage/Asset-Backed Securities 1,377.8 101.3 0.4 1,478.7 All Other Corporate Bonds 28,273.1 4,211.2 73.9 32,410.4 Redeemable Preferred Stocks 39.0 0.6 — 39.6 Total Fixed Maturity Securities $ 41,079.3 $ 6,455.6 $ 91.2 $ 47,443.7 (1) Allowance for Credit Losses The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position. September 30, 2020 Less Than 12 Months 12 Months or Greater Fair Gross Fair Gross (in millions of dollars) States, Municipalities, and Political Subdivisions $ 0.1 $ — $ 275.0 $ 3.6 Foreign Governments — — 29.1 1.4 Public Utilities 24.2 2.2 108.5 4.4 Mortgage/Asset-Backed Securities 0.1 — 21.4 0.2 All Other Corporate Bonds 186.2 50.5 1,435.1 83.9 Redeemable Preferred Stocks — — 9.5 0.1 Total Fixed Maturity Securities $ 210.6 $ 52.7 $ 1,878.6 $ 93.6 December 31, 2019 Less Than 12 Months 12 Months or Greater Fair Gross Fair Gross (in millions of dollars) United States Government and Government Agencies and Authorities $ 110.2 $ 0.4 $ — $ — States, Municipalities, and Political Subdivisions 331.0 7.3 0.3 — Foreign Governments 69.4 1.0 — — Public Utilities 168.3 2.6 37.0 5.6 Mortgage/Asset-Backed Securities 47.0 0.4 3.1 — All Other Corporate Bonds 579.1 29.1 379.8 44.8 Total Fixed Maturity Securities $ 1,305.0 $ 40.8 $ 420.2 $ 50.4 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. September 30, 2020 Amortized Cost, Net of ACL Unrealized Gain Position Unrealized Loss Position Gross Gain Fair Value Gross Loss Fair Value (in millions of dollars) 1 year or less $ 1,037.7 $ 17.8 $ 1,014.5 $ 2.1 $ 38.9 Over 1 year through 5 years 6,811.8 629.0 6,994.9 52.9 393.0 Over 5 years through 10 years 12,880.8 2,189.8 14,384.6 45.7 640.3 Over 10 years 19,192.0 5,225.3 23,376.4 45.4 995.5 39,922.3 8,061.9 45,770.4 146.1 2,067.7 Mortgage/Asset-Backed Securities 1,317.1 115.2 1,410.6 0.2 21.5 Total Fixed Maturity Securities $ 41,239.4 $ 8,177.1 $ 47,181.0 $ 146.3 $ 2,089.2 December 31, 2019 Amortized Cost Unrealized Gain Position Unrealized Loss Position Gross Gain Fair Value Gross Loss Fair Value (in millions of dollars) 1 year or less $ 821.5 $ 14.5 $ 832.6 $ 0.2 $ 3.2 Over 1 year through 5 years 6,286.2 456.5 6,423.4 41.7 277.6 Over 5 years through 10 years 13,570.8 1,688.3 14,881.3 14.6 363.2 Over 10 years 19,023.0 4,195.0 22,152.6 34.3 1,031.1 39,701.5 6,354.3 44,289.9 90.8 1,675.1 Mortgage/Asset-Backed Securities 1,377.8 101.3 1,428.6 0.4 50.1 Total Fixed Maturity Securities $ 41,079.3 $ 6,455.6 $ 45,718.5 $ 91.2 $ 1,725.2 The following chart depicts an analysis of our fixed maturity security portfolio between investment-grade and below-investment-grade categories as of September 30, 2020: Gross Unrealized Loss Fair Value Gross Unrealized Gain Amount Percent of Total Gross Unrealized Loss (in millions of dollars) Investment-Grade $ 45,668.1 $ 7,987.3 $ 32.7 22.4 % Below-Investment-Grade 3,602.1 189.8 113.6 77.6 % Total Fixed Maturity Securities $ 49,270.2 $ 8,177.1 $ 146.3 100.0 % The 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. Below-investment-grade fixed maturity securities are generally more likely to develop credit concerns than investment-grade securities. At September 30, 2020, 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 a credit loss will recover in value. We have the ability and intent to continue to hold these securities to recovery of amortized cost and believe that no credit losses have occurred. As of September 30, 2020, we held 87 individual investment-grade fixed maturity securities and 61 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 4 investment-grade fixed maturity securities and 15 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 represents a credit loss, 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 • 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 whether a credit loss exists 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 credit losses on a timely basis for investments determined to have a credit loss. We calculate the allowance for credit losses of fixed maturity securities based on the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of acquisition. When estimating future cash flows, we analyze the strength of the issuer’s balance sheet, its debt obligations and near-term funding arrangements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. As of September 30, 2020, with respect to the fixed maturity securities for which the allowance for credit losses was recognized, we do not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of our estimated value. The following table presents a rollforward of the allowance for credit losses on available-for-sale fixed maturity securities, all of which are classified as "all other corporate bonds" in the preceding tables, at September 30, 2020: Three Months Ended Nine Months Ended (in millions of dollars) Balance, beginning of period $ 29.8 $ — Credit losses on securities for which credit losses were not previously recorded — 55.6 Change in allowance due to change in intent to hold securities to maturity (16.9) (37.7) Change in allowance on securities with allowance recorded in previous period (0.4) (5.4) Balance, end of period $ 12.5 $ 12.5 At September 30, 2020, we had commitments of $185.3 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 September 30, 2020, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $725.2 million, comprised of $36.6 million of tax credit partnerships and $688.6 million of private equity partnerships. At December 31, 2019, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $675.1 million, comprised of $58.4 million of tax credit partnerships and $616.7 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 September 30 Nine Months Ended September 30 2020 2019 2020 2019 (in millions of dollars) Income Tax Credits $ 8.3 $ 9.5 $ 24.9 $ 28.3 Amortization, Net of Tax (5.4) (6.1) (16.4) (19.0) Income Tax Benefit $ 2.9 $ 3.4 $ 8.5 $ 9.3 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 $1.8 million of unfunded unconditional commitments at September 30, 2020. See Note 3 for commitments to fund private equity partnerships. 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. We adopted new accounting guidance that requires us to estimate an allowance for expected credit losses effective January 1, 2020. We carry our mortgage loans at amortized cost less the allowance for expected credit losses. The amortized cost of our mortgage loans was $2,421.1 million and $2,397.0 million at September 30, 2020 and December 31, 2019, respectively. The allowance for expected credit losses was $14.6 million at September 30, 2020. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. We report accrued interest income for our mortgage loans as accrued investment income on our consolidated balance sheets, and the amount of the accrued income was $8.1 million and $8.3 million at September 30, 2020 and December 31, 2019, respectively. The carrying amount of mortgage loans by property type and geographic region are presented below. September 30, 2020 December 31, 2019 (in millions of dollars) Carrying Amount Percent of Total Carrying Amount Percent of Total Property Type Apartment $ 635.6 26.4 % $ 608.8 25.4 % Industrial 602.7 25.1 623.6 26.0 Office 522.8 21.7 549.3 22.9 Retail 598.6 24.9 567.5 23.7 Other 46.8 1.9 47.8 2.0 Total $ 2,406.5 100.0 % $ 2,397.0 100.0 % Region New England $ 40.5 1.7 % $ 28.9 1.2 % Mid-Atlantic 204.4 8.5 184.5 7.7 East North Central 341.8 14.2 329.2 13.7 West North Central 201.6 8.4 215.4 9.0 South Atlantic 509.6 21.2 509.2 21.2 East South Central 110.9 4.6 114.3 4.8 West South Central 259.0 10.8 246.6 10.3 Mountain 252.6 10.5 268.2 11.2 Pacific 486.1 20.1 500.7 20.9 Total $ 2,406.5 100.0 % $ 2,397.0 100.0 % The risk in our mortgage loan portfolio is primarily related to vacancy rates. Events or developments, such as economic conditions that impact the ability of the borrowers to ensure occupancy of the property, may have a negative effect on our mortgage loan portfolio, particularly to the extent that our portfolio is concentrated in an affected region or property type. An increase in vacancies increases the probability of default, which would negatively affect our expected losses in our mortgage loan portfolio. 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. We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of default method. For each loan, we estimate the probability that the loan will default before its maturity (probability of default) and the amount of the loss if the loan defaults (loss given default). These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss. As we are the original underwriter of the mortgage loans, the amortized cost generally equals the principal amount of the loan. We measure losses on defaults of our mortgage loans as the excess amortized cost of the mortgage loan over the fair value of the underlying collateral in the event that we foreclose on the loan or over the expected future cash flows of the loan if we retain the mortgage loan until payoff. We do not purchase mortgage loans with existing credit impairments. In estimating the probability of default, we consider historical experience, current market conditions, and reasonable and supportable forecasts about the future market conditions. We utilize our historical loan experience in combination with a large third-party industry database for a period of time that aligns with the average life of our loans based on the maturity dates of the loans and prepayment experience. Our model utilizes an industry database of the historical loss experience based on our actual portfolio characteristics such as loan-to-value, debt service coverage, collateral type, geography, and late payment history. In addition, because we actively manage our portfolio, we may extend the term of a loan in certain situations and will accordingly extend the maturity date in the estimate of probability of default. In estimating the loss given default, we primarily consider the type and value of collateral and secondarily the expected liquidation costs and time to recovery. The primary market factors that we consider in our forecast of future market conditions are gross domestic product, unemployment rates, interest rates, inflation, commercial real estate values, household formation, and retail sales. We also forecast certain loan specific factors such as growth in the fair value and net operating income of collateral by property type. We include our estimate of these factors over a two-year period and for the remainder of the loans’ estimated lives, adjusted for estimated prepayments. Past the two-year forecast period, we revert to the historical assumptions ratably by the end of the fifth year of the loan after which we utilize only historical assumptions. We utilize various scenarios to estimate our allowance for expected losses ranging from a base case scenario that reflects normal market conditions to a severe case scenario that reflects adverse market conditions. We will adjust our allowance each period to utilize the scenario or weighting of the scenarios that best reflects our view of current market conditions. The following tables present information about mortgage loans by the applicable credit quality indicators: September 30, 2020 December 31, 2019 (in millions of dollars) Carrying Amount Percent of Total Carrying Amount Percent of Total Internal Rating A $ 466.3 19.4 % $ 485.6 20.3 % BBB 1,894.4 78.7 1,911.4 79.7 BB 29.4 1.2 — — B 16.4 0.7 — — Total $ 2,406.5 100.0 % $ 2,397.0 100.0 % Loan-to-Value Ratio <= 65% $ 1,250.1 51.9 % $ 1,215.1 50.7 % > 65% <= 75% 1,053.7 43.8 1,053.0 43.9 > 75% <= 85% 45.5 1.9 91.4 3.8 > 85% 57.2 2.4 37.5 1.6 Total $ 2,406.5 100.0 % $ 2,397.0 100.0 % The followin g table presents the amortized cost of our mortgage loans by year of origination and credit quality indicators at September 30, 2020 : Prior to 2016 2016 2017 2018 2019 2020 Total (in millions of dollars) Internal Rating A $ 233.0 $ 104.5 $ 52.7 $ 60.3 $ 17.1 $ — $ 467.6 BBB 515.2 290.1 281.5 333.5 353.5 133.7 1,907.5 BB 29.6 — — — — — 29.6 B 16.4 — — — — — 16.4 Total Amortized Cost 794.2 394.6 334.2 393.8 370.6 133.7 2,421.1 Allowance for credit losses (2.8) (2.6) (1.8) (3.1) (3.1) (1.2) (14.6) Carrying Amount $ 791.4 $ 392.0 $ 332.4 $ 390.7 $ 367.5 $ 132.5 $ 2,406.5 Loan-to-Value Ratio <=65% $ 652.1 $ 245.4 $ 146.8 $ 78.1 $ 83.3 $ 48.5 $ 1,254.2 >65<=75% 65.2 121.8 187.4 315.7 287.3 85.2 1,062.6 >75%<=85% 18.9 27.4 — — — — 46.3 >85% 58.0 — — — — — 58.0 Total Amortized Cost 794.2 394.6 334.2 393.8 370.6 133.7 2,421.1 Allowance for credit losses (2.8) (2.6) (1.8) (3.1) (3.1) (1.2) (14.6) Carrying Amount $ 791.4 $ 392.0 $ 332.4 $ 390.7 $ 367.5 $ 132.5 $ 2,406.5 The following table presents a roll-forward of allowance for expected credit losses by loan-to-value ratio: Three Months Ended September 30, 2020 Beginning of Period Current Period Provisions Write-Offs Recoveries End of Period (in millions of dollars) Loan-to-Value Ratio <=65% $ 3.9 $ — $ — $ — $ 3.9 >65<=75% 7.9 1.2 — — 9.1 >75%<=85% 1.0 (0.3) — — 0.7 >85% 0.4 0.5 — — 0.9 Total $ 13.2 $ 1.4 $ — $ — $ 14.6 Nine Months Ended September 30, 2020 Beginning of Year Current Period Provisions Write-Offs Recoveries End of Period (in millions of dollars) Loan-to-Value Ratio <=65% $ 2.8 $ 1.1 $ — $ — $ 3.9 >65<=75% 4.6 4.5 — — 9.1 >75%<=85% 0.5 0.2 — — 0.7 >85% 0.4 0.5 — — 0.9 Total $ 8.3 $ 6.3 $ — $ — $ 14.6 The increase in our estimate of expected losses during the third quarter and first nine months of 2020 is primarily due to the expected impact of COVID-19, specifically impacts to underlying commercial real estate values, and reflects market conditions at September 30, 2020. There were no troubled debt restructurings during the three and nine months ended September 30, 2020 and 2019. At September 30, 2020 and December 31, 2019, we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments. We had no loan foreclosures for the three and nine months ended September 30, 2020 and 2019. For the three and nine months ended September 30, 2020, we had no impaired mortgage loans. Our average investment in impaired mortgage loans was zero and $0.8 million for the three and nine months ended September 30, 2019, respectively. We did not recognize any interest income on mortgage loans subsequent to impairment during the three and nine months ended September 30, 2020 or 2019. At September 30, 2020, we had $26.9 million of commitments to fund commercial mortgage loans. Consistent with how we determine the estimate of current expected credit losses for our funded mortgage loans each period, we estimate expected credit losses for loans that have not been funded but we are committed to fund at the end of each period. At September 30, 2020, we had $0.2 million of expected credit losses related to unfunded commitments on our consolidated balance sheets. 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. We had no outstanding securities lending agreements at September 30, 2020. As of December 31, 2019, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.4 million, for which we received collateral in the form of securities of $186.5 million. We had no outstanding repurchase agreements at September 30, 2020 or December 31, 2019. 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. Advances received from the FHLB are used for the purchase of short-term investments or fixed maturity securities. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs. The carrying value of common stock owned, collateral posted, and advances received are as follows: September 30, 2020 December 31, 2019 (in millions of dollars) Carrying Value of FHLB Common Stock $ 21.7 $ 18.5 Advances from FHLB $ 30.2 $ — Carrying Value of Collateral Posted to FHLB Fixed Maturity Securities $ 970.4 $ 182.1 Commercial Mortgage Loans 1,099.7 164.4 Total Carrying Value of Collateral Posted to FHLB $ 2,070.1 $ 346.5 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. September 30, 2020 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 $ 38.3 $ — $ 38.3 $ (4.2) $ (34.1) $ — Financial Liabilities: Derivatives $ 34.0 $ — $ 34.0 $ (33.4) $ — $ 0.6 December 31, 2019 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 $ 27.5 $ — $ 27.5 $ (4.0) $ (23.5) $ — Securities Lending 176.4 — 176.4 (176.4) — — Total $ 203.9 $ — $ 203.9 $ (180.4) $ (23.5) $ — Financial Liabilities: Derivatives $ 34.6 $ — $ 34.6 $ (31.3) $ — $ 3.3 Net Investment Income Net investment income reported in our consolidated statements of income is presented below. Certain prior period amounts have been reclassified to conform to the current period presentation. Three Months Ended September 30 Nine Months Ended September 30 2020 2019 2020 2019 (in millions of dollars) Fixed Maturity Securities $ 560.8 $ 546.7 $ 1,643.1 $ 1,656.3 Derivatives 18.7 19.1 59.6 55.0 Mortgage Loans 26.1 25.4 83.1 77.0 Policy Loans 5.1 5.0 14.9 14.5 Other Long-term Investments Perpetual Preferred Securities 1 (0.2) 0.1 (6.7) 4.8 Private Equity Partnerships 2 11.3 4.7 (9.6) 19.5 Other 0.4 0.2 5.3 2.8 Short-term Investments 1.3 8.7 10.1 22.4 Gross Investment Income 623.5 609.9 1,799.8 1,852.3 Less Investment Expenses 7.2 7.3 23.3 23.6 Less Investment Income on Participation Fund Account Assets 3.1 3.2 9.3 9.7 Net Investment Income $ 613.2 $ 599.4 $ 1,767.2 $ 1,819.0 1 The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2020 related to perpetual preferred securities still held at September 30, 2020 was $(0.8) million and $(8.7) million, respectively. The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2019 related to perpetual preferred securities still held at September 30, 2019 was $0.3 million and $3.3 million, respectively. 2 The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2020 related to private equity partnerships still held at September 30, 2020 was $8.5 million and $(27.1) million, respectively. The net unrealized gain (loss) recognized in net investment income for the three and nine months ended September 30, 2019 related to private equity partnerships still held at September 30, 2019 was $(1.1) million and $2.6 million, respectively. See Note 3 for further discussion of private equity partnerships. Realized Investment Gain and Loss Realized investment gains and losses are as follows: Three Months Ended September 30 Nine Months Ended September 30 2020 2019 2020 2019 (in millions of dollars) Fixed Maturity Securities Gross Gains on Sales $ 3.3 $ 11.3 $ 8.3 $ 22.5 Gross Losses on Sales (2.8) (5.7) (7.6) (30.5) Credit Losses — (20.8) (59.3) (20.8) Mortgage Loans and Other Invested Assets Gross Gains on Sales 0.9 0.6 1.2 4.5 Gross Losses on Sales (0.2) — (0.4) (0.1) Impairment Loss (8.4) — (8.4) — Credit Losses (1.6) — (6.2) — Embedded Derivative in Modified Coinsurance Arrangement 14.1 (11.1) (30.9) (6.4) All Other Derivatives (0.6) (0.1) (2.3) (0.7) Foreign Currency Transactions (0.3) (0.4) (0.2) (0.9) Net Realized Investment Gain (Loss) $ 4.4 $ (26.2) $ (105.8) $ (32.4) |
