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As reported in Form 10-Q | Corrections to shadow adjustments | As reported in Form 10-Q/A | |||||||||
Deferred acquisition costs | $ | 580.7 | $ | 42.7 | $ | 623.4 | |||||
Income tax assets | 594.5 | 105.0 | 699.5 | ||||||||
Change in total assets | $ | 147.7 | |||||||||
Liabilities for insurance products | $ | 24,593.5 | $ | 334.4 | $ | 24,927.9 | |||||
Accumulated other comprehensive income | 1,421.1 | (186.7 | ) | 1,234.4 | |||||||
Change to total liabilities and shareholders' equity | $ | 147.7 | |||||||||
Comprehensive income: | |||||||||||
For the three months ended September 30, 2012 | $ | 425.3 | $ | (186.7 | ) | $ | 238.6 | ||||
For the nine months ended September 30, 2012 | $ | 759.3 | $ | (186.7 | ) | $ | 572.6 |
|
September 30, 2012 | December 31, 2011 | ||||||
(Restated) | |||||||
Net unrealized appreciation (depreciation) on fixed maturity securities, available for sale, on which an other-than-temporary impairment loss has been recognized | $ | 9.6 | $ | (4.4 | ) | ||
Net unrealized gains on all other investments | 2,914.8 | 1,733.2 | |||||
Adjustment to present value of future profits (a) | (200.7 | ) | (214.8 | ) | |||
Adjustment to deferred acquisition costs | (458.0 | ) | (289.3 | ) | |||
Adjustment to insurance liabilities | (334.4 | ) | — | ||||
Unrecognized net loss related to deferred compensation plan | (8.8 | ) | (8.3 | ) | |||
Deferred income tax liabilities | (688.1 | ) | (434.8 | ) | |||
Accumulated other comprehensive income | $ | 1,234.4 | $ | 781.6 |
(a) | The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003 (the date our Predecessor emerged from bankruptcy). |
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | Other-than- temporary impairments included in accumulated other comprehensive income | |||||||||||||||
Corporate securities | $ | 14,586.6 | $ | 2,265.7 | $ | (28.8 | ) | $ | 16,823.5 | $ | — | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 164.2 | 6.9 | — | 171.1 | — | ||||||||||||||
States and political subdivisions | 1,785.6 | 267.9 | (5.4 | ) | 2,048.1 | — | |||||||||||||
Debt securities issued by foreign governments | .8 | — | — | .8 | — | ||||||||||||||
Asset-backed securities | 1,391.3 | 92.0 | (6.6 | ) | 1,476.7 | — | |||||||||||||
Collateralized debt obligations | 327.6 | 5.2 | (.8 | ) | 332.0 | — | |||||||||||||
Commercial mortgage-backed securities | 1,400.7 | 142.7 | (.8 | ) | 1,542.6 | — | |||||||||||||
Mortgage pass-through securities | 18.8 | 1.4 | — | 20.2 | — | ||||||||||||||
Collateralized mortgage obligations | 2,150.1 | 178.1 | (.9 | ) | 2,327.3 | (7.3 | ) | ||||||||||||
Total fixed maturities, available for sale | $ | 21,825.7 | $ | 2,959.9 | $ | (43.3 | ) | $ | 24,742.3 | $ | (7.3 | ) |
Amortized cost | Estimated fair value | ||||||
(Dollars in millions) | |||||||
Due in one year or less | $ | 178.3 | $ | 180.7 | |||
Due after one year through five years | 1,558.1 | 1,697.5 | |||||
Due after five years through ten years | 4,491.1 | 5,038.7 | |||||
Due after ten years | 10,309.7 | 12,126.6 | |||||
Subtotal | 16,537.2 | 19,043.5 | |||||
Structured securities | 5,288.5 | 5,698.8 | |||||
Total fixed maturities, available for sale | $ | 21,825.7 | $ | 24,742.3 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Credit losses on fixed maturity securities, available for sale, beginning of period | $ | (1.7 | ) | $ | (1.6 | ) | $ | (2.0 | ) | $ | (6.1 | ) | |||
Add: credit losses on other-than-temporary impairments not previously recognized | — | — | — | — | |||||||||||
Less: credit losses on securities sold | — | .7 | .3 | 5.2 | |||||||||||
Less: credit losses on securities impaired due to intent to sell (a) | — | — | — | — | |||||||||||
Add: credit losses on previously impaired securities | — | — | — | — | |||||||||||
Less: increases in cash flows expected on previously impaired securities | — | — | — | — | |||||||||||
Credit losses on fixed maturity securities, available for sale, end of period | $ | (1.7 | ) | $ | (.9 | ) | $ | (1.7 | ) | $ | (.9 | ) |
(a) | Represents securities for which the amount previously recognized in accumulated other comprehensive income was recognized in earnings because we intend to sell the security or we more likely than not will be required to sell the security before recovery of its amortized cost basis. |
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Description of securities | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | ||||||||||||||||||
States and political subdivisions | $ | 40.2 | $ | (2.0 | ) | $ | 68.7 | $ | (3.4 | ) | $ | 108.9 | $ | (5.4 | ) | |||||||||
Corporate securities | 300.5 | (9.2 | ) | 278.1 | (19.6 | ) | 578.6 | (28.8 | ) | |||||||||||||||
Asset-backed securities | 42.1 | (.3 | ) | 137.8 | (6.3 | ) | 179.9 | (6.6 | ) | |||||||||||||||
Collateralized debt obligations | 12.7 | (.1 | ) | 47.2 | (.7 | ) | 59.9 | (.8 | ) | |||||||||||||||
Commercial mortgage-backed securities | 16.0 | (.1 | ) | 14.3 | (.7 | ) | 30.3 | (.8 | ) | |||||||||||||||
Mortgage pass-through securities | — | — | 2.0 | — | 2.0 | — | ||||||||||||||||||
Collateralized mortgage obligations | 58.5 | (.5 | ) | 36.0 | (.4 | ) | 94.5 | (.9 | ) | |||||||||||||||
Total fixed maturities, available for sale | $ | 470.0 | $ | (12.2 | ) | $ | 584.1 | $ | (31.1 | ) | $ | 1,054.1 | $ | (43.3 | ) | |||||||||
Equity securities | $ | 2.1 | $ | (.1 | ) | $ | — | $ | — | $ | 2.1 | $ | (.1 | ) |
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Description of securities | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | ||||||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | $ | 9.1 | $ | — | $ | .2 | $ | — | $ | 9.3 | $ | — | ||||||||||||
States and political subdivisions | 6.9 | (.2 | ) | 155.4 | (13.4 | ) | 162.3 | (13.6 | ) | |||||||||||||||
Debt securities issued by foreign governments | .5 | — | — | — | .5 | — | ||||||||||||||||||
Corporate securities | 1,394.7 | (57.0 | ) | 466.2 | (79.9 | ) | 1,860.9 | (136.9 | ) | |||||||||||||||
Asset-backed securities | 437.6 | (14.5 | ) | 147.5 | (22.2 | ) | 585.1 | (36.7 | ) | |||||||||||||||
Collateralized debt obligations | 268.8 | (6.3 | ) | 1.7 | — | 270.5 | (6.3 | ) | ||||||||||||||||
Commercial mortgage-backed securities | 168.8 | (5.2 | ) | 33.0 | (2.7 | ) | 201.8 | (7.9 | ) | |||||||||||||||
Mortgage pass-through securities | 1.2 | — | 2.2 | (.1 | ) | 3.4 | (.1 | ) | ||||||||||||||||
Collateralized mortgage obligations | 645.0 | (20.8 | ) | 29.7 | (.6 | ) | 674.7 | (21.4 | ) | |||||||||||||||
Total fixed maturities, available for sale | $ | 2,932.6 | $ | (104.0 | ) | $ | 835.9 | $ | (118.9 | ) | $ | 3,768.5 | $ | (222.9 | ) | |||||||||
Equity securities | $ | 41.6 | $ | (3.0 | ) | $ | .4 | $ | — | $ | 42.0 | $ | (3.0 | ) |
|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income (loss) for basic earnings per share | $ | (5.0 | ) | $ | 179.5 | $ | 119.8 | $ | 271.3 | ||||||
Add: interest expense on 7.0% Convertible Senior Debentures due 2016 (the “7.0% Debentures”), net of income taxes | — | 3.7 | 11.1 | 11.1 | |||||||||||
Net income for diluted earnings per share | $ | (5.0 | ) | $ | 183.2 | $ | 130.9 | $ | 282.4 | ||||||
Shares: | |||||||||||||||
Weighted average shares outstanding for basic earnings per share | 231,481 | 246,965 | 236,555 | 249,673 | |||||||||||
Effect of dilutive securities on weighted average shares: | |||||||||||||||
7% Debentures | — | 53,367 | 53,037 | 53,367 | |||||||||||
Stock option and restricted stock plans | — | 2,353 | 2,639 | 2,712 | |||||||||||
Warrants | — | 23 | 752 | 333 | |||||||||||
Dilutive potential common shares | — | 55,743 | 56,428 | 56,412 | |||||||||||
Weighted average shares outstanding for diluted earnings per share | 231,481 | 302,708 | 292,983 | 306,085 |
|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues: | |||||||||||||||
Bankers Life: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Annuities | $ | 6.8 | $ | 9.6 | $ | 21.9 | $ | 26.7 | |||||||
Health | 335.1 | 334.0 | 1,010.6 | 1,017.1 | |||||||||||
Life | 74.2 | 61.0 | 209.1 | 170.4 | |||||||||||
Net investment income (a) | 221.6 | 158.0 | 642.1 | 564.5 | |||||||||||
Fee revenue and other income (a) | 4.0 | 3.6 | 10.2 | 9.2 | |||||||||||
Total Bankers Life revenues | 641.7 | 566.2 | 1,893.9 | 1,787.9 | |||||||||||
Washington National: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Health | 143.4 | 141.2 | 429.0 | 423.1 | |||||||||||
Life | 3.6 | 3.9 | 11.6 | 11.8 | |||||||||||
Other | .8 | .8 | 2.2 | 3.0 | |||||||||||
Net investment income (a) | 50.9 | 47.3 | 151.9 | 140.3 | |||||||||||
Fee revenue and other income (a) | .3 | .4 | .8 | .9 | |||||||||||
Total Washington National revenues | 199.0 | 193.6 | 595.5 | 579.1 | |||||||||||
Colonial Penn: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Health | 1.3 | 1.4 | 4.0 | 4.5 | |||||||||||
Life | 53.2 | 49.4 | 158.5 | 147.5 | |||||||||||
Net investment income (a) | 9.9 | 10.1 | 30.1 | 30.9 | |||||||||||
Fee revenue and other income (a) | .2 | .2 | .6 | .6 | |||||||||||
Total Colonial Penn revenues | 64.6 | 61.1 | 193.2 | 183.5 | |||||||||||
Other CNO Business: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Annuities | 2.5 | 3.4 | 8.3 | 8.6 | |||||||||||
Health | 6.2 | 6.9 | 19.3 | 21.3 | |||||||||||
Life | 62.9 | 61.7 | 196.2 | 184.9 | |||||||||||
Other | .2 | .2 | .6 | 1.4 | |||||||||||
Net investment income (a) | 86.7 | 74.6 | 259.2 | 256.0 | |||||||||||
Total Other CNO Business revenues | 158.5 | 146.8 | 483.6 | 472.2 | |||||||||||
Corporate operations: | |||||||||||||||
Net investment income | 19.4 | (6.7 | ) | 49.8 | 10.4 | ||||||||||
Fee and other income | .7 | .7 | 2.0 | 1.8 | |||||||||||
Total corporate revenues | 20.1 | (6.0 | ) | 51.8 | 12.2 | ||||||||||
Total revenues | 1,083.9 | 961.7 | 3,218.0 | 3,034.9 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Expenses: | |||||||||||||||
Bankers Life: | |||||||||||||||
Insurance policy benefits | $ | 434.6 | $ | 360.6 | $ | 1,252.2 | $ | 1,174.3 | |||||||
Amortization | 35.6 | 44.1 | 143.0 | 159.5 | |||||||||||
Interest expense on investment borrowings | 1.3 | 1.2 | 4.1 | 3.5 | |||||||||||
Other operating costs and expenses | 89.6 | 80.9 | 267.4 | 236.9 | |||||||||||
Total Bankers Life expenses | 561.1 | 486.8 | 1,666.7 | 1,574.2 | |||||||||||
Washington National: | |||||||||||||||
Insurance policy benefits | 111.1 | 119.0 | 340.5 | 349.5 | |||||||||||
Amortization | 11.2 | 10.8 | 34.7 | 35.6 | |||||||||||
Interest expense on investment borrowings | .7 | .2 | 2.2 | .2 | |||||||||||
Other operating costs and expenses | 42.1 | 42.4 | 125.6 | 126.5 | |||||||||||
Total Washington National expenses | 165.1 | 172.4 | 503.0 | 511.8 | |||||||||||
Colonial Penn: | |||||||||||||||
Insurance policy benefits | 38.3 | 36.0 | 120.0 | 112.7 | |||||||||||
Amortization | 3.5 | 3.5 | 11.1 | 11.0 | |||||||||||
Other operating costs and expenses | 25.4 | 22.9 | 73.9 | 66.3 | |||||||||||
Total Colonial Penn expenses | 67.2 | 62.4 | 205.0 | 190.0 | |||||||||||
Other CNO Business: | |||||||||||||||
Insurance policy benefits | 157.1 | 111.5 | 401.0 | 358.2 | |||||||||||
Amortization | 10.5 | 10.4 | 25.1 | 28.4 | |||||||||||
Interest expense on investment borrowings | 5.0 | 5.3 | 15.1 | 15.2 | |||||||||||
Other operating costs and expenses | 39.5 | 16.8 | 96.4 | 55.1 | |||||||||||
Total Other CNO Business expenses | 212.1 | 144.0 | 537.6 | 456.9 | |||||||||||
Corporate operations: | |||||||||||||||
Interest expense on corporate debt | 16.3 | 18.7 | 50.4 | 58.6 | |||||||||||
Interest expense on borrowings of variable interest entities | 5.8 | 2.4 | 14.5 | 8.4 | |||||||||||
Interest expense on investment borrowings | .1 | .1 | .4 | .1 | |||||||||||
Loss on extinguishment of debt | 198.5 | 1.1 | 199.2 | 3.1 | |||||||||||
Other operating costs and expenses | 20.9 | 19.0 | 54.5 | 43.0 | |||||||||||
Total corporate expenses | 241.6 | 41.3 | 319.0 | 113.2 | |||||||||||
Total expenses | 1,247.1 | 906.9 | 3,231.3 | 2,846.1 | |||||||||||
Income (loss) before net realized investment losses and fair value changes in embedded derivative liabilities (net of related amortization) and income taxes: | |||||||||||||||
Bankers Life | 80.6 | 79.4 | 227.2 | 213.7 | |||||||||||
Washington National | 33.9 | 21.2 | 92.5 | 67.3 | |||||||||||
Colonial Penn | (2.6 | ) | (1.3 | ) | (11.8 | ) | (6.5 | ) | |||||||
Other CNO Business | (53.6 | ) | 2.8 | (54.0 | ) | 15.3 | |||||||||
Corporate operations | (221.5 | ) | (47.3 | ) | (267.2 | ) | (101.0 | ) | |||||||
Income (loss) before net realized investment losses and fair value changes in embedded derivative liabilities (net of related amortization) and income taxes | $ | (163.2 | ) | $ | 54.8 | $ | (13.3 | ) | $ | 188.8 |
(a) | It is not practicable to provide additional components of revenue by product or services. |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Total segment revenues | $ | 1,083.9 | $ | 961.7 | $ | 3,218.0 | $ | 3,034.9 | |||||||
Net realized investment gains | 9.1 | 30.6 | 63.9 | 38.6 | |||||||||||
Consolidated revenues | $ | 1,093.0 | $ | 992.3 | $ | 3,281.9 | $ | 3,073.5 | |||||||
Total segment expenses | $ | 1,247.1 | $ | 906.9 | $ | 3,231.3 | $ | 2,846.1 | |||||||
Insurance policy benefits - fair value changes in embedded derivative liabilities | 4.6 | 33.9 | 10.7 | 33.9 | |||||||||||
Amortization related to fair value changes in embedded derivative liabilities | (1.6 | ) | (14.1 | ) | (4.0 | ) | (14.1 | ) | |||||||
Amortization related to net realized investment gains | 1.7 | 3.9 | 5.9 | 3.7 | |||||||||||
Consolidated expenses | $ | 1,251.8 | $ | 930.6 | $ | 3,243.9 | $ | 2,869.6 |
|
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|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Current tax expense | $ | 2.4 | $ | 2.3 | $ | 9.1 | $ | 7.2 | |||||||
Deferred tax expense (benefit) | 11.1 | 22.9 | 76.4 | 68.4 | |||||||||||
Valuation allowance applicable to current year income | (31.8 | ) | — | (31.8 | ) | — | |||||||||
Income tax expense (benefit) calculated based on estimated annual effective tax rate | (18.3 | ) | 25.2 | 53.7 | 75.6 | ||||||||||
Income tax expense (benefit) on discrete items: | |||||||||||||||
Valuation allowance reduction applicable to income in future years | (111.2 | ) | (143.0 | ) | (111.2 | ) | (143.0 | ) | |||||||
Deferred tax benefit related to loss on extinguishment of debt and other items | (24.3 | ) | — | (24.3 | ) | — | |||||||||
Total income tax benefit | $ | (153.8 | ) | $ | (117.8 | ) | $ | (81.8 | ) | $ | (67.4 | ) |
Nine months ended | |||||
September 30, | |||||
2012 | 2011 | ||||
U.S. statutory corporate rate | 35.0 | % | 35.0 | % | |
Valuation allowance reduction applicable to current year income | (13.8 | ) | — | ||
Nondeductible amounts | .5 | 1.8 | |||
State taxes | 1.0 | 1.0 | |||
Provision for tax issues, tax credits and other | — | (.8 | ) | ||
Estimated annual effective tax rate | 22.7 | % | 37.0 | % |
September 30, 2012 | December 31, 2011 | ||||||
(Restated) | |||||||
Deferred tax assets: | |||||||
Net federal operating loss carryforwards | $ | 1,366.2 | $ | 1,445.2 | |||
Net state operating loss carryforwards | 16.3 | 16.8 | |||||
Tax credits | 37.7 | 32.6 | |||||
Capital loss carryforwards | 305.4 | 342.3 | |||||
Deductible temporary differences: | |||||||
Insurance liabilities | 754.8 | 744.4 | |||||
Other | 81.7 | 64.8 | |||||
Gross deferred tax assets | 2,562.1 | 2,646.1 | |||||
Deferred tax liabilities: | |||||||
Investments | (21.9 | ) | (24.2 | ) | |||
Present value of future profits and deferred acquisition costs | (333.7 | ) | (363.7 | ) | |||
Accumulated other comprehensive income | (688.1 | ) | (434.8 | ) | |||
Gross deferred tax liabilities | (1,043.7 | ) | (822.7 | ) | |||
Net deferred tax assets before valuation allowance | 1,518.4 | 1,823.4 | |||||
Valuation allowance | (795.4 | ) | (938.4 | ) | |||
Net deferred tax assets | 723.0 | 885.0 | |||||
Current income taxes accrued | (23.5 | ) | (19.6 | ) | |||
Income tax assets, net | $ | 699.5 | $ | 865.4 |
Year of expiration | Net operating loss carryforwards (a) | Capital loss | Total loss | |||||||||||||||||||
Life | Non-life | carryforwards | carryforwards | |||||||||||||||||||
2013 | $ | — | $ | — | $ | 836.7 | (b) | $ | 836.7 | |||||||||||||
2014 | — | — | 28.6 | 28.6 | ||||||||||||||||||
2015 | — | — | 7.2 | 7.2 | ||||||||||||||||||
2018 | 550.9 | (a) | — | — | 550.9 | |||||||||||||||||
2021 | 29.5 | — | — | 29.5 | ||||||||||||||||||
2022 | 204.1 | — | — | 204.1 | ||||||||||||||||||
2023 | — | (b) | 2,602.8 | (a) | — | 2,602.8 | ||||||||||||||||
2024 | — | 3.2 | — | 3.2 | ||||||||||||||||||
2025 | — | 118.8 | — | 118.8 | ||||||||||||||||||
2027 | — | 216.8 | — | 216.8 | ||||||||||||||||||
2028 | — | .5 | — | .5 | ||||||||||||||||||
2029 | — | 148.9 | — | 148.9 | ||||||||||||||||||
2031 | — | 28.0 | — | 28.0 | ||||||||||||||||||
Total | $ | 784.5 | $ | 3,119.0 | $ | 872.5 | $ | 4,776.0 |
(a) | The life/non-life allocation summarized above assumes the IRS does not ultimately agree with the tax position we have taken in our tax returns with respect to the allocation of CODI. If the IRS ultimately agrees with our tax position, approximately $631 million of the non-life NOLs expiring in 2023 would be characterized as life NOLs expiring in 2018. |
(b) | The allocation of the capital loss carryforwards summarized above assumes the IRS does not ultimately agree with the tax position we have taken with respect to our investment in Senior Health, which was worthless when it was transferred to the Independent Trust in 2008. If the IRS ultimately agrees with our tax position of classifying this loss as ordinary, capital loss carryforwards expiring in 2013 would decrease and life NOLs expiring in 2023 would increase by $742 million. |
|
September 30, 2012 | December 31, 2011 | ||||||
New Senior Secured Credit Agreement (as defined below) | $ | 675.0 | $ | — | |||
7.0% Debentures | 93.0 | 293.0 | |||||
Previous Senior Secured Credit Agreement (as defined below) | — | 255.2 | |||||
6.375% Senior Secured Notes due October 2020 (the "6.375% Notes") | 275.0 | — | |||||
9.0% Senior Secured Notes due January 2018 (the “9.0% Notes”) | 1.2 | 275.0 | |||||
Senior Health Note due November 12, 2013 (the “Senior Health Note”) | — | 50.0 | |||||
Unamortized discount on New Senior Secured Credit Agreement | (5.5 | ) | — | ||||
Unamortized discount on 7.0% Debentures | (3.6 | ) | (12.9 | ) | |||
Unamortized discount on Previous Senior Secured Credit Agreement | — | (2.4 | ) | ||||
Direct corporate obligations | $ | 1,035.1 | $ | 857.9 |
• | incur or guarantee additional indebtedness or issue preferred stock; |
• | pay dividends or make other distributions to shareholders; |
• | purchase or redeem capital stock or subordinated indebtedness; |
• | make investments; |
• | create liens; |
• | incur restrictions on the Company's ability and the ability of its Restricted Subsidiaries to pay dividends or make other payments to the Company; |
• | sell assets, including capital stock of the Company's subsidiaries; |
• | consolidate or merge with or into other companies or transfer all or substantially all of the Company's assets; and |
• | engage in transactions with affiliates. |
• | limitations on debt (including, without limitation, guarantees and other contingent obligations); |
• | limitations on issuances of disqualified capital stock; |
• | limitations on liens and further negative pledges; |
• | limitations on sales, transfers and other dispositions of assets; |
• | limitations on transactions with affiliates; |
• | limitations on changes in the nature of the Company's business; |
• | limitations on mergers, consolidations and acquisitions; |
• | limitations on dividends and other distributions, stock repurchases and redemptions and other restricted payments; |
• | limitations on investments and acquisitions; |
• | limitations on prepayment of certain debt; |
• | limitations on modifications or waivers of certain debt documents and charter documents; |
• | investment portfolio requirements for insurance subsidiaries; |
• | limitations on restrictions affecting subsidiaries; |
• | limitations on holding company activities; and |
• | limitations on changes in accounting policies. |
(i) | $136.3 million (all of which was recognized in the third quarter of 2012) due to our repurchase of $200.0 million principal amount of 7.0% Debentures pursuant to the Debenture Repurchase Agreement described above and the write-off of unamortized discount and issuance costs associated with the 7.0% Debentures. Additional paid-in capital was also reduced by $24.0 million to extinguish the beneficial conversion feature associated with a portion of the 7.0% Debentures that were repurchased. As the Code limits the deduction to taxable income for losses on the redemption of convertible debt, a minimal tax benefit was recognized related to the repurchase of the 7.0% Debentures; |
(ii) | $57.8 million (all of which was recognized in the third quarter of 2012) related to the tender offer and consent solicitation for the 9.0% Notes; the write-off of unamortized issuance costs related to the 9.0% Notes; and other transaction costs; and |
(iii) | $5.1 million ($4.4 million of which was recognized in the third quarter of 2012) representing the write-off of unamortized discount and issuance costs associated with repayments of our Previous Senior Secured Credit Agreement. |
Year ending September 30, | |||
2013 | $ | 55.4 | |
2014 | 54.3 | ||
2015 | 79.3 | ||
2016 | 79.3 | ||
2017 | 97.2 | ||
Thereafter | 678.7 | ||
$ | 1,044.2 |
|
Amount | Maturity | Interest rate at | ||||
borrowed | date | September 30, 2012 | ||||
$ | 100.0 | November 2013 | Variable rate – 0.515% | |||
67.0 | February 2014 | Fixed rate – 1.830% | ||||
50.0 | August 2014 | Variable rate – 0.565% | ||||
100.0 | August 2014 | Variable rate – 0.476% | ||||
50.0 | September 2015 | Variable rate – 0.747% | ||||
150.0 | October 2015 | Variable rate – 0.571% | ||||
146.0 | November 2015 | Fixed rate – 5.300% | ||||
100.0 | December 2015 | Fixed rate – 4.710% | ||||
100.0 | June 2016 | Variable rate – 0.657% | ||||
75.0 | June 2016 | Variable rate – 0.621% | ||||
100.0 | October 2016 | Variable rate – 0.641% | ||||
50.0 | November 2016 | Variable rate – 0.684% | ||||
50.0 | November 2016 | Variable rate – 0.687% | ||||
100.0 | June 2017 | Variable rate – 0.751% | ||||
100.0 | July 2017 | Fixed rate – 3.900% | ||||
50.0 | August 2017 | Variable rate – 0.635% | ||||
75.0 | August 2017 | Variable rate – 0.577% | ||||
100.0 | October 2017 | Variable rate – 0.885% | ||||
37.0 | November 2017 | Fixed rate – 3.750% | ||||
50.0 | July 2018 | Variable rate – 0.917% | ||||
$ | 1,650.0 |
|
Balance, December 31, 2011 | 241,305 | |||
Treasury stock purchased and retired | (12,894 | ) | ||
Stock options exercised | 692 | |||
Restricted stock vested | 404 | (a) | ||
Balance, September 30, 2012 | 229,507 |
(a) | Such amount was reduced by 143 thousand shares which were tendered to the Company for the payment of federal and state taxes owed on the vesting of restricted stock. |
|
|
Three months ended | Nine months ended | ||||||||||||||||||||||
September 30, 2011 | September 30, 2011 | ||||||||||||||||||||||
As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | ||||||||||||||||||
Amortization | $ | 87.2 | $ | (28.6 | ) | $ | 58.6 | $ | 325.4 | $ | (101.3 | ) | $ | 224.1 | |||||||||
Other operating costs and expenses | 127.6 | 54.4 | 182.0 | 367.1 | 160.7 | 527.8 | |||||||||||||||||
Total benefits and expenses | 904.8 | 25.8 | 930.6 | 2,810.2 | 59.4 | 2,869.6 | |||||||||||||||||
Income before income taxes | 87.5 | (25.8 | ) | 61.7 | 263.3 | (59.4 | ) | 203.9 | |||||||||||||||
Tax expense on period income | 34.5 | (9.3 | ) | 25.2 | 96.9 | (21.3 | ) | 75.6 | |||||||||||||||
Net income | 196.0 | (16.5 | ) | 179.5 | 309.4 | (38.1 | ) | 271.3 | |||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Basic: | |||||||||||||||||||||||
Net income | $ | .79 | $ | (.06 | ) | $ | .73 | $ | 1.24 | $ | (.15 | ) | $ | 1.09 | |||||||||
Diluted: | |||||||||||||||||||||||
Net income | .66 | (.05 | ) | .61 | 1.05 | (.13 | ) | .92 |
Nine months ended | |||||||||||
September 30, 2011 | |||||||||||
As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | |||||||||
Cash flows from operating activities: | |||||||||||
Deferrable policy acquisition costs | $ | (328.6 | ) | $ | 163.7 | $ | (164.9 | ) | |||
Other operating costs | (349.9 | ) | (163.7 | ) | (513.6 | ) | |||||
Net cash used by operating activities | 562.2 | — | 562.2 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Restated) | (Restated) | ||||||||||||||
Balance, beginning of period | $ | 653.5 | $ | 975.5 | $ | 797.1 | $ | 999.6 | |||||||
Additions | 46.7 | 58.3 | 141.4 | 164.9 | |||||||||||
Amortization | (44.5 | ) | (35.5 | ) | (146.4 | ) | (134.7 | ) | |||||||
Amounts related to fair value adjustment of fixed maturities, available for sale | (32.3 | ) | (163.8 | ) | (168.7 | ) | (195.3 | ) | |||||||
Balance, end of period | $ | 623.4 | $ | 834.5 | $ | 623.4 | $ | 834.5 |
|
|
Nine months ended | |||||||
September 30, | |||||||
2012 | 2011 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 119.8 | $ | 271.3 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization and depreciation | 235.2 | 243.6 | |||||
Income taxes | (87.3 | ) | (69.8 | ) | |||
Insurance liabilities | 242.8 | 244.4 | |||||
Accrual and amortization of investment income | (123.1 | ) | 62.9 | ||||
Deferral of policy acquisition costs | (141.4 | ) | (164.9 | ) | |||
Net realized investment gains | (63.9 | ) | (38.6 | ) | |||
Loss on extinguishment of debt | 199.2 | 3.1 | |||||
Other | 43.3 | 10.2 | |||||
Net cash provided by operating activities | $ | 424.6 | $ | 562.2 |
Nine months ended | |||||||
September 30, | |||||||
2012 | 2011 | ||||||
Stock option and restricted stock plans | $ | 10.7 | $ | 10.2 |
|
September 30, 2012 | |||||||||||
VIEs | Eliminations | Net effect on consolidated balance sheet | |||||||||
Assets: | |||||||||||
Investments held by variable interest entities | $ | 829.4 | $ | — | $ | 829.4 | |||||
Notes receivable of VIEs held by insurance subsidiaries | — | (78.5 | ) | (78.5 | ) | ||||||
Cash and cash equivalents held by variable interest entities | 48.2 | — | 48.2 | ||||||||
Accrued investment income | 3.9 | — | 3.9 | ||||||||
Income tax assets, net | 3.2 | (2.3 | ) | .9 | |||||||
Other assets | 10.9 | — | 10.9 | ||||||||
Total assets | $ | 895.6 | $ | (80.8 | ) | $ | 814.8 | ||||
Liabilities: | |||||||||||
Other liabilities | $ | 52.0 | $ | (2.3 | ) | $ | 49.7 | ||||
Borrowings related to variable interest entities | 766.9 | — | 766.9 | ||||||||
Notes payable of VIEs held by insurance subsidiaries | 82.5 | (82.5 | ) | — | |||||||
Total liabilities | $ | 901.4 | $ | (84.8 | ) | $ | 816.6 |
December 31, 2011 | |||||||||||
VIEs | Eliminations | Net effect on consolidated balance sheet | |||||||||
Assets: | |||||||||||
Investments held by variable interest entities | $ | 496.3 | $ | — | $ | 496.3 | |||||
Notes receivable of VIEs held by insurance subsidiaries | — | (45.3 | ) | (45.3 | ) | ||||||
Cash and cash equivalents held by variable interest entities | 74.4 | — | 74.4 | ||||||||
Accrued investment income | 1.7 | — | 1.7 | ||||||||
Income tax assets, net | 6.8 | (1.4 | ) | 5.4 | |||||||
Other assets | 7.7 | — | 7.7 | ||||||||
Total assets | $ | 586.9 | $ | (46.7 | ) | $ | 540.2 | ||||
Liabilities: | |||||||||||
Other liabilities | $ | 30.3 | $ | (.1 | ) | $ | 30.2 | ||||
Borrowings related to variable interest entities | 519.9 | — | 519.9 | ||||||||
Notes payable of VIEs held by insurance subsidiaries | 49.3 | (49.3 | ) | — | |||||||
Total liabilities | $ | 599.5 | $ | (49.4 | ) | $ | 550.1 |
Amortized cost | Estimated fair value | ||||||
(Dollars in millions) | |||||||
Due in one year or less | $ | 3.0 | $ | 3.0 | |||
Due after one year through five years | 413.8 | 413.1 | |||||
Due after five years through ten years | 410.9 | 413.3 | |||||
Total | $ | 827.7 | $ | 829.4 |
|
• | Level 1 – includes assets and liabilities valued using inputs that are unadjusted quoted prices in active markets for identical assets or liabilities. Our Level 1 assets primarily include cash and exchange traded securities. |
• | Level 2 – includes assets and liabilities valued using inputs that are quoted prices for similar assets in an active market, quoted prices for identical or similar assets in a market that is not active, observable inputs, or observable inputs that can be corroborated by market data. Level 2 assets and liabilities include those financial instruments that are valued by independent pricing services using models or other valuation methodologies. These models are primarily industry-standard models that consider various inputs such as interest rate, credit spread, reported trades, broker/dealer quotes, issuer spreads and other inputs that are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial assets in this category primarily include: certain public and privately placed corporate fixed maturity securities; certain government or agency securities; certain mortgage and asset-backed securities; certain equity securities; most investments held by our consolidated VIEs; certain mutual fund and hedge fund investments; and most short-term investments; and non-exchange-traded derivatives such as call options to hedge liabilities related to our fixed index annuity products. Financial liabilities in this category include investment borrowings, notes payable and borrowings related to VIEs. |
• | Level 3 – includes assets and liabilities valued using unobservable inputs that are used in model-based valuations that contain management assumptions. Level 3 assets and liabilities include those financial instruments whose fair value is estimated based on non-binding broker prices or internally developed models or methodologies utilizing significant inputs not based on, or corroborated by, readily available market information. Financial assets in this category include certain corporate securities (primarily certain below-investment grade privately placed securities), certain structured securities, mortgage loans, and other less liquid securities. Financial liabilities in this category include our insurance liabilities for interest-sensitive products, which includes embedded derivatives (including embedded derivatives related to our fixed index annuity products and to a modified coinsurance arrangement) since their values include significant unobservable inputs including actuarial assumptions. |
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Assets: | |||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||
Corporate securities | $ | — | $ | 16,506.2 | $ | 317.3 | $ | 16,823.5 | |||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 171.1 | — | 171.1 | |||||||||||
States and political subdivisions | — | 2,048.1 | — | 2,048.1 | |||||||||||
Debt securities issued by foreign governments | — | .8 | — | .8 | |||||||||||
Asset-backed securities | — | 1,433.9 | 42.8 | 1,476.7 | |||||||||||
Collateralized debt obligations | — | — | 332.0 | 332.0 | |||||||||||
Commercial mortgage-backed securities | — | 1,540.3 | 2.3 | 1,542.6 | |||||||||||
Mortgage pass-through securities | — | 18.2 | 2.0 | 20.2 | |||||||||||
Collateralized mortgage obligations | — | 2,284.2 | 43.1 | 2,327.3 | |||||||||||
Total fixed maturities, available for sale | — | 24,002.8 | 739.5 | 24,742.3 | |||||||||||
Equity securities: | |||||||||||||||
Corporate securities | 20.5 | 119.2 | 2.2 | 141.9 | |||||||||||
Venture capital investments | — | — | 38.1 | 38.1 | |||||||||||
Total equity securities | 20.5 | 119.2 | 40.3 | 180.0 | |||||||||||
Trading securities: | |||||||||||||||
Corporate securities | — | 49.3 | .6 | 49.9 | |||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 4.9 | — | 4.9 | |||||||||||
States and political subdivisions | — | 17.1 | — | 17.1 | |||||||||||
Asset-backed securities | — | 50.3 | — | 50.3 | |||||||||||
Collateralized debt obligations | — | — | 7.0 | 7.0 | |||||||||||
Commercial mortgage-backed securities | — | 43.6 | — | 43.6 | |||||||||||
Mortgage pass-through securities | — | .2 | — | .2 | |||||||||||
Collateralized mortgage obligations | — | 24.1 | — | 24.1 | |||||||||||
Equity securities | .9 | 1.4 | — | 2.3 | |||||||||||
Total trading securities | .9 | 190.9 | 7.6 | 199.4 | |||||||||||
Investments held by variable interest entities - corporate securities | — | 829.4 | — | 829.4 | |||||||||||
Other invested assets: | |||||||||||||||
Company-owned life insurance | — | 112.3 | — | 112.3 | |||||||||||
Hedge funds | — | 16.3 | — | 16.3 | |||||||||||
Derivatives | — | 81.8 | — | 81.8 | |||||||||||
Total other invested assets | — | 210.4 | — | 210.4 | |||||||||||
Cash and cash equivalents - unrestricted: | |||||||||||||||
Cash | 202.0 | — | — | 202.0 | |||||||||||
Cash equivalents and short-term investments | — | 213.3 | — | 213.3 | |||||||||||
Total cash and cash equivalents - unrestricted | 202.0 | 213.3 | — | 415.3 | |||||||||||
Cash and cash equivalents held by variable interest entities | 48.2 | — | — | 48.2 | |||||||||||
Assets held in separate accounts | — | 15.7 | — | 15.7 | |||||||||||
Total assets carried at fair value by category | $ | 271.6 | $ | 25,581.7 | $ | 787.4 | $ | 26,640.7 | |||||||
Liabilities: | |||||||||||||||
Liabilities for insurance products: | |||||||||||||||
Interest-sensitive products - embedded derivatives associated with fixed index annuity products | $ | — | $ | — | $ | 737.9 | $ | 737.9 | |||||||
Interest-sensitive products - embedded derivatives associated with modified coinsurance agreement | — | — | 6.0 | 6.0 | |||||||||||
Total liabilities for insurance products | — | — | 743.9 | 743.9 | |||||||||||
Total liabilities carried at fair value by category | $ | — | $ | — | $ | 743.9 | $ | 743.9 |
September 30, 2012 | December 31, 2011 | ||||||||||||||||||||||||||
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total estimated fair value | Total carrying amount | Total estimated fair value | Total carrying amount | |||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||
Mortgage loans | $ | — | $ | — | $ | 1,718.3 | $ | 1,718.3 | $ | 1,597.2 | $ | 1,735.4 | $ | 1,602.8 | |||||||||||||
Policy loans | — | 274.1 | — | 274.1 | 274.1 | 279.7 | 279.7 | ||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||
Insurance liabilities for interest-sensitive products excluding embedded derivatives (a) | — | — | 12,186.4 | 12,186.4 | 12,186.4 | 13,165.5 | 13,165.5 | ||||||||||||||||||||
Investment borrowings | — | 1,702.5 | — | 1,702.5 | 1,650.9 | 1,735.7 | 1,676.5 | ||||||||||||||||||||
Borrowings related to variable interest entities | — | 748.3 | — | 748.3 | 766.9 | 485.1 | 519.9 | ||||||||||||||||||||
Notes payable – direct corporate obligations | — | 1,114.4 | — | 1,114.4 | 1,035.1 | 978.3 | 857.9 |
(a) | The estimated fair value of insurance liabilities for interest-sensitive products was approximately equal to its carrying value at September 30, 2012. This was because interest rates credited on the vast majority of account balances approximate current rates paid on similar products and because these rates are not generally guaranteed beyond one year. |
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) (a) | Significant unobservable inputs (Level 3) (a) | Total | ||||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | — | $ | 15,594.4 | $ | 278.1 | $ | 15,872.5 | |||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 303.8 | 1.6 | 305.4 | |||||||||||||||
States and political subdivisions | — | 1,952.3 | 2.1 | 1,954.4 | |||||||||||||||
Debt securities issued by foreign governments | — | 1.4 | — | 1.4 | |||||||||||||||
Asset-backed securities | — | 1,334.3 | 79.7 | 1,414.0 | |||||||||||||||
Collateralized debt obligations | — | — | 327.3 | 327.3 | |||||||||||||||
Commercial mortgage-backed securities | — | 1,415.7 | 17.3 | 1,433.0 | |||||||||||||||
Mortgage pass-through securities | — | 29.8 | 2.2 | 32.0 | |||||||||||||||
Collateralized mortgage obligations | — | 2,051.2 | 124.8 | 2,176.0 | |||||||||||||||
Total fixed maturities, available for sale | — | 22,682.9 | 833.1 | 23,516.0 | |||||||||||||||
Equity securities | 17.9 | 87.3 | 69.9 | 175.1 | |||||||||||||||
Trading securities: | |||||||||||||||||||
Corporate securities | — | 67.6 | — | 67.6 | |||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 4.9 | — | 4.9 | |||||||||||||||
States and political subdivisions | — | 15.6 | — | 15.6 | |||||||||||||||
Asset-backed securities | — | .1 | — | .1 | |||||||||||||||
Commercial mortgage-backed securities | — | — | .4 | .4 | |||||||||||||||
Mortgage pass-through securities | — | .2 | — | .2 | |||||||||||||||
Collateralized mortgage obligations | — | .7 | — | .7 | |||||||||||||||
Equity securities | .7 | 1.4 | — | 2.1 | |||||||||||||||
Total trading securities | .7 | 90.5 | .4 | 91.6 | |||||||||||||||
Investments held by variable interest entities | — | 496.3 | — | 496.3 | |||||||||||||||
Other invested assets | — | 159.9 | (b) | — | 159.9 | ||||||||||||||
Assets held in separate accounts | — | 15.0 | — | 15.0 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | — | — | 669.8 | (c) | 669.8 |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | Includes company-owned life insurance and derivatives. |
(c) | Includes $666.3 million of embedded derivatives associated with our fixed index annuity products and $3.5 million of embedded derivatives associated with a modified coinsurance agreement. |
September 30, 2012 | |||||||||||||||||||||||||||||||
Beginning balance as of June 30, 2012 (a) | Purchases, sales, issuances and settlements, net (c) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 (b) | Ending balance as of September 30, 2012 | Amount of total gains (losses) for the three months ended September 30, 2012 included in our net income relating to assets and liabilities still held as of the reporting date | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||||||||||||||
Corporate securities | $ | 321.0 | $ | 14.0 | $ | — | $ | 7.3 | $ | 12.5 | $ | (37.5 | ) | $ | 317.3 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.5 | (1.5 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
States and political subdivisions | 16.0 | — | — | — | — | (16.0 | ) | — | — | ||||||||||||||||||||||
Asset-backed securities | 23.0 | 15.0 | — | 5.5 | — | (.7 | ) | 42.8 | — | ||||||||||||||||||||||
Collateralized debt obligations | 330.1 | (6.3 | ) | — | 8.2 | — | — | 332.0 | — | ||||||||||||||||||||||
Commercial mortgage-backed securities | — | — | — | — | 2.3 | — | 2.3 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 2.1 | (.1 | ) | — | — | — | — | 2.0 | — | ||||||||||||||||||||||
Collateralized mortgage obligations | 4.5 | (2.8 | ) | .1 | 1.0 | 44.6 | (4.3 | ) | 43.1 | — | |||||||||||||||||||||
Total fixed maturities, available for sale | 698.2 | 18.3 | .1 | 22.0 | 59.4 | (58.5 | ) | 739.5 | — | ||||||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||||
Corporate securities | 3.2 | (1.0 | ) | — | — | — | — | 2.2 | — | ||||||||||||||||||||||
Venture capital investments | 58.0 | — | (23.1 | ) | 3.2 | — | — | 38.1 | (23.1 | ) | |||||||||||||||||||||
Total equity securities | 61.2 | (1.0 | ) | (23.1 | ) | 3.2 | — | — | 40.3 | (23.1 | ) | ||||||||||||||||||||
Trading securities: | |||||||||||||||||||||||||||||||
Corporate securities | — | — | — | — | .6 | — | .6 | — | |||||||||||||||||||||||
States and political subdivisions | .5 | — | — | — | — | (.5 | ) | — | — | ||||||||||||||||||||||
Collateralized debt obligations | 3.4 | 2.8 | — | .8 | — | — | 7.0 | .8 | |||||||||||||||||||||||
Total trading securities | 3.9 | 2.8 | — | .8 | .6 | (.5 | ) | 7.6 | .8 | ||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||||||||||||||
Interest-sensitive products | (705.9 | ) | (22.7 | ) | (15.3 | ) | — | — | — | (743.9 | ) | (15.3 | ) |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service at the end of the period, whereas a broker quote was used as of the beginning of the period. |
(c) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the three months ended September 30, 2012 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 27.0 | $ | (13.0 | ) | $ | — | $ | — | $ | 14.0 | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | (1.5 | ) | — | — | (1.5 | ) | ||||||||||||
Asset-backed securities | 15.0 | — | — | — | 15.0 | ||||||||||||||
Collateralized debt obligations | — | (6.3 | ) | — | — | (6.3 | ) | ||||||||||||
Mortgage pass-through securities | — | (.1 | ) | — | — | (.1 | ) | ||||||||||||
Collateralized mortgage obligations | 11.0 | (13.8 | ) | — | — | (2.8 | ) | ||||||||||||
Total fixed maturities, available for sale | 53.0 | (34.7 | ) | — | — | 18.3 | |||||||||||||
Equity securities - corporate securities | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||
Trading securities - collateralized debt obligations | 2.8 | — | — | — | 2.8 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (23.5 | ) | .2 | (10.2 | ) | 10.8 | (22.7 | ) |
September 30, 2012 | |||||||||||||||||||||||||||||||
Beginning balance as of December 31, 2011 (a) | Purchases, sales, issuances and settlements, net (c) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 (b) | Ending balance as of September 30, 2012 | Amount of total gains (losses) for the nine months ended September 30, 2012 included in our net income relating to assets and liabilities still held as of the reporting date | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||||||||||||||
Corporate securities | $ | 278.1 | $ | 54.9 | $ | — | $ | 9.4 | $ | 67.5 | $ | (92.6 | ) | $ | 317.3 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.6 | (1.6 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
States and political subdivisions | 2.1 | — | — | — | — | (2.1 | ) | — | — | ||||||||||||||||||||||
Asset-backed securities | 79.7 | 11.4 | (.2 | ) | 5.8 | .5 | (54.4 | ) | 42.8 | — | |||||||||||||||||||||
Collateralized debt obligations | 327.3 | (11.6 | ) | — | 16.3 | — | — | 332.0 | — | ||||||||||||||||||||||
Commercial mortgage-backed securities | 17.3 | — | — | .1 | — | (15.1 | ) | 2.3 | — | ||||||||||||||||||||||
Mortgage pass-through securities | 2.2 | (.2 | ) | — | — | — | — | 2.0 | — | ||||||||||||||||||||||
Collateralized mortgage obligations | 124.8 | 30.0 | (.1 | ) | 1.4 | — | (113.0 | ) | 43.1 | — | |||||||||||||||||||||
Total fixed maturities, available for sale | 833.1 | 82.9 | (.3 | ) | 33.0 | 68.0 | (277.2 | ) | 739.5 | — | |||||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||||
Corporate securities | 6.4 | (1.0 | ) | (3.8 | ) | .6 | — | — | 2.2 | (3.8 | ) | ||||||||||||||||||||
Venture capital investments | 63.5 | — | (26.0 | ) | .6 | — | — | 38.1 | (26.0 | ) | |||||||||||||||||||||
Total equity securities | 69.9 | (1.0 | ) | (29.8 | ) | 1.2 | — | — | 40.3 | (29.8 | ) | ||||||||||||||||||||
Trading securities: | |||||||||||||||||||||||||||||||
Corporate securities | — | — | — | .1 | .5 | — | .6 | .1 | |||||||||||||||||||||||
States and political subdivisions | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Collateralized debt obligations | — | 7.0 | — | — | — | — | 7.0 | — | |||||||||||||||||||||||
Commercial mortgage-backed securities | .4 | — | — | — | — | (.4 | ) | — | — | ||||||||||||||||||||||
Total trading securities | .4 | 7.0 | — | .1 | .5 | (.4 | ) | 7.6 | .1 | ||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||||||||||||||
Interest-sensitive products | (669.8 | ) | (52.1 | ) | (22.0 | ) | — | — | — | (743.9 | ) | (22.0 | ) |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service at the end of the period, whereas a broker quote was used as of the beginning of the period. |
(c) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2012 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 70.3 | $ | (15.4 | ) | $ | — | $ | — | $ | 54.9 | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | (1.6 | ) | — | — | (1.6 | ) | ||||||||||||
Asset-backed securities | 15.0 | (3.6 | ) | — | — | 11.4 | |||||||||||||
Collateralized debt obligations | 30.1 | (41.7 | ) | — | — | (11.6 | ) | ||||||||||||
Mortgage pass-through securities | — | (.2 | ) | — | — | (.2 | ) | ||||||||||||
Collateralized mortgage obligations | 45.3 | (15.3 | ) | — | — | 30.0 | |||||||||||||
Total fixed maturities, available for sale | 160.7 | (77.8 | ) | — | — | 82.9 | |||||||||||||
Equity securities - corporate securities | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||
Trading securities - collateralized debt obligations | 7.0 | — | — | — | 7.0 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (75.3 | ) | 41.9 | (50.6 | ) | 31.9 | (52.1 | ) |
September 30, 2011 | ||||||||||||||||||||||||||||||||
Beginning balance as of June 30, 2011 | Purchases, sales, issuances and settlements, net (a) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 | Ending balance as of September 30, 2011 | Amount of total gains (losses) for the three months ended September 30, 2011 included in our net income relating to assets and liabilities still held as of the reporting date | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | ||||||||||||||||||||||||||||||||
Corporate securities | $ | 361.8 | $ | (111.2 | ) | $ | 4.9 | $ | 5.4 | $ | .5 | $ | (17.6 | ) | $ | 243.8 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.7 | — | — | — | — | — | 1.7 | — | ||||||||||||||||||||||||
States and political subdivisions | — | — | — | .1 | 2.0 | — | 2.1 | — | ||||||||||||||||||||||||
Asset-backed securities | 170.7 | 1.2 | — | — | 4.1 | (113.4 | ) | 62.6 | — | |||||||||||||||||||||||
Collateralized debt obligations | 193.5 | 72.7 | — | (6.1 | ) | — | — | 260.1 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 3.2 | (.2 | ) | — | — | — | — | 3.0 | — | |||||||||||||||||||||||
Collateralized mortgage obligations | 204.1 | 3.6 | — | .7 | — | (30.2 | ) | 178.2 | — | |||||||||||||||||||||||
Total fixed maturities, available for sale | 935.0 | (33.9 | ) | 4.9 | 0.1 | 6.6 | (161.2 | ) | 751.5 | — | ||||||||||||||||||||||
Equity securities | 44.6 | 27.3 | — | (.3 | ) | — | — | 71.6 | — | |||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total trading securities | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Investments held by variable interest entities: | ||||||||||||||||||||||||||||||||
Corporate securities | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Liabilities for insurance products: | ||||||||||||||||||||||||||||||||
Interest-sensitive products | (613.4 | ) | 16.3 | (44.8 | ) | — | — | — | (641.9 | ) | (44.8 | ) |
(a) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the three months ended September 30, 2011 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 1.8 | $ | (113.0 | ) | $ | — | $ | — | $ | (111.2 | ) | |||||||
Asset-backed securities | 4.2 | (3.0 | ) | — | — | 1.2 | |||||||||||||
Collateralized debt obligations | 84.2 | (11.5 | ) | — | — | 72.7 | |||||||||||||
Mortgage pass-through securities | — | (.2 | ) | — | — | (.2 | ) | ||||||||||||
Collateralized mortgage obligations | 20.5 | (16.9 | ) | — | — | 3.6 | |||||||||||||
Total fixed maturities, available for sale | 110.7 | (144.6 | ) | — | — | (33.9 | ) | ||||||||||||
Equity securities | 27.3 | — | — | — | 27.3 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (33.1 | ) | 41.7 | (2.6 | ) | 10.3 | 16.3 |
September 30, 2011 | ||||||||||||||||||||||||||||||||
Beginning balance as of December 31, 2010 | Purchases, sales, issuances and settlements, net (a) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 | Ending balance as of September 30, 2011 | Amount of total gains (losses) for the nine months ended September 30, 2011 included in our net income relating to assets and liabilities still held as of the reporting date | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | ||||||||||||||||||||||||||||||||
Corporate securities | $ | 1,907.8 | $ | (289.0 | ) | $ | (16.1 | ) | $ | 12.7 | $ | 39.0 | $ | (1,410.6 | ) | $ | 243.8 | $ | (11.5 | ) | ||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 2.0 | — | — | (.3 | ) | — | — | 1.7 | — | |||||||||||||||||||||||
States and political subdivisions | 2.5 | (2.8 | ) | (.1 | ) | .5 | 2.0 | — | 2.1 | — | ||||||||||||||||||||||
Asset-backed securities | 182.3 | (.6 | ) | — | 2.5 | 15.1 | (136.7 | ) | 62.6 | — | ||||||||||||||||||||||
Collateralized debt obligations | 256.5 | 3.5 | 1.8 | (1.7 | ) | — | — | 260.1 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 3.5 | (.5 | ) | — | — | — | — | 3.0 | — | |||||||||||||||||||||||
Collateralized mortgage obligations | 197.1 | 48.5 | (2.1 | ) | 3.2 | 5.9 | (74.4 | ) | 178.2 | — | ||||||||||||||||||||||
Total fixed maturities, available for sale | 2,551.7 | (240.9 | ) | (16.5 | ) | 16.9 | 62.0 | (1,621.7 | ) | 751.5 | (11.5 | ) | ||||||||||||||||||||
Equity securities | 6.9 | 64.0 | — | .7 | — | — | 71.6 | — | ||||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | .4 | (.4 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Total trading securities | .4 | (.4 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Investments held by variable interest entities: | ||||||||||||||||||||||||||||||||
Corporate securities | 6.7 | (7.9 | ) | 1.5 | (.3 | ) | — | — | — | — | ||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Liabilities for insurance products: | ||||||||||||||||||||||||||||||||
Interest-sensitive products | (553.2 | ) | (35.0 | ) | (53.7 | ) | — | — | — | (641.9 | ) | (53.7 | ) |
(a) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2011 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 1.8 | $ | (290.8 | ) | $ | — | $ | — | $ | (289.0 | ) | |||||||
States and political subdivisions | — | (2.8 | ) | — | — | (2.8 | ) | ||||||||||||
Asset-backed securities | 4.1 | (4.7 | ) | — | — | (.6 | ) | ||||||||||||
Collateralized debt obligations | 106.6 | (103.1 | ) | — | — | 3.5 | |||||||||||||
Mortgage pass-through securities | — | (.5 | ) | — | — | (.5 | ) | ||||||||||||
Collateralized mortgage obligations | 94.5 | (46.0 | ) | — | — | 48.5 | |||||||||||||
Total fixed maturities, available for sale | 207.0 | (447.9 | ) | — | — | (240.9 | ) | ||||||||||||
Equity securities | 64.0 | — | — | — | 64.0 | ||||||||||||||
Trading securities: | |||||||||||||||||||
Collateralized mortgage obligations | — | (.4 | ) | — | — | (.4 | ) | ||||||||||||
Investments held by variable interest entities: | |||||||||||||||||||
Corporate securities | — | (7.9 | ) | — | — | (7.9 | ) | ||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (85.5 | ) | 51.8 | (28.4 | ) | 27.1 | (35.0 | ) |
Fair value at September 30, 2012 | Valuation technique(s) | Unobservable inputs | Range (weighted average) | ||||||
Assets: | |||||||||
Corporate securities (a) | $ | 212.4 | Discounted cash flow analysis | Discount margins | 1.95% - 3.27% (2.78%) | ||||
Asset-backed securities (b) | 33.0 | Discounted cash flow analysis | Discount margins | 2.96% - 3.28% (3.15%) | |||||
Collateralized debt obligations (c) | 339.0 | Discounted cash flow analysis | Recoveries | 61% - 66% (ramp over 24 months) | |||||
Constant prepayment rate | 20% | ||||||||
Discount margins | 1.30% - 10.00% (2.39%) | ||||||||
Annual default rate | 1.32% - 5.81% (3.27%) | ||||||||
Portfolio CCC % | 1.90% - 22.17% (12.78%) | ||||||||
Equity securities (d) | 2.2 | Discounted cash flow analysis | Recoveries | 21% | |||||
Venture capital investments (e) | 38.1 | Market multiples | EBITDA multiple | 4.8 - 29.0 (11.46) | |||||
Revenue multiple | 0.9 - 7.0 (4.2) | ||||||||
Book equity multiple | 0.8 - 3.8 (2.3) | ||||||||
Other assets categorized as Level 3 (f) | 162.7 | Unadjusted third-party price source | Not applicable | Not applicable | |||||
Total | 787.4 | ||||||||
Liabilities: | |||||||||
Interest sensitive products (g) | 743.9 | Discounted projected embedded derivatives | Projected portfolio yields | 5.35% - 5.61% (5.55%) | |||||
Discount rates | 0.0 - 3.5% (1.3%) | ||||||||
Surrender rates | 4% - 43% (19%) |
(a) | Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. |
(b) | Asset-backed securities - The significant unobservable input used in the fair value measurement of our asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. |
(c) | Collateralized debt obligations - The significant unobservable inputs used in the fair value measurement of our collateralized debt obligations relate to collateral performance, including default rate, recoveries and constant prepayment rate, as well as discount margins of the underlying collateral. Significant increases (decreases) in default rate in isolation would result in a significantly lower (higher) fair value measurement. Generally, a significant increase (decrease) in the constant prepayment rate and recoveries in isolation would result in a significantly higher (lower) fair value measurement. Generally a significant increase (decrease) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the annual default rate is accompanied by a directionally similar change in the assumption used for discount margins and portfolio CCC % and a directionally opposite change in the assumption used for constant prepayment rate and recoveries. A tranche's payment priority and investment cost basis could alter generalized fair value outcomes. |
(d) | Equity securities - The significant unobservable input used in the fair value measurement of our equity securities is the anticipated cash recovery. Significant increases (decreases) in the anticipated recovery would result in a significantly higher (lower) fair value measurement. |
(e) | Venture capital investments - The significant unobservable inputs used in the fair value measurement of our venture capital investments are the EBITDA multiple and revenue multiple. Generally, a significant increase (decrease) in the EBITDA or revenue multiples in isolation would result in a significantly higher (lower) fair value measurement. |
(f) | Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources. |
(g) | Interest sensitive products - The significant unobservable inputs used in the fair value measurement of our interest sensitive products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount rate is based on the Treasury rate adjusted by a margin. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative. |
|
As reported in Form 10-Q | Corrections to shadow adjustments | As reported in Form 10-Q/A | |||||||||
Deferred acquisition costs | $ | 580.7 | $ | 42.7 | $ | 623.4 | |||||
Income tax assets | 594.5 | 105.0 | 699.5 | ||||||||
Change in total assets | $ | 147.7 | |||||||||
Liabilities for insurance products | $ | 24,593.5 | $ | 334.4 | $ | 24,927.9 | |||||
Accumulated other comprehensive income | 1,421.1 | (186.7 | ) | 1,234.4 | |||||||
Change to total liabilities and shareholders' equity | $ | 147.7 | |||||||||
Comprehensive income: | |||||||||||
For the three months ended September 30, 2012 | $ | 425.3 | $ | (186.7 | ) | $ | 238.6 | ||||
For the nine months ended September 30, 2012 | $ | 759.3 | $ | (186.7 | ) | $ | 572.6 |
|
September 30, 2012 | December 31, 2011 | ||||||
(Restated) | |||||||
Net unrealized appreciation (depreciation) on fixed maturity securities, available for sale, on which an other-than-temporary impairment loss has been recognized | $ | 9.6 | $ | (4.4 | ) | ||
Net unrealized gains on all other investments | 2,914.8 | 1,733.2 | |||||
Adjustment to present value of future profits (a) | (200.7 | ) | (214.8 | ) | |||
Adjustment to deferred acquisition costs | (458.0 | ) | (289.3 | ) | |||
Adjustment to insurance liabilities | (334.4 | ) | — | ||||
Unrecognized net loss related to deferred compensation plan | (8.8 | ) | (8.3 | ) | |||
Deferred income tax liabilities | (688.1 | ) | (434.8 | ) | |||
Accumulated other comprehensive income | $ | 1,234.4 | $ | 781.6 |
(a) | The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003 (the date our Predecessor emerged from bankruptcy). |
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | Other-than- temporary impairments included in accumulated other comprehensive income | |||||||||||||||
Corporate securities | $ | 14,586.6 | $ | 2,265.7 | $ | (28.8 | ) | $ | 16,823.5 | $ | — | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 164.2 | 6.9 | — | 171.1 | — | ||||||||||||||
States and political subdivisions | 1,785.6 | 267.9 | (5.4 | ) | 2,048.1 | — | |||||||||||||
Debt securities issued by foreign governments | .8 | — | — | .8 | — | ||||||||||||||
Asset-backed securities | 1,391.3 | 92.0 | (6.6 | ) | 1,476.7 | — | |||||||||||||
Collateralized debt obligations | 327.6 | 5.2 | (.8 | ) | 332.0 | — | |||||||||||||
Commercial mortgage-backed securities | 1,400.7 | 142.7 | (.8 | ) | 1,542.6 | — | |||||||||||||
Mortgage pass-through securities | 18.8 | 1.4 | — | 20.2 | — | ||||||||||||||
Collateralized mortgage obligations | 2,150.1 | 178.1 | (.9 | ) | 2,327.3 | (7.3 | ) | ||||||||||||
Total fixed maturities, available for sale | $ | 21,825.7 | $ | 2,959.9 | $ | (43.3 | ) | $ | 24,742.3 | $ | (7.3 | ) |
Amortized cost | Estimated fair value | ||||||
(Dollars in millions) | |||||||
Due in one year or less | $ | 178.3 | $ | 180.7 | |||
Due after one year through five years | 1,558.1 | 1,697.5 | |||||
Due after five years through ten years | 4,491.1 | 5,038.7 | |||||
Due after ten years | 10,309.7 | 12,126.6 | |||||
Subtotal | 16,537.2 | 19,043.5 | |||||
Structured securities | 5,288.5 | 5,698.8 | |||||
Total fixed maturities, available for sale | $ | 21,825.7 | $ | 24,742.3 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Credit losses on fixed maturity securities, available for sale, beginning of period | $ | (1.7 | ) | $ | (1.6 | ) | $ | (2.0 | ) | $ | (6.1 | ) | |||
Add: credit losses on other-than-temporary impairments not previously recognized | — | — | — | — | |||||||||||
Less: credit losses on securities sold | — | .7 | .3 | 5.2 | |||||||||||
Less: credit losses on securities impaired due to intent to sell (a) | — | — | — | — | |||||||||||
Add: credit losses on previously impaired securities | — | — | — | — | |||||||||||
Less: increases in cash flows expected on previously impaired securities | — | — | — | — | |||||||||||
Credit losses on fixed maturity securities, available for sale, end of period | $ | (1.7 | ) | $ | (.9 | ) | $ | (1.7 | ) | $ | (.9 | ) |
(a) | Represents securities for which the amount previously recognized in accumulated other comprehensive income was recognized in earnings because we intend to sell the security or we more likely than not will be required to sell the security before recovery of its amortized cost basis. |
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Description of securities | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | ||||||||||||||||||
States and political subdivisions | $ | 40.2 | $ | (2.0 | ) | $ | 68.7 | $ | (3.4 | ) | $ | 108.9 | $ | (5.4 | ) | |||||||||
Corporate securities | 300.5 | (9.2 | ) | 278.1 | (19.6 | ) | 578.6 | (28.8 | ) | |||||||||||||||
Asset-backed securities | 42.1 | (.3 | ) | 137.8 | (6.3 | ) | 179.9 | (6.6 | ) | |||||||||||||||
Collateralized debt obligations | 12.7 | (.1 | ) | 47.2 | (.7 | ) | 59.9 | (.8 | ) | |||||||||||||||
Commercial mortgage-backed securities | 16.0 | (.1 | ) | 14.3 | (.7 | ) | 30.3 | (.8 | ) | |||||||||||||||
Mortgage pass-through securities | — | — | 2.0 | — | 2.0 | — | ||||||||||||||||||
Collateralized mortgage obligations | 58.5 | (.5 | ) | 36.0 | (.4 | ) | 94.5 | (.9 | ) | |||||||||||||||
Total fixed maturities, available for sale | $ | 470.0 | $ | (12.2 | ) | $ | 584.1 | $ | (31.1 | ) | $ | 1,054.1 | $ | (43.3 | ) | |||||||||
Equity securities | $ | 2.1 | $ | (.1 | ) | $ | — | $ | — | $ | 2.1 | $ | (.1 | ) |
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Description of securities | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | ||||||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | $ | 9.1 | $ | — | $ | .2 | $ | — | $ | 9.3 | $ | — | ||||||||||||
States and political subdivisions | 6.9 | (.2 | ) | 155.4 | (13.4 | ) | 162.3 | (13.6 | ) | |||||||||||||||
Debt securities issued by foreign governments | .5 | — | — | — | .5 | — | ||||||||||||||||||
Corporate securities | 1,394.7 | (57.0 | ) | 466.2 | (79.9 | ) | 1,860.9 | (136.9 | ) | |||||||||||||||
Asset-backed securities | 437.6 | (14.5 | ) | 147.5 | (22.2 | ) | 585.1 | (36.7 | ) | |||||||||||||||
Collateralized debt obligations | 268.8 | (6.3 | ) | 1.7 | — | 270.5 | (6.3 | ) | ||||||||||||||||
Commercial mortgage-backed securities | 168.8 | (5.2 | ) | 33.0 | (2.7 | ) | 201.8 | (7.9 | ) | |||||||||||||||
Mortgage pass-through securities | 1.2 | — | 2.2 | (.1 | ) | 3.4 | (.1 | ) | ||||||||||||||||
Collateralized mortgage obligations | 645.0 | (20.8 | ) | 29.7 | (.6 | ) | 674.7 | (21.4 | ) | |||||||||||||||
Total fixed maturities, available for sale | $ | 2,932.6 | $ | (104.0 | ) | $ | 835.9 | $ | (118.9 | ) | $ | 3,768.5 | $ | (222.9 | ) | |||||||||
Equity securities | $ | 41.6 | $ | (3.0 | ) | $ | .4 | $ | — | $ | 42.0 | $ | (3.0 | ) |
|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income (loss) for basic earnings per share | $ | (5.0 | ) | $ | 179.5 | $ | 119.8 | $ | 271.3 | ||||||
Add: interest expense on 7.0% Convertible Senior Debentures due 2016 (the “7.0% Debentures”), net of income taxes | — | 3.7 | 11.1 | 11.1 | |||||||||||
Net income for diluted earnings per share | $ | (5.0 | ) | $ | 183.2 | $ | 130.9 | $ | 282.4 | ||||||
Shares: | |||||||||||||||
Weighted average shares outstanding for basic earnings per share | 231,481 | 246,965 | 236,555 | 249,673 | |||||||||||
Effect of dilutive securities on weighted average shares: | |||||||||||||||
7% Debentures | — | 53,367 | 53,037 | 53,367 | |||||||||||
Stock option and restricted stock plans | — | 2,353 | 2,639 | 2,712 | |||||||||||
Warrants | — | 23 | 752 | 333 | |||||||||||
Dilutive potential common shares | — | 55,743 | 56,428 | 56,412 | |||||||||||
Weighted average shares outstanding for diluted earnings per share | 231,481 | 302,708 | 292,983 | 306,085 |
|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues: | |||||||||||||||
Bankers Life: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Annuities | $ | 6.8 | $ | 9.6 | $ | 21.9 | $ | 26.7 | |||||||
Health | 335.1 | 334.0 | 1,010.6 | 1,017.1 | |||||||||||
Life | 74.2 | 61.0 | 209.1 | 170.4 | |||||||||||
Net investment income (a) | 221.6 | 158.0 | 642.1 | 564.5 | |||||||||||
Fee revenue and other income (a) | 4.0 | 3.6 | 10.2 | 9.2 | |||||||||||
Total Bankers Life revenues | 641.7 | 566.2 | 1,893.9 | 1,787.9 | |||||||||||
Washington National: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Health | 143.4 | 141.2 | 429.0 | 423.1 | |||||||||||
Life | 3.6 | 3.9 | 11.6 | 11.8 | |||||||||||
Other | .8 | .8 | 2.2 | 3.0 | |||||||||||
Net investment income (a) | 50.9 | 47.3 | 151.9 | 140.3 | |||||||||||
Fee revenue and other income (a) | .3 | .4 | .8 | .9 | |||||||||||
Total Washington National revenues | 199.0 | 193.6 | 595.5 | 579.1 | |||||||||||
Colonial Penn: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Health | 1.3 | 1.4 | 4.0 | 4.5 | |||||||||||
Life | 53.2 | 49.4 | 158.5 | 147.5 | |||||||||||
Net investment income (a) | 9.9 | 10.1 | 30.1 | 30.9 | |||||||||||
Fee revenue and other income (a) | .2 | .2 | .6 | .6 | |||||||||||
Total Colonial Penn revenues | 64.6 | 61.1 | 193.2 | 183.5 | |||||||||||
Other CNO Business: | |||||||||||||||
Insurance policy income: | |||||||||||||||
Annuities | 2.5 | 3.4 | 8.3 | 8.6 | |||||||||||
Health | 6.2 | 6.9 | 19.3 | 21.3 | |||||||||||
Life | 62.9 | 61.7 | 196.2 | 184.9 | |||||||||||
Other | .2 | .2 | .6 | 1.4 | |||||||||||
Net investment income (a) | 86.7 | 74.6 | 259.2 | 256.0 | |||||||||||
Total Other CNO Business revenues | 158.5 | 146.8 | 483.6 | 472.2 | |||||||||||
Corporate operations: | |||||||||||||||
Net investment income | 19.4 | (6.7 | ) | 49.8 | 10.4 | ||||||||||
Fee and other income | .7 | .7 | 2.0 | 1.8 | |||||||||||
Total corporate revenues | 20.1 | (6.0 | ) | 51.8 | 12.2 | ||||||||||
Total revenues | 1,083.9 | 961.7 | 3,218.0 | 3,034.9 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Expenses: | |||||||||||||||
Bankers Life: | |||||||||||||||
Insurance policy benefits | $ | 434.6 | $ | 360.6 | $ | 1,252.2 | $ | 1,174.3 | |||||||
Amortization | 35.6 | 44.1 | 143.0 | 159.5 | |||||||||||
Interest expense on investment borrowings | 1.3 | 1.2 | 4.1 | 3.5 | |||||||||||
Other operating costs and expenses | 89.6 | 80.9 | 267.4 | 236.9 | |||||||||||
Total Bankers Life expenses | 561.1 | 486.8 | 1,666.7 | 1,574.2 | |||||||||||
Washington National: | |||||||||||||||
Insurance policy benefits | 111.1 | 119.0 | 340.5 | 349.5 | |||||||||||
Amortization | 11.2 | 10.8 | 34.7 | 35.6 | |||||||||||
Interest expense on investment borrowings | .7 | .2 | 2.2 | .2 | |||||||||||
Other operating costs and expenses | 42.1 | 42.4 | 125.6 | 126.5 | |||||||||||
Total Washington National expenses | 165.1 | 172.4 | 503.0 | 511.8 | |||||||||||
Colonial Penn: | |||||||||||||||
Insurance policy benefits | 38.3 | 36.0 | 120.0 | 112.7 | |||||||||||
Amortization | 3.5 | 3.5 | 11.1 | 11.0 | |||||||||||
Other operating costs and expenses | 25.4 | 22.9 | 73.9 | 66.3 | |||||||||||
Total Colonial Penn expenses | 67.2 | 62.4 | 205.0 | 190.0 | |||||||||||
Other CNO Business: | |||||||||||||||
Insurance policy benefits | 157.1 | 111.5 | 401.0 | 358.2 | |||||||||||
Amortization | 10.5 | 10.4 | 25.1 | 28.4 | |||||||||||
Interest expense on investment borrowings | 5.0 | 5.3 | 15.1 | 15.2 | |||||||||||
Other operating costs and expenses | 39.5 | 16.8 | 96.4 | 55.1 | |||||||||||
Total Other CNO Business expenses | 212.1 | 144.0 | 537.6 | 456.9 | |||||||||||
Corporate operations: | |||||||||||||||
Interest expense on corporate debt | 16.3 | 18.7 | 50.4 | 58.6 | |||||||||||
Interest expense on borrowings of variable interest entities | 5.8 | 2.4 | 14.5 | 8.4 | |||||||||||
Interest expense on investment borrowings | .1 | .1 | .4 | .1 | |||||||||||
Loss on extinguishment of debt | 198.5 | 1.1 | 199.2 | 3.1 | |||||||||||
Other operating costs and expenses | 20.9 | 19.0 | 54.5 | 43.0 | |||||||||||
Total corporate expenses | 241.6 | 41.3 | 319.0 | 113.2 | |||||||||||
Total expenses | 1,247.1 | 906.9 | 3,231.3 | 2,846.1 | |||||||||||
Income (loss) before net realized investment losses and fair value changes in embedded derivative liabilities (net of related amortization) and income taxes: | |||||||||||||||
Bankers Life | 80.6 | 79.4 | 227.2 | 213.7 | |||||||||||
Washington National | 33.9 | 21.2 | 92.5 | 67.3 | |||||||||||
Colonial Penn | (2.6 | ) | (1.3 | ) | (11.8 | ) | (6.5 | ) | |||||||
Other CNO Business | (53.6 | ) | 2.8 | (54.0 | ) | 15.3 | |||||||||
Corporate operations | (221.5 | ) | (47.3 | ) | (267.2 | ) | (101.0 | ) | |||||||
Income (loss) before net realized investment losses and fair value changes in embedded derivative liabilities (net of related amortization) and income taxes | $ | (163.2 | ) | $ | 54.8 | $ | (13.3 | ) | $ | 188.8 |
(a) | It is not practicable to provide additional components of revenue by product or services. |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Total segment revenues | $ | 1,083.9 | $ | 961.7 | $ | 3,218.0 | $ | 3,034.9 | |||||||
Net realized investment gains | 9.1 | 30.6 | 63.9 | 38.6 | |||||||||||
Consolidated revenues | $ | 1,093.0 | $ | 992.3 | $ | 3,281.9 | $ | 3,073.5 | |||||||
Total segment expenses | $ | 1,247.1 | $ | 906.9 | $ | 3,231.3 | $ | 2,846.1 | |||||||
Insurance policy benefits - fair value changes in embedded derivative liabilities | 4.6 | 33.9 | 10.7 | 33.9 | |||||||||||
Amortization related to fair value changes in embedded derivative liabilities | (1.6 | ) | (14.1 | ) | (4.0 | ) | (14.1 | ) | |||||||
Amortization related to net realized investment gains | 1.7 | 3.9 | 5.9 | 3.7 | |||||||||||
Consolidated expenses | $ | 1,251.8 | $ | 930.6 | $ | 3,243.9 | $ | 2,869.6 |
|
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Current tax expense | $ | 2.4 | $ | 2.3 | $ | 9.1 | $ | 7.2 | |||||||
Deferred tax expense (benefit) | 11.1 | 22.9 | 76.4 | 68.4 | |||||||||||
Valuation allowance applicable to current year income | (31.8 | ) | — | (31.8 | ) | — | |||||||||
Income tax expense (benefit) calculated based on estimated annual effective tax rate | (18.3 | ) | 25.2 | 53.7 | 75.6 | ||||||||||
Income tax expense (benefit) on discrete items: | |||||||||||||||
Valuation allowance reduction applicable to income in future years | (111.2 | ) | (143.0 | ) | (111.2 | ) | (143.0 | ) | |||||||
Deferred tax benefit related to loss on extinguishment of debt and other items | (24.3 | ) | — | (24.3 | ) | — | |||||||||
Total income tax benefit | $ | (153.8 | ) | $ | (117.8 | ) | $ | (81.8 | ) | $ | (67.4 | ) |
Nine months ended | |||||
September 30, | |||||
2012 | 2011 | ||||
U.S. statutory corporate rate | 35.0 | % | 35.0 | % | |
Valuation allowance reduction applicable to current year income | (13.8 | ) | — | ||
Nondeductible amounts | .5 | 1.8 | |||
State taxes | 1.0 | 1.0 | |||
Provision for tax issues, tax credits and other | — | (.8 | ) | ||
Estimated annual effective tax rate | 22.7 | % | 37.0 | % |
September 30, 2012 | December 31, 2011 | ||||||
(Restated) | |||||||
Deferred tax assets: | |||||||
Net federal operating loss carryforwards | $ | 1,366.2 | $ | 1,445.2 | |||
Net state operating loss carryforwards | 16.3 | 16.8 | |||||
Tax credits | 37.7 | 32.6 | |||||
Capital loss carryforwards | 305.4 | 342.3 | |||||
Deductible temporary differences: | |||||||
Insurance liabilities | 754.8 | 744.4 | |||||
Other | 81.7 | 64.8 | |||||
Gross deferred tax assets | 2,562.1 | 2,646.1 | |||||
Deferred tax liabilities: | |||||||
Investments | (21.9 | ) | (24.2 | ) | |||
Present value of future profits and deferred acquisition costs | (333.7 | ) | (363.7 | ) | |||
Accumulated other comprehensive income | (688.1 | ) | (434.8 | ) | |||
Gross deferred tax liabilities | (1,043.7 | ) | (822.7 | ) | |||
Net deferred tax assets before valuation allowance | 1,518.4 | 1,823.4 | |||||
Valuation allowance | (795.4 | ) | (938.4 | ) | |||
Net deferred tax assets | 723.0 | 885.0 | |||||
Current income taxes accrued | (23.5 | ) | (19.6 | ) | |||
Income tax assets, net | $ | 699.5 | $ | 865.4 |
Year of expiration | Net operating loss carryforwards (a) | Capital loss | Total loss | |||||||||||||||||||
Life | Non-life | carryforwards | carryforwards | |||||||||||||||||||
2013 | $ | — | $ | — | $ | 836.7 | (b) | $ | 836.7 | |||||||||||||
2014 | — | — | 28.6 | 28.6 | ||||||||||||||||||
2015 | — | — | 7.2 | 7.2 | ||||||||||||||||||
2018 | 550.9 | (a) | — | — | 550.9 | |||||||||||||||||
2021 | 29.5 | — | — | 29.5 | ||||||||||||||||||
2022 | 204.1 | — | — | 204.1 | ||||||||||||||||||
2023 | — | (b) | 2,602.8 | (a) | — | 2,602.8 | ||||||||||||||||
2024 | — | 3.2 | — | 3.2 | ||||||||||||||||||
2025 | — | 118.8 | — | 118.8 | ||||||||||||||||||
2027 | — | 216.8 | — | 216.8 | ||||||||||||||||||
2028 | — | .5 | — | .5 | ||||||||||||||||||
2029 | — | 148.9 | — | 148.9 | ||||||||||||||||||
2031 | — | 28.0 | — | 28.0 | ||||||||||||||||||
Total | $ | 784.5 | $ | 3,119.0 | $ | 872.5 | $ | 4,776.0 |
(a) | The life/non-life allocation summarized above assumes the IRS does not ultimately agree with the tax position we have taken in our tax returns with respect to the allocation of CODI. If the IRS ultimately agrees with our tax position, approximately $631 million of the non-life NOLs expiring in 2023 would be characterized as life NOLs expiring in 2018. |
(b) | The allocation of the capital loss carryforwards summarized above assumes the IRS does not ultimately agree with the tax position we have taken with respect to our investment in Senior Health, which was worthless when it was transferred to the Independent Trust in 2008. If the IRS ultimately agrees with our tax position of classifying this loss as ordinary, capital loss carryforwards expiring in 2013 would decrease and life NOLs expiring in 2023 would increase by $742 million. |
|
September 30, 2012 | December 31, 2011 | ||||||
New Senior Secured Credit Agreement (as defined below) | $ | 675.0 | $ | — | |||
7.0% Debentures | 93.0 | 293.0 | |||||
Previous Senior Secured Credit Agreement (as defined below) | — | 255.2 | |||||
6.375% Senior Secured Notes due October 2020 (the "6.375% Notes") | 275.0 | — | |||||
9.0% Senior Secured Notes due January 2018 (the “9.0% Notes”) | 1.2 | 275.0 | |||||
Senior Health Note due November 12, 2013 (the “Senior Health Note”) | — | 50.0 | |||||
Unamortized discount on New Senior Secured Credit Agreement | (5.5 | ) | — | ||||
Unamortized discount on 7.0% Debentures | (3.6 | ) | (12.9 | ) | |||
Unamortized discount on Previous Senior Secured Credit Agreement | — | (2.4 | ) | ||||
Direct corporate obligations | $ | 1,035.1 | $ | 857.9 |
Year ending September 30, | |||
2013 | $ | 55.4 | |
2014 | 54.3 | ||
2015 | 79.3 | ||
2016 | 79.3 | ||
2017 | 97.2 | ||
Thereafter | 678.7 | ||
$ | 1,044.2 |
|
Amount | Maturity | Interest rate at | ||||
borrowed | date | September 30, 2012 | ||||
$ | 100.0 | November 2013 | Variable rate – 0.515% | |||
67.0 | February 2014 | Fixed rate – 1.830% | ||||
50.0 | August 2014 | Variable rate – 0.565% | ||||
100.0 | August 2014 | Variable rate – 0.476% | ||||
50.0 | September 2015 | Variable rate – 0.747% | ||||
150.0 | October 2015 | Variable rate – 0.571% | ||||
146.0 | November 2015 | Fixed rate – 5.300% | ||||
100.0 | December 2015 | Fixed rate – 4.710% | ||||
100.0 | June 2016 | Variable rate – 0.657% | ||||
75.0 | June 2016 | Variable rate – 0.621% | ||||
100.0 | October 2016 | Variable rate – 0.641% | ||||
50.0 | November 2016 | Variable rate – 0.684% | ||||
50.0 | November 2016 | Variable rate – 0.687% | ||||
100.0 | June 2017 | Variable rate – 0.751% | ||||
100.0 | July 2017 | Fixed rate – 3.900% | ||||
50.0 | August 2017 | Variable rate – 0.635% | ||||
75.0 | August 2017 | Variable rate – 0.577% | ||||
100.0 | October 2017 | Variable rate – 0.885% | ||||
37.0 | November 2017 | Fixed rate – 3.750% | ||||
50.0 | July 2018 | Variable rate – 0.917% | ||||
$ | 1,650.0 |
|
Balance, December 31, 2011 | 241,305 | |||
Treasury stock purchased and retired | (12,894 | ) | ||
Stock options exercised | 692 | |||
Restricted stock vested | 404 | (a) | ||
Balance, September 30, 2012 | 229,507 |
(a) | Such amount was reduced by 143 thousand shares which were tendered to the Company for the payment of federal and state taxes owed on the vesting of restricted stock. |
|
Three months ended | Nine months ended | ||||||||||||||||||||||
September 30, 2011 | September 30, 2011 | ||||||||||||||||||||||
As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | ||||||||||||||||||
Amortization | $ | 87.2 | $ | (28.6 | ) | $ | 58.6 | $ | 325.4 | $ | (101.3 | ) | $ | 224.1 | |||||||||
Other operating costs and expenses | 127.6 | 54.4 | 182.0 | 367.1 | 160.7 | 527.8 | |||||||||||||||||
Total benefits and expenses | 904.8 | 25.8 | 930.6 | 2,810.2 | 59.4 | 2,869.6 | |||||||||||||||||
Income before income taxes | 87.5 | (25.8 | ) | 61.7 | 263.3 | (59.4 | ) | 203.9 | |||||||||||||||
Tax expense on period income | 34.5 | (9.3 | ) | 25.2 | 96.9 | (21.3 | ) | 75.6 | |||||||||||||||
Net income | 196.0 | (16.5 | ) | 179.5 | 309.4 | (38.1 | ) | 271.3 | |||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Basic: | |||||||||||||||||||||||
Net income | $ | .79 | $ | (.06 | ) | $ | .73 | $ | 1.24 | $ | (.15 | ) | $ | 1.09 | |||||||||
Diluted: | |||||||||||||||||||||||
Net income | .66 | (.05 | ) | .61 | 1.05 | (.13 | ) | .92 |
Nine months ended | |||||||||||
September 30, 2011 | |||||||||||
As originally reported | Effect of adoption of ASU 2010-26 | As adjusted | |||||||||
Cash flows from operating activities: | |||||||||||
Deferrable policy acquisition costs | $ | (328.6 | ) | $ | 163.7 | $ | (164.9 | ) | |||
Other operating costs | (349.9 | ) | (163.7 | ) | (513.6 | ) | |||||
Net cash used by operating activities | 562.2 | — | 562.2 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Restated) | (Restated) | ||||||||||||||
Balance, beginning of period | $ | 653.5 | $ | 975.5 | $ | 797.1 | $ | 999.6 | |||||||
Additions | 46.7 | 58.3 | 141.4 | 164.9 | |||||||||||
Amortization | (44.5 | ) | (35.5 | ) | (146.4 | ) | (134.7 | ) | |||||||
Amounts related to fair value adjustment of fixed maturities, available for sale | (32.3 | ) | (163.8 | ) | (168.7 | ) | (195.3 | ) | |||||||
Balance, end of period | $ | 623.4 | $ | 834.5 | $ | 623.4 | $ | 834.5 |
|
Nine months ended | |||||||
September 30, | |||||||
2012 | 2011 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 119.8 | $ | 271.3 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization and depreciation | 235.2 | 243.6 | |||||
Income taxes | (87.3 | ) | (69.8 | ) | |||
Insurance liabilities | 242.8 | 244.4 | |||||
Accrual and amortization of investment income | (123.1 | ) | 62.9 | ||||
Deferral of policy acquisition costs | (141.4 | ) | (164.9 | ) | |||
Net realized investment gains | (63.9 | ) | (38.6 | ) | |||
Loss on extinguishment of debt | 199.2 | 3.1 | |||||
Other | 43.3 | 10.2 | |||||
Net cash provided by operating activities | $ | 424.6 | $ | 562.2 |
Nine months ended | |||||||
September 30, | |||||||
2012 | 2011 | ||||||
Stock option and restricted stock plans | $ | 10.7 | $ | 10.2 |
|
September 30, 2012 | |||||||||||
VIEs | Eliminations | Net effect on consolidated balance sheet | |||||||||
Assets: | |||||||||||
Investments held by variable interest entities | $ | 829.4 | $ | — | $ | 829.4 | |||||
Notes receivable of VIEs held by insurance subsidiaries | — | (78.5 | ) | (78.5 | ) | ||||||
Cash and cash equivalents held by variable interest entities | 48.2 | — | 48.2 | ||||||||
Accrued investment income | 3.9 | — | 3.9 | ||||||||
Income tax assets, net | 3.2 | (2.3 | ) | .9 | |||||||
Other assets | 10.9 | — | 10.9 | ||||||||
Total assets | $ | 895.6 | $ | (80.8 | ) | $ | 814.8 | ||||
Liabilities: | |||||||||||
Other liabilities | $ | 52.0 | $ | (2.3 | ) | $ | 49.7 | ||||
Borrowings related to variable interest entities | 766.9 | — | 766.9 | ||||||||
Notes payable of VIEs held by insurance subsidiaries | 82.5 | (82.5 | ) | — | |||||||
Total liabilities | $ | 901.4 | $ | (84.8 | ) | $ | 816.6 |
December 31, 2011 | |||||||||||
VIEs | Eliminations | Net effect on consolidated balance sheet | |||||||||
Assets: | |||||||||||
Investments held by variable interest entities | $ | 496.3 | $ | — | $ | 496.3 | |||||
Notes receivable of VIEs held by insurance subsidiaries | — | (45.3 | ) | (45.3 | ) | ||||||
Cash and cash equivalents held by variable interest entities | 74.4 | — | 74.4 | ||||||||
Accrued investment income | 1.7 | — | 1.7 | ||||||||
Income tax assets, net | 6.8 | (1.4 | ) | 5.4 | |||||||
Other assets | 7.7 | — | 7.7 | ||||||||
Total assets | $ | 586.9 | $ | (46.7 | ) | $ | 540.2 | ||||
Liabilities: | |||||||||||
Other liabilities | $ | 30.3 | $ | (.1 | ) | $ | 30.2 | ||||
Borrowings related to variable interest entities | 519.9 | — | 519.9 | ||||||||
Notes payable of VIEs held by insurance subsidiaries | 49.3 | (49.3 | ) | — | |||||||
Total liabilities | $ | 599.5 | $ | (49.4 | ) | $ | 550.1 |
Amortized cost | Estimated fair value | ||||||
(Dollars in millions) | |||||||
Due in one year or less | $ | 3.0 | $ | 3.0 | |||
Due after one year through five years | 413.8 | 413.1 | |||||
Due after five years through ten years | 410.9 | 413.3 | |||||
Total | $ | 827.7 | $ | 829.4 |
|
September 30, 2012 | December 31, 2011 | ||||||||||||||||||||||||||
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total estimated fair value | Total carrying amount | Total estimated fair value | Total carrying amount | |||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||
Mortgage loans | $ | — | $ | — | $ | 1,718.3 | $ | 1,718.3 | $ | 1,597.2 | $ | 1,735.4 | $ | 1,602.8 | |||||||||||||
Policy loans | — | 274.1 | — | 274.1 | 274.1 | 279.7 | 279.7 | ||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||
Insurance liabilities for interest-sensitive products excluding embedded derivatives (a) | — | — | 12,186.4 | 12,186.4 | 12,186.4 | 13,165.5 | 13,165.5 | ||||||||||||||||||||
Investment borrowings | — | 1,702.5 | — | 1,702.5 | 1,650.9 | 1,735.7 | 1,676.5 | ||||||||||||||||||||
Borrowings related to variable interest entities | — | 748.3 | — | 748.3 | 766.9 | 485.1 | 519.9 | ||||||||||||||||||||
Notes payable – direct corporate obligations | — | 1,114.4 | — | 1,114.4 | 1,035.1 | 978.3 | 857.9 |
(a) | The estimated fair value of insurance liabilities for interest-sensitive products was approximately equal to its carrying value at September 30, 2012. This was because interest rates credited on the vast majority of account balances approximate current rates paid on similar products and because these rates are not generally guaranteed beyond one year. |
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) (a) | Significant unobservable inputs (Level 3) (a) | Total | ||||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | — | $ | 15,594.4 | $ | 278.1 | $ | 15,872.5 | |||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 303.8 | 1.6 | 305.4 | |||||||||||||||
States and political subdivisions | — | 1,952.3 | 2.1 | 1,954.4 | |||||||||||||||
Debt securities issued by foreign governments | — | 1.4 | — | 1.4 | |||||||||||||||
Asset-backed securities | — | 1,334.3 | 79.7 | 1,414.0 | |||||||||||||||
Collateralized debt obligations | — | — | 327.3 | 327.3 | |||||||||||||||
Commercial mortgage-backed securities | — | 1,415.7 | 17.3 | 1,433.0 | |||||||||||||||
Mortgage pass-through securities | — | 29.8 | 2.2 | 32.0 | |||||||||||||||
Collateralized mortgage obligations | — | 2,051.2 | 124.8 | 2,176.0 | |||||||||||||||
Total fixed maturities, available for sale | — | 22,682.9 | 833.1 | 23,516.0 | |||||||||||||||
Equity securities | 17.9 | 87.3 | 69.9 | 175.1 | |||||||||||||||
Trading securities: | |||||||||||||||||||
Corporate securities | — | 67.6 | — | 67.6 | |||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 4.9 | — | 4.9 | |||||||||||||||
States and political subdivisions | — | 15.6 | — | 15.6 | |||||||||||||||
Asset-backed securities | — | .1 | — | .1 | |||||||||||||||
Commercial mortgage-backed securities | — | — | .4 | .4 | |||||||||||||||
Mortgage pass-through securities | — | .2 | — | .2 | |||||||||||||||
Collateralized mortgage obligations | — | .7 | — | .7 | |||||||||||||||
Equity securities | .7 | 1.4 | — | 2.1 | |||||||||||||||
Total trading securities | .7 | 90.5 | .4 | 91.6 | |||||||||||||||
Investments held by variable interest entities | — | 496.3 | — | 496.3 | |||||||||||||||
Other invested assets | — | 159.9 | (b) | — | 159.9 | ||||||||||||||
Assets held in separate accounts | — | 15.0 | — | 15.0 | |||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | — | — | 669.8 | (c) | 669.8 |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | Includes company-owned life insurance and derivatives. |
(c) | Includes $666.3 million of embedded derivatives associated with our fixed index annuity products and $3.5 million of embedded derivatives associated with a modified coinsurance agreement. |
Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Assets: | |||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||
Corporate securities | $ | — | $ | 16,506.2 | $ | 317.3 | $ | 16,823.5 | |||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 171.1 | — | 171.1 | |||||||||||
States and political subdivisions | — | 2,048.1 | — | 2,048.1 | |||||||||||
Debt securities issued by foreign governments | — | .8 | — | .8 | |||||||||||
Asset-backed securities | — | 1,433.9 | 42.8 | 1,476.7 | |||||||||||
Collateralized debt obligations | — | — | 332.0 | 332.0 | |||||||||||
Commercial mortgage-backed securities | — | 1,540.3 | 2.3 | 1,542.6 | |||||||||||
Mortgage pass-through securities | — | 18.2 | 2.0 | 20.2 | |||||||||||
Collateralized mortgage obligations | — | 2,284.2 | 43.1 | 2,327.3 | |||||||||||
Total fixed maturities, available for sale | — | 24,002.8 | 739.5 | 24,742.3 | |||||||||||
Equity securities: | |||||||||||||||
Corporate securities | 20.5 | 119.2 | 2.2 | 141.9 | |||||||||||
Venture capital investments | — | — | 38.1 | 38.1 | |||||||||||
Total equity securities | 20.5 | 119.2 | 40.3 | 180.0 | |||||||||||
Trading securities: | |||||||||||||||
Corporate securities | — | 49.3 | .6 | 49.9 | |||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | 4.9 | — | 4.9 | |||||||||||
States and political subdivisions | — | 17.1 | — | 17.1 | |||||||||||
Asset-backed securities | — | 50.3 | — | 50.3 | |||||||||||
Collateralized debt obligations | — | — | 7.0 | 7.0 | |||||||||||
Commercial mortgage-backed securities | — | 43.6 | — | 43.6 | |||||||||||
Mortgage pass-through securities | — | .2 | — | .2 | |||||||||||
Collateralized mortgage obligations | — | 24.1 | — | 24.1 | |||||||||||
Equity securities | .9 | 1.4 | — | 2.3 | |||||||||||
Total trading securities | .9 | 190.9 | 7.6 | 199.4 | |||||||||||
Investments held by variable interest entities - corporate securities | — | 829.4 | — | 829.4 | |||||||||||
Other invested assets: | |||||||||||||||
Company-owned life insurance | — | 112.3 | — | 112.3 | |||||||||||
Hedge funds | — | 16.3 | — | 16.3 | |||||||||||
Derivatives | — | 81.8 | — | 81.8 | |||||||||||
Total other invested assets | — | 210.4 | — | 210.4 | |||||||||||
Cash and cash equivalents - unrestricted: | |||||||||||||||
Cash | 202.0 | — | — | 202.0 | |||||||||||
Cash equivalents and short-term investments | — | 213.3 | — | 213.3 | |||||||||||
Total cash and cash equivalents - unrestricted | 202.0 | 213.3 | — | 415.3 | |||||||||||
Cash and cash equivalents held by variable interest entities | 48.2 | — | — | 48.2 | |||||||||||
Assets held in separate accounts | — | 15.7 | — | 15.7 | |||||||||||
Total assets carried at fair value by category | $ | 271.6 | $ | 25,581.7 | $ | 787.4 | $ | 26,640.7 | |||||||
Liabilities: | |||||||||||||||
Liabilities for insurance products: | |||||||||||||||
Interest-sensitive products - embedded derivatives associated with fixed index annuity products | $ | — | $ | — | $ | 737.9 | $ | 737.9 | |||||||
Interest-sensitive products - embedded derivatives associated with modified coinsurance agreement | — | — | 6.0 | 6.0 | |||||||||||
Total liabilities for insurance products | — | — | 743.9 | 743.9 | |||||||||||
Total liabilities carried at fair value by category | $ | — | $ | — | $ | 743.9 | $ | 743.9 |
September 30, 2012 | |||||||||||||||||||||||||||||||
Beginning balance as of June 30, 2012 (a) | Purchases, sales, issuances and settlements, net (c) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 (b) | Ending balance as of September 30, 2012 | Amount of total gains (losses) for the three months ended September 30, 2012 included in our net income relating to assets and liabilities still held as of the reporting date | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||||||||||||||
Corporate securities | $ | 321.0 | $ | 14.0 | $ | — | $ | 7.3 | $ | 12.5 | $ | (37.5 | ) | $ | 317.3 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.5 | (1.5 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
States and political subdivisions | 16.0 | — | — | — | — | (16.0 | ) | — | — | ||||||||||||||||||||||
Asset-backed securities | 23.0 | 15.0 | — | 5.5 | — | (.7 | ) | 42.8 | — | ||||||||||||||||||||||
Collateralized debt obligations | 330.1 | (6.3 | ) | — | 8.2 | — | — | 332.0 | — | ||||||||||||||||||||||
Commercial mortgage-backed securities | — | — | — | — | 2.3 | — | 2.3 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 2.1 | (.1 | ) | — | — | — | — | 2.0 | — | ||||||||||||||||||||||
Collateralized mortgage obligations | 4.5 | (2.8 | ) | .1 | 1.0 | 44.6 | (4.3 | ) | 43.1 | — | |||||||||||||||||||||
Total fixed maturities, available for sale | 698.2 | 18.3 | .1 | 22.0 | 59.4 | (58.5 | ) | 739.5 | — | ||||||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||||
Corporate securities | 3.2 | (1.0 | ) | — | — | — | — | 2.2 | — | ||||||||||||||||||||||
Venture capital investments | 58.0 | — | (23.1 | ) | 3.2 | — | — | 38.1 | (23.1 | ) | |||||||||||||||||||||
Total equity securities | 61.2 | (1.0 | ) | (23.1 | ) | 3.2 | — | — | 40.3 | (23.1 | ) | ||||||||||||||||||||
Trading securities: | |||||||||||||||||||||||||||||||
Corporate securities | — | — | — | — | .6 | — | .6 | — | |||||||||||||||||||||||
States and political subdivisions | .5 | — | — | — | — | (.5 | ) | — | — | ||||||||||||||||||||||
Collateralized debt obligations | 3.4 | 2.8 | — | .8 | — | — | 7.0 | .8 | |||||||||||||||||||||||
Total trading securities | 3.9 | 2.8 | — | .8 | .6 | (.5 | ) | 7.6 | .8 | ||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||||||||||||||
Interest-sensitive products | (705.9 | ) | (22.7 | ) | (15.3 | ) | — | — | — | (743.9 | ) | (15.3 | ) |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service at the end of the period, whereas a broker quote was used as of the beginning of the period. |
(c) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the three months ended September 30, 2012 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 27.0 | $ | (13.0 | ) | $ | — | $ | — | $ | 14.0 | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | (1.5 | ) | — | — | (1.5 | ) | ||||||||||||
Asset-backed securities | 15.0 | — | — | — | 15.0 | ||||||||||||||
Collateralized debt obligations | — | (6.3 | ) | — | — | (6.3 | ) | ||||||||||||
Mortgage pass-through securities | — | (.1 | ) | — | — | (.1 | ) | ||||||||||||
Collateralized mortgage obligations | 11.0 | (13.8 | ) | — | — | (2.8 | ) | ||||||||||||
Total fixed maturities, available for sale | 53.0 | (34.7 | ) | — | — | 18.3 | |||||||||||||
Equity securities - corporate securities | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||
Trading securities - collateralized debt obligations | 2.8 | — | — | — | 2.8 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (23.5 | ) | .2 | (10.2 | ) | 10.8 | (22.7 | ) |
September 30, 2012 | |||||||||||||||||||||||||||||||
Beginning balance as of December 31, 2011 (a) | Purchases, sales, issuances and settlements, net (c) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 (b) | Ending balance as of September 30, 2012 | Amount of total gains (losses) for the nine months ended September 30, 2012 included in our net income relating to assets and liabilities still held as of the reporting date | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||||||||||||||
Corporate securities | $ | 278.1 | $ | 54.9 | $ | — | $ | 9.4 | $ | 67.5 | $ | (92.6 | ) | $ | 317.3 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.6 | (1.6 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
States and political subdivisions | 2.1 | — | — | — | — | (2.1 | ) | — | — | ||||||||||||||||||||||
Asset-backed securities | 79.7 | 11.4 | (.2 | ) | 5.8 | .5 | (54.4 | ) | 42.8 | — | |||||||||||||||||||||
Collateralized debt obligations | 327.3 | (11.6 | ) | — | 16.3 | — | — | 332.0 | — | ||||||||||||||||||||||
Commercial mortgage-backed securities | 17.3 | — | — | .1 | — | (15.1 | ) | 2.3 | — | ||||||||||||||||||||||
Mortgage pass-through securities | 2.2 | (.2 | ) | — | — | — | — | 2.0 | — | ||||||||||||||||||||||
Collateralized mortgage obligations | 124.8 | 30.0 | (.1 | ) | 1.4 | — | (113.0 | ) | 43.1 | — | |||||||||||||||||||||
Total fixed maturities, available for sale | 833.1 | 82.9 | (.3 | ) | 33.0 | 68.0 | (277.2 | ) | 739.5 | — | |||||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||||
Corporate securities | 6.4 | (1.0 | ) | (3.8 | ) | .6 | — | — | 2.2 | (3.8 | ) | ||||||||||||||||||||
Venture capital investments | 63.5 | — | (26.0 | ) | .6 | — | — | 38.1 | (26.0 | ) | |||||||||||||||||||||
Total equity securities | 69.9 | (1.0 | ) | (29.8 | ) | 1.2 | — | — | 40.3 | (29.8 | ) | ||||||||||||||||||||
Trading securities: | |||||||||||||||||||||||||||||||
Corporate securities | — | — | — | .1 | .5 | — | .6 | .1 | |||||||||||||||||||||||
States and political subdivisions | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Collateralized debt obligations | — | 7.0 | — | — | — | — | 7.0 | — | |||||||||||||||||||||||
Commercial mortgage-backed securities | .4 | — | — | — | — | (.4 | ) | — | — | ||||||||||||||||||||||
Total trading securities | .4 | 7.0 | — | .1 | .5 | (.4 | ) | 7.6 | .1 | ||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||||||||||||||
Interest-sensitive products | (669.8 | ) | (52.1 | ) | (22.0 | ) | — | — | — | (743.9 | ) | (22.0 | ) |
(a) | We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the inputs more closely represent Level 2 valuations. |
(b) | For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service at the end of the period, whereas a broker quote was used as of the beginning of the period. |
(c) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2012 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 70.3 | $ | (15.4 | ) | $ | — | $ | — | $ | 54.9 | ||||||||
United States Treasury securities and obligations of United States government corporations and agencies | — | (1.6 | ) | — | — | (1.6 | ) | ||||||||||||
Asset-backed securities | 15.0 | (3.6 | ) | — | — | 11.4 | |||||||||||||
Collateralized debt obligations | 30.1 | (41.7 | ) | — | — | (11.6 | ) | ||||||||||||
Mortgage pass-through securities | — | (.2 | ) | — | — | (.2 | ) | ||||||||||||
Collateralized mortgage obligations | 45.3 | (15.3 | ) | — | — | 30.0 | |||||||||||||
Total fixed maturities, available for sale | 160.7 | (77.8 | ) | — | — | 82.9 | |||||||||||||
Equity securities - corporate securities | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||
Trading securities - collateralized debt obligations | 7.0 | — | — | — | 7.0 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (75.3 | ) | 41.9 | (50.6 | ) | 31.9 | (52.1 | ) |
September 30, 2011 | ||||||||||||||||||||||||||||||||
Beginning balance as of June 30, 2011 | Purchases, sales, issuances and settlements, net (a) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 | Ending balance as of September 30, 2011 | Amount of total gains (losses) for the three months ended September 30, 2011 included in our net income relating to assets and liabilities still held as of the reporting date | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | ||||||||||||||||||||||||||||||||
Corporate securities | $ | 361.8 | $ | (111.2 | ) | $ | 4.9 | $ | 5.4 | $ | .5 | $ | (17.6 | ) | $ | 243.8 | $ | — | ||||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 1.7 | — | — | — | — | — | 1.7 | — | ||||||||||||||||||||||||
States and political subdivisions | — | — | — | .1 | 2.0 | — | 2.1 | — | ||||||||||||||||||||||||
Asset-backed securities | 170.7 | 1.2 | — | — | 4.1 | (113.4 | ) | 62.6 | — | |||||||||||||||||||||||
Collateralized debt obligations | 193.5 | 72.7 | — | (6.1 | ) | — | — | 260.1 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 3.2 | (.2 | ) | — | — | — | — | 3.0 | — | |||||||||||||||||||||||
Collateralized mortgage obligations | 204.1 | 3.6 | — | .7 | — | (30.2 | ) | 178.2 | — | |||||||||||||||||||||||
Total fixed maturities, available for sale | 935.0 | (33.9 | ) | 4.9 | 0.1 | 6.6 | (161.2 | ) | 751.5 | — | ||||||||||||||||||||||
Equity securities | 44.6 | 27.3 | — | (.3 | ) | — | — | 71.6 | — | |||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total trading securities | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Investments held by variable interest entities: | ||||||||||||||||||||||||||||||||
Corporate securities | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Liabilities for insurance products: | ||||||||||||||||||||||||||||||||
Interest-sensitive products | (613.4 | ) | 16.3 | (44.8 | ) | — | — | — | (641.9 | ) | (44.8 | ) |
(a) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the three months ended September 30, 2011 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 1.8 | $ | (113.0 | ) | $ | — | $ | — | $ | (111.2 | ) | |||||||
Asset-backed securities | 4.2 | (3.0 | ) | — | — | 1.2 | |||||||||||||
Collateralized debt obligations | 84.2 | (11.5 | ) | — | — | 72.7 | |||||||||||||
Mortgage pass-through securities | — | (.2 | ) | — | — | (.2 | ) | ||||||||||||
Collateralized mortgage obligations | 20.5 | (16.9 | ) | — | — | 3.6 | |||||||||||||
Total fixed maturities, available for sale | 110.7 | (144.6 | ) | — | — | (33.9 | ) | ||||||||||||
Equity securities | 27.3 | — | — | — | 27.3 | ||||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (33.1 | ) | 41.7 | (2.6 | ) | 10.3 | 16.3 |
September 30, 2011 | ||||||||||||||||||||||||||||||||
Beginning balance as of December 31, 2010 | Purchases, sales, issuances and settlements, net (a) | Total realized and unrealized gains (losses) included in net income | Total realized and unrealized gains (losses) included in other comprehensive income (loss) | Transfers into Level 3 | Transfers out of Level 3 | Ending balance as of September 30, 2011 | Amount of total gains (losses) for the nine months ended September 30, 2011 included in our net income relating to assets and liabilities still held as of the reporting date | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Fixed maturities, available for sale: | ||||||||||||||||||||||||||||||||
Corporate securities | $ | 1,907.8 | $ | (289.0 | ) | $ | (16.1 | ) | $ | 12.7 | $ | 39.0 | $ | (1,410.6 | ) | $ | 243.8 | $ | (11.5 | ) | ||||||||||||
United States Treasury securities and obligations of United States government corporations and agencies | 2.0 | — | — | (.3 | ) | — | — | 1.7 | — | |||||||||||||||||||||||
States and political subdivisions | 2.5 | (2.8 | ) | (.1 | ) | .5 | 2.0 | — | 2.1 | — | ||||||||||||||||||||||
Asset-backed securities | 182.3 | (.6 | ) | — | 2.5 | 15.1 | (136.7 | ) | 62.6 | — | ||||||||||||||||||||||
Collateralized debt obligations | 256.5 | 3.5 | 1.8 | (1.7 | ) | — | — | 260.1 | — | |||||||||||||||||||||||
Mortgage pass-through securities | 3.5 | (.5 | ) | — | — | — | — | 3.0 | — | |||||||||||||||||||||||
Collateralized mortgage obligations | 197.1 | 48.5 | (2.1 | ) | 3.2 | 5.9 | (74.4 | ) | 178.2 | — | ||||||||||||||||||||||
Total fixed maturities, available for sale | 2,551.7 | (240.9 | ) | (16.5 | ) | 16.9 | 62.0 | (1,621.7 | ) | 751.5 | (11.5 | ) | ||||||||||||||||||||
Equity securities | 6.9 | 64.0 | — | .7 | — | — | 71.6 | — | ||||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | .4 | (.4 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Total trading securities | .4 | (.4 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Investments held by variable interest entities: | ||||||||||||||||||||||||||||||||
Corporate securities | 6.7 | (7.9 | ) | 1.5 | (.3 | ) | — | — | — | — | ||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Liabilities for insurance products: | ||||||||||||||||||||||||||||||||
Interest-sensitive products | (553.2 | ) | (35.0 | ) | (53.7 | ) | — | — | — | (641.9 | ) | (53.7 | ) |
(a) | Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the nine months ended September 30, 2011 (dollars in millions): |
Purchases | Sales | Issuances | Settlements | Purchases, sales, issuances and settlements, net | |||||||||||||||
Assets: | |||||||||||||||||||
Fixed maturities, available for sale: | |||||||||||||||||||
Corporate securities | $ | 1.8 | $ | (290.8 | ) | $ | — | $ | — | $ | (289.0 | ) | |||||||
States and political subdivisions | — | (2.8 | ) | — | — | (2.8 | ) | ||||||||||||
Asset-backed securities | 4.1 | (4.7 | ) | — | — | (.6 | ) | ||||||||||||
Collateralized debt obligations | 106.6 | (103.1 | ) | — | — | 3.5 | |||||||||||||
Mortgage pass-through securities | — | (.5 | ) | — | — | (.5 | ) | ||||||||||||
Collateralized mortgage obligations | 94.5 | (46.0 | ) | — | — | 48.5 | |||||||||||||
Total fixed maturities, available for sale | 207.0 | (447.9 | ) | — | — | (240.9 | ) | ||||||||||||
Equity securities | 64.0 | — | — | — | 64.0 | ||||||||||||||
Trading securities: | |||||||||||||||||||
Collateralized mortgage obligations | — | (.4 | ) | — | — | (.4 | ) | ||||||||||||
Investments held by variable interest entities: | |||||||||||||||||||
Corporate securities | — | (7.9 | ) | — | — | (7.9 | ) | ||||||||||||
Liabilities: | |||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||
Interest-sensitive products | (85.5 | ) | 51.8 | (28.4 | ) | 27.1 | (35.0 | ) |
Fair value at September 30, 2012 | Valuation technique(s) | Unobservable inputs | Range (weighted average) | ||||||
Assets: | |||||||||
Corporate securities (a) | $ | 212.4 | Discounted cash flow analysis | Discount margins | 1.95% - 3.27% (2.78%) | ||||
Asset-backed securities (b) | 33.0 | Discounted cash flow analysis | Discount margins | 2.96% - 3.28% (3.15%) | |||||
Collateralized debt obligations (c) | 339.0 | Discounted cash flow analysis | Recoveries | 61% - 66% (ramp over 24 months) | |||||
Constant prepayment rate | 20% | ||||||||
Discount margins | 1.30% - 10.00% (2.39%) | ||||||||
Annual default rate | 1.32% - 5.81% (3.27%) | ||||||||
Portfolio CCC % | 1.90% - 22.17% (12.78%) | ||||||||
Equity securities (d) | 2.2 | Discounted cash flow analysis | Recoveries | 21% | |||||
Venture capital investments (e) | 38.1 | Market multiples | EBITDA multiple | 4.8 - 29.0 (11.46) | |||||
Revenue multiple | 0.9 - 7.0 (4.2) | ||||||||
Book equity multiple | 0.8 - 3.8 (2.3) | ||||||||
Other assets categorized as Level 3 (f) | 162.7 | Unadjusted third-party price source | Not applicable | Not applicable | |||||
Total | 787.4 | ||||||||
Liabilities: | |||||||||
Interest sensitive products (g) | 743.9 | Discounted projected embedded derivatives | Projected portfolio yields | 5.35% - 5.61% (5.55%) | |||||
Discount rates | 0.0 - 3.5% (1.3%) | ||||||||
Surrender rates | 4% - 43% (19%) |
(a) | Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. |
(b) | Asset-backed securities - The significant unobservable input used in the fair value measurement of our asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. |
(c) | Collateralized debt obligations - The significant unobservable inputs used in the fair value measurement of our collateralized debt obligations relate to collateral performance, including default rate, recoveries and constant prepayment rate, as well as discount margins of the underlying collateral. Significant increases (decreases) in default rate in isolation would result in a significantly lower (higher) fair value measurement. Generally, a significant increase (decrease) in the constant prepayment rate and recoveries in isolation would result in a significantly higher (lower) fair value measurement. Generally a significant increase (decrease) in discount margin in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the annual default rate is accompanied by a directionally similar change in the assumption used for discount margins and portfolio CCC % and a directionally opposite change in the assumption used for constant prepayment rate and recoveries. A tranche's payment priority and investment cost basis could alter generalized fair value outcomes. |
(d) | Equity securities - The significant unobservable input used in the fair value measurement of our equity securities is the anticipated cash recovery. Significant increases (decreases) in the anticipated recovery would result in a significantly higher (lower) fair value measurement. |
(e) | Venture capital investments - The significant unobservable inputs used in the fair value measurement of our venture capital investments are the EBITDA multiple and revenue multiple. Generally, a significant increase (decrease) in the EBITDA or revenue multiples in isolation would result in a significantly higher (lower) fair value measurement. |
(f) | Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources. |
(g) | Interest sensitive products - The significant unobservable inputs used in the fair value measurement of our interest sensitive products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount rate is based on the Treasury rate adjusted by a margin. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative. |
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