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Section 1: 10-Q (ARGO GROUP INTERNATIONAL HOLDINGS, LTD. FORM 10-Q - SEPTEMBER 30, 2018)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or the quarterly period ended September 30, 2018
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to              
Commission file number: 1-15259
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
 
Bermuda
 
98-0214719
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
110 Pitts Bay Road
Pembroke HM08
Bermuda
 
P.O. Box HM 1282
Hamilton HM FX
Bermuda
(Address of principal executive offices)
 
(Mailing address)
(441) 296-5858
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ☒
Accelerated filer  ☐
Non-accelerated filer  ☐
Smaller reporting company  ☐
Emerging growth company  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate the number of shares outstanding (net of treasury shares) of each of the issuer’s classes of common shares as of November 1, 2018.
Title
Outstanding
Common Shares, par value $1.00 per share
33,891,236


Table of Contents

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
INDEX
 
 
 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares and per share amounts)
 
 
 
September 30,
2018
 
December 31,
2017 *
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturities available-for-sale, at fair value (cost: 2018 - $3,496.5; 2017 - $3,320.6)
 
$
3,456.2

 
$
3,343.4

Equity securities, at fair value (cost: 2018 - $358.6; 2017 - $338.2)
 
486.5

 
487.4

Other investments (cost: 2018 - $477.8; 2017 - $534.1)
 
487.5

 
543.6

Short-term investments, at fair value (cost: 2018 - $434.5; 2017 - $368.5)
 
434.5

 
368.5

Total investments
 
4,864.7

 
4,742.9

Cash
 
118.5

 
176.6

Accrued investment income
 
26.3

 
23.5

Premiums receivable
 
708.9

 
598.6

Reinsurance recoverables
 
2,208.2

 
2,093.3

Goodwill
 
161.4

 
161.4

Intangible assets, net of accumulated amortization
 
110.5

 
96.8

Current income taxes receivable, net
 

 
1.4

Deferred acquisition costs, net
 
174.6

 
160.4

Ceded unearned premiums
 
515.6

 
399.5

Other assets
 
391.0

 
309.6

Total assets
 
$
9,279.7

 
$
8,764.0

Liabilities and Shareholders' Equity
 
 
 
 
Reserves for losses and loss adjustment expenses
 
$
4,291.7

 
$
4,201.0

Unearned premiums
 
1,387.5

 
1,207.7

Accrued underwriting expenses
 
122.6

 
115.3

Ceded reinsurance payable, net
 
885.4

 
734.0

Funds held
 
38.8

 
42.7

Senior unsecured fixed rate notes
 
139.8

 
139.6

Other indebtedness
 
183.9

 
184.5

Junior subordinated debentures
 
256.9

 
256.6

Current income taxes payable, net
 
8.1

 

Deferred tax liabilities, net
 
14.0

 
31.3

Other liabilities
 
132.9

 
31.6

Total liabilities
 
7,461.6

 
6,944.3

Commitments and contingencies (Note 14)
 
 
 
 
Shareholders' equity:
 
 
 
 
Common shares - $1.00 par, 500,000,000 shares authorized; 45,188,722 and 40,385,309 shares issued at September 30, 2018 and December 31, 2017, respectively
 
45.2

 
40.4

Additional paid-in capital
 
1,368.7

 
1,129.1

Treasury shares (11,285,996 and 10,785,007 shares at September 30, 2018 and December 31, 2017, respectively)
 
(453.4
)
 
(423.4
)
Retained earnings
 
915.7

 
977.0

Accumulated other comprehensive (loss) income, net of taxes
 
(58.1
)
 
96.6

Total shareholders' equity
 
1,818.1

 
1,819.7

Total liabilities and shareholders' equity
 
$
9,279.7

 
$
8,764.0

*    Derived from audited consolidated financial statements. 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions, except number of shares and per share amounts)
(Unaudited)
 
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Premiums and other revenue:
 
 
 
 
 
 
 
 
Earned premiums
 
$
446.9

 
$
389.3

 
$
1,279.3

 
$
1,167.8

Net investment income
 
34.5

 
30.9

 
103.7

 
105.0

Fee and other income
 
3.3

 
13.0

 
7.2

 
20.4

Net realized investment gains (losses):
 
 
 
 
 
 
 
 
Net realized investment gains
 
9.7

 
6.0

 
31.1

 
25.1

Change in fair value of equity securities
 
4.5

 

 
(22.1
)
 

Net realized investment gains
 
14.2

 
6.0

 
9.0

 
25.1

Total revenue
 
498.9

 
439.2

 
1,399.2

 
1,318.3

Expenses:
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
277.5

 
326.4

 
760.2

 
779.5

Underwriting, acquisition and insurance expenses
 
168.0

 
166.1

 
485.0

 
474.4

Interest expense
 
7.9

 
7.5

 
23.4

 
20.4

Fee and other expense
 
1.9

 
5.0

 
5.5

 
12.4

Foreign currency exchange (gains) losses
 
(1.7
)
 
0.1

 
(2.3
)
 
4.0

Total expenses
 
453.6

 
505.1

 
1,271.8

 
1,290.7

Income (loss) before income taxes
 
45.3

 
(65.9
)
 
127.4

 
27.6

Income tax provision (benefit)
 
4.7

 
(4.6
)
 
20.2

 
6.2

Net income (loss)
 
$
40.6

 
$
(61.3
)
 
$
107.2

 
$
21.4

Net income (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.20

 
$
(1.78
)
 
$
3.16

 
$
0.62

Diluted
 
$
1.17

 
$
(1.78
)
 
$
3.09

 
$
0.60

Dividend declared per common share
 
$
0.27

 
$
0.23

 
$
0.81

 
$
0.70

Weighted average common shares:
 
 
 
 
 
 
 
 
Basic
 
33,956,695

 
34,475,452

 
33,921,632

 
34,586,931

Diluted
 
34,656,328

 
34,475,452

 
34,688,843

 
35,527,173

 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net realized investment gains before
other-than-temporary impairment losses
 
$
14.2

 
$
6.2

 
$
10.9

 
$
26.8

Other-than-temporary impairment losses recognized in earnings:
 
 
 
 
 
 
 
 
Other-than-temporary impairment losses on fixed maturities
 

 
(0.1
)
 
(1.9
)
 
(0.1
)
Other-than-temporary impairment losses on equity securities
 

 
(0.1
)
 

 
(1.6
)
Impairment losses recognized in earnings
 

 
(0.2
)
 
(1.9
)
 
(1.7
)
Net realized investment gains
 
$
14.2

 
$
6.0

 
$
9.0

 
$
25.1

 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
40.6

 
$
(61.3
)
 
$
107.2

 
$
21.4

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(0.8
)
 
0.4

 
(4.8
)
 
(0.2
)
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
 
(Losses) gains arising during the year
 
(2.4
)
 
38.5

 
(63.8
)
 
100.1

Reclassification adjustment for losses (gains) included in net income
 
(2.4
)
 
(17.4
)
 
0.2

 
(36.3
)
Other comprehensive (loss) income before tax
 
(5.6
)
 
21.5

 
(68.4
)
 
63.6

Income tax provision related to other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
 
(Losses) gains arising during the year
 
(1.1
)
 
10.1

 
(10.4
)
 
26.0

Reclassification adjustment for losses (gains) included in net income
 
(0.3
)
 
(5.5
)
 
(0.1
)
 
(11.7
)
Income tax (benefit) provision related to other comprehensive income
 
(1.4
)
 
4.6

 
(10.5
)
 
14.3

Other comprehensive (loss) income, net of tax
 
(4.2
)
 
16.9

 
(57.9
)
 
49.3

Comprehensive income (loss)
 
$
36.4

 
$
(44.4
)
 
$
49.3

 
$
70.7

 
See accompanying notes.


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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except number of shares and per share amounts)
(Unaudited)
 
 
 
Common
Shares
 
Additional
Paid-In
Capital
 
Treasury
Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Shareholders'
Equity
Balance, December 31, 2016
 
$
40.0

 
$
1,123.3

 
$
(378.2
)
 
$
959.9

 
$
47.7

 
$
1,792.7

Net income
 

 

 

 
21.4

 

 
21.4

Other comprehensive income, net of tax
 

 

 

 

 
49.3

 
49.3

Repurchase of common shares (612,034 at a weighted average price of $59.75)
 

 

 
(36.6
)
 

 

 
(36.6
)
Activity under stock incentive plans
 
0.4

 
11.3

 

 

 

 
11.7

Retirement of common shares (tax payments on equity compensation)
 
(0.1
)
 
(6.7
)
 

 

 

 
(6.8
)
Employee stock purchase plan
 

 
1.2

 

 

 

 
1.2

Cash dividend declared - common shares ($0.70/share)
 

 

 

 
(24.9
)
 

 
(24.9
)
Balance, September 30, 2017
 
$
40.3

 
$
1,129.1

 
$
(414.8
)
 
$
956.4

 
$
97.0

 
$
1,808.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
$
40.4

 
$
1,129.1

 
$
(423.4
)
 
$
977.0

 
$
96.6

 
$
1,819.7

Net income
 

 

 

 
107.2

 

 
107.2

Other comprehensive loss, net of tax
 

 

 

 

 
(57.9
)
 
(57.9
)
Repurchase of common shares (500,989 at a weighted average price of $59.83)
 

 

 
(30.0
)
 

 

 
(30.0
)
Activity under stock incentive plans
 
0.5

 
12.2

 

 

 

 
12.7

Retirement of common shares (tax payments on equity compensation)
 
(0.1
)
 
(6.9
)
 

 

 

 
(7.0
)
Employee stock purchase plan
 

 
1.4

 

 

 

 
1.4

15% Stock Dividend
 
4.4

 
232.9

 

 
(237.3
)
 

 

Cash dividend declared - common shares ($0.81/share)
 

 

 

 
(28.0
)
 

 
(28.0
)
Cumulative effect of adoption of ASU 2016-01, net of taxes
 

 

 

 
117.5

 
(117.5
)
 

Cumulative effect of adoption of ASU 2018-02, net of taxes
 

 

 

 
(20.7
)
 
20.7

 

Balance, September 30, 2018
 
$
45.2

 
$
1,368.7

 
$
(453.4
)
 
$
915.7

 
$
(58.1
)
 
$
1,818.1


See accompanying notes.


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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
  
 
 
For the Nine Months Ended
September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
107.2

 
$
21.4

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Amortization and depreciation
 
23.1

 
24.4

Share-based payments expense
 
14.4

 
11.2

Deferred income tax benefit, net
 
(7.4
)
 
(6.4
)
Net realized investment gains
 
(9.0
)
 
(25.1
)
Undistributed earnings from alternative investment portfolio
 
(20.7
)
 
(38.6
)
Loss on disposals of fixed assets, net
 

 
1.4

Change in:
 
 
 
 
Accrued investment income
 
(2.7
)
 
(2.7
)
Receivables
 
(148.5
)
 
(690.9
)
Deferred acquisition costs
 
(15.2
)
 
(19.7
)
Ceded unearned premiums
 
(114.6
)
 
(65.8
)
Reserves for losses and loss adjustment expenses
 
(19.2
)
 
756.5

Unearned premiums
 
179.4

 
162.5

Ceded reinsurance payable and funds held
 
151.3

 
179.7

Income taxes
 
8.8

 
3.5

Accrued underwriting expenses
 
(1.0
)
 
(42.5
)
Other, net
 
85.1

 
(16.5
)
Cash provided by operating activities
 
231.0

 
252.4

Cash flows from investing activities:
 
 
 
 
Sales of fixed maturity investments
 
1,158.6

 
1,069.7

Maturities and mandatory calls of fixed maturity investments
 
375.1

 
493.2

Sales of equity securities
 
165.0

 
140.0

Sales of other investments
 
93.6

 
68.3

Purchases of fixed maturity investments
 
(1,787.0
)
 
(1,916.9
)
Purchases of equity securities
 
(156.0
)
 
(118.1
)
Purchases of other investments
 
(34.2
)
 
(25.2
)
Change in foreign regulatory deposits and voluntary pools
 
13.4

 
(27.2
)
Change in short-term investments
 
(47.2
)
 
291.4

Settlements of foreign currency exchange forward contracts
 
2.0

 

Acquisition of Maybrooke, net of cash acquired
 

 
(105.2
)
Cash acquired with acquisition of Ariscom
 
15.6

 

Purchases of fixed assets
 
(35.8
)
 
(20.4
)
Other, net
 
3.6

 
(15.6
)
Cash used in investing activities
 
(233.3
)
 
(166.0
)
Cash flows from financing activities:
 
 
 
 
Additional long-term borrowings
 

 
125.0

Activity under stock incentive plans
 
1.0

 
0.9

Repurchase of Company's common shares
 
(30.0
)
 
(36.6
)
Payment of cash dividends to common shareholders
 
(28.0
)
 
(24.9
)
Cash (used in) provided by financing activities
 
(57.0
)
 
64.4

Effect of exchange rate changes on cash
 
1.2

 
(1.0
)
Change in cash
 
(58.1
)
 
149.8

Cash, beginning of year
 
176.6

 
86.0

Cash, end of period
 
$
118.5

 
$
235.8

 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
1.    Basis of Presentation
The accompanying consolidated financial statements of Argo Group International Holdings, Ltd. (“Argo Group,” “we” or the “Company”) and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The major estimates reflected in our consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses; reinsurance recoverables, including the reinsurance recoverables allowance for doubtful accounts; estimates of written and earned premiums; reinsurance premium receivable; fair value of investments and assessment of potential impairment; valuation of goodwill and intangibles and our deferred tax asset valuation allowance. Actual results could differ from those estimates. Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on February 27, 2018.
Effective March 5, 2018, we acquired 100% of the capital stock of Ariscom Compagnia di Assicurazioni S.p.A. (“Ariscom”) upon its release from extraordinary administration by the Italian insurance supervisory authority (“IVASS”). The acquisition is being accounted for in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” See Note 3, “Acquisition of Ariscom,” for additional discussion regarding the acquisition. The Consolidated Financial Statements as of and for the three and nine months ended September 30, 2018 and the Notes to the Consolidated Financial Statements reflect the consolidated results of Argo Group and Ariscom commencing on the date of acquisition.
The interim financial information as of, and for the three and nine months ended September 30, 2018 and 2017 is unaudited. However, in the opinion of management, the interim information includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results presented for the interim periods. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated in consolidation. Certain reclassifications have been made to financial information presented for prior years to conform to the current year’s presentation.
 
15% Stock Dividend
 
On February 20, 2018, our Board of Directors declared at 15% stock dividend, payable on March 21, 2018, to shareholders of record at the close of business on March 7, 2018. As a result of the stock dividend, 4,397,520 additional shares were issued. Cash was paid in lieu of fractional shares of our common shares. Excluding repurchased shares, all references to common shares associated with the recalculation of per share amounts in this document and related disclosures have been adjusted to reflect the stock dividend for all periods presented.
 
2.    Recently Issued Accounting Pronouncements
On August 28, 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820)." ASU 2018-13 eliminates, adds and modifies certain disclosure requirements on fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively for only the most recent interim or annual period presented in the initial fiscal year adoption. All other amendments are applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are currently in the process of evaluating the impact that the adoption of the ASU will have on our financial disclosures.
On February 14, 2018, the FASB issued ASU 2018-2, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings of the stranded tax effects in AOCI resulting from the Tax Cuts and Jobs Act (“TCJA”). Current guidance required the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the US federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of TCJA related to items in AOCI. The updated guidance is effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the TCJA related to items

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remaining in AOCI are recognized or at the beginning of the period of adoption. Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. We have adopted the guidance effective January 1, 2018. The adoption of this ASU does not affect the Company’s results of operations, financial position, or liquidity. As a result of adopting this ASU, we reclassified $20.7 million of previously recognized deferred taxes from accumulated other comprehensive income into retained earnings as of January 1, 2018.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” ASU 2016-15 will reduce diversity in practice on how eight specific cash receipts and payments are classified on the statement of cash flows. The ASU was effective for fiscal years beginning after December 15, 2017, including interim periods within the year of adoption. This ASU will have an impact on how we present the distributions received from equity method investees in our statement of cash flows. We have adopted this ASU effective January 1, 2018. This ASU did not have a material impact on the classification of specific cash receipts and payments within the cash flow statement.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016-13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. The guidance requires a modified retrospective transition method and early adoption is permitted. We are currently in the process of evaluating the impact that the adoption of the ASU will have on our financial results and disclosures.

In February 2016, the FASB issued ASU 2016-2, “Leases” (Topic 842). ASU 2016-2 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, the ASU modifies current guidance for lessors' accounting. In July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11): Leases (Topic 842): Targeted Improvements, which provides for an alternative transition method by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases)). The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted.

We have entered into operating leases for office space and certain other assets.  We will adopt the new standard on the effective date of January 1, 2019, using a modified retrospective approach as permitted under ASU 2018-11. We continue to execute a project plan, which includes contract review and assessment, data collection, and evaluation of our systems, processes and internal controls. In addition, we are implementing a new lease accounting software which will facilitate the adoption of this standard.  We have also engaged a third party to assist with the implementation of this standard.   Although we continue to assess the impact of the standard on our consolidated financial statements, we believe adoption and implementation will result in an increase to assets and liabilities, as well as additional disclosures. We do not expect a material impact on our consolidated statement of income or cash flows.
In January 2016, the FASB issued ASU 2016-1, “Recognition and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825-10). ASU 2016-1 requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. This ASU also requires us to assess the ability to realize our deferred tax assets related to an available-for-sale debt security in combination with our other deferred tax assets. The ASU was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We have adopted this ASU effective January 1, 2018. Upon adoption of this ASU, cumulative net unrealized gain on equity securities of $117.5 million, net of deferred income taxes, were reclassified from accumulated other comprehensive income into retained earnings as of January 1, 2018. The change in the fair value of the noted investments is now included in “Net realized investment gains” in our consolidated statements of income. The standard increases the volatility of the results reported in our consolidated statements of income, resulting from the remeasurement of our equity investments.
In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers” (Topic 606), which replaces most existing U.S. GAAP revenue recognition guidance and permits the use of either the retrospective or cumulative effect transition method. In August 2015, “Deferral of the Effective Date” (Topic 606), deferred the effective date of this guidance to interim and annual reporting periods beginning after December 15, 2017. Subsequently, in 2016, the FASB issued implementation guidance related to ASU 2014-9, including:
 
ASU 2016-8, “Principal versus Agent considerations (Reporting Revenue Gross versus Net)” (Topic 606), which is intended to provide further clarification on the application of the principal versus agent implementations;
ASU 2016-10, “Identifying Performance Obligations and Licensing” (Topic 606), which is intended to clarify the guidance for identifying promised goods or service in a contract with a customer;

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Table of Contents

ASU 2016-11, “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-9 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” (Topics 605 & 815);
ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” (Topic 606), provides additional guidance for quantitative and qualitative disclosures in certain cases, and makes 12 additional technical corrections and improvements to the new revenue standard.
We adopted this ASU effective January 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial results.
 
3.    Acquisition of Ariscom
Effective March 5, 2018, we acquired 100% of the capital stock of Ariscom upon its release from extraordinary administration by IVASS. We injected an amount of capital into Ariscom necessary to meet certain regulatory requirements and thresholds. As part of this capital infusion, we have become the sole shareholder of Ariscom.
The acquisition provides Argo Group with an in-market Italian insurance platform and access to Ariscom’s broker and client network throughout Italy, with longer-term opportunities to expand our presence in continental Europe, particularly Spain and Portugal.
The acquisition is being accounted for in accordance with ASC 805, “Business Combinations.” Purchase accounting, as defined by ASC 805, requires that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We are in the process of finalizing our determination of fair values, including an independent appraisal of certain assets and liabilities, including intangible assets. We anticipate closing the fair value measurement period by the end of 2018. Ariscom’s financial position, results of operations, and cash flows were not material to our consolidated financial results as of and for the three and nine months ended September 30, 2018.

4.    Investments
Included in “Total investments” in our Consolidated Balance Sheets at September 30, 2018 and December 31, 2017 is $139.9 million and $130.8 million, respectively, of assets managed on behalf of the trade capital providers, who are third-party participants that provide underwriting capital to the operations of Syndicate 1200.
Fixed Maturities
The amortized cost, gross unrealized gains, gross unrealized losses and fair value in fixed maturity investments were as follows:
September 30, 2018
 
 
 
 
 
 
 
 
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
288.8

 
$
0.1

 
$
8.1

 
$
280.8

Foreign Governments
 
267.6

 
2.8

 
4.3

 
266.1

Obligations of states and political subdivisions
 
241.6

 
3.8

 
2.4

 
243.0

Corporate bonds
 
1,713.7

 
11.8

 
29.5

 
1,696.0

Commercial mortgage-backed securities
 
160.3

 

 
3.3

 
157.0

Residential mortgage-backed securities
 
390.2

 
1.7

 
12.0

 
379.9

Asset-backed securities
 
174.5

 
0.2

 
1.3

 
173.4

Collateralized loan obligations
 
259.8

 
1.3

 
1.1

 
260.0

Total fixed maturities
 
$
3,496.5

 
$
21.7

 
$
62.0

 
$
3,456.2


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December 31, 2017
 
 
 
 
 
 
 
 
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
419.9

 
$
0.2

 
$
5.0

 
$
415.1

Foreign Governments
 
229.0

 
6.7

 
2.5

 
233.2

Obligations of states and political subdivisions
 
327.7

 
9.3

 
1.1

 
335.9

Corporate bonds
 
1,514.5

 
24.4

 
13.2

 
1,525.7

Commercial mortgage-backed securities
 
136.3

 
0.1

 
1.5

 
134.9

Residential mortgage-backed securities
 
309.3

 
2.8

 
2.7

 
309.4

Asset-backed securities
 
161.3

 
0.7

 
0.8

 
161.2

Collateralized loan obligations
 
222.6

 
5.9

 
0.5

 
228.0

Total fixed maturities
 
$
3,320.6

 
$
50.1

 
$
27.3

 
$
3,343.4

Contractual Maturity
The amortized cost and fair values of fixed maturity investments as of September 30, 2018, by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
251.2

 
$
250.8

Due after one year through five years
 
1,522.2

 
1,508.3

Due after five years through ten years
 
586.4

 
575.7

Thereafter
 
151.9

 
151.1

Structured securities
 
984.8

 
970.3

Total
 
$
3,496.5

 
$
3,456.2

The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.
Other Investments
Details regarding the carrying value and unfunded investment commitments of other investments as of September 30, 2018 and December 31, 2017 were as follows:
September 30, 2018
 
 
 
 
(in millions)
 
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
 
Hedge funds
 
$
126.2

 
$

Private equity
 
203.6

 
118.0

Long only funds
 
153.4

 

Other
 
4.3

 

Total other investments
 
$
487.5

 
$
118.0


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December 31, 2017
 
 
 
 
(in millions)
 
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
 
Hedge funds
 
$
163.6

 
$

Private equity
 
179.2

 
129.9

Long only funds
 
196.5

 

Other
 
4.3

 

Total other investments
 
$
543.6

 
$
129.9

The following describes each investment type:
Hedge funds: Hedge funds include funds that primarily buy and sell stocks, including short sales, multi-strategy credit, relative value credit and distressed credit.
Private equity: Private equity includes buyout funds, real asset/infrastructure funds, credit special situations funds, mezzanine lending funds and direct investments and strategic non-controlling minority investments in private companies that are principally accounted for using the equity method of accounting.
Long only funds: Our long only funds include a fund that primarily owns international stocks and funds that primarily own investment-grade corporate and sovereign fixed income securities.  
Other: Other includes participation in investment pools.
Unrealized Losses and Other-Than-Temporary Impairments
An aging of unrealized losses on our investments in fixed maturities is presented below:
September 30, 2018
 
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
 
$
260.0

 
$
7.2

 
$
17.1

 
$
0.9

 
$
277.1

 
$
8.1

Foreign Governments
 
229.5

 
4.2

 
5.0

 
0.1

 
234.5

 
4.3

Obligations of states and political subdivisions
 
76.0

 
1.6

 
14.4

 
0.8

 
90.4

 
2.4

Corporate bonds
 
1,234.1

 
27.6

 
23.1

 
1.9

 
1,257.2

 
29.5

Commercial mortgage-backed securities
 
133.1

 
2.3

 
15.7

 
1.0

 
148.8

 
3.3

Residential mortgage-backed securities
 
317.6

 
11.3

 
13.6

 
0.7

 
331.2

 
12.0

Asset-backed securities
 
141.9

 
1.0

 
6.3

 
0.3

 
148.2

 
1.3

Collateralized loan obligations
 
192.7

 
1.1

 

 

 
192.7

 
1.1

Total fixed maturities
 
$
2,584.9

 
$
56.3

 
$
95.2

 
$
5.7

 
$
2,680.1

 
$
62.0

December 31, 2017
 
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
 
$
313.7

 
$
1.9

 
$
83.7

 
$
3.1

 
$
397.4

 
$
5.0

Foreign Governments
 
175.2

 
2.0

 
35.9

 
0.5

 
211.1

 
2.5

Obligations of states and political subdivisions
 
33.3

 
0.5

 
22.4

 
0.6

 
55.7

 
1.1

Corporate bonds
 
674.1

 
9.9

 
77.7

 
3.3

 
751.8

 
13.2

Commercial mortgage-backed securities
 
58.2

 
0.4

 
37.8

 
1.1

 
96.0

 
1.5

Residential mortgage-backed securities
 
164.4

 
1.6

 
52.4

 
1.1

 
216.8

 
2.7

Asset-backed securities
 
85.4

 
0.4

 
31.9

 
0.4

 
117.3

 
0.8

Collateralized loan obligations (1)
 
34.6

 
0.5

 
0.9

 

 
35.5

 
0.5

Total fixed maturities
 
$
1,538.9

 
$
17.2

 
$
342.7

 
$
10.1

 
$
1,881.6

 
$
27.3


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Table of Contents

(1) 
Unrealized losses one year or greater are less than $0.1 million.
We regularly evaluate our investments for other-than-temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. We also recognize other-than-temporary losses on fixed maturity securities that we intend to sell. Effective January 1, 2018, the Company adopted ASU 2016-1. As a result, changes in the fair value of equity securities are recognized in net realized investment gains in the Consolidated Statement of Income.
We hold a total of 8,864 securities, of which 3,437 were in an unrealized loss position for less than one year and 105 were in an unrealized loss position for a period one year or greater as of September 30, 2018. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral, as well. In considering whether an investment is other-than-temporarily impaired or not, we also considered that we do not intend to sell the investments and it is unlikely that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider these investments to be other-than-temporarily impaired at September 30, 2018.
We recognized other-than-temporary losses on our fixed maturities and equity portfolio as follows:
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Other-than-temporary impairment:
 
 
 
 
 
 
 
 
Corporate bonds
 
$

 
$
(0.1
)
 
$
(1.9
)
 
$
(0.1
)
Equity securities
 

 
(0.1
)
 

 
(1.6
)
Other-than-temporary impairment losses
 
$

 
$
(0.2
)
 
$
(1.9
)
 
$
(1.7
)
Net Realized Investment Gains and Losses
The following table presents our gross realized investment gains (losses):

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Table of Contents

 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Realized gains on fixed maturities and other
 
 
 
 
 
 
 
 
Fixed maturities
 
$
4.6

 
$
6.3

 
$
15.8

 
$
18.9

Equity securities (1)
 

 
9.4

 

 
37.1

Other and short-term investments
 
7.6

 
7.2

 
34.9

 
18.5

 
 
12.2

 
22.9

 
50.7

 
74.5

Realized losses on fixed maturities and other
 
 
 
 
 
 
 
 
Fixed maturities
 
(2.8
)
 
(4.8
)
 
(14.2
)
 
(16.0
)
Equity securities (1)
 

 
(1.4
)
 

 
(3.9
)
Other and short-term investments
 
(8.8
)
 
(10.5
)
 
(34.4
)
 
(27.8
)
Other-than-temporary impairment losses on fixed maturities
 

 
(0.1
)
 
(1.9
)
 
(0.1
)
Other-than-temporary impairment losses on equity securities
 

 
(0.1
)
 

 
(1.6
)
 
 
(11.6
)
 
(16.9
)
 
(50.5
)
 
(49.4
)
Equity securities (1)
 
 
 
 
 
 
 
 
Net realized gains on equity securities sold during the period
 
9.1

 

 
30.9

 

Change in unrealized gains (losses) on equity securities held at the end of the period
 
4.5

 

 
(22.1
)
 

Net realized gains on equity securities
 
13.6

 

 
8.8

 

Net realized investment gains before income taxes
 
14.2

 
6.0

 
9.0

 
25.1

Income tax expense
 
(3.3
)
 
(2.2
)
 
(2.8
)
 
(7.9
)
Net realized investment gains, net of income taxes
 
$
10.9

 
$
3.8

 
$
6.2

 
$
17.2

(1)
Effective January 1, 2018, we adopted ASU 2016-1. As a result, unrealized gains (losses) at the date of adoption have been reclassified from accumulated other comprehensive income to retained earnings. Additionally, all changes in the fair value of equity securities are recognized in net realized investment gains (losses). Prior periods have not been restated to conform to the current presentation. See Note 2, "Recently Issued Accounting Pronouncements."
The cost of securities sold is based on the specific identification method.
Changes in unrealized appreciation (depreciation) related to investments are summarized as follows:
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Change in unrealized (losses) gains
 
 
 
 
 
 
 
 
Fixed maturities
 
$
(4.3
)
 
$
9.5

 
$
(63.2
)
 
$
41.6

Equity securities
 

 
11.7

 

 
20.2

Other investments
 

 
(0.1
)
 
0.1

 
2.0

Short-term investments
 
(0.5
)
 

 
(0.5
)
 

Net unrealized investment (losses) gains before income taxes
 
(4.8
)
 
21.1

 
(63.6
)
 
63.8

Income tax benefit (expense)
 
1.4

 
(4.6
)
 
10.5

 
(14.3
)
Net unrealized investment (losses) gains, net of income taxes
 
$
(3.4
)
 
$
16.5

 
$
(53.1
)
 
$
49.5

Foreign Currency Exchange Forward Contracts

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Table of Contents

We entered into foreign currency exchange forward contracts to manage operational currency exposure on our Canadian dollar (“CAD”) investment portfolio, minimize negative impacts to investment portfolio returns, and gain exposure to a total return strategy which invests in multiple currencies.  The currency forward contracts are carried at fair value in our Consolidated Balance Sheets in “Other liabilities.”  The gains and losses are included in “Net realized investment gains (losses)” in our Consolidated Statements of Income.
The fair value of our foreign currency exchange forward contracts as of September 30, 2018 and December 31, 2017 was as follows:
(in millions)
 
September 30, 2018
 
December 31, 2017
Operational currency exposure
 
$
(4.7
)
 
$
(0.2
)
Asset manager investment exposure
 
0.5

 
(0.9
)
Total return strategy
 
(0.6
)
 
0.7

Total
 
$
(4.8
)
 
$
(0.4
)
The following table represents our gross investment realized gains and losses on our foreign currency exchange forward contracts:
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Realized gains
 
 
 
 
 
 
 
 
Operational currency exposure
 
$
0.4

 
$
1.8

 
$
6.4

 
$
7.5

Asset manager investment exposure
 
1.4

 
0.6

 
14.4

 
1.1

Total return strategy
 
5.6

 
4.1

 
12.5

 
7.7

Gross realized investment gains
 
7.4

 
6.5

 
33.3

 
16.3

Realized losses
 
 
 
 
 
 
 
 
Operational currency exposure
 
(2.7
)
 
(4.2
)
 
(7.0
)
 
(10.1
)
Asset manager investment exposure
 
(0.9
)
 
(3.6
)
 
(12.5
)
 
(10.4
)
Total return strategy
 
(5.2
)
 
(3.5
)
 
(13.3
)
 
(6.2
)
Gross realized investment losses
 
(8.8
)
 
(11.3
)
 
(32.8
)
 
(26.7
)
Net realized investment (losses) gains on foreign currency exchange forward contracts
 
$
(1.4
)
 
$
(4.8
)
 
$
0.5

 
$
(10.4
)
Regulatory Deposits, Pledged Securities and Letters of Credit
We are required to maintain assets on deposit with various regulatory authorities to support our insurance and reinsurance operations.  We maintain assets pledged as collateral in support of irrevocable letters of credit issued under the terms of certain reinsurance agreements for reported loss and loss expense reserves. The following table presents our components of restricted assets at September 30:
(in millions)
 
September 30, 2018
 
September 30, 2017
Securities on deposit for regulatory and other purposes
 
$
180.6

 
$
177.8

Securities pledged as collateral for letters of credit
 
76.5

 
42.6

Securities and cash on deposit supporting Lloyd’s business
 
418.4

 
405.6

Total restricted investments
 
$
675.5

 
$
626.0

Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.
Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels.

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Table of Contents

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.
Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own judgments about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.
We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of September 30, 2018. A description of the valuation techniques we use to measure assets at fair value is as follows:
Fixed Maturities (Available-for-Sale) Levels 1 and 2:
United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.
United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated government and credit securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.
Asset and mortgage-backed securities and collateralized loan obligations are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Fixed Maturities (Available-for-Sale) Levels 3:
We own term loans that are valued using unobservable inputs.
Equity Securities Level 1: Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.
Equity Securities Level 2: We own interests in a mutual fund that is reported at fair value using Level 2 inputs. The valuation is based on the fund’s net asset value per share, at the end of each month. The underlying assets in the fund are valued primarily on the basis of closing market quotations or official closing prices on each valuation day.
Equity Securities Level 3: We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:
Fair value measurements obtained from the National Association of Insurance Commissioners’ Security Valuation Office at the reporting date.
Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.
Fair value measurements from a broker and an independent valuation service, both based upon estimates and assumptions.
Other Investments Level 2: Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon values obtained from Lloyd’s.

16

Table of Contents

Short-term Investments: Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate and governmental bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.
Transfers Between Level 1 and Level 2 Securities: There were no transfers between Level 1 and Level 2 securities during the three and nine months ended September 30, 2018.
Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis have been categorized as follows:
 
 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
 
September 30, 2018
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
280.8

 
$
272.0

 
$
8.8

 
$

Foreign Governments
 
266.1

 

 
266.1

 

Obligations of states and political subdivisions
 
243.0

 

 
243.0

 

Corporate bonds
 
1,696.0

 

 
1,692.0

 
4.0

Commercial mortgage-backed securities
 
157.0

 

 
157.0

 

Residential mortgage-backed securities
 
379.9

 

 
379.9

 

Asset-backed securities
 
173.4

 

 
173.4

 

Collateralized loan obligations
 
260.0

 

 
260.0

 

Total fixed maturities
 
3,456.2

 
272.0

 
3,180.2

 
4.0

Equity securities
 
486.5

 
476.0

 

 
10.5

Other investments
 
95.1

 

 
95.1

 

Short-term investments
 
434.5

 
399.3

 
35.2

 

 
 
$
4,472.3

 
$
1,147.3

 
$
3,310.5

 
$
14.5

(a) 
Quoted prices in active markets for identical assets
(b) 
Significant other observable inputs
(c) 
Significant unobservable inputs
 
 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
 
December 31, 2017
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
415.1

 
$
410.6

 
$
4.5

 
$

Foreign Governments
 
233.2

 

 
233.2

 

Obligations of states and political subdivisions
 
335.9

 

 
335.9

 

Corporate bonds
 
1,525.7

 

 
1,523.8

 
1.9

Commercial mortgage-backed securities
 
134.9

 

 
134.9

 

Residential mortgage-backed securities
 
309.4

 

 
309.4

 

Asset-backed securities
 
161.2

 

 
161.2

 

Collateralized loan obligations
 
228.0

 

 
228.0

 

Total fixed maturities
 
3,343.4

 
410.6

 
2,930.9

 
1.9

Equity securities
 
487.4

 
483.0

 
2.1

 
2.3

Other investments
 
108.8

 

 
108.8

 

Short-term investments
 
368.5

 
333.7

 
34.8

 

 
 
$
4,308.1

 
$
1,227.3

 
$
3,076.6

 
$
4.2

(a) 
Quoted prices in active markets for identical assets
(b) 
Significant other observable inputs
(c) 
Significant unobservable inputs

17

Table of Contents

The fair value measurements in the tables above do not equal “Total investments” on our Consolidated Balance Sheets as they exclude certain other investments that are accounted for under the equity-method of accounting.
A reconciliation of the beginning and ending balances for the investments categorized as Level 3 are as follows:
Fair Value Measurements Using Observable Inputs (Level 3)
(in millions)
 
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2018
 
$
1.9

 
$
2.3

 
$
4.2

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Total gains or losses (realized/unrealized):
 
 
 
 
 
 
Included in net income (loss)
 

 
(0.2
)
 
(0.2
)
Included in other comprehensive income (loss)
 
(0.1
)
 

 
(0.1
)
Purchases, issuances, sales, and settlements:
 
 
 
 
 
 
Purchases
 
2.2

 
8.4

 
10.6

Issuances
 

 

 

Sales
 

 

 

Settlements
 

 

 

 Ending balance, September 30, 2018
 
$
4.0

 
$
10.5

 
$
14.5

Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2018
 
$

 
$

 
$

(in millions)
 
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2017
 
$
2.0

 
$
0.4

 
$
2.4

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Total gains or losses (realized/unrealized):
 
 
 
 
 


Included in net income (loss)
 

 

 

Included in other comprehensive income (loss)
 
(0.1
)
 
0.2

 
0.1

Purchases, issuances, sales, and settlements:
 
 
 
 
 


Purchases
 

 
1.7

 
1.7

Issuances
 

 

 

Sales