Progressive 2012 Annual Report Download - page 22

After all the valuations are received and our review is complete, if the inputs used by vendors are determined to not contain
sufficient observable market information, we will reclassify the affected security valuations to Level 3. At December 31, 2012
and 2011, securities in our fixed-maturity portfolio listed as Level 3 were comprised substantially of securities that were
either: (i) private placement deals, (ii) thinly held and/or traded securities, or (iii) non-investment-grade securities with little
liquidity. Based on these factors, it was difficult to independently verify observable market inputs that were used to generate
the external valuations we received. At December 31, 2012, we had one private common equity security with a value of
$11.2 million that was priced internally. The same security had a value of $10.2 million at December 31, 2011. At
December 31, 2012, we had one private preferred equity security, which was purchased during the third quarter, with a
value of $31.9 million that was priced internally. At December 31, 2012, we did not have any securities in our fixed-maturity
portfolio that were priced internally. At December 31, 2011, we had two fixed-maturity securities with an aggregate value of
$0.5 million that were priced internally. Despite the lack of sufficient observable market information, we believe the
valuations received in conjunction with our procedures for evaluating third-party prices support the fair values as reported in
the financial statements.
We review the prices from our external sources for reasonableness using internally developed assumptions to derive prices
for the securities, which are then compared to the price we received. Based on our review, all the prices received from
external sources remain unadjusted.
The following tables provide a summary of changes in fair value associated with Level 3 assets for the years ended
December 31, 2012 and 2011:
Level 3 Fair Value
(millions)
Fair Value
at Dec. 31,
2011
Calls/
Maturities/
Paydowns Purchases Sales
Net Realized
(Gain)/Loss
on Sales
Change in
Valuation
Net
Transfers
In (Out)
Fair Value
at Dec. 31,
2012
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed $62.3 $(17.3) $ 0 $0 $0 $ .5 $0 $ 45.5
Commercial mortgage-backed 21.3 (3.7) 0 0 0 7.7 0 25.3
Other asset-backed 2.6 (2.6) 0 0 0 0 0 0
Total asset-backed securities 86.2 (23.6) 0 0 0 8.2 0 70.8
Corporate debt securities 0 0 0 0 0 0 0 0
Total fixed maturities 86.2 (23.6) 0 0 0 8.2 0 70.8
Equity securities:
Nonredeemable preferred stocks:
Financials10 0 28.5 0 0 3.4 0 31.9
Common equities:
Other risk investments 11.5 (.2) 0 0 0 .7 0 12.0
Total Level 3 securities $97.7 $(23.8) $28.5 $0 $0 $12.3 $0 $114.7
1The $3.4 million represents net holding period gains on a hybrid security which is reflected in net realized gains (losses) on securities in the
comprehensive income statement.
Level 3 Fair Value
(millions)
Fair Value
at Dec. 31,
2010
Calls/
Maturities/
Paydowns Purchases Sales
Net
Realized
(Gain)/Loss
on Sales
Change in
Valuation
Net
Transfers
In (Out)1
Fair Value
at Dec. 31,
2011
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed $ 96.7 $(19.5) $0 $ 0 $ 0 $ .5 $(15.4) $62.3
Commercial mortgage-backed 27.5 (.3) 0 0 0 (5.9) 0 21.3
Other asset-backed 5.0 (2.6) 0 0 0 .2 0 2.6
Total asset-backed securities 129.2 (22.4) 0 0 0 (5.2) (15.4) 86.2
Corporate debt securities 29.5 0 0 (27.9) (.6) (1.0) 0 0
Total fixed maturities 158.7 (22.4) 0 (27.9) (.6) (6.2) (15.4) 86.2
Equity securities:
Nonredeemable preferred stocks:
Financials 0 0 0 0 0 0 0 0
Common equities:
Other risk investments 11.8 0 0 0 0 (.3) 0 11.5
Total Level 3 securities $170.5 $(22.4) $0 $(27.9) $(.6) $(6.5) $(15.4) $97.7
1The $(15.4) million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a residential mortgage-backed security.
App.-A-22