Progressive 2012 Annual Report Download - page 17

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The following table shows the status of our derivative instruments at December 31, 2012 and 2011, and for the years ended
December 31, 2012, 2011, and 2010; amounts are on a pretax basis:
(millions) Balance Sheet
Comprehensive
Income Statement
Notional Value1
Assets
(Liabilities)
Fair Value
Net Realized
Gains (Losses)
on Securities
December 31, December 31,
Years ended
December 31,
Derivatives
designated as: 2012 2011 2010 Purpose Classification 2012 2011 2012 2011 2010
Hedging instruments
Closed:
Ineffective cash flow hedge $ 31 $ 15 $223
Manage
interest
rate risk NA $ 0 $ 0 $ .6 $ .3 $ 5.8
Non-hedging instruments
Assets:
Corporate credit default swaps 0 25 35
Manage
credit
risk
Investments - fixed
maturities 0 .7 0 (.2) 2.5
Liabilities:
Interest rate swaps 1,263 1,263 713
Manage
portfolio
duration Other liabilities (95.5) (76.1) (42.7) (74.0) (66.6)
Closed:
0 (25.5) 0Interest rate swaps 0 350 0
Manage
portfolio
duration NA 0 0
Corporate credit default swaps 25 10 25
Manage
credit
risk NA 0 0 (1.0) .5 (.2)
Total NA NA NA $(95.5) $(75.4) $(43.1) $(98.9) $(58.5)
1The amounts represent the value held at year end for open positions and the maximum amount held during the year for closed positions.
NA = Not Applicable
CASH FLOW HEDGES
During the years ended December 31, 2012 and 2011, we repurchased, in the open market, $30.9 million and $15.0 million,
respectively, in aggregate principal amount of our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
(the “6.70% Debentures”). For the portion of the 6.70% Debentures we purchased, we reclassified $0.6 million and $0.3
million, in the respective years, on a pretax basis, of the unrealized gain on forecasted transactions from accumulated other
comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement.
During 2010, we finalized our tender offer for, and repurchased $222.9 million principal amount of, the 6.70% Debentures.
We reclassified $5.8 million (pretax) from accumulated other comprehensive income on the balance sheet to net realized
gains (losses) on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on
forecasted transactions that was related to the 6.70% Debentures that were repurchased pursuant to the tender offer.
In anticipation of issuing the 6.70% Debentures in 2007, we entered into a forecasted debt issuance hedge (cash flow
hedge) against a possible rise in interest rates. Upon issuance of the 6.70% Debentures, the hedge was closed, and we
recognized a pretax gain of $34.4 million, which was recorded as part of accumulated other comprehensive income. The
$34.4 million gain, less the $0.6 million, $0.3 million, and $5.8 million reclassifications mentioned above, was deferred and
is being recognized as a decrease to interest expense over the 10-year fixed interest rate term of the 6.70% Debentures.
During 2011, we issued $500 million of 3.75% Senior Notes due 2021 (the “3.75% Senior Notes”) and entered into a
forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates (see Note 4 – Debt for further
App.-A-17