Progressive 2012 Annual Report Download - page 60

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The following tables show the composition of our Group I and Group II securities at December 31, 2012 and 2011:
($ in millions) Fair Value
%of
Total
Portfolio
2012
Group I securities:
Non-investment-grade fixed maturities $ 482.9 2.9%
Redeemable preferred stocks1288.2 1.8
Nonredeemable preferred stocks 812.4 4.9
Common equities 1,899.0 11.5
Total Group I securities 3,482.5 21.1
Group II securities:
Other fixed maturities211,003.0 66.8
Short-term investments – other 1,990.0 12.1
Total Group II securities 12,993.0 78.9
Total portfolio $16,475.5 100.0%
2011
Group I securities:
Non-investment-grade fixed maturities $ 384.4 2.4%
Redeemable preferred stocks1287.8 1.8
Nonredeemable preferred stocks 806.3 5.1
Common equities 1,845.6 11.6
Total Group I securities 3,324.1 20.9
Group II securities:
Other fixed maturities211,087.1 69.4
Short-term investments – other 1,551.8 9.7
Total Group II securities 12,638.9 79.1
Total portfolio $15,963.0 100.0%
1Includes non-investment-grade redeemable preferred stocks of $201.7 million at both December 31, 2012 and 2011.
2Includes investment-grade redeemable preferred stocks, with cumulative dividends, of $86.5 million at December 31, 2012 and $86.1 million at
December 31, 2011.
To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National
Association of Insurance Commissioners (NAIC) for classifying our residential and commercial mortgage-backed securities,
excluding interest-only securities, and the credit ratings from nationally recognized securities rating organizations (NRSRO)
for all other debt securities. NAIC ratings are based on a model that considers the book price of our securities when
assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings
issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset
allocation between Group I and II securities.
Unrealized Gains and Losses
As of December 31, 2012, our portfolio had pretax net unrealized gains, recorded as part of accumulated other
comprehensive income, of $1,327.3 million, compared to $1,050.5 million at December 31, 2011.
During the year, the net unrealized gains in our fixed-income portfolio increased $162.7 million, reflecting a material
narrowing of credit spreads (i.e., a decrease in the risk premium paid above the comparable Treasury rate) as well as
somewhat lower interest rates. The increase in the fixed-income portfolio is net of $189.6 million of net realized gains, which
were primarily generated from sales during the year. The net unrealized gains in our common stock portfolio increased
$114.1 million during 2012, reflecting positive returns in the broad equity market. The increase in the common stock
portfolio is net of $139.9 million of net realized gains, which were primarily generated from sales during the year.
See Note 2 – Investments for a further break-out of our gross unrealized gains and losses.
App.-A-60