Progressive 2012 Annual Report Download - page 65

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Commercial Mortgage-Backed Securities At December 31, 2012, 54.4% of our asset-backed securities were commercial
mortgage-backed securities (CMBS bonds) and 5.4% were CMBS interest-only securities (IO). We recorded $0.1 million,
$0.6 million, and $1.9 million in write-downs on our IO portfolio during the years ended December 31, 2012, 2011, and
2010, respectively. No write-downs were recorded on our CMBS bond portfolio during the same periods. The following table
details the credit quality rating and fair value of our CMBS bond and IO portfolios:
Commercial Mortgage-Backed Securities (at December 31, 2012)1
($ in millions)
Category AAA AA A BBB
Non-Investment
Grade Total
%of
Total
CMBS bonds $1,399.7 $202.2 $102.6 $126.1 $34.7 $1,865.3 91.0%
IO 168.5 5.2 0 0 9.7 183.4 9.0
Total fair value $1,568.2 $207.4 $102.6 $126.1 $44.4 $2,048.7 100.0%
% of Total fair value 76.5% 10.1% 5.0% 6.2% 2.2% 100.0%
1The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings for our CMBS bonds, the non-investment-
grade securities (i.e., Group I) represent $68.8 million, or 3.4%, of the total.
The securities in the CMBS bond portfolio that are rated BBB or lower had a net unrealized gain of $15.6 million at
December 31, 2012 and an average duration of 1.1 years, compared to 3.0 years for the entire CMBS portfolio. The BBB
and non-investment-grade exposure includes $79.9 million of cell tower securitizations; all of these bonds have a single
borrower, are backed by a cross-collateralized pool of cell towers throughout the U.S., and have significant net cash flow
relative to their interest payments. The following table summarizes the composition of our CMBS bond portfolio:
CMBS Bond Portfolio (at December 31, 2012)
($ in millions)
Vintage
Multi-
Borrower
Single-
Borrower Total
1997-2005 $ 677.9 $ 0 $ 677.9
2006-2008 15.2 140.2 155.4
2009-2012 551.2 480.8 1,032.0
Total $1,244.3 $621.0 $1,865.3
CMBS bonds that originated since 2009 are called “CMBS 2.0” and tend to have more conservative underwriting than the
2006-2008 vintages.
Planned amortization class IOs comprised $66.0 million of our $183.4 million IO portfolio. This is a class that is structured to
provide bondholders with greater protection against loan prepayment, default, or extension risk. The bonds are at the top of
the payment order for interest distributions and benefit from increased structural support over time as they repay. With the
exception of $100.3 million in Freddie Mac senior multi-family IOs, we have no multi-borrower deal IOs originated after
2006.
MUNICIPAL SECURITIES
Included in the fixed-income portfolio at December 31, 2012 and 2011, were $1,964.4 million and $2,002.1 million,
respectively, of state and local government obligations. These securities had a duration of 2.8 years and 2.6 years, at
December 31, 2012 and 2011, respectively, with an overall credit quality rating of AA+ (excluding the benefit of credit
support from bond insurance) for both years. These securities had net unrealized gains of $50.0 million and $63.5 million at
December 31, 2012 and 2011, respectively. During the years ended December 31, 2012, 2011, and 2010, we did not record
any write-downs on our municipal portfolio. The following table details the credit quality rating of our municipal securities at
December 31, 2012, without the benefit of credit or bond insurance:
Municipal Securities (at December 31, 2012)
(millions)
Rating
General
Obligations
Revenue
Bonds Total
AAA $336.8 $ 579.5 $ 916.3
AA 382.1 581.4 963.5
A 31.6 10.6 42.2
BBB 0 38.9 38.9
Non-investment grade/non-rated 0 3.5 3.5
Total $750.5 $1,213.9 $1,964.4
App.-A-65