Progressive 2013 Annual Report Download - page 70

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Commercial Mortgage-Backed Securities At December 31, 2013, 46.7% of our asset-backed securities were commercial
mortgage-backed securities (CMBS bonds) and 2.8% were CMBS interest-only securities (IO), collectively the CMBS
portfolio. We did not record any write-downs on our IO portfolio during 2013, compared to $0.1 million and $0.6 million in
write-downs during 2012 and 2011, respectively. No write-downs were recorded on our CMBS bond portfolio during the
same periods. The following table details the credit quality rating and fair value of our CMBS bond and IO portfolios:
Commercial Mortgage-Backed Securities (at December 31, 2013)1
($ in millions)
Category AAA AA A BBB
Non-Investment
Grade Total
%of
Total
CMBS bonds $1,312.4 $383.6 $187.7 $117.5 $37.4 $2,038.6 94.4%
IO 113.3 0 0 1.6 7.0 121.9 5.6
Total fair value $1,425.7 $383.6 $187.7 $119.1 $44.4 $2,160.5 100.0%
% of Total fair value 66.0% 17.7% 8.7% 5.5% 2.1% 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 $7.0 million, or 0.3%, of the total.
The securities in the CMBS bond portfolio that are rated BBB or lower had a net unrealized gain of $16.6 million at
December 31, 2013 and an average duration of 2.8 years, compared to 3.1 years for the entire CMBS portfolio. The
following table summarizes the composition of our CMBS bond portfolio:
CMBS Bond Portfolio (at December 31, 2013)
($ in millions)
Vintage
Multi-
Borrower
Single-
Borrower Total
1997-2005 $410.9 $ 1.7 $ 412.6
2006-2008 8.1 11.3 19.4
2009-2013 502.6 1,104.0 1,606.6
Total $921.6 $1,117.0 $2,038.6
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 $6.0 million of our $121.9 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 $93.8 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, 2013 and 2012, were $2,256.0 million and $1,964.4 million,
respectively, of state and local government obligations. These securities had a duration of 3.1 years and an overall credit
quality rating of AA (excluding the benefit of credit support from bond insurance) at December 31, 2013, compared to
2.8 years and AA+ at December 31, 2012. These securities had net unrealized gains of $8.7 million and $50.0 million at
December 31, 2013 and 2012, respectively. During the years ended December 31, 2013, 2012, and 2011, 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, 2013, without the benefit of credit or bond insurance:
Municipal Securities (at December 31, 2013)
(millions)
Rating
General
Obligations
Revenue
Bonds Total
AAA $344.8 $ 540.7 $ 885.5
AA 323.8 743.1 1,066.9
A 21.1 269.4 290.5
BBB 0 12.3 12.3
Non-investment grade/non-rated 0.8.8
Total $689.7 $1,566.3 $2,256.0
App.-A-70