Progressive 2014 Annual Report Download - page 27

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Quantitative Information about Level 3 Fair Value Measurements
($ in millions)
Fair Value
at Dec. 31,
2013
Valuation
Technique
Unobservable
Input
Unobservable
Input
Assumption
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed $ 0.2 External vendor Prepayment rate10
Commercial mortgage-backed 29.0 External vendor Prepayment rate20
Total fixed maturities 29.2
Equity securities:
Nonredeemable preferred stocks:
Financials 39.0
Multiple of tangible
net book value
Price to book
ratio multiple 1.9
Subtotal Level 3 securities 68.2
Third-party pricing exemption securities30.5
Total Level 3 securities $68.7
1Assumes that one security has 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.
2Assumes that two securities have 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.
3The fair values for these securities were obtained from non-binding external sources where unobservable inputs are not reasonably available to
us.
Due to the relative size of the securities’ fair values compared to the total portfolio’s fair value, any changes in pricing
methodology would not have a significant change in valuation that would materially impact net and comprehensive income.
During the years ended December 31, 2014 and 2013, there were no material assets or liabilities measured at fair value on
a nonrecurring basis.
4. DEBT
Debt at December 31 consisted of:
2014 2013
(millions)
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
3.75% Senior Notes due 2021 (issued: $500.0, August 2011) 497.8 535.6 497.6 509.1
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) 295.5 400.6 295.3 359.6
6.25% Senior Notes due 2032 (issued: $400.0, November 2002) 394.8 527.9 394.6 473.7
4.35% Senior Notes due 2044 (issued: $350.0, April 2014) 346.3 378.9 0 0
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (issued:
$1,000.0, June 2007; outstanding: $632.8 and $677.1) 630.3 684.5 673.4 731.3
Total $2,164.7 $2,527.5 $1,860.9 $2,073.7
All of the outstanding debt was issued by The Progressive Corporation. Debt includes amounts we have borrowed and
contributed to the capital of our insurance subsidiaries or used, or have available for use, for other business purposes. Fair
values are obtained from external sources. There are no restrictive financial covenants or credit rating triggers on our debt.
Interest on all debt is payable semiannually at the stated rates. However, the 6.70% Fixed-to-Floating Rate Junior
Subordinated Debentures due 2067 (the “6.70% Debentures”) will only bear interest at this fixed annual rate through, but
excluding, June 15, 2017. Thereafter, the 6.70% Debentures will bear interest at an annual rate equal to the three-month
LIBOR plus 2.0175%, and interest will be payable quarterly until the 6.70% Debentures are redeemed or retired.
Except for the 6.70% Debentures, all principal is due at the maturity stated in the table above. The 6.70% Debentures will
become due on June 15, 2037, the scheduled maturity date, but only to the extent that we have received sufficient net
proceeds from the sale of certain qualifying capital securities. We must use our commercially reasonable efforts, subject to
App.-A-26