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IV. RESULTS OF OPERATIONS – INVESTMENTS
A. Portfolio Allocation
At year-end 2014, the fair value of our investment portfolio was $19.0 billion, approximately 5% greater than at year-end
2013, reflecting operating and investment returns that more than offset our capital transactions during the year, including
share repurchases, debt servicing and retirement, and shareholder dividends. Our investment income (interest and
dividends) decreased approximately 3% and 5% in 2014 and 2013, respectively, as compared to the prior years, reflecting
lower yields in the portfolio for both periods. In 2014, we recognized $224.2 million in net realized gains, compared to
$318.4 million and $306.8 million in 2013 and 2012, respectively.
The composition of the investment portfolio at December 31, was:
($ in millions) Fair Value
%of
Total
Portfolio
Duration
(years) Rating1
2014
Fixed maturities $13,549.2 71.2% 1.8 A+
Nonredeemable preferred stocks 827.5 4.4 2.8 BB+
Short-term investments 2,149.0 11.3 <.1 AA
Total fixed-income securities 16,525.7 86.9 1.6 A+
Common equities 2,492.3 13.1 na na
Total portfolio2,3 $19,018.0 100.0% 1.6 A+
2013
Fixed maturities $13,540.4 75.0% 2.1 AA-
Nonredeemable preferred stocks 711.2 3.9 1.3 BB+
Short-term investments 1,272.6 7.1 <.1 AA+
Total fixed-income securities 15,524.2 86.0 2.0 AA-
Common equities 2,530.5 14.0 na na
Total portfolio2,3 $18,054.7 100.0% 2.0 AA-
na = not applicable
1Represents ratings at December 31, 2014 and 2013. Credit quality ratings are assigned by nationally recognized statistical rating organizations. To
calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score of 0-5, with
non-investment-grade and non-rated securities assigned a score of 0-1. To the extent the weighted average of the ratings falls between AAA and
AA+, we assign an internal rating of AAA-.
2Our portfolio reflects the effect of unsettled security transactions and collateral on open derivative positions; at December 31, 2014, $31.3 million
was included in “other liabilities,” compared to $61.3 million at December 31, 2013.
3The total fair value of the portfolio included $1.9 billion and $1.8 billion at December 31, 2014 and 2013, respectively, of securities held in a
consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.
Our asset allocation strategy is to maintain 0-25% of our portfolio in Group I securities, with the balance (75%-100%) of our
portfolio in Group II securities, as defined in the Overview – Investments and Capital Management section and as reflected
in the following tables. We believe this asset allocation strategy allows us to appropriately assess the risks associated with
these securities for capital purposes and is in line with the treatment by our regulators.
App.-A-63